What changed in this filing

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Item 1. Business

2025-02-26 compared with 2024-02-28 · 94 added, 148 removed, 305 unchanged (44% of the section changed)

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In 1985, its name was changed to First Bank and in September 2013, the Company and the Bank moved their headquarters and main offices to Southern Pines, North Carolina.

As of December 31, 2023, the Bank had three wholly-owned subsidiaries, SBA Complete, Magnolia Financial, and First Troy SPE, LLC.

SBA Complete specializes in providing consulting services for financial institutions across the country related to SBA loan origination and servicing.

As of December 31, 2024, the Bank had two wholly-owned subsidiaries, Magnolia Financial and First Troy SPE, LLC.

Magnolia Financial is a business financing company that offers accounts receivable financing and factoring, inventory financing, and purchase order financing throughout the southeastern United States.

First Troy SPE, LLC is a holding entity for certain foreclosed properties.

SBA Complete, which was in the process of dissolution as of December 31, 2024, was formerly a subsidiary of the Bank and specialized in providing consulting services for financial institutions across the country related to SBA loan origination and servicing.

The Company is the parent of a series of statutory business trusts organized for the purpose of issuing trust preferred debt securities that qualify as regulatory capital.

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See additional discussion below in Item 7 under the section entitled “Borrowings” and Note 1 to the consolidated financial statements.

Recent Developments and Acquisitions

In January, 2023, we acquired GrandSouth, a community bank headquartered in Greenville, South Carolina with $1.2 billion in total assets, $1.0 billion in loans, and $1.1 billion in deposits.

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The acquisition accomplished the Company's strategic initiative to expand its presence in South Carolina, specifically in the high-growth markets of the state including Greenville, Charleston and Columbia.

In October 2021, we acquired Select, a community bank headquartered in Dunn, North Carolina with $1.8 billion in assets, $1.3 billion in loans, and $1.6 billion in deposits.

Select operated from 22 branches located throughout North Carolina, in the Upstate region of South Carolina and in Virginia Beach, Virginia.

We closed or consolidated 12 of Select's branches during 2022.

On September 1, 2020, we completed the acquisition of Magnolia Financial, a business financing company headquartered in Spartanburg, South Carolina, that makes loans throughout the southeastern United States.

The acquisition of Magnolia Financial provided us with the opportunity to enhance our product offerings, such as accounts receivable financing and factoring, inventory financing, and purchase order financing.

In October 2017, we acquired Asheville Savings which operated in the attractive and high-growth market of Asheville, North Carolina, with $798 million in assets and 13 branches located throughout the Asheville market area.

In March 2017, we acquired Carolina Bank, a community bank headquartered in Greensboro, North Carolina with $682 million in assets and eight branches located in Greensboro, Winston-Salem, Burlington, and Asheboro.

This acquisition significantly accelerated our expansion initiative in the Greensboro/Winston-Salem market.

Recent acquisitions include the following:

Name of Entity Date of Acquisition Assets Acquired

GrandSouth Bancorp January, 2023 $1.2 billion

Select Bancorp, Inc.

October, 2021 $1.8 billion

Magnolia Financial, Inc.

September, 2020 $15.1 million

ASB Bancorp, Inc.

October, 2017 $0.8 billion

Carolina Bank Holdings, Inc.

March, 2017 $0.7 billion

Principal Business and Services We Provide

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We provide commercial business loans, commercial and residential real estate construction and mortgage loans, revolving lines of credit, letters of credit, and loans for personal uses, home improvement, and automobiles.

Commercial real estate loans include loans secured by owner-occupied commercial buildings for office, storage, retail, and warehouse space.

They also include non-owner occupied commercial buildings such as leased retail and office space.

We originate residential mortgages through our Mortgage Banking Division, some of which we sell in the secondary market.

Commercial real estate loans include loans secured by owner-occupied and non-owner occupied commercial buildings for improved commercial, office, retail, and warehouse and shopping center space.

Through Magnolia Financial we provide accounts receivable financing and factoring, inventory financing, and purchase order financing.

Through a network of specialized Bank loan officers in our SBA Lending Division, we offer SBA loans to small business owners across the nation.

We typically sell the portion of each loan that is guaranteed by the SBA at a premium and retain the non-guaranteed portion on our balance sheet.

We also provide used car floor-plan financing through our CarBucks division.

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Loans are approved under our loan policy, which provides that lending officers have sole authority to approve loans of various amounts commensurate with their seniority, experience and needs within the market.

All requests for extensions of credit in excess of any individual lending officer's authority are reviewed by one of our regional credit officers, who can approve loans up to their respective lending authorities which are generally between $10 million and $15 million.

When the request for approval exceeds the authority level of the regional credit officer, the request is then reviewed for approval by the Bank’s Chief Credit Officer who has $25 million in lending authority.

For loans in excess of this amount, the Chief Executive Officer and the Chief Credit Officer have joint authority to approve loans up to the in-house limit of $75 million.

For loans in excess of this amount, the Chief Executive Officer, the President and the Chief Credit Officer have joint authority to approve loans up to the in-house limit of $150 million.

The Board, generally through its Executive Loan Committee, approves loans in excess of the in-house limit.

In addition, the Executive Loan Committee reviews and approves loans to executive officers, directors, and their affiliates.

In addition, the Executive Loan Committee reviews and approves loans to executive officers, directors, and their affiliates and recommends those loans to the Board for its approval.

Our legal lending limit to any one borrower is approximately $213.6 million.

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In order to monitor the portfolio for possible concentrations, we categorize our CRE loans by regulatory categories, including multi-family, retail, warehouse, office, healthcare, hotel/motel, and other commercial real estate.

As of December 31, 2023, the largest category of CRE loans, which totaled approximately of 10% of total loans, was retail followed by warehouse and multifamily, both at approximately 7% of total loans.

As of December 31, 2024, the largest categories of CRE loans as a percentage of total loans were retail at approximately 14%, followed by office, of which non owner-occupied was approximately 6% and owner-occupied was approximately 3%, commercial at approximately 7% and warehouse at approximately 6%.

These CRE categories are within management's guidelines as a percent of total capital.

The loans within these categories are generally secured by real estate and are therefore susceptible to changes in real estate valuations and other market disruptions in this sector.

The loans within these categories are generally secured by real estate and are therefore susceptible to changes in real estate valuations and other market disruptions.

The loans were originated using underwriting standards as set forth by management.

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Most of our business activity is with customers located within the markets where we have banking operations.

The following table presents the total lending exposure for the counties with the largest percentage of our loan portfolio as of December 31, 2023 and 2022.

The following table presents our total lending exposure in the counties with the largest percentage of our loan portfolio as of December 31, 2024 and 2023.

These percentages represent the geographic location of the customer, which may or may not also be the location of the loan collateral.

Wake County, North Carolina 9.7 % 10.1 %

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No other market (as defined by county) had total loans outstanding in excess of 5% of the total portfolio at either period presented.

We have no concentrations of individual borrowers.

We have no significant concentrations in a few borrowers or in individual Metropolitan Statistical Areas.

Therefore, while our exposure to credit risk is affected by changes in the economy within our markets, the risk is not significantly concentrated.

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Pursuant to this policy, we may invest in U.S.

government bonds, GSEs, mortgage-backed securities, collateralized mortgage obligations, commercial mortgage-backed securities, state and municipal obligations, public housing authority bonds, and, to a limited extent, corporate bonds.

bonds, GSEs, mortgage-backed securities, collateralized mortgage obligations, commercial mortgage-backed securities, state and municipal obligations, public housing authority bonds, and, to a limited extent, corporate bonds.

Investments are subject to concentration and maturity limits to avoid unnecessary risks.

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Our Chief Investment Officer implements the investment policy, monitors the investment portfolio, recommends portfolio strategies, and reports to the Bank’s Asset Liability Committee ("ALCO"), which also has oversight of the Bank's investment activities.

ALCO generally meets on a quarterly basis and reviews investment activity, portfolio composition, portfolio tenure, and other elements as necessary to assess the overall position of the securities portfolio and risk of the portfolio relative to the overall balance sheet.

ALCO generally meets at least quarterly and reviews investment activity, portfolio composition, portfolio tenure, and other elements as necessary to assess the overall position of the securities portfolio and risk of the portfolio relative to the overall balance sheet.

In addition, reports of all purchases, sales, issuer calls, net profits or losses and market appreciation or depreciation of the securities portfolio are reviewed by the Board.

Once a quarter, our interest rate risk exposure is evaluated by ALCO and a summary report is presented to the Board.

A subset of the Bank's ALCO meets more regularly to evaluate a number of possible interest rate related activities.

Each year, our written investment policy is reviewed by the Board and appropriate changes are made.

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These deposit accounts have a variety of interest rates and terms and consist of interest-bearing and noninterest-bearing accounts, including commercial and retail checking accounts, savings accounts, money market accounts, and time deposits, including various types of certificates of deposits and individual retirement accounts.

The Bank is a member of the CDARS, which gives our customers the ability to obtain FDIC insurance on deposits of up to $50 million, while continuing to work directly with their local First Bank deposit team.

The Bank is a member of the CDARS program, which gives our customers the ability to obtain FDIC insurance on deposits of up to $50 million, while continuing to work directly with their local First Bank deposit team.

Brokered deposits are deposits obtained by utilizing an outside broker that is paid a fee.

The Bank utilizes brokered deposits to accomplish several purposes, such as acquiring a certain maturity and dollar amount without repricing the deposits of the Bank’s current customers (which could increase or decrease the overall cost of deposit), and acquiring certain maturities and dollar amounts to help manage interest rate risk.

The Bank utilizes brokered deposits to accomplish several purposes, such as acquiring a certain maturity and dollar amounts without repricing the deposits of the Bank’s current customers (which could increase or decrease the overall cost of deposit), and to help manage interest rate risk.

Other Funding Sources

The FHLB allows us to obtain advances through its credit program.

These advances are secured by select securities owned by the Bank and held in safekeeping by the FHLB, FHLB stock owned by the Bank, and certain qualifying loans secured by real estate, including residential mortgage loans, home equity lines of credit and commercial real estate loans.

As additional sources of funding, we maintain credit arrangements with various other financial institutions to purchase federal funds and participate in the Federal Reserve's Bank Term Funding Program and discount window borrowings program.

On January 24, 2024, the Federal Reserve announced that no new loans will be made under the Bank Term Funding Program on or after March 11, 2024.

The FHLB of Atlanta allows us to obtain advances through its credit program.

These advances are secured by qualifying loans secured by real estate, including residential mortgage loans, home equity lines of credit and commercial real estate loans.

If appropriate, subordinated debentures or senior debt may be used to augment our funding sources.

The availability of these funding sources is subject to broad economic conditions, regulation and investor assessment of our financial strength and, as such, the cost of funds may fluctuate significantly and/or the availability of such funds may be restricted, thus impacting our net interest income, our immediate liquidity and/or our access to additional liquidity.

The proceeds of these issuances could be downstreamed to the Bank as common equity at the Bank level.

Other Services

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As of December 31, 2024, we conducted business from 113 branches, with 100 branch offices located across North Carolina and 13 branches in South Carolina.

Historically, our branches and facilities have been located in small- to medium-sized communities with economies based primarily on a variety of industries, including services and manufacturing.

In more recent years, through both new branches and acquisitions, we have expanded in larger North Carolina cities, including Charlotte, Raleigh (Triangle region), Greensboro/Winston-Salem (Triad region), Asheville and Wilmington.

Our expansion into higher growth markets was significantly enhanced by several strategic transactions discussed previously.

Our most recent acquisition of GrandSouth, headquartered in Greenville, South Carolina, has moved us into the desirable Upstate South Carolina market as well as all its primary growth markets including Charleston and Columbia, South Carolina.

Our branches and facilities are located in small- to medium-sized communities and in larger metropolitan areas with economies based primarily on a variety of industries, including services and manufacturing.

Our branch footprint includes larger North Carolina cities, including Charlotte, Raleigh (Triangle region), Greensboro/Winston-Salem (Triad region), Asheville and Wilmington, and larger South Carolina cities including Greenville, Columbia and Charleston.

Our primary loan markets were previously presented in the Loan Concentrations section above.

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Broadly speaking, we compete with national banks, super-regional banks, smaller community banks, non-traditional internet-based banks, insurance companies and agencies, and other financial intermediaries and investment alternatives, including mortgage companies, credit card issuers, leasing companies, finance companies, credit unions, money market mutual funds, brokerage firms, governmental and corporate bond issuers, and other securities firms.

Many of these non-bank competitors are not subject to the same regulatory oversight, which can provide them a competitive advantage in some instances, such as operational flexibility and lower cost structures.

In many cases, our competitors have substantially greater resources, including broader geographic markets, higher lending limits, and the ability to make greater use of large-scale advertising and promotions, and offer certain services that we are unable to provide to our customers.

We attempt to compete successfully with our competitors, regardless of their size, by emphasizing customer service, responsiveness, local decision making, and establishing relationships with our customers, while continuing to provide a wide variety of services.

Additionally, many non-bank competitors are not subject to the same regulatory oversight or capital requirements, which can provide them a competitive advantage in some instances, such as operational flexibility and lower cost structures.

We encounter strong pricing competition in providing our services, particularly in making loans and attracting deposits.

Competition for deposits in our markets and for national brokered deposits is primarily based on the types of deposits offered and rate paid on the deposits.

Given the current rate environment, we have experienced pressure to increase deposit rates in order to retain existing deposits and attract new deposits.

Given the current rate environment, we are continuing to experience pressure to increase deposit rates in order to retain existing deposits and attract new deposits.

Continued strong competition also exists in all of the lending activities we emphasize.

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Accordingly, loan rates in our markets continue to be under competitive pressure.

We expect competition in the industry to continue to increase mainly as a result of the improvement in financial technology used by both existing and new banking and financial services firms.

Competition may further intensify as

additional companies (both banks and non-banks) enter the markets where we conduct business, competitors combine to present more formidable challengers, and we enter mature markets consistent with our expansion strategy.

We expect competition in the industry to remain high.

Competition may further intensify as additional companies (both banks and non-banks) enter the markets where we conduct business, competitors combine to present more formidable challengers, and we enter mature markets consistent with our expansion strategy.

Human Capital Resources

Our associates are one of our competitive advantages and continued investment in human capital is a top priority for us.

At First Bank, we consider our associates to be one of our competitive advantages, and continued investment in human capital is a top priority for us.

We have historically focused on building a rewarding work environment as we believe that valued and engaged associates lead to satisfied and active customers, which contributes to enriched shareholder value.

We emphasize open and honest communication, collaboration, goal attainment, and personal and professional growth as the foundation to delivering high-quality service to one another and our customers.

As of December 31, 2023, we had 1,396 full-time and 49 part-time associates, the majority of whom are employed by the Bank and are located in North Carolina and South Carolina.

We have associates with our subsidiaries in other states, primarily California.

None of these associates are represented by any collective bargaining agreements, and we consider our employee relations to be good.

As of December 31, 2024, we had 1,345 full-time and 51 part-time associates, all of whom are employed by the Bank and the majority of whom are located in North Carolina and South Carolina.

Our human capital management strategy focuses on attracting, developing and retaining top quality talent regardless of sex, sexual orientation, gender identity, race, color, national origin, age, religion, or physical ability.

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• Ensuring all open positions have a diverse pool of candidates, and our job requirements align with our principles and the markets we serve;

• Creating internal organizational learning opportunities in which associates may voluntarily participate to deepen and develop personal understanding of diversity, equity, and inclusion.

• Creating internal organizational learning opportunities in which associates may voluntarily participate to deepen and develop personal understanding of diversity and inclusion.

Our Board and its Compensation Committee provide oversight on human capital matters, including overall compensation philosophy, equity award programs, and succession planning.

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We believe that effective and meaningful leadership development will further elevate the Company and support us in continuing to attract and retain top talent as well as create a succession plan for future growth.

At the end of 2023, we had a total of 82 associates who have completed one of the three leadership development tracks, of which 56% were female or minorities.

We host recruiting and internship programs that attract candidates from a variety of colleges and universities within our footprint.

These programs build a continuous talent pipeline and prioritize these individuals for internal openings.

Providing associates with meaningful, competitive and supportive benefits to care for their lives and families is a top priority for the Company.

We are proud to offer a comprehensive benefits package that includes medical, dental, vision and life insurance, paid time-off, 401(k) profit-sharing plan participation and an employee stock purchase plan.

The Company’s 401(k) plan has historically matched 100% of each employee’s elective deferral amount, up to the first 6% of the contribution.

To augment our health insurance plans, we offer EZaccessMD which provides free access to medical professionals 24/7 for all associates and immediate family members living at their residence, regardless of their participation in our health insurance program.

EZaccessMD provides phone consultation with board certified physicians and medical specialists, as well as a mobile health service that comes to an associate’s home to provide diagnostic and treatment services as needed.

The Company’s benefits programs also include an Employee Assistance Program which provides all associates a comprehensive and personalized process with a tailored approach to meet associates where they are and supports them through issues they may be facing.

In 2024, the Company’s 401(k) plan matched 100% of each employee’s elective deferral amount, up to the first 4% of their contribution.

The Company will pay a 2% non-elective employer contribution to each associate based on 2024 eligible 401(k) compensation to make up the difference from the 6% that the Company historically matched.

The Company’s benefits programs also include an Employee Assistance Program which provides all associates a comprehensive and personalized process to meet their individual needs and support them through issues they may

The program provides unlimited phone access for information, resources, and referrals and provides sessions with a counselor for the associate and their family members.

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Changes in statutes, regulations, and polices applicable to Company and the Bank (including their interpretations or implementation) cannot be predicted and could have a material adverse impact on the business and operations of the Company and the Bank.

Following the Company's acquisition of Select, our total assets exceeded $10.0 billion.

Under current banking regulations and as discussed further below, banks exceeding this asset threshold are subject to heightened supervision and regulation.

Since our total assets exceed $10.0 billion, under current banking regulations and as discussed further below, we are subject to heightened supervision and regulation.

The following is a general summary of the material aspects of certain statutes, regulations and policies applicable to us.

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Transactions with Affiliates.

Bank subsidiaries of a bank holding company are subject to restrictions imposed by the Federal Reserve Act on extensions of credit to the holding company or its subsidiaries, on investments in securities,

and on the use of securities as collateral for loans to any borrower.

The Dodd-Frank Act further extends the definition of an “affiliate” and treats credit exposure arising from derivative transactions, securities lending and borrowing transactions as covered transactions under applicable regulations.

It also (1) expands the scope of covered transactions required to be collateralized;

(2) requires collateral to be maintained at all times for covered transactions required to be collateralized;

and (3) places limits on acceptable collateral.

The Dodd-Frank Act further extends the definition of an “affiliate” and treats credit exposure arising from derivative transactions, securities lending and borrowing transactions involving an affiliate as covered transactions under applicable regulations.

It also expands the scope of covered transactions required to be collateralized, requires collateral to be maintained at all times for covered transactions required to be collateralized, and places limits on acceptable collateral.

These restrictions may limit the Company’s ability to obtain funds from the Bank for its cash needs, including funds for payments of dividends, interest, and operational expenses.

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The Company is prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property, or furnishing of services.

For example, with certain exceptions, neither the Company nor the Bank may condition an extension of credit to a customer on either (1) a requirement that the customer obtain additional services provided by the Company or the Bank;

or (2) an agreement by the customer to refrain from obtaining other services from a competitor.

For example, with certain exceptions, neither the Company nor the Bank may condition an extension of credit to a customer on either a requirement that the customer obtain additional services provided by the Company or the Bank, or an agreement by the customer to refrain from obtaining other services from a competitor.

Support of Bank Subsidiaries .

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This means that the Company is required to commit, as necessary, capital and resources to support the Bank, including at times when the Company may not be in a financial position to provide such resources or when it may not be in the Company’s or its shareholders’ best interests to do so.

Any capital loans a bank holding company makes to its bank subsidiaries are subordinate to deposits and to certain other indebtedness of those subsidiaries.

Any capital loans a bank holding company makes to a bank subsidiary are subordinate to deposits and to certain other indebtedness of that subsidiary.

State Law Restrictions.

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The Bank is a North Carolina state-chartered bank and is a member of the Federal Reserve.

Federal banking regulations applicable to all depository financial institutions, among other things:

(1) provide federal bank regulatory agencies with powers to prevent unsafe and unsound banking practices;

(2) restrict preferential loans by banks to “insiders” of banks;

(3) require banks to keep information on loans to major shareholders and executive officers;

and (4) bar certain director and officer interlocks between financial institutions.

Federal banking regulations applicable to all depository financial institutions that, among other things, provide federal bank regulatory agencies with powers to prevent unsafe and unsound banking practices, restrict preferential loans by banks to their “insiders," require banks to keep information on loans to major shareholders and executive officers, and bar certain director and officer interlocks between financial institutions.

As a state-chartered bank, the Bank is subject to regulation by the Commissioner.

The Commissioner has a wide range of regulatory authority over the activities and operations of the Bank, and the Commissioner’s staff conducts periodic examinations of the Bank and its affiliates to ensure compliance with state banking laws and regulations and to assess the safety and soundness of the Bank.

Among other things, the Commissioner regulates the merger of state-chartered banks, the payment of dividends, loans to officers and directors, recordkeeping, types and amounts of loans and investments, and the establishment of branches.

Among other things, the Commissioner regulates the merger of state-chartered banks, the payment of dividends, recordkeeping, types and amounts of loans and investments, the total of loans to one borrower and the establishment of branches.

The Commissioner also has cease and desist powers over state-chartered banks for violations of state banking laws or regulations and for unsafe or unsound conduct that is likely to jeopardize the interest of depositors.

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A violation of these restrictions may result in the assessment of substantial civil monetary penalties, regulatory enforcement actions, and other regulatory sanctions.

The Dodd-Frank Act and federal regulations place additional restrictions on loans to insiders and generally prohibit loans to senior officers other than for certain specified purposes.

The Dodd-Frank Act and federal regulations place additional restrictions on loans to insiders and generally prohibit loans to executive officers other than for certain specified purposes.

Regulation of Management.

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These standards cover, among other things, internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, such other operational and managerial standards as the agency determines to be appropriate, and standards for asset quality, earnings, regulatory capital and liquidity.

In addition, each insured depository institution must implement a comprehensive written information security program that includes administrative, technical, and physical safeguards appropriate to the institution's size and complexity and the nature and scope of its activities.

In addition, each bank must implement a comprehensive written information security program that includes administrative, technical, and physical safeguards appropriate to the institution's size and complexity and the nature and scope of its activities.

The program must be designed to ensure the security and confidentiality of customer information, protect against unauthorized access to or use of such information, and ensure the proper disposal of customer and consumer information.

An institution that fails to meet these standards may be required to submit a compliance plan, or be subject to regulatory sanctions, including restrictions on growth.

A bank that fails to meet these standards may be required to submit a compliance plan or be subject to regulatory sanctions, including restrictions on growth.

The Federal Reserve conducts periodic inspections of bank holding companies, such as the Company.

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The frequency of consumer compliance and CRA examinations is linked to the size of the institution and its compliance and CRA ratings of its most recent examinations.

However, the examination authority of the Federal Reserve allows it to examine supervised institutions as frequently as deemed necessary based on the condition of the institution or as a result of certain triggering events.

However, the examination authority of the Federal Reserve and the Commissioner allow examinations of supervised institutions as frequently as deemed necessary based on the condition of the institution or as a result of certain triggering events.

A principal source of the Company's cash is from dividends received from the Bank, which are subject to regulation and limitation.

As a general rule, regulatory authorities may prohibit banks and bank holding companies from paying dividends in a manner that would constitute an unsafe or unsound banking practice.

For example, paying dividends that deplete an institution's capital base to an inadequate level is typically deemed an unsafe and unsound banking practice.

As a general rule, regulatory authorities may prohibit banks from paying dividends in a manner that would constitute an unsafe or unsound banking practice.

For example, paying dividends that deplete a bank's capital base to an inadequate level is typically deemed an unsafe and unsound banking practice.

In addition, a bank may not pay cash dividends that would reduce the amount of its capital to less than minimum applicable regulatory capital requirements.

Current guidance from the Federal Reserve provides, among other things, that dividends per share on the Company's common stock generally should not exceed earnings per share, measured over the previous four fiscal quarters.

North Carolina banking law also places limitations upon the payment of dividends by North Carolina banks.

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In general, these rules limit the Bank's ability to pay dividends unless the Bank's common equity conservation buffer exceeds the minimum required capital ratio by at least 2.5% of risk-weighted assets.

The Federal Reserve has also issued a policy statement expressing the view that although no specific regulations restrict dividend payments by bank holding companies other than state corporate laws, a bank holding company should not pay cash dividends unless its earnings for the past year are sufficient to cover both the cash dividends and a prospective rate of earnings retention that is consistent with the bank holding company's capital needs, asset quality, and overall financial condition.

and a prospective rate of earnings retention that is consistent with the bank holding company's capital needs, asset quality, and overall financial condition.

A bank holding company's ability to pay dividends may also be restricted if a subsidiary bank becomes under-capitalized.

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Corporate Governance.

The Dodd-Frank Act requires publicly traded companies to provide their shareholders with (1) a non-binding shareholder vote on executive compensation;

(2) a non-binding shareholder vote on the frequency of such vote;

(3) disclosure of "golden parachute" arrangements in connection with specified change in control transactions;

and (4) a non-binding shareholder vote on golden parachute arrangements in connection with these change in control transactions.

The Dodd-Frank Act requires publicly traded companies to provide their shareholders with a non-binding shareholder vote on executive compensation, a non-binding shareholder vote on the frequency of such vote, disclosure of "golden parachute" arrangements in connection with specified change in control transactions, and a non-binding shareholder vote on golden parachute arrangements in connection with these change in control transactions.

The SEC has adopted rules mandated by the Dodd-Frank Act that require a public company to disclose the ratio of the compensation of its CEO to the median compensation of its employees and a comparison of executive compensation to the market performance of the Company's stock.

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The Bank is subject to the direct supervision of the CFPB.

The CFPB focuses on (1) risks to consumers and compliance with federal consumer financial laws;

(2) the markets in which firms operate and risks to consumers posed by activities in those markets;

(3) depository institutions that offer a wide variety of consumer financial products and services;

and (4) non-depository companies that offer one or more consumer financial products or services.

The CFPB's consumer financial laws apply to all banks and include, among other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices.

(2) inability to protect himself in the selection or use of consumer financial products or services;

or (3) reasonable reliance on a covered entity to act in the consumer’s interests.

The CFPB can issue cease and desist orders against banks and other entities that violate consumer financial laws.

The CFPB also may institute a civil action against an entity in violation of federal consumer financial law in order to impose a civil penalty or injunction.

The CFPB focuses on risks to consumers and compliance with federal consumer financial laws, the markets in which firms operate and risks to consumers posed by activities in those markets, depository institutions that offer a wide variety of consumer financial products and services, and non-depository companies that offer one or more consumer financial products or services.

The consumer financial laws administered by the CFPB apply to all banks and include, among other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices.

Abusive acts or practices are defined as those that materially interfere with a consumer’s ability to understand a term or condition of a consumer financial product or service or take unreasonable advantage of a consumer’s lack of financial savvy, inability to protect himself in the selection or use of consumer financial products or services, or reasonable reliance on a covered entity to act in the consumer’s interests.

The CFPB can issue cease and desist orders against banks and other entities that violate Federal consumer financial laws.

The CFPB also may institute a civil action against an entity in violation of those consumer financial laws in order to impose a civil penalty or injunction.

Interchange Fees .

The Bank is subject to limitations on interchange fees under the Durbin Amendment.

The Bank is subject to limitations on interchange fees under the Durbin Amendment to the Dodd-Frank Act (the "Durbin Amendment").

The Durbin Amendment rules establish a maximum permissible interchange fee for an electronic debt transaction equal to the sum of $0.21 per transaction and five basis points multiplied by the value of the transaction.

The rules also allow for

an upward adjustment of no more than $0.01 to an issuer’s debit card interchange fee if the issuer develops and implements policies and procedures reasonably designed to achieve certain fraud-prevention standards.

The rules also allow for an upward adjustment of no more than $0.01 to an issuer’s debit card interchange fee if the issuer develops and implements policies and procedures reasonably designed to achieve certain fraud-prevention standards.

FDIC Insurance

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Premium rates generally may increase if the DIF is strained due to the cost of bank failures and the number of troubled banks.

In addition, if a bank experiences financial distress or operates in an unsafe or unsound manner, its deposit premiums may increase.

In addition, if a bank experiences financial distress, operates in an unsafe or unsound manner, or is subject to a regulatory agreement or order, its deposit premiums may increase.

The Dodd-Frank Act made banks with $10 billion or more in total assets responsible for increasing the DIF reserve ratio from 1.15% to 1.35% if necessary.

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In December 2023, the FDIC approved a final rule implementing a special assessment to replenish the DIF reserve ratio.

The special assessment will be collected at a quarterly rate of 3.36 basis points for a projected total of eight quarters.

The assessment will be applied to an institution's estimated uninsured deposits as of December 31, 2022, adjusted to exclude the first $5 billion of uninsured deposits.

The Bank's estimated uninsured deposits as of the measurement date were $3.5 billion.

Based upon the terms of the special assessment, the Bank was not required to pay at the increased assessment rate.

Legislative and Regulatory Guidance and Developments

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Additionally, management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption, and maintenance of the institution’s operations after a cyber-attack involving destructive malware.

A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack.

A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if

the institution or its critical service providers fall victim to this type of cyber-attack.

The Company has multiple information security programs that reflect the requirements of this guidance.

If, however, we fail to observe the regulatory guidance in the future, we could be subject to various regulatory sanctions, including financial penalties.

In October 2016, the federal banking regulators jointly issued an advance notice of proposed rule making on enhanced cyber risk management standards that is intended to increase the operational resilience of large and interconnected entities under their supervision.The advance notice addressed five categories of cyber standards:

(1) cyber risk governance;

(2) cyber risk management;

(3) internal dependency management;

(4) external dependency management;

and (5) incident response, cyber resilience, and situational awareness.

In May 2019, the Federal Reserve announced that it would revisit the advance notice of proposed rule making in the future.

In December 2020, the federal banking agencies issued a notice of proposed rule making that would require banking organizations to notify their primary regulators within 36 hours of becoming aware of a “computer-security incident” or a “notification incident.” The notice also would require specific and immediate notifications by bank service providers that become aware of similar incidents.

In November 2021, the federal banking regulators adopted a regulation that, among other things, requires a banking organization to notify its primary federal regulators as soon as possible and within 36 hours after identifying a “computer-security incident” that the banking organization believes in good faith is reasonably likely to materially disrupt or degrade its business or operations in a manner that would, among other things, jeopardize the viability of its operations, result in customers being unable to access their deposit and other accounts, result in a material loss of revenue, profit or stock price, or pose a threat to the financial stability of the U.S.

In July, 2023, the SEC adopted new cybersecurity disclosure rules for public companies that require disclosure regarding cybersecurity risk management (including the role of the Board in overseeing cybersecurity risks, management’s role and expertise in assessing and managing cybersecurity risks, and processes for assessing, identifying and managing cybersecurity risks) in annual reports.

These new cybersecurity disclosure rules also require the disclosure of material cybersecurity incidents in a Form 8-K, generally within four days of determining an incident is material.

Refer to Item 1A, “Risk Factors,” and Item 1C, "Cybersecurity," for additional disclosures related to cybersecurity.

In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data.

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Notwithstanding the strength of our defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures.

While to date we have not detected a significant compromise, the risks of significant data loss or any material financial losses related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of internet banking, mobile banking, and other technology-based products and services used by us and our customers.

Additional discussion of our cybersecurity risk management process and strategy are contained in Item 1C of this Report.

Additional discussion of our cybersecurity risk management process and strategy are contained in Item 1C.

of this Report.

Anti-Money Laundering and the USA Patriot Act.

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Financial institutions must take certain steps to assist government agencies in detecting and preventing money laundering and report certain types of suspicious transactions.

relevant laws or regulations, could have serious financial, legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.

Regulatory authorities routinely examine financial institutions for compliance with these obligations, and failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious financial, legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.

Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.

The AML, which amended the BSA, is intended to be a comprehensive reform and modernization to United States bank secrecy and anti-money laundering laws.

The AML, which amended the BSA, is intended to be a comprehensive reform and modernization of the United States bank secrecy and anti-money laundering laws.

Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions;

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The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals, and others which are administered by OFAC.

Failure to comply with these sanctions could have serious legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.

Failure to comply with these sanctions could have serious legal and reputational consequences, including causing applicable

bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.

Community Reinvestment Act.

The CRA requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practice.

Under the CRA, each depository institution is required to help meet the credit needs of its market areas by, among other things, providing credit to low- and moderate-income individuals and communities.

Depository institutions are periodically examined for compliance with the CRA and are assigned ratings.

In order for a financial holding company to commence any new activity permitted by the BHC Act, or to acquire any company engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the financial holding company must have received a rating of at least “satisfactory” in its most recent examination under the CRA.

Furthermore, banking regulators take into account CRA ratings when considering a request for an approval of a proposed transaction.

The Bank received a rating of “satisfactory” in its most recent CRA examination.

In May 2022, the Federal Reserve released an advanced notice of proposed rule making, seeking public comment on ways to modernize the Federal Reserve’s CRA regulations.

The advanced notice requests feedback on ways to demonstrate how CRA activities qualify for consideration, to evaluate how banks meet the needs of low- and moderate-income communities, and how to address inequities in credit access.

We have and will continue to monitor the Federal Reserve’s proposed changes and evaluate any impact on the Company, which will depend on the final form of any Federal Reserve rule making and cannot be predicted at this time.

In October 2023, the Federal Reserve, FDIC, and OCC issued a final rule to amend their regulations implementing the CRA.

The rule materially revises the current CRA framework, including the assessment areas in which a bank is evaluated to include activities associated with online and mobile banking, the tests used to evaluate the bank in its assessment areas, new methods of calculating credit for lending, investment and service activities, and additional data collection and reporting requirements.

The rule is expected to result in a significant increase in the thresholds for large banks to receive “Outstanding” ratings in the future.

Most of the provisions become applicable on January 1, 2026.

Reporting of the collected data will not be required until 2027.

Incentive Compensation.

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and (3) be supported by strong corporate governance, including active and effective oversight by the financial institution’s board of directors.

The Dodd-Frank Act requires the federal bank regulatory agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities that encourage inappropriate risk-taking by providing an executive officer, employee, director, or principal shareholder with excessive compensation, fees, or benefits, or that could lead to material financial loss to the entity.

The federal bank regulatory agencies issued such proposed rules in 2011 and issued a revised proposed rule in 2016 implementing requirements and prohibitions.

The revised proposed rule would apply to all banks, among other institutions, with at least $1 billion in average total consolidated assets, and would (1) prohibit certain types and features of incentive-based compensation arrangements for senior executive officers;

(2) require incentive-based compensation arrangements to adhere to certain basic principles to avoid a presumption of encouraging inappropriate risk;

(3) require appropriate board or committee oversight;

(4) establish minimum recordkeeping;

and (5) mandate disclosures to the appropriate federal bank regulatory agency.

These proposed rules have not yet been finalized.

As required by the Dodd-Frank Act, U.S.

banking agencies have jointly issued comprehensive regulations or guidance designed to ensure that incentive compensation policies do not undermine the safety and soundness of banking organizations by encouraging teammates to take imprudent risks.

This guidance significantly affects the amount, form, and context of incentive compensation that may be provided to teammates and could negatively affect the Company’s ability to compete for talent relative to non-banking companies.

The SEC finalized its incentive compensation clawback rule which may result in additional costs and restrictions on the form of the Company’s incentive compensation.

Federal Securities Laws.

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The SEC and NASDAQ have adopted regulations under the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act that apply to the Company as a NASDAQ-traded, public company, which seek to improve corporate governance, provide enhanced penalties for financial reporting improprieties and improve the reliability of disclosures in SEC filings.

Climate-Related Risk Management and Regulation

In recent years the federal banking agencies have increased their focus on climate-related risks impacting the operations of banks, the communities they serve and the broader financial system.

Accordingly, the agencies have begun to enhance their supervisory expectations regarding the climate risk management practices of larger banking organizations.

On October 24, 2023, the OCC, the FDIC and the Federal Reserve jointly finalized principles for climate-related financial risk management for national banks with more than $100 billion in total assets.

Although these risk management principles do not apply to the Bank directly based upon our current size, regulators indicated that all banks, regardless of their size, may have material exposures to climate-related financial and other risks that require prudent management.

As climate-related supervisory guidance is formalized, and relevant risk areas and corresponding control expectations are further refined, we may be required to expend significant capital and incur compliance, operating, maintenance and remediation costs in order to conform to such requirements.

Additionally, in March of 2022, the SEC proposed new climate-related disclosure rules, the Proposed Rules for The Enhancement and Standardization of the Climate-Related Disclosure for Investors File No.

If adopted as expected, the rules would require new climate-related disclosures in SEC filings and audited financial statements, including certain climate-related metrics and GHG emissions data, information about climate-related targets and goals, transition plans, if any, and attestation requirements.

Digital Asset Regulation

The federal banking agencies have issued interpretive guidance and statements regarding the engagement by banking organizations in certain digital asset activities.

In August 2022, the Federal Reserve released supervisory guidance encouraging each banking organization supervised by the agency to notify its lead supervisory point of contact at the Federal Reserve prior to engaging in any digital asset-related activity.

Prior to engaging in any such activities, banking organizations are expected to ensure their proposed activities are legally permissible under relevant state and federal laws, and ensure they have implemented adequate systems, risk management, and internal controls to ensure that the activities are conducted in a safe and sound manner consistent with applicable laws, including consumer protection laws.

On January 3, 2023, the federal banking agencies issued additional guidance in the form of a joint statement addressing digital asset-related risks to banking organizations.

That statement noted the recent volatility and exposure of vulnerabilities in the digital asset sector and indicated that the agencies are continuing to assess whether or how the digital asset-related activities of banking organizations can be conducted in a safe and sound manner and in compliance with all applicable laws and regulations.

The statement stressed that each agency has developed, and expects banking organizations to follow, supervisory processes for evaluating proposed and existing digital asset activities.

On February 23, 2023, the federal banking agencies issued a joint statement addressing liquidity risks to banking organizations resulting from crypto-asset market vulnerabilities.

The joint statement noted that deposits placed by a crypto-asset-related entity and deposits that constitute stablecoin-related reserves may pose heightened liquidity risks to banking organizations due to the unpredictability of the scale and timing of deposit inflows and outflows.

The statement stressed that banking organizations should establish and maintain effective risk management and controls commensurate with the level of liquidity risks from such funding sources.

Although the federal banking agencies have not developed formal regulations governing the digital asset activities of banking organizations, the supervisory framework summarized above dictates that, in order to effectively identify and manage digital asset-related risks and obtain supervisory non-objection to the proposed engagement in digital asset activities, banking organizations must implement appropriate risk management practices, including with respect to board and management oversight, policies and procedures, risk assessments, internal controls and monitoring.

Although the federal banking agencies have not developed formal regulations governing the digital asset activities of banking organizations, the supervisory framework dictates that, in order to effectively identify and manage digital asset-related risks and obtain supervisory non-objection to the proposed engagement in digital asset activities, banking organizations must implement appropriate risk management practices, including with respect to board and management oversight, policies and procedures, risk assessments, internal controls and monitoring.

Future Legislation and Regulation

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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 1. Business