What changed in this filing

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Item 1A. Risk Factors

2026-03-13 compared with 2025-03-07 · 329 added, 465 removed, 135 unchanged (85% of the section changed)

ITEM 1A – RISK FACTORS

In addition to factors mentioned elsewhere in this Report, the factors contained below, among others, could cause our financial condition and results of operations to be materially and adversely

In addition to factors mentioned elsewhere in this Report, the factors contained below, among others, could cause our financial condition and results of operations to be materially and adversely affected.

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

Recent Negative Developments in the Banking Industry, and any Legislative and/or Bank Regulatory Actions that may Result, Could Adversely Affect our Business Operations, Results of

Operations and Financial Condition.

The high-profile bank failures of Silicon Valley Bank, Signature Bank and First Republic Bank in 2023, and related negative media attention, generated significant market trading volatility among

publicly-traded bank holding companies and, in particular, regional and community banks, such as the Company.

Changes in U.S.

and Foreign Government Policies, Including the Imposition of or Further Increases in Tariffs and Changes to Existing Trade Agreements, Could Have a Material Adverse Effect on the Bank ’ s Customers, Which, in Turn, Could Adversely Affect Our Business, Financial Condition and Results of Operations

In February 2025, the Trump Administration announced that it would be imposing increases in tariffs on goods imported to the U.S.

from Canada, Mexico, and China, and, in April 2025, the Administration announced the imposition of increased tariffs on goods imported to the U.S.

from other countries.

As a consequence, other countries, in retaliation to the U.S.’s tariff measures, announced the imposition of increased levels of tariffs on goods exported to such countries by companies in the U.S.

The Trump Administration has announced agreements in principle regarding tariffs with certain significant trading partners of the United States, including (among others) the European Union, the United Kingdom, Japan and South Korea.

It remains uncertain whether such agreements in principle will lead to definitive agreements with such trading partners and, if so, on what terms and whether agreements with other trading partners will eventually be consummated.

More recently, the U.S.

government has introduced new tariffs and tariff-related measures and has indicated that other potential tariff measures and modifications to existing tariffs continue to be under consideration.

President Trump imposed many of these tariffs by invoking authority under the International Emergency Economic Powers Act (IEEPA).

On February 20, 2026, the U.S.

Supreme Court ruled that President Trump could not invoke the IEEPA to unilaterally set tariffs on imports, thereby invalidating those tariffs implemented using IEEPA.

The Trump Administration responded by announcing the imposition of new tariffs under alternative legal authorities to replace the IEEPA tariffs, including an executive order imposing a global surcharge on most imports (initially 10%, with an announcement on February 21, 2026, that the tariff rate would be 15%), effective for 150 days.

The tariff environment continues to remain highly dynamic, and the specific tariffs applicable to goods imported into the U.S.

continue to evolve, as do import tariffs charged by other countries.

These tariffs could be of particular concern to U.S.

companies operating in the agricultural sector who export agricultural goods to other countries.

The Company’s customers include a number of agricultural businesses, which could be negatively affected.

As a result of these changes to U.S.

and foreign government trade policies, there may be changes to existing trade agreements, greater restrictions on free trade generally, the imposition of or significant further increases in tariffs on goods imported into the U.S., and adverse responses by foreign governments to U.S.

trade policies, among other possible changes.

The extent and duration of any tariffs, and the resulting impact on economic conditions generally and on our customers’ businesses in particular are uncertain and depend on various factors, such as negotiations between the U.S.

and other countries, the responses of such countries, and exemptions or exclusions that may be granted.

A significant trade disruption or the establishment or further increase of any tariffs, trade protection measures or restrictions could result in lost sales, adversely impacting our banking customers and their businesses, including our agricultural business customers.

In addition, international trade disputes, including those related to tariffs, could result in inflationary pressures and/or adversely impact global supply chains, which could increase the costs of doing business for our banking customers.

Changes in U.S.

social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the countries where our banking customers currently sell products, including agricultural products, and any resulting negative sentiments towards the U.S.

businesses as a result of such changes, could also have a material adverse effect on our banking customers’ business, financial condition, results of operations and cash flows.

If these events negatively affect our banking clients, or general economic conditions nationally, in California, or in the markets we serve, our business, financial condition and results of operations could be adversely affected.

Negative Developments in the Banking Industry, and any Legislative and/or Bank Regulatory Actions that may Result, Could Adversely Affect our Business Operations, Results of Operations and Financial Condition.

The high-profile bank failures of Silicon Valley Bank, Signature Bank and First Republic Bank in 2023, and related negative media attention, generated significant market trading volatility among publicly-traded bank holding companies and, in particular, regional and community banks, such as the Company.

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

Defaults by, or

even rumors or questions about, one or more financial institutions 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.

While we currently do not anticipate liquidity constraints of the kind that caused these other financial services institutions to fail or require external support, constraints on our liquidity could

occur as a result of customers choosing to maintain their deposits with larger financial institutions or to invest in higher yielding short-term fixed income securities, which could materially adversely impact our liquidity, cost of funding, loan

funding capacity, net interest margin, capital and results of operations.

If we were required to sell a portion of our securities portfolio to address liquidity needs, we may incur losses, including as a result of the negative impact of rising

interest rates on the value of our securities portfolio, which could negatively affect our earnings and our capital.

While the Company has taken actions to maintain adequate and diversified sources of funding and management believes that its

liquidity measures are reasonable in light of the nature of the Bank’s customer base, there can be no assurance that such actions will be sufficient in the event of a sudden liquidity crisis.

These recent 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.

The FDIC has proposed that Congress

consider various changes in the FDIC insurance program, including possible increases in the deposit insurance limit for certain types of accounts, such as business payment accounts.

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 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.

While we currently do not anticipate liquidity constraints of the kind that caused these other financial services institutions to fail or require external support, constraints on our liquidity could occur as a result of customers choosing to maintain their deposits with larger financial institutions or to invest in higher yielding short-term fixed income securities, which could materially adversely impact our liquidity, cost of funding, loan funding capacity, net interest margin, capital and results of operations.

If we were required to sell a portion of our securities portfolio to address liquidity needs, we may incur losses, including as a result of the negative impact of rising interest rates on the value of our securities portfolio, which could negatively affect our earnings and our capital.

While the Company has taken actions which aim to maintain adequate and diversified sources of funding and management believes that its liquidity measures are reasonable in light of the nature of the Bank’s customer base, there can be no assurance that such actions will be sufficient in the event of a sudden liquidity crisis.

These bank failures 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.

The FDIC has proposed that Congress consider, and legislation has been introduced in Congress proposing, various changes in the FDIC insurance program, including possible increases in the deposit insurance limit for certain types of accounts, such as business payment accounts.

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.

Economic Conditions in the U.S.

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Following the financial crisis of 2008, adverse financial and economic developments impacted U.S.

and global economies and financial markets and presented challenges for the banking and financial

services industry and for us.

and global economies and financial markets and presented challenges for the banking and financial services industry and for us.

These developments included a general recession both globally and in the U.S.

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In response, various significant economic and monetary stimulus measures were implemented by the U.S.

The FRB also pursued a highly accommodative monetary policy aimed at keeping interest rates at

historically low levels.

The more recent 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.

The Federal Reserve has signaled caution in easing monetary policy citing strong robust GDP growth, and persistent inflation as

reasons to delay rate cuts.

The FRB also pursued a highly accommodative monetary policy aimed at keeping interest rates at historically low levels, In January 2022, due to elevated levels of inflation and corresponding pressure to raise interest rates, the FRB began slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time, before beginning to reduce interest rates in 2024, which reductions continued in 2025.

Despite these rate cuts, the FRB has signaled caution in easing monetary policy.

At its January 2026 meeting, the FRB, citing continued elevated uncertainty about the economic outlook, low job gains, and inflation that remains somewhat elevated, determined to maintain the target range for the federal funds rate at 3‑1/2 to 3‑3/4 percent.

Monetary policy has contributed to and may continue to result in elevated market interest rates and a flat and/or inverted yield curve.

Changes to monetary policy may adversely impact U.S.

economic activity and have adverse consequences on our customers’ and our earnings and operations.

During his second term, President Trump has regularly pushed for the FRB to cut short-term interest rates, threatened to fire the FRB Chairman, and taken steps to remove another member of the FRB’s governing board, and, in January 2026, the U.S.

attorney’s office in the District of Columbia opened a criminal investigation into the FRB Chairman over the central bank’s renovation of its Washington headquarters.

These actions have the potential to threaten the independence of the FRB, and the outcome of these actions, and their impact on interest rates, financial markets, borrowing costs and the U.S.

economy in general, cannot be predicted at this time.

A prolonged federal government shutdown, as well as broader issues surrounding the federal budgeting process and governance, may also contribute to market volatility and disruptions and recessionary risk.

As noted previously, the Trump Administration recently imposed increased tariffs on goods imported to the U.S.

from other countries.

As a consequence, other countries, in retaliation to the U.S.’s tariff measures, announced the imposition of increased levels of tariffs on goods exported to such countries by companies in the U.S.

More recently, the U.S.

government has introduced agreements in principle regarding tariffs with certain trading partners of the United States, new tariffs and tariff-related measures and has indicated that other potential tariff measures and modifications to existing tariffs continue to be under consideration.

President Trump imposed many of these tariffs by invoking authority under the International Emergency Economic Powers Act (IEEPA).

On February 20, 2026, the U.S.

Supreme Court ruled that President Trump could not invoke the IEEPA to unilaterally set tariffs on imports, thereby invalidating those tariffs implemented using IEEPA.

The tariff environment continues to remain highly dynamic, and the specific tariffs applicable to goods imported into the U.S.

continue to evolve, as do import tariffs charged by other countries.

See “Changes in U.S.

and Foreign Government Policies, Including the Imposition of or Further Increases in Tariffs and Changes to Existing Trade Agreements, Could Have a Material Adverse Effect on the Bank’s Customers, Which, in Turn, Could Adversely Affect Our Business, Financial Condition and Results of Operations,” above in these “Risk Factors” in this Annual Report on Form 10-K.

International trade disputes, including those related to tariffs, could result in inflationary pressures and/or adversely impact global supply chains, which could increase the costs of doing business for our banking customers.

Political tensions as a result of trade policies could reduce trade volume, investment, technological exchange, and other economic activities between major international economies, resulting in a material adverse effect on global economic conditions and the stability of global financial markets, which could have resulting material adverse effects on general economic conditions nationally, in California, or in our local markets.

Some economists have predicted that the Administration’s steep new tariffs could curtail growth and result in price increases for American consumers, ultimately increasing the likelihood of a U.S.

Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including the recent military actions in Iran and the Middle East, escalating military tension between Russia and Ukraine, terrorism and other geopolitical events.

Any of these developments could adversely affect our business, financial condition and results of operations.

We, and other financial services companies, are impacted to a significant degree by current economic conditions.

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.

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.

government continues to face significant fiscal and budgetary challenges which, if not resolved, could result in renewed adverse U.S.

economic conditions.

These challenges may be intensified over time if

federal budget deficits were to increase and Congress and the Administration cannot effectively work to address them.

The overall level of the federal government's debt, the extensive political disagreements regarding the government's statutory debt

limit and the continuing substantial federal budget deficits led to a downgrade from “AAA” to “AA+” of the long-term sovereign credit rating of United States debt by one credit rating agency in 2023.

These challenges may be intensified over time if federal budget deficits were to increase and Congress and the Administration cannot effectively work to address them.

The overall level of the federal government's debt, the extensive political disagreements regarding the government's statutory debt limit and the continuing substantial federal budget deficits led to a downgrade from “AAA” to “AA+” of the long-term sovereign credit rating of United States debt by one credit rating agency in 2023.

In May 2025, Moody’s lowered the U.S.

government’s long-term issuer and senior unsecured ratings from “Aaa” to “Aa1”.

This downgrade means that all three major credit rating agencies have downgraded the U.S.

credit rating below their top rating.

This risk could be exacerbated over time.

If substantial federal budget deficits were to continue or increase in the years ahead, further downgrades by the credit rating agencies with respect to the obligations of the U.S.

federal government

federal government could occur.

A prolonged federal government shutdown, as well as broader issues surrounding the federal budgeting process and governance, may further contribute to the possibility of a downgrade of the U.S.

sovereign credit rating.

Any such further downgrades could increase over time the U.S.

federal government’s cost of borrowing, which may worsen its fiscal challenges, as well as generate further upward pressure on interest rates generally in the U.S.

could, in turn, have adverse consequences for borrowers and the level of business activity.

The long-term impact of this situation, including the impact to the Bank's investment securities portfolio and other assets, cannot be predicted.

which could, in turn, have adverse consequences for borrowers and the level of business activity.

The long-term impact of this situation, including the impact on the Bank's investment securities portfolio and other assets, cannot be predicted.

The Bank is Subject to Lending Risks of Loss and Repayment Associated with Commercial Banking Activities

The Bank’s business strategy is to focus on commercial business loans (which includes agricultural loans), construction loans, and commercial and multi-family real estate loans.

The principal factors affecting the

Bank’s risk of loss in connection with commercial business loans include the borrower’s ability to manage its business affairs and cash flows, general economic conditions, and, with respect to agricultural loans, weather and climate conditions.

The principal factors affecting the Bank’s risk of loss in connection with commercial business loans include the borrower’s ability to manage its business affairs and cash flows, general economic conditions, and, with respect to agricultural loans, weather and climate conditions.

For a number of years, California has also experienced severe drought, wildfires or other natural disasters.

It can be expected that these events will continue to occur from time to time in the areas served by the

Bank, and that the consequences of these natural disasters, including public utility public safety power outages when weather conditions and fire danger warrant, may adversely affect the Bank’s business and that of its commercial loan customers,

particularly in the agricultural sector.

It can be expected that these events will continue to occur from time to time in the areas served by the Bank, and that the consequences of these natural disasters, including public utility public safety power outages when weather conditions and fire danger warrant, may adversely affect the Bank’s business and that of its commercial loan customers, particularly in the agricultural sector.

Loans secured by commercial real estate are generally larger and involve a greater degree of credit and transaction risk than residential mortgage (one to four family) loans.

Because payments on loans secured by

commercial and multi-family real estate properties are often dependent on successful operation or management of the underlying properties, repayment of such loans may be dependent on factors other than the prevailing conditions in the real estate

market or the economy.

Because payments on loans secured by commercial and multi-family real estate properties are often dependent on successful operation or management of the underlying properties, repayment of such loans may be dependent on factors other than the prevailing conditions in the real estate market or the economy.

Real estate construction financing is generally considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate.

Risk of loss on a construction loan is dependent largely

upon the accuracy of the initial estimate of the property’s value at completion of construction or development compared to the estimated cost (including interest) of construction.

If the estimate of value proves to be inaccurate, the Bank may be

confronted with a project which, when completed, has a value which is insufficient to assure full repayment of the construction loan.

For additional information, see “The Bank’s Dependence on Real Estate Lending Increases Our Risk of Losses”, below

in these “Risk Factors” in this Annual Report on Form 10-K.

results of operations, cash flows, and business prospects could be materially adversely affected.

Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value at completion of construction or development compared to the estimated cost (including interest) of construction.

If the estimate of value proves to be inaccurate, the Bank may be confronted with a project which, when completed, has a value which is insufficient to assure full repayment of the construction loan.

For additional information, see “The Bank’s Dependence on Real Estate Lending Increases Our Risk of Losses”, below in these “Risk Factors” in this Annual Report on Form 10-K.

Although the Bank manages lending risks through its underwriting and credit administration policies, no assurance can be given that such risks will not materialize, in which event, the Company’s financial condition, results of operations, cash flows, and business prospects could be materially adversely affected.

Increases in the Allowance for Credit Losses Would Adversely Affect the Bank ’ s Financial Condition and Results of Operations

The Bank’s allowance for credit losses on loans was approximately $15.9 million, or 1.49% of total loans, at December 31, 2024, compared to $16.6 million, or 1.55% of total loans, at December 31, 2023, and 143.5% of

total non-performing loans net of guaranteed portions at December 31, 2024, compared to 199.1% of total non-performing loans, net of guaranteed portions at December 31, 2023.

Reversal of provision for credit losses totaled $0.3 million for the year

ended December 31, 2024, and provision for credit losses totaled $1.1 million for the year ended December 31, 2023 .

The reversal of provision for credit losses in 2024 was primarily due to decreases in loans outstanding

and unfunded commitments.

Material future additions to the allowance for estimated losses on loans may be necessary if material adverse changes in economic conditions in our markets were to continue to occur and the performance of the Bank’s

loan portfolio were to deteriorate.

The Bank’s allowance for credit losses on loans was approximately $14.5 million, or 1.36% of total loans, at December 31, 2025, compared to $15.9 million, or 1.49% of total loans, at December 31, 2024, and 285.7% of total non-performing loans net of guaranteed portions at December 31, 2025, compared to 143.5% of total non-performing loans, net of guaranteed portions at December 31, 2024.

No provision for credit losses was recorded for the year ended December 31, 2025, and a reversal of provision for credit losses totaled $0.3 million for the year ended December 31, 2024.

Other real estate owned is initially recorded at fair value less estimated costs to sell the property, thereby establishing the new cost basis of other real estate.

Losses arising at the time of acquisition of such

properties are charged against the allowance for credit losses.

Losses arising at the time of acquisition of such properties are charged against the allowance for credit losses.

Subsequent to acquisition, such properties are carried at the lower of cost or fair value less estimated selling expenses, determined on an individual asset basis.

Any deficiency

resulting from the excess of cost over fair value less estimated selling expenses is recognized as a valuation allowance.

Any deficiency resulting from the excess of cost over fair value less estimated selling expenses is recognized as a valuation allowance.

Any subsequent increase in fair value up to its cost basis is recorded as a reduction of the valuation allowance.

the California DFPI, as an integral part of their examination process, periodically review the Bank’s allowance for credit losses on loans and the carrying value of its assets.

Increases in the provisions for estimated losses on loans and foreclosed

assets would adversely affect the Bank’s financial condition and results of operations.

The FDIC and the California DFPI, as an integral part of their examination process, periodically review the Bank’s allowance for credit losses on loans and the carrying value of its assets.

Increases in the provisions for estimated losses on loans and foreclosed assets would adversely affect the Bank’s financial condition and results of operations.

The Bank’s Dependence on Real Estate Lending Increases Our Risk of Losses

The Bank’s primary lending focus has historically been commercial (including agricultural), construction, and real estate mortgage.

At December 31, 2024, real estate mortgage (excluding loans held-for-sale) and

construction loans (residential and other) comprised

approximately 90% and 3%, respectively, of the total loans in the Bank’s portfolio.

At December 31, 2024, all of the Bank’s real estate mortgage and construction loans and approximately 1% of its commercial loans were secured fully or in part by deeds

of trust on underlying real estate.

At December 31, 2025, loans secured by real estate, including construction loans (residential and other), comprised approximately 84% of the total loans in the Bank’s portfolio.

At December 31, 2025, all of the Bank’s real estate mortgage and construction loans and approximately 1% of its commercial loans were secured fully or in part by deeds of trust on underlying real estate.

The Company’s dependence on real estate increases the risk of loss in both the Bank’s loan portfolio and its holdings of other real estate owned if economic conditions in Northern California were to deteriorate.

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The Bank is subject to certain industry-specific economic factors.

For example, a portion of the Bank’s total loan portfolio is related to residential and commercial real estate,

especially in California.

Increases in residential mortgage loan interest rates could have an adverse effect on the Bank’s operations by depressing new mortgage loan originations, which in turn could negatively impact the Bank’s title and

escrow deposit levels.

For example, a portion of the Bank’s total loan portfolio is related to residential and commercial real estate, especially in California.

Additionally, a downturn in the residential real estate and housing industries in California could have an adverse effect on the Bank’s operations and the quality of its real estate and construction loan portfolio.

the Bank does not engage in subprime or negative amortization lending, we are not immune to volatility in the real estate market.

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

interest rates, which have been, and may continue to be, affected by the pandemic.

These factors could adversely impact the quality of the Bank’s residential construction, residential mortgage and construction related commercial portfolios in

various ways, including by decreasing the value of the collateral for our loans, and thereby negatively affecting the Bank’s overall loan portfolio.

The Bank provides financing to, and receives deposits from, businesses in a number of other industries that may be particularly vulnerable to industry-specific economic factors, including the home building, commercial

real estate, retail, agricultural, industrial, and commercial industries.

Following the financial crisis of 2008, the home building industry in California was especially adversely impacted by the deterioration in residential real estate markets,

which lead the Bank to take additional provisions and charge-offs against credit losses in this portfolio.

The recessionary economic and market conditions resulting from the COVID-19 pandemic also significantly affected the commercial and residential

real estate markets in the U.S.

Although the Bank does not engage in subprime or negative amortization lending, we are not immune to volatility in the real estate market.

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

These factors could adversely impact the quality of the Bank’s residential construction, residential mortgage and construction related commercial portfolios in various ways, including by decreasing the value of the collateral for our loans, and thereby negatively affecting the Bank’s overall loan portfolio.

Following the financial crisis of 2008, the home building industry in California was especially adversely impacted by the deterioration in residential real estate markets, which lead the Bank to take additional provisions and charge-offs against credit losses in this portfolio.

The recessionary economic and market conditions resulting from the COVID-19 pandemic also significantly affected the commercial and residential real estate markets in the U.S.

generally, and in California in particular, decreasing property values, increasing the risk of defaults and reducing the value of real estate collateral.

Continued volatility in fuel prices and energy costs and

drought conditions in California could also adversely affect businesses in several of these industries.

In February 2025, the new Trump Administration announced that it would be imposing increases in tariffs on goods imported to the U.S.

from Canada, Mexico, and China and has also indicated that tariffs may be imposed at

increased levels on imports to the U.S.

Continued volatility in fuel prices and energy costs and return of drought conditions in California could also adversely affect businesses in several of these industries.

As noted previously, the Trump Administration recently imposed increased tariffs on goods imported to the U.S.

from other countries.

If other countries, in retaliation to the U.S.’s tariff measures, were to impose increased levels of tariffs on goods exported to such countries by companies in the U.S.

increases may negatively impact companies in the U.S.

whose business involves exports to other countries.

This could be of particular concern to U.S.

companies operating in the agricultural sector who export to other countries.

The Company’s

customers included a number of agricultural business, which could be negatively affected.

Preliminary indications have been that the new Trump Administration tariff increases to Canada and Mexico may be delayed or decreased if such countries adopt

various policies urged by the U.S., such as enhanced border security and control measures.

The outcome of this process cannot be predicted with any certainty at this time.

Industry specific risks are beyond the Bank’s control and could adversely affect the Bank’s portfolio of loans, potentially resulting in an increase in non-performing loans or charge-offs and a slowing of growth or

reduction in our loan portfolio.

As a consequence, other countries, in retaliation to the U.S.’s tariff measures, announced the imposition of increased levels of tariffs on goods exported to such countries by companies in the U.S.

More recently, the U.S.

President Trump imposed many of these tariffs by invoking authority under the International Emergency Economic Powers Act (IEEPA).

On February 20, 2026, the U.S.

Supreme Court ruled that President Trump could not invoke the IEEPA to unilaterally set tariffs on imports, thereby invalidating those tariffs implemented using IEEPA.

The tariff environment continues to remain highly dynamic, and the specific tariffs applicable to goods imported into the U.S.

continue to evolve, as do import tariffs charged by other countries.

Such tariffs could be of particular concern to U.S.

companies operating in the agricultural sector who export agricultural goods to other countries.

The Company’s customers include a number of agricultural businesses, which could be negatively affected.

See “Changes in U.S.

and Foreign Government Policies, Including the Imposition of or Further Increases in Tariffs and Changes to Existing Trade Agreements, Could Have a Material Adverse Effect on the Bank’s Customers, Which, in Turn, Could Adversely Affect Our Business, Financial Condition and Results of Operations,” above in these “Risk Factors” in this Annual Report on Form 10-K.

In recent years, wildfires across California and in our market areas resulted in significant damage and destruction of property and equipment.

The fire damage caused resulted in adverse economic impacts to those

affected markets and beyond and on the Bank's customers.

In addition, the major electric utility company in our region has adopted programs of electrical power shut-offs, often for multiple days, in wide areas of Northern California during periods

of high winds and high fire danger.

The fire damage resulted in adverse economic impacts to those affected markets and beyond and on the Bank's customers.

In addition, the major electric utility company in our region has adopted programs of electrical power shut-offs, often for multiple days, in wide areas of Northern California during periods of high winds and high fire danger.

Shut-offs of power by this utility have adversely impacted the business of some of our customers and also have resulted in some of our branches being temporarily closed.

It can be expected that these events will

continue to occur from time to time in the areas served by the Bank, and that the consequences of these natural disasters, including programs of public utility public safety power outages when weather conditions and fire danger warrant, may adversely

affect the Bank’s business and that of its customers.

It is also possible that climate change may be increasing the severity or frequency of adverse weather conditions, thus increasing the impact of these types of natural disasters on our business

and that of our customers.

For additional information, see "Our Operations, Business and Customers Could be Materially Adversely Affected by the Physical Effects of Climate Change, as well as Governmental and Societal Responses to Climate Change,"

below in these "Risk Factors" in this Annual Report on Form 10-K.

It can be expected that these events will continue to occur from time to time in the areas served by the Bank, and that the consequences of these natural disasters, including programs of public utility public safety power outages when weather conditions and fire danger warrant, may adversely affect the Bank’s business and that of its customers.

It is also possible that climate change may be increasing the severity or frequency of adverse weather conditions, thus increasing the impact of these types of natural disasters on our business and that of our customers.

The long-term impact of these developments on the markets we serve cannot be predicted at this time.

Several of California’s Largest Home Insurance Providers Have Recently Paused or Severely Limited Their Issuance of New Policies, or Their Renewal of Existing Policies, in the State, Which Could

Increase the Bank’s Risk of Loss in its Loan Portfolio

Several of California ’ s Largest Home Insurance Providers Have Recently Paused or Severely Limited Their Issuance of New Policies, or Their Renewal of Existing Policies, in the State, Which Could Increase the Bank ’ s Risk of Loss in its Loan Portfolio

At December 31, 2025, loans secured by real estate comprised approximately 84% of the total loans in the Bank’s portfolio.

At December 31, 2024, all of the Bank’s real estate mortgage and construction loans were

secured fully or in part by deeds of trust on underlying real estate.

At December 31, 2025, all of the Bank’s real estate mortgage and construction loans were secured fully or in part by deeds of trust on underlying real estate.

Most of the Company’s customers, including its loan customers, are located in the State of California.

Recently, several of California’s largest home insurance providers, including State Farm, Allstate, Farmers, USAA, Travelers, Nationwide and Chubb, have either paused or severely limited their issuance of new policies,

or their renewal of existing policies, in the state.

Mounting claims from wildfire damages, the increasing cost of building and repairing homes in California, and a steep increase in reinsurance premiums, as well as state insurance regulations that

make it difficult for insurers to adjust premiums in response to the evolving risk landscape, have challenged the capacity of insurance companies to sustainably and profitably offer home insurance in California.

The result of these actions has been

to significantly limit the availability of home insurance in California, where homeowners already face escalating property values and high wildfire, seismic, severe weather and other risks.

The recent catastrophic fires in Southern California, with

preliminary estimates of resulting property damage and other claims exceeding $30 billion, are expected to further exacerbate these challenges.

The California Department of Insurance enforces some safeguards to temporarily shield homeowners from the cancellation or non-renewal of home insurance policies in high-risk areas, particularly those prone to

In addition, the California Fair Access to Insurance Requirements (FAIR) Plan, a state-established risk pool, operates as an insurer of last resort, providing temporary coverage for California homeowners unable to obtain (generally at

increased premium cost) such coverage from a traditional insurance carrier;

however, enrollment in the FAIR Plan as a percentage of the total number of residential insurance policies in California has steadily increased over the past five years,

particularly in counties with the highest wildfire risk, threatening the ongoing stability of the Plan.

In late 2023, following the California Governor’s declaration of a State of Emergency regarding property insurance, the Insurance Commissioner of

the State of California introduced a comprehensive package of executive actions aimed at insurance reform.

In December 2024, the California Department of Insurance adopted regulations intended to cause insurance companies to write more policies in

wildfire distressed areas of California as a condition for using forward-looking wildfire modeling designed to more accurately assess wildfire risks and to reverse FAIR Plan growth.

There can be no assurance that these regulatory actions, or other

proposed legislation, will increase insurance availability or stabilize and strengthen California’s insurance market.

particularly in light of the recent catastrophic fires in Southern California.

the ability of prospective homebuyers to obtain insurance, and escalating premiums and limited coverage options could result in limiting coverage in the event of loss.

If any loss suffered by a loan customer of the Bank is not insured or exceeds

applicable insurance limits, this could increase the risk of loss in the Bank’s loan portfolio, which could have a material adverse effect on the Company’s business, financial condition, and results of operations.

For additional information, see

“The Bank’s Dependence on Real Estate Lending Increases Our Risk of Losses” above in these “Risk Factors” in this Annual Report on Form 10-K.

Mounting claims from wildfire damages, the increasing cost of building and repairing homes in California, and a steep increase in reinsurance premiums, as well as state insurance regulations that make it difficult for insurers to adjust premiums in response to the evolving risk landscape, have challenged the capacity of insurance companies to sustainably and profitably offer home insurance in California.

The result of these actions has been to significantly limit the availability of home insurance in California, where homeowners already face escalating property values and high wildfire, seismic, severe weather and other risks.

The catastrophic fires in Southern California in January 2025, with resulting property damage and other claims estimated to be as high as $53.8 billion, are expected to further exacerbate these challenges.

however, enrollment in the FAIR Plan as a percentage of the total number of residential insurance policies in California has steadily increased over the past five years, particularly in counties with the highest wildfire risk, threatening the ongoing stability of the Plan.

In late 2023, following the California Governor’s declaration of a State of Emergency regarding property insurance, the Insurance Commissioner of the State of California introduced a comprehensive package of executive actions aimed at insurance reform.

In December 2024, the California Department of Insurance adopted regulations intended to cause insurance companies to write more policies in wildfire distressed areas of California as a condition for using forward-looking wildfire modeling designed to more accurately assess wildfire risks and to reverse FAIR Plan growth.

In October 2025, the California Governor signed legislation to strengthen the FAIR Plan with new financing mechanisms to more quickly pay claims, better oversight, improved policyholder experience, and added coverage for manufactured homes, and the California Insurance Commissioner continues to advance a comprehensive reform package of the FAIR Plan, including temporary expansion of FAIR Plan coverage for certain high-value commercial properties.

There can be no assurance that these regulatory actions, or other proposed legislation, will increase insurance availability or stabilize and strengthen California’s insurance market.

particularly in light of the catastrophic fires in Southern California in January 2025.

Many homeowners in the State of California have been negatively impacted by the contraction of insurance options in the State and the resulting lack of access to affordable home insurance, which could adversely impact the ability of prospective homebuyers to obtain insurance, and escalating premiums and limited coverage options could result in limiting coverage in the event of loss.

If any loss suffered by a loan customer of the Bank is not insured or exceeds applicable insurance limits, this could increase the risk of loss in the Bank’s loan portfolio, which could have a material adverse effect on the Company’s business, financial condition, and results of operations.

For additional information, see “The Bank’s Dependence on Real Estate Lending Increases Our Risk of Losses” above in these “Risk Factors” in this Annual Report on Form 10-K.

The Effects of Changes or Increases in, or Supervisory Enforcement of, Banking or Other Laws and Regulations or Governmental Fiscal or Monetary Policies Could Adversely Affect Us

We are subject to significant federal and state banking regulation and supervision, which is primarily for the benefit and protection of our customers and the Deposit Insurance Fund and not for the

benefit of investors in our securities.

We are subject to significant federal and state banking regulation and supervision, which is primarily for the benefit and protection of our customers and the Deposit Insurance Fund and not for the benefit of investors in our securities.

In the past, our business has been materially affected by these regulations.

This will continue and likely intensify in the future.

Laws, regulations or policies, including accounting standards and

interpretations, currently affecting us may change at any time.

Laws, regulations or policies, including accounting standards and interpretations, currently affecting us may change at any time.

Regulatory authorities may also change their interpretation of and intensify their examination of compliance with these statutes and regulations.

Therefore, our business may be adversely

affected by changes in laws, regulations, policies or interpretations or regulatory approaches to compliance and enforcement, as well as by supervisory action or criminal proceedings taken as a result of noncompliance, which could result in the

imposition of significant civil money penalties or fines.

Therefore, our business may be adversely affected by changes in laws, regulations, policies or interpretations or regulatory approaches to compliance and enforcement, as well as by supervisory action or criminal proceedings taken as a result of noncompliance, which could result in the imposition of significant civil money penalties or fines.

Changes in laws and regulations may also increase our expenses by imposing additional supervision, fees, taxes or restrictions on our operations.

Compliance with laws and regulations,

especially new laws and regulations, increases our operating expenses and may divert management attention from our business operations.

and the Federal National Mortgage Association, various proposals have been advanced from time to time to reform the role of the GSEs in the housing finance market.

These proposals, among other things, include reducing or eliminating over time the

role of the GSEs in guaranteeing mortgages and providing funding for mortgage loans, as well as the implementation of reforms relating to borrowers, lenders, and investors in the mortgage market, including reducing the maximum size of a loan that the

GSEs can guarantee, phasing in a minimum down payment requirement for

borrowers, improving underwriting standards, and increasing accountability and transparency in the securitization process.

Compliance with laws and regulations, especially new laws and regulations, increases our operating expenses and may divert management attention from our business operations.

Following the imposition in 2008 of a federal government conservatorship on the two government-sponsored enterprises (“GSEs”) in the housing finance industry, the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, various proposals have been advanced from time to time to reform the role of the GSEs in the housing finance market.

These proposals, among other things, include reducing or eliminating over time the role of the GSEs in guaranteeing mortgages and providing funding for mortgage loans, as well as the implementation of reforms relating to borrowers, lenders, and investors in the mortgage market, including reducing the maximum size of a loan that the GSEs can guarantee, phasing in a minimum down payment requirement for borrowers, improving underwriting standards, and increasing accountability and transparency in the securitization process.

The GSEs remain in federal government conservatorship at this time and proposals for the reform of their role are not being actively pursued in Congress.

However, this could change at any time,

particularly since GSE reform was a priority during the first Trump Administration.

GSE reform could again become a subject under active consideration and if adopted, could well have a substantial impact on the mortgage market and could reduce our

income from mortgage originations by increasing mortgage costs or lowering originations.

However, recent developments suggest that the Trump Administration may be exploring plans to sell the government’s stakes in the GSEs through an initial public offering (IPO), and comprehensive GSE reform bills have been introduced in Congress in recent months.

GSE reform, if adopted, could well have a substantial impact on the mortgage market and could reduce our income from mortgage originations by increasing mortgage costs or lowering originations.

GSE reforms could also reduce real estate prices, which could reduce the value of collateral securing outstanding mortgage loans.

This reduction of collateral

value could negatively impact the value or perceived collectability of these mortgage loans and may increase our allowance for credit loan losses.

Such reforms may also include changes to the Federal Home Loan Bank System, which could adversely

affect a significant source of term funding for lending activities by the banking industry, including the Bank.

These reforms may also result in higher interest rates on residential mortgage loans, thereby reducing demand, which could have an adverse

impact on our residential mortgage lending business.

This reduction of collateral value could negatively impact the value or perceived collectability of these mortgage loans and may increase our allowance for credit loan losses.

Such reforms may also include changes to the Federal Home Loan Bank System, which could adversely affect a significant source of term funding for lending activities by the banking industry, including the Bank.

These reforms may also result in higher interest rates on residential mortgage loans, thereby reducing demand, which could have an adverse impact on our residential mortgage lending business.

In July 2013, the FRB and the other U.S.

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regulatory capital framework for U.S.

banking organizations and to conform

this framework to the Basel III Global Regulatory Framework for Capital and Liquidity.

banking organizations and to conform this framework to the Basel III Global Regulatory Framework for Capital and Liquidity.

For additional information, see “Business-Capital Standards” in Item 1 of this Form 10-K.

We maintain systems and procedures designed to comply with applicable laws and regulations.

However, some legal/regulatory frameworks provide for the imposition of criminal or civil penalties (which can

be substantial) for noncompliance.

However, some legal/regulatory frameworks provide for the imposition of criminal or civil penalties (which can be substantial) for noncompliance.

In some cases, liability may attach even if the noncompliance was inadvertent or unintentional and even if compliance systems and procedures were in place at the time.

There may be other negative consequences from a

finding of noncompliance, including restrictions on certain activities and damage to our reputation.

There may be other negative consequences from a finding of noncompliance, including restrictions on certain activities and damage to our reputation.

Additionally, our business is affected significantly by the fiscal and monetary policies of the U.S.

federal government and its agencies.

We are particularly affected by the policies of the FRB, which

regulates the supply of money and credit in the U.S.

We are particularly affected by the policies of the FRB, which regulates the supply of money and credit in the U.S.

Under the Dodd-Frank Act and a long-standing policy of the FRB, a bank holding company is expected to act as a source of financial and managerial strength for its subsidiary banks.

As a result of

that policy, we may be required to commit financial and other resources to our subsidiary bank in circumstances where we might not otherwise do so.

Among the instruments of monetary policy available to the FRB are (a) conducting open market

operations in U.S.

As a result of that policy, we may be required to commit financial and other resources to our subsidiary bank in circumstances where we might not otherwise do so.

Among the instruments of monetary policy available to the FRB are (a) conducting open market operations in U.S.

Government securities, (b) changing the discount rates on borrowings by depository institutions and the federal funds rate, and (c) imposing or changing reserve requirements against certain borrowings by banks and their affiliates.

These methods are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits.

The policies of the FRB can be expected to have a material

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

Refer to “Business – Supervision and Regulation of Bank Holding Companies" and "Business – Supervision and Regulation of the Bank” in Item 1 of this Form 10-K for discussion of certain existing and

proposed laws and regulations that may affect our business.

The policies of the FRB can be expected to have a material effect on our business, prospects, results of operations and financial condition.

The Bank is Subject to Interest Rate Risk

The income of the Bank depends to a great extent on “interest rate differentials” and the resulting net interest margins (i.e., the difference between the interest rates earned on the Bank’s

interest-earning assets such as loans and investment securities, and the interest rates paid on the Bank’s interest-bearing liabilities such as deposits and borrowings).

Changes in the relationship between short-term and long-term market interest

rates or between different interest rate indices can impact our interest rate differential, possibly resulting in a decrease in our interest income relative to interest expense.

Interest rates are highly sensitive to many factors, which are beyond

the Bank’s control, including, but not limited to, general economic conditions and the policies of various governmental and regulatory agencies, in particular, the FRB.

Changes in monetary policy, including changes in interest rates, influence the

origination of loans, the purchase of investments and the generation of deposits and affect the rates received on loans and investment securities and paid on deposits.

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.

The income of the Bank depends to a great extent on “interest rate differentials” and the resulting net interest margins (i.e., the difference between the interest rates earned on the Bank’s interest-earning assets such as loans and investment securities, and the interest rates paid on the Bank’s interest-bearing liabilities such as deposits and borrowings).

Changes in the relationship between short-term and long-term market interest rates or between different interest rate indices can impact our interest rate differential, possibly resulting in a decrease in our interest income relative to interest expense.

Interest rates are highly sensitive to many factors, which are beyond the Bank’s control, including, but not limited to, general economic conditions and the policies of various governmental and regulatory agencies, in particular, the FRB.

Changes in monetary policy, including changes in interest rates, influence the origination of loans, the purchase of investments and the generation of deposits and affect the rates received on loans and investment securities and paid on deposits.

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.

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

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 January 2022, due to elevated levels of inflation and corresponding pressure to raise interest rates, the FRB 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 increased the target range 525 basis points from March 2022 through July 2023.

The target range remained unchanged through much of 2024 until the

FOMC decreased the rate 100 basis points during the last four months of the year.

As of December 31, 2024, the target range for the federal

funds rate had been decreased to 4.25% to 4.50%.

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

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

As noted previously, the new Trump Administration

has taken steps to increase tariffs on goods imported to the U.S.

from certain countries.

Retaliation by such countries through the imposition of higher tariffs on exports from the U.S.

appears to be a possibility.

The imposition of increased tariffs

on imports and exports is believed by some economists to entail the possibility of increased inflationary pressures on the U.S.

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 2025 and beyond.

The target range remained unchanged through much of 2024 until the FOMC decreased the rate 100 basis points, to a target range of 4.25% to 4.50%, during the last four months of 2024.

In 2025, the FOMC implemented three consecutive 25-basis-point interest rate cuts starting in September, lowering the federal funds rate to a range of 3.5% to 3.75% by December 2025.

It remains uncertain whether the FOMC will further decrease the target range for the federal funds rate to attain a monetary policy sufficiently restrictive to return inflation to more normalized levels, begin to increase the federal funds rate or leave the rate at its current elevated level for a lengthy period of time.

Factors such as inflation, productivity, oil prices, unemployment rates, and global demand play a role in the FOMC's consideration of future rate adjustments.

As noted previously, the Trump Administration recently imposed increased tariffs on goods imported to the U.S.

from other countries.

As a consequence, other countries, in retaliation to the U.S.’s tariff measures, announced the imposition of increased levels of tariffs on goods exported to such countries by companies in the U.S.

More recently, the U.S.

President Trump imposed many of these tariffs by invoking authority under the International Emergency Economic Powers Act (IEEPA).

On February 20, 2026, the U.S.

Supreme Court ruled that President Trump could not invoke the IEEPA to unilaterally set tariffs on imports, thereby invalidating those tariffs implemented using IEEPA.

The tariff environment continues to remain highly dynamic, and the specific tariffs applicable to goods imported into the U.S.

continue to evolve, as do import tariffs charged by other countries.

Such tariffs could result in increased inflationary pressures on the U.S.

These developments could adversely affect our banking customers’ businesses, which, in turn, could adversely affect our business, financial condition and results of operations.

See “Economic Conditions in the U.S.

May Soften or Become Recessionary with Resultant Adverse Consequences for the U.S.

Financial Services Industry and for the Bank,” above in these “Risk Factors” in this Annual Report on Form 10-K.

Beginning in 2021, the U.S.

Economy Began to Reflect Relatively Rapid Rates of Increase in the Consumer Price Index and Other Economic Indices;

a Prolonged Elevated Rate of Inflation

Could Present Risks for the U.S.

a Prolonged Elevated Rate of Inflation Could Present Risks for the U.S.

Banking Industry and Our Business.

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economy exhibited relatively rapid rates of increase in the consumer price index and other economic indices.

economy encounters a significant, prolonged rate of

inflation, this could pose higher relative risks to the banking industry and our business.

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 credit 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.

Additionally, a sustained period of inflation well above the

FRB’s long-term target could prompt broad-based selling of longer-duration, fixed-rate debt, which could have negative implications for equity and real estate markets.

Lower interest rates enable less credit-worthy borrowers to more readily meet

their debt obligations.

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.

Additionally, a sustained period of inflation well above the FRB’s long-term target could prompt broad-based selling of longer-duration, fixed-rate debt, which could have negative implications for equity and real estate markets.

Lower interest rates enable less credit-worthy borrowers to more readily meet their debt obligations.

Small businesses and leveraged loan borrowers can be challenged in a materially higher-rate environment.

Higher interest rates can also present challenges for commercial real estate projects, pressuring valuations and

loan-to-value ratios.

The FRB initiated a series of significant interest rate increases in response to the recent economic developments.

For additional information, see "Management's Discussion and Analysis of Financial Condition and Results of

Operations - Results of Operations - Net Interest Income" below in this Annual Report on Form 10-K.

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

See “Economic Conditions in the U.S.

May Soften or Become Recessionary with Resultant Adverse Consequences for the U.S.

Financial Services Industry and for the Bank,” above in these “Risk Factors” in this Annual Report on Form 10-K.

In addition, the war 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, could lead to higher costs for gas, food and goods in the U.S.

and exacerbate the inflationary pressures on the economy.

As noted previously, the new Trump

Administration has taken steps to increase tariffs on goods imported to the U.S.

from certain countries.

The imposition of increased tariffs on imports and exports is believed by some economists to entail the possibility of increased inflationary

pressures on the U.S.

The impact of these developments cannot be predicted with certainty, but they could have potentially adverse impacts on our customers and on our business, results of operations and

financial condition.

As noted previously, the Trump Administration recently imposed increased tariffs on goods imported to the U.S.

from other countries.

As a consequence,

other countries, in retaliation to the U.S.’s tariff measures, announced the imposition of increased levels of tariffs on goods exported to such countries by companies in the U.S.

More recently, the U.S.

President Trump imposed many of these tariffs by invoking authority under the International Emergency Economic Powers Act (IEEPA).

On February 20, 2026, the U.S.

Supreme Court ruled that President Trump could not invoke the IEEPA to unilaterally set tariffs on imports, thereby invalidating those tariffs implemented using IEEPA.

The tariff environment continues to remain highly dynamic, and the specific tariffs applicable to goods imported into the U.S.

continue to evolve, as do import tariffs charged by other countries.

Such tariffs could result in increased inflationary pressures on the U.S.

These developments could adversely affect our banking customers’ businesses, which, in turn, could adversely affect our business, financial condition and results of operations.

See “Economic Conditions in the U.S.

May Soften or Become Recessionary with Resultant Adverse Consequences for the U.S.

Financial Services Industry and for the Bank,” above in these “Risk Factors” in this Annual Report on Form 10-K.

Our Ability to Pay Dividends is Subject to Legal Restrictions

As a bank holding company, our cash flow typically comes from dividends of the Bank.

Various statutory and regulatory provisions restrict the amount of dividends the Bank can pay to the Company without

regulatory approval.

Various statutory and regulatory provisions restrict the amount of dividends the Bank can pay to the Company without regulatory approval.

The ability of the Company to pay cash dividends in the future also depends on the Company’s profitability, growth, and capital needs.

In addition, California law restricts the ability of the Company to pay dividends.

number of years, the Company has paid stock dividends, but not cash dividends, to its shareholders.

For a number of years, the Company has paid stock dividends, but not cash dividends, to its shareholders.

No assurance can be given that the Company will pay any dividends in the future or, if paid, such dividends will not be discontinued.

See “Business

- Restrictions on Dividends and Other Distributions” above.

See “Business - Restrictions on Dividends and Other Distributions” above.

Competition Adversely Affects our Profitability

In California generally, and in the Bank’s primary market area specifically, major banks dominate the commercial banking industry.

By virtue of their larger capital bases, such

institutions have substantially greater lending limits than those of the Bank.

Competition is likely to further intensify as a result of the recent and increasing level of consolidation of financial services companies, particularly in our market

area resulting from various economic and market conditions.

In obtaining deposits and making loans, the Bank competes with these larger commercial banks and other financial institutions, such as savings and loan associations, credit unions and

member institutions of the Farm Credit System, which offer many services that traditionally were offered only by banks.

Using the financial holding company structure, insurance companies and securities firms may compete more directly with banks

and bank holding companies.

By virtue of their larger capital bases, such institutions have substantially greater lending limits than those of the Bank.

Competition is likely to further intensify as a result of the recent and increasing level of consolidation of financial services companies, particularly in our market area resulting from various economic and market conditions.

In obtaining deposits and making loans, the Bank competes with these larger commercial banks and other financial institutions, such as savings and loan associations, credit unions and member institutions of the Farm Credit System, which offer many services that traditionally were offered only by banks.

Using the financial holding company structure, insurance companies and securities firms may compete more directly with banks and bank holding companies.

In addition, the Bank competes with other institutions such as mutual fund companies, brokerage firms, and even retail stores seeking to penetrate the financial services market.

Current federal law has also made it

easier for out-of-state banks to enter and compete in the states in which we operate.

Competition in our principal markets has further intensified as a result of the Dodd-Frank Act which, among other things, permitted out-of-state de novo branching

by national banks, state banks and foreign banks from other states.

We also experience competition, especially for deposits, from internet-based banking institutions and other non-traditional financial services

firms, such as financial technology companies, which do not always have a physical presence in our market footprint and have grown rapidly in recent years.

Also, technology and other changes increasingly allow parties to complete financial

transactions electronically, and in many cases, without banks.

For example, consumers can pay bills and transfer

funds over the internet and by telephone without banks.

Non-bank financial service providers may have lower overhead costs,

are subject to fewer regulatory constraints and continue to expand their offerings of services traditionally provided by financial institutions.

Further, the new Trump Administration is expected to seek

to promote innovation across financial services through a regulatory environment that is favorable to cryptocurrencies, digital assets, open banking initiatives and financial technology companies, which has the potential to further increase

competition within the banking industry.

Current federal law has also made it easier for out-of-state banks to enter and compete in the states in which we operate.

Competition in our principal markets has further intensified as a result of the Dodd-Frank Act which, among other things, permitted out-of-state de novo branching by national banks, state banks and foreign banks from other states.

We also experience competition, especially for deposits, from internet-based banking institutions and other non-traditional financial services firms, such as financial technology companies, which do not always have a physical presence in our market footprint and have grown rapidly in recent years.

Also, technology and other changes increasingly allow parties to complete financial transactions electronically, and in many cases, without banks.

For example, consumers can pay bills and transfer funds over the internet and by telephone without banks.

Non-bank financial service providers may have lower overhead costs, are subject to fewer regulatory constraints and continue to expand their offerings of services traditionally provided by financial institutions.

Further, the current Trump Administration has taken a number of actions to promote innovation across financial services through a regulatory environment that is favorable to cryptocurrencies, digital assets, open banking initiatives and financial technology companies, which has the potential to further increase competition within the banking industry.

In 2025, the OCC announced its conditional approval of five national trust bank charter applications to either newly charter or convert existing institutions into national trust banks that propose to offer digital asset products and services.

While national trust banks generally do not take insured deposits or engage in commercial lending, these new non-traditional trust banks offer deposit-like products, although lacking FDIC insurance and core consumer protections, and they are not subject to the same capital, liquidity or supervisory standards as banks.

Emerging technologies, such as artificial intelligence (including machine learning and generative artificial intelligence) and quantum computing, have the potential to intensify competition and accelerate disruption in the financial services industry.

If consumers do not use banks to complete their financial transactions, we could potentially lose fee income, deposits and income generated from those deposits.

During periods

of declining interest rates, competitors with lower costs of capital may solicit the Bank’s customers to refinance their loans.

Furthermore, during periods of economic slowdown or recession, the Bank’s borrowers may face financial difficulties

and be more receptive to offers from the Bank’s competitors to refinance their loans.

During periods of declining interest rates, competitors with lower costs of capital may solicit the Bank’s customers to refinance their loans.

Furthermore, during periods of economic slowdown or recession, the Bank’s borrowers may face financial difficulties and be more receptive to offers from the Bank’s competitors to refinance their loans.

No assurance can be given that the Bank will be able to compete with these lenders.

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The Company and the Bank are subject to extensive state and federal regulation, supervision, and legislation, which govern almost all aspects of the operations of the Company and the Bank.

of the Bank is particularly susceptible to being affected by the enactment of federal and state legislation, which may have the effect of increasing the cost of doing business, modifying permissible activities, or enhancing the competitive position

of other financial institutions.

The business of the Bank is particularly susceptible to being affected by the enactment of federal and state legislation, which may have the effect of increasing the cost of doing business, modifying permissible activities, or enhancing the competitive position of other financial institutions.

Such laws are subject to change from time to time and are primarily intended for the protection of consumers, depositors and the Deposit Insurance Fund and not for the benefit of shareholders of the Company.

Regulatory authorities may also change their interpretation of these laws and regulations.

The Company cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on the

business and prospects of the Company, but it could be material and adverse.

See “Business – Supervision and Regulation of the Bank” in Item 1 of this Form 10-K and "The Effects of Changes or Increases in, or

Supervisory Enforcement of, Banking or Other Laws and Regulations or Governmental Fiscal or Monetary Policies Could Adversely Affect Us" above in these "Risk Factors" in this Form 10-K.

The Company cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on the business and prospects of the Company, but it could be material and adverse.

See “Business – Supervision and Regulation of the Bank” in Item 1 of this Form 10-K and "The Effects of Changes or Increases in, or Supervisory Enforcement of, Banking or Other Laws and Regulations or Governmental Fiscal or Monetary Policies Could Adversely Affect Us" above in these "Risk Factors" in this Form 10-K.

We maintain systems and procedures designed to comply with applicable laws and regulations.

However, some legal/regulatory frameworks provide for the imposition of criminal or civil penalties (which

can be substantial) for non-compliance.

However, some legal/regulatory frameworks provide for the imposition of criminal or civil penalties (which can be substantial) for non-compliance.

In some cases, liability may attach even if the non-compliance was inadvertent or unintentional and even if compliance systems and procedures were in place at the time.

There may be other negative

consequences from a finding of non-compliance, including restrictions on certain activities and damage to the Company’s reputation.

There may be other negative consequences from a finding of non-compliance, including restrictions on certain activities and damage to the Company’s reputation.

Our Controls and Procedures May Fail or be Circumvented Which Could Have a Material Adverse Effect on the Company's Financial Condition or Results of Operations

The Company maintains controls and procedures to mitigate against risks such as processing system failures and errors, and customer or employee fraud, and maintains insurance coverage for certain of

The Company maintains controls and procedures to mitigate against risks such as processing system failures and errors, and customer or employee fraud, and maintains insurance coverage for certain of these risks.

Any system of controls and procedures, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met.

Events could occur

which are not prevented or detected by the Company’s internal controls or are not insured against or are in excess of the Company’s insurance limits.

Any failure or circumvention of the Company’s controls and procedures or failure to comply with

regulations related to controls and procedures could have a material adverse effect on the Company’s business, results of operations and financial condition.

Events could occur which are not prevented or detected by the Company’s internal controls or are not insured against or are in excess of the Company’s insurance limits.

Any failure or circumvention of the Company’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the Company’s business, results of operations and financial condition.

Changes in Deposit Insurance Premiums Could Adversely Affect Our Business

Fund to ensure that the ratio of the fund’s reserves to insured deposits reaches 1.35% within the next 8 years, as required by the Dodd-Frank Act.

This action was in response to the reserve ratio dropping to 1.30% primarily due to the inflow of more

than $1 trillion in estimated insured deposits in the first six month of 2020 resulting mainly from the pandemic, monetary policy actions, direct government assistance and an overall reduction in business spending.

On October 18, 2022, the FDIC

adopted a final rule, applicable to all insured depository institutions to increase the initial base deposit insurance assessment rate schedules uniformly by two basis points consistent with the Amended Restoration Plan approved by the FDIC on June

As discussed above in Part I under the caption “Business – Premiums for Deposit Insurance,” in September, 2020, the FDIC board of directors voted to adopt a restoration plan for the Deposit Insurance Fund to ensure that the ratio of the fund’s reserves to insured deposits reaches 1.35% within the next 8 years, as required by the Dodd-Frank Act.

This action was in response to the reserve ratio dropping to 1.30% primarily due to the inflow of more than $1 trillion in estimated insured deposits in the first six month of 2020 resulting mainly from the pandemic, monetary policy actions, direct government assistance and an overall reduction in business spending.

On October 18, 2022, the FDIC adopted a final rule, applicable to all insured depository institutions to increase the initial base deposit insurance assessment rate schedules uniformly by two basis points consistent with the Amended Restoration Plan approved by the FDIC on June 21, 2022.

The FDIC indicated that it was taking this action in order to restore the DIF reserve ratio to the required statutory minimum of 1.35% by the statutory deadline of September 30, 2028.

Under the final rule, the increase in rates began with

the first quarterly assessment period of 2023 and will remain in effect unless and until the reserve ratio meets or exceeds 2% in order to support growth in the DIF in progressing toward the FDIC’s long-term goal of a 2% reserve ratio.

On November 16, 2023, the FDIC issued a final rule to implement a special assessment to recover the loss to the DIF associated with protecting uninsured depositors following the closure of Silicon

Valley Bank and Signature Bank.

Under the final rule, the increase in rates began with the first quarterly assessment period of 2023 and will remain in effect unless and until the reserve ratio meets or exceeds 2% in order to support growth in the DIF in progressing toward the FDIC’s long-term goal of a 2% reserve ratio.

On November 16, 2023, the FDIC issued a final rule to implement a special assessment to recover the loss to the DIF associated with protecting uninsured depositors following the closure of Silicon Valley Bank and Signature Bank.

This special assessment did not apply to the Bank;

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Reputational risk, or the risk to our earnings and capital from negative public opinion, is inherent in our business.

Negative public opinion can result from the actual or perceived manner in which we

conduct our business activities, management of actual or potential conflicts of interest and ethical issues, lending practices, governmental enforcement actions, corporate governance deficiencies, use of social media, cyber-security breaches and our

protection of confidential client information, the implementation of environmental, social and governance (ESG) practices, or from actions taken by regulators or community organizations in response to such actions.

Negative public opinion can

adversely affect our ability to keep and attract customers and employees and can expose us to claims and litigation and regulatory action and increased liquidity risk and could have a material adverse effect on the price of our stock.

We May Not Be Able to Hire or Retain Additional Qualified Personnel and Recruiting and Compensation Costs May Increase as a Result of Turnover, Both of Which May Increase Costs and

Reduce Profitability and May Adversely Impact Our Ability to Implement Our Business Strategy

Negative public opinion can result from the actual or perceived manner in which we conduct our business activities, management of actual or potential conflicts of interest and ethical issues, lending practices, governmental enforcement actions, corporate governance deficiencies, use of social media, cyber-security breaches and our protection of confidential client information, the implementation of environmental, social and governance (ESG) practices, or from actions taken by regulators or community organizations in response to such actions.

Negative public opinion can adversely affect our ability to keep and attract customers and employees and can expose us to claims and litigation and regulatory action and increased liquidity risk and could have a material adverse effect on the price of our stock.

We May Not Be Able to Hire or Retain Additional Qualified Personnel and Recruiting and Compensation Costs May Increase as a Result of Turnover, Both of Which May Increase Costs and Reduce Profitability and May Adversely Impact Our Ability to Implement Our Business Strategy

Our success depends upon the ability to attract and retain highly motivated, well-qualified personnel.

We face significant competition in the recruitment and retention of qualified employees.

compensation in the financial services sector has been controversial and the subject of regulation.

The FDIC has proposed rules which would increase deposit premiums for institutions with compensation practices deemed to increase risk to the

Over time, this guidance and the proposed rules, upon their adoption, could have the effect of making it more difficult for banks to attract and retain skilled personnel.

We May Be Adversely Affected by Unpredictable Catastrophic Events or Terrorist Attacks and Our Business Continuity and Disaster Recovery Plans May Not Adequately Protect Us from

Serious Disaster

large-scale catastrophes and terrorist attacks could adversely affect our business, financial condition or results of operations if a catastrophe rendered both our production data center in Sacramento and our recovery data center in Las Vegas

Executive compensation in the financial services sector has been controversial and the subject of regulation.

Over time, changing guidance and newly-adopted rules regarding compensation practices could have the effect of making it more difficult for banks to attract and retain skilled personnel.

We May Be Adversely Affected by Unpredictable Catastrophic Events or Terrorist Attacks and Our Business Continuity and Disaster Recovery Plans May Not Adequately Protect Us from Serious Disaster

The occurrence of catastrophic events such as wildfires (including programs of public utility public safety power outages when weather conditions and fire danger warrant), earthquakes, flooding or other large-scale catastrophes and terrorist attacks could adversely affect our business, financial condition or results of operations if a catastrophe rendered both our production data center in Sacramento and our recovery data center in Las Vegas unusable.

There can be no assurance that our current disaster recovery plans and capabilities will protect us from serious disaster.

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The Company’s consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America, called GAAP.

The financial

information contained within our consolidated financial statements is, to a significant extent, financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred.

of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability.

Along with other factors, we use historical loss factors to determine the inherent loss

that may be present in our loan portfolio.

The financial information contained within our consolidated financial statements is, to a significant extent, financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred.

A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability.

Along with other factors, we use historical loss factors to determine the inherent loss that may be present in our loan portfolio.

Actual losses could differ significantly from the historical loss factors that we use.

Other estimates that we use are fair value of our securities, expected useful lives of our depreciable

assets, fair value of stock options, calculation of deferred tax assets and liabilities, and the value of our mortgage servicing rights.

We have not entered into derivative contracts for our customers or for ourselves,

which relate to interest rate, credit, equity, commodity, energy, or weather-related indices, other than forward commitments related to our loans held for sale portfolio.

From time to time, the FASB and SEC change the financial accounting and

reporting standards that govern the preparation of our financial statements or new interpretations of existing standards emerge as standard industry practice.

These changes can be difficult to predict and operationally complex to implement and can

materially impact how we record and report our financial condition and results of operations.

Other estimates that we use are fair value of our securities, expected useful lives of our depreciable assets, fair value of stock options, calculation of deferred tax assets and liabilities, and the value of our mortgage servicing rights.

We have not entered into derivative contracts for our customers or for ourselves, which relate to interest rate, credit, equity, commodity, energy, or weather-related indices, other than forward commitments related to our loans held for sale portfolio.

From time to time, the FASB and SEC change the financial accounting and reporting standards that govern the preparation of our financial statements or new interpretations of existing standards emerge as standard industry practice.

These changes can be difficult to predict and operationally complex to implement and can materially impact how we record and report our financial condition and results of operations.

In some cases, we could be required to apply a new or revised standard retrospectively, resulting in our restating prior period financial statements.

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The Company’s common stock is not listed on any exchange.

However, trades may be reported on the OTC Markets under the symbol “FNRN.” The Company is aware that JWTT, Inc., Monroe Financial Partners

and Raymond James all currently make a market in the Company’s common stock.

However, trades may be reported on the OTC Markets under the symbol “FNRN.” The Company is aware that JWTT, Inc., Monroe Financial Partners and Raymond James all currently make a market in the Company’s common stock.

Management is aware that there are also private transactions in the Company’s common stock.

However, the limited trading market for the Company’s common stock may make it

difficult for shareholders to dispose of their shares.

Also, the price of the Company’s common stock may be affected by general market price movements as well as developments specifically related to the financial services sector, including interest

rate movements, quarterly variations, or changes in financial estimates by securities analysts and a significant reduction in the price of the stock of another participant in the financial

services industry.

Advances and Changes in Technology, and the Company’s Ability to Adapt Its Technology, May Strain Our Available Resources and Could Adversely Impact Our Ability to Compete and the

Company’s Business and Operations

However, the limited trading market for the Company’s common stock may make it difficult for shareholders to dispose of their shares.

Also, the price of the Company’s common stock may be affected by general market price movements as well as developments specifically related to the financial services sector, including interest rate movements, quarterly variations, or changes in financial estimates by securities analysts and a significant reduction in the price of the stock of another participant in the financial services industry.

Advances and Changes in Technology, and the Company ’ s Ability to Adapt Its Technology, May Strain Our Available Resources and Could Adversely Impact Our Ability to Compete and the Company ’ s Business and Operations

Advances and changes in technology can significantly impact the business and operations of the Company.

The financial services industry is undergoing rapid technological change which regularly involves

the introduction of new products and services based on new or enhanced technologies.

Examples include cloud computing, artificial intelligence and machine learning, biometric authentication and data protection enhancements, as well as increased

online and mobile device interaction with customers and increased demand for providing computer access to Bank accounts and the systems to perform banking transactions electronically.

The Company’s merchant processing services require the use of

advanced computer hardware and software technology and rapidly changing customer and regulatory requirements.

The Company’s ability to compete effectively depends on its ability to continue to adapt its technology on a timely and cost-effective

basis to meet these requirements.

The financial services industry is undergoing rapid technological change which regularly involves the introduction of new products and services based on new or enhanced technologies.

Examples include cloud computing, artificial intelligence and machine learning, biometric authentication and data protection enhancements, as well as increased online and mobile device interaction with customers and increased demand for providing computer access to Bank accounts and the systems to perform banking transactions electronically.

The Company’s merchant processing services require the use of advanced computer hardware and software technology and rapidly changing customer and regulatory requirements.

The Company’s ability to compete effectively depends on its ability to continue to adapt its technology on a timely and cost-effective basis to meet these requirements.

Our continued success and the maintenance of our competitive position depends, in part, upon our ability to meet the needs of our customers through the application of new technologies.

If we fail to maintain or

enhance our competitive position with regard to technology, whether because we fail to anticipate customer needs and expectations or because our technological initiatives fail to perform as desired or are not timely implemented, we may lose market

share or incur additional expense.

Our ability to execute our core operations and to implement technology and other important initiatives may be adversely affected if our resources are insufficient or if we are unable to allocate available resources

In addition, the Company’s business and operations are susceptible to negative impacts from computer system failures, communication and power disruption, and unethical individuals with the technological

ability to cause disruptions or failures of the Company’s data processing systems.

Furthermore, the widespread adoption of new technologies by competitors, including artificial intelligence, could require us to make additional substantial investments to modify or adapt our existing products and services or alter the way we conduct business.

These and other capital investments in the Company's business may not produce the growth in earnings anticipated at the time of the expenditure, and we may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.

If we fail to maintain or enhance our competitive position with regard to technology, whether because we fail to anticipate customer needs and expectations or because our technological initiatives fail to perform as desired or are not timely implemented, we may lose market share or incur additional expense.

Implementation of certain new technologies, such as those related to artificial intelligence, automation and algorithms, also may have unintended consequences, including fraud or cybersecurity risk, due to their limitations, potential manipulation, or our failure to use them effectively.

Information Security Breaches or Other Technological Difficulties Could Adversely Affect the Company

Our operations rely on the secure processing, storage, transmission and reporting of personal, confidential and other sensitive information in our computer systems, networks and business applications.

including clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems, and other events that could have significant negative consequences to us.

Such events could result in interruptions or

malfunctions in our or our customers’ operations, interception, misuse or mishandling of personal or confidential information, or processing of unauthorized transactions or loss of funds.

These events could result in litigation, regulatory

enforcement actions, and financial losses that are either not insured against or not fully covered by our insurance, or result in regulatory consequences or reputational harm, any of which could harm our competitive position, operating results and

financial condition.

Although we take protective measures, our computer systems, as well as the systems of our third-party providers, may be vulnerable to breaches or attacks, unauthorized access, misuse, computer viruses or other malicious code, operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems, and other events that could have significant negative consequences to us.

Such events could result in interruptions or malfunctions in our or our customers’ operations, interception, misuse or mishandling of personal or confidential information, or processing of unauthorized transactions or loss of funds.

These events could result in litigation, regulatory enforcement actions, and financial losses that are either not insured against or not fully covered by our insurance, or result in regulatory consequences or reputational harm, any of which could harm our competitive position, operating results and financial condition.

We maintain cyber insurance, but this insurance may not cover all costs associated with cyber incidents or the consequences of personal or confidential information being compromised.

These types of incidents can remain

undetected for extended periods of time, thereby increasing the associated risks.

We may also be required to expend significant resources to modify our protective measures or to investigate and remediate vulnerabilities or exposures arising from

cybersecurity risks.

These types of incidents can remain undetected for extended periods of time, thereby increasing the associated risks.

We may also be required to expend significant resources to modify our protective measures or to investigate and remediate vulnerabilities or exposures arising from cybersecurity risks.

We depend on the continued efficacy of our technical systems, operational infrastructure, relationships with third parties and our employees in our day-to-day and ongoing operations.

Our increasing

dependence upon automated systems to record and process transactions may further increase the risk that technical system flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect.

With regard to

the physical infrastructure that supports our operations, we have taken measures to implement backup systems and other safeguards, but our ability to conduct business may be adversely affected by any disruption to that infrastructure.

Failures in our

internal control or operational systems, security breaches or service interruptions could impair our ability to operate our business and result in potential liability to customers, reputational damage and regulatory intervention, any of which could

harm our operating results and financial condition.

We may also be subject to disruptions of our operating systems arising from other events that are wholly or partially beyond our control, such as outages related to electrical, internet or

telecommunications, natural disasters (such as major seismic events), or unexpected difficulties with the implementation of our technology enhancement and replacement projects, which may give rise to disruption of service to customers and to

financial loss or liability.

Our increasing dependence upon automated systems to record and process transactions may further increase the risk that technical system flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect.

With regard to the physical infrastructure that supports our operations, we have taken measures to implement backup systems and other safeguards, but our ability to conduct business may be adversely affected by any disruption to that infrastructure.

Failures in our internal control or operational systems, security breaches or service interruptions could impair our ability to operate our business and result in potential liability to customers, reputational damage and regulatory intervention, any of which could harm our operating results and financial condition.

We may also be subject to disruptions of our operating systems arising from other events that are wholly or partially beyond our control, such as outages related to electrical, internet or telecommunications, natural disasters (such as major seismic events), or unexpected difficulties with the implementation of our technology enhancement and replacement projects, which may give rise to disruption of service to customers and to financial loss or liability.

Our business recovery plan may not work as intended or may not prevent significant interruptions of our operations.

In recent years, it has been reported that several of the larger U.S.

banking institutions have been the target of various denial-of-service, ransomware or other cyberattacks (including attempts to

inject malicious code and viruses into computer systems) that have, for limited periods, resulted in the disruption of various operations of the targeted banks.

These cyber-attacks originate from a variety of sophisticated sources who may be involved

with organized crime, linked to terrorist organizations or hostile countries and have extensive resources to disrupt the operations of the Bank or the financial system more generally.

The potential for denial-of-service,

ransomware and other attacks requires substantial resources to defend and may affect customer satisfaction and behavior.

To date we have not experienced any material losses relating to cyberattacks or

other information security breaches, but there can be no assurance that we will not suffer such losses or information security breaches in the future.

A successful cyber-attack could result in a material disruption of the Bank’s operations, exposure

of confidential information and financial loss to the Bank, its clients, customers and counterparties and could lead to significant exposure to litigation and regulatory fines, penalties and other sanctions as well as reputational damage.

have a variety of cyber-security measures in place, the consequences to our business, if we were to become a target of such attacks, cannot be predicted with any certainty.

In addition, there have been increasing efforts on the part of third parties to breach data security at financial institutions or with respect to financial transactions, including through the use of

social engineering schemes such as “phishing.” The ability of our customers to bank remotely, including online and though mobile devices, requires secure transmission of confidential information and increases the risk of data security breaches which

would expose us to claims by customers or others and which could adversely affect our reputation and could lead to a material loss.

We, and other banking institutions, are also at risk of increased losses from fraudulent conduct of criminals using increasingly sophisticated techniques which, in some cases, are part of larger

criminal organizations which allow them to be more effective.

This criminal activity is taking many forms, including information theft, debit/credit card fraud, check fraud, mechanical devices affixed to ATM’s, social engineering, phishing attacks to

obtain personal information, or impersonation of customers through falsified or stolen credentials, business email compromise, and other criminal endeavors.

We, and other banking institutions are also at risk of fraudulent or criminal activities by

employees, contractors, vendors and others with whom we do business.

There is also the risk of errors by our employees and others responsible for the systems and controls on which we depend and any resulting failures of these systems and controls

could significantly harm the Company, including customer remediation costs, regulatory fines and penalties, litigation or enforcement actions, or limitations on our business activities.

undermine consumer confidence in banks generally, to the detriment of other financial institutions, including the Bank.

banking institutions have been the target of various denial-of-service, ransomware or other cyberattacks (including attempts to inject malicious code and viruses into computer systems) that have, for limited periods, resulted in the disruption of various operations of the targeted banks.

These cyber-attacks originate from a variety of sophisticated sources who may be involved with organized crime, linked to terrorist organizations or hostile countries and have extensive resources to disrupt the operations of the Bank or the financial system more generally.

The potential for denial-of-service, ransomware and other attacks requires substantial resources to defend and may affect customer satisfaction and behavior.

To date we have not experienced any material losses relating to cyberattacks or other information security breaches, but there can be no assurance that we will not suffer such losses or information security breaches in the future.

A successful cyber-attack could result in a material disruption of the Bank’s operations, exposure of confidential information and financial loss to the Bank, its clients, customers and counterparties and could lead to significant exposure to litigation and regulatory fines, penalties and other sanctions as well as reputational damage.

While we have a variety of cyber-security measures in place, the consequences to our business, if we were to become a target of such attacks, cannot be predicted with any certainty.

In addition, there have been increasing efforts on the part of third parties to breach data security at financial institutions or with respect to financial transactions, including through the use of social engineering schemes such as “phishing.” The ability of our customers to bank remotely, including online and though mobile devices, requires secure transmission of confidential information and increases the risk of data security breaches which would expose us to claims by customers or others and which could adversely affect our reputation and could lead to a material loss.

We, and other banking institutions, are also at risk of increased losses from fraudulent conduct of criminals using increasingly sophisticated techniques which, in some cases, are part of larger criminal organizations which allow them to be more effective.

This criminal activity is taking many forms, including information theft, debit/credit card fraud, check fraud, mechanical devices affixed to ATM’s, social engineering, phishing attacks to obtain personal information, or impersonation of customers through falsified or stolen credentials, business email compromise, and other criminal endeavors.

We, and other banking institutions are also at risk of fraudulent or criminal activities by employees, contractors, vendors and others with whom we do business.

There is also the risk of errors by our employees and others responsible for the systems and controls on which we depend and any resulting failures of these systems and controls could significantly harm the Company, including customer remediation costs, regulatory fines and penalties, litigation or enforcement actions, or limitations on our business activities.

Even if cyber-attacks and similar tactics are not directed specifically at the Bank, such attacks on other large financial institutions could disrupt the overall functioning of the financial system and undermine consumer confidence in banks generally, to the detriment of other financial institutions, including the Bank.

A data security breach at a large U.S.

retailer resulted in the compromise of data related to credit and debit cards of large

numbers of customers requiring many banks, including the Bank, to reissue credit and debit cards for affected customers and reimburse these customers for losses sustained.

retailer resulted in the compromise of data related to credit and debit cards of large numbers of customers requiring many banks, including the Bank, to reissue credit and debit cards for affected customers and reimburse these customers for losses sustained.

We maintain insurance which we believe provides sufficient coverage against these risks at a manageable expense for an institution of our size and scope with similar technological systems.

cannot assure that this insurance would be sufficient to cover all financial losses, damages, penalties, including lost revenues, should we experience any one or more of our or a third-party’s systems failing or experiencing attack.

However, we cannot assure that this insurance would be sufficient to cover all financial losses, damages, penalties, including lost revenues, should we experience any one or more of our or a third-party’s systems failing or experiencing attack.

Environmental Hazards Could Have a Material Adverse Effect on the Company ’ s Business, Financial Condition, and Results of Operations

The Company, in its ordinary course of business, acquires real property securing loans that are in default, and there is a risk that hazardous substances or waste, contaminants or pollutants could exist

on such properties.

The Company may be required to remove or remediate such substances from the affected properties at its expense, and the cost of such removal or remediation may substantially exceed the value of the affected properties or the

loans secured by such properties.

Furthermore, the Company may not have adequate remedies against the prior owners or other responsible parties to recover its costs.

Finally, the Company may find it difficult or impossible to sell the affected

properties either prior to or following any such removal.

In addition, the Company may be considered liable for environmental liabilities in connection with its borrowers’ properties, if, among other things, it participates in the management of its

borrowers’ operations.

Finally, the Company may find it difficult or impossible to sell the affected properties either prior to or following any such removal.

In addition, the Company may be considered liable for environmental liabilities in connection with its borrowers’ properties, if, among other things, it participates in the management of its borrowers’ operations.

The occurrence of such an event could have a material adverse effect on the Company’s business, financial condition, results of operations, and cash flows.

The Company May Not Be Successful in Raising Additional Capital Needed in the Future

will be successful or that shares sold in the future will be sold at prices or on terms equal to or better than the current market price.

The inability to raise additional capital when needed or at prices and terms acceptable to us could adversely

affect our ability to implement our business strategies.

If additional capital is needed in the future as a result of losses or growth or our business strategy or regulatory requirements, there is no assurance that our efforts to raise such additional capital will be successful or that shares sold in the future will be sold at prices or on terms equal to or better than the current market price.

The inability to raise additional capital when needed or at prices and terms acceptable to us could adversely affect our ability to implement our business strategies.

In the Future, the Company May Be Required to Recognize an Allowance for Credit Losses With Respect to Investment Securities, Which May Adversely Affect our Results of Operations

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The Company may continue to observe declines in the fair market value of these securities.

evaluates the need for an allowance for credit losses on the

securities portfolio, as required by generally accepted accounting principles.

There can be no assurance, however, that future evaluations of the securities portfolio will not require us to recognize losses with

respect to these and other holdings, which could adversely affect our results of operations.

Management evaluates the need for an allowance for credit losses on the securities portfolio, as required by generally accepted accounting principles.

There can be no assurance, however, that future evaluations of the securities portfolio will not require us to recognize losses with respect to these and other holdings, which could adversely affect our results of operations.

Changes in the U.S.

Tax Laws Have Impacted Our Business and Results of Operations in a Variety of Ways, Some of Which Are Positive, and Others Which May Be Negative

Tax Laws Have Impacted, and May Impact, Our Business and Results of Operations in a Variety of Ways, Some of Which Are Positive, and Others Which May Be Negative

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.

These changes have impacted our business and results

of operations in a variety of ways, some of which are positive and others which are negative.

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 has also benefited

many of our corporate and other small business borrowers.

These changes have impacted our business and results of operations in a variety of ways, some of which are positive and others which are negative.

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 has also benefited 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, is constrained by the lower tax rate.

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corporate tax rate could adversely impact our profitability and that of our business and commercial customers.

On July 4, 2025, the One Big Beautiful Bill Act was enacted into law, which included certain modifications to U.S.

The Company has evaluated the provisions of this Act and has concluded that they do not have any material impact on our consolidated financial statements for the year ended December 31, 2025.

Our Operations, Businesses and Customers Could be Materially Adversely Affected by the Physical Effects of Climate Change, as well as Governmental and Societal Responses to Climate Change

There is increasing concern over the risks of climate change and related environmental sustainability matters.

The physical effects of climate change include rising average global temperatures, rising sea levels and an

increase in the frequency and severity of extreme weather events and natural disasters, including droughts, wildfires, floods, hurricanes and tornados.

Most of the Company’s operations and customers are located in California, which could be adversely

impacted by severe weather events and the physical effects of climate change.

Agriculture is especially dependent on climate, and climate impacts could include shifting average growing conditions, increased climate and weather variability, decreases

in available water sources, and more uncertainty in predicting climate and weather conditions, any or all of which could have a particularly adverse impact on our agricultural customers.

Elevated temperatures and carbon dioxide levels can have large

impacts on appropriate nutrient levels, soil moisture, water availability, working condition, and various other critical performance conditions.

Such climate-related impacts could disrupt our operations or the operations of customers or third parties

on which we rely, result in market volatility, negatively impact our customers’ ability to pay outstanding loans, damage collateral or result in the deterioration of the value of collateral or insurance shortfalls.

Our borrowers may have collateral

properties or operations located in areas at risk of wildfires or subject to the risk of drought in California.

The properties pledged as collateral on our loan portfolio could also be damaged by wildfires, earthquakes or other natural disasters, and

thereby the recoverability of loans could be impaired.

A number of factors can affect credit losses, including the extent of damage to the collateral, the extent of damage not covered by insurance, the extent to which unemployment and other economic

conditions caused by the natural disaster adversely affect the ability of borrowers to repay their loans, and the cost of collection and foreclosure to us.

Additionally, there could be increased insurance premiums and deductibles, or a decrease in

the availability of coverage, due to severe losses resulting from wildfires or other climate-related physical hazards.

The ultimate outcome on our business of a natural disaster, whether or not caused by climate change, is difficult to predict but

these events could reduce the Company’s earnings and cause volatility in the Company’s financial results for any fiscal quarter or year and have a material adverse effect on the Company’s financial condition and results of operations.

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.

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

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 impact, the Company, its businesses or its customers.

We and our customers may face cost increases, asset value reductions, operating process changes, reduced availability of

insurance, and the like, as a result of governmental actions or societal responses to climate change.

New and/or more stringent regulatory requirements relating to climate change or

environmental sustainability could materially affect the Company’s results of operations by increasing our compliance costs.

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 strategies.

The physical effects of climate change include rising average global temperatures, rising sea levels and an increase in the frequency and severity of extreme weather events and natural disasters, including droughts, wildfires, floods, hurricanes and tornados.

Most of the Company’s operations and customers are located in California, which could be adversely impacted by severe weather events and the physical effects of climate change.

Agriculture is especially dependent on climate, and climate impacts could include shifting average growing conditions, increased climate and weather variability, decreases in available water sources, and more uncertainty in predicting climate and weather conditions, any or all of which could have a particularly adverse impact on our agricultural customers.

Elevated temperatures and carbon dioxide levels can have large impacts on appropriate nutrient levels, soil moisture, water availability, working condition, and various other critical performance conditions.

Such climate-related impacts could disrupt our operations or the operations of customers or third parties on which we rely, result in market volatility, negatively impact our customers’ ability to pay outstanding loans, damage collateral or result in the deterioration of the value of collateral or insurance shortfalls.

Our borrowers may have collateral properties or operations located in areas at risk of wildfires or subject to the risk of drought in California.

The properties pledged as collateral on our loan portfolio could also be damaged by wildfires, earthquakes or other natural disasters, and thereby the recoverability of loans could be impaired.

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

Additionally, there could be increased insurance premiums and deductibles, or a decrease in the availability of coverage, due to severe losses resulting from wildfires or other climate-related physical hazards.

The ultimate outcome on our business of a natural disaster, whether or not caused by climate change, is difficult to predict but these events could reduce the Company’s earnings and cause volatility in the Company’s financial results for any fiscal quarter or year and have a material adverse effect on the Company’s financial condition and results of operations.

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 impact, the Company, its businesses or its customers.

We and our customers may face cost increases, asset value reductions, operating process changes, reduced availability of insurance, and the like, as a result of governmental actions or societal responses to climate change.

New and/or more stringent regulatory requirements relating to climate change or environmental sustainability could materially affect the Company’s results of operations by increasing our compliance costs.

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 strategies.

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