What changed in this filing

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Item 1A. Risk Factors

2026-06-12 compared with 2025-06-12 · 48 added, 30 removed, 350 unchanged (18% of the section changed)

10 unchanged sentences

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.

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

Federal tariffs and related trade policies have increased costs and created economic uncertainty for Oregon and Washington businesses, with certain companies facing higher import costs across a wide range of goods and potential adverse impacts in industries, many of which are represented in our loan portfolio.

These developments have led to increased costs, reduced business investment, supply chain delays, and 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.

6 unchanged sentences

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

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

A significant portion of the loans in our portfolio is 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.

5 unchanged sentences

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.

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

Elevated U.S.

tariffs on imported goods have

exacerbated inflationary pressures by increasing the cost of goods and materials for businesses and consumers.

Persistent inflationary pressures, including those associated with tariffs and supply chain disruptions, may contribute to a prolonged elevated interest rate environment, which may delay anticipated rate reductions and prolong pressure on net interest margins for community banks.

The interplay between persistent goods inflation and the Federal Reserve’s constrained ability to ease monetary policy creates an uncertain environment that is difficult to plan around, particularly for a community bank whose borrowers are concentrated in trade-sensitive industries.

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.

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.

22 unchanged sentences

Furthermore, in the case of speculative construction loans, there is the added risk associated with identifying an end-purchaser for the finished project.

Loans on land under development or raw land held for future construction, including lot loans made to individuals for the future construction of a residence also pose additional risk because of the lack of income being produced by the property and the potential illiquid nature of the collateral.

illiquid nature of the collateral.

These risks can be significantly impacted by supply and demand conditions.

16 unchanged sentences

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

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.

The commercial real estate market continues to face significant structural and cyclical pressures.

The shift to hybrid and remote work arrangements has become an enduring feature of the office market rather than a transitional condition, resulting in elevated vacancy rates and declining property values in many office submarkets.

At the same time, a substantial volume of commercial real estate loans industry-wide are maturing in the current environment of elevated interest rates, creating widespread refinancing pressure.

Borrowers unable to refinance at acceptable terms may face increased risk of default, which could adversely affect the performance of our commercial real estate portfolio.

Federal banking regulators have heightened oversight of institutions with significant commercial real estate concentrations, and have indicated they will continue to scrutinize underwriting practices, stress testing, and capital adequacy at banks with elevated concentrations.

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.

15 unchanged sentences

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.

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.

16 unchanged sentences

Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may also require an increase in the ACL.

Bank regulatory agencies also periodically review our ACL and may require an increase in the provision for possible credit losses or the recognition of further loan charge-offs based on their judgment about information available to them at the time of their examination.

Bank regulatory agencies also periodically review our ACL and may require an increase in the provision for credit losses or the recognition of further loan charge-offs based on their judgment about information available to them at the time of their examination.

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

38 unchanged sentences

The fair value of our investment securities is susceptible to significant shifts due to factors beyond our control, potentially leading to adverse changes in their valuation.

These factors include, but are not limited to, rating agency actions in respect of the securities, defaults by the issuer or adverse events related to the underlying securities, capital market instability, and, as previously mentioned, fluctuations in market interest rates.

fluctuations in market interest rates.

Any of these factors, among others, could cause the fair value of these securities to be lower than the amortized cost basis resulting in a credit loss, which could have a material effect on our business, financial condition and results of operations.

4 unchanged sentences

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.

23 unchanged sentences

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.

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

19 unchanged sentences

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.

However, changes in federal regulatory priorities and policies have shifted emphasis on climate change initiatives and environmental regulations.

These developments may include changes in federal participation in international climate initiatives and modifications to regulatory expectations applicable to businesses, including financial institutions.

Legislative and regulatory proposals relating to climate

change may be modified, delayed, or implemented inconsistently across jurisdictions, increasing compliance uncertainty and operational complexity.

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.

17 unchanged sentences

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

Federal banking regulators have expanded their supervisory focus on cybersecurity to include threats from foreign state-sponsored actors and geopolitical adversaries, reflecting an elevated and evolving threat environment.

AI -enabled attacks, including sophisticated phishing, deepfakes, and social engineering campaigns targeting financial institutions, continue to evolve in frequency and sophistication.

Additionally, federal and state regulatory requirements relating to cybersecurity incident response, client notification obligations, and third-party risk management continue to evolve and may impose additional operational, compliance, and reporting obligations on financial institutions.

Failure to comply with these requirements could result in regulatory penalties and reputational damage.

We must continuously monitor and fortify our networks and infrastructure to prevent, detect, and address unauthorized access, misuses, computer viruses, and other security risks.

3 unchanged sentences

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.

litigation and possible financial liability, any of which could have a material adverse effect on our business, financial condition and results of operations.

Our security measures may not protect us from system failures or interruptions .

17 unchanged sentences

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.

Our current and future uses of 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.

2 unchanged sentences

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.

AI also introduces a new attack surface:

adversaries are increasingly using AI to generate more convincing phishing messages, synthetic voice and video content (deepfakes), and other tools designed to deceive bank employees or clients.

These AI-enabled threats are of particular concern for community banks, which may have fewer dedicated cybersecurity resources than larger institutions.

Moreover, our use of AI tools and models supplied by third-party vendors does not reduce our regulatory responsibility for the outcomes those tools produce, and we remain accountable for safe and sound operations regardless of the source of a technology failure or compliance gap.

AI systems may also produce inaccurate, misleading, or biased outputs, sometimes referred to as “hallucinations,” which could adversely affect client interactions, underwriting decisions, fraud detection, compliance processes, or other operational functions if not properly identified and mitigated.

In addition, the use of third-party AI tools may create risks relating to data governance,

confidentiality, intellectual property ownership, and reliance on vendors whose systems and controls are outside of our direct oversight.

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

3 unchanged sentences

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

The regulatory landscape governing AI in financial services remains fragmented.

There is currently no comprehensive federal AI governance framework, and numerous states, including Oregon and Washington, have introduced or are actively considering AI-related legislation that could impose additional compliance obligations.

We must monitor developments across multiple jurisdictions and adapt our AI governance practices accordingly, which may increase our compliance costs and operational complexity.

Risks Related to Accounting Matters

52 unchanged sentences

Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry or deterioration in credit markets.

Any decline in available funding in amounts adequate to finance our activities on acceptable terms could adversely impact our ability to originate loans, invest in securities, meet our expenses or fulfill obligations such as repaying our borrowings or meeting deposit withdraw demands, any of which could, in turn, have a material adverse effect on our business, financial condition and results of operations.

Any decline in available funding in amounts adequate to finance our activities on acceptable terms could adversely impact our ability to originate loans, invest in securities, meet our expenses or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could, in turn, have a material adverse effect on our business, financial condition and results of operations.

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

16 unchanged sentences

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

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.

Changes in Laws, Regulations and Public Expectations Relating to Diversity, Equity and Inclusion (“DEI”) and Environmental, Social and Governance (“ESG”) Matters May Adversely Impact Our Reputation, Compliance Costs, and Business Operations.

In recent periods, federal and state governmental authorities have revised or proposed changes to laws, regulations, executive orders, and enforcement priorities relating to DEI and ESG matters, including policies affecting federal contractors and regulated financial institutions.

These evolving regulatory expectations may increase legal, compliance, operational, and reputational risks for 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.

29 unchanged sentences

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