What changed in this filing

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Item 1A. Risk Factors

2025-02-28 compared with 2024-02-23 · 56 added, 59 removed, 554 unchanged (17% of the section changed)

15 unchanged sentences

Unlike many of our larger competitors that maintain significant operations located outside our market, substantially all of our customers are individuals and businesses located and doing business in the state of California.

As of December 31, 2023, approximately more than half of our real estate loans measured by dollar amount were secured by collateral located in California, substantially all of which is in Northern California.

As of December 31, 2024, approximately 57.66% of our real estate loans measured by dollar amount were secured by collateral located in California, substantially all of which is in Northern California.

Therefore, our success will depend upon the general economic conditions and real estate activity in these areas, which we cannot predict with certainty.

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These circumstances could not only result in increased loan defaults, foreclosures, and charge-offs, but also reduce collateral values and necessitate further increases to the allowance for credit losses, which could have an adverse effect on our business, financial condition, and results of operations.

The Federal Reserve has indicated that it expects to lower the target range for the federal funds rate beginning in 2024.

The Federal Reserve has indicated that it expects to continue to lower the target range for the federal funds rate in 2025.

A decrease in the general level of interest rates may affect us through, among other things, increased prepayments on our loan portfolio, and our cost of funds may not fall as quickly as yields on interest-earning assets.

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Our future growth will largely depend on our ability to retain and grow our deposit base.

customers in us or the banking sector generally, which could result in significant outflows of deposits within short periods of time or significant changes in pricing necessary to maintain current customer deposits or attract additional deposits.

Although we have historically maintained a high deposit customer retention rate, these deposits are subject to potentially dramatic fluctuations in availability or price due to certain factors outside of our control, such as increasing competitive pressures for deposits, changes in interest rates and returns on other investment classes, customer perceptions of our financial health and general reputation, and a loss of confidence by customers in us or the banking sector generally, which could result in significant outflows of deposits within short periods of time or significant changes in pricing necessary to maintain current customer deposits or attract additional deposits.

Additionally, any such loss of funds could result in lower loan originations, which could have an adverse effect on our business, financial condition, and results of operations.

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While these quantitative techniques and approaches improve our decision making, they also create the possibility that faulty data or flawed quantitative approaches could yield adverse outcomes or regulatory scrutiny.

Secondarily, because of the complexity inherent in these approaches, misunderstanding or misuse of their outputs could similarly result in suboptimal decision making, which could have an adverse effect on our business, financial condition, and results of operations.

Secondarily, because of the complexity inherent in these approaches, misunderstanding or misuse of

their outputs could similarly result in suboptimal decision making, which could have an adverse effect on our business, financial condition, and results of operations.

We may not be able to measure and limit our credit risk adequately, which could adversely affect our profitability.

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A failure to effectively measure and limit the credit risk associated with our loan portfolio may result in loan defaults, foreclosures, and additional charge-offs, and may necessitate that we significantly increase our allowance for credit losses, each of which could adversely affect our net income.

As a result, our

inability to successfully manage credit risk could have an adverse effect on our business, financial condition, and results of operations.

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

We are exposed to higher credit risk and other risks and costs by our commercial real estate, commercial land and construction, commercial construction, farmland loans and other real estate assets.

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Commercial real estate loans, commercial and industrial loans, and construction loans are more susceptible to a risk of loss during a downturn in the business cycle.

In particular, the increase in working from home since outbreak of the COVID-19 pandemic could have adverse effects on our loans for office space, which are dependent for repayment on the successful operation and management of the associated commercial real estate.

In particular, the increase in working from home since outbreak of the COVID-19 pandemic could have adverse effects on our loans for office space, which are dependent for repayment on the successful

operation and management of the associated commercial real estate.

Our underwriting, review, and monitoring cannot eliminate all the risks related to these loans.

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Secured commercial loans are generally collateralized by real estate, accounts receivable, inventory, equipment, or other assets owned by the borrower, or may include a personal guaranty of the business owner.

Unsecured loans generally involve a higher degree of risk of loss than do secure loans because, without collateral, repayment is wholly dependent upon the success of the borrowers’ businesses.

Unsecured loans generally involve a higher degree of risk of loss than do secured loans because, without collateral, repayment is wholly dependent upon the success of the borrowers’ businesses.

Because of this lack of collateral, we are limited in our ability to collect on defaulted unsecured loans.

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Additionally, federal and state regulators and state attorneys general have prosecuted or pursued enforcement action against a number of mortgage servicing companies for alleged consumer protection law violations.

If new federal or state laws or regulations are ultimately enacted that significantly raise the cost

of foreclosure or raise outright barriers to foreclosure, they could have an adverse effect on our business, financial condition, and results of operations.

If new federal or state laws or regulations are ultimately enacted that significantly raise the cost of foreclosure or raise outright barriers to foreclosure, they could have an adverse effect on our business, financial condition, and results of operations.

In addition, if we foreclose on and take title to real property securing loans, there is a risk that hazardous or toxic substances could be found on these properties and that we could be liable for remediation costs, as well as personal injury and property damage.

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The remediation costs and any other financial liabilities associated with an environmental hazard could have an adverse effect on our business, financial condition, and results of operations.

Curtailment of government-guaranteed loan programs could affect a segment of our business.

Curtailment of government-guaranteed loan programs or changes in federal government funding could affect our business.

One component of our business consists of originating and periodically selling U.S.

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As the funding and sale of the guaranteed portion of SBA 7(a) loans is a major portion of our business and a significant portion of our non-interest income, any significant changes to the SBA 7(a) loan program, such as its funding or eligibility requirements, may have an unfavorable impact on our prospects, future performance, and results of operations.

The aggregate principal balance of SBA 7(a) guaranteed portions sold during the year ended December 31, 2023 was $36.5 million, compared to $50.8 million for the year ended December 31, 2022.

The aggregate principal balance of SBA 7(a) guaranteed portions sold during the year ended December 31, 2024 was approximately $18.3 million, compared to approximately $36.5 million for the year ended December 31, 2023.

In addition, current or future delays to, reductions of, and/or cancellations of certain federal government payments in connection with cost-saving and government efficiency efforts undertaken by the Trump Administration may lead to increased repayment risk from clients of the Bank who rely on payments from the federal government in conducting their businesses.

Potential losses could adversely affect our business, financial condition, and results of operations.

Liquidity risk could impair our ability to fund operations and meet our obligations as they become due.

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Any substantial, unexpected, and/or prolonged change in the level or cost of liquidity could impair our ability to fund operations and meet our obligations as they become due and could have an adverse effect on our business, financial condition, and results of operations.

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

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

Although we have historically been able to replace maturing deposits and advances if desired, we may not be able to replace such funds in the future if our financial condition, the financial condition of the FHLB, or market conditions change.

FHLB borrowings and other current sources of liquidity may not be available or, if available, may not be sufficient to provide adequate funding for operations and to support our continued growth.

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Under this guidance, an institution that has:

(i) total reported loans for construction, land development, and other land which represent 100% or more of the institution’s total risk-based capital or (ii) total commercial real estate loans representing 300% or more of the institution’s total risk-based capital, where the outstanding balance of the institution’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months, is identified as having potential commercial real estate concentration risk.

(i) total reported loans for construction, land development, and other land which represent 100% or more of the institution’s total risk-based capital;

or (ii) total reported loans secured by multifamily and non-farm non-residential properties and loans for construction, land development, and other land of 300% or more of the institution’s total risk-based capital, where the outstanding balance of the institution’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months, is identified as having potential commercial real estate concentration risk.

An institution that is deemed to have concentrations in commercial real estate lending is expected to employ heightened levels of risk management with respect to its commercial real estate portfolios and may be required to maintain higher levels of capital.

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Our current business strategy includes an emphasis on commercial real estate lending.

Although we sold $36.5 million of loans in the year ended December 31, 2023, we may decide to sell more loans in the future.

Although we sold 56 SBA 7(a) loans with government-guaranteed portions totaling approximately $18.3 million in the year ended December 31, 2024, we may decide to sell more loans in the future.

A secondary market for most types of commercial real estate loans is not readily liquid, so we have less opportunity to mitigate credit risk by selling part or all of our interest in these loans.

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If a significant amount of these deposits were withdrawn within a short period of time, it could have a negative impact on our short-term liquidity and have an adverse impact on our earnings.

We may also be forced, as a result of withdrawals of deposits, to rely more heavily on other,

potentially more expensive and less stable, funding sources.

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

Additionally, such circumstances could require us to raise deposit rates in an attempt to attract new deposits, which would adversely affect our results of operations, and/or to raise funding through brokered deposits.

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At December 31, 2024, the allowance for credit losses was $37.8 million.

Deterioration of economic conditions affecting borrowers, new information regarding existing loans, inaccurate management assumptions, identification of additional problem loans, temporary modifications, loan forgiveness, automatic forbearance, and other factors, both within and outside of our control, may result in our experiencing higher levels of nonperforming assets and charge-offs, and incurring credit losses in excess of our current allowance for credit losses, requiring us to make material additions to our allowance for credit losses, which could have an adverse effect on our business, financial condition, and results of operations.

requiring us to make material additions to our allowance for credit losses, which could have an adverse effect on our business, financial condition, and results of operations.

Additionally, federal and state banking regulators, as an integral part of their supervisory function, periodically review the allowance for credit losses.

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2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments and all subsequent amendments that modified ASU 2016-13 (collectively, “ASC 326,”), which replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the CECL model.

Measurement of Credit Losses on Financial Instruments and all subsequent amendments that modified ASU 2016-13 (collectively, “ASC 326,”), which replaced the former “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the CECL model.

The CECL model applies to estimated credit losses on loans receivable, held-to-maturity debt securities, unfunded loan commitments, and certain other financial assets measured at amortized cost.

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Any of these factors, among others, could require the Company to record an allowance for credit losses, which could have an adverse effect on our business, financial condition, and results of operations.

for a sufficient period of time to allow for any anticipated recovery in fair value, in order to assess the probability of receiving all contractual principal and interest payments on the security.

The process for determining whether an allowance for credit losses is required involves complex, subjective judgments about the future financial performance and liquidity of the issuer, any collateral underlying the security, and our intent and ability to hold the security for a sufficient period of time to allow for any anticipated recovery in fair value, in order to assess the probability of receiving all contractual principal and interest payments on the security.

Our failure to correctly and timely assess any impairments or losses with respect to our securities could have an adverse effect on our business, financial condition, and results of operations.

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The banking industry is highly regulated and supervised under both federal and state laws and regulations that are intended primarily for the protection of depositors, customers, the public, the banking system as a whole, and/or the FDIC DIF, not for the protection of our shareholders and creditors.

We are subject to regulation and supervision by the Federal Reserve, and our Bank is subject to regulation and supervision by the FDIC and the DFPI.

We are subject to regulation and supervision by the Federal Reserve,

and our Bank is subject to regulation and supervision by the FDIC and the DFPI.

Compliance with these laws and regulations can be difficult and costly, and changes to laws and regulations can impose additional compliance costs.

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Furthermore, the regulatory agencies have broad discretion in their interpretation of laws and regulations and their assessment of the quality of our loan portfolio, securities portfolio, and other assets.

Based on our regulators’ assessment of the quality of our assets, operations, lending practices, investment practices, capital

structure, or other aspects of our business, we may be required to take additional charges or undertake, or refrain from taking, actions that could have an adverse effect on our business, financial condition, and results of operations.

Based on our regulators’ assessment of the quality of our assets, operations, lending practices, investment practices, capital structure, or other aspects of our business, we may be required to take additional charges or undertake, or refrain from taking, actions that could have an adverse effect on our business, financial condition, and results of operations.

Monetary policies and regulations of the Federal Reserve could have an adverse effect on our business, financial condition, and results of operations.

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

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

different remedial actions as they deem appropriate.

These actions may include requiring us to remediate any such adverse examination findings.

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In addition, for an insured depository institution to be “well-capitalized” under the banking agencies’ prompt corrective action framework, it must have a common equity Tier 1 capital ratio of at least 6.50%, a Tier 1 capital ratio of at least 8.00%, a total capital ratio of at least 10.00%, and a Tier 1 leverage ratio of at least 5.00%, and must not be subject to any written agreement, order or capital directive, or prompt corrective action directive issued by its primary federal or state banking regulator to meet and maintain a specific capital level for any capital measure.

Historically, as a bank holding company with less than $3.0 billion in total consolidated assets and that met certain other criteria, the Company had been operating under the Federal Reserve’s Small Bank Holding Company Policy Statement, which exempts from the Federal Reserve’s risk-based capital and leverage rules bank holding companies with total consolidated assets of less than $3.0 billion that are not engaged in significant nonbanking activities, do not conduct significant off-balance sheet activities, and do not have a material amount of debt or equity securities registered with the SEC.

Because the Company’s total consolidated assets exceeded the $3.0 billion threshold as of September 30, 2022, the

Company is no longer subject to this policy statement and its capital adequacy is evaluated relative to the Federal Reserve’s generally applicable capital requirements.

Any new or revised standards adopted in the future may require us to maintain materially more capital, with common equity as a more predominant component, or manage the configuration of our assets and liabilities to comply with formulaic capital requirements.

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Banks with no more than $10.0 billion in total consolidated assets, including the Bank, are subject to rules promulgated by the CFPB but are examined and supervised by federal banking agencies for compliance with federal consumer protection laws and regulations.

The CFPB has proposed rules that would restrict various fees that financial institutions can charge consumers, including credit card late fees and certain insufficient funds (“NSF”) fees.

Accordingly, CFPB rulemaking has the potential to have a significant impact on the operations of the Bank.

The CFPB has issued rules that restrict or place conditions on various fees that financial institutions can charge consumers, including credit card late fees and overdraft fees.

Although these rules have been challenged in court, and leadership of the CFPB during the Trump Administration has taken steps to curtail the CFPB’s regulatory activities, in general CFPB rulemaking has the potential to have a significant impact on the operations of the Bank.

A challenge to an institution’s compliance with fair and responsible banking laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines.

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Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the holding company’s general unsecured creditors, including the holders of any note obligations.

Thus, any borrowing by a bank holding company for the

purpose of making a capital injection to a subsidiary bank may become more difficult and expensive relative to other corporate borrowings.

We face a risk of no ncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.

Thus, any borrowing by a bank holding company for the purpose of making a capital injection to a subsidiary bank may become more difficult and expensive relative to other corporate borrowings.

We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.

The Bank Secrecy Act, the Patriot Act, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and to file reports such as suspicious activity reports and currency transaction reports.

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Volatility in the market price of our common stock may negatively impact the price at which our common stock may be sold and may also negatively impact the timing of any sale.

The market price of our common stock may continue to fluctuate widely in response to a variety of factors including the risk factors described herein and, among other things:

The market price of our common stock

may continue to fluctuate widely in response to a variety of factors including the risk factors described herein and, among other things:

• actual or anticipated variations in quarterly or annual operating results, financial conditions, or credit quality;

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If we were to be involved in a class action lawsuit, it could divert the attention of our senior management and could adversely affect our business, financial condition, and results of operations.

We are an “emerging growth company,” as defined in the JOBS Act, and a “smaller reporting company,” as defined in Rule 12b-2 in the Exchange Act, and are able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies, which could make our common stock less attractive to investors and adversely affect the market price of our common stock.

We are an “emerging growth company,” as defined in the JOBS Act and are able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors and adversely affect the market price of our common stock.

We are an “emerging growth company,” as defined in the JOBS Act.

For as long as we continue to be an emerging growth company, we may take advantage of certain exemptions from various requirements generally applicable to public companies.

These exemptions allow us, among other things, to present only two years of audited financial statements and discuss our results of operations for only two years in related Management’s Discussions and Analyses;

These exemptions allow us, among other things, to discuss our results of operations for only two years in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;

not to provide an auditor attestation of our internal control over financial reporting;

to take advantage of an extended transition period to comply with the new or revised accounting standards applicable to public companies;

to provide reduced disclosure regarding our executive compensation arrangements pursuant to the rules applicable to smaller reporting companies, which means we do not have to include a compensation discussion and analysis and certain other disclosure regarding our executive compensation;

and not to seek a non-binding advisory vote on executive compensation or golden parachute arrangements.

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or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” as defined in Rule 12b-2 in the Exchange Act, which would allow us to take advantage of many of the same exemptions from disclosure requirements, including not being required to provide an auditor attestation of our internal control over financial reporting and reduced disclosure regarding our executive compensation arrangements in our periodic reports and proxy statements.

We cannot predict whether investors will find our common stock less attractive because we may rely on these exemptions.

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Consequently, our directors, executive officers, and principal shareholders are able to significantly affect our affairs and policies, including the outcome of the election of directors and the potential outcome of other matters submitted to a vote of our shareholders, such as mergers, the sale of substantially all of our assets, and other extraordinary corporate matters.

This influence may also have the effect of delaying or preventing changes of control or changes in management or limiting the ability of our

other shareholders to approve transactions that they may deem to be in the best interests of our Company.

This influence may also have the effect of delaying or preventing changes of control or changes in management or limiting the ability of our other shareholders to approve transactions that they may deem to be in the best interests of our Company.

The interests of these insiders could conflict with the interests of our other shareholders, including you.

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We could incur future debt obligations or issue preferred stock in the future to raise additional capital.

In such event, holders of our common stock will not be entitled to receive any payment or other distribution of assets upon the liquidation, dissolution, or winding up of the Company until after all of our obligations to the debt holders are satisfied and holders of subordinated notes and senior equity securities, including preferred shares, if any, have received any payment or distribution due to them.

obligations to the debt holders are satisfied and holders of subordinated notes and senior equity securities, including preferred shares, if any, have received any payment or distribution due to them.

In addition, we are required to pay interest on the subordinated notes and dividends on the trust preferred securities and preferred stock before we will be able to pay any dividends on our common stock.

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Furthermore, with certain limited exceptions, federal regulations prohibit a person, company, or group of persons deemed to be “acting in concert” from, directly or indirectly, acquiring 10% or more (5% or more if the acquirer is a bank holding company) of any class of our voting stock or obtaining the ability to control in any manner the election of a majority of our directors or otherwise direct the management or policies of our Company without prior notice or application to and the approval of the Federal Reserve.

prospective investors must comply with these requirements, if applicable, in connection with any purchase of shares of our common stock.

Accordingly, prospective investors must comply with these requirements, if applicable, in connection with any purchase of shares of our common stock.

Collectively, provisions of our articles of incorporation and bylaws and other statutory and regulatory provisions may delay, prevent, or deter a merger, acquisition, tender offer, proxy contest, or other transaction that might otherwise result in our shareholders receiving a premium over the market price for their common stock.

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As a Nasdaq-listed company, we are required to prepare and file proxy materials which meet the requirements of the Exchange Act and the SEC’s proxy rules.

Compliance with these rules and regulations has increased, and will continue to increase, our legal and financial compliance costs, will make some activities more difficult, time-consuming, or costly, and will increase demand on our systems and resources, particularly after we are no longer an “emerging growth company” as defined in the JOBS Act.

Compliance with these rules and regulations has increased, and will continue

to increase, our legal and financial compliance costs, will make some activities more difficult, time-consuming, or costly, and will increase demand on our systems and resources, particularly after we are no longer an “emerging growth company” as defined in the JOBS Act.

In order to maintain, appropriately document and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet the standards required by the Sarbanes-Oxley Act, significant resources and management oversight may be required.

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Effective internal control over financial reporting is necessary for us to provide reliable reports and prevent fraud.

We may not be able to identify all significant deficiencies and/or material weaknesses in our internal control over financial reporting in the

future, and our failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have an adverse effect on our business, financial condition, and results of operations.

We may not be able to identify all significant deficiencies and/or material weaknesses in our internal control over financial reporting in the future, and our failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have an adverse effect on our business, financial condition, and results of operations.

In the normal course of our operations, we may identify deficiencies that would have to be remediated to satisfy the SEC rules for certification of our internal control over financial reporting.

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There can be no assurance that we will be able to continue to grow and to remain profitable in future periods, or, if profitable, that our overall earnings will remain consistent with our prior results of operations or increase in the future.

A downturn in economic conditions in our market, particularly in the real estate market, heightened competition from other financial services providers, an inability to retain or grow our core deposit base, regulatory and legislative considerations, and failure to attract and retain high-performing talent, among other factors, could limit our ability to grow assets or increase profitability as rapidly as we have in the past.

and failure to attract and retain high-performing talent, among other factors, could limit our ability to grow assets or increase profitability as rapidly as we have in the past.

Sustainable growth requires that we manage our risks by following prudent loan underwriting standards, balancing loan and deposit growth without materially increasing interest rate risk or compressing our net interest margin, maintaining more than adequate capital at all times, managing a growing number of customer relationships, scaling technology platforms, hiring and retaining qualified employees, and successfully implementing our strategic initiatives.

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We may not have, or may not be able to develop, the knowledge or relationships necessary to be successful in new markets.

Our failure to sustain our historical rate of growth, adequately manage the factors that have

contributed to our growth, or successfully enter new markets could have an adverse effect on our earnings and profitability and, therefore, on our business, financial condition, and results of operations.

Our failure to sustain our historical rate of growth, adequately manage the factors that have contributed to our growth, or successfully enter new markets could have an adverse effect on our earnings and profitability and, therefore, on our business, financial condition, and results of operations.

If we implement new lines of business, products, or services, we may invest significant time and resources in doing so, and such new lines of business, products, or services may not be successful.

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In addition, our operations are dependent upon our ability to protect our computer systems and network infrastructure, including our internet banking activities, against damage from physical break-ins, cybersecurity breaches, and other disruptive problems caused by the internet or other users.

Cybersecurity breaches and other disruptions would jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in business disruptions, significant liability to us, and damage to our reputation and may discourage current and potential customers from using our internet banking services.

Our security measures, including firewalls and penetration testing, as well as oversight by our board of directors and Audit Committee as well as management's assessment, identification, and management of cybersecurity risks, may not prevent or detect future potential losses from system failures or cybersecurity breaches, attacks, or other disruptions.

Cybersecurity breaches and other disruptions would jeopardize the security of information stored in and

transmitted through our computer systems and network infrastructure, which may result in business disruptions, significant liability to us, and damage to our reputation and may discourage current and potential customers from using our internet banking services.

Our security measures, including firewalls and penetration testing, as well as oversight by our board of directors and the Audit Committee as well as management’s assessment, identification, and management of cybersecurity risks, may not prevent or detect future potential losses from system failures or cybersecurity breaches, attacks, or other disruptions.

While we seek to continuously monitor for and react to any and all such malicious cyber activity and develop our systems to protect our technology infrastructure and data, such monitoring and systems development may not be effective in preventing misuse, misappropriation, or corruption.

In the ordinary course of business, our board of directors receives quarterly cybersecurity risk management updates and members of the Audit Committee of our board of directors also attend the meetings of our information technology steering committee on a quarterly basis.

Cybersecurity risk

management is incorporated into our overall enterprise risk management model, which is updated on a quarterly basis and subject to oversight by our board of directors.

Cybersecurity risk management is incorporated into our overall enterprise risk management model, which is updated on a quarterly basis and subject to oversight by our board of directors.

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

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Failure to comply with this requirement in the event of such an incident could result in sanctions by regulatory agencies, civil money penalties, and/or damage to our reputation, all of which could have an adverse effect on our business, financial condition, and results of operations.

The SEC recently enacted rules, effective as of December 18, 2023, requiring public companies to disclose material cybersecurity incidents that they experience on Form 8-K within four business days of determining that a material cybersecurity incident has occurred and to disclose on an annual basis material information regarding their cybersecurity risk management, strategy, and governance.

The SEC enacted rules, effective as of December 18, 2023, requiring public companies to disclose material cybersecurity incidents that they experience on Form 8-K within four business days of determining that a material cybersecurity incident has occurred and to disclose on an annual basis material information regarding their cybersecurity risk management, strategy, and governance.

If we fail to comply with these new requirements we could incur regulatory fines in addition to other adverse consequences to our reputation, business, financial condition, and results of operations.

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Any such legal or regulatory actions may subject us to substantial compensatory or punitive damages, significant fines, penalties, obligations to change our business practices, or other requirements resulting in increased expenses, diminished income, and damage to our reputation.

Our involvement in any such matters, whether tangential or otherwise and even if the matters are ultimately determined in our favor, could also cause significant harm to our reputation and divert management attention from the operation of our business.

Our involvement in any such matters, whether tangential or otherwise and even if the matters are ultimately determined in our favor, could also cause significant harm to

our reputation and divert management attention from the operation of our business.

Further, any settlement, consent order, or adverse judgment in connection with any formal or informal proceeding or investigation by government agencies may result in litigation, investigations, or proceedings as other litigants and government agencies begin independent reviews of the same activities.

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Periodic changes to such rules may change the treatment and recognition of critical financial line items.

In addition, the accuracy of our consolidated

financial statements and related disclosures could be affected if the judgments, assumptions, or estimates used in our critical accounting policies are inaccurate.

In addition, the accuracy of our consolidated financial statements and related disclosures could be affected if the judgments, assumptions, or estimates used in our critical accounting policies are inaccurate.

The nature of our business makes us sensitive to the large body of accounting rules in the United States.

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Changes which have been approved for future implementation, or which are currently proposed or expected to be proposed or adopted include requirements that we:

(i) calculate the allowance for credit losses on the basis of the current expected credit losses over the lifetime of our loans, which was applicable to us beginning in 2023, and may result in increases in our allowance for credit losses and future provisions for credit losses and (ii) record the value of and liabilities relating to operating leases on our balance sheet, which became applicable to us beginning in 2022.

and (ii) record the value of and liabilities relating to operating leases on our balance sheet, which became applicable to us beginning in 2022.

These changes could adversely affect our capital, regulatory capital ratios, ability to make larger loans, earnings, and performance metrics.

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

What changed 10-K

Item 1A. Risk Factors