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Item 1A. Risk Factors

2026-02-25 compared with 2025-02-26 · 119 added, 148 removed, 293 unchanged (48% of the section changed)

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Our business may be adversely affected by downturns in the national economy and the regional economies on which we depend.

Our operations are significantly affected by national and regional economic conditions.

Our operations are significantly influenced by national and regional economic conditions.

Weakness in the national economy, or the economies of the markets in which we operate, could have a material adverse effect on our financial condition, results of operations and prospects.

We provide banking and financial services primarily to businesses and individuals in the states of Washington, Oregon, California and Idaho, with all of our branches and most of our deposit clients located in these four states.

Our client base is highly concentrated in the Puget Sound area and eastern Washington.

A deterioration in the business environment in these regions, 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.

As we expand into other areas, such as San Diego, Sacramento, and throughout California, we face additional concentration risks in those markets.

Furthermore, trade wars, tariffs, or shifts in trade policies between the United States and other nations could disrupt supply chains, increase costs for businesses, and reduce export opportunities for our clients.

These developments may, in turn, negatively impact these businesses and, by extension, our operations and financial performance.

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

Our client base is highly concentrated in the Puget Sound region and Eastern Washington.

A deterioration in the business environment in these regions, or the financial challenges of one or more large employers in these areas, could have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects.

As we expand into other areas, including San Diego, Sacramento, and other parts of California, we face additional concentration risks in these markets.

Broader economic factors such as inflation, unemployment, money supply fluctuations, changes in monetary policy, and volatility in interest rate markets also may adversely affect our profitability.

Uncertainty regarding the timing, magnitude or pace of potential interest rate changes by the Federal Reserve, particularly following a prolonged period of elevated rates, may negatively affect borrowing demand, asset yields, deposit pricing, and economic activity in our market areas.

Furthermore, trade disputes, tariffs, or shifts in trade policies between the United States and other nations could disrupt supply chains, increase costs for businesses, and reduce export opportunities for our clients.

These developments may, in turn, negatively impact our client’s operations and, consequently, our financial performance.

A downturn in economic conditions, whether due to inflation, recessive trends, geopolitical conflicts, or environmental and climate-related events such as wildfires, floods, or other natural disasters, 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;

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Because our loan portfolio is predominantly secured by real estate, deterioration in real estate markets could impair borrowers’ ability to repay loans and reduce the value of the underlying collateral.

Real estate values are influenced by a range of factors, including economic conditions, government policies, natural disasters (e.g., fires, earthquakes, flooding and tornadoes), and trade-related pressures affecting construction costs or material availability.

Real estate values are influenced by a range of factors, including economic conditions, interest rates, government policies, natural disasters, construction and material availability, and other market or policy factors.

Liquidating significant collateral during a period of depressed real estate values could negatively impact our financial condition and profitability.

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Monetary policy, inflation, deflation, and other external economic factors could adversely impact our financial performance and operations.

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.

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

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.

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, and as a result, interest rates tend to have a more significant impact on our performance than general levels of inflation or deflation.

However, interest rates do not necessarily move in the same direction or magnitude as the prices of goods and services, creating additional uncertainty in the economic environment.

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Our financial condition and results of operations are influenced by monetary, fiscal, and trade policies, including those of the Federal Reserve, the U.S.

Treasury, and other governmental authorities.

Actions by these authorities may lead to inflation, deflation, changes in interest rates, or other economic conditions that could materially adversely affect our results of operations.

Tariffs, supply-chain disruptions, or rising costs could reduce the ability of our clients, particularly small- and medium-sized businesses, to repay loans, negatively affecting credit quality and financial performance of our loan portfolios.

Prolonged inflation may increase operational costs, including wages and benefits, while fluctuations in interest rates and the yield curve can significantly impact our net interest income.

Interest rates may not move in alignment with inflation or deflation, adding uncertainty to the economic environment.

Risks Related to Credit and Lending

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

In addition to first-lien one- to four-family residential real estate lending, we originate construction and land and land development loans, commercial and multifamily real estate loans, commercial business loans, agricultural mortgage and business loans, and consumer loans, primarily within our market areas.

In addition to first-lien one- to four-family residential real estate lending, we originate construction, land and land development loans, commercial and multifamily real estate loans, commercial business loans, agricultural mortgage and business loans, and consumer loans, primarily within our market areas.

As of December 31, 2025, we had $10.15 billion outstanding in these non-first-lien one- to four-family residential real estate loan categories, compared to $9.76 billion as of December 31, 2024.

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

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

Such challenges could result from difficulties in estimating construction costs, assessing the value of the property upon project completion, or accounting for regulatory impacts.

If construction cost estimates are inaccurate, we may be required to advance funds beyond the original loan commitment to ensure project completion.

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Rising market interest rates can rapidly deplete these reserves before project completion and increase borrowing costs for end-purchasers, potentially reducing their ability to finance the home or diminishing demand for the project.

Properties under construction are also challenging to sell and typically need to be completed before a sale can occur, complicating the management of problem construction loans.

This may require advancing additional funds or contracting with another builder to complete the project, exposing us to market risks and potential losses on unpaid loan funds and associated costs.

Properties under construction are also challenging to sell and typically need to be completed before a sale can occur, which could increase the risk of loan losses if the property cannot be sold or completed as planned.

Loans on land under development or held for future construction carry additional risks due to the lack of income generation and reduced collateral liquidity, both of which are highly influenced by supply and demand dynamics.

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Our construction loans include both those secured by sales contracts or permanent loans for finished homes and speculative construction loans, where end-purchasers may not be identified during or after the construction period.

Speculative construction loans present additional risks related to finding buyers for completed projects.

To mitigate this risk, we actively monitor the number of unsold homes in our construction loan portfolio and local housing markets to maintain a balance between home sales and new loan originations.

We also limit the number of speculative construction loans approved for each builder based on factors such as financial capacity, market demand, and the ratio of sold to unsold inventory.

Additionally, we diversify risk by working with a large number of small- to mid-sized builders across a broad geographic region, encompassing multiple sub-markets within our service area.

Speculative construction loans present additional risks because end-purchasers may not be identified, and unsold inventory or market weakness could result in loan losses.

• Commercial and Multifamily Real Estate Loans .

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

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

These balloon payments may require the borrower to either sell or refinance the underlying property, and refinancing may be difficult or unavailable due to elevated interest rates, tighter underwriting standards, declining property values, or reduced lender appetite, heightening the risk of default or non-payment.

If we foreclose on a commercial or multifamily real estate loan, the holding period for the collateral is typically longer than for one- to four-family residential loans as a result of the smaller pool of potential buyers.

At December 31, 2024, non-performing commercial and multifamily real estate loans totaled $2.2 million, or 6% of total non-performing loans.

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.

More recently, the commercial real estate market has been affected by higher interest rates, tighter credit conditions, and changing economic and workplace dynamics.

The adoption of remote and hybrid work models has led many companies to re-evaluate their long-term real estate needs.

Although certain employers have increased in-office requirements, others are downsizing or shifting to hybrid models, and demand for office space in certain markets has remained structurally lower than pre-pandemic levels, creating uncertainty in demand for office space and other commercial properties.

This trend could result in prolonged vacancies, declining rental income, refinancing challenges, and reduced property values, particularly for certain property types or markets, adversely affecting the performance of our commercial real estate loan portfolio.

Federal banking regulators have increased supervisory focus on commercial real estate exposures, particularly with respect to refinancing risk, collateral valuation, and borrower equity levels, which may subject us to heightened examination scrutiny, additional risk management expectations, or more conservative supervisory expectations.

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.

At December 31, 2025, non-performing commercial and multifamily real estate loans totaled $525,000, or 1% of total non-performing loans.

• Commercial Business Loans.

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At December 31, 2025, non-performing commercial business loans totaled $6.8 million, or 15% of total non-performing loans.

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• Agricultural Loans .

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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.

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 ensure repayment.

This risk is affected by, among other things:

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• changes in economic and industry conditions.

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We maintain an allowance for credit losses that we believe is appropriate to provide for lifetime expected credit losses in our loan portfolio.

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• 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.

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.

If our estimates are incorrect, the allowance for credit losses may not be sufficient to cover the 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 provision.

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

The ongoing Los Angeles wildfires that began in January 2025 present heightened risks to our loan portfolio and the adequacy of our allowance for loan losses.

Borrowers impacted by the fires may face financial hardship, leading to increased loan defaults and reduced repayment capacity.

Damage to or destruction of properties securing loans may result in collateral value depreciation, further increasing potential losses.

Additionally, inadequate insurance coverage or denied claims may limit recovery efforts and contribute to greater uncertainty in estimating credit losses.

Local economic disruptions, such as business closures and job losses, may impair borrowers’ ability to meet financial obligations, requiring adjustments to our credit loss assumptions.

The concentration of our loan portfolio in fire-prone areas further increases exposure, while the growing frequency and severity of wildfires due to climate change heightens long-term risks.

These factors may necessitate increases to our allowance for loan losses to account for elevated credit risks.

While we continuously evaluate our allowance to ensure it reflects current and expected risks, there can be no assurance it will be sufficient to cover actual losses, particularly in the context of ongoing and future wildfire-related challenges.

Environmental and climate-related events, including wildfires, flooding, mudslides, hurricanes, or other natural disasters, including recent events in our market regions, may adversely affect borrowers’ ability to repay loans, reduce the value of collateral, and increase uncertainty in estimating credit losses.

These factors may require increases to our allowance for credit losses to account for elevated credit risks.

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 reduce net income and, most likely, capital, and may have a material negative effect on our financial condition and results of operations.

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Risks Related to Merger and Acquisition Strategy

We pursue a strategy of supplementing internal growth by acquiring other financial companies or their assets and liabilities, which we believe will help us fulfill our strategic objectives and enhance our earnings.

We may be adversely affected by risks associated with growth through acquisitions.

Our strategy of supplementing internal growth through acquisitions of other financial companies or their assets and liabilities, could be adversely affected by risks associated with such acquisitions.

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

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Acquiring banks, bank branches, or businesses involves several risks, including:

• we may be exposed to potential asset quality issues or unknown or contingent liabilities of the banks, businesses, assets, and liabilities we acquire.

If these issues or liabilities exceed our estimates, our results of operations and financial condition may be materially negatively affected;

• exposure to potential asset quality issues or unknown or contingent liabilities of the banks, businesses, assets, and liabilities we acquire;

• higher than expected deposit attrition;

• potential diversion of our management’s time and attention;

• prices at which acquisitions can be made fluctuate with market conditions.

We have experienced times during which acquisitions could not be made in specific markets at prices we considered acceptable and expect that we will experience this situation in the future;

• the acquisition of other entities generally requires integration of systems, procedures and personnel of the acquired entity into our company to make the transaction economically successful.

This integration process is complicated and time-consuming and can also be disruptive to the clients of the acquired business.

• fluctuation in market condition affecting the prices at which acquisitions can be made;

• complicated or unsuccessful integrations of systems, procedures and personnel of the acquired entity into our company as this integration process is complicated and time-consuming and can also be disruptive to the clients of the acquired business;

• potentially increased leverage, diminished liquidity, or additional capital requirements;

• unable to sustain our past growth rate or grow at all in the future;

• the acquisition may generate goodwill that must be analyzed for impairment at least annually.

If these risks or uncertainties are not properly addressed, our results of operations and financial condition may be negatively affected.

If the integration process is not conducted successfully and with minimal adverse effect on the acquired business and its clients, we may not realize the anticipated economic benefits of particular acquisitions within the expected time frame, and we may lose clients or employees of the acquired business.

We may also experience greater than anticipated client losses even if the integration process is successful.

• 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 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.

Our goodwill may become impaired.

In accordance with generally accepted accounting principles (GAAP), we record assets acquired and liabilities assumed in a business combination at their fair value with the excess of the purchase consideration over the net assets acquired resulting in the recognition of goodwill.

As a result, acquisitions typically result in recording goodwill.

We perform a goodwill evaluation at least annually to test for goodwill impairment.

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If we are unable to manage this risk effectively, our business, financial condition and results of operations could be materially affected.

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Our net interest margin, the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities, can be adversely affected by interest rate changes.

While yields on assets and costs of liabilities tend to move in the same direction, they may do so at different speeds, causing the margin to expand or contract.

As our interest-bearing liabilities often have shorter durations than our interest-earning assets, a rise in interest rates may lead to funding costs increasing faster than asset yields, compressing our net interest margin.

Additionally, changes in the slope of the yield curve, such as flattening or inversion, can further pressure our margins as funding costs rise relative to asset yields.

Conversely, falling rates can initially reduce our net interest income as our floating-rate assets tend to be more immediately responsive to changes in market rates than most deposit liabilities.

In addition, a decline in market interest rates could increase loan prepayments, leading to reinvestment in lower-yielding assets, reducing income.

In a rising rate environment, retaining deposits can become costlier.

At December 31, 2024, we had $1.45 billion in certificates of deposit that mature within one year and $12.01 billion in non-interest-bearing, negotiable order of withdrawal (NOW) checking, savings and money market accounts.

Because our interest-bearing liabilities often have shorter durations than our interest-earning assets, a rise in interest rates may lead to funding costs increasing faster than asset yields, compressing our net interest margin.

Periods of volatile, elevated, or declining rates may affect net interest income in multiple ways.

For example, floating‑rate assets generally reprice more quickly than deposits, potentially reducing income in falling rate environments.

Changes in borrower refinancing behavior, including increased loan prepayments and mortgage‑backed security redemptions, introduce reinvestment risk, as prepaid amounts may need to be reinvested at lower rates.

Additionally, changes in the shape of the yield curve, such as flattening or inversion, can compress margins, particularly for institutions with significant fixed‑rate assets.

Rising rates can also increase the cost of deposits and other funding sources.

If deposit and borrowing rates rise faster than loan and investment yields, our net interest income and overall earnings could decline.

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Additionally, a significant portion of our adjustable-rate loans include interest rate floors that prevent the loan’s contractual interest rate from falling below a specified level.

At December 31, 2024, approximately 65% of our loan portfolio consisted of adjustable or floating-rate loans, and approximately $5.19 billion, or 70%, of those loans contained interest rate floors.

The weighted average floor interest rate of these loans was 4.77%, and approximately $1.34 billion, or 26%, of these loans were at their floor interest rate.

The presence of interest rate floors can increase income during periods of declining interest rates, as the rates on these loans cannot adjust downward below the floor.

These features may increase income during periods of declining interest rates, as the rates on these loans cannot adjust downward below the floor, but may limit income growth during periods of rising rates.

However, this benefit is subject to the risk that borrowers may refinance these loans to take advantage of lower rates.

Furthermore, when loans are at their floor interest rates, our interest income may not rise as quickly as our cost of funds during periods of increasing interest rates, which could materially and adversely affect our results of operations.

While we employ asset and liability management strategies to mitigate interest rate risk, unexpected, substantial, or prolonged rate changes could materially affect our financial condition and results of operations.

Unexpected, substantial, or prolonged rate changes could materially affect our financial condition and results of operations.

Additionally, our interest rate risk models and assumptions may not fully capture the impact of actual rate changes on our balance sheet or projected operating results.

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If these representations and warranties are breached, we may be required to repurchase the loans, potentially incurring a loss.

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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.

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Risks Related to Regulatory, Legal and Compliance

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

In October 2023, the FDIC proposed guidelines to establish corporate governance and risk management standards for insured state nonmember banks with total consolidated assets of $10 billion or more.

These guidelines focus on defining the responsibilities of the board of directors, specifying board composition and committee structures, establishing expectations for an independent risk management function, and introducing safeguards to prevent a "single point of failure" in risk management processes.

If implemented, these guidelines could materially affect us and other banks subject to their requirements in the following ways:

• Compliance with the guidelines may elevate operational complexity and costs, potentially diminishing our net income and return on equity.

• The guidelines could mandate maintaining increased levels of capital or liquidity, which may restrict our ability to leverage assets and generate higher returns.

• The guidelines may subject us to heightened regulatory oversight and enforcement actions, which could adversely affect our reputation and market valuation.

• Banks subject to these guidelines, including us, may face competitive disadvantages compared to financial institutions not subject to similar standards.

• The guidelines’ emphasis on board responsibilities and independence may make it more challenging to attract and retain qualified directors willing to serve on our board.

The full implications of the proposed guidelines on our profitability, capital adequacy, and reputation remain uncertain at this time.

However, the potential for increased operational burdens, reduced financial flexibility, and elevated regulatory risks underscores the importance of monitoring developments closely and adapting our governance and risk management practices to meet evolving regulatory expectations.

Failure to effectively manage these challenges could have a material adverse effect on our business, financial condition, and results of operations.

Potential Impact of Regulatory Changes on Corporate Governance and Risk Management

Regulators may adopt new rules or guidance establishing or modifying corporate governance and risk management standards for banks.

Any such guidance could materially affect us by:

• Increasing operational complexity and costs, potentially reducing net income and return on equity;

• Requiring higher levels of capital or liquidity, limiting financial flexibility;

• Subjecting us to heightened regulatory oversight, potentially affecting reputation and market valuation;

• Creating competitive disadvantages relative to less-regulated institutions;

• Potentially affecting our ability to attract and retain qualified directors or senior management.

Future changes in corporate governance or risk management requirements could increase operational burdens, restrict financial flexibility, and elevate regulatory risks, which could materially affect our business, financial condition, and results of operations.

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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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.

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We cannot predict what restrictions may be imposed upon us by 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 raise significant concerns about the state of the environment.

However, under a new administration, federal policy may shift to reduce the emphasis on climate change initiatives and environmental regulations.

This could include scaling back federal participation in international agreements, such as is occurring with the Paris Agreement, and reducing regulatory pressures on businesses, including banks, to address climate-related risks.

Legislative and regulatory proposals aimed at combating climate change may face greater scrutiny or diminished priority.

Federal and state policy approaches to climate change continue to evolve, and changes in legislative or regulatory priorities could alter the requirements and expectations placed on businesses, including banks, to address climate-related risks.

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.

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Moreover, climate change may adversely affect regional and local economic activity, harming our clients and the communities in which we operate.

Regardless of changes in federal policy, the effects of climate change and their unknown long-term impacts could still have a material adverse effect on our financial condition and results of operations.

Regardless of changes in federal policy, the effects of climate change and its unknown long-term impacts could still have a material adverse effect on our financial condition and results of operations.

Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions and limit our ability to obtain regulatory approval of acquisitions.

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These rules require financial institutions to establish procedures for identifying and verifying the identity of clients seeking to open new financial accounts.

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

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.

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

Additionally, any perceived or actual failure to prevent money laundering or terrorist financing activities could significantly damage our reputation.

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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 shareholder value.

We have established processes and procedures intended to identify, measure, monitor, report, analyze and control the types of risks we face.

These risks include liquidity, credit, market, interest rate, operational, legal and compliance, and reputational risks, among others.

We also maintain a compliance program designed to identify, measure and report on our adherence to applicable laws, regulations, policies and procedures.

Although we continuously assess and improve these programs, there can be no assurance that our risk management or compliance programs, along with other related controls, will effectively mitigate all risk and limit losses in our business.

However, as with any risk management framework, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified.

If our risk management framework proves ineffective, we could suffer unexpected losses and our business financial condition and results of operations could be materially adversely affected.

Our business is exposed to a broad range of risks, including liquidity, credit, market, interest rate, operational, legal and compliance, reputational and other risks.

These risks may arise from internal factors, the actions of third parties, changes in economic conditions, or other unforeseen events.

There may be risks that we have not anticipated or identified, and existing or emerging risks could result in substantial and unexpected losses.

If our risk management proves ineffective, we may incur significant losses, which could materially and adversely affect our business, financial condition, results of operations, and growth prospects.

Our business and financial results could be impacted materially by adverse results in legal proceedings.

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The ultimate resolution of any legal proceeding, depending on the remedy granted, could materially adversely affect our results of operations and financial condition.

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Risks Related to Cybersecurity, Data and Fraud

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.

Communications and information systems are essential to our business operations, as we rely on these systems to manage our client relationships, maintain our general ledger, and support virtually all other aspects of our operations.

Our business depends on the secure processing, storage, and transmission of confidential and other information through our computer systems and networks.

Although we take protective measures and adapt them as circumstances evolve, our systems, software, and networks may remain vulnerable to breaches, fraudulent or unauthorized access, denial or degradation of service attacks, misuse, computer viruses, malware, or other cyber threats.

Our systems, software, and networks may remain vulnerable to breaches, fraudulent or unauthorized access, denial or degradation of service attacks, misuse, computer viruses, malware, or other cyber threats.

If any of these events occur, they could compromise our or our clients’ confidential information, disrupt operations, or harm our clients or counterparties.

We may incur significant expenses to investigate and remediate security vulnerabilities, enhance protective measures, or address the impact of a cyber-attack.

We may incur significant expenses to investigate and remediate security vulnerabilities, address the impact of a cyber-attack, or enhance our systems.

Such incidents could expose us to litigation, regulatory scrutiny, and financial losses not fully covered by insurance.

They could also cause significant reputational damage, which may deter clients from using our services.

Cybersecurity risks are particularly acute in internet banking.

Cybersecurity risks are particularly acute in online banking.

Increases in criminal sophistication, advances in technology, or vulnerabilities in third-party systems (such as browsers and operating systems) could lead to breaches that compromise the security of data and transactions.

A breach could discourage clients from using our online services, negatively impacting our business.

While we have developed and continue to invest in systems and processes to detect and prevent security breaches, no system is foolproof.

Breaches could result in financial losses to us or our clients, reputational harm, additional compliance costs, business disruption, regulatory penalties, and potential legal liabilities.

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In addition, our security measures may not protect us from system failures or interruptions.

Although we have policies and procedures to mitigate such risks, we cannot guarantee their effectiveness.

We also rely on third-party providers for data processing and operational support.

While we carefully select these providers, we do not control their actions.

If a third-party vendor experiences disruptions, cyber-attacks, or fails to meet our service standards, it could impair our ability to process transactions, deliver products and services, or conduct business.

If a third-party vendor experiences a disruption, or cyber-attack, or fails to meet our service standards, it could impair our ability to process transactions, deliver products and services, or conduct business.

Transitioning to alternative vendors could involve significant delays and costs.

Further, information security risks may arise from the processing of client data by third-party vendors and their personnel.

We cannot assure you that breaches, system failures, or interruptions will not occur or that they will be adequately addressed by us or our vendors.

Additionally, our insurance coverage may not fully protect against all losses from such events.

Information security risks may also arise from the processing of client data by third-party vendors and their personnel.

Breaches, system failures, or interruptions could occur and may not be adequately addressed.

Insurance coverage may not fully protect against all losses from such events.

If any of our third-party providers experience financial, operational, or technological difficulties, or if disruptions occur in our relationships with them, we may be required to find alternative service providers.

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Any of these occurrences, whether system failures, security breaches, or vendor disruptions, could damage our reputation, result in client and business losses, expose us to regulatory scrutiny and legal liabilities, and have a material adverse effect on our financial condition and results of operations.

We are currently undertaking, or may in the future undertake, significant system conversions and technology upgrades to enhance our operational efficiency, client service capabilities, or regulatory compliance.

System conversions, including the implementation of new loan and deposit origination platforms, digital banking solutions, or integration of acquired systems, are inherently complex and present a range of operational, financial, and compliance risks.

These risks include, but are not limited to, data migration errors, system downtime, delays in project implementation, and disruptions to ongoing business operations.

Inadequate planning, insufficient testing, or ineffective change management could result in the loss or corruption of critical data, interruptions in client-facing services, or failures in transaction processing.

Such events could adversely impact our ability to serve clients, result in financial losses, or lead to regulatory scrutiny and reputational harm.

Additionally, system conversions may require significant investments of time and resources, and may divert management attention from other strategic initiatives.

If we are unable to successfully execute system conversions or promptly resolve any issues that arise, our business, financial condition and results of operations could be materially and adversely affected.

Furthermore, as a regulated financial institution, we are subject to heightened expectations regarding data security, business continuity, and internal controls during periods of significant technology change, and any failure to meet these expectations could result in regulatory actions or penalties.

Our current and future uses of Artificial Intelligence (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.

AI introduces model risk, where flawed algorithms or biased data could result in inaccurate credit decisions, compliance violations, or discriminatory outcomes in lending or client service.

Cybersecurity threats, such as data breaches, adversarial attacks, and data poisoning, pose significant challenges, particularly as these systems handle large volumes of sensitive client information.

AI introduces model risk, where flawed algorithms or biased data could result in compliance violations or discriminatory outcomes in lending or client service.

Cybersecurity threats, such as data breaches, adversarial attacks, and data poisoning, pose significant challenges, particularly as these systems may handle large volumes of sensitive client information.

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.

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Ethical and reputational risks, including unintended consequences or perceived unfairness in AI-driven decisions, may erode client trust and expose us to regulatory scrutiny.

Mitigating these risks requires a robust governance framework, regularly testing and auditing of AI models, and strong human oversight.

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

Competitive risks also arise from differences in adoption of new technological developments, including generative and agentic artificial intelligence.

If our competitors gain an advantage by using such technologies, our ability to compete effectively and our results of operations could be adversely impacted.

Mitigating these risks requires investments in a robust governance framework, cybersecurity, data privacy, and employee training.

Additionally, the fragmented and rapidly evolving legal environment related to AI creates heightened uncertainty and complexity and presents additional compliance and legal risks that could adversely impact our operating results.

We are subject to certain risks in connection with our data management or aggregation.

We are reliant on our ability to manage data and our ability to aggregate data in an accurate and timely manner to ensure effective risk reporting and management.

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 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.

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We are reliant on our ability to manage data and our ability to aggregate data in an accurate and timely manner to ensure effective risk reporting and decision-making.

Deficiencies in how data is acquired, validated, stored, protected, or processed, as well as the manual nature of many of our data management and aggregation processes, could lead to human error or system failures.

Inaccurate, incomplete, or delayed data could limit our ability to identify, measure, and manage current and emerging risks, impair management decision-making, and hinder our ability to respond to changing business conditions.

These shortcomings could also adversely affect our financial reporting, regulatory compliance, operational efficiency, and strategic initiatives.

Any of these outcomes could materially and adversely affect our business, financial condition, results of operations, and growth prospects.

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

The Bank is susceptible to fraudulent activity that may be committed against us or our clients which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client’s information, misappropriation of assets, privacy breaches against our clients, litigation or damage to our reputation.

The Bank is susceptible to fraudulent activity that may be committed against us or our clients which may result in financial losses or increased costs, disclosure or misuse of our information or our client’s information, misappropriation of assets, privacy breaches, litigation or damage to our reputation.

Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts.

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We have also experienced losses due to apparent fraud and other financial crimes.

While we have policies and procedures designed to prevent such losses, there can be no assurance that such losses will not occur.

These risks could occur despite our controls and precautions, and there can be no assurance that losses from fraudulent activity will not occur.

Risks Related to Our Business and Industry Generally

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Changes to the FHLB of Des Moines’s lending policies or underwriting guidelines may limit our ability to borrow and adversely affect our liquidity.

Although we have historically been able to replace maturing deposits and borrowings, future replacements may be challenging due to changes in our financial condition, the FHLB of Des Moines’s condition, or broader market disruptions.

While in prior periods we have successfully replaced maturing deposits and borrowings, deposit balances across the banking industry have become more rate-sensitive and responsive to market perceptions, and future replacements may be challenged by shifts in our financial condition, FHLB of Des Moines’ status, or market conditions.

Our access to adequate funding could also be impaired by factors affecting us specifically or the financial industry generally, such as financial market disruptions, negative perceptions of the financial services sector, or deteriorating credit markets.

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Any significant decline in funding availability could impede our ability to originate loans, invest in securities, meet expenses, or fulfill obligations such as repaying borrowings and meeting deposit withdrawal demands, potentially resulting in a material adverse impact on our business, financial condition, and results of operations.

Additionally, collateralized public funds (state and local municipal deposits secured by investment-grade securities) help reduce contingent liquidity risk by being less credit-sensitive, however, the pledging of collateral to secure these funds limits their availability as a reserve source of liquidity.

While these deposits have historically provided stable funding, their availability depends on the fiscal policies and cash flow needs of individual municipalities.

Additionally, collateralized public funds (state and local municipal deposits secured by investment-grade securities) reduce contingent liquidity risk by being less credit-sensitive, however, the pledging of collateral to secure these funds limits their availability as a reserve source of liquidity.

Their availability may also be affected by the fiscal policies and cash flow needs of individual municipalities, which could further constrain our access to liquidity under certain conditions.

Benefits of strategic initiatives may not be realized.

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If we fail to effectively address these risks in the development and implementation of new products or services, our business and reputation could suffer, potentially leading to a material adverse impact on our consolidated results of operations and financial condition.

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The financial services industry is experiencing rapid change due to technological innovation, evolving customer preferences, and regulatory developments, leading to increased disintermediation.

Fintech companies and digital platforms are offering products and services that compete directly with traditional banks, often with lower costs and fewer regulatory constraints.

In addition, legislative or regulatory changes could accelerate disintermediation.

As a result of recent regulations to provide a regulatory framework for stablecoins, increased competition may emerge from issuers of stablecoins and providers of related technology.

If we are unable to adapt through digital investment, new product development, or strategic partnerships, our ability to attract and retain clients and maintain profitability could be adversely affected.

We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects.

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Regulatory agencies also require financial institutions to remain accountable for all aspects of vendor performance, including activities delegated to third parties.

Additionally, disruptions or failures in the physical infrastructure or operating systems supporting our business and clients, or cyber-attacks or security breaches involving networks, systems, or devices used by our clients to access our services, could lead to client attrition, regulatory fines or penalties, reputational damage, reimbursement or compensation costs, and increased compliance expenses.

Any of these outcomes could materially and adversely affect our financial condition and results of operations.

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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If our model assumptions are incorrect, improperly applied or inadequate, we may record higher than expected losses or lower than expected revenues which could have a material adverse effect on our business, financial condition and results of operations.

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 light of the recent executive order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” which revokes previous mandates promoting DEI and directs federal agencies to combat “illegal DEI” practices in the private sector, we must reassess our ESG strategies to ensure compliance with the evolving regulatory environment.

The order signals a shift in federal oversight and enforcement priorities, potentially affecting internal policies, hiring practices, supplier diversity programs, and corporate governance frameworks.

The executive order rescinds prior directives, such as Executive Order 11246, which required affirmative action and non-discriminatory practices by federal contractors.

As a result, federal agencies may reevaluate existing contracts, scrutinize hiring and promotion policies, and take enforcement actions against companies perceived to be engaging in practices that do not align with the revised federal standards.

Additionally, new guidance or rulemaking stemming from the executive order could impose restrictions on voluntary DEI initiatives, training programs, or supplier diversity efforts.

These developments may necessitate changes to our internal policies, reporting obligations, and public disclosures, creating operational and compliance challenges.

Failure to align our DEI and ESG efforts with the current legal framework could result in reputational damage, legal challenges, and adverse impacts on our operations.

Government investigations, enforcement actions, or private litigation challenging our DEI- and ESG-related policies could lead to financial penalties, increased legal costs, and potential restrictions on our ability to engage in government contracting.

Moreover, various private third-party organizations continue to evaluate companies based on ESG and DEI practices.

Unfavorable ratings from these entities could influence investor decisions, limit access to capital, and generate negative sentiment among stakeholders.

While the executive order aims to eliminate specific DEI programs, investors, customers, and other stakeholders may still expect transparency and commitment to broader ESG goals, including workforce diversity, community engagement, and responsible corporate governance.

Companies that scale back DEI initiatives to comply with federal mandates may face backlash from institutional investors, advocacy groups, and employees who view such actions as a retreat from social responsibility commitments.

Additionally, inconsistencies between federal and state-level DEI policies may create further complexities, as certain states continue to mandate affirmative action or corporate diversity disclosures.

Moreover, the rapid pace of change in legal frameworks, regulatory guidance and enforcement priorities resulting from the recent Presidential transition yields considerably increased uncertainty and compounds the difficulty of establishing and maintaining compliance.

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Adapting to the recent regulatory changes is crucial to maintaining our reputation, ensuring operational continuity, and meeting stakeholder expectations in the evolving ESG landscape.

Noncompliance or perceived noncompliance with the executive order and related regulatory guidance could expose us to increased regulatory scrutiny, litigation risks, and limitations on business opportunities.

At the same time, misalignment with investor and stakeholder expectations regarding ESG and DEI commitments could impair our brand value, reduce employee engagement and retention, and negatively impact our stock performance.

Given these factors, we must carefully assess and adjust our policies, disclosures, and risk mitigation strategies to navigate the shifting legal and business environment effectively.

Increasing scrutiny and evolving expectations from clients, regulators, investors, and other stakeholders with respect to our governance practices may impose additional costs on us or expose us to new or additional risks.

Recent federal actions, including changes in federal diversity, equity, and inclusion (“DEI”) and environmental, social, and governance (“ESG”) guidance, have shifted oversight of DEI and ESG practices.

These developments alter the regulatory expectations and compliance requirements, and increase compliance risk, for companies with DEI and ESG initiatives.

New guidance may restrict voluntary programs and training, potentially requiring policy changes, reporting obligations, and public disclosures, creating operational and compliance challenges.

At the same time, state-level requirements remain inconsistent.

Some continue to mandate diversity or climate disclosures, while others limit DEI and ESG activities, creating additional operational complexity for multi-state businesses.

Failure to align DEI and ESG efforts with the current legal framework could result in reputational harm, legal challenges, financial penalties, and limitations on government contracting.

Private third-party ESG and DEI evaluations may further influence investor decisions, access to capital, and stakeholder perception.

Investors, customers, and other stakeholders continue to expect transparency and commitment to broader ESG goals, including workforce diversity, community engagement, and responsible corporate governance.

Scaling back DEI or ESG efforts to comply with federal mandates may trigger criticism from investors, advocacy groups, and employees, while misalignment with state laws or rating agencies could affect market perception and access to capital.

The evolving regulatory landscape creates heightened uncertainty and operational challenges.

Adapting our policies, disclosures, and risk mitigation strategies is critical to managing legal, reputational, and investor-related risks.

Failure to effectively adapt could materially impact our reputation, employee engagement, and financial performance.

Risks Related to Holding Our Common Stock

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

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.

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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What changed 10-K

Item 1A. Risk Factors