What changed in this filing

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Item 1A. Risk Factors

2025-02-25 compared with 2024-02-22 · 31 added, 36 removed, 169 unchanged (28% of the section changed)

5 unchanged sentences

In particular, the Company may face the following risks in connection with market conditions:

• In 2023, the United States ("U.S.") economy faced a series of challenges, including high inflation, rising interest rates, and slowing economic growth.

Uncertainties about global geopolitical tensions and volatile financial markets raised concerns about the potential for a recession in the U.S.

Despite these challenges, the U.S.

economy was resilient in 2023 with stronger-than-expected results in the fourth quarter, including a robust labor market and a rallying stock market.

• In 2024, the United States ("U.S.") economy faced a series of challenges, including declining but elevated inflation.

The economy saw a strong but slowing job market and solid consumer spending fueling economic growth.

Uncertainties about global geopolitical tensions continued in 2024, as did lingering supply chain concerns.

Looking ahead to 2025, inflationary pressures have eased but uncertainty remains around tax reform, tariffs, and other monetary policy.

economy is affected by global events and conditions, including U.S.

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• In addition to the results above, a slowdown in economic activity may cause declines in financial services activity, including declines in bank card, corporate cash management and other fee businesses, as well as the fees earned by the Company on such transactions.

• While the COVID-19 pandemic appears to be over, the impact on businesses is still uncertain.

During the pandemic, there was a shift from in-office work to remote work.

This shift appears to be permanent for some businesses and partial for others.

As a result, businesses are reevaluating their office space needs and, in some cases, reducing their leased office space, selling commercial office buildings, or leasing space no longer needed.

The impact of this shift is not fully known and could result in reduced demand for office space, lower lease rates for office space, and lower values of office buildings.

• During recent years, there was a shift from in-office work to remote work.

As a result, businesses continue to reevaluate their office space needs and, in some cases, reduce their leased office space, selling commercial office buildings, or leasing space no longer needed.

The impact of this shift continues to be seen but could result in reduced demand for office space, lower lease rates for office space, and lower values of office buildings.

These factors may contribute to higher delinquencies and net charge-offs for commercial office real estate loans.

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Texas, Iowa, Indiana, Michigan, Ohio, Florida, and Tennessee that serve commercial or trust customers.

As the Company does not have a significant banking presence in other parts of the country, a prolonged economic downturn in these markets could have a material adverse effect on the Company’s financial condition and results of operations.

As the Company does not have a significant banking presence in other parts of the country, a prolonged economic downturn in the markets where the Company has a primary or growing presence could have a material adverse effect on the Company’s financial condition and results of operations.

The Company operates in a highly competitive industry and market area.

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Such changes could subject the Company to additional costs, limit the types of financial services and products it may offer, restrict the Company's ability to pay dividends, subject the Company to higher capital requirements, and/or increase the ability of non-banks to offer competing financial services and products, among other things.

During November 2023, the FDIC approved a final rule implementing a one-time special assessment to recover the loss to the DIF associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank earlier in 2023.

The Company accrued $16.0 million in the fourth quarter of 2023 for the special assessment.

Largely as a result of the FDIC's approval of its final rule, the Company's deposit insurance expense was $33.2 million in 2023, compared to $10.6 million in 2022.

For the year ended December 31, 2024, the Company's deposit insurance expense was $16.5 million.

Assessments driven by regulation, such as these, increased the Company's expenses in 2023 and additional assessments could further increase the Company's expenses.

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In recent years, federal, state and international lawmakers and regulators have increased their focus on financial institutions' and other companies' risk oversight, disclosures and practices in connection with climate change and other ESG matters.

For example, in March 2022, the SEC issued a proposed rule on the enhancement and standardization of climate-related disclosures for investors.

The proposed rule would require public issuers, including the Company, to significantly expand the scope of climate-related disclosures in their SEC filings.

For example, the state of California, in which the Company does business, has enacted bills that would require the Company and other entities to report climate-related information such as greenhouse gas emissions and climate-related risks.

The SEC has also announced plans to propose rules to require enhanced disclosure regarding human capital management and board diversity for public issuers.

These additional disclosures and reporting would require increased time and expense for the Company related to information gathering and compliance.

Liquidity and Capital Risks

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The Company's net interest income is the largest source of overall revenue to the Company, representing 63% of total revenue for the year ended December 31, 2024.

The interest rate environment in which the Company operates fluctuates in response to general economic conditions and policies of various governmental and

regulatory agencies, particularly the Federal Reserve Board, which regulates the supply of money and credit in the U.S.

The interest rate environment in which the Company operates fluctuates in response to general economic conditions and policies of various governmental and regulatory agencies, particularly the Federal Reserve Board, which regulates the supply of money and credit in the U.S.

Changes in monetary policy, including changes in interest rates, will influence loan originations, deposit generation, demand for investments and revenues and costs for earning assets and liabilities, and could significantly impact the Company’s net interest income.

As the economy rebounded from the COVID-19 pandemic-induced recession, high inflation experienced in 2022 continued into 2023.

In response, the Federal Reserve Board significantly increased the benchmark interest rate from nearly zero at the start of 2022 to between 4.25% and 4.50% at the end of 2022.

The Federal Reserve Board continued to raise interest rates at a more modest pace to between 5.25% and 5.50% by the end of July 2023.

Elevated rates have created competition for deposits and unrealized losses in fixed rate asset portfolios.

To combat the high inflation experienced in 2022 and 2023, the Federal Reserve Board significantly increased the benchmark interest rate from nearly zero at the start of 2022 to between 4.25% and 4.50% at the end of 2022 and continued to raise interest rates at a more modest pace to between 5.25% and 5.50% by the end of July 2023.

These elevated rates remained in effect for the first half of 2024 and drove an increase in unrealized losses in fixed rate asset portfolios.

During September 2024, the Federal Reserve began reducing rates as inflation began to subside.

Monetary policy led by the Federal Reserve in the coming year will play a crucial role in liquidity and interest rate risk.

Future economic conditions or other factors could shift monetary policy resulting in additional increases or decreases in the benchmark rate.

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The soundness of other financial institutions could adversely affect the Company.

As demonstrated within the industry during 2023, the Company’s ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institution counterparties.

As demonstrated by banking failures within the industry during 2023, the Company’s ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institution counterparties.

Financial services institutions are interrelated because of trading, clearing, counterparty or other relationships.

5 unchanged sentences

Any such losses could materially and adversely affect results of operations.

Events impacting the banking industry during the first few months of 2023, including the failure of Silicon Valley Bank in March, resulted in decreased confidence in regional banks among deposit customers, investors, and other counterparties.

Additionally, these events caused significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets.

These events occurred during a period of rapidly rising interest rates, which, among other things, resulted in unrealized losses in the Company's available for sale debt securities portfolio and increased competition for bank deposits.

These events had, and could again have, adverse impacts on the market price and volatility of the Company’s stock.

These events could also lead to increases in the Company’s interest expense, as it has raised and may continue to raise interest rates paid to depositors in order to compete with other banks, and in an effort to replace deposits, seek borrowings which carry higher interest rates.

Decreased confidence in regional banks among deposit customers, investors, and other counterparties may cause significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets.

Rapidly rising interest rates could result in an increase in unrealized losses in the Company's available for sale debt securities portfolio.

Additionally, rising interest rates may result in increased competition for bank deposits.

These events could have adverse impacts on the market price and volatility of the Company’s stock.

These events could also lead to increases in the Company’s interest expense, as it could require the Company to raise interest rates paid to depositors in order to compete with other banks, and in an effort to replace deposits, seek borrowings which carry higher interest rates.

Bank failures during 2023 caused concern and uncertainty regarding the liquidity adequacy of the banking sector as a whole and resulted in some regional bank customers choosing to maintain deposits with larger financial institutions.

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The Company's estimate of credit losses utilizes a life of loan loss concept, and the level of the allowance is based on management’s methodology that utilizes historical net charge-off rates and adjusts for the impacts in the reasonable and supportable forecast and other qualitative factors.

Key assumptions include the application of historical loss rates, prepayment speeds, forecast results of a reasonable and supportable period, the period to revert to historical loss rates, and qualitative factors.

Key assumptions include the application of historical loss rates, prepayment speeds, economic forecast results of a reasonable and supportable period, the period to revert to historical loss rates, and qualitative factors.

The Company’s allowance level is subject to review by regulatory agencies, and that review could also result in adjustments to the allowance for credit losses.

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The Company maintains a portfolio of investments, which includes available for sale debt securities, trading securities, equity securities, and other investments.

Throughout 2023 and at December 31, 2023, the Company did not hold any investments classified as held-to-maturity.

The Company does not hold any investments classified as held-to-maturity.

The Company generally invests in liquid, investment grade securities, however, these securities are subject to changes in market value due to changing interest rates and implied credit spreads.

2 unchanged sentences

Under accounting rules, when an available for sale debt security is in an unrealized loss position, the entire loss in fair value is required to be recognized in current earnings if the Company intends to sell the security or believes it is more likely than not that the Company will be required to sell the security before the value recovers.

Additionally, the current expected credit loss model (CECL) implemented by the Company on January 1, 2020, requires that lifetime expected credit losses on securities be recorded in current earnings.

Additionally, the current expected credit loss model (CECL) requires that lifetime expected credit losses on securities be recorded in current earnings.

This could result in significant losses.

2 unchanged sentences

The fair value of investments, including available for sale debt investments, may change with changes in interest rates, credit concerns, or other economic factors.

Due to the rapid rise of interest rates during 2022 and 2023, the fair value of the Company's available of sale debt securities included a net unrealized loss of $1.2 billion at December 31, 2023.

Due mostly to the increase in interest rates during 2022 and 2023, the fair value of the Company's available of sale debt securities included a net unrealized loss of $991 million at December 31, 2024.

As of December 31, 2024, the Company has the intent and ability to maintain its available for sale debt investments until recovery of their amortized cost basis.

41 unchanged sentences

For example, the global COVID-19 pandemic caused significant disruption and harm to the economy and the financial markets in which the Company operates.

The situation surrounding the COVID-19 pandemic remains uncertain.

While the U.S.

economy has rebounded significantly since the peak of the pandemic-induced recession, fallout from economic and societal changes resulting from the pandemic may cause prolonged global or national recessionary economic conditions, which could have a material adverse effect on the Company's business, results of operations and financial condition.

Beyond the impact of the COVID-19 pandemic, the potential impacts of future epidemics, pandemics, or other outbreaks of an illness, disease, or virus could therefore materially and adversely affect the Company's business, revenue, operations, financial condition, liquidity and cash flows.

As seen during the COVID-19 pandemic, fallout from economic and societal changes resulting from significant public health threats may cause prolonged global or national recessionary economic conditions, which could have a material adverse effect on the Company's business, results of operations and financial condition.

The potential impacts of future epidemics, pandemics, or other outbreaks of an illness, disease, or virus could therefore materially and adversely affect the Company's business, revenue, operations, financial condition, liquidity and cash flows.

Our business and financial results may be affected by societal and governmental responses to climate change and related environmental issues.

7 unchanged sentences

Among the impacts to the Company could be a drop in demand for our products and services, particularly in certain industries.

In addition, the

Company could experience reductions in creditworthiness on the part of some customers or in the value of assets securing loans.

In addition, the Company could experience reductions in creditworthiness on the part of some customers or in the value of assets securing

The Company’s efforts to take these risks into account in making lending and other decisions, including by increasing the Company’s business with climate-friendly companies, may not be effective in protecting the Company from the adverse impact of new laws and regulations or changes in consumer or business behavior.

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