Risk Factors Update Summary

• A return of recessionary conditions or a high concentration of client base in the San Francisco Bay area could affect markets dependent on international trade. This could result in a downturn in economic conditions in various market areas, including San Francisco Bay Area, Southern California, Denver, Colorado, and Seattle, Washington.
• Adoption of the CECL model on January 1, 2023, led to a $1.5 million increase in the allowance for credit loss on loans and a $45,000 increase on unfunded commitments, impacting opening retained earnings by $491,000.
• Elevated levels of loan delinquencies, problematic assets, and foreclosures may lead to an increase in the allowance for credit losses on loans.
• Commercial real estate loan portfolio decreased from representing over 300% of total capital to 253%, with owner-occupied commercial real estate decreasing from 151% to 110%.
• Reduced demand for products and services may potentially lead to a decline in overall loans or assets.
• Deposits from labor unions decreased from 32% to 30% of total deposits, with aggregate deposits from nine labor unions totaling $399 million, down from $132 million.
• Reduction in low-cost or noninterest-bearing deposits may decrease net worth and liquidity of loan guarantors, impairing their ability to meet commitments.
• The financial services market's rapid technological changes pose a risk; inability to keep pace may impair competitiveness.
• Increased interest rates by the Federal Reserve could positively impact the company's financial condition, liquidity, and results of operations.
• Increased regulatory scrutiny and evolving ESG expectations may lead to additional costs or new risks.
• The company's growth strategy through loan purchases may expose it to heightened risks, particularly when acquiring loans in unfamiliar geographic areas.
• Inability to effectively implement new technology-driven products may impair competitiveness and financial performance.
• Expansion into new markets or lines of business may not be successful and could have a material adverse effect on the company's financial condition and results of operations.
• Reliance on dividends from the Bank for cash flow, restricted by laws, may limit ability to pay dividends to shareholders.