What changed in this filing

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Item 1A. Risk Factors

2024-02-22 compared with 2023-02-28 · 47 added, 67 removed, 169 unchanged (40% of the section changed)

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In 2006, the federal bank regulatory agencies (collectively, the “Agencies”) issued joint guidance entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”).

Although the CRE Guidance did not establish specific lending limits, it provides that a bank’s commercial real estate lending exposure may receive increased supervisory scrutiny where total non-owner occupied commercial real estate loans, including loans secured by apartment buildings, investor commercial real estate and construction and land loans, represent 300% or more of an institution’s total risk-based capital and the outstanding balance of the commercial real estate loan portfolio has increased by 50% or more during the preceding 36 months.

The Consolidated Company’s non-owner occupied commercial real estate level equaled 554% of total risk-based capital at December 31, 2022.

Including owner-occupied commercial real estate, the Consolidated Company’s ratio of commercial real estate loans to total risk-based capital ratio would be 636% at December 31, 2022.

If our regulators were to impose restrictions on the amount of commercial real estate loans we can hold in our portfolio, or require higher capital ratios as a result of the level of commercial real estate loans held, our earnings would be adversely affected.

Although the CRE Guidance did not establish specific lending limits, it provides that a bank’s commercial real estate lending exposure may receive increased supervisory scrutiny where total non-owner occupied CRE loans, including loans secured by apartment buildings, investor CRE and construction and land loans, represent 300% or more of an institution’s total risk-based capital and the outstanding balance of the CRE loan portfolio has increased by 50% or more during the preceding 36 months.

The Consolidated Company’s non-owner occupied CRE level equaled 538% of total risk-based capital at December 31, 2023.

If our regulators were to impose restrictions on the amount of CRE loans we can hold in our portfolio, or require higher capital ratios as a result of the level of CRE loans held, our earnings would be adversely affected.

The performance of our multi-family real estate loans could be adversely impacted by regulation.

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As a result of this legislation as well as previously existing laws and regulations, it is possible that rental income might not rise sufficiently over time to satisfy increases in the loan rate at repricing or increases in overhead expenses ( e.g.

, utilities, taxes, etc.).

In addition, if the cash flow from a collateral property is reduced ( e.g.

, utilities, taxes, maintenance, etc.).

For example, the New York City Rent Guidelines Board established the maximum rent increase on certain apartments at 3.0% for a one-year lease beginning on or after October 1, 2023 and on or after September 30, 2024, while the overall inflation rate increased at a greater rate.

In addition, overhead (including maintenance) expenses often increase significantly during inflationary periods.

Finally, if the cash flow from a collateral property is reduced ( e.g.

, if leases are not obtained or renewed), the borrower’s ability to repay the loan and the value of the security for the loan may be impaired.

Increases to the allowance for credit losses may cause our earnings to decrease.

Customers may not repay their loans according to the original terms, and the collateral securing the payment of those loans may be insufficient to pay any remaining loan balance.

If we experience greater credit losses than anticipated, earnings may be adversely impacted.

As a lender, we are exposed to the risk that customers may not repay their loans according to the original terms, and the collateral securing the payment of those loans may be insufficient to pay any remaining loan balance.

Additionally, at December 31, 2023, our portfolio of commercial and industrial loans, and owner-occupied commercial real estate loans, totaled $2.31 billion, or 21.4% of our total loan portfolio.

We plan to continue to emphasize the origination of these types of loans, which generally expose us to a greater risk of nonpayment and loss than residential real estate loans because repayment of such loans often depends on the successful operations and income stream of the borrowers.

Additionally, such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to consumer loans or residential real estate loans.

Hence, we may experience significant credit losses, which could have a material adverse effect on our operating results.

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Changes in interest rates could affect our profitability.

Our ability to earn a profit, like most financial institutions, depends primarily on net interest income, which is the difference between the interest income that we earn on our interest-earning assets, such as loans and investments, and the interest

expense that we pay on our interest-bearing liabilities, such as deposits and borrowings.

Our profitability depends on our ability to manage our assets and liabilities during periods of changing market interest rates.

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

In a period of rising interest rates, the interest income earned on our assets may not increase as rapidly as the interest paid on our liabilities.

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

In a period of rising interest rates, the interest income earned on our assets may not increase as rapidly as the interest paid on our liabilities, demand for loan products may decline, and borrower defaults on loan payments may increase.

A sustained decrease in market interest rates could also adversely affect our earnings.

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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.

As of December 31, 2022, the securities portfolio totaled $1.54 billion.

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

As of December 31, 2023, the carrying value of the securities portfolio totaled $1.48 billion.

Management is unable to predict fluctuations of market interest rates, which are affected by many factors, including inflation, recession, unemployment, monetary policy, domestic and international disorder and instability in domestic and foreign financial markets, and investor and consumer demand.

We are required to transition from the use of LIBOR.

We have material contracts that are indexed to the London Interbank Offered Rate (“LIBOR”).

In 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulated LIBOR, announced that the publication of LIBOR would not be guaranteed after 2021.

LIBOR will be discontinued after June 2023.

There have been ongoing efforts to establish an alternative reference rate to LIBOR.

Regulators, industry groups and certain committees (e.g.

the Alternative Reference Rates Committee) have published recommended fallback language for LIBOR-linked financial instruments, identified recommended alternatives for LIBOR (e.g.

the Secured Overnight Financing Rate, or “SOFR”), and proposed implementations of the recommended alternatives in floating-rate financial instruments.

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

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

We have analyzed our LIBOR-indexed contracts, the significant majority of which already provided for a fallback rate.

Where the fallback rate is not specified or is no longer considered an economic equivalent to the LIBOR-derived rate previously used, we are working with counterparties to agree upon a replacement rate and have generally selected the rate recommended by the Federal Reserve.

While the LIBOR Act and implementing regulations will help to transition legacy LIBOR contracts to a new benchmark rate, the substitution of SOFR for LIBOR may have economic impacts on parties to affected contracts.

When LIBOR rates are no longer available and we are required to implement substitute indices for the calculation of interest rates, we may incur expenses in effecting the transition, and may be subject to disputes or litigation with customers over the appropriateness or comparability to LIBOR of the substitute indices, which could have an adverse effect on our results of operations.

Additionally, since alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR.

There may be changes in the rules or methodologies used to calculate SOFR or other benchmark rates, which may have an adverse effect on the value of or return on financial assets and liabilities that are based on or are linked to those rates.

Risks Related to Regulation

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The FRB and the NYSDFS periodically examine our business, including our compliance with laws and regulations.

If, as a result of an examination, a federal banking agency were to determine that our financial condition, capital resources, asset

quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, we may take a number of different remedial actions as we deem appropriate.

If, as a result of an examination, a federal banking agency were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, we may take a number of different remedial actions as we deem appropriate.

These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place it into receivership or conservatorship.

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In addition, in accordance with a memorandum of understanding entered into between the CFPB and U.S.

Department of Justice, the two agencies have agreed to coordinate efforts related to enforcing the fair lending laws, which includes information sharing and conducting joint investigations, and have done so on a number of occasions.

Department of Justice, the two agencies have agreed to coordinate efforts related to enforcing the fair

lending laws, which includes information sharing and conducting joint investigations, and have done so on a number of occasions.

We face a risk of noncompliance and enforcement action with the federal Bank Secrecy Act (the “BSA”) and other anti-money laundering and counter terrorist financing statutes and regulations.

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Because these subordinated debentures rank senior to our common stock, if we fail to make timely principal and interest payments on the subordinated debentures, we may not pay any dividends on our common stock.

Further, if we declare bankruptcy, dissolve

or liquidate, we must satisfy all of our subordinated debenture obligations before we may pay any distributions on our common stock.

Further, if we declare bankruptcy, dissolve or liquidate, we must satisfy all of our subordinated debenture obligations before we may pay any distributions on our common stock.

Strategic Risks

Expansion of our branch network may adversely affect our financial results.

The Bank has in the past and may in the future establish new branch offices.

We cannot be certain that the opening of new branches will be accretive to earnings or that it will be accretive to earnings within a reasonable period of time.

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Operational Risk Factors

A lack of liquidity could adversely affect the Company’s financial condition and results of operations.

Liquidity is essential to our 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 FRB 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.

Our business may be adversely affected by conditions in the financial markets and economic conditions generally.

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

increases in inflation or interest rates;

increases in inflation;

changes in market interest rates;

geopolitical conflicts;

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or a combination of these or other factors.

The Company's performance could be negatively affected to the extent there is deterioration in business and economic conditions, including persistent inflation, an inverted yield curve, rising prices, and supply chain issues or labor shortages, which have direct or indirect material adverse impacts on us, our customers, and our counterparties.

which have direct or indirect material adverse impacts on us, our customers, and our counterparties.

Recessionary conditions may significantly affect the markets in which we do business, the financial condition of our borrowers, the value of our loans and investments, and our ongoing operations, costs and profitability.

Declines in real estate values and sales volumes and increased unemployment levels may result in higher than expected loan delinquencies, increases in our

levels of nonperforming and classified assets and a decline in demand for our products and services.

Declines in real estate values and sales volumes and increased unemployment levels may result in higher than expected loan delinquencies, increases in our levels of nonperforming and classified assets and a decline in demand for our products and services.

Such events may cause us to incur losses and may adversely affect our capital, liquidity, and financial condition.

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We have established policies and procedures to prevent or limit the impact of system failures, interruptions, and security breaches, but such events may still occur or may not be adequately addressed if they do occur.

In addition, any compromise of our systems could deter customers from using our products and services.

Although we take numerous protective measures and otherwise endeavor to protect and maintain the privacy and security of confidential data, these systems may be vulnerable to unauthorized access, computer viruses, other malicious code, cyberattacks, including distributed denial of service attacks, cyber-theft and other events that could have a security impact.

If one or more of such events were to occur, this

potentially could jeopardize confidential and other information processed and stored in, and transmitted through, our systems or otherwise cause interruptions or malfunctions in our operations or our customers' operations.

Although we take numerous protective measures and otherwise endeavor to protect and maintain the privacy and security of confidential data, these systems may be vulnerable to unauthorized access, computer viruses, other malicious code, cyberattacks, including distributed denial of service attacks, hacking, social engineering and phishing attacks, cyber-theft and other events that could have a security impact.

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

If one or more

of such events were to occur, this potentially could jeopardize confidential and other information processed and stored in, and transmitted through, our systems or otherwise cause interruptions or malfunctions in our operations or our customers' operations.

In addition, we maintain interfaces with certain third-party service providers.

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Threats to information security also exist in the processing of customer information through various other vendors and their personnel.

The occurrence of any system failures, interruption, or breach of security could damage our reputation and result in a loss of customers and business, thereby subjecting us to additional regulatory scrutiny, or could expose us to litigation and possible financial liability.

The occurrence of any system failures, interruption, or breach of security could damage our reputation and result in a loss of customers and business subject us to additional regulatory scrutiny, and expose us to litigation and possible financial liability.

We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are not fully covered by our insurance.

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

We are exposed to cyber-security risks, including denial of service, hacking, and identity theft.

There have been well-publicized distributed denials of service attacks on large financial services companies.

Distributed denial of service attacks are designed to saturate the targeted online network with excessive amounts of network traffic, resulting in slow response times, or in some cases, causing the site to be temporarily unavailable.

Hacking and identity theft risks, in particular, could cause serious reputational harm.

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

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

Public health emergencies like the COVID-19 outbreak may have an adverse impact on our business and results of operations

The COVID-19 pandemic caused significant economic dislocation in the United States.

Certain industries were particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry.

Additionally, the spread of COVID-19 temporarily caused us to modify our business practices, including placing restrictions on employee travel and implementing remote work practices.

As a result of the COVID-19 pandemic or any other public health emergency, and related governmental responses to any outbreak, we may be subject to the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, or results of operations:

demand for our products and services may decline;

if consumer and business activities are restricted, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

collateral for loans, especially real estate, may decline in value, which could increase loan losses;

our allowance for credit losses may have to be increased if borrowers experience financial difficulties;

a material decrease in net income or a net loss over several quarters could affect our ability to pay cash dividends;

cyber security risks may be increased as the result of an increase in the number of employees working remotely;

critical services provided by third-party vendors may become unavailable;

and the Company may experience unanticipated unavailability or loss of key employees, harming our ability to execute our business strategy.

Severe weather, acts of terrorism and other external events could impact our ability to conduct business.

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While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition.

Additionally, global markets may be adversely affected by natural disasters, the emergence of widespread health emergencies or pandemics, cyberattacks or campaigns, military conflict, terrorism or other geopolitical events.

Additionally, global markets may be adversely affected by natural disasters, the emergence of widespread health emergencies or pandemics like COVID-19, cyberattacks or campaigns, military conflict, terrorism or other geopolitical events.

Global market fluctuations may affect our business liquidity.

Also, any sudden or prolonged market downturn in the U.S.

abroad, as a result of the above factors or otherwise could result in a decline in revenue and adversely affect our results of operations and financial condition, including capital and liquidity levels.

or abroad, as a result of the above factors or otherwise could result in a decline in revenue and adversely affect our results of operations and financial condition, including capital and liquidity levels.

Damage to the Company’s reputation could adversely impact our business.

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Any write-down would have a negative effect on the consolidated financial statements.

Unresolved Staff Comments

Not applicable.

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