Risk Factors Update Summary

• The company's net income is now primarily derived from the excess of net interest income and non-interest income over non-interest expenses. This change might result in a shift in earnings composition.
• The variance between interest income accrued from interest-earning assets and interest expense incurred on interest-bearing liabilities is now referred to as a "mismatch." This mismatch exposes the company to significant earnings volatility.
• The company's construction and development loans have increased substantially, totaling $139 million, up from $127 million, with a notable rise in commercial construction loans. This change inherently carries higher credit risk.
• The company's loan and lease portfolio composition has changed significantly, with fixed-rate loans and leases increasing from approximately 41% to about 43% of the total portfolio. This shift potentially exposes the company to interest rate risks.
• The company's leasing business has experienced changes, with direct financing leases totaling $156 million, up from $133 million. This increase could impact the company's revenue and profitability.
• The company's exposure to cybersecurity threats has increased, with potential disruptions, unauthorized access, data breaches, and cyber-attacks posing significant risks to operations, data security, and reputation.
• The adoption of the Current Expected Credit Losses (CECL) model on January 1, 2023, resulted in a one-time cumulative-effect adjustment to retained earnings of $2.0 million, impacting the company's financial statements.