What changed in this filing

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Item 1A. Risk Factors

2021-11-24 compared with 2020-11-25 · 53 added, 64 removed, 148 unchanged (44% of the section changed)

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Risks Related to Macroeconomic Conditions

The impact of the COVID-19 pandemic on our customers, employees and business operations has had, and will likely continue to have, a significant adverse effect on our business, results of operations and financial condition.

The impact of the COVID-19 pandemic on our customers, employees and business operations has had, and will likely continue to have, an adverse effect on our business, results of operations and financial condition.

The COVID-19 pandemic created a global public-health crisis that resulted in challenging economic conditions for households and businesses.

The economic impact of the COVID-19 pandemic impacted a broad range of industries.

Many areas of consumer spending have rebounded since the initial onset of the COVID-19 pandemic, but generally not related to travel and entertainment.

There is increasing concern about the longer lasting impact on local business, as well as travel and entertainment, resulting from the COVID-19 pandemic.

There is also concern about resurgences of COVID-19 as we move into the winter months.

The Federal Reserve returned to a zero-interest rate policy in March 2020 and the U.S.

government enacted several fiscal stimulus measures to counteract the economic disruption caused by the COVID-19 pandemic and provide economic assistance to businesses and households.

The dramatic lowering of market interest rates in a short period of time had an adverse effect on the Company's asset yields.

The majority of the fiscal assistance provided by the federal government to businesses and households significantly tapered off by September 30, 2020, which could adversely impact the ability of borrowers to repay their loans.

The Company's financial performance is dependent upon the ability of borrowers to repay their loans.

The COVID-19 pandemic resulted in changes to our business operations during the current year and could continue to result in changes to operations in future periods.

Depending on the severity and length of the COVID-19 pandemic, which is impossible to predict, we could experience significant disruptions in our business operations if key personnel or a significant number of employees were to become unavailable due to the effects of, and restrictions resulting from, the COVID-19 pandemic, as well as decreased demand for our products and services.

There is pervasive uncertainty surrounding the future economic conditions that will emerge in the months and years following the start of the COVID-19 pandemic.

Many areas of consumer spending have rebounded since the initial onset of the COVID-19 pandemic.

There is uncertainty surrounding the future economic conditions that will emerge in the months and years following the start of the COVID-19 pandemic.

As a result, management is confronted with a significant and unfamiliar degree of uncertainty in estimating the impact of the pandemic on credit quality, revenues and asset values.

Asset quality may deteriorate and the amount of our ACL may not be sufficient for future loan losses we may experience.

This could require us to increase our reserves and recognize more expense in future periods.

The changes in market rates of interest and the impact that has on our ability to price our products may reduce our net interest income in the future or negatively impact the demand for our products.

There is some risk that operational costs could continue to increase as we maintain existing facilities in accordance with health guidelines as well as potentially have staff work remotely.

The Bank continues to have commercial borrowers that have deferred payments on their loans, and we recognize that those borrowers in the hotel and convention center industries are experiencing a slower recovery than certain other industries.

The Bank has deferred foreclosures on

one- to four-family loans as a result of federal and state foreclosure moratoriums, and when foreclosures resume, we could experience losses on the impacted loans.

The Bank has been forced to leave staff positions unfilled, as qualified candidates for open positions have been difficult to find.

The changes in market rates of interest and their impact on our ability to price our products may continue to reduce our net interest income or negatively impact the demand for our products.

The Company continues to follow Centers for Disease Control and Prevention (CDC) guidelines and governmental mandates regarding COVID-19 protocols and vaccinations.

While it is not possible to predict the administrative costs, compliance costs or impacts to our available workforce, the Company continues to develop compliance processes for implementation of the Occupational Safety and Health Administration (OSHA) testing and vaccination mandates.

In addition, we are monitoring legal actions and pending state legislation regarding the mandates for further guidance.

The extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.

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As this occurs, the amount of interest-earning assets repricing could diminish to the point where interest-bearing liabilities reprice to a higher interest rate at a faster pace than interest-earning assets, thus negatively impacting the Bank's net interest income.

Changes in interest rates can also have an adverse effect on our financial condition as AFS securities are reported at estimated fair value.

We increase or decrease our stockholders' equity, specifically AOCI (loss), by the amount of change in the estimated fair value of our AFS securities, net of deferred taxes.

Changes in interest rates can also have an adverse effect on our financial condition as available-for-sale ("AFS") securities are reported at estimated fair value.

We increase or decrease our stockholders' equity, specifically accumulated other comprehensive income (loss) ("AOCI"), by the amount of change in the estimated fair value of our AFS securities, net of deferred taxes.

Increases in interest rates generally decrease the fair value of AFS securities.

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As a result, a steeper yield curve, meaning long-term interest rates are significantly higher than short-term interest rates, would provide the Bank with a better opportunity to increase net interest income.

When the yield curve is flat, meaning long-term interest rates and short-term interest rates are essentially the same, or when the yield curve is inverted, meaning long-term interest rates are lower than short-term interest rates, the yield between interest-earning assets and interest-bearing liabilities that reprice is compressed or diminished and would likely negatively impact the Bank's net interest income.

When the yield curve is flat, meaning long-term interest rates and short-term interest rates are essentially the same, or when the yield curve is

inverted, meaning long-term interest rates are lower than short-term interest rates, the yield between interest-earning assets and interest-bearing liabilities that reprice is compressed or diminished and would likely negatively impact the Bank's net interest income.

See "Part II, Item 7A.

Quantitative and Qualitative Disclosures About Market Risk" for additional information about the Bank's interest rate risk management.

An economic downturn, especially one affecting our geographic market areas and certain regions of the country where we have correspondent loans secured by one- to four-family properties, could adversely impact our business and financial results.

An economic downturn, especially one affecting our geographic market areas and certain regions of the country where we have correspondent loans secured by one- to four-family properties or commercial real estate participation loans, could have an adverse impact on our business and financial results.

Our primary lending emphasis is the origination and purchase of one- to four-family first mortgage loans secured by residential properties.

therefore, we are particularly exposed to downturns in regional housing markets and, to a lesser extent, the U.S.

housing market, along with changes in the levels of unemployment or underemployment.

We monitor the current status and trends of local and national employment levels and trends and current conditions in the real estate and housing markets in our local market areas and certain areas where we have correspondent loans secured by one- to four-family properties.

Adverse conditions in our local economies and in certain areas where we have correspondent loans secured by one- to four-family properties, such as inflation, unemployment, recession, natural disasters or pandemics, or other factors beyond our control, could impact the ability of our borrowers to repay their loans.

Any one or a combination of these events may have an adverse impact on borrowers' ability to repay their loans, which could result in increased delinquencies, non-

performing assets, loan losses, and future loan loss provisions.

As we have grown our commercial real estate lending portfolio, we have continued to maintain relationships not only in our local markets but in geographically diverse markets.

As a result, we are particularly exposed to downturns in regional housing and commercial real estate markets and, to a lesser extent, the U.S.

housing and commercial real estate markets, along with changes in the levels of unemployment or underemployment.

We monitor the current status and trends of local and national employment levels and trends and current conditions in the real estate and housing markets, as well as commercial real estate markets, in our local market areas and certain areas where we have correspondent loans and commercial participation loans.

Decreases in local real estate values could adversely affect the value of the property used as collateral for our loans, which could cause us to realize a loss in the event of a foreclosure.

Adverse conditions in our local economies and in certain areas where we have correspondent loans and commercial participation loans, such as inflation, unemployment, recession, natural disasters or pandemics, or other factors beyond our control, could impact the ability of our borrowers to repay their loans.

Any one or a combination of these events may have an adverse impact on borrowers' ability to repay their loans, which could result in increased delinquencies, non-performing assets, loan losses, and future loan loss provisions.

Risks Related to Lending Activities

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An increase in valuation allowances and charge-offs related to our commercial and industrial loan portfolio could have an adverse effect on our business, financial condition, results of operations and future prospects.

If our ACL is not sufficient to cover actual loan losses, it could adversely impact our financial results.

We make several assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans.

In determining the amount of the ACL that is adequate to absorb inherent losses in the loan portfolio, management analyzes and considers several elements, such as current economic conditions, loan modification programs and activity, performance of our loan portfolio, loan growth and concentrations, and industry and peer charge-off and ACL information.

If actual results differ significantly from our assumptions, our ACL may not be sufficient to cover inherent losses in our loan portfolio, resulting in additions to our ACL and an increase in the provision for credit losses.

Bank regulators also periodically review our loan portfolio, the ACL, and our assumptions underlying the determinations we have made regarding the ACL, and as a result may require us to increase our ACL and/or recognize additional loan charge-offs, both resulting in an increase in the provision for credit losses.

We may be required to provide remedial consideration to borrowers whose loans we purchase from correspondent and nationwide lenders if it is discovered that the originating company did not properly comply with lending regulations during the origination process.

We purchase whole one- to four-family loans from correspondent and nationwide lenders.

While loans purchased on a loan-by-loan basis from correspondent lenders are underwritten by the Bank's underwriters and loans purchased in bulk packages from correspondent and nationwide lenders are evaluated on a certain set of criteria before being purchased, we are still subject to some risks associated with the loan origination process itself.

By law, loan originators are required to comply with lending regulations at all times during the origination process.

Even though the Bank can contractually pursue the originating company, certain compliance-related risks associated with the origination process itself may shift from the originating company to the Bank once the Bank purchases the loan.

Should it be discovered, at any point, that an instance of

noncompliance occurred by the originating company during the origination process, the Bank may still be held responsible and required to remedy the issue for the loans it purchased from the originator.

Remedial actions can include refunding interest paid by the borrower and adjusting the contractual interest rate on the loan to the current market rate if advantageous to the borrower.

The Bank no longer purchases loans in bulk from nationwide lenders due primarily to these risks.

The expected discontinuation of LIBOR, and the identification and use of alternative replacement reference rates, may adversely affect our results of operations and subject the Company to litigation risk.

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In July 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021.

The announcement means the continuation of LIBOR cannot be guaranteed after 2021.

On November 30, 2020, authorities announced a plan to extend the date that most U.S.

LIBOR values would cease being published from December 31, 2021 to June 30, 2023.

The announcement means the continuation of LIBOR cannot be guaranteed after June 30, 2023.

In the United States, the Alternative Reference Rate Committee ("ARRC"), a group of diverse private-market participants assembled by the Federal Reserve Board and the Federal Reserve Bank of New York, was tasked with identifying alternative reference interest rates to replace LIBOR.

The Secured Overnight Finance Rate ("SOFR") has emerged as the ARRC's preferred alternative rate for LIBOR;

however, other market alternatives have been developed.

SOFR is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities in the repurchase agreement market.

At this time, it is not possible to predict how markets will respond to SOFR or other alternative reference rates as the transition away from LIBOR is anticipated to be gradual over the coming years.

The Company has formed a LIBOR steering committee composed of individuals from lending, compliance/risk, treasury and legal.

The use of SOFR continues to steadily grow.

At this time, it is not possible to predict how markets will respond to alternative reference rates as markets continue to transition away from LIBOR.

The Company's LIBOR steering committee is composed of individuals from lending, compliance/risk, treasury and legal.

The LIBOR steering committee has been charged with overseeing the coordination of the Company's enterprise-wide LIBOR transition program and evaluating and mitigating the risks associated with the transition from LIBOR.

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During the strategy development process, management and the LIBOR steering committee considers the financial, customer/counterparty, regulatory and legal impacts of all proposed strategies.

As of September 30, 2020, the Company has identified $500.7 million of adjustable-rate one- to four-family loans for which the repricing index was tied to LIBOR and the loan maturity date is after December 31, 2021.

As of September 30, 2021, the Company has identified $268.6 million of adjustable-rate one- to four-family loans in its portfolio for which the repricing index was tied to LIBOR and the loan maturity date is after December 31, 2021.

The majority of these loans have maturity dates after June 30, 2023.

Our one- to four-family loan agreements generally allow the Bank to choose a new alternative reference rate based upon comparable information if the current index is no longer available.

During the June 30, 2019 quarter, the Bank discontinued the use of LIBOR for the origination of adjustable-rate one- to four-family loans and no longer purchases correspondent one- to four-family loans that use LIBOR.

The Bank began using the one-year CMT index for newly originated and correspondent purchased one- to four-family adjustable-rate loans.

At September 30, 2020, none of the Bank's consumer or commercial loans use a repricing index tied to LIBOR.

The Bank has interest rate swaps maturing after December 31, 2021 with a notional amount of $465.0 million at September 30, 2020 that are tied to LIBOR.

The Bank began using the one-year Constant Maturity Treasury ("CMT") index for newly originated and correspondent purchased one- to four-family adjustable-rate loans.

At September 30, 2021, none of the consumer or commercial loans in the Company's portfolio use a repricing index tied to LIBOR.

The Bank's swap agreements are governed by the International Swap Dealers Association ("ISDA").

ISDA is in the process of developing fallback language for swap agreements and is expected to establish a protocol to allow counterparties to modify legacy trades to include the new fallback language.

During fiscal year 2021, the Bank began to preemptively transition its FHLB advances and interest rate swaps that were tied to LIBOR into SOFR instruments.

The early transition was driven by the FHLB policy that no longer allows LIBOR-based advances with a maturity beyond December 31, 2021.

The Bank has interest rate swaps maturing on December 1, 2021 with a notional amount of $100.0 million at September 30, 2021 that are tied to LIBOR.

The market transition away from LIBOR to an alternative reference rate is complex.

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The replacement reference rates could also result in a reduction in our interest income.

We may also receive inquiries and other actions from regulators in respect to the Company's preparation and readiness for the replacement of LIBOR with alternative reference rates.

We may also receive inquiries and other actions from regulators with respect to the Company's preparation and readiness for the replacement of LIBOR with alternative reference rates.

Risks Related to Cybersecurity, Third Parties, and Technology

The occurrence of any information system failure or interruption, breach of security or cyber-attack, at the Company, at its third-party service providers or counterparties may have an adverse effect on our business, reputation, financial condition or results of operations.

Information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger, our deposits and our loans.

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In some cases, these attacks have caused significant impacts on other businesses' access to data and ability to provide services.

We are not able to anticipate or implement effective preventive measures against all incidents of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources.

We use a variety of physical, procedural and technological safeguards to prevent or limit the impact of system failures, interruptions and security breaches and to protect confidential information from mishandling, misuse or loss, including detection and response mechanisms designed to contain and mitigate security incidents.

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To date, the Company has no knowledge of a material information security breach affecting its systems.

The occurrence of any of the foregoing could subject us to litigation or regulatory scrutiny, cause us significant reputational damage or erode confidence in the security of our information systems, products and services, cause us to lose customers or have greater difficulty in attracting new customers, have an adverse effect on the value of our common stock or subject us to financial losses that may not be covered by insurance, any of which could have a material adverse effect on our business, financial condition or results of operations.

The occurrence of any of the foregoing could subject us to litigation or regulatory scrutiny, cause us significant reputational damage or erode confidence in the security of our information systems, products and services, cause us to lose customers or have greater difficulty in attracting new customers, have an adverse effect on the value of our common stock or subject us to financial losses that may not be covered by insurance, any of which could have an adverse effect on our business, financial condition and results of operations.

As information security risks and cyber threats continue to evolve, we may be required to expend significant additional resources to further enhance or modify our information security measures and/or to investigate and remediate any information security vulnerabilities or other exposures arising from operational and security risks.

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information security-related practices, the collection, use, sharing, retention and safeguarding of consumer and employee information, and current or planned business activities.

Compliance with current or future privacy, data protection and information security laws could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could have a material adverse effect on our business, financial condition or results of operations.

Compliance with current or future privacy, data protection and information security laws could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could have an adverse effect on our business, financial condition and results of operations.

Our customers are also targets of cyber-attacks and identity theft.

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The occurrence of a breach of security involving our customers' information, regardless of its origin, could damage our reputation and result in a loss of customers and business and subject us to additional regulatory scrutiny, and could expose us to litigation and possible financial liability.

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

Any of these events could have an adverse effect on our financial condition and results of operations.

Third party vendors subject the Company to potential business, reputation and financial risks.

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We have developed procedures and processes for selecting and monitoring third party vendors, but ultimately we are dependent on these third party vendors to secure their information.

If these vendors encounter any of these types of issues, or if we have difficulty communicating with them, we could be exposed to disruption of operations, loss of service or connectivity to customers, reputational damage, and litigation risk that could have a material adverse effect on our business, financial condition and results of operations.

The failure of an external vendor to perform in accordance with the contracted arrangements under service level agreements, because of changes in the vendor's organizational structure, financial condition, support for existing products and services or strategic focus or for any other reason, could be disruptive to our operations, which could have a material adverse effect on our business and, in turn, our financial condition and results of operations.

If these vendors encounter any of these types of issues, or if we have difficulty communicating with them, we could be exposed to disruption of operations, loss of service or connectivity to customers, reputational damage, and litigation risk that could have an adverse effect on our business, financial condition and results of operations.

The failure of an external vendor to perform in accordance with the contracted arrangements under service level agreements, because of changes in the vendor's organizational structure, financial condition, support for existing products and services or strategic focus or for any other reason, could be disruptive to our operations, which could have an adverse effect on our business and, in turn, our financial condition and results of operations.

Additionally, replacing certain third party vendors could also entail significant delay and expense.

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The Bank also may not succeed in anticipating its future technology needs, the technology demands of its customers, or the competitive landscape for technology.

If the Bank were to falter in any of these areas, it could have an adverse effect on our business, financial condition or results of operations.

If the Bank were to falter in any of these areas, it could have an adverse effect on our business, financial condition and results of operations.

Risks Related to Competition

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These regulatory authorities exercise broad discretion in connection with their supervisory and enforcement activities, including the ability to impose restrictions on a bank's operations, reclassify assets, determine the adequacy of a bank's ACL, and determine the level of deposit insurance premiums assessed.

The Dodd-Frank Act created the CFPB with broad powers to supervise and enforce consumer protection laws, including a wide range of consumer protection laws that apply to all banks and savings institutions, like the authority to prohibit "unfair, deceptive or abusive" acts and practices.

The CFPB has broad powers to supervise and enforce consumer protection laws, including a wide range of consumer protection laws that apply to all banks and savings institutions, like the authority to prohibit "unfair, deceptive or abusive" acts and practices.

The CFPB also has examination and enforcement authority over all banks with regulatory assets exceeding $10 billion at four consecutive quarter-ends.

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The Dodd-Frank Act also weakens the federal preemption rules that have been applicable for national banks and federal savings associations, and gives state attorneys general the ability to enforce federal consumer protection laws.

Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation, interpretation or application, could have a material adverse impact on our operations.

Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation, interpretation or application, could have an adverse impact on our operations.

Moreover, bank regulatory agencies have been active in responding to concerns and trends identified in examinations, and have issued formal enforcement orders requiring capital ratios in excess of regulatory requirements and/or assessing monetary penalties.

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These regulations, along with the currently existing tax, accounting, securities, and monetary laws, regulations, rules, standards, policies and interpretations, control the methods by which financial institutions and their holding companies conduct business, engage in strategic and tax planning, implement strategic initiatives, and govern financial reporting.

The Company's failure to comply with laws, regulations or policies could result in civil or criminal sanctions and money penalties by state and federal agencies, and/or reputation damage, which could have a material adverse effect on the Company's business, financial condition and results of operations.

The Company's failure to comply with laws, regulations or policies could result in civil or criminal sanctions and money penalties by state and federal agencies, and/or reputation damage, which could have an adverse effect on the Company's business, financial condition and results of operations.

See "Part I, Item 1.

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The Company's ability to pay dividends is subject to the ability of the Bank to make capital distributions to the Company.

The long-term ability of the Company to pay dividends to its stockholders is based primarily upon the ability of the Bank to make capital distributions to the Company, and also on the availability of cash at the holding company level in the event earnings are not sufficient to pay dividends.

earnings are not sufficient to pay dividends.

Under certain circumstances, capital distributions from the Bank to the Company may be subject to regulatory approvals.

See "Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations – Limitations on Dividends and Other Capital Distributions" for additional information.

Business – Regulation and Supervision" for additional information.

Our risk management and compliance programs and functions may not be effective in mitigating risk and loss.

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If conditions or circumstances arise that expose flaws or gaps in our risk management or compliance programs, or if our controls do not function as designed, the performance and value of our business could be adversely affected.

The Company may not attract and retain skilled employees.

The Company may not be able to attract and retain skilled employees.

The Company's success depends, in large part, on its ability to attract and retain key people.

Competition for the best people can be intense, and the Company spends considerable time and resources attracting and hiring qualified people for its operations.

The unexpected loss of the services of one or more of the Company's key personnel could have a material adverse impact on the Company's business because of their skills, knowledge of the Company's market, and years of industry experience, as well as the difficulty of promptly finding qualified replacement personnel.

The unexpected loss of the services of one or more of the Company's key personnel could have an adverse impact on the Company's business because of their skills, knowledge of the Company's market, and years of industry experience, as well as the difficulty of promptly finding qualified replacement personnel.

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