What changed in this filing

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Item 1A. Risk Factors

2024-02-23 compared with 2023-02-21 · 130 added, 162 removed, 292 unchanged (50% of the section changed)

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An investment in our common stock is subject to risks inherent in our business.

Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included in this report.

Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all the other information included in this report.

The risks described below are not the only ones we face.

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition, capital levels, cash flows, liquidity, results of operations and prospects.

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially and adversely affect our business, financial condition, capital levels, cash flows, liquidity, results of operations and prospects.

The market price of our common stock could decline significantly due to any of these identified or other risks, and you could lose some or all of your investment.

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Further, as a result of a high concentration of our client base in the Puget Sound area and eastern Washington state regions, the deterioration of businesses in these areas, or one or more businesses with a large employee base in these areas, could have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects.

Weakness in the global economy has adversely affected many businesses operating in our markets that are dependent upon international trade and it is not known how changes in tariffs being imposed on international trade may also affect these businesses.

In addition, adverse weather conditions as well as decreases in market prices for agricultural products grown in our primary markets can adversely affect agricultural businesses in our markets.

As we expand our presence in areas such as San Diego and Sacramento, and throughout California, we will be exposed to concentration risks in those areas as well.

A deterioration in economic conditions in the markets we serve as a result of inflation, a recession, the effects of COVID-19 variants or other factors could result in the following consequences, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations:

• demand for our products and services may decline;

• loan delinquencies, problem assets and foreclosures may increase;

• we may increase our allowance for credit losses;

• collateral for loans, especially real estate, may decline in value, in turn reducing clients’ borrowing power, reducing the value of assets and collateral associated with existing loans;

• the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;

• the amount of our low-cost or non-interest-bearing deposits may decrease.

In addition, weakness in the global economy and prevalent global supply chain issues have adversely affected numerous businesses within our market areas, particularly those reliant on international trade.

Changes in agreements or relationships between the United States and other countries may further impact these businesses and, by extension, our operations.

A downturn in economic conditions, be it due to inflation, recessive trends, geopolitical conflicts, adverse weather, the impact of COVID-19 variants, or other factors, could have a material adverse effect on our business, financial condition, liquidity and results of operations, including but not limited to:

• Reduced demand for our products and services, potentially leading to a decline in our overall loans or assets;

• Elevated instances of loan delinquencies, problematic assets, and foreclosures;

• An increase in our allowance for credit losses on loans;

• Declines in collateral values linked to our loans, thereby diminishing borrowing capacities and asset values tied to existing loans;

• Reduced net worth and liquidity of loan guarantors, possibly impairing their ability to meet commitments to us;

• Reduction in our low-cost or non-interest-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 loans are more geographically diverse.

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

Our loan portfolio is predominantly secured by real estate.

Deterioration in the real estate markets where collateral for a loan is real property could negatively affect the borrower’s ability to repay the loan and the value of the collateral securing the loan.

Real estate values are affected by various other factors, including changes in general or regional economic conditions, governmental rules or policies and natural disasters such as earthquakes, flooding and tornadoes.

Real estate values are affected by various factors, including 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.

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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.

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

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 are currently expected to remain elevated throughout 2023.

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

Inflationary pressures, while easing recently, remained elevated throughout most of 2023.

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, and in some cases this deterioration may occur quickly, which would adversely impact our results of operations and financial condition.

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 of our assets and liabilities are monetary in nature.

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.

The economic impact of the COVID-19 pandemic could continue to affect our financial condition and results of operations.

The COVID-19 pandemic has adversely impacted the global and national economy and certain industries and geographies in which our clients operate.

Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on the business of the Company, its clients, employees and third-party service providers.

The extent of such impact will depend on future developments, which are highly uncertain.

Additionally, the responses of various governmental and nongovernmental authorities and consumers to the pandemic may have material long-term effects on the Company and its clients which are difficult to quantify in the near-term or long-term.

We could be subject to a number of risks as the result of the COVID-19 pandemic, any of which could have a material, adverse effect on our business, financial condition, liquidity, results of operations, ability to execute our growth strategy, and ability to pay dividends.

These risks include, but are not limited to, changes in demand for our products and services;

increased credit losses or other impairments in our loan portfolios and increases in our allowance for credit losses;

a decline in collateral for our loans, especially real estate;

unanticipated unavailability of employees;

increased cyber security risks as employees work remotely;

a prolonged weakness in economic conditions resulting in a reduction of future projected earnings could necessitate a valuation allowance against our current outstanding deferred tax assets;

a triggering event leading to impairment testing on our goodwill or core deposit and customer relationships intangibles, which could result in an impairment charge;

and increased costs as the Company and our regulators, customers and vendors adapt to evolving pandemic conditions.

Risks related to recent events impacting the banking industry could adversely affect our stock price, results of operations and financial condition.

The banking industry has been negatively impacted by the failures of Silicon Valley Bank and Signature Bank in March 2023, and First Republic Bank in May 2023.

These failures highlighted deposit-related risks to the banking industry, in particular the speed at which deposits can be moved.

These events led to decreased investor and depositor confidence in regional banks as well as increased volatility in the stock trading prices of regional banks, to varying degrees.

Despite differences in business models across the banking industry, further concerns related to these events could adversely impact our deposits, liquidity, results of operations and the trading price of our stock.

Risks Related to Credit and Lending

Our loan portfolio includes loans with a higher risk of loss.

In addition to our first-lien one- to four-family residential real estate lending, we originate construction and land loans, commercial and multifamily mortgage loans, commercial business loans, agricultural mortgage loans and agricultural loans, and consumer loans, primarily within our market areas, which generally involve a higher risk of loss than first-lien one- to four-family residential real estate lending.

We had $8.97 billion outstanding in these types of higher risk loans, excluding SBA PPP loans, at December 31, 2022, compared to $8.29 billion at December 31, 2021, which typically present different risks to us than our first-lien one- to four-family residential real estate for a number of reasons, including the following:

In addition to our first-lien one- to four-family residential real estate lending, we originate construction and land loans, commercial and multifamily mortgage loans, commercial business loans, agricultural mortgage loans and agricultural business loans, and consumer loans, primarily within our market areas, which generally involve a higher risk of loss than first-lien one- to four-family residential real estate lending.

We had $9.29 billion outstanding in these types of higher risk loans at December 31, 2023, compared to $8.97 billion at December 31, 2022, which typically present different risks to us than our first-lien one- to four-family residential real estate for a number of reasons, including the following:

• Construction and Land Loans.

At December 31, 2023, construction and land loans were $1.54 billion, or 14% of our total loan portfolio.

This type of lending is subject to the inherent difficulties in estimating both a property’s value at completion of a project and the estimated cost (including interest) of the project.

Because of the uncertainties inherent in estimating construction costs, as well as the market value of a completed project and the effects of governmental regulation on real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the completed project’s loan-to-value ratio.

If the estimate of construction costs proves to be inaccurate, we may be required to advance funds beyond the amount originally committed to ensure completion of the project.

If our appraisal of the value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss.

Disagreements between borrowers and builders and the failure of builders to pay subcontractors may also jeopardize projects.

This type of lending also typically involves higher loan principal amounts and may be concentrated with a small number of builders.

This type of lending carries inherent uncertainties in estimating a property’s future value upon project completion and the overall cost (including interest) of the project.

These uncertainties arise from challenges in estimating construction costs, assessing the market value upon project completion and considering the impact of government regulations on real property.

Consequently, accurately evaluating the total funds required to complete a project and determining the loan-to-value ratio for the completed project is often challenging.

If the estimate of construction costs proves inaccurate, we may be required to advance funds beyond the amount originally committed to ensure project completion.

If our appraisal of a completed project’s value proves to be overstated, we may have inadequate security for loan repayment upon project completion and subsequent losses.

Challenges such as disputes between borrowers and builders and the failure of builders to pay subcontractors, and the concentration of higher loan amounts among a limited number of builders further increases risk exposure.

A downturn in housing or the real estate market could increase delinquencies, defaults and foreclosures, and significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure.

Many of the builders we deal with have more than one loan outstanding with us.

Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss.

Multiple loans to a single builder amplify our risk exposure, wherein adverse developments in one loan or credit relationship pose significant loss potential.

In addition, during the term of some of our construction loans, no payment from the borrower is required since the accumulated interest is added to the principal of the loan through an interest reserve.

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This may require us to advance additional funds and/or contract with another builder to complete construction and assume the market risk of selling the project at a future market price, which may or may not enable us to fully recover unpaid loan funds and associated construction and liquidation costs.

Loans on land under development or held for future construction also pose additional risk because of the lack of income being produced by the property and the potential illiquid nature of the collateral.

These risks can be significantly impacted by supply and demand.

As a result, this type of lending often involves the disbursement of substantial funds with repayment dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to independently repay principal and interest.

Loans on land under development or held for future construction also pose additional risk due to the lack of income generation from the property and potential liquidity of collateral, significantly affected by supply and demand.

As a result, this type of lending often involves disbursing substantial funds, with repayment dependent on project success and the borrower’s ability to sell or lease the property or obtain permanent financing, rather than independent repayment capability.

Construction loans made by us include those with a sales contract or permanent loan in place for the finished homes and those for which purchasers for the finished homes may not be identified either during or following the construction period, known as speculative construction loans.

Speculative construction loans to a builder pose a greater potential risk to us than construction loans to individuals on their personal residences.

Speculative construction loans pose additional risks, especially regarding finding end-purchasers for finished projects.

We attempt to mitigate this risk by actively monitoring the number of unsold homes in our construction loan portfolio and local housing markets in an attempt to maintain an appropriate balance between home sales and new loan originations.

In addition, the maximum number of speculative construction loans (loans that are not pre-sold) approved for each builder is based on a combination of factors, including the financial capacity of the builder, the market demand for the finished product and the ratio of sold to unsold inventory the builder maintains.

In addition, the maximum number of speculative construction loans (loans that are not pre-sold) approved for each builder is based on a combination of factors, including their financial capacity, market demand for the finished product and the ratio of sold to unsold inventory the builder maintains.

We have also attempted to diversify the risk associated with speculative construction lending by doing business with a large number of small and mid-sized builders spread over a relatively large geographic region representing numerous sub-markets within our service area.

As a result of the increasing real estate values in certain of our market areas, this category of lending has increased.

Our investment in construction and land loans increased by $177.2 million or 14% in 2022.

At December 31, 2022, non-performing construction and land loans totaled $181,000, or 1% of total non-performing loans.

At December 31, 2023, non-performing construction and land loans totaled $4.2 million, or 14% of total non-performing loans.

• Commercial and Multifamily Real Estate Loans .

At December 31, 2023, commercial and multifamily real estate loans were $4.45 billion, or 41% of our total loan portfolio.

These loans typically involve higher principal amounts than other types of loans and some of our commercial borrowers have more than one loan outstanding with us.

Many of these loans involve higher principal amounts than other types of loans and some commercial borrowers maintain multiple loans with us.

Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan.

Repayment of these loans typically is dependent upon income being generated from the property securing the loan in amounts sufficient to cover operating expenses and debt service, which may be adversely affected by changes in the economy or local market conditions.

In addition, many of our commercial and multifamily real estate loans are not fully amortizing and contain large balloon payments upon maturity which may require the borrower to either sell or refinance the underlying property in order to make the balloon payment, thus increasing the risk of default or non-payment.

If we foreclose on a commercial or multifamily real estate loan, our holding period for the collateral typically is longer than for one-to-four family residential loans because there are fewer potential purchasers of the collateral.

In addition, many of our commercial and multifamily real estate loans are not fully amortizing and contain large balloon payments upon maturity.

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

If we foreclose on a commercial or multifamily real estate loan, our holding period for the collateral typically longer than for one- to four-family residential loans because there are fewer potential purchasers of the collateral.

At December 31, 2023, non-performing commercial and multifamily real estate loans totaled $2.7 million, or 9% of total non-performing loans.

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Most often, this collateral includes accounts receivable, inventory, equipment or real estate.

In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its clients.

Other collateral securing loans may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business.

In the case of loans secured by accounts receivable, the availability of funds for repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its clients.

Other collateral securing commercial business loans may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business.

At December 31, 2023, non-performing commercial business loans totaled $9.0 million, or 30% of total non-performing loans.

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Repayment of agricultural loans is dependent upon the successful operation of the business and is subject to many factors outside the control of either us or the borrowers.

These factors include adverse weather conditions that prevent the planting of a crops or limit crop yields (such as hail, drought and floods), loss of crops or livestock due to disease or other factors, declines in market prices for agricultural products (both domestically and internationally) and the impact of government regulations (including changes in price supports, subsidies, tariffs and environmental regulations).

In addition, many farms are dependent on a limited number of key individuals whose injury or death may significantly affect the successful operation of the farm.

These factors include adverse weather conditions that prevent the planting of crops or limit crop yields (such as hail, drought and floods), loss of crops or livestock due to disease or other factors, declines in market prices for agricultural products (both domestically and internationally) and the impact of government regulations (including changes in price supports, subsidies, tariffs and environmental regulations).

In addition, many farms are dependent on a limited number of key individuals whose injury or death may significantly affect successful operation of the farm.

If the cash flow from a farming operation is diminished, the borrower’s ability to repay the loan may be impaired.

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In such cases, any repossessed collateral for a defaulted agricultural operating loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation or because the assessed value of the collateral exceeds the eventual realization value.

At December 31, 2022, non-performing agricultural loans totaled $594,000, or 3% of total non-performing loans.

At December 31, 2023, non-performing agricultural loans totaled $3.2 million, or 11% of total non-performing loans.

• Consumer Loans .

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Home equity lines of credit, which represented 84% of our total consumer loan portfolio at December 31, 2023, generally entail greater risk than one- to four-family residential mortgage loans where we are in the first lien position.

For home equity lines secured by a second mortgage, it is less likely that we will be successful in recovering all of our loan proceeds in the event of default as the value of the property must be sufficient to cover the repayment of the first mortgage loan, as well as the costs associated with foreclosure, before the balance on the second mortgage loan is repaid.

For home equity lines secured by a second mortgage, it is less likely that we will be successful in recovering all of our loan proceeds in the event of default as the value of the property must be sufficient to cover the repayment of the first mortgage loan, and the costs associated with foreclosure, before the balance on the second mortgage loan is repaid.

In the case of consumer loans that are unsecured or secured by rapidly depreciating assets such as automobiles, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation.

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Our first-lien one- to four-family residential loans are primarily made based on the repayment ability of the borrower and the collateral securing these loans.

Foreclosure on the loans requires the value of the property to be sufficient to cover the repayment of the loan, as well as the costs associated with foreclosure.

Foreclosure on the loans requires the value of the property to be sufficient to cover the repayment of the loan, and the costs associated with foreclosure.

This type of lending is generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict.

A downturn in the economy or the housing market in our market areas or a rapid increase in interest rates may reduce the value of the real estate collateral securing these types of loans and increase the risk that we would incur losses if borrowers default on their loans.

Residential loans with high combined loan-to-value generally will be more sensitive to declining properly values than those with lower combined loan-to-value ratios and therefore may experience a higher incidence of default and severity of losses.

Residential loans with high combined loan-to-value generally will be more sensitive to declining property values than those with lower combined loan-to-value ratios and therefore may experience a higher incidence of default and severity of losses.

In addition, if the borrowers sell their homes, the borrowers may be unable to repay their loans in full from the sale proceeds.

As a result, these loans may experience higher rates of delinquencies, defaults and losses, which will in turn adversely affect our financial condition and results of operations.

Our allowance for credit losses may not be sufficient to absorb losses in our loan portfolio, which would cause our results of operations, liquidity and financial condition to be adversely affected.

Our allowance for credit losses on loans may not be sufficient to absorb losses in our loan portfolio, which would cause our results of operations, liquidity and financial condition to be adversely affected.

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

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• changes in economic and industry conditions.

We maintain an allowance for credit losses, which is a reserve established through a provision for expected losses, which we believe is appropriate to provide for lifetime expected credit losses in our loan portfolio.

The amount of this allowance is determined by our management through periodic reviews and consideration of several factors, including, but not limited to:

• our collective loss reserve, for loans evaluated on a pool basis which have similar risk characteristics based on our life of loan historical default and loss experience, certain macroeconomic factors, reasonable and supportable forecasts, regulatory requirements, management’s expectations of future events and certain qualitative factors;

We maintain an allowance for credit losses— a reserve established through a provision for expected losses—we believe is appropriate to provide for lifetime expected credit losses in our loan portfolio.

The appropriate level of the allowance for credit losses is determined by management through periodic reviews and consideration of several factors, including, but not limited to:

• our collective loss reserve, for loans evaluated on a pool basis with similar risk characteristics based on our life of loan historical default and loss experience, certain macroeconomic factors, reasonable and supportable forecasts, regulatory requirements, management’s expectations of future events and certain qualitative factors;

• our individual loss reserve, based on our evaluation of individual loans that do not share similar risk characteristics and the present value of the expected future cash flows or the fair value of the underlying collateral.

The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes.

Determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes.

If our estimates are incorrect, the allowance for credit losses may not be sufficient to cover the expected losses in our loan portfolio, resulting in the need for increases in our allowance for credit losses through the provision for credit losses which is recorded as a charge against income.

Management also recognizes that significant new growth in loan portfolios, new loan products and the refinancing of existing loans can result in portfolios comprised of unseasoned loans that may not perform in a historical or projected manner and will increase the risk that our allowance may be insufficient to absorb losses without significant additional provisions.

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 require an increase in the allowance for credit losses.

If current conditions in the housing and real estate markets weaken, we expect we will experience increased delinquencies and credit losses.

In addition, bank regulatory agencies periodically review our allowance for credit losses and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management.

If charge-offs in future periods exceed the allowance for credit losses, we may need additional provisions to increase the allowance for credit losses.

Bank regulatory agencies also periodically review our allowance for credit losses and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management.

If charge-offs in future periods exceed the allowance for credit losses, we may need additional provision to increase the allowance for credit losses.

Any increases in the allowance for credit losses will result in a decrease in net income and, most likely, capital, and may have a material negative effect on our financial condition and results of operations.

Loans originated under the SBA Paycheck Protection Program subject us to forgiveness and guarantee risk.

As of December 31, 2021, we hold and service a portfolio of 94 loans originated under the SBA PPP with a balance of $7.9 million.

The SBA PPP loans are subject to the provisions of the CARES Act and CAA 2021 and to complex and evolving rules and guidance issued by the SBA and other government agencies.

Most of our SBA PPP borrowers have already qualified for forgiveness of their loan obligations, however, if an SBA PPP borrower fails to qualify for loan forgiveness, we face a heightened risk of holding these loans at unfavorable interest rates for an extended period of time.

We could face additional risks in our administrative capabilities to service our SBA PPP loans, and risk with respect to the determination of loan forgiveness.

In the event of a loss resulting from a default on an SBA PPP loan and a determination by the SBA that there was a deficiency in the manner in which we originated, funded or serviced an SBA PPP loan, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty or, if the SBA has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.

Risks Related to Merger and Acquisition Strategy

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

Although our business strategy emphasizes organic expansion, we continue, from time to time in the ordinary course of business, to engage in preliminary discussions with potential acquisition targets.

There can be no assurance that, in the future, we will successfully identify suitable acquisition candidates, complete acquisitions and successfully integrate acquired operations into our existing operations or expand into new markets.

Although our business strategy emphasizes organic expansion, from time to time in the ordinary course of business, we engage in discussions with potential acquisition targets.

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

The consummation of any future acquisitions may dilute shareholder value or may have an adverse effect upon our operating results while the operations of the acquired business are being integrated into our operations.

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• to finance an acquisition, we may borrow funds, thereby increasing our leverage and diminishing our liquidity, or raise additional capital, which could dilute the interests of our existing shareholders;

• We have completed various acquisitions in the past few years that enhanced our rate of growth.

We may not be able to continue to sustain our past rate of growth or to grow at all in the future;

• To the extent our costs of an acquisition exceed the fair value of the net assets acquired, the acquisition will generate goodwill.

We are required to assess our goodwill for impairment at least annually, and any goodwill impairment charge could have a material adverse effect on our results of operations and financial condition.

The required accounting treatment of loans we acquire through acquisitions could result in higher net interest margins and interest income in current periods and lower net interest margins and interest income in future periods.

Under GAAP, we are required to record loans acquired through acquisitions at fair value.

Estimating the fair value of such loans requires management to make estimates based on available information and facts and circumstances as of the acquisition date.

Actual performance could differ from management’s initial estimates.

If these loans outperform our original fair value estimates, the difference between our original estimate and the actual performance of the loan (the “discount”) is accreted into net interest income.

Thus, our net interest margins may initially increase due to the discount accretion.

Absent changes in interest rates, we expect the yields on our loans to decline as our acquired loan portfolio pays down or matures and the discount decreases, and we could experience downward pressure on our interest income to the extent that the runoff on our acquired loan portfolio is not replaced with comparable high-yielding loans.

This could result in higher net interest margins and interest income in current periods and lower net interest rate margins and lower interest income in future periods.

• we have completed various acquisitions over the years that enhanced our rate of growth.

We may not be able to sustain our past rate of growth or to grow at all in the future;

• to the extent our costs of an acquisition exceed the fair value of the net assets acquired, the acquisition will generate goodwill that must be analyzed for impairment at least annually.

We may incur impairment to goodwill.

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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, and 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 425 basis, including 125 basis points during the fourth calendar quarter of 2022, to a range of 4.25% to 4.50% as of December 31, 2022.

As it seeks to control inflation without creating a recession, the FOMC has indicated further increases are to be expected during 2023.

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

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 225 basis points during 2023, to a range of 5.25% to 5.50% as of December 31, 2023.

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 may negatively impact our net interest margin and loan demand by reducing refinancing activity and new home purchases.

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

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A sustained increase in market interest rates could adversely affect our earnings.

As is the case with many banks our emphasis on increasing core deposits has resulted in an increasing percentage of our deposit balances being comprised of deposit accounts bearing no or a relatively low rate of interest and having a shorter duration than our assets.

At December 31, 2022, we had $531.6 million in certificates of deposit that mature within one year and $12.90 billion in non-interest-bearing, negotiable order of withdrawal (NOW) checking, savings and money market accounts.

We may incur a higher cost of funds to retain these deposits in a rising interest rate environment.

If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected.

As is the case with many banks, we attempt to maintain or increase our proportion of non-interest-bearing deposits comprising either, which has been challenging over the last year.

At December 31, 2023, we had $1.40 billion in certificates of deposit that mature within one year and $11.55 billion in non-interest-bearing, negotiable order of withdrawal (NOW) checking, savings and money market accounts.

We would incur a higher cost of funds to retain these deposits in a rising interest rate environment.

Our net interest income could be adversely affected if the rates we pay on deposits and borrowings increase more rapidly than the rates we earn on loans and other investments.

In addition, a substantial amount of our loans have adjustable interest rates.

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Also, when loans are at their floors, there is a further risk that our interest income may not increase as rapidly as our cost of funds during periods of increasing interest rates, which could have a material adverse effect on our results of operations.

Changes in interest rates also affect the value of our interest-earning assets and in particular our securities portfolio.

Generally, the fair value of fixed-rate securities fluctuates inversely with changes in interest rates.

Unrealized gains and losses on securities available for sale are reported as a separate component of AOCI, net of tax.

Decreases in the fair value of securities available for sale resulting from increases in interest rates could have an adverse effect on 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, prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations.

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Our securities portfolio may be impacted by fluctuations in market value, potentially reducing accumulated other comprehensive income and/or earnings.

Fluctuations in market value may be caused by changes in market interest rates, rating agency actions in respect of the securities, defaults by the issuer or with respect to the underlying securities, lower market prices for securities and limited investor demand.

Fluctuations in market value may be caused by changes in market interest rates, rating agency actions in respect to the securities, defaults by the issuer or with respect to the underlying securities, lower market prices for securities and limited investor demand.

Our available-for-sale debt securities in an unrealized loss position are evaluated to determine whether the decline in fair value has resulted from credit losses or other factors.

If a credit loss exists, an allowance for credit losses is recorded for the credit loss, resulting in a charge against earnings.

As stated above, changes in interest rates can also have an adverse effect on our financial condition, as our available-for-sale securities are reported at their estimated fair value, and therefore are impacted by fluctuations in interest rates.

We increase or decrease our shareholders’ equity by the amount of change in the estimated fair value of the available-for-sale securities, net of taxes.

There can be no assurance that the declines in market value will not result in expected credit losses, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels.

Changes in interest rates can also have an adverse effect on our financial condition, as our available-for-sale securities are reported at their estimated fair value, and therefore are impacted by fluctuations in interest rates.

Generally, the fair value of fixed-rate securities fluctuates inversely with changes in interest rates.

Unrealized gains and losses on securities available-for-sale are reported as a separate component of AOCI, net of tax.

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

There can be no assurance that the declines in market value will not result in credit losses, which would lead to additional provision for credit losses that could have a material adverse effect on our net income and capital levels.

An increase in interest rates, change in the programs offered by secondary market purchasers or our ability to qualify for their programs may reduce our mortgage banking revenues, which would negatively impact our non-interest income.

Our mortgage banking operations provide a significant portion of our non-interest income.

We generate mortgage banking revenues primarily from gains on the sale of one- to four-family and multifamily mortgage loans.

We generate mortgage banking revenues primarily from gains on the sale of one- to four-family mortgage loans.

The one- to four-family mortgage loans are sold pursuant to programs currently offered by Fannie Mae, Freddie Mac, Ginnie Mae and non-Government Sponsored Enterprise (GSE) investors.

These entities account for a substantial portion of the secondary market in residential one- to four-family mortgage loans.

Multifamily mortgage loans are sold primarily to non-GSE investors.

Any future changes in the one- to four-family programs, our eligibility to participate in these programs, the criteria for loans to be accepted or laws that significantly affect the activity of such entities, or a reduction in the size of the secondary market for multifamily loans could, in turn, materially adversely affect our results of operations.

Future changes in the one- to four-family programs, including our eligibility to participate in these programs, the criteria for loans to be accepted, or laws that significantly affect the activity of such entities could materially adversely affect our results of operations.

Mortgage banking is generally considered a volatile source of income because it depends largely on the level of loan volume which, in turn, depends largely on prevailing market interest rates.

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If we breach those representations and warranties, the buyers may require us to repurchase the loans and we may incur a loss on the repurchase.

Certain hedging strategies that we use to manage investment in mortgage servicing rights, mortgage loans held for sale and interest rate lock commitments may be ineffective to offset any adverse changes in the fair value of these assets due to changes in interest rates and market liquidity.

We use derivative instruments to economically hedge mortgage servicing rights, mortgage loans held for sale and interest rate lock commitments to offset changes in fair value resulting from changing interest rate environments.

Certain hedging strategies that we use to manage investment in mortgage loans held for sale and interest rate lock commitments may be ineffective to offset any adverse changes in the fair value of these assets due to changes in interest rates and market liquidity.

We use derivative instruments to economically hedge mortgage loans held for sale and interest rate lock commitments to offset changes in fair value resulting from changing interest rate environments.

Our hedging strategies are susceptible to prepayment risk, basis risk, market volatility and changes in the shape of the yield curve, among other factors.

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Risks Related to Regulatory, Legal and Compliance

Proposed FDIC guidelines on corporate governance and risk management standards may affect our profitability, capital adequacy, and reputation.

In October 2023, considering recent and historical bank failures, the FDIC proposed guidelines aimed at establishing corporate governance and risk management expectations for all insured state-chartered banks, excluding those who are member of the Federal Reserve, with total assets exceeding $10 billion.

This initiative, conducted through rulemaking under Section 39 of the Federal Deposit Insurance Act, empowers the FDIC to set forth enforceable standards that banks must comply with.

The guidelines focus on defining obligations of the board of directors, specifying board composition and committee structures, and outlining expectations for an independent risk management function.

The impetus behind these guidelines stems from the FDIC’s observation that financial institutions with deficient corporate governance and risk management practices face a higher risk of failure.

The FDIC aims to enhance a bank’s safety and soundness, minimizing the likelihood of failure and mitigating potential losses.

The introduction of multiple safeguards within a bank’s risk management function seeks to avoid a “single point of failure.” As currently proposed, the guidelines could have various effects on us, and other banks subject to the guidelines, including:

• elevating compliance costs and operational complexity for the Bank, potentially diminishing net income and return on equity;

• mandating the Bank to maintain increased capital or liquidity to meet the proposed risk management standards, which may limit our ability to leverage assets and generate higher returns;

• subjecting the Bank to heightened regulatory scrutiny and enforcement actions, posing risks to our reputation and the Company’s market value;

• creating competitive disparities for covered institutions, such as the Bank, compared to other financial entities not subject to similar standards;

• making attracting and maintaining qualified directors willing to serve on the Bank’s board more difficult.

The precise impact of the proposed guidelines on the Company’s profitability, capital adequacy, and reputation remains uncertain at this time.

New or changing tax, accounting, and regulatory rules and interpretations could significantly impact strategic initiatives, results of operations, cash flows, and financial condition.

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Federal and state banking regulations are designed primarily to protect the deposit insurance funds and consumers, not to benefit our shareholders.

These regulations may sometimes impose significant limitations on operations.

Regulations may sometimes impose significant limitations on operations.

Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets by the institution and the adequacy of an institution’s allowance for credit losses.

These bank regulators also have the ability to impose conditions in the approval of merger and acquisition transactions.

Bank regulators also have the ability to impose conditions in the approval of merger and acquisition transactions.

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

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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, could have a material impact on our operations, increase our costs of regulatory compliance and of doing business and/or otherwise adversely affect us and our profitability.

Any new regulations or legislation or 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, could have a material impact on our operations, increase our costs of regulatory compliance and of doing business and/or otherwise adversely affect us and our profitability.

Further, changes in accounting standards can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent registered public accounting firm.

These changes could materially impact, potentially even retroactively, how we report our financial condition and results of our operations as could our interpretation of those changes.

Changes could materially impact, potentially even retroactively, how we report our financial condition and results of our operations as could our interpretation of those changes.

We cannot predict what restrictions may be imposed upon us with future legislation.

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

The effects of climate change continue to create an alarming level of concern for the state of the global environment.

The effects of climate change continue to create concern for the state of the environment.

As a result, the global business community has increased its political and social awareness surrounding the issue, and the United States has entered into international agreements in an attempt to reduce global temperatures.

Further, the U.S.

Congress, state legislatures and federal and state regulatory agencies continue to propose numerous initiatives to supplement the global effort to combat climate change.

Congress, state legislatures and federal and state regulatory agencies continue to propose initiatives to supplement the global effort to combat climate change.

Similar and even more expansive initiatives are expected under the current administration, including potentially increasing supervisory expectations with respect to banks’ risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors and encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change.

The lack of empirical data surrounding the credit and other financial risks posed by climate change render it difficult, or even impossible, to predict how specifically climate change may impact our financial condition and results of operations;

The lack of empirical data surrounding the credit and other financial risks posed by climate change render it difficult, or even impossible, to specifically predict how climate change may impact our financial condition and results of operations;

however, the physical effects of climate change may also directly impact us.

Specifically, unpredictable and more frequent weather disasters may adversely impact the real property, and/or the value of the real property, securing the loans in our portfolios.

Additionally, if insurance obtained by our borrowers is insufficient to cover any losses sustained to the collateral, or if insurance coverage is otherwise unavailable to our borrowers, the collateral securing our loans may be negatively impacted by climate change, natural disasters and related events, which could impact our financial condition and results of operations.

Further, the effects of climate change may negatively impact regional and local economic activity, which could lead to an adverse effect on our customers and impact the communities in which we operate.

Unpredictable and more frequent weather disasters may adversely impact the real property, and/or the value of the real property, securing the loans in our portfolios.

Additionally, if insurance obtained by our borrowers is insufficient to cover losses sustained to the collateral, or if insurance coverage is otherwise unavailable to our borrowers, the collateral securing our loans may be negatively impacted by climate change, natural disasters and related events, which could impact our financial condition and results of operations.

Further, the effects of climate change may negatively impact regional and local economic activity, which could lead to an adverse effect on our customers and the communities in which we operate.

Overall, climate change, its effects and the resulting, unknown impact could have a material adverse effect on our financial condition and results of operations.

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Failure to comply with these regulations could result in fines or sanctions and limit our ability to obtain regulatory approval of acquisitions.

Recently, several banking institutions have received large fines for non-compliance with these laws and regulations.

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.

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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.

Our enterprise risk management framework seeks to achieve an appropriate balance between risk and return, which is critical to optimizing stockholder value.

Our enterprise risk management framework seeks to achieve an appropriate balance between risk and return, which is critical to optimizing shareholder value.

We have established processes and procedures intended to identify, measure, monitor, report, analyze and control the types of risk to which we are subject.

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We are subject to certain risks in connection with our use of technology.

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

Our security measures may not be sufficient to mitigate the risk of a cyberattack.

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 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.

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 cyberattacks that could have a meaningful security impact.

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 significant interruptions or malfunctions in our operations or the operations of our clients or counterparties.

We may be required to expend substantial 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 and loss of business.

Security breaches in our internet banking activities could further expose us to possible liability and damage our reputation .

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

We rely on standard internet security systems to provide the security and authentication necessary to effect secure transmission of data.

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.

Although we have developed and continue to invest in systems and processes that are designed to detect and prevent security breaches and cyberattacks and periodically test our security, these precautions may not protect our systems from compromises or breaches of our security measures, and any failure of these precautions 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.

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

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While we select third-party vendors carefully, we do 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 clients and otherwise conduct 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, cyberattacks 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 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 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.

We may not be insured against all types of losses as a result of third party failures and insurance coverage may be inadequate to cover all losses resulting from breaches, system failures or other disruptions.

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 you 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.

We cannot provide assurance 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.

We may not be insured against all types of losses, including losses resulting from third party failures, and insurance coverage may be inadequate to cover all losses resulting from breaches, system failures or other disruptions.

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 provide assurance 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 clients and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability.

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Our ability to manage data and aggregate data may be limited by the effectiveness of our policies, programs, processes and practices that govern how data is acquired, validated, stored, protected and processed.

While we continuously update our policies, programs, processes and practices, many of our data management and aggregation processes are manual and subject to human error or system failure.

Failure to manage data effectively and to aggregate data in an accurate and timely manner may limit our ability to manage current and emerging risks, as well as to manage changing business needs.

While we regularly update our policies, programs, processes and practices, many of our data management and aggregation processes are manual and subject to human error or system failure.

Failure to manage data effectively and to aggregate data in an accurate and timely manner may limit our ability to manage current and emerging risks, and to manage changing business needs.

Our business may be adversely affected by an increasing prevalence of fraud and other financial crimes.

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Risks Related to Our Business and Industry Generally

We will be required to transition from the use of the London Interbank Offered Rate (LIBOR) in the future.

We have certain FHLB advances, loans, investment securities, subordinated debentures and trust preferred securities indexed to LIBOR to calculate the interest rate.

ICE Benchmark Administration, the authorized and regulated administrator of LIBOR, ended publication of the one-week and two-month USD LIBOR tenors on December 31, 2021 and the remaining USD LIBOR tenors will end publication in June 2023.

Financial services regulators and industry groups have collaborated to develop alternate reference rate indices or reference rates.

The transition to a new reference rate requires changes to contracts, risk and pricing models, valuation tools, systems, product design and hedging strategies.

At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR (with the exception of overnight repurchase agreements, which are expected to be based on the Secured Overnight Financing Rate, or SOFR).

Uncertainty as to the nature of such potential changes, alternative reference rates, the elimination or replacement of LIBOR, or other reforms may adversely affect the value of, and the return on our loans, and our investment securities, and may impact the availability and cost of hedging instruments and borrowings, including the rates we pay on our subordinated debentures and trust preferred securities.

The language in our LIBOR-based contracts and financial instruments has developed over time and may have various events that trigger when a successor rate to the designated rate would be selected.

If a trigger is satisfied, contracts and financial instruments may give the calculation agent discretion over the substitute index or indices for the calculation of interest rates to be selected.

The implementation of a substitute index or indices for the calculation of interest rates under our loan agreements with our borrowers or our existing borrowings may result in our incurring significant expenses in effecting the transition, may result in reduced loan balances if borrowers do not accept the substitute index or indices, and may result in disputes or litigation with clients and creditors over the appropriateness or comparability to LIBOR of the substitute index or indices, which could have an adverse effect on our results of operations.

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

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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.

Benefits of Banner Forward and other strategic initiatives may not be realized.

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

Benefits of strategic initiatives may not be realized.

Banner’s ability to compete depends on a number of factors, including, among others, its ability to develop and successfully execute strategic plans and initiatives.

Banner Forward is focused on accelerating growth in commercial banking, deepening relationships with retail clients, and advancing technology strategies to enhance our digital service channels, while streamlining underwriting and back office processes.

We may not be successful in achieving some or all of these objectives.

The expected cost savings and revenue growth from Banner Forward may not be realized.

The costs to implement Banner Forward may be greater than anticipated.

We may not be successful in achieving some or all of our strategic initiatives.

The expected cost savings and revenue growth from our strategic initiatives may not be realized.

The costs to implement our strategic initiatives may be greater than anticipated.

Changes in economic conditions beyond our control, including changes in interest rates, may affect our ability to achieve our objectives.

Our inability to execute on or achieve the anticipated outcomes of Banner Forward may affect how the market perceives us and could impede our growth and profitability.

Our inability to execute on or achieve the anticipated outcomes of our strategic initiatives may affect how the market perceives us and could impede our growth and profitability.

Development of new products and services may impose additional costs on us and may expose us to increased operational risk.

Our financial performance depends, in part, on our ability to develop and market new and innovative services and to adopt or develop new technologies that differentiate our products or provide cost efficiencies, while avoiding increased related expenses.

This dependency is exacerbated in the current “FinTech” environment, where financial institutions are investing significantly in evaluating new technologies, such as “Blockchain,” and developing potentially industry-changing new products, services and industry standards.

This dependency is exacerbated in the current “FinTech” environment, where financial institutions are significantly investing in evaluating new technologies, such as blockchain, and developing potentially industry-changing new products, services and industry standards.

The introduction of new products and services can entail significant time and resources, including regulatory approvals.

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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 success depends to a significant degree on 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.

In particular, our success has been, and continues to be, highly dependent upon the abilities of key executives, including our president, and certain other employees.

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Additionally, the bank regulatory agencies expect financial institutions to be responsible for all aspects of our vendors’ performance, including aspects which they delegate 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 network system 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.

Disruptions or failures in the physical infrastructure or operating systems that support our business and clients, or cyberattacks or security breaches of the network system 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.

Any inaccurate assumptions in our analytical and forecasting models could cause us to miscalculate our projected revenue or losses, which could adversely affect us.

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Risks Related to Holding Our Common Stock

Our growth or future losses may require us to raise additional capital in the future, but that capital may not be available when it is needed or the cost of that capital may be very high.

Our growth or future losses may require us to raise additional capital in the future, but that capital may not be available when it is needed or the cost of that capital may be exceedingly high.

We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations.

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

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

We are an entity separate and distinct from our principal subsidiary, the Bank, and derive substantially all of our revenue at the holding company level in the form of dividends from that subsidiary.

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

We are an entity separate and distinct from our principal subsidiary, the Bank, and derive substantially all our revenue at the holding company level in the form of dividends from that subsidiary.

Accordingly, we are, and will be, dependent upon dividends from the Bank to pay the principal of and interest on our indebtedness to satisfy our other cash needs and to pay dividends on our common stock.

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Our charter provides that any person or group who acquires beneficial ownership of our common stock in excess of 10% of the outstanding shares may not vote the excess shares.

Accordingly, if you acquire beneficial ownership of more than 10% of the outstanding shares of our common stock, your voting rights with respect to our common stock will not be commensurate with your economic interest in our company.

Accordingly, if a person acquires beneficial ownership of more than 10% of the outstanding shares of our common stock, that person’s voting rights with respect to our common stock will not be commensurate with their economic interest in our company.

Anti-takeover provisions could negatively affect our shareholders.

Provisions in our articles of incorporation and bylaws, the corporate laws of the state of Washington and federal laws and regulations could delay or prevent a third party from acquiring us, despite the possible benefit to our shareholders, or otherwise negatively affect the market value of our stock.

These provisions, among others, include:

restrictions on voting shares of our common stock beneficially owned in excess of 10% of total shares outstanding;

These provisions, among others, include restrictions on voting shares of our common stock beneficially owned in excess of 10% of total shares outstanding;

and advance notice requirements for nominations for election to our Board of Directors and for proposing matters that shareholders may act on at shareholder meetings.

In addition, although we are in the process of transitioning from staggered three-year terms for directors to a declassified board structure in which each director will be elected for a one-year term, this transition is not complete.

The partial staggered terms structure will continue to serve as a relevant anti-takeover provision until the transition to a declassified board structure.

The partially staggered-terms structure will continue to serve as a relevant anti-takeover provision until the transition to a declassified board structure.

Our articles of incorporation also authorize our Board of Directors to issue preferred or other stock, and preferred or other stock could be issued as a defensive measure in response to a takeover proposal.

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Under the Change in Bank Control Act of 1978, as amended, any person (or persons acting in concert), other than a bank holding company, is required to notify the Federal Reserve before acquiring 10% or more of any class of our voting securities.

Item 1B – Unresolved Staff Comments

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