What changed in this filing

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Item 1A. Risk Factors

2025-02-27 compared with 2024-02-29 · 99 added, 85 removed, 364 unchanged (34% of the section changed)

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Fiscal and monetary policies have a direct and indirect impact on the level and volatility of interest rates, liquidity of financial markets, the availability and cost of capital, and market conditions of financing.

As the economy has experienced higher levels of inflation, interest rates have increased due to central banks’ efforts to manage inflation through monetary policy.

For example, recently, interest rates have been elevated due to central banks’ efforts to manage inflation through monetary policy.

Financial markets and the banking industry are affected by economic growth and its sustainability.

Changes in economic growth may result in unexpected changes in gross domestic product ("GDP"), fluctuations or other significant changes in both debt and equity capital markets and currencies, liquidity of financial markets and the availability and cost of capital and credit.

Potential federal government shutdowns, and developments related to the U.S.

federal debt ceiling may also have an economic impact.

Increased market volatility and changes in financial or capital market conditions may be further impacted by energy prices, commercial property values, residential property values, consumer spending, bankruptcies, employment levels, labor shortages, wage inflation, and supply chain disruptions.

Changes in the size of the government workforce, actual or potential federal government shutdowns, and developments related to the U.S.

federal debt ceiling may also have an economic impact or result in market volatility.

Increased market volatility and changes in financial or capital market conditions may be further impacted by energy prices, commercial

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property values, residential property values, consumer spending, bankruptcies, employment levels, labor shortages, changes in immigration policy, tariffs and changes in trade policy, wage inflation and supply chain disruptions.

A significant portion of our loan portfolio consists of loans secured by commercial properties, the adverse performance of which could impact the credit quality of the loan portfolio and result in a negative impact to our financial condition or results of operations.

Economic weaknesses, sustained elevated inflation, challenging business conditions, the implementation of hybrid work arrangements and other changes in business operating practices, market disruptions, adverse economic or market events, rising interest or capitalization rates, declining asset prices, greater volatility in areas where we have concentrated credit risk or deterioration in real estate values or household incomes may cause us to experience a decrease in cash flow and higher credit losses in our portfolios or cause us to write down the value of certain assets.

Economic weaknesses, sustained elevated inflation, challenging business conditions, the implementation or persistence of hybrid work arrangements and other changes in business operating practices, market disruptions, adverse economic or market events, rising interest or capitalization rates, declining asset prices, greater volatility in areas where we have concentrated credit risk or deterioration in real estate values or household incomes may cause us to experience a decrease in cash flow and higher credit losses in our portfolios or cause us to write down the value of certain assets.

Certain adverse consequences of the pandemic, including lower office occupancy rates, continue to materially affect the businesses of certain segments of our customer base and of their customers, which impacts their creditworthiness, their ability to pay amounts owed to us and our ability to collect those amounts.

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A significant number of our commercial real estate loans are secured by office properties.

The COVID-19 pandemic has led to significant changes in working arrangements that have impacted and could continue to impact the performance of some of the office properties within our commercial real estate portfolio.

The impact of the COVID-19 pandemic is still being felt due to the significant changes in working arrangements that have impacted and could continue to impact the performance of some of the office properties within our commercial real estate portfolio.

Hybrid work arrangements, flexible work schedules, open workplaces and teleconferencing have become increasingly common.

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Our ability to accurately forecast future losses under this methodology may be impaired by significant uncertainties:

• Uncertainties surrounding rapid increases in inflation and interest rates, which have disrupted financial markets and adversely affected commercial real estate and other sectors in the economy.

• Uncertainties surrounding volatility in inflation and interest rates, which have disrupted financial markets and adversely affected commercial real estate and other sectors in the economy.

• Uncertainties related to the identification of the appropriate economic indicators.

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As economic conditions change, we may have to increase our allowance, which could adversely affect our results of operations, earnings and financial condition.

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We are subject to operational risks in connection with our employees and our technology that may adversely impact our business.

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(iv) risks related to the effectiveness of our anti-money laundering and other compliance programs;

(v) increased cybersecurity risk due to the current hybrid work model in which certain employees split time between working at the office and working remotely, as a result of the technology in the employees’ homes which may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than in our offices;

and (vi) risks related to our efforts to provide banking services through digital channels.

(v) increased cybersecurity risk due to, among other things, the increased connectivity of third parties and electronic devices to our systems, hybrid work arrangements and new technologies, such as artificial intelligence;

(vi) risks related to our efforts to provide banking services through digital channels;

and (vii) operational disruptions at our third-party service providers.

Increased cyber risks in this context may include greater phishing, malware and other cybersecurity attacks, vulnerability to disruptions of our information technology infrastructure and telecommunications systems for remote operations, increased risk of unauthorized dissemination of confidential information, limited ability to restore the systems in the event of a systems failure or interruption, greater risk of a security breach resulting in destruction or misuse of sensitive, confidential, personal or proprietary information and potential impairment of our ability to perform critical functions, including wiring funds, all of which could expose us to risks of data or financial loss, litigation and liability and could seriously disrupt our operations and the operations of any impacted customers.

The Company may also experience an increase in attempts at fraudulent activity, such as check fraud, as nefarious individuals try to exploit the weaknesses under the current hybrid working environment.

Our reliance on external service providers exposes us to operational risk in connection with labor shortages, supply chain disruptions and other factors that could adversely impact our business.

Our reliance on external service providers exposes us to operational risk that could adversely impact our business.

We rely on many outside service providers that support our day-to-day operations including data processing and electronic communications, real estate appraisal, loan servicers and local and federal government agencies, offices and courthouses.

In light of labor shortages and supply chain disruptions, many of these entities may limit the availability and access of their services, which may impact our business.

Any actions by these entities to limit the availability of and access to their services may impact our business.

For example, a loan origination could be delayed due to the limited availability of real estate appraisers to evaluate the collateral.

Loan closings could be delayed related to reductions in available staff in recording offices or the closing of courthouses, which slows the process for title work and mortgage and UCC filings.

If the third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect our operations.

In addition, unintended operational disruptions, including cybersecurity incidents and coding errors, at our third-party service providers may adversely affect our ability to provide our products and services as usual.

Our inability to generate liquidity in a timely manner may adversely impact our ability to satisfy obligations associated with our financing, our operations and other components of our business.

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Additionally, our liquidity may be negatively impacted by the unwillingness or inability of the Federal Reserve to act as lender of last resort.

Our ability to raise additional financing depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities and on our financial condition and performance.

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activities and on our financial condition and performance.

Accordingly, we may be unable to raise additional financing if needed or on acceptable terms.

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If our competitors raise the rates they pay on deposits our funding costs may increase, either because we raise our rates to avoid losing deposits or because we lose deposits, and must rely on more expensive sources of funding.

Checking and savings account balances and other forms of customer deposits may decrease when customers perceive other investment opportunities, such as stocks, bonds, or money market mutual funds, as providing a better risk/return tradeoff.

When customers move money out of bank deposits and into other investments, we may lose a relatively low-cost source of funds, increasing our funding costs and negatively affecting our business, liquidity, funding mix, results of operations or financial condition.Adverse changes in the real estate market in our market area could also have an adverse effect on our cost of funds and net interest margin, as we have a significant amount of noninterest bearing deposits related to real estate sales and development.

During 2023, total deposits increased by $94.9 million.

The increase was primarily attributable to $1.4 billion in time deposits, which was partially offset by a $871.7 million reduction in demand deposit accounts, a $140.8 million reduction in interest bearing accounts, and a $326.7 million reduction in savings and money market accounts as a result of an increase of disintermediation driven primarily by an increase in interest rates.

The growth in interest bearing deposits was driven by the increased utilization of brokered deposits, particularly brokered time deposits, during the year ended December 31, 2023.

During the year ended December 31, 2023, brokered time deposits increased by approximately $998.0 million, while other interest-bearing brokered deposits decreased by approximately $977.6 million.

The impact of the reduction in noninterest bearing deposits and increase in interest-bearing deposits during 2023 increased our interest expense and had a negative impact on our results of operations.

Adverse changes in the real estate market in our market area could also have an adverse effect on our cost of funds and net interest margin, as we have a significant amount of noninterest bearing deposits related to real estate sales and development.

During 2023 and 2024, as a result of increasing interest rates, we experienced a reduction in noninterest bearing deposits and increase in interest-bearing deposits, which increased our interest expense and had a negative impact on our results of operations.

Such activity, if it were to occur again in the future, may have a further negative impact on our financial condition and our results of operations.

Brokered deposits or other sources of financing, such as FHLB borrowings and repurchase agreements have historically been, and may in the future be, available only at higher financing costs.

Generally, these alternative sources of financing may not be as stable as other types

of deposits, or may be associated with higher levels of risk.

Generally, these alternative sources of financing may not be as stable as other types of deposits, or may be associated with higher levels of risk.

An inability to maintain or replace customer and brokered deposits as they mature could negatively affect our liquidity, which could significantly reduce our future growth or materially adversely affect our business and our results of operations.

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Meeting supervisory expectations or any new regulatory requirements relating to liquidity risk management generally or uninsured deposits in particular could require us to seek to change our funding sources or the size and composition of our balance sheet, to incur higher expenses or to make other changes that adversely affect our net interest income and net interest margin.

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Our inability to comply with capital and other regulatory requirements would have an adverse impact on our business, financial condition and results of operations.

This may result in an inability to provide returns to our shareholders.

The banking industry is highly regulated and supervised under federal and state laws and regulations that are intended primarily for the protection of depositors, customers, the public, the banking industry as a whole or the FDIC deposit insurance fund (“DIF”).

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We are subject to U.S.

regulatory capital rules, and banking regulators have broad authority to determine whether we are operating in safe and sound manner, including with respect to liquidity risk management and asset quality.

We may need to raise additional financing in the future to provide sufficient funding to meet our commitments and business needs.

In conjunction with any changes to our capital, we must meet certain regulatory capital requirements and maintain sufficient liquidity, including the requirement that we maintain our status as a well-capitalized institution.

regulatory capital rules, and banking regulators have broad authority to determine whether we are operating in a safe and sound manner, including with respect to liquidity risk management and asset quality.

We may need to raise additional financing in the future to provide sufficient funding to meet regulatory requirements, supervisory expectations or business needs.

In conjunction with any changes to our capital, we must meet certain regulatory capital requirements and maintain sufficient liquidity, including to maintain our status as a well-capitalized institution.

Additionally, regulatory capital requirements could increase from current levels, which could require us to raise additional capital or change the size or composition of our balance sheet.

If we fail to maintain capital to meet regulatory requirements, our regulators may place restrictions on our activities or impose penalties, which would adversely affect our liquidity, business, financial condition and results of operations.

In addition, a variety of adverse consequences could result if the Federal Reserve determines that we have not met supervisory expectations regarding capital planning and liquidity risk management.

Such consequences could include ratings downgrades, ongoing heightened supervisory scrutiny, expenses associated with remediation activities, and potentially an enforcement action.

If we are unable to maintain sufficient regulatory capital levels, we may be unable to achieve desired performance, which may result in an inability to provide returns to our shareholders.

In addition, the need to meet supervisory expectations regarding capital planning, asset quality and liquidity risk management, among other areas, exposes us to risks relating to ratings downgrades, ongoing heightened supervisory scrutiny, expenses associated with remediation activities and enforcement actions.

Our ability to fund our operations, to continue growing and to return capital to our shareholders depends in part on our ability to maintain regulatory capital levels above minimum requirements plus buffers.

required to reduce our level of assets or reduce or suspend dividends or stock repurchases (if restarted) or refrain from pursuing growth opportunities we may otherwise consider attractive.

If earnings do not meet our current estimates, if we incur unanticipated losses or expenses, if we grow faster than expected or if our capital position and capital planning do not meet supervisory expectations, we may need to obtain additional capital sooner than expected or we may be required to reduce our level of assets or reduce or suspend dividends or stock repurchases (if restarted) or refrain from pursuing growth opportunities we may otherwise consider attractive.

Under those circumstances net income and our growth prospects may be adversely affected.

Our investment securities are subject to market risk and credit risk that may have an adverse impact on our financial condition and results of operations.

Our investment securities portfolio is classified as either “available-for-sale” securities, which are marked to market on a recurring basis and recorded at fair value with unrealized gains or losses reported in accumulated other comprehensive income, or “held-to-maturity” securities, which are recorded at amortized cost less any associated ACL.

In pricing the investment securities available-for-sale portfolio, a variety of factors beyond our control may significantly influence the fair values of these securities.

Our investment securities portfolio is classified as either “available-for-sale” securities, which are marked to market on a recurring basis and recorded at fair value with unrealized gains or losses reported in accumulated other comprehensive income (loss), or “held-to-maturity” securities, which are recorded at amortized cost less any associated ACL.

In pricing the AFS securities portfolio, a variety of factors beyond our control may significantly influence the fair values of these securities.

These factors include, but are not limited to, market conditions, instability in the credit markets, rating agency downgrades of the securities, lack of market pricing of the securities, defaults of the issuers of the securities and issuer impairments.

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Damage to our reputation, including as a result of actual or alleged conduct or public opinion of the financial services industry generally could harm our operations, including our liquidity, competitive position and business prospects.

Reputation risk, or the risk to our business, liquidity, funding mix, earnings and financial capital from negative public opinion, adverse publicity or negative information is inherent in our business and has increased substantially due to the interconnected global network which facilitates instant access and instantaneous transmission and communication of information, which may include misinformation, of actual or alleged conduct related to any number of activities or circumstances by the Bank, our directors, our officers, our employees and/or third parties.

Reputation risk, or the risk to our business, liquidity, funding mix, earnings and financial capital from negative public opinion, adverse publicity or negative information is inherent in our business and has increased substantially due to the instant access and instantaneous transmission and communication of information, which may include misinformation, including regarding actual or alleged conduct related to any number of activities or circumstances by the Bank, our directors, our officers, our employees and/or third parties.

Our reputation may be harmed by our actual or perceived practices and disclosures and those of our customers and third parties.

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Risks related to our reputation and the banking industry’s reputation have also increased due to increased volatility in the business environment and challenging economic conditions, as a result of fiscal and monetary policies, banking industry stresses and sudden events whether within our control or not.

In March 2023, SVB and Signature Bank, which had elevated concentrations of uninsured deposits, experienced large deposit outflows, resulting in the institutions being placed into FDIC receiverships.

The collapse of these banking institutions sparked a panic which resulted in many banks, including us, experiencing deposit outflows and changes in deposit composition.

In addition, the rapid dissemination of negative information through social media, in part, is believed to have led to the collapse of SVB.

For example, in March 2023, SVB and Signature Bank, which had elevated concentrations of uninsured deposits, experienced large deposit outflows, resulting in the institutions being placed into

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FDIC receiverships.

The collapse of these banking institutions sparked a panic that resulted in many banks, including us, experiencing deposit outflows and changes in deposit composition.

In addition, the rapid dissemination of negative information through social media, in part, is believed to have accelerated the collapse of SVB.

SVB suffered a level of deposit withdrawals within a time period not previously experienced by a bank.

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Such conduct could fall short of our customers' and the public's heightened expectations of financial institutions with rigorous privacy, data protection, data security and compliance practices, and could further harm our reputation.

In addition, there has been an increased focus by investors and other stakeholders on topics related to corporate policies and approaches regarding environmental, social and governance and diversity, equity and inclusion issues.

Due to divergent stakeholder views on these matters, we are at increased risk that any action, or lack thereof, concerning these matters will be perceived negatively by some stakeholders, which could negatively affect our business and reputation and heighten the risk of litigation.

Negative perceptions regarding our ability to maintain the security of our technology systems and protect customer data or our compliance programs, could lead to decreases in the levels of deposits that customers and potential customers choose to maintain with us or significantly increase the costs of attracting and retaining customers.

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We cannot provide any assurance that we will be able to grow at acceptable risk levels and upon acceptable terms, or at all.

Our ability to generate loan portfolio growth has been and may continue to be negatively impacted based on the adverse economic effects due to the increase in interest rates, rate of inflation, banking industry stresses and the heightened competition in the Bank’s market area.

Our ability to generate loan portfolio growth has been and may continue to be negatively impacted based on our ability to source deposit funding and lending opportunities, the adverse economic effects due to the levels of interest rates and inflation, banking industry stresses and the heightened competition in the Bank’s market area.

Even if economic conditions continue to improve in future quarters, there can be no assurance that we will be able to increase our total net loans in the short-term or long-term.

We may not be able to achieve meaningful growth in asset levels, loans or earnings in future years.

Moreover, as our asset size, loan portfolio and earnings increase, it may become more difficult to maintain the levels and performance achieved and continue to grow in the future.

Moreover, as our asset size, and loan portfolio increase, it may become more difficult to maintain the levels of performance and earnings achieved and to continue to grow in the future.

Additionally, it may become more difficult to maintain or achieve improvements in our expense levels and efficiency ratio.

We may not be able to maintain the relatively low levels of nonperforming assets that we have experienced to date.

We may not be able to achieve or maintain the relatively low levels of nonperforming assets that we have generally experienced prior to 2024.

The inability to maintain or achieve growth of income or assets or deposits and increases in improvements of operating expenses or nonperforming assets may have an adverse impact on our results of operations, financial condition and the value of the common stock.

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If we cannot provide reliable financial reports or prevent fraud, our reputation, operating results or stock price could be adversely impacted.

Any failure to maintain effective controls, to timely implement any necessary improvement to our internal and disclosure controls or to effect remediation of any material weakness or significant deficiency could, among other things, result in losses from fraud or error, harm our reputation or cause investors to lose confidence in our reported financial information, all of which could have a material adverse effect on our results of operations, financial condition or stock price.

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in losses from fraud or error, harm our reputation or cause investors to lose confidence in our reported financial information, all of which could have a material adverse effect on our results of operations, financial condition or stock price.

Management reviews and updates our systems of internal control and disclosure controls and procedures, as well as corporate governance policies and procedures, from time to time.

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These factors include the competitive effects of the proposal in the relevant geographic markets;

the financial and managerial resources and

future prospects of the companies and banks involved in the transaction;

the financial and managerial resources and future prospects of the companies and banks involved in the transaction;

the effect of the transaction on the financial stability of the United States;

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In that event, we would likely experience higher losses or lower earnings.

Additionally, if, for any reason, economic conditions in our market area deteriorate, commercial real estate values, in particular for offices, decline further, or there is significant volatility or weakness in the economy or any significant sector of the area’s economy, our ability to develop our business relationships may be diminished, the quality and collectability of our loans may be adversely affected, the value of collateral may decline and loan demand may be reduced.

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the quality and collectability of our loans may be adversely affected, the value of collateral may decline and loan demand may be reduced.

The loan portfolio contains a significant number of commercial and commercial real estate and construction loans with relatively large balances.

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As a result, a rapid increase or decrease in interest rates could have an adverse effect on our net interest margin and results of operations.

The Company employs an earnings simulation model (immediate parallel shifts along the yield curve) on a quarterly basis to monitor its interest rate sensitivity and risk and to model its balance sheet cash flows and the related income statement effects in different interest rate scenarios.

As such, the Company's analysis, assuming a static balance sheet, decreases of approximately (0.4)% and (0.9)%, respectively, in projected net interest income and net income over a twelve month period resulting from an instantaneous 100 basis point increase in rates across the yield curve.

Conversely, assuming a static balance sheet, we expect decreases of approximately 3.0% and 8.4%, respectively, in projected net interest income and net income over a twelve month period resulting from an instantaneous 100 basis point decrease in rates across the yield curve.

In addition, if interest rates continue to rise or stay elevated, we may continue to experience deposit outflows.

The Company employs an earnings simulation model (immediate parallel shifts along the yield curve) on a quarterly basis to monitor its interest rate sensitivity and risk and to model its balance sheet, cash flows and the related statement of operations effects in different interest rate scenarios.

As such, the Company's analysis, assuming a static balance sheet, projects decreases of approximately (0.7)% and (1.5)%, respectively, in projected net interest income and net income over a twelve month period resulting from an instantaneous 100 basis point increase in rates across the yield curve.

Conversely, assuming a static balance sheet, we expect increases of approximately 0.9% and 2.0%, respectively, in projected net interest income and net

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income over a twelve month period resulting from an instantaneous 100 basis point decrease in rates across the yield curve.

In addition, if interest rates continue to stay elevated or start to rise again, we may continue to experience deposit outflows.

The results of our interest rate sensitivity simulation model depend upon a number of assumptions, which may not prove to be accurate.

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We compete in a highly competitive market for loans and deposit dollars with numerous regional and national banks, online divisions of out-of-market banks and other community banking institutions, as well as other kinds of financial institutions and enterprises, such as securities firms, insurance companies, savings associations, credit unions, mortgage brokers, private lenders and nontraditional competitors such as fintech companies and internet-based lenders, depositories and payment systems.

Our profitability depends upon our continued ability to successfully compete with traditional and new financial services providers, some of which maintain a physical presence in our market areas and others of which maintain only

a virtual presence.

Many competitors have substantially greater resources than us, and some operate under less stringent regulatory environments.

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metropolitan area in general may be adversely impacted as a result of changes in government spending or a government shutdown.

The presidential administration and certain governmental agencies have announced plans to reduce government spending and the size of the federal government workforce.

These announcements could have an adverse effect on the economy of the Washington, D.C.

metropolitan area, which in turn could adversely affect the Company.

The Washington, D.C.

metropolitan area is characterized by a significant number of businesses that are federal government contractors or subcontractors, or which depend on such businesses for a significant portion of their revenues.

While the Company does not have a significant level of loans to federal government contractors or their subcontractors, which as of December 31, 2023 was $267.4 million, or 3.4% of our loan portfolio, the impact of a shutdown of federal government operations, a decline in federal government spending, a reallocation of government spending to different industries or different areas of the country or a delay in payments to such contractors, whether as a result of a government shutdown or otherwise, could have a ripple effect and adversely affect our results of operations and financial condition, including asset quality, financial capital and liquidity levels.

Temporary layoffs, staffing freezes, salary reductions or furloughs of government employees or government contractors and other impacts from declining government spending, lapses in appropriations, or changes in fiscal appropriations could have adverse impacts on other businesses in the Company’s market and the general economy of the greater Washington, D.C.

While the Company does not have a significant level of loans to federal government contractors or their subcontractors, which as of December 31, 2024 was $251.9 million, or 3.2% of our loan portfolio, the impact of a shutdown of federal government operations, a decline in federal government spending or workforce, a reallocation of government spending to different industries or different areas of the country or a delay in payments to such contractors, whether as a result of a government shutdown or otherwise, could have a ripple effect and adversely affect our results of operations and financial condition, including asset quality, financial capital and liquidity levels.

In addition, federal government employees make up a significant proportion of the population of the Washington, D.C.

metropolitan area.

Layoffs, staffing freezes, salary reductions or furloughs of government employees or government contractors and other impacts from declining government spending, lapses in appropriations, or changes in fiscal appropriations could have adverse impacts on other businesses in the Company’s market and the general economy of the greater Washington, D.C.

metropolitan area and may indirectly lead to a loss of revenues by the Company’s customers, including vendors and lessors to the federal government and government contractors or to their employees, as well as a wide variety of commercial and retail businesses.

Accordingly, such potential federal government actions could lead to increases in past due loans, nonperforming loans, credit loss reserves and charge-offs and a decline in liquidity.

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We rely upon independent appraisals to determine the value of the real estate that secures a significant portion of our loans, and the values indicated by such appraisals may not be realizable if we are forced to foreclose upon such loans.

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For example, since 2020 and in light of the prevalence of hybrid work arrangements and associated lower occupancy rates, the value of commercial real estate secured by office properties has generally declined.

As a result of any of these factors, the real estate securing some of our loans may be more or less valuable than anticipated at the time the loans were made.

As a result of these factors, the real estate securing some of our loans is less valuable than anticipated at the time the loans were made.

If a default occurs on a loan secured by real estate that is less valuable than originally estimated, we may not be able to recover the outstanding balance of the loan and will suffer a loss.

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Such significant climate change effects may negatively impact the Company’s geographic markets, disrupting the operations of the Company, our customers or third parties on which we rely.

Damages to real estate underlying mortgage loans or real estate collateral and declines in economic conditions in geographic

markets in which the Company’s customers operate may impact our customers’ ability to repay loans or maintain deposits due to climate change effects, which could increase our delinquency rates and average credit loss.

Damages to real estate underlying mortgage loans or real estate collateral, declines in economic conditions in geographic markets in which the Company’s customers operate and increased premiums for and reduced availability of insurance may impact our customers’ ability to repay loans or maintain deposits due to climate change effects, which could increase our delinquency rates and average credit loss.

Moreover, as the effects of climate change continue to create a level of concern for the state of the global environment, companies are facing increasing scrutiny from customers, regulators, investors and other stakeholders related to their environmental, social and governance (“ESG”) practices and disclosure.

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Increased ESG related compliance costs, in turn, could result in increases to our overall operational costs.

Conversely, there has been increasing anti-ESG sentiment in the U.S., which has led and is likely to continue to lead to new anti-ESG policies and legislative and regulatory requirements discouraging or preventing ESG-related initiatives.

As a result, we may face heightened and potentially conflicting regulatory and legal requirements, as well as reputational scrutiny.

Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards, including with respect to the Company’s involvement in certain industries or projects associated with causing or exacerbating climate change, may negatively affect the Company’s reputation and commercial relationships, which could adversely affect our business.

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Our ability to retain and grow loans, deposits and fee income depends upon the business generation capabilities, reputation and relationship management skills of our bankers.

If we were to experience difficulty recruiting successful bankers, or lose the services of any of our bankers to a new or existing competitor or otherwise, we may be unable to establish and retain valuable relationships and some of our customers or potential customers could choose to use the services of a competitor instead.

If we are unable to recruit successful bankers, or lose the services of any of our bankers to a new or existing competitor or otherwise, we may be unable to establish and retain valuable relationships and some of our customers or potential customers could choose to use the services of a competitor instead

Moreover, the Company relies significantly on the expertise and experience of our executive officers and senior management, whose skills, years of industry experience and relationships with customers may be difficult for the Company to replace.

The loss of service of one or more of these key personnel could reduce the Company’s ability to successfully implement its long-term business strategy, our business could suffer and the value of the Company’s common stock could be materially adversely affected.

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materially adversely affected.

Leadership changes may occur from time to time and the Company cannot predict whether significant resignations will occur or whether the Company will be able to recruit additional qualified personnel.

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Our ability to make distributions in respect of our securities may be limited.

Our ability to pay a cash dividend on our common stock, to repurchase shares of our common stock or to pay interest on our subordinated debt will depend largely upon the ability of the Bank, the Company’s principal operating business, to declare and pay dividends to the Company.

Our ability to pay a cash dividend on our common stock, to repurchase shares of our common stock or to pay interest on our debt will depend largely upon the ability of the Bank, the Company’s principal operating business, to declare and pay dividends to the Company.

Payment of distributions on our securities will also depend upon the Bank’s earnings, financial condition and need for funds, as well as laws, regulations and governmental policies applicable to the Company and the Bank, which limit the amount of distributions that may be made.

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New investors, and particularly investors in any preferred stock the Company may issue from time to time, will therefore have rights, preferences and privileges that are senior to, and that adversely affect, our then current common shareholders.

lenders with respect to other borrowings will receive distributions of our available assets prior to the holders of our common stock.

Additionally, if we raise additional capital by making additional offerings of debt or preferred equity securities, upon liquidation of the Company, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive distributions of our available assets prior to the holders of our common stock.

Also, additional equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our common stock, or both.

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Under guidance adopted by the federal banking agencies, banks that have concentrations in construction, land development or commercial real estate loans (other than loans for majority owner occupied properties) are expected to maintain higher levels of risk management policies and processes and, potentially, higher levels of capital.

We may be required to maintain higher levels of capital than we would otherwise be expected to maintain as a result of our levels of construction, development and commercial real estate loans.

We may be required to maintain higher levels of capital than the minimums and buffers required under the capital regulations applicable to us, including as a result of our levels of construction, development and commercial real estate loans.

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Litigation and regulatory actions, possibly including enforcement actions, could subject us to significant fines, penalties, judgments or other requirements resulting in increased expenses or restrictions on our business activities.

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Further, we may be subject to regulatory enforcement actions.

We are also, from time to time, the subject of subpoenas, requests for information, reviews, investigations and proceedings (both formal and informal) by various agencies and other bodies regarding our current and/or prior business activities.

Additionally, we also from time to time receive demand letters from shareholders, and such letters may lead to these shareholders filing claims or derivative suits against us if our engagement with such shareholders ends in a failure to successfully negotiate a settlement.

Any such legal or regulatory actions may subject us to substantial compensatory or punitive damages, significant fines, penalties, obligations to change our business practices, required changes in our senior officers or other requirements resulting in increased expenses, diminished income and damage to our business.

We are also continually the subject of exams, subpoenas, requests for information, reviews, investigations and proceedings (both formal and informal) by various agencies and other bodies regarding our current and/or prior business activities.

Additionally, from time to time we receive demand letters from shareholders, and such letters may lead to these shareholders filing claims or derivative suits against us if our engagement with such shareholders ends in a failure to successfully negotiate a settlement.

Any such legal or regulatory actions or investigations may subject us to substantial compensatory or punitive damages, significant fines, penalties, obligations to change our business practices, required changes in our senior officers or other requirements resulting in increased expenses, diminished income and damage to our business.

Our involvement in any such matters, whether tangential or otherwise, and even if the matters are ultimately determined in our favor, could also cause significant harm to our reputation and divert management attention from the operation of our business.

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While the Company and Bank carry insurance to protect us from material outlays (excluding regulatory fees and penalties), such insurance may not always fully or even substantially cover such outlays.

The Company maintains director and officer insurance policies (“D&O Insurance Policies”) that provide coverage for the legal defense costs.

The Company maintains director and officer insurance policies (“D&O Insurance Policies”) that provide coverage for legal defense costs.

When the D&O Insurance Policies are exhausted, the Company is responsible for paying the defense costs associated with those investigations and litigations (to include unpaid receivables from the insurance carriers) for itself and on behalf of any current and former officers and directors entitled to indemnification from the Company.

The Company has incurred and may incur in the future in connection with current ongoing and any potential future investigations and legal proceedings, as they are dependent on various factors, many of which are outside of the Company’s control.

The Company has incurred and may incur in the future legal costs in connection with current ongoing and any potential future investigations and legal proceedings, as they are dependent on various factors, many of which are outside of the Company’s control.

In the event such costs are significant, they could have a material adverse effect on our business, financial condition, results of operations and stock price.

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Also, the burden imposed by those laws and regulations may place banks in general, including the Bank in particular, at a competitive disadvantage compared to our non-bank competitors.

Our failure to comply with any applicable laws or regulations or regulatory policies and interpretations of such laws and regulations, or our failure to meet supervisory expectations, could result in sanctions by regulatory agencies, civil money penalties or damage to our reputation, all of which could have a material adverse effect on our business, financial condition and results of operations.

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regulatory agencies, civil money penalties or damage to our reputation, all of which could have a material adverse effect on our business, financial condition and results of operations.

Applicable federal and state laws, regulations, regulatory guidance, interpretations, enforcement policies and accounting principles have been subject to significant changes in recent years and may be subject to significant future changes.

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Accordingly, any failure, or perceived failure, to comply with applicable privacy or data protection laws and regulations may subject us to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices or in significant liabilities, fines or penalties and could damage our reputation and otherwise adversely affect our operations, financial condition and results of operations.

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RISKS RELATED TO ACCOUNTING AND TAXATION

Changes in the value of goodwill and intangible assets could reduce our earnings.

The Company accounts for goodwill and other intangible assets in accordance with generally accepted accounting principles (“GAAP”), which, in general, requires that goodwill not be amortized, but rather that it be tested for impairment at least annually or upon the occurrence of a triggering event at the reporting unit level.

Testing for impairment of goodwill involves the identification of the reporting unit and the estimation of fair value.

The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions used.

Changes in the local and national economy, the federal and state legislative and regulatory environments for financial institutions, the stock market, interest rates and other external factors (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability, and may materially impact the fair value of publicly traded financial institutions and could result in an impairment charge at a future date.

In addition, our stock has been trading below book value since this first quarter of 2023, which increases the risk of an interim quantitative goodwill impairment test and potential for a related impairment charge.

Refer to “Critical Accounting Policies and Estimates—Goodwill” under Item 7 for additional information.

Changes in tax laws could have an adverse effect on us, the banking industry, our customers, the value of collateral securing our loans and demand for loans.

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RISKS RELATED TO THE USE OF TECHNOLOGY

Our operations, including our transactions with customers, are increasingly conducted via electronic means, and this has increased risks related to cybersecurity.

Our operations, including our transactions with customers and the services we receive from third parties, are increasingly conducted via electronic means, and this has increased risks related to cybersecurity.

We are exposed to the risk of cyber-attacks in the normal course of business.

In addition, we are exposed to cyber-attacks on vendors and merchants that affect us and our customers.

In general, cyber incidents can result from deliberate attacks

or unintentional events.

We have observed an increased level of attention in the industry focused on cyber-attacks that include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data or causing operational disruption.

In general, cyber incidents can result from deliberate attacks or unintentional events.

The financial services industry has been affected by, and will in the future continue to be affected by, cyber-attacks that include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data or causing operational disruption.

Despite our efforts to develop and implement policies and procedures to identify, protect, detect, respond and recover from the possible security breach of our information systems and cyber-fraud, we may not be able to anticipate, detect or implement effective protective measures against all cyber-attacks, including because the techniques used are increasingly sophisticated, change frequently and are often not recognized until launched.

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While we maintain insurance coverage that may, subject to policy terms and conditions including significant self-insured deductibles, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses.

While we have not incurred any material losses related to cyber-attacks, we may incur substantial costs and suffer other negative consequences if we fall victim to successful cyber-attacks.

While we have not incurred any material losses related to cyber-attacks, we may incur substantial costs and suffer other negative consequences as a result of successful cyber-attacks.

Such negative consequences could include remediation costs that may include liability for stolen assets or information and repairing system damage that may have been caused;

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and reputational damage adversely affecting customer or investor confidence.

A breach or interruption of information security or cyber-related threats could negatively affect our business, financial condition or earnings.

We rely heavily on communications and information systems to conduct our business.

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The occurrence of any failures, interruptions or security breaches of our information systems could damage our reputation, adversely affect customer or investor confidence, result in a loss of customer business, subject us to additional regulatory scrutiny and possible regulatory penalties or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

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Failure to keep up with the rapid technological changes in the financial services industry could have a material adverse effect on our competitive position and profitability.

The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services.

The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services, including those based on artificial intelligence technologies.

The effective use of technology increases efficiency and enables financial institutions to better serve customers and reduce costs.

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We depend on the use of data and modeling in both management’s decision-making, generally, and in meeting regulatory expectations, in particular.

The use of statistical and quantitative models and other quantitatively-based analyses is endemic to bank decision-making and regulatory compliance processes and the employment of such analyses is becoming increasingly widespread in our operations.

Liquidity stress testing, interest rate sensitivity analysis, allowance for credit loss measurement, portfolio stress testing, assessing capital adequacy and the identification of possible violations of anti-money laundering regulations are examples of areas in which we are dependent on models and the data that underlies them.

We anticipate that model-derived insights will be used more widely in decision-making in the future.

We anticipate that model-derived insights will be used more widely in decision-making in the future, including as the use of artificial intelligence increases.

While these quantitative techniques and approaches are intended to improve our decision-making, they also create the possibility that faulty data, flawed quantitative approaches or poorly designed or implemented models could yield adverse or faulty outcomes and decisions, and could result in regulatory scrutiny.

Secondarily, because of the complexity inherent in these approaches, misunderstanding or misuse of their outputs could similarly result in suboptimal decision-making, which could have a material adverse effect on our business, financial condition, results of operations and share price.

In addition, because of the complexity inherent in these approaches, especially those based on artificial intelligence, misunderstanding or misuse of their outputs could similarly result in suboptimal decision-making, which could have a material adverse effect on our business, financial condition, results of operations and share price.

GENERAL RISKS

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• Proposed or adopted regulatory changes or developments;

• Domestic and international economic and political factors unrelated to our performance;

• Domestic and international economic and political factors unrelated to our performance, including political uncertainty in the United States and its effect on the economy of the Washington, D.C.

metropolitan area;

• Actions of one or more investors in selling our common stock short;

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▪ Catastrophic events, including natural disasters, and public health crises.

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In addition, the stock market in general has experienced price and volume fluctuations.

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

What changed 10-K

Item 1A. Risk Factors