What changed in this filing

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Item 1A. Risk Factors

2025-06-12 compared with 2024-06-14 · 129 added, 94 removed, 251 unchanged (47% of the section changed)

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Our business may be adversely affected by downturns in the national and the regional economies on which we depend.

Substantially all of our loans are to businesses and individuals in the states of Washington and Oregon.

A decline in the economies of the seven counties in which we operate, including the Portland, Oregon metropolitan area, which we consider to be our primary market area, could have a materially adverse effect on our business, financial condition, results of operations and prospects.

Weakness in the global economy and global supply chain issues have adversely affected many businesses operating in our markets that are dependent upon international trade.

Changes in agreements or relationships between the U.S.

and other countries may also affect these businesses and, by extension, our operations.

A downturn in economic conditions in the market areas we serve be it due to inflation, recessive trends, geopolitical conflicts, adverse weather, or other factors, could have a material adverse impact on our business, financial condition, liquidity and results of operations, including but not limited to:

● Elevated instances of loan delinquencies, problematic assets, and foreclosures

Substantially all of our loans are to businesses and individuals in southwest Washington and northwest Oregon, particularly within Clark, Klickitat, Skamania, Multnomah, Washington, Marion, and Clackamas counties, including the Portland, Oregon-Vancouver metropolitan area.

As a result, our financial performance is closely tied to the economic conditions in this region.

A downturn in local or regional economic conditions, due to inflation, rising interest rates, unemployment, recessions, natural disasters, or other adverse events, could materially affect our business, financial condition, and results of operations.

Further, global geopolitical tensions, including international conflicts, sanctions, trade disputes, and tariffs, could disrupt key industries within our market, such as manufacturing, agriculture, and transportation.

These developments may lead to increased costs, reduced business investment, supply chain delays, or reduced demand for credit, adversely affecting our borrowers and, by extension, our asset quality and loan growth.

Additionally, geopolitical instability may heighten cybersecurity threats, including from state-sponsored actors, increasing operational risk and reputational exposure.

A downturn in economic conditions in our market areas or global economic disruptions could have a material adverse impact on our business, financial condition, liquidity and results of operations, including but not limited to:

● Higher loan delinquencies, problematic assets, and foreclosures

● An increase in our ACL for loans

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● Reductions in our low-cost or noninterest-bearing deposits.

A decline in local economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are geographically diverse.

Many of the loans in our portfolio are secured by real estate.

Any deterioration in the real estate markets associated with the collateral securing mortgage loans could significantly impact borrowers’ repayment capabilities and the value of collateral.

Real estate values are affected by various factors, including changes in economic conditions, regulatory changes, and natural disasters such as earthquakes, flooding and tornadoes.

If we are required to liquidate a significant amount of collateral during a period of reduced real estate values, our financial condition and profitability could be adversely affected.

External economic factors, such as changes in monetary policy and inflation and deflation, may have an adverse effect on our business, financial condition and results of operations.

A significant portion of the loans in our portfolio are secured by real estate.

A downturn in local economic conditions could have a greater impact on our earnings and capital compared to larger financial institutions with more geographically diversified real estate loan portfolios.

Any deterioration in the real estate markets associated with the collateral securing mortgage loans may significantly impact borrowers’ repayment capabilities and the value of the collateral.

Real estate values are affected by a range of factors, including changes in economic conditions, regulatory changes, natural disasters (such as earthquakes, flooding, and tornadoes), and trade-related challenges that may impact construction costs or the availability of materials.

If it is necessary to liquidate a significant amount of collateral during a period of reduced real estate values, our financial condition and profitability could be adversely affected.

Monetary policy, inflation, deflation, and other external economic factors could adversely impact our financial performance and operations.

Our financial condition and results of operations are affected by credit policies of monetary authorities, particularly the Federal Reserve.

Actions by monetary and fiscal authorities, including the Federal Reserve, could lead to inflation, deflation, or other economic phenomena that could adversely affect our financial performance.

Inflation has risen sharply since the end of 2021 and throughout 2022 at levels not seen for over 40 years.

Inflationary pressures, while easing recently, still remain elevated.

Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economics of scale to mitigate cost pressures compared to larger businesses.

Consequently, the ability of our business clients to repay their loans may deteriorate quickly, which would adversely impact our results of operations and financial condition.

Furthermore, a prolonged period of inflation could cause wages and other costs to the Company to increase, which could adversely affect our results of operations and financial condition.

Virtually all our assets and liabilities are monetary in nature.

As a result, interest rates tend to have a more significant impact on our performance than general levels of inflation or deflation.

Interest rates do not necessarily move in the same direction or by the same magnitude as the prices of goods and services.

tariffs on imported goods could exacerbate inflationary pressures by increasing the cost of goods and materials for businesses and consumers.

This may particularly affect small to medium-sized businesses, as they are less able to leverage economies of scale to mitigate cost pressures compared to larger businesses.

Consequently, our business clients may experience increased financial strain, reducing their ability to repay

loans and adversely impacting our results of operations and financial condition.

Furthermore, a prolonged period of inflation could cause wages and other costs to us to increase, which could adversely affect our results of operations and financial condition.

Virtually all of our assets and liabilities are monetary in nature, and as a result, interest rates tend to have a more significant impact on our performance than general levels of inflation or deflation.

However, interest rates do not necessarily move in the same direction or magnitude as the prices of goods and services, creating additional uncertainty in the economic environment.

Risks Related to our Lending Activities

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We make construction and land loans primarily to builders to finance the construction of single and multifamily homes, subdivisions, as well as commercial properties.

We originate these loans regardless of whether the property used as collateral in under a sales contract.

We originate these loans regardless of whether the property used as collateral is under a sales contract.

At March 31, 2025, real estate construction and land loans totaled $33.8 million, or 3.18% of our total loan portfolio, and were comprised of $10.8 million of speculative and presold construction loans, $4.6 million of land loans and $18.4 million of commercial/multi-family construction loans.

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This type of lending activity, while potentially more profitable than one-to-four family lending, is generally more sensitive to regional and local economic conditions, making loss levels more difficult to predict.

Collateral evaluation and financial statement analysis in these

types of loans requires a more detailed analysis at the time of loan underwriting and on an ongoing basis.

Collateral evaluation and financial statement analysis in these types of loans requires a more detailed analysis at the time of loan underwriting and on an ongoing basis.

At March 31, 2025, we had $683.6 million of commercial and multi-family real estate loans, representing 64.4% of our total loan portfolio.

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Moreover, a substantial portion of our commercial and multi-family real estate loans do not fully amortize and include substantial balloon payments upon maturity.

These balloon payments may require the borrower to either sell or refinance the property, potentially heightening the risk of default on non-payment.

These balloon payments may require the borrower to either sell or refinance the property, potentially heightening the risk of default or non-payment.

In the event of a foreclosure on a commercial or multi-family real estate loan, our holding period for the collateral tends to be more extended compared to one-to-four family residential loans.

This elongated holding period results from a limited pool of potential purchasers for the collateral.

In recent years financial institutions have witnessed substantial growth in commercial real estate markets, compounded by intensified competitive pressures that have led to historically low capitalization rates and surging property valuations.

The economic disruption spurred by the COVID-19 pandemic has particularly affected commercial real estate markets.

Additionally, the pandemic has accelerated the adoption of remote work options, potentially influencing the long-term performance of certain office properties within our commercial real estate portfolio.

Moreover, the federal banking regulatory agencies have raised concerns about vulnerabilities within the current commercial real estate market, recognizing the risks associated with these assets.

Failures in our risk management policies, procedures, and controls could impede our ability to effectively manage this portfolio, potentially leading to increased delinquencies and higher losses, thereby materially impacting our business, financial condition, and operational performance.

In recent years, the commercial real estate market has experienced substantial growth, with increased competition contributing to historically low capitalization rates and rising property values.

However, the economic disruption caused by the COVID-19 pandemic significantly impacted this market.

The pandemic also accelerated the adoption of remote work, which has led many companies to re-evaluate their long-term real estate needs.

While some businesses are returning to traditional office environments, others are downsizing or shifting to hybrid models, creating uncertainty in demand for office spaces and other commercial properties.

This trend could result in prolonged vacancies, declining rental income, and reduced property values, adversely affecting the performance of our commercial real estate portfolio.

Federal banking regulators also have raised concerns about weaknesses in the commercial real estate market.

Failures in our risk management policies and controls could lead to higher delinquencies and losses, adversely affecting our business, financial condition, and results of operations.

Our business may be adversely affected by credit risk associated with residential property and declining property values.

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Collateral for commercial business loans typically includes equipment, inventory, accounts receivable, or other business assets.

For loans secured by accounts receivable, the availability of funds for repayment relies heavily on the borrower’s ability to collect from its customers.

Additionally, the value of other collateral, such as equipment, may depreciate over time, and could be challenging to appraise or liquidate, varying based on the nature of the business.

For loans secured by accounts receivable, the availability of funds for repayment relies heavily on the borrower’s ability to collect from its clients.

Additionally, the value of other collateral, such as equipment, may depreciate over time, and could be challenging to

appraise or liquidate, varying based on the nature of the business.

Consequently, the availability of funds for loan repayment is significantly contingent on the success of the borrower’s business, which is often influenced by broader economic conditions and, to a lesser extent, the value of provided collateral.

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Lending money is a substantial part of our business and each loan carries risks, including that it will not be repaid in accordance with its terms or that any underlying collateral will not be sufficient to assure repayment.

This risk is affected by, among other things:

These risks are affected by, among other things:

● The cash flow of the borrower or the project being financed.

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If charge-offs in future periods exceed the ACL, we may need additional provisions to increase the ACL.

Any increases in the ACL will result in a decrease in net income and may have a material adverse effect on our financial condition, results of operations, liquidity and capital.

Any increases in the ACL will reduce net income and may have a material adverse effect on our financial condition, results of operations, liquidity and capital.

Risks Related to Market and Interest Rate Changes

Changes in interest rates may reduce our net interest income and may result in higher defaults in a rising rate environment.

Our earnings and cash flows are largely dependent upon our net interest income.

Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies, in particular, the Federal Reserve.

Since March 2022, in response to inflation, the Federal Open Market Committee (“FOMC”) of the Federal Reserve has increased the target range for the federal funds rate by 525 basis points, including 50 basis points during fiscal 2024, to a range of 5.25% to 5.50% as of March 31, 2024.

As inflation eases, the FOMC has indicated rate decreases may be expected during 2024.

However, if the FOMC further increases the targeted federal funds rate, overall interest rates will likely continue to rise, which will negatively impact our net interest income and may negatively impact both the housing market by reducing refinancing activity and new home purchases, and the U.S.

Our earnings and cash flows are largely dependent upon our net interest income, which is significantly affected by interest rates.

Interest rates are highly sensitive to factors beyond our control, such as general economic conditions and policies set by governmental and regulatory bodies, particularly the Federal Reserve.

Increases in interest rates could reduce our net interest income, weaken the housing market by reducing refinancing activity and home purchases, and negatively affect the broader U.S.

economy, potentially leading to slower economic growth or recessionary conditions.

We principally manage interest rate risk by managing our volume and mix of our earning assets and funding liabilities.

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Decreases in the fair value of securities available for sale resulting from increases in interest rates could have an adverse effect on stockholders’ equity.

At March 31, 2024, we recorded an $16.1 million accumulated other comprehensive loss, which is reflected as a reduction to stockholders’ equity.

Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations.

Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our consolidated balance sheet or projected operating results.

At March 31, 2025, we recorded a $13.3 million accumulated other comprehensive loss, which is reflected as a reduction to stockholders’ equity.

While we employ asset and liability management strategies to mitigate interest rate risk, unexpected, substantial, or prolonged rate changes could materially affect our financial condition and results of operations.

Additionally, our interest rate risk models and assumptions may not fully capture the impact of actual rate changes on our balance sheet or projected operating results.

See Item 7A., “Quantitative and Qualitative Disclosures About Market Risk,” of this Form 10-K.

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The Company employs commissioned brokers who originate mortgage loans (including construction loans) for various mortgage companies.

These loans are closed and funded by the purchasing mortgage company and are not considered assets of the Company.

These loans are closed and funded by

the purchasing mortgage company and are not considered assets of the Company.

Instead, the Company receives a fee typically ranging from 1.5% to 2.0% of the loan amount, which is shared with the commissioned broker.

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These laws, regulations, rules, standards, policies, and interpretations are constantly evolving and may change significantly over time.

Any new regulations or legislation, change in existing regulations or oversight, whether a change in regulatory policy or a change in a regulator’s interpretation of a law or regulation, may require us to invest significant management attention and resources to make any necessary changes to operations to comply and could have an adverse effect on our business, financial condition and results of operations.

to comply and could have an adverse effect on our business, financial condition and results of operations.

Additionally, actions by regulatory agencies or significant litigation against us may lead to penalties that materially affect us.

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While we have developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance can be given that these policies and procedures will be effective in preventing violations of these laws and regulations.

Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us.

Any of these results could have a materially adverse effect on our business, financial condition, results of operations and growth prospects.

Additionally, any perceived or actual failure to prevent money laundering or terrorist financing activities could significantly damage our reputation.

These outcomes could have a material adverse effect on our business, financial condition, results of operations, and growth prospects.

If our enterprise risk management framework is not effective at mitigating risk and loss to us, we could suffer unexpected losses and our results of operations could be materially adversely affected.

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

Climate change continues to be a pressing concern, prompting heightened awareness and action on a global scale.

Efforts include international agreements such as the Paris Agreement, with the United States rejoining, and ongoing initiatives at various governmental levels to address climate-related issues.

Under the current administration, additional measures are anticipated, potentially impacting banks’ risk management practices, stress testing, credit portfolio concentrations, and investment strategies.

The lack of empirical data makes it challenging to predict the precise financial impact of climate change, though its physical effects such as more frequent weather disasters, could directly affect our real estate collateral and loan portfolios.

Inadequate insurance coverage for borrowers may compound these risks, impacting our financial condition.

Furthermore, climate change’s broader economic effects could adversely affect our customers and the communities we serve, potentially impacting our financial performance.

On March 6, 2024, the SEC implemented new climate-related disclosure rules for U.S.

public companies and foreign private issuers.

These rules introduce extensive disclosure requirements, increasing reporting costs, risks, and complexity.

Challenges include short compliance timelines, interpretive issues, legal liabilities, and global regulatory overlaps.

Lawsuits contesting these

rules add further uncertainty.

However, on March 15, 2024, the U.S.

Court of Appeals for the Fifth Circuit granted an administrative stay, temporarily halting the implementation of the SEC's climate rules.

The effects of climate change continue to raise significant concerns about the state of the environment.

However, under the current administration, federal policy has shifted to reduce emphasis on climate change initiatives and environmental regulations.

This includes scaling back federal involvement in international agreements like the Paris Agreement and easing regulatory pressures on businesses, including banks, to address climate-related risks.

Legislative and regulatory proposals aimed at combating climate change may face increased scrutiny or reduced priority under this administration.

The lack of empirical data regarding the financial and credit risks posed by climate change still makes it difficult to predict its specific impact on our financial condition and results of operations.

However, the physical effects of climate change, such as more frequent and severe weather disasters, could directly affect us.

For instance, such events may damage real property securing loans in our portfolios or reduce the value of that collateral.

If our borrowers' insurance is insufficient to cover these losses or if insurance becomes unavailable, the value of the collateral securing our loans could be negatively affected, potentially impacting our financial condition and results of operations.

Moreover, climate change may adversely affect regional and local economic activity, harming our clients and the communities in which we operate.

Regardless of changes in federal policy, the effects of climate change and their unknown long-term impacts could still have a material adverse effect on our financial condition and results of operations.

Risks Related to Cybersecurity, Data and Fraud

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Our security measures may not be sufficient to mitigate the risk of a cyber-attack .

Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger and virtually all other aspects of our business.

Communications and information systems are essential to the conduct of our business, as we use such systems to manage our client relationships, our general ledger and virtually all other aspects of our business.

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

Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our computer systems, software, and networks may be vulnerable to breaches, fraudulent or unauthorized access, denial or degradation of service attacks, misuse, computer viruses, malware or other malicious code and cyber-attacks that could have a security impact.

If one or more of these events occur, this could jeopardize our or our customers’ confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our customers or counterparties.

If one or more of these events occur, this could jeopardize our or our clients’ confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our clients or counterparties.

We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us.

We could also suffer significant reputational damage.

Additionally, as our cardholders use debit and credit cards for transactions with third parties or through third-party processing services, we face additional risks from data breaches in their system or payment processors.

Such breaches could expose our account information, leading to liabilities for fraudulent transactions, fines, and higher transaction fees.

Breaches may also erode customer trust, prompting shifts in payment methods and potential changes to our payment systems, which could incur higher costs.

Breaches may also erode client trust, prompting shifts in payment methods and potential changes to our payment systems, which could incur higher costs.

Despite ongoing efforts to enhance our information technology systems and provide employee awareness training, cyber threats remain pervasive, particularly in the financial services industry.

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Increases in criminal activity levels and sophistication, advances in computer capabilities, new discoveries, vulnerabilities in third-party technologies (including browsers and operating systems) or other developments could result in a compromise or breach of the technology, processes and controls that we use to prevent fraudulent transactions and to protect data about us, our clients and underlying transactions.

Any compromise of our security could deter customers from using our internet banking services that involve the transmission of confidential information.

Any compromise of our security could deter clients from using our internet banking services that involve the transmission of confidential information.

Although we have developed and continue to invest in systems and processes that are designed to detect and prevent security breaches and cyber-attacks and periodically test our security, these precautions may not protect our systems from compromises or breaches of our security measures, and could result in losses to us or our clients, our loss of business and/or clients, damage to our reputation, the incurrence of additional expenses, disruption to our business, our inability to grow our online services or other businesses, additional regulatory scrutiny or penalties, or our exposure to civil litigation and possible financial liability, any of which could have a material adverse effect on our business, financial condition and results of operations.

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While the Company selects third-party vendors carefully, it does not control their actions.

If our third-party providers encounter difficulties, including those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher transaction volumes, cyber-attacks and security breaches or if we otherwise have difficulty in communicating with them, our ability to adequately process and account for transactions could be affected, and our ability to deliver products and services to our customers and otherwise conduct our business operations could be adversely impacted.

If our third-party providers encounter difficulties, including those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher transaction volumes, cyber-attacks and security breaches or if we otherwise have difficulty in communicating with them, our ability to adequately process and account for transactions could be affected, and our ability to deliver products and services to our clients and otherwise conduct our business operations could be adversely impacted.

Replacing these third-party vendors could also entail significant delay and expense.

Threats to information security also exist in the processing of customer information through various other vendors and their personnel.

Threats to information security also exist in the processing of client information through various other vendors and their personnel.

We cannot assure you that such breaches, failures or interruptions will not occur or, if they do occur, that they will be adequately addressed by us or the third parties on which we rely.

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If any of our third-party service providers experience financial, operational or technological difficulties, or if there is any other disruption in our relationships with them, we may be required to identify alternative sources of such services, and we cannot assure that we could negotiate terms that are as favorable to us, or could obtain services with similar functionality as found in our existing systems without the need to expend substantial resources, if at all.

Further, the occurrence of any systems failure or interruption could damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability.

Further, the occurrence of any systems failure or interruption could damage our reputation and result in a loss of clients and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability.

Any of these occurrences could have a materially adverse effect on our financial condition and results of operations.

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While we have policies and procedures designed to prevent such losses, there can be no assurance that such losses will not occur.

Our current and future uses of Artificial Intelligence (“AI”) and other emerging technologies may create additional risks.

The increasing adoption of AI in financial services presents significant opportunities but also introduces a range of risks that could impact our operations, regulatory compliance, and client trust.

AI introduces model risk, where flawed algorithms or biased data could result in inaccurate credit decisions, compliance violations, or discriminatory outcomes in lending or client service.

Cybersecurity threats, such as data breaches, adversarial attacks, and data poisoning, pose significant challenges, particularly as these systems handle large volumes of sensitive client information.

Additionally, the opaque nature of some AI models, often referred to as "black-box" systems, raises regulatory compliance concerns, as regulators increasingly require transparency and explainability in AI-driven decision-making.

Operational risks also arise from potential system failures, over-reliance on AI, and integration challenges with existing infrastructure.

Disruptions in AI systems could impact critical functions such as fraud detection, transaction monitoring, and client support.

Ethical and reputational risks, including unintended consequences or perceived unfairness in AI-driven decisions, may erode client trust and expose us to regulatory scrutiny.

Mitigating these risks requires a robust governance framework, regularly testing and auditing of AI models, and strong human oversight.

Investments in cybersecurity, data privacy protections, and employee training are critical to managing these risks.

Risks Related to Accounting Matters

The Company’s reported financial results depend on management’s selection of accounting methods and certain assumptions and estimates, which, if incorrect, could cause unexpected losses in the future.

The Company’s accounting policies and methods are fundamental to how the Company records and reports its financial condition and results of operations.

The Company’s management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with GAAP and reflect management’s judgment regarding the most appropriate manner to report the Company’s financial condition and results of operations.

In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which might be reasonable under the circumstances, yet might result in the Company’s reporting materially different results than would have been reported under a different alternative.

Certain accounting policies, most notably the ACL, are critical to presenting the Company’s financial condition and results of operations.

Our reported financial results depend on management’s selection of accounting methods and certain assumptions and estimates, which, if incorrect, could cause unexpected losses in the future.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations.

Management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with GAAP and reflect management’s judgment regarding the most appropriate manner to report our financial condition and results of operations.

In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which might be reasonable under the circumstances, yet might result in the Company reporting materially different results than would have been reported under a different alternative.

Certain accounting policies, most notably the ACL, are critical to presenting our financial condition and results of operations.

They require management to make difficult, subjective or complex judgments about matters that are uncertain.

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Any such charge could have a material adverse effect on our results of operations.

Risks Related to Merger and Acquisition Strategy

While acquisitions supplement our strategic growth objectives, they involve risks that may negatively impact our results of operations and financial condition.

As part of our general growth strategy, we periodically expand our business through acquisitions.

While our primary focus remains on organic growth, we from time to time engage in discussions with potential acquisition targets in the ordinary course of business.

There can be no assurance that we will successfully identify suitable acquisition candidates, complete acquisitions on acceptable terms, or effectively integrate acquired operations into our existing business or expand into new markets.

Future acquisitions may dilute shareholder value or adversely impact our operating results during the integration process.

Acquired operations may not achieve the same profitability levels as our existing operations or meet performance expectations.

Additionally, transaction-related expenses could negatively affect our earnings and, in turn, the market value of our stock.

Acquiring banks, bank branches, or businesses involves several risks, including:

● Exposure to potential asset quality issues or unknown and contingent liabilities associated with acquired institutions or assets, which, if underestimated, could materially and adversely affect our results of operations and financial condition;

● Higher-than-expected deposit attrition or client loss;

● Potential diversion of management’s time and attention from ongoing operations and strategic priorities;

● Market fluctuations affecting acquisition pricing, which may limit our ability to pursue transactions in certain markets at valuations we consider acceptable;

● Challenges associated with integrating systems, processes, and personnel of the acquired business into our operations.

The integration process can be complex, time-consuming, and disruptive to acquired clients, and if not executed effectively, may delay or reduce expected economic benefits or lead to the loss of clients or employees, even if integration is otherwise successful;

● The need to finance acquisitions, which may involve increased leverage through borrowings or the issuance of additional equity, potentially diluting the interests of existing shareholders;

● The possibility that we may not be able to sustain our historical rate of growth or grow at all through future acquisitions;

● The requirement to record goodwill for acquisitions in excess of the fair value of net assets acquired, which must be tested for impairment at least annually and could result in future non-cash charges.

If any of these risks materialize, they could have a material adverse effect on our business, financial condition, results of operations, and stock price.

Risks Related to our Business and Industry General

We rely on other companies to provide key components of our business infrastructure.

We rely on numerous external vendors to provide us with products and services necessary to maintain our day-to-day operations.

We rely on numerous external vendors to provide products and services necessary for our day-to-day operations.

Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with the contracted arrangements under service level agreements.

The failure of an external vendor to perform in accordance with the contracted arrangements under service level agreements because of changes in the vendor’s organizational structure, financial condition, support for existing products and services or strategic focus or for any other reason, could be disruptive to our operations, which in turn could have a material negative impact on our financial condition and results of operations.

We also could be adversely affected to the extent such an agreement is not renewed by the third-party vendor or is renewed on terms less favorable to us.

Additionally, the bank regulatory agencies expect financial institutions to be responsible for all aspects of a vendor’s performance, including aspects which a vendor delegates to third parties.

Disruptions or failures in the physical infrastructure or operating systems that support our business and clients, or cyber-attacks or security breaches of the networks, systems or devices that our clients use to access our products and services could result in client attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect our results of operations or financial condition.

If a vendor fails to meet its contractual obligations due to changes in its organizational structure, financial condition, support for existing products and services, strategic focus, or any other reason, our operations could be disrupted, potentially causing a material adverse impact on our financial condition and results of operations.

Furthermore, we could be adversely affected if a vendor agreement is not renewed or is renewed on terms less favorable to us.

Regulatory agencies also require financial institutions to remain accountable for all aspects of vendor performance, including activities delegated to third parties.

Additionally, disruptions or failures in the physical infrastructure or operating systems supporting our business and clients, or cyber-attacks or security breaches involving networks, systems, or devices used by our clients to access our products and services, could result in client attrition, regulatory fines or penalties, reputational damage, reimbursement or compensation costs, and increased compliance expenses.

Any of these outcomes could materially and adversely affect our financial condition and results of operations.

Ineffective liquidity management could adversely affect our financial results and condition.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity” of this Form 10-K.

Additionally, collateralized public funds are bank deposits of state and local municipalities.

These deposits are required to be secured by certain investment grade securities to ensure repayment, which on the one hand tends to reduce our contingent liquidity risk by making these funds somewhat less credit sensitive, but on the other hand reduces standby liquidity by restricting the potential liquidity of the pledged collateral.

Although these funds historically have been a relatively stable source of funds for us, availability depends on the individual municipality’s fiscal policies and cash flow needs.

Additionally, collateralized public funds (state and local municipal deposits secured by investment-grade securities) help reduce contingent liquidity risk by being less credit-sensitive, however, the pledging of collateral to secure these funds limits their availability as a reserve source of liquidity.

While these deposits have historically provided stable funding, their availability depends on the individual municipality’s fiscal policies and cash flow needs.

Our branching strategy may cause our expenses to increase faster than revenues.

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Further, if we are unable to raise additional capital when required by our bank regulators, we may be subject to adverse regulatory action.

Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance (“ESG”) practices may impose additional costs on us or expose us to new or additional risks.

Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their ESG practices disclosure.

Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights.

Increased ESG-related compliance costs could increase our overall operational costs.

Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price.

New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.

Regulatory Changes to Diversity, Equity and Inclusion (“DEI”) and Environmental, Social and Governance (“ESG”) Practices May Adversely Impact Our Reputation, Compliance Costs, and Business Operations.

In March 2025, the federal government issued a new executive order titled "Ending Illegal Discrimination and Restoring Merit-Based Opportunity," which rescinded prior directives promoting DEI, including Executive Order 11246 applicable to federal contractors.

The new order directs agencies to investigate and take enforcement action against DEI practices deemed inconsistent with federal nondiscrimination laws, signaling a shift in regulatory priorities that could materially impact financial institutions.

As a provider of financial services, we are subject to heightened scrutiny from regulators, investors, and the public regarding our governance, hiring practices, and commitment to ESG and DEI principles.

The revised regulatory environment may prompt reexamination of our employment practices, vendor selection criteria, training programs, and client-facing disclosures.

In particular, financial institutions engaged in government contracting or receiving federal program support may face added compliance exposure.

Any required adjustments to our DEI or ESG strategies, such as modifications to workforce diversity goals, community lending initiatives, or supplier diversity programs, could increase operational complexity and legal risk.

Federal agencies may issue updated guidance, reassess existing supervisory frameworks, or pursue enforcement actions based on perceived violations of the revised standards.

At the same time, some states continue to require affirmative action policies or corporate diversity reporting, adding further complexity.

Failure to comply with the current regulatory framework could result in reputational damage, litigation, regulatory investigations, or limitations on our participation in federal programs.

Conversely, a perceived retreat from DEI commitments could negatively affect our reputation with institutional investors, ratings agencies, community stakeholders, and current or prospective employees.

ESG ratings firms may also downgrade assessments, potentially affecting our access to capital or increasing cost of funds.

Given the prominent role ESG and DEI considerations play in financial services, particularly in governance and risk oversight, we must continuously evaluate and align our practices with both regulatory expectations and stakeholder priorities.

Misalignment in either direction could adversely affect our brand, employee engagement, client relationships, and financial performance.

Competition with other financial institutions could adversely affect our profitability.

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Our ability to retain and recruit key management personnel and bankers is critical to the success of our business strategy and any failure to do so could impair our customer relationships and adversely affect our business and results of operations.

Competition for qualified employees and personnel in the banking industry is intense and there are a limited number of qualified persons with knowledge of, and experience in, the community banking industry where the Bank conducts its business.

The process of recruiting personnel with the combination of skills and attributes required to carry out our strategies is often lengthy.

Our success depends to a significant degree upon our ability to attract and retain qualified management, loan origination, finance, administrative, marketing and technical personnel and upon the continued contributions of our management and personnel.

Our ability to retain and grow our loans, deposits, and fee income depends upon the business generation capabilities, reputation, and relationship management skills of our lenders.

If we were to lose the services of any of our bankers, including successful bankers employed by banks that we may acquire, to a new or existing competitor, or otherwise, we may not be able to retain valuable relationships and some of our customers could choose to use the services of a competitor instead of our services.

In addition, our success has been and continues to be highly dependent upon the services of our directors, many of whom are at or nearing retirement age, and we may not be able to identify and attract suitable candidates to replace such directors.

Competition for qualified employees in the banking industry is intense, with a limited pool of candidates experienced in community banking.

Our success relies on attracting and retaining skilled management, loan origination, finance, administrative, marketing, and technical personnel, as well as on the continued contributions of key executives and other critical employees.

Losing any of these individuals could result in a challenging transition period and negatively impact our operations.

Additionally, the experience and client relationships of our banking facility managers are vital to maintaining strong connections with the communities we serve.

The loss of these key personnel or directors nearing retirement without suitable replacements could adversely affect our business.

We rely on dividends from the Bank for substantially all of our revenue at the holding company level.

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The availability of dividends from the Bank is limited by the Bank’s earnings and capital, as well as various statutes and regulations.

In the event the Bank is unable to pay dividends to us, we may not be able to pay dividends on our common stock or make payments on our outstanding

In the event the Bank is unable to pay dividends to us, we may not be able to pay dividends on our common stock or make payments on our outstanding debt.

Consequently, the inability to receive dividends from the Bank could adversely affect our financial condition, results of operations, and future prospects.

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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