Risk Factors Update Summary

• Adoption of ASU 2016-13 changed the Company's accounting for credit losses, resulting in a $4.5 million decrease in retained earnings.
• Net charge-offs increased significantly from $1,081 million to $11,379 million.
• Negative developments in the banking industry could adversely affect business operations and financial condition. Bank failures have caused significant market trading volatility among publicly traded bank and financial holding companies.
• Increase in total available-for-sale securities from $436 million to $513 million.
• The company implemented a Compensation Recoupment Policy effective October 16, 2023, for Covered Executives.
• Increase in yield on funded portfolio originations to 8.41% due to higher interest rates.
• Total interest expense increased by $65.7 million, primarily due to increases in interest expense associated with certificates and brokered deposits.
• Loans reclassified to non-accruing status increased by $4.5 million, phased into regulatory capital calculations over three years.
• The Company adopted ASU 2016-2023, resulting in a $3.0 million pre-tax one-time cumulative effect adjustment.
• The ACL on loans as of December 31, 2023, was $38,774,000, reflecting management's estimate of expected credit losses.
• Rise in agency mortgage-backed securities - residential from $121 million to $166 million.
• Nonperforming loans increased by $2.4 million, or 32.3%, to $10.1 million as of December 31, 2023.
• Noninterest income increased by $4.9 million, driven by gains on sale of loans and net loan servicing revenue.
• Recoveries increased from $554 million to $1,679 million, a substantial rise.
• Covered Executives must return Erroneously Awarded Compensation upon a Recoupment Event.
• The company adopted ASU 2016-03, resulting in a net decrease to retained earnings of $4.5 million.
• Increased regulatory scrutiny and new regulations may raise costs of doing business and reduce profitability. Anticipated focus on deposit composition, uninsured deposits, brokered deposits, and more could impact financial condition.
• Interest expense related to certificates and brokered deposits increased by 247 bps, driven by higher deposit costs.
• Small business lending increased by $5.3 million, with $2.9 million in franchise finance added.
• SBA 7(a) loan sales increased by 110.4% to $281.1 million, impacting gain on sale of loans.
• Total losses charged off increased from $2,760 million to $15,454 million.
• The ACL for loans is now estimated using a discounted cash flow method, including qualitative adjustments.
• Loans originated for sale decreased from $518,870 to $328,146, with proceeds from sales decreasing from $832,089 to $342,684.
• Decrease in corporate securities from $551 million to $41 million.
• Incentive-Based Compensation subject to recovery includes amounts received after October 23, 2023.
• The company estimates incurring a total pre-tax expense of approximately $3.1 million associated with exiting the consumer mortgage origination business.
• The Company expects an increase in the allowance for credit losses between $2.5 million and $3.0 million.
• Total assets increased by $624 million, primarily due to deposit growth and loan balances.
• The Company decided to exit its consumer mortgage business, resulting in a $6.8 million reduction in total annual noninterest expense.
• Residential mortgage loans increased by $1.1 million, with $0.8 million in home equity.
• Increase in total held-to-maturity securities from $227,446 to $227,483.
• Net deferred income tax decreased from $4,353 to $2,434, impacting the net change in other assets.
• The provision for credit losses - loans increased from $15.0 million to $15.5 million.
• Total deposits increased by $625 million, from $3.4 billion to $4.1 billion.
• Total deposits increased by $625 million, with non-interest-bearing demand deposit accounts rising by $58 million.
• Addition of $2.5 million reserve for off-balance sheet commitments due to CECL adoption.
• The Company recorded a one-time $0.3 million cumulative adjustment to the allowance for held-to-maturity securities.
• The approximate fair value of investment securities available-for-sale increased by $84 million.
• The Company performed an assessment under ASU 2023-07, resulting in a $2,962 million increase in the total allowance for credit losses.
• Increase in allowance for credit losses from $31,737 to $38,774.
• Deferred tax assets increased by $3.5 million, with net operating loss carryforwards rising to $57.2 million.
• The Company adopted ASU 2023-09, expecting a total pre-tax expense of approximately $3.3 million in the first and second quarters of 2023.
• Accrued income and other assets increased by $6.2 million, from $44.9 million to $51.1 million.
• Gross charge-offs increased from $27,841 to $38,774.
• Capital commitments for construction decreased by $1.5 million, with no remaining commitments at the end of the period.
• The Company's lending strategy will not affect the commercial construction and land development business.
• Fair value measurements for available-for-sale securities decreased by $1.6 million, with no Level 1 securities owned.