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Item 1A. Risk Factors

2026-02-25 compared with 2025-02-26 · 57 added, 80 removed, 211 unchanged (39% of the section changed)

In addition to other information contained in this Report that may affect us, the risk factors described below, as well as any cautionary language in this Report, provide examples of risks, uncertainties, and events that could have a material adverse effect on our business, including our operating results and financial condition.

In addition to other information contained in this Report that may affect us, the risk factors summarized below, as well as any cautionary language in this Report, provide examples of the most significant risks, uncertainties, and events that could have a material adverse effect on our business, including our operating results and financial condition.

In addition to the risks and uncertainties described below, other risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially or adversely affect our business, financial condition, and results of operations.

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In particular, interest rates are highly sensitive to many factors that are beyond our control, including global, domestic and local economic conditions and the policies of various governmental and regulatory agencies and, specifically, the Federal Reserve.

Throughout 2022 and 2023, the FOMC raised the target range for the federal funds rate on eleven separate occasions.

Beginning in September 2024, the FOMC began to lower the target range for the federal funds rate.

Throughout 2022 and 2023, the FOMC raised the target range for the federal funds rate.

During 2024 and 2025, the FOMC lowered the target range for the federal funds rate.

As of December 31, 2025, the target range was 3.50% to 3.75%.

In January 2025, the FOMC maintained the target range for the federal funds rate.

Although economic forecasts vary, the FOMC has indicated an expectation of two 25 basis point rate cuts during 2025.

Some economists are projecting that, due to changes in fiscal and economic policies, including tariffs, US economic activity may slow or decrease in 2025.

Economic weakness or persistent inflation could lead to decreased business and consumer confidence and weaker-than-anticipated spending, thereby leading to possible adverse impacts to our business including asset quality, deposit levels, loan demand and results of operations.

We also face credit risk arising from economic and geopolitical conditions, among other forms of risk.

Although economic forecasts vary, the FOMC has indicated an expectation of one 25 basis point rate cut during 2026.

Economic forecasts include a mix of positive and negative factors concerning unemployment, inflation, real estate values and other components.

Economic weakness, increased unemployment, or persistent inflation could lead to decreased business and consumer confidence and weaker-than-anticipated spending, thereby leading to possible adverse impacts to our business including asset quality, deposit levels, loan demand and results of operations.

We also face credit risk arising from economic and geopolitical conditions, among other forms of risk, that our customers will not repay their loans.

As we have a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral, which, in turn, can adversely affect the value of our loan and investment portfolios.

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Some economic indicators suggest that CRE prices remain high relative to fundamentals and US market delinquency rates are elevated.

Credit performance over is susceptible to economic and market forces.

Credit performance is susceptible to economic and market forces.

Instability and uncertainty in the commercial and residential real estate markets, as well as in the broader commercial and retail credit markets, could have a material adverse effect on our financial condition and results of operations.

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We offer a variety of loan products, including residential mortgage, consumer, construction, and commercial loans, with a majority of our portfolio consisting of commercial and industrial loans and commercial loans secured by commercial real estate.

Most of our commercial business and commercial real estate loans are made to small business or middle-market customers.

Most of our commercial business and CRE loans are made to small business or middle-market customers.

These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions.

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Future growth or acquisitions of banks with a portfolio composition different from ours could cause our portfolio mix to change.

Lending generally involves various degrees of risk pending on the facts and circumstances of the loan and borrower.

If general economic conditions in the market areas in which we operate negatively impact this customer sector, our results of operations and financial condition may be adversely affected.

Further, the deterioration of borrowers' businesses may hinder their ability to repay their loans with the Company, which could have a material adverse effect on our financial condition and results of operations.

Lending generally involves various degrees of risk depending on the facts and circumstances of the loan and borrower.

If general economic conditions in the market areas in which we operate negatively impact our customers, our results of operations and financial condition may be adversely affected.

Further, the deterioration of borrowers' businesses (from a variety of factors including, but not limited to:

tariff impact, government policy change, change in end customer behavior, etc.) may hinder their ability to repay their loans with the Company, which could have a material adverse effect on our financial condition and results of operations.

Risk of loan defaults is unavoidable in the banking industry.

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Our ACL may not be adequate to cover actual losses.

CECL requires that credit deterioration is reflected in the income statement in the period of origination or acquisition of a loan, with changes in expected credit losses due to further credit deterioration or improvement reflected in the periods in which the expectation changes.

CECL requires that estimated credit losses are reflected in the income statement in the period of origination or acquisition of a loan, with changes in expected credit losses due to further credit deterioration or improvement reflected in the periods in which the expectation changes.

CECL also requires significant management judgment that is supported by models, assumptions, and data elements which may be subjective in nature or, as in the case of macroeconomic forecasts, be volatile from period to period.

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and (iii) the average duration of our mortgage portfolio and other interest-earning assets.

In January 2022, due to elevated levels of inflation and corresponding pressure to raise interest rates, the Federal Reserve announced after several periods of historically low federal funds rates and yields on Treasury notes that it would be slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time.

Therefore, the FOMC increased the target range eleven times throughout 2022 and 2023.

In the latter months of 2024, due to lower, more consistent inflation levels, the Federal Reserve lowered its federal funds target rate by 100 basis points.

December 31, 2024, the target range for the federal funds rate was 4.25% - 4.50%.

It remains uncertain whether then FOMC will further decrease the federal funds rate to attain a monetary policy appropriate to keep inflation at normalized levels, leave the rate at its current level for a lengthy period of time or if it will resume increasing the target range.

Throughout 2022 and 2023, the FOMC raised the target range for the federal funds rate.

During 2024 and 2025, the FOMC lowered the target range for the federal funds rate.

As of December 31, 2025, the target range was 3.50% to 3.75%.

Additionally, other interest rates may not move in a consistent manner with the federal

Although not necessarily expected in 2026, if the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, would generally be adversely affected.

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Moreover, obtaining adequate funding to meet our deposit obligations may be more challenging during periods of elevated prevailing interest rates, such as the present period.

Our ability to attract depositors during a time of actual or perceived distress or instability in the

marketplace may be limited.

Our ability to attract depositors during a time of actual or perceived distress or instability in the marketplace may be limited.

Further, interest rates paid for borrowings generally exceed the interest rates paid on deposits.

This spread may be exacerbated by higher prevailing interest rates.

In addition, because our AFS investment securities lose value when interest rates rise, after-tax proceeds resulting from the sale of such assets may be diminished during periods when interest rates are elevated.

In addition, because our AFS investment securities lose value when interest rates rise, after-tax proceeds resulting from the sale of such assets

may be diminished during periods when interest rates are elevated.

For additional information regarding uninsured deposits and liquidity, see Deposits and Liquidity sections of 2025 MD&A Item 7 following.

Cybersecurity incidents or other disruptions of communications or information systems could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.

A failure in or breach of our operational or security systems, or those of our vendors, could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.

Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to information technology systems to sophisticated and targeted measures, known as advanced persistent threats, directed at us and/or our third party service providers.

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In addition, we cannot guarantee that any costs and liabilities incurred in relation to an attack or incident will be covered by our existing insurance policies or that applicable insurance will be available to us in the future on economically reasonable terms or at all.

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

As a financial institution, our operations rely heavily on the secure data processing, storage and transmission of confidential and other information to conduct our business.

Our daily operations depend on the operational effectiveness of our technology.

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We rely on certain external vendors.

We are reliant upon certain external vendors to provide products and services necessary to maintain our day-to-day operations.

We outsource the processing of our core data system, as well as other systems such as online banking, to third party vendors.

We are reliant upon certain external vendors to provide products and services necessary to facilitate our day-to-day operations, including core data processing and other systems such as online banking.

Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with applicable contractual arrangements or service level agreements.

Our vendors could also be the source of an attack on, or breach of, our operational systems.

Any failures, interruptions, or security breaches, or any perception that our security measures are deficient, could negatively impact our operations.

We maintain a system of policies and procedures designed to monitor vendor risks including, among other things, changes in the vendor’s organizational structure, financial condition, and support for existing products and services.

could be disruptive to our operations, which could have a material adverse impact on our business and its financial condition and results of operations.

Additionally, if our third party vendors encounter difficulties or if we have difficulty in communicating with such third party, it will significantly affect our ability to adequately process and account for customer transactions, which would significantly affect our business operations.

Information security risks for financial institutions continue to increase in part because of new technologies, the increased use of the internet and telecommunications technologies (including mobile devices and cloud computing) to conduct financial and other business transactions, political activism, and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists and others.

We rely on computer systems, hardware, software, technology infrastructure and online sites and networks for both internal and external operations that are critical to our business.

Operational risk related to cyberattacks is increasing as cyberattacks evolve and have a greater and more pervasive economic impact.

In addition to cyberattacks or other security breaches involving the theft of sensitive and confidential information, hackers have engaged in attacks against financial institutions designed to disrupt key business services, such as customer-facing web sites.

Critical infrastructure sectors, including financial services, increasingly have been the targets of cyberattacks, including attacks emanating from foreign countries.

Cyberattacks involving financial institutions, including distributed denial of service attacks designed to disrupt external customer-facing services, nation state cyberattacks and ransomware attacks designed to deny organizations access to key internal resources or systems or other critical data, as well as targeted social engineering and phishing email and text message attacks designed to allow unauthorized persons to obtain access to an institution’s information systems and data or that of its customers, are becoming more common and increasingly sophisticated.

Further, threat actors are increasingly seeking to target vulnerabilities in software systems (including bugs, vulnerabilities in third-party systems or software and technical misconfigurations in hardware and software) and weak authentication controls used by large numbers of banking organizations in order to conduct malicious cyber activities.

These types of attacks have resulted in increased supply chain and third-party risk.

Because the methods of cyberattacks change frequently or, in some cases, are not recognized until launch, we are not able to anticipate or implement effective preventive measures against all possible security breaches and the probability of a successful attack cannot be predicted.

Although we employ detection and response mechanisms designed to contain and mitigate security incidents, early detection may be thwarted by persistent sophisticated attacks and malware designed to avoid detection.

Our inability to prevent, detect, and respond to cyberattacks may lead to reputational damage, litigation with third parties, and increased cybersecurity protection and remediation costs, which in turn could materially adversely affect our results of operations.

While we believe these policies and procedures help to mitigate risk, and our vendors are not the sole source of service, the failure of an external vendor to perform in accordance with applicable contractual arrangements or the service level agreements could be disruptive to our operations, which could have a material adverse impact on our business and its financial condition and results of

Additionally, if our third party vendors encounter difficulties or if we have difficulty in communicating with such third parties, it will significantly affect our ability to adequately process and account for customer transactions, which would significantly affect our business operations, damage our reputation, result in a loss of customer business, result in a violation of privacy or other laws, and expose us to civil litigation, enforcement actions by governmental agencies, regulatory fine or other damages or losses, including those not covered by insurance.

In the normal course of business, we process large volumes of transactions involving millions of dollars.

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Procedures exist that are designed to ensure that policies relating to conduct, ethics, and business practices are followed.

We continually monitor and improve our internal controls, data

processing systems, and corporate-wide processes and procedures, but there can be no assurance that future losses will not occur.

We continually monitor and improve our internal controls, data processing systems, and corporate-wide processes and procedures, but there can be no assurance that future losses will not occur.

We are subject to extensive regulation, which could have an adverse effect on our operations.

The Bank is subject to extensive regulation and supervision by the Commissioner and the Federal Reserve.

This regulation and supervision is intended primarily to enhance the safe and sound operation of the Bank and for the protection of the DIF and our depositors and borrowers, rather than for holders of our equity securities and creditors.

In the past, our business has been materially affected by these regulations.

The Bank is subject to extensive regulation, examination, and supervision by various federal and state regulatory agencies, including the Commissioner and the Federal Reserve.

This regulation, examination, and supervision is intended primarily to enhance the safe and sound operation of the Bank and for the protection of the DIF and our depositors and borrowers, rather than for holders of our equity securities and creditors.

In the past, our business has been materially affected by these regulations and our compliance with these regulations is costly.

Should we fail to comply with our regulatory requirements, federal and state regulators could impose restrictions on our activities, which could materially and adversely affect our operations and financial condition.

This trend is likely to continue in the future.

Laws and regulations applicable to the banking industry change frequently and may continue to change, and we cannot predict the effects of any such changes.

Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on operations, the classification of our assets, and the determination of the level of ACL.

Changes in the regulations that apply to us, or changes in our compliance with regulations, could have a material impact on our operations.

The BSA, the Patriot Act, and other laws and regulations require financial institutions, among other duties, to institute and maintain effective anti-money laundering programs and file suspicious activity and currency transaction reports as appropriate.

The FINCEN, established by the Treasury to administer the BSA, is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as with the U.S.

Department of Justice, Drug Enforcement Administration, and Internal Revenue Service.

There is also increased scrutiny of compliance with the rules enforced by the OFAC.

Federal and state bank regulators also focus on compliance with BSA and AML regulations.

If our policies, procedures, and systems are deemed deficient or the policies, procedures, and systems of the financial institutions that we have already acquired or may acquire in the future are deficient, we would be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans, which would negatively impact our business, financial condition, and results of operations.

Failure to maintain and implement adequate programs to combat money laundering and terrorist financing also could have serious reputational consequences for us.

Federal and state fair lending laws and regulations, such as the Equal Credit Opportunity Act and the Fair Housing Act, impose nondiscriminatory lending requirements on financial institutions.

The Department of Justice, the CFPB, and other federal and state agencies are responsible for enforcing these laws and regulations.

Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation.

A successful challenge to our performance under the fair lending laws and regulations could adversely impact our CRA rating and result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on or delays in approving merger and acquisition activity, and restrictions on expansion activity, which could negatively impact our reputation, business, financial condition, and results of operations.

We are subject to complex and ever-changing laws and regulations governing the privacy and security of personal information concerning our customers, prospective, current, and former customers, and employees.

These federal and state laws and regulations govern our obligations in the event of a security breach, breach of personal information, computer-security incident, and similar events.

States have been actively passing new privacy laws, and this trend is likely to continue such that the privacy and security laws and regulations that may apply to us will continue to grow and change.

We might be required to raise additional capital in the future, but that capital may not be available or may not be available on terms acceptable to us when it is needed.

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Consumers may decide not to use banks or specifically our Company to complete their financial transactions.

The banking industry is highly competitive.

Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks.

For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds, or general-purpose reloadable prepaid cards.

For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds, or general-purpose reloadable prepaid cards, or digital assets such as stablecoins, rather than in bank deposit accounts.

Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks.

The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those

To the extent that other banks offer products or services that facilitate the minting or issuance of stablecoins backed by customer deposits, customers may convert bank deposits into stablecoins, which could accelerate deposit outflows, increase deposit volatility and heighten liquidity risk, particularly during periods of market stress.

The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

Additionally, we face substantial competition in all areas of our operations from a variety of different competitors, both within and beyond our principal markets, many of which are larger and may have more financial resources.

Such competitors primarily include national, regional, and internet banks within the various markets in which we operate.

Such competitors primarily include national, regional, and online banks within the various markets in which we operate.

We also face competition from many other types of financial institutions, including, without limitation, thrifts, credit unions, finance companies, brokerage firms, insurance companies, and other financial intermediaries, such as online lenders and banks.

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Banks, securities firms, and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting), and merchant banking.

Many of our competitors have fewer regulatory constraints and may have lower cost structures.

Many of our non-bank competitors have fewer regulatory constraints and may have lower cost structures.

Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can.

Our ability to compete successfully depends on a number of factors, including, among other things:

• the ability to develop, maintain, and build upon long-term customer relationships based on top quality service, high ethical standards, and safe, sound assets;

• the ability to expand our market position;

• our ability to develop, maintain, and build upon long-term customer relationships based on top quality service, high ethical standards, and safe, sound assets;

• our ability to expand our market position;

• the scope, relevance, and pricing of products and services offered to meet customer needs and demands;

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• industry and general economic trends;

• the ability to keep pace with technological change and to invest in technological improvements to meet customer demand and create operational efficiencies.

Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations.

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Defaults by, or even rumors or questions about one or more financials institutions can lead to market-wide liquidity challenges and could lead to losses or defaults by us or by other institutions.

Failure to keep pace with technological change could adversely affect our business.

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

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

Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations.

Many of our competitors have substantially greater resources to invest in technological improvements.

We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.

Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.

New lines of business or new products and services may subject us to additional risk.

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Competition for the best people can be intense, and we may not be able to hire or retain sufficiently qualified people.

The unexpected loss of services of one or more of our key personnel could have a material adverse impact on our business because of their skills, knowledge of our markets, years of industry experience, and/or the difficulty of promptly finding qualified replacement personnel.

qualified replacement personnel.

The loss of business if the customers were to follow that employee to a competitor or otherwise choose to transition to another financial services provider could adversely impact our business.

While we believe we have strong relationships with our key personnel, there is no guarantee that all of our key personnel will remain with our organization.

We may be adversely affected by risks associated with potential and completed acquisitions.

We may be adversely affected by risks associated with potential or completed acquisitions.

As part of our growth strategy, we regularly evaluate merger and acquisition opportunities and conduct due diligence activities related to possible transactions with other financial institutions and financial services companies.

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• Incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, and with integrating acquired businesses, resulting in the diversion of resources from the operation of our existing businesses;

• Acquisitions may also be subject to various regulatory approvals.

• Acquisitions typically are subject to various regulatory approvals.

If we fail to receive the appropriate regulatory approvals, we will not be able to consummate acquisitions that we believe are in our best interests;

• Difficulty in estimating the value of target companies or assets and in evaluating credit, operations, management, and market risks associated with those companies or assets;

• Payment of a premium over book and market values that may dilute our tangible book value and earnings per share in the short and long term;

• Potential exposure to unknown or contingent liabilities of the target company, including, without limitation, liabilities for regulatory and compliance issues;

• Payment of a premium over tangible book and market values that may dilute our tangible book value and earnings per share in the short and long term;

• Potential exposure to unknown or contingent liabilities of the target company, including, without limitation, liabilities for regulatory and compliance issues and from potential litigation;

• Exposure to potential asset quality issues of the target company;

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In deciding whether to extend credit or to enter into other transactions with clients and counterparties, we may rely on information furnished to us by or on behalf of clients and counterparties, including financial statements and other financial information, which we do not independently verify.

We also may rely on representations of clients and

counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors.

We also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors.

Our financial condition and results of operations could be negatively affected to the extent we rely on financial statements that do not comply with GAAP or are materially misleading, any of which could be caused by errors, omissions, or fraudulent behavior by our employees, clients, counterparties, or other third parties.

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We may issue additional shares of stock or equity derivative securities that will dilute the percentage ownership interest of existing shareholders and may dilute the book value per share of our common stock and adversely affect the terms on which we may obtain additional capital.

Subject to applicable NASDAQ rules, our Board generally has the authority, without action by or vote of the shareholders, to issue all or part of any authorized but unissued shares of stock for any corporate purpose, including issuances of equity-based incentives under or outside of our equity compensation plans, issuances of equity in business combination transactions, and issuances of equity to raise additional capital to support growth or to otherwise strengthen our balance sheet.

Any issuance of additional shares of stock or equity derivative securities will dilute the percentage ownership interest of our shareholders and may dilute the book value per share of our common stock.

Subject to applicable NASDAQ rules, our Board generally has the authority, without action by or vote of the shareholders, to issue all or part of any authorized but unissued shares of stock for any corporate purpose, including issuances of equity-based incentives under or outside of our Capital compensation plans, issuances of equity in business combination transactions, and issuances of equity to raise additional capital to support growth or to otherwise strengthen our balance sheet.

Any issuance of additional shares of stock or equity derivative securities will dilute the percentage ownership interest of our shareholders and may dilute the tangible book value per share of our common stock.

We may make future acquisitions, which could dilute current shareholders’ stock ownership and expose us to additional risks.

In accordance with our strategic plan, we evaluate opportunities to acquire other financial institutions, financial services companies and branch locations.

Such transactions could have a material effect on our operating results and financial condition, including short- and long-term liquidity, and could require us to issue a significant number of

shares of common stock or other securities and/or to use a substantial amount of cash, other liquid assets, and/or incur debt.

Such transactions could have a material effect on our operating results and financial condition, including short- and long-term liquidity, and could require us to issue a significant number of shares of common stock or other securities and/or to use a substantial amount of cash, other liquid assets, and/or incur debt.

Our acquisition activities could involve a number of additional risks, some of which are described in more detail elsewhere in this Report and include:

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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