What changed in this filing

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Item 1A. Risk Factors

2026-03-06 compared with 2025-03-07 · 67 added, 18 removed, 163 unchanged (34% of the section changed)

1 unchanged sentence

Risk Factors Relating to the Financial Services Industry

Pressures from various global and national macroeconomic events, including heightened inflation, uncertainty regarding future interest rates, foreign currency exchange rate fluctuations, recent adverse weather conditions and natural disasters, ongoing conflict in the Middle East, the continuation of the Russia-Ukraine war, and potential governmental responses to these events have created, and continue to create, significant economic uncertainty and

could materially and adversely impact our financial condition and performance.

In addition, pursuit of various initiatives announced by the new Trump administration may create some degree of volatility in our customers’ businesses, regulation of the financial services industry, and the markets in which we operate.

In addition, pursuit of new initiatives announced by the Trump administration may create some degree of volatility in our customers’ businesses, regulation of the financial services industry, and the markets in which we operate.

The extent to which these macroeconomic pressures may impact our business, results of operations, asset valuations, financial condition, and customers will depend on future developments, which continue to be highly uncertain and difficult to predict.

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Financial services institutions are interrelated as a result of trading, clearing, counterparty and other relationships.

We have exposure to many different industries and counterparties, and we routinely execute

transactions with counterparties in the financial industry.

We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial industry.

As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, can lead to market-wide liquidity problems and losses or defaults by us or by other institutions.

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The impact of any future legislation or regulatory actions on our businesses or operations cannot be determined at this time, and such impact may adversely affect us.

It is difficult to predict what impact the new Trump administration will have on these risks.

Any actions by the new administration to scale back regulations or regulatory oversight may become subject to judicial or other challenges, which may increase the degree of uncertainty associated with this risk factor.

It is difficult to predict what impact the Trump administration will have on these risks.

Any actions by the administration to scale back regulations or regulatory oversight may become subject to judicial or other challenges, which may increase the degree of uncertainty associated with this risk factor.

We are subject to liquidity risk in our operations, which could adversely impact our ability to fund various obligations.

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Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, the continuing expansion of internet and mobile banking, and similar factors.

Operational difficulties, including failure of technology infrastructure, could adversely affect our business and operations.

operational errors, including clerical or recordkeeping errors or those resulting from computer or telecommunications systems malfunctions.

Our use of artificial intelligence and machine learning technologies may expose us to regulatory, operational, and competitive risks.

We use artificial intelligence ("AI") and machine learning technologies in certain aspects of our operations.

While these technologies can provide significant benefits, they also present risks that could adversely affect our business.

AI systems may produce inaccurate or biased outputs, which could result in regulatory compliance failures.

The use of AI in lending decisions is subject to increasing regulatory scrutiny, particularly with respect to fair lending requirements under the Equal Credit Opportunity Act and the Fair Housing Act.

Regulators may challenge the use of AI models that produce results that are based upon potential bias, even if such impacts are unintentional.

Additionally, we face competitive pressures from fintech companies and other financial institutions that may be able to deploy AI technologies more aggressively or effectively than we can.

Errors or failures in AI systems could result in operational disruptions, financial losses, reputational harm, or regulatory sanctions.

As AI technology continues to evolve rapidly, there is significant uncertainty regarding future regulatory requirements and industry standards applicable to the use of AI by financial institutions.

The regulatory landscape for AI in banking is still developing, and new regulations or guidance could require us to modify or discontinue certain uses of AI, incur significant compliance costs, or face enforcement actions.

A significant portion of our deposits are uninsured, which could result in funding pressures and liquidity constraints during times of financial stress.

A portion of our deposits exceeds the $250,000 FDIC insurance limit.

As of December 31, 2025, our estimated uninsured deposits totaled approximately $1.176 billion, representing approximately 24.8% of our total deposits.

Uninsured deposits may be more likely to be withdrawn during times of financial stress, which could result in funding pressures and liquidity constraints.

In 2023, the failures of Silicon Valley Bank and Signature Bank highlighted the risks associated with high concentrations of uninsured deposits, as rapid deposit withdrawals contributed to those institutions' failures.

We believe our depositor base is relatively diversified, and we take steps to manage uninsured deposit risk, including monitoring deposit concentrations, diversifying funding sources, and maintaining access to contingent liquidity facilities.

However, there can be no assurance these measures will be effective in preventing deposit outflows during periods of market stress.

A significant loss of deposits could require us to seek alternative funding sources, which may be more expensive or unavailable on acceptable terms, and could adversely affect our liquidity, financial condition, and results of operations.

Our concentration in commercial real estate loans exposes us to increased credit risk and regulatory scrutiny.

As of December 31, 2025, our loans secured by commercial real estate (CRE) totaled approximately $1.055 billion representing approximately 24.7% of our total loan portfolio.

The commercial real estate market has experienced increased stress with higher interest rates and changes in tenant demand adversely affecting property values and cash flows in certain segments of the CRE market.

Regulatory agencies have increased their scrutiny of CRE lending concentrations, particularly with respect to office properties and other property types experiencing elevated stress.

An extended period of stress in the commercial real estate market could result in increased loan delinquencies, higher credit losses, and reduced collateral values, which could adversely affect our financial condition and results of operations.

We actively monitor our CRE portfolio and underwriting standards;

however, there can be no assurance that these measures will be sufficient to avoid losses.

We rely on third-party service providers for critical business functions, which exposes us to operational, cybersecurity, and regulatory risks.

We rely on third-party service providers for significant components of our business operations, including core data processing systems, payment processing, cybersecurity monitoring, and other critical functions.

Our core data processing systems are largely outsourced to third-party providers.

This reliance on third parties creates concentration risk, as disruptions to our key service providers' operations, financial condition, or security could directly impact our ability to serve customers and conduct business.

Cybersecurity incidents affecting our third-party vendors could result in unauthorized access to customer data, operational disruptions, and regulatory liability.

In addition, our third-party providers may fail to comply with applicable laws and regulations, which could expose us to regulatory sanctions and reputational harm.

Contract negotiations with critical vendors may result in unfavorable terms, and we may have limited ability to switch providers without significant cost and operational disruption.

Regulatory agencies increasingly scrutinize financial institutions' third-party risk management practices, and we may face increased compliance costs and regulatory expectations in this area.

Failure to effectively manage third-party risks could adversely affect our business, financial condition, and results of operations.

Operational difficulties, including failure of technology infrastructure and the increasing occurrence and sophistication of attempts at fraudulent activity, could adversely affect our business and operations.

We are exposed to many types of operational risk, including reputational risk, legal and compliance risk, the risk of fraud or theft by employees or outsiders, failure of our controls and procedures and unauthorized transactions by employees or operational errors, including clerical or recordkeeping errors or those resulting from computer or telecommunications systems malfunctions.

Given the high volume of transactions we process, certain errors may be repeated or compounded before they are identified and resolved.

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Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems.

The financial services industry is also experiencing a rapid increase in the frequency and sophistication of fraudulent attacks, driven by the proliferation of AI-powered tools, deepfake technology, and organized, transnational crime rings.

We are subject to evolving, complex threats designed to bypass traditional security controls.

Our failure to successfully anticipate or mitigate these evolving schemes could lead to increased financial losses, higher operational costs, regulatory penalties, and significant reputational damage.

We also face the risk of operational disruption, failure or capacity constraints due to our dependency on third party vendors for components of our business infrastructure, including our core data processing systems which are largely outsourced.

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Prevailing economic conditions;

the trade, fiscal and monetary policies of the federal government, which have the potential to change significantly with the new Trump administration;

the trade, fiscal and monetary policies of the federal government, which have the potential to change significantly with the Trump administration;

and the policies of various regulatory agencies all affect market rates of interest and the availability and cost of credit, which in turn significantly affect financial institutions' net interest income.

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Our allowance for credit losses coverage ratio of non-performing loans was 274.33% and 989.32% at December 31, 2025, and December 31, 2024, respectively.

The decrease in this coverage ratio in 2024 was primarily due to an increase in non-performing loans that was partially offset by an increase in the allowance for credit losses.

The decrease in this coverage ratio in 2025 was primarily due to an increase in commercial non-performing loans that was partially offset by an increase in the allowance for credit losses.

In determining the size of the allowance for credit losses, we rely on our experience and our evaluation of current economic conditions.

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We believe these unrealized losses are temporary in nature and are expected to be recovered within a reasonable time period as we believe we have the ability to hold the securities to maturity or until such time as the unrealized losses reverse.

We evaluate securities available for sale for other impairment related to credit at least quarterly and more frequently when economic or market concerns warrant such evaluation.

We evaluate securities available for sale for impairment related to credit losses at least quarterly and more frequently when economic or market concerns warrant such evaluation.

Those evaluations may result in a provision for credit losses recorded in our earnings.

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We realized net gains of $6.8 million on mortgage loans during 2025 compared to $6.6 million during 2024 and $7.4 million during 2023.

An adverse outcome in certain overdraft fee litigation that has been brought against the bank could have a material adverse effect on our results of operations.

We are currently a defendant in three putative class action lawsuits challenging aspects of our overdraft and/or insufficient funds fee practices, including allegations that fees were assessed in circumstances where transactions were authorized on a positive balance but later settled against a negative balance and/or that multiple fees were charged on re-presented items.

For additional information, please see Note 11 – Commitments and Contingent Liabilities in the Notes to Consolidated Financial Statements in our annual report, to be delivered to shareholders in connection with the April 21, 2026 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K) for more information.

An adverse outcome in any of these matters, through judgment or settlement, could result in monetary damages, restitution, remedial relief requiring changes to our products, disclosures, and systems, and an increase in legal and compliance costs, any of which could be material to our results of operations.

Similar lawsuits against other financial institutions nationwide have resulted in substantial settlements, and plaintiffs’ firms continue to actively pursue these claims.

Recent public settlements in overdraft-related litigation include payments by multiple institutions, reflecting the potential exposure in this area.

Our parent company must rely on dividends or returns of capital from our bank for most of its cash flow.

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These matters could have an adverse effect on us for an undetermined period.

We will be subject to similar risks and difficulties in connection with any future decisions to downsize, sell or close units or otherwise change our business mix.

We will be subject to similar

risks and difficulties in connection with any future decisions to downsize, sell or close units or otherwise change our business mix.

Compliance with capital requirements may adversely affect us.

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We may not be able to effectively develop or offer new technology-driven products and services or be successful in marketing or supporting these products and services to our customers, which could have a material adverse impact on our financial condition and results of operations.

Emerging digital assets and technologies may disrupt our business and adversely affect our results.

Rapid innovation in financial technology - including stablecoins and other digital assets, distributed ledger technologies, real‑time payment networks, embedded banking, and artificial intelligence - may change how consumers and businesses store value, make payments, access credit, and obtain financial services.

These innovations could reduce our deposits (e.g., if customers hold value in stablecoins rather than bank accounts), compress or eliminate payment‑related and interchange revenues, and increase competition from non‑bank providers and larger technology firms with greater resources and scale.

They may also require significant investments in systems, talent, cybersecurity, vendor oversight, and compliance, and expose us to new operational, fraud, liquidity, Bank Secrecy Act/anti‑money laundering, consumer protection, and third‑party risks.

Legal and regulatory frameworks applicable to digital assets and related activities remain uncertain and may evolve rapidly;

changes could restrict our ability to participate in or provide services to these markets, or increase our compliance costs and potential liabilities.

If we are unable to adapt our products, pricing, and technology in a timely and cost‑effective manner, or if customers migrate to alternative platforms, our growth, funding, net interest margin, fee income, and overall financial condition could be materially and adversely affected.

Competitive product and pricing pressures among financial institutions within our markets may change.

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We compete with large national and regional financial institutions and with smaller financial institutions, including credit unions, in terms of products and pricing.

We also compete with fintech companies, securities brokerage firms, insurance companies, and other non-depository institutions with respect to some of the products and services we offer.

We also compete with fintech companies, securities brokerage firms, insurance companies, and other non-depository institutions with respect to some of

the products and services we offer.

If we are unable to compete effectively in products and pricing in our markets, business could decline, which could have a material adverse effect on our business, financial condition or results of operations.

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Materially different amounts could be reported under different conditions or using different assumptions or estimates.

We have established detailed policies and control procedures that are intended to ensure these critical accounting estimates and judgments are subject to internal controls and applied consistently.

We have established detailed policies and control procedures that are intended to ensure these critical accounting estimates and judgments are subject to internal controls and applied

consistently.

In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner.

Because of the uncertainty surrounding management's judgments and the estimates pertaining to these matters, we cannot guarantee that we will not be required to adjust accounting policies or restate prior

period financial statements.

See note #1, "Accounting Policies" in the Notes to Consolidated Financial Statements in our annual report, to be delivered to shareholders in connection with the April 21, 2026 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K).

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