What changed in this filing

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Item 1A. Risk Factors

2023-03-01 compared with 2022-03-01 · 64 added, 68 removed, 199 unchanged (40% of the section changed)

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Further, to the extent that any of the information contained in this Annual Report on Form 10-K constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company.

The COVID-19 global pandemic affected all aspects of the company’s business in 2021 and 2020.

The COVID-19 global pandemic affected all aspects of the Company’s business since 2020.

The impact of the pandemic is discussed in the "Operating" risk factors below, but it should be understood as affecting the overall risk environment and risk factors of the Company.

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Operating Risks

• The COVID-19 Pandemic is Adversely Affecting, and Will Likely Continue to Adversely Affect, the Company’s Business, Financial Condition, Liquidity, and Results of Operations.

• Public Health Emergencies Like the COVID-19 Pandemic May Adversely Affect, the Company’s Business, Financial Condition, Liquidity, and Results of Operations.

• The Company is Subject to Security and Operational Risks Relating to the Use of Technology that Could Damage the Company's Reputation and Business.

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• The Company’s Business is Reliant on Outside Vendors.

• Tailoring The Bank's Delivery Model to Respond to Customer Preferences in Banking May Negatively Affect Earnings

• Development of New Products and Services May Impose Additional Costs on the Company and May Expose It to Increased Operational Risk.

• The Discontinuation of LIBOR and the Emergence of One or More Alternative Benchmark Indices to Replace LIBOR Could Adversely Impact the Company’s Business and Results of Operations.

• The Discontinuation of LIBOR and the Transition to an Alternative Reference Rate Could Adversely Impact the Company’s Business and Results of Operations.

Liquidity Risks

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• Secondary Mortgage Market Conditions Could Have a Material Impact on the Company’s Financial Condition and Results of Operations.

Interest Rates

Interest Rate Risks

• Market Interest Rate Conditions Could Adversely Affect Results of Operations and Financial Condition.

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Real estate market conditions affect the value and marketability of real estate collateral, and they also affect the cash flows, liquidity, and net worth of many borrowers whose operations and finances depend on real estate market conditions.

Adverse conditions in the Company's market areas could reduce growth rates, affect the ability of our customers to repay their loans, and generally affect the Company's financial condition and results of operations.

We have a geographic concentration of loans in our market areas.

Adverse conditions in the Company's market areas could reduce growth rates, affect the ability of our customers to repay their loans and increase loan losses, and generally affect the Company's financial condition and results of operations.

Potential increases in interest rates could increase capitalization rates which could adversely affect commercial property appraisals and collateral value.

Similarly, if residential mortgage interest rates increase from lows in recent years, residential property values may be adversely impacted.

Residential property values may be similarly adversely impacted.

Pandemic impacts on the supply and demand of residential properties have caused unusual price appreciation in many markets, which may not be sustained if market conditions normalize.

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The Company emphasizes commercial lending, which generally exposes the Company to a greater risk of nonpayment and loss because repayment of such loans often depends on the successful operations and income stream of the borrowers.

Commercial loans are historically more susceptible to delinquency, default, and loss during economic downturns.

Commercial lending involves larger loan sizes and larger relationship exposures, with greater

potential impact on profits in the event of adverse loan performance.

Commercial loans are historically more susceptible to delinquency, default, fraud, and loss during economic downturns.

Commercial lending involves larger loan sizes and larger relationship exposures, with greater potential impact on profits in the event of adverse loan performance.

The majority of the Company’s commercial loans are secured by real estate and subject to the previously discussed real estate risk factors, as well as risks specific to individual properties and property types.

Geographic expansion may result in risks not previously experienced by the Company or which it is unfamiliar with monitoring or resolving.

Recent expansion has been focused on the Greater Boston market, where the Bank may be financing projects with larger loan amounts where the Bank has less experience than in its traditional market areas and where competition may result in different lending structures.

Recent expansion of the commercial lending team may expose the Company to new markets and risks if new lenders are not integrated with the Company’s policies, controls, and procedures.

Commercial lending activities pose higher risk of fraud.

In 2019, the Company wrote-off the $16 million balance of a secured commercial loan in circumstances involving alleged borrower fraud.

This asset was a participating interest in a commercial loan managed by another financial institution.

Such participating interests involve risks related to counterparty performance, as further described in a later risk factor.

In the case of this loan, the Company has filed legal claims against the agent bank in pursuit of the recovery of some of the loss recorded by the Company.

The outcome of such legal proceedings is subject to uncertainty.

The Company is Subject to a Variety of Risks in Connection With Any Sale of Loans it May Conduct.

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Demand for the Company’s loans in the secondary markets could also be affected by these risks, which could lead to a reduction in related business activities.

The Company may be required to reduce the value of any loans it marks as held for sale, which could adversely affect its results of operations.

As a result of the Company’s strategic initiatives, the Company sold certain loans which were previously held for investment and conducted sales with buyers who it had not previously transacted with.

The Company is Exposed to Risk of Environmental Liability When It Takes Title to Property.

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New Third Party Lending Relationships and Sourcing Channels May Increase Lending Risk.

The Company is expanding its lending sourcing channels, including forming a residential mortgage conduit, partnering with fintech online lenders, and expanding its commercial loan sourcing channels.

The Company is expanding its lending sourcing channels, including a residential mortgage channel with local correspondents, partnering with fintech online lenders, and expanding its commercial loan sourcing channels.

It is also relying more on third party loan servicing.

These activities may increase the underwriting risks and loan administration risks in managing its lending activities.

The COVID-19 Pandemic is Adversely Affecting, and Will Likely Continue to Adversely Affect, the Company’s Business, Financial Condition, Liquidity, and Results of Operations.

Public Health Emergencies Such as the COVID-19 Pandemic May Adversely Affect, the Company’s Business, Financial Condition, Liquidity, and Results of Operations.

The COVID-19 pandemic has negatively impacted the U.S.

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increased demands on capital and liquidity;

and affected employment and consumer confidence.

and affected employment wages, consumer confidence, and inflation.

In addition, the pandemic has resulted in temporary closures and curtailment of individual and business activities in our footprint.

The pandemic has caused us, and could continue to cause us, increases in the Company's allowance for credit losses and subsequent increases in credit losses in our loan portfolios.

The pandemic has resulted in increases in the Company's allowance for credit losses and the recognition of impairment of our goodwill.

Some of the risks the Company faces from the pandemic include, but are not limited to:

the health and availability of our colleagues, the supply of labor, inflationary impacts on operating costs, the financial condition of our clients and the demand for our products and services, changes in interest rates, recognition of credit losses and increases in the allowance for credit losses, impacts if customers draw on their lines of credit or draw down deposits or seek additional loans to help finance their businesses, and a significant deterioration of business conditions in our markets.

Furthermore, the pandemic has caused us to recognize impairment of our goodwill and there could be impairment of our financial assets.

Sustained adverse effects may also increase our cost of capital, prevent us from satisfying our minimum regulatory capital ratios and other supervisory requirements, or result in downgrades in our credit rating.

The extent to which the COVID-19 pandemic impacts our business, financial condition, liquidity and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the continued effectiveness of our business continuity plan, the direct and indirect impact of the pandemic on our customers, colleagues, counterparties and service providers, and actions taken by governmental authorities and other third parties in response to the pandemic.

Governmental authorities have taken significant measures to provide economic assistance to individual households and businesses, stabilize the markets, and support economic growth.

The future impact of these measures is unknown, and they may not be sufficient to mitigate the negative impact of the pandemic.

We also face an increased risk of litigation and governmental and regulatory scrutiny as a result of the effects of the pandemic on market and economic conditions and actions governmental authorities take in response to those conditions.

The length of the pandemic and the effectiveness of the measures being put in place to address it are unknown.

Until the effects of the pandemic subside, we face possible impacts on liquidity, operating revenues, and credit performance.

The extent to which the COVID-19 pandemic impacts our business, financial condition, liquidity and results of operations will

depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the continued effectiveness of our business continuity plan, the direct and indirect impact of the pandemic on our customers, colleagues, counterparties and service providers, and actions taken by governmental authorities and other third parties in response to the pandemic.

The length of the pandemic and the effectiveness of the measures being put in place to address it are unknown and we face possible continued impacts on liquidity, operating revenues, and credit performance.

To the extent the pandemic adversely affects our business, financial condition, liquidity, or results of operations, it may also have the effect of heightening many of the other risks described in this Annual Report on Form 10-K.

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Natural disasters and disaster recovery risks could affect its operating systems, which could affect its reputation.

The Company's business continuity program addresses crisis

management, business impact, and data and systems recovery.

Potential problems with the management of technology security and operational risks may affect regulatory compliance, which could affect operating costs and expansion plans.

The Company's business continuity program addresses crisis management, business impact, and data and systems recovery.

Potential problems with the management of technology security and operational risks may affect regulatory compliance, which could affect operating costs and expansion plans.Implementation of certain new technologies, such as those related to artificial intelligence, automation and algorithms, may have unintended consequences due to their limitations, potential manipulation, or our failure to use them effectively.

The Company Faces Cybersecurity Risks, Including Denial of Service Attacks, Ransomware, Hacking and Identity Theft that Could Result in the Disclosure of Confidential Information or the Creation of Unauthorized Transactions, Which Could Adversely Affect the Company’s Business or Reputation and Create Significant Legal and Financial Exposure.

Banking institutions face increased cybersecurity risks due to the number of employees that are working remotely in regions impacted by stay-at-home orders.

Increased levels of remote access create additional opportunities for cybercriminals to exploit vulnerabilities, and employees may be more susceptible to phishing and social engineering attempts due to work responsibilities at home.

Increased levels of remote access resulting from more work from home employees may create additional opportunities for cybercriminals to exploit vulnerabilities, and employees may be more susceptible to phishing and social engineering attempts due to work responsibilities at home.

In addition, technological resources may be strained due to the number of remote users.

Banking institutions should evaluate their cybersecurity risks in light of these issues and update their existing risk factors for any material changes or developments

The Company’s computer systems and network infrastructure are subject to security risks and could be susceptible to cyber-attacks, such as denial of service attacks, hacking, terrorist activities or identity theft.

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The Company may incur increasing costs in an effort to minimize these risks and could be held liable for any security breach or loss.

Despite efforts to ensure the integrity of its systems, the Company will not be able to anticipate all security breaches of these types, and the Company may not be able to implement effective preventive measures against such security breaches.

measures against such security breaches.

The techniques used by cyber criminals change frequently and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations or hostile foreign governments.

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The Company's use of derivative financial instruments exposes us to financial and contractual risks with counterparties.

The Company maintains correspondent bank relationships, manage certain loan participations, engage in securities and funding transactions, and undergo other activities with financial counterparties that are customary to its industry.

The Company maintains correspondent bank relationships, purchase loans, manages certain loan participations, engage in securities and funding transactions, and undergo other activities with financial counterparties that are customary to its industry.

The Company also utilizes services from major vendors of technology, telecommunications, and other essential operating services.

There is financial, reputational, and operational risk in these relationships, which the Company seeks to manage through internal controls and procedures, but there are no assurances that the Company will not experience loss or interruption of its business as a result of unforeseen events with these providers.

The Company's mortgage banking operations have exposed us to counterparty transactions including the use of third parties to participate in the management of interest rate risk and mortgage sales and

The Company's mortgage banking operations have exposed us to counterparty transactions including the use of third parties to participate in the management of interest rate risk and mortgage sales and hedging.

Financial, reputational, and operational risks are inherent in these counterparty and correspondent relationships.

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

Substantial risks and uncertainties are associated with the introduction of new products and services, including technical and control requirements that may need to be developed and implemented, rapid technological change in the industry, the Company’s ability to access technical and other information from its clients, the significant and ongoing investments required to bring new products and services to market in a timely manner at competitive prices and the preparation of marketing, sales and other materials that fully and accurately describe the product or service and its underlying risks.

preparation of marketing, sales and other materials that fully and accurately describe the product or service and its underlying risks.

The Company’s failure to manage these risks and uncertainties also exposes it to enhanced risk of operational lapses which may result in the recognition of financial statement liabilities.

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Failure to successfully manage these risks in the development and implementation of new products or services could have a material adverse effect on the Company’s business and reputation, as well as on its consolidated results of operations and financial condition.

The Discontinuation of LIBOR and the Emergence of One or More Alternative Benchmark Indices to Replace LIBOR Could Adversely Impact the Company’s Business and Results of Operations.

The Company’s floating-rate funding, certain hedging transactions and certain of the Company’s products, such as floating-rate loans and mortgages, determine the applicable interest rate or payment amount by reference to a benchmark rate, such as the London Interbank Offered Rate (“LIBOR”), or to an index, currency, basket or other financial metric.

Pursuant to regulations, the use of LIBOR on new contracts was discontinued on December 31, 2021, and LIBOR will cease publication after June 30, 2023.

Tailoring The Bank’s Retail Delivery Model to Respond to Consumer Preferences in Banking May Negatively Affect Earnings.

The Company’s branch network continues to be a very significant source of new business generation, however, consumers continue to migrate much of their routine banking to self-service channels.

In recognition of this shift in consumer patterns, we regularly review the branch network, which has resulted in branch consolidation accompanied by the enhancement of the Bank’s capabilities to serve its customers through alternate delivery channels.

The benefits of this strategy will depend on our ability to realize expected benefits without experiencing significant customer attrition.

The Discontinuation of LIBOR and the Transition to an Alternative Reference Rate Could Adversely Impact the Company’s Business and Results of Operations.

The interest rates paid on certain of the Company’s floating-rate funding, hedging transactions and products, such as floating-rate loans and mortgages, are indexed to the London Interbank Offered Rate (“LIBOR”).

The use of LIBOR on new contracts was discontinued on December 31, 2021, and LIBOR will cease publication after June 30, 2023.

Regulators and various financial industry groups have sponsored or formed committees (e.g., the Federal Reserve-sponsored Alternative Reference Rates Committee) to, among other things, facilitate the identification of an alternative benchmark index to replace LIBOR, and publish consultations on recommended practices for transitioning away from LIBOR, including (i) the utilization of recommended fallback language for LIBOR-linked financial instruments, and (ii) development of alternative pricing methodologies for recommended alternative benchmarks such as the Secured Overnight Financing Rate (“SOFR”).

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Treasury securities, and is based on directly observable U.S.

Treasury-based

repurchase transactions.

Treasury-based repurchase transactions.

The March 2022 enactment of the Adjustable Interest Rate (LIBOR) Act and the Federal Reserve’s proposed implementing regulations established SOFR as the benchmark rate that will automatically apply to agreements that rely on LIBOR and do not have an alternative contractual fallback benchmark rate.

The selected SOFR-based replacement benchmark rates may also apply automatically to contracts with fallback provisions that authorize a particular person to determine the replacement benchmark.

The Company adopted SOFR as its preferred benchmark as an alternative to LIBOR for use in new contracts beginning on January 1, 2022.

At this time, it is still not possible to predict whether these recommendations and proposals will be broadly accepted in the market, whether they will continue to evolve, and what the effect of their implementation may be on the markets for floating-rate financial instruments.

The Company has adopted SOFR as its preferred benchmark as an alternative to LIBOR for use in new contracts beginning on January 1, 2022.

The discontinuation of LIBOR could result in changes to the Company’s risk exposures (for example, if the anticipated discontinuation of LIBOR adversely affects the availability or cost of floating-rate funding and, therefore, the Company’s exposure to fluctuations in interest rates) or otherwise result in losses on a product or having to pay more or receive less on securities that the Company has issued or owns.

The discontinuation of LIBOR could result in disputes with customers or other counterparties, changes to the Company’s risk exposures (for example, if the anticipated discontinuation of LIBOR adversely affects the availability or cost of floating-rate funding and, therefore, the Company’s exposure to fluctuations in interest rates), or otherwise result in losses on a product or having to pay more or receive less on securities that the Company has issued or owns.

A substantial portion of the Company’s on- and off-balance sheet financial instruments are indexed to LIBOR, including interest rate swap agreements and other contracts used for hedging and trading account purposes, loans to commercial customers and consumers (including mortgage loans and other loans), and long-term borrowings.

In addition, such uncertainty could result in pricing volatility and increased capital requirements, loss of market share in certain products, adverse tax or accounting impacts, and compliance, legal and operational costs and risks.

Interest Rate Risks

Market Interest Rate Conditions Could Adversely Affect Results of Operations and Financial Condition

Net interest income is the Company's largest source of income.

Changes in interest rates can affect the amount of interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, which may affect our net interest margins and other elements of net income.

The Company’s interest rate sensitivity is discussed in more detail in Item 7A of this report and is the primary market risk to its condition and operations.

Changes in interest rates can also affect the demand for the Company’s products and services, supply conditions in the U.S.

financial and capital markets, loan prepayments, the Company’s ability to originate real estate loans, the value of its assets, its ability to realize gains from the sale of assets, and loan delinquencies and defaults, all of which ultimately affect earnings.

Changes in interest rates may also affect the market value of the Company’s investment securities portfolio, which may affect the level and adequate of its regulatory capital.

During 2022, in response to accelerated inflation, the Federal Reserve implemented monetary tightening policies, resulting in significantly increased interest rates.

The Federal Reserve has signaled that further tightening is anticipated.

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.

In a rising rate environment, demand for loans may decrease and loans with adjustable interest rates are more likely to experience a higher rate of default.

Additionally, changes in interest rates also affect the fair value of the securities portfolio.

Generally, the value of securities moves inversely with changes in interest rates.

Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.

In addition, in a falling rate environment or the recent pandemic-related environment where the Federal Reserve held the federal reference rate near 0.00%, loans may be prepaid sooner than we expect, which could result in a delay between when we receive the prepayment and when we are able to redeploy the funds into new interest-earning assets and in a decrease in the amount of interest income we are able to earn on those assets.

Any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations.

Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet.

The Company's Wholesale Funding Sources May Prove Insufficient to Replace Deposits at Maturity and Support Operations and Future Growth.

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It is possible, depending upon the financial condition of the Bank and other factors, that the applicable regulatory authorities could assert that payment of dividends or other types of payments are an unsafe or unsound practice.

If the Bank is unable to pay dividends, the Company may not be able to service debt, pay debt obligations, or pay dividends on its common stock.

If the Bank is unable to pay dividends, the Company may not

be able to service debt, pay debt obligations, or pay dividends on its common stock.

The Company may also be unable to repurchase common stock under its Stock Repurchase Program.

The Loss Recorded in 2020 May Have an Adverse Effect on Future Dividend Payments to Common Shareholders.

Due to the loss in the first half of 2020 and its impact on retained earnings, the Bank requires approval from the Massachusetts Division of Banks in order to continue to be a source of dividend income to the Company.

Over the long term, these dividends are a source of funds to the parent to support dividend payments to Company shareholders.

Also due to the loss, the Company requires nonobjection from the Federal Reserve Bank of Boston for future shareholder dividend payments.

Future payments of dividends will also depend on the Board’s holistic assessment of the Company’s operating, risk, and financial situations and current circumstances, as well as regulatory assessments of these factors.

Secondary Mortgage Market Conditions Could Have a Material Impact on the Company’s Financial Condition and Results of Operations.

In addition to being affected by interest rates, the secondary mortgage markets are also subject to investor demand for residential mortgage loans and increased investor yield requirements for these loans.

These conditions may

fluctuate or worsen in the future.

These conditions may fluctuate or worsen in the future.

As a result, a prolonged period of secondary market illiquidity may reduce the Company’s loan production volumes and operating results.

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Proposals to reform mortgage finance could affect the role of the Agencies and the market for conforming loans which comprise the majority of the Company’s mortgage lending and related originations income.

Interest Rates

Market Interest Rate Conditions Could Adversely Affect Results of Operations and Financial Condition.

Net interest income is the Company's largest source of income.

Changes in interest rates can affect the level of net interest income and other elements of net income.

The Company’s interest rate sensitivity is discussed in more detail in Item 7A of this report and is the primary market risk to its condition and operations.

Changes in interest rates can also affect the demand for the Company’s products and services, and the supply conditions in the U.S.

financial and capital markets.

Changes in the level of interest rates may negatively affect the Company’s ability to originate real estate loans, the value of its assets and its ability to realize gains from the sale of assets, all of which ultimately affect earnings.

Changes in interest rates may also affect the market value of the Company’s investment securities portfolio, which may affect the level and adequate of its regulatory capital.

The Federal Open Market Committee has indicated that it plans to increase interest rates in 2022.

Securities Market Values

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Declines in the value of investment securities due to market conditions and/or issuer impairment could result in losses that can reduce capital and earnings.

Such declines can result from changes in interest rates and inflation.

The Company’s investment in equity securities and non-investment grade debt securities present heightened credit and price risks.

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the election of directors to terms of one year;

and advance notice requirements for nominations for election to the Company's Board of Directors and for proposing matters that stockholders may act on at stockholder meetings.

and advance notice

requirements for nominations for election to the Company's Board of Directors and for proposing matters that stockholders may act on at stockholder meetings.

In addition, the Company is subject to Delaware laws, including one that prohibits engaging in a business combination with any interested stockholder for a period of three years from the date the person became an interested stockholder unless certain conditions are met.

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The determination of the appropriate level of the allowance inherently involves a degree of subjectivity and requires that we make significant estimates of current credit risks and current trends and reasonable and supportable forecasts of future economic conditions, all of which may undergo frequent and material changes.

Changes in economic and other conditions affecting borrowers, along with new information regarding existing loans other factors, may indicate the need for a future increase in the allowance.

Changes in economic and other conditions affecting borrowers, including inflation and interest rates, along with new information regarding existing loans other factors, may indicate the need for a future increase in the allowance.

Fair Value Measurements May Be Affected by Inherent Uncertainties

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actual or anticipated fluctuations in operating results;

changes in interest rates;

changes in interest rates and inflation;

changes in the legal or regulatory environment;

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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