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Item 1A. Risk Factors

2024-02-28 compared with 2023-03-01 · 158 added, 82 removed, 181 unchanged (57% of the section changed)

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

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

Operating Risks

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

• Effects of Conditions in the Financial Markets and Economic Conditions Generally, Including Macroeconomic Pressures Such as Inflation, Supply Chain Issues, and Geopolitical Risks Associated with International Conflict, and General Economic Conditions, Either Nationally or In Our Market Areas, That Are Worse Than Expected.

• The Effects of any Public Health Emergencies and Pandemic Disease, Natural Disaster, War, Acts of Terrorism, Accident, or Similar Action or Event (collectively, "an event") 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.

• 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.

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

• Counterparties and Correspondents Expose the Company to Risks.

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

• The Soundness of Other Financial Institutions Could Adversely Affect Us.

• Legal and Regulatory Proceedings and Related Matters Could Adversely Affect Us and the Banking Industry in General.

• Loss of Key Employees Could Disrupt Relationships With Certain Customers.

• Mergers, Acquisitions and Dispositions Involve Numerous Risks and Uncertainties.

Liquidity Risks

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

• The Company's Ability to Service Our Debt, Pay Dividends, and Otherwise Pay Obligations as They Come Due Is Substantially Dependent on Capital Distributions from the Bank, and These Distributions Are Subject to Regulatory Limits and Other Restrictions.

• Liquidity is Essential to the Company’s Business and a Lack of Liquidity Could Adversely Affect the Company’s Financial Condition and Results of Operations.

• Bank failures and stresses may lead to negative depositor confidence in depository institutions.

Systemic impacts may have a material adverse effect on our financial condition and results of operations and stock price.

• The Company's Wholesale Funding Sources May Prove Insufficient to Support Operations and Future Growth.

• The Company's Ability to Service Its Debt, Pay Dividends, and Otherwise Pay Obligations as They Come Due Is Substantially Dependent on Capital Distributions from the Bank, and These Distributions Are Subject to Regulatory Limits and Other Restrictions.

The Company’s Stock Repurchase Program is also Dependent on These Distributions.

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

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

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• Provisions of the Company's Certificate of Incorporation, Bylaws, and Delaware Law, as Well as State and Federal Banking Regulations, Could Delay or Prevent a Takeover of Us by a Third Party.

• Changes in Tax Laws and Accounting Policies and Practices.

Significant Accounting Estimates Risks

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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.

Potential increases in interest rates can lead to increased capitalization rates over time which could adversely affect commercial property appraisals and collateral value.

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.

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

As of December 31, 2023, commercial real estate loans comprised approximately 49% of our loan portfolio.

Commercial real estate mortgage loans generally involve a greater degree of credit risk than residential real estate mortgage loans because they typically have larger balances and are more affected by adverse conditions in the economy.

Because payments on loans secured by commercial real estate often depend upon the successful operation and management of the properties and the businesses which operate from within them, repayment of such loans may be affected by factors outside the borrower’s control, such as adverse conditions in the real estate market or the economy or changes in government regulations or changes in the level of interest rates.

In recent years, commercial real estate markets have been particularly impacted by the economic disruption resulting from the COVID-19 pandemic.

The COVID-19 pandemic has also been a catalyst for the evolution of various remote work options which could impact the long-term performance of some types of office properties within our commercial real estate portfolio.

Accordingly, the federal banking regulatory agencies have issued advisories on managing commercial real estate concentrations in a challenging economic environment.

Failures in our risk management policies, procedures and controls could adversely affect our ability to manage this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio, which, accordingly, could have a material adverse effect on our business, financial condition and results of operations.

The Company’s Emphasis on Commercial Lending May Expose the Company to Increased Lending Risks, Which Could Hurt Profits.

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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.

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.

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

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It may make certain representations and warranties to the purchaser concerning the loans sold and the procedures under which those loans have been originated and serviced.

If any of these representations and warranties are invalid, the Company may be required to refund premiums, indemnify the purchaser for any related costs or losses, or it may be required to repurchase part or all of the affected loans, which may be impaired.

If any of these representations and warranties are invalid, the Company may be required to refund premiums, indemnify the

purchaser for any related costs or losses, or it may be required to repurchase part or all of the affected loans.

The Company may also be required to repurchase loans as a result of borrower fraud or in the event of early payment default by the borrower on a loan it has sold.

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The Company may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property.

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

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.

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.

and global economy;

disrupted U.S.

and global supply chains and labor markets;

created significant volatility and disruption in financial markets;

impacted rates and yields on U.S.

Treasury securities;

resulted in increased credit risk in certain industries;

increased demands on capital and liquidity;

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 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:

Operating Risks

Effects of conditions in the financial markets and economic conditions generally, including macroeconomic pressures such as inflation, supply chain issues, and geopolitical risks associated with international conflict, and general economic conditions, either nationally or in our market areas, that are worse than expected.

Generally, our financial performance, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of the collateral securing those loans, as well as demand for loans and other products and services we offer, is very dependent on the business environment in the markets we operate in and the United States as a whole.

Adverse economic conditions may result from a variety of factors, including domestic and global economic and political developments, including plateauing or decreasing economic growth and business activity, recessions, interest rates, inflation, pressures on the commercial real estate market, uncertainty regarding the U.S.

government's debt limit, a potential U.S.

government shutdown, recent stress in the banking sector, international conflict, civil unrest.

A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings.

Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence;

high unemployment, natural disasters;

increases in inflation or interest rates;

limitations on the availability or increases in the cost of credit and capital;

or a combination of these or other factors.

The occurrence of any of these conditions could have a material adverse effect on our financial condition and results of operations.

The Effects of any Public Health Emergencies and Pandemic Disease, Natural Disaster, War, Acts of Terrorism, Accident, or Similar Action or Event (Collectively, "an Event") May Adversely Affect, the Company’s Business, Financial Condition, Liquidity, and Results of Operations.

Some of the risks the Company faces from an Event 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.

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.

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.

The extent to which an Event 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 an Event, the continued effectiveness of our business continuity plan, the direct and indirect impact of an Event on our customers, colleagues, counterparties and service providers, and actions taken by governmental authorities and other third parties in response to an Event.

The length of a 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 a 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.

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

Security breaches of confidential information in our technology platforms could expose the Company to possible liability and damage its reputation.

Security breaches of sensitive information in our technology platforms could expose the Company to possible liability and damage its reputation.

Any compromise of data security could also deter customers from using the Company's services.

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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.

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 Sensitive Information or the Creation of Unauthorized Transactions, Which Could Adversely Affect the Company’s Business or Reputation and Create Significant Legal and Financial Exposure.

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.

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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.

Financial services institutions and companies engaged in data processing have reported breaches in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, steal financial assets, disable or degrade service, or sabotage systems, often through the introduction of computer viruses or malware, cyber-attacks and other means.

Financial services institutions and companies engaged in data processing have reported breaches in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to sensitive information, destroy data, steal financial assets, disable or degrade service, or sabotage systems, often through the introduction of computer viruses or malware, cyber-attacks and other means.

Denial of service attacks have been launched against a number of large financial services institutions.

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Cyber threats are rapidly evolving and the Company may not be able to anticipate or prevent all such attacks.

Advancements in the use of artificial intelligence could lead to adversarial attacks by exploiting vulnerabilities to manipulate model outputs or bypass security controls.

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.

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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These risks may increase in the future as the Company continues to increase its mobile-payment and other internet-based product offerings and expands its internal usage of web-based products and applications.

A successful penetration or circumvention of system security could cause serious negative consequences to the Company, including significant disruption of operations, misappropriation of confidential information of the Company or that of its customers, or damage to computers or systems of the Company or those of its customers and counterparties.

A successful penetration or circumvention of system security could cause serious negative consequences to the Company,

including significant disruption of operations, misappropriation of sensitive information of the Company or that of its customers, or damage to computers or systems of the Company or those of its customers and counterparties.

A security breach could result in violations of applicable privacy and other laws, financial loss to the Company or to its customers, loss of confidence in the Company’s security measures, significant litigation exposure, and harm to the Company’s reputation, all of which could have a material adverse effect on the Company.

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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 hedging.

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

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While the Company has comprehensive programs, policies and procedures in place to mitigate risk at all phases of vendor management from selection, to performance monitoring and renewals, the failure of a vendor to perform in accordance with contractual agreements could be disruptive to its business, which could have a material adverse effect on its financial condition, strategic objectives, and results of operations.

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, unexpected costs, or unanticipated disruptions to operations.

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

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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.

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.

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.

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”).

SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S.

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

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 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.

The soundness of other financial institutions could adversely affect us.

Financial services institutions are interrelated as a result of clearing, trading, counterparty, or other relationships.

We have exposure to many different counterparties and industries, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, and other institutional clients.

Many of these transactions expose us to credit risk in the event of a default by our counterparty or client.

In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due us.

Any such losses could have a material adverse effect on our financial condition and results of operations.

Additionally, in early 2023, the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank resulted in decreased confidence in banks among depositors, other counterparties and investors.

Such events and developments could materially and adversely affect our business or financial condition, including through declines in deposits, increased costs of funds, potential liquidity pressures, increased regulation, and declines and volatility in the price of our common stock.

Legal and regulatory proceedings and related matters could adversely affect us and the banking industry in general.

The Company has been, and in the future could be, subject to various regulatory and legal proceedings, including class action litigation.

It is inherently difficult to gauge the result of these matters, and there can be no guarantee that we will prevail in any litigation or proceeding.

Legal and regulatory matters of any degree of significance could result in significant costs and diversion of our efforts could have a material adverse effect on our financial condition and operating results.

As disclosed in Part I, Item 3, “Legal Proceedings,” we currently have ongoing proceedings.

If we settle these claims or the litigation is not resolved in our favor, we could suffer reputational damage, incur legal costs, and settlements or judgments that may exceed amounts covered by our existing insurance policies.

We cannot provide assurances that our insurer will cover all legal costs, settlements or judgments we incur.

If we are not successful in defending ourselves from these claims, or if our insurer does not cover the full amount of legal costs we incur, the outcome could materially adversely affect our business, results of operations and financial condition.

Furthermore, adverse determinations in such matters could result in actions by our regulators that could materially adversely affect our business, financial condition or results of operations.

There can be no assurance that other proceedings, which may have a material adverse effect on our business, results of operations or financial condition will not arise in the near or long-term future.

Loss of key employees could disrupt relationships with certain customers.

Our customer relationships are crucial to the success of our business, and the loss of key employees with significant customer relationships could lead to the loss of business if the customers were to follow that employee to a competitor.

While we believe our relationships with key personnel are strong, we cannot guarantee that all of our key personnel will remain with us, which could result in the loss of some customers, which may have a negative impact on our business, financial condition, and results of operations.

Mergers, acquisitions and dispositions involve numerous risks and uncertainties.

The Company has in the past and may in the future pursue mergers, acquisitions and disposition opportunities involving financial institutions and financial services companies.

Mergers, acquisitions and dispositions involve a number of risks and challenges.

Acquisition related risks include the expenses involved;

potential diversion of management’s attention from other strategic matters;

integration of branches and operations acquired;

outflow of customers from the acquired branches;

retention of personnel from acquired companies or branches;

competing effectively in geographic areas not previously served;

managing growth resulting from the transaction;

and dilution in the acquirer's book and tangible book value per share.

The Company continually looks to optimize its branch network and real estate.

The disposition of branches or business operations could result in the loss of some customers or unanticipated costs related to deconversion and transfer.

Such dispositions may have an unanticipated adverse impact on operations, earnings or liquidity.

Interest Rate Risks

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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.

financial and capital markets, loan prepayments, the Company’s ability to originate 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 adequacy of its regulatory capital.

During 2022 and 2023, in response to accelerated inflation, the Federal Reserve implemented monetary tightening policies, resulting in significantly increased interest rates..

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.

Conversely, if the interest rates received on loans and other investments decline faster than rates paid on deposits and other borrowings, our net interest income, and therefore earnings, could be similarly adversely affected.

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.

In addition, in a rate environment where the Federal Reserve held the federal reference rate near 0.00%, accelerated loan repayments may 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.

Liquidity Risks

Liquidity is essential to the Company’s business and a lack of liquidity could adversely affect the Company’s financial condition and results of operations.

Liquidity is essential to the Company’s business.

The Company relies on its ability to generate deposits and effectively manage the repayment of its liabilities to ensure that there is adequate liquidity to fund operations.

An inability to raise funds through deposits, borrowings, the sale and maturities of loans and securities and other sources could have a substantial negative effect on liquidity.

The Company’s most important source of funds is its deposits.

Deposit balances can decrease when customers perceive alternative investments as providing a better risk adjusted return, which are strongly influenced by such external factors as the direction of interest rates, local and national economic conditions and the availability and attractiveness of alternative investments.

Further, the demand for deposits may be reduced due to a variety of factors such as negative trends in the banking sector, the level of

and/or composition of our uninsured deposits, demographic patterns, changes in customer preferences, reductions in consumers’ disposable income, the monetary policy of the Federal Reserve or regulatory actions that decrease customer access to particular products.

If customers move money out of bank deposits and into other investments such as money market funds, the Company would lose a relatively low-cost source of funds, which would increase its funding costs and reduce net interest income.

Any changes made to the rates offered on deposits to remain competitive with other financial institutions may also adversely affect profitability and liquidity.

Other primary sources of funds consist of cash flows from operations, maturities and sales of investment securities and/or loans, brokered deposits, borrowings from the FHLB and/or and the Federal Reserve Bank of Boston discount window, and unsecured borrowings.

The Company also may borrow funds from third-party lenders, such as other financial institutions.

The Company’s access to funding sources in amounts adequate to finance or capitalize its activities, or on terms that are acceptable, could be impaired by factors that affect the Company directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry, a decrease in the level of the Company’s business activity as a result of a downturn in markets or by one or more adverse regulatory actions against the Company or the financial sector in general.

Any decline in available funding could adversely impact the Company’s ability to originate loans, invest in securities, meet expenses, or to fulfill obligations such as meeting deposit withdrawal demands, any of which could have a material adverse impact on its liquidity, business, financial condition and results of operations.

Bank failures and stresses may lead to negative depositor confidence in depository institutions.

Systemic impacts may have a material adverse effect on our financial condition and results of operations and stock price.

In 2023, several large banks failed due to deposit runs.

These banks also had elevated levels of uninsured deposits, which may be less likely to remain at the bank over time and less stable as a source of funding than insured deposits.

These failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions.

In 2024, elevated commercial real estate losses at a large bank led to industry stock price declines.

Recent events have led to a greater focus by institutions, investors and regulators on the on-balance sheet liquidity of and funding sources for financial institutions, the composition of its deposits, including the amount of uninsured deposits, the amount of accumulated other comprehensive loss, capital levels and interest rate risk management.

Impacts on our liquidity, deposits, capital levels and interest rate risk may have a material adverse effect on our financial condition and results of operations.

The premiums of the FDIC’s deposit insurance program are subject to increases based on claims on the fund related to bank failures.

Banking regulators have signaled further review of regulatory requirements and the potential for changes to laws or regulations governing banks and bank holding companies.

Changes resulting from these events could include increased regulatory oversight, higher capital requirements or changes in the way regulatory capital is calculated, and the impositions of additional restrictions through regulatory changes or supervisory or enforcement activities, each of which could have a material impact on our business.

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

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As a part of its liquidity management, the Company uses a number of funding sources in addition to deposit growth and cash flows from loans and investments.

These sources include Federal Home Loan Bank advances, proceeds from the sale of loans, and liquidity resources at the holding company.

The Company uses brokered deposits both to support ongoing growth and to provide enhanced deposit insurance to support large dollar commercial relationships.

These sources include Federal Home Loan Bank advances, issuance of Brokered CDs, proceeds from the sale of loans, and liquidity resources at the holding company.

The Company’s financial flexibility will be severely constrained if the Company is unable to maintain access to wholesale funding or if adequate financing is not available to accommodate future growth at acceptable costs.

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The Company’s Stock Repurchase Program is also Dependent on These Distributions.

A substantial source of holding company income is the receipt of dividends from the Bank, from which the Company services debt, pay obligations, and pay shareholder dividends.

A substantial source of holding company income is the receipt of dividends from the Bank, from which the Company services debt, pays obligations, and pays shareholder dividends.

The availability of dividends from the Bank is limited by various statutes and regulations.

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.

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

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 from the Bank to the Company or other types of payments are considered 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.

The Company may also be unable to repurchase common stock under a then outstanding stock repurchase program.

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

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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 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.

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 and 2023, 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.

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.

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.

Securities Market Values

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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.

Under new accounting standards, equity gains and losses are recorded to current period operating results.

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

Under applicable accounting standards, equity gains and losses are recorded to current period operating results.

The Company has an investment in the stock of the Federal Home Loan Bank of Boston ("FHLBB") which could result in write-down in the event of impairment.

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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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These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors other than the candidates nominated by the Board.

Changes in tax laws and accounting policies and practices.

We are subject to income taxes and complex tax regimes in the United States.

We cannot predict future changes in the tax regulations that we are subject to, and any changes could have a material impact on our tax liability or result in increased costs of our tax compliance obligations.

Additionally, from time to time, the regulatory agencies and other authoritative bodies, such as the Financial Accounting Standards Board ("FASB"), change the financial accounting and reporting standards that govern the preparation of the Company's financial statements.

changes can be hard to predict and can materially impact how management records and reports the Company's financial condition and results of operations.

Significant Accounting Estimates

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Fair Value Measurements May Be Affected by Inherent Uncertainties

The Company uses fair value measurements to determine fair value disclosures and to record fair value adjustments to certain assets and liabilities, such as interest rate swaps, impaired loans, securities available for sale, and derivatives.

Additionally, from time to time, the Company may be required to record certain assets at fair value on a non-recurring basis, such as certain impaired loans held for investment and capitalized servicing rights.

Additionally, from time to time, the Company may be required to record certain assets at fair value on a non-recurring basis, such as individually evaluated loans held for investment and capitalized servicing rights.

Whenever there is no readily available market data, management uses its best estimate and assumptions in determining fair value, but these estimates involve inherent uncertainties and the application of management’s judgment.

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The Company could be the target of similar litigation in the future, which could result in substantial costs and divert management’s attention and resources.

UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors