What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2024-03-01 compared with 2023-03-03 · 66 added, 112 removed, 216 unchanged (45% of the section changed)

7 unchanged sentences

Risks Related to Our Business

The Coronavirus Pandemic has impacted our business, financial condition and results of operations and will continue to have an impact, the scope and duration of which is highly uncertain and dependent on factors that are outside of our control.

For nearly the past three years, the ongoing Coronavirus Pandemic and efforts to control its spread have significantly impacted the movement of people, goods and services worldwide, including in most of or all of the regions in which we offer our services and conduct our business operations.

The pandemic has resulted in, and may continue to or at a later time result in, a global slowdown of economic activity, including travel restrictions, prohibitions of non-essential activities in some cases, disruption and shutdown of businesses and greater uncertainty in global financial markets.

Overall, the ongoing Coronavirus Pandemic has caused a sustained global economic slowdown of varying durations across different industries, and it is possible that it could still cause a global recession.

Deteriorating economic and political conditions caused by the ongoing Coronavirus Pandemic, such as increased unemployment, decreased capital spending, declines in consumer confidence and economic slowdowns or recessions, have caused and could continue to cause a decrease in demand for our products and services.

The severity, magnitude and duration of the ongoing Coronavirus Pandemic is hard to predict due to uncertainty surrounding severity and transmission rates of new variants and rate of public acceptance and efficacy of vaccines and other treatments.

We may not be able to respond to the impacts of the ongoing Coronavirus Pandemic on a timely basis to prevent near- or long-term adverse impacts on our results of operations.

Although the immediate impacts of the Coronavirus Pandemic have been assessed and mitigated, the ultimate extent of the impact of this ongoing pandemic, including as a result of possible subsequent outbreaks of Coronavirus or new variants thereof and measures taken in response therein, will depend on future developments, which remain highly uncertain and cannot currently be predicted.

Any negative impact on our business, financial condition, results of operations and cash flows cannot be reasonably estimated at this time, but the ongoing Coronavirus Pandemic could lead to extended disruption of economic activity and the impact on our business, financial condition, results of operations and cash flows could be material.

Although many health and safety restrictions have been lifted and vaccine distribution has increased, certain adverse consequences of the pandemic continue to impact the macroeconomic environment and may persist for some time.

Given the ongoing dynamic nature of variants of the Coronavirus, it is difficult to predict the full impact of the ongoing Coronavirus Pandemic outbreak on our business.

As the result of the ongoing Coronavirus Pandemic and the related adverse local and national economic consequences, we could be subject to a number of risks, any of which could have a material, adverse effect on our business, financial condition, liquidity and cash flow, results of operations, ability to execute our growth strategy and ability to pay cash dividends.

These risks include, but are not limited to, the following:

Increased loan losses or other impairments in our loan portfolios and increases in our allowance for credit losses,

Collateral for loans, especially real estate, may decline in value, which could cause an increase in loan losses,

Limitations may be placed on our ability to foreclose on properties we hold as collateral,

Our allowance for credit losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which would adversely affect our net income,

The net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us,

FDIC premiums may increase if the agency experiences additional resolution costs,

Litigation arising from our participation in the Small Business Administration’s Paycheck Protection Program,

Unanticipated unavailability of employees,

Increased cybersecurity risks as employees work remotely,

A triggering event leading to impairment testing on our goodwill or core deposit and customer relationships intangibles, which could result in an impairment charge, and

A prolonged weakness in economic conditions resulting in a reduction of future projected earnings could necessitate a valuation allowance against our current outstanding deferred tax assets.

Changes in interest rates may reduce our net interest income, may result in higher defaults in a rising rate environment and may hurt our earnings and asset value.

1 unchanged sentence

Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board.

Since March 2022, in response to inflation, the Federal Open Market Committee (“FOMC”) of the Federal Reserve has significantly increased the target range for the federal funds rate by hundreds of basis points.

As it seeks to control inflation without creating a recession, the FOMC has indicated further increases are to be expected in 2023.

If the FOMC further increases the targeted federal funds rate, overall interest rates will likely continue to rise, which will likely positively impact our net interest income but may negatively impact both the housing market by reducing refinancing activity and new home purchases and the U.S.

From March 2022 through July 2023, in response to inflation, the Federal Open Market Committee (“FOMC”) of the Federal Reserve significantly increased the target range for the federal funds rate by hundreds of basis points.

Beginning in July 2023, those rates plateaued, however, they have not been reduced as some observers have predicted.

Generally speaking, increases in the targeted federal funds rate positively impact our net interest income.

In contrast, higher interest rates generally have a negative impact on both the housing market, by reducing refinancing activity and new home purchases, and the U.S.

In addition, inflationary pressures may increase our operational costs and could have a significant negative effect on our borrowers, especially our business borrowers, and the values of collateral securing loans which could negatively affect our financial performance.

We principally manage interest rate risk by managing our volume and mix of our earning assets and funding liabilities.

We principally manage interest rate risk by managing the volume and mix of our earning assets and funding liabilities.

Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but these changes could also affect:

(1) our ability to originate and/or sell loans and obtain deposits;

(2) the fair value of our financial assets and liabilities, which could negatively impact shareholders’

equity, and our ability to realize gains from the sale of such assets;

(3) our ability to obtain and retain deposits in competition with other available investment alternatives;

(4) the ability of our borrowers to repay adjustable or variable rate loans;

and (5) the average duration of our investment securities portfolio and other interest-earning assets.

(1) our ability to originate and/or sell loans and obtain deposits; (2) the fair value of our financial assets and liabilities, which could negatively impact shareholders’ equity, and our ability to realize gains from the sale of such assets; (3) our ability to obtain and retain deposits in competition with other available investment alternatives; (4) the ability of our borrowers to repay adjustable or variable rate loans; and (5) the average duration of our investment securities portfolio and other interest-earning assets.

If the interest rates paid on deposits and borrowings increase at a faster rate than the interest received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected.

2 unchanged sentences

If we are unable to manage interest rate risk effectively, our business, financial condition and results of operations could be materially affected.

We are subject to liquidity risk.

Our banking operations require liquidity to meet our deposit and debt obligations as they come due.

There are many potential factors that could reduce our access to liquidity sources, including rising interest rates, tightening fiscal policy, a downturn in the U.S.

economy, difficult credit markets or adverse regulatory actions.

Our access to deposits may also be affected by the liquidity needs of our depositors.

A substantial majority of our liabilities are demand, savings, interest checking and money market deposits, which are payable on demand or upon several days' notice, while by comparison, a substantial portion of our assets are loans, which cannot be called or sold in the same time frame.

We may not be able to replace maturing deposits and advances as necessary in the future, especially if a large number of our depositors sought to withdraw their accounts, regardless of the reason.

Our access to deposits may be negatively impacted by, among other factors, periods of low interest rates or higher interest rates which could promote increased competition for deposits, including from new financial technology competitors, or provide customers with alternative investment options.

Additionally, negative news about us or the banking industry in general could negatively impact market and/or customer perceptions of our company, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits.

Furthermore, as we and other regional banking organizations experienced in 2023, the failure of other financial institutions may cause deposit outflows as customers spread deposits among several different banks so as to maximize their amount of FDIC insurance, move deposits to banks deemed "too big to fail" or remove deposits from the banking system entirely.

As of December 31, 2023, approximately 49% of our deposits were uninsured, and we rely on these deposits for liquidity.

A failure to maintain adequate liquidity could have a material adverse effect on our business, financial condition and results of operations.

Unfavorable global economic, geopolitical conflicts and other political conditions could adversely affect our business, financial condition or results of operations.

1 unchanged sentence

The United States and global economies are facing high levels of inflation, higher interest rates and potential recession.

Furthermore, a severe or prolonged economic downturn, including a recession or depression resulting from the ongoing Coronavirus Pandemic or political disruption, such as the war between Ukraine and Russia or political conflict between China and Taiwan, could result in a variety of risks to our business, including weakened demand for our products and services as well as our ability to raise additional capital if needed on acceptable terms.

Furthermore, a severe or prolonged economic downturn, including a recession or depression resulting from the Coronavirus Pandemic or political disruption, such as the Ukraine-Russia and Israel-Hamas wars or political conflict between China and Taiwan, could result in a variety of risks to our business, including weakened demand for our products and services as well as our ability to raise additional capital if needed on acceptable terms.

A weak or declining economy or political disruption, including any international trade disputes, could also strain our manufacturers or suppliers, possibly resulting in supply disruptions, or cause our customers to delay making payments for our products and services.

2 unchanged sentences

Approximately 63% of our total commercial loans, or about 50% of our total loans, relate to commercial real estate.

Stressed economic conditions may reduce the value of commercial real estate and strain the financial condition of our commercial real estate borrowers, especially in the land development and non-owner occupied commercial real estate segments of our loan portfolio.

Stressed economic conditions may reduce the value of commercial real estate and strain the financial conditions of our commercial real estate borrowers, especially in the land development and non-owner occupied commercial real estate segments of our loan portfolio.

Those difficulties could adversely affect us and could produce losses and other adverse effects on our business.

1 unchanged sentence

The capital and credit markets may experience volatility and disruption.

In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without apparent regard to those issuers’

underlying financial strength.

In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without apparent regard to those issuers’ underlying financial strength.

Future levels of market disruption and volatility may have an adverse effect, which may be material, on our ability to access capital and on our business, financial condition and results of operations.

17 unchanged sentences

We may not be able to successfully adapt to evolving industry standards and market pressures.

Our success depends, in part, on the ability to adapt products and services to evolving industry standards.

Our success depends, in part, on our ability to adapt products and services to evolving industry standards.

There is increasing pressure to provide products and services at lower prices.

4 unchanged sentences

As a result, our business, financial condition, or results of operations may be adversely affected.

Global pandemics may impact our business, financial condition and results of operations, the scope and duration of which would be highly uncertain and dependent on factors that are outside of our control.

For nearly the past four years, the Coronavirus Pandemic and efforts to control its spread and economic effect have significantly impacted the movement of people, goods and services worldwide, including in most of or all of the regions in which we offer our services and conduct our business operations.

Global pandemics create significant volatility, uncertainty and economic disruption to the global economy and may further impact our business, financial condition and results of operations.

Overall, the Coronavirus Pandemic has caused a sustained global economic slowdown of varying durations across different industries, and it is possible that it could still cause a global recession.

Deteriorating economic and political conditions caused by the Coronavirus Pandemic, such as widespread inflation, increased unemployment, decreased capital spending, declines in consumer confidence and economic slowdowns or recessions, have caused and could continue to cause a decrease in demand for our products and services.

The severity, magnitude and duration of the secondary impacts from the Coronavirus Pandemic are hard to predict.

Any negative impact on our business, financial condition, results of operations and cash flows cannot be reasonably estimated at this time, but the Coronavirus Pandemic could lead to extended disruption of economic activity and the impact on our business, financial condition, results of operations and cash flows could be material.

The risks we may face include, but are not limited to, the following:

Increased loan losses or other impairments in our loan portfolios and increases in our allowance for credit losses,

Collateral for loans, especially real estate, may decline in value, which could cause an increase in loan losses,

Limitations may be placed on our ability to foreclose on properties we hold as collateral,

Our allowance for credit losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which would adversely affect our net income,

The net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us,

FDIC premiums may increase if the agency experiences additional resolution costs,

Litigation arising from our participation in the Small Business Administration’s Paycheck Protection Program,

Unanticipated unavailability of employees,

Prolonged inflation and monetary policy designed to combat inflation may inhibit growth,

A triggering event leading to impairment testing on our goodwill, which could result in an impairment charge, and

A prolonged weakness in economic conditions resulting in a reduction of future projected earnings could necessitate a valuation allowance against our current outstanding deferred tax assets.

Our inability to execute or integrate potential future acquisitions successfully could impede us from realizing all of the benefits of the acquisitions, which could weaken our operations.

5 unchanged sentences

° potential exposure to unknown or contingent liabilities of targets;

regulatory timeframes for review of applications may limit the number and frequency of transactions we may be able to consummate.

° regulatory time frames for review of applications may limit the number and frequency of transactions we may be able to consummate.

If we are unable to successfully integrate potential future acquisitions, we could be impeded from realizing all of the benefits of those acquisitions and could weaken our business operations.

24 unchanged sentences

As a result, we may assume different or greater lending risks than other banks.

We make various assumptions and judgments about the collectability of our loan portfolio and provide an allowance for losses based on several factors.

We make various assumptions and judgments about the collectability of our loan portfolio and provide an allowance for credit losses based on several factors.

If our assumptions are wrong, our allowance may not be sufficient to cover our losses, which would have an adverse effect on our operating results.

16 unchanged sentences

Physical risk refers to results of severe weather, such as floods, hurricanes, rising sea levels, fires and water availability.

Indirect risk refers to how changes in regulation, conscious consumer choices, competition for sustainable products, and reduced demand for goods or services that produce significant green-house gas emissions may have on the results and operations of a company.

Physical effects of climate change to our offices, branches or personnel could have an immediate adverse effect on our operations and financial condition, whereas indirect consequences may result in increased expenditures to comply with climate-related regulations.

17 unchanged sentences

Damage to our reputation and loss of brand equity may reduce demand for our products and services and thus have an adverse effect on our future financial results, as well as require additional resources to rebuild our reputation and could also reduce our stock price.

The adoption of the Secured Overnight Funding Rate may adversely affect interest income or expense, and may be more volatile than other benchmark or market interest rates.

On July 27, 2017, the United Kingdom Financial Conduct Authority (“FCA”), which oversees Libor, formally announced that it could not assure the continued existence of Libor in its current form beyond the end of 2021, and that an orderly transition process to one or more alternative benchmarks should begin.

In June 2017, the Alternative Reference Rates Committee (“ARRC”), a steering committee comprised of large U.S.

financial institutions organized by the Federal Reserve, announced that it had selected a modified version of the unpublished Broad Treasuries Financing Rate as the preferred alternative reference rate for U.S.

dollar obligations.

That rate, now referred to as SOFR, is determined based upon actual transactions in certain portions of the bi-lateral and tri-party overnight repurchase agreement markets for certain U.S.

Treasury obligations.

On April 3, 2018, the Federal Reserve Bank of New York (“FRBNY”) began publishing three new reference rates, including SOFR.

SOFR is observed and backward-looking, which stands in contrast with Libor under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members.

Given the SOFR is a secured rate backed by government securities, it is a rate that does not take into account bank credit risk (as is the case with Libor).

SOFR is therefore likely to be lower than LIBOR and is less likely to correlate with the funding costs of financial institutions.

During 2019 and 2020, among other things, the ARRC published a white paper on ways in which market participants could use SOFR in cash markets, conducted surveys of market participants, engaged with cognizant U.S.

government agencies and private sector groups regarding tax, securities, and derivatives issues presented by the transition from Libor, published sample transition provisions for a variety of types of loan and note agreements, and investigated methods by which a forward-looking term SOFR index could be established.

To facilitate the development of a generally-recognized forward-looking SOFR index, on March 2, 2020 the FRBNY began publication of 30-, 90-, and 180-day SOFR Averages, as well as a SOFR Index, on each business day.

The FRBNY has stated that it will consider the potential benefits of introducing calendar month-based rates and/or adding further tenors as additional reference rates.

In November 2020, the ICE Benchmark Administration announced a consultation regarding the cessation of the publication of Libor.

The consultation proposed a December 31, 2021 cessation for all tenors of various foreign currencies and for the one week and two-month U.S.

dollar Libor, and a June 30, 2023 cessation for the remaining overnight, one-month, three-month, six-month and twelve-month U.S.

dollar Libor tenors.

This represented an 18-month extension of Libor publication for the most frequently used tenors of U.S.

dollar Libor from the cessation date originally proposed in 2017.

The consultation period closed on January 25, 2021.

The ICE Benchmark Administration concluded the consultation on its intent to cease publication of one-week and two-month U.S.

dollar Libor on December 31, 2021 and to extend the publication of all remaining U.S.

dollar Libor tenors until June 30, 2023 for legacy contracts.

Effective January 1, 2022, we replaced the 30-Day Libor Rate with the CME Term SOFR Rate for all new floating rate commercial loan commitments.

It is expected that currently outstanding commercial loans tied to the 30-Day Libor Rate will convert to an equivalent fallback SOFR Rate on or about June 30, 2023.

The FRBNY, who originally started publishing SOFR, states that it obtains information from DTCC Solutions LLC, an affiliate of DTCC.

FRBNY currently publishes SOFR daily on its website at https://apps.newyorkfed.org/markets/autorates/sofr.

FRBNY states that use of SOFR is subject to important disclaimers, limitations and indemnification obligations, including that FRBNY may alter the methods of calculations, publication schedule, rate revision practices or availability of SOFR at any time without notice.

The foregoing Internet website is an inactive textual reference only, meaning that the information contained on the website is not part of this filing or incorporated by reference herein.

Since the initial publication of SOFR, daily changes in the rate have, on occasion, been more volatile than daily changes in comparable benchmark or market interest rates, and SOFR over time may bear little or no relation to the historical actual or historical indicative data.

In addition, the return on and value of SOFR-linked instruments may fluctuate more than floating rate securities that are linked to less volatile interest rates.

Changes in SOFR could adversely affect the amount of interest that accrues on SOFR-linked instruments.

Because SOFR is published by the FRBNY based on data received from other sources, we have no control over its determination, calculation or publication.

Effective January 1, 2022, we replaced the 30-Day Libor Rate with the CME Term SOFR Rate for all new floating rate commercial loan commitments.

On or about June 30, 2023, all commercial loans tied to the 30-Day Libor Rate converted to an equivalent fallback SOFR Rate.

Because SOFR is published by the Federal Reserve Bank of New York ("FRBNY") based on data received from other sources, we have no control over its determination, calculation or publication.

There can be no assurance that SOFR will not be discontinued or fundamentally altered in a manner that is materially adverse to the interests of investors in SOFR-linked instruments.

13 unchanged sentences

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.

For additional information, see “Critical Accounting Estimates”

beginning on page F-3 of this Annual Report and “Note 1 –

Summary of Significant Accounting Policies”

beginning on page F-41 of this Annual Report.

For additional information, see “Critical Accounting Estimates” beginning on page F-3 of this Annual Report and “Note 1 – Summary of Significant Accounting Policies” beginning on page F-40 of this Annual Report.

We continually encounter technological change, and we may have fewer resources than our competitors to continue to invest in technological improvements.

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

The banking industry is undergoing technological changes with frequent introductions of new technology-driven products and services, such as those related to artificial intelligence, automation and algorithms.

In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs.

2 unchanged sentences

There can be no assurance that we will be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.

In addition, our implementation of certain new technologies, such as those related to artificial intelligence, automation and algorithms, in our business processes may have unintended consequences due to their limitations or our failure to use them effectively.

Failure to successfully manage technological changes could have a material adverse effect on our business, financial condition and results of operations.

Damage to our reputation could materially harm our business.

2 unchanged sentences

Preserving and enhancing our reputation also depends on maintaining systems and procedures that address known risks and regulatory requirements, as well as our ability to identify and mitigate additional risks that arise due to changes in our businesses and the marketplaces in which we operate, the regulatory environment and client expectations.

If any of these developments has a material effect on our reputation, our business will suffer.     

Our business is subject to operational risks.

5 unchanged sentences

We may also be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control, including, for example, computer viruses or electrical or telecommunications outages, which may give rise to losses in service to customers and to loss or liability to us.

We are further exposed to the risk that our external vendors may be unable to fulfill their contractual obligations to us, or will be subject to the same risk of fraud or operational errors by their respective employees as are we, and to the risk that our or our vendors’

business continuity and data security systems prove not to be adequate.

We also face the risk that the design of our controls and procedures proves inadequate or is circumvented, causing delays in detection or errors in information.

5 unchanged sentences

Cybersecurity threats include unauthorized access, loss or destruction of data (including confidential client information), account takeovers, unavailability of service, computer viruses or other malicious code, cyber-attacks and other events.

Remote working of employees during the Coronavirus Pandemic introduces additional potential cybersecurity risks due to the use of home networks, video conferencing and other remote work technologies over which we do not have as much control as our internal systems.

Remote working of employees introduces additional potential cybersecurity risks due to the use of home networks, video conferencing and other remote work technologies over which we do not have as much control as our internal systems.

Cyber threats may derive from human error, fraud or malice on the part of employees or third parties, or may result from accidental technological failure.

5 unchanged sentences

Although we maintain safeguards to protect against these risks, there can be no assurance that we will not suffer losses in the future that may be material in amount.

information, misappropriation of assets, privacy breaches against our customers, litigation or damage to our reputation.

As a bank, we are susceptible to fraudulent activity that may be committed against us or our customers which may result in financial losses or increased costs to us or our customers, disclosure or misuse of our information or our customers’ information, misappropriation of assets, privacy breaches against our customers, litigation or damage to our reputation.

Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts.

Nationally, reported incidents of fraud and other financial crimes have increased.

In March 2015, federal regulators issued two related statements regarding cybersecurity.

One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution.

The other statement indicates that a financial institution’s 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.

In August 2019, the federal bank regulatory agencies issued a statement recommending that banking organizations use a standardized approach to assess and improve cybersecurity preparedness.

The agencies noted that the use of standardized tools, such as the FFIEC Cybersecurity Assessment Tool, makes firms better able to track their progress over time, and to share information and best practices with other financial institutions, a behavior which the bank regulatory agencies encourage.

In April 2020, the federal banking agencies issued a statement highlighting the risks presented by banking organizations’

use of cloud computing services in their business.

The statement noted specific risks unique to the cloud computing environment, and the importance of ongoing controls of virtual infrastructure, care in the use of containers for data, and the sensitivity of use of managed security services, among other things.

Although guidance of this nature does not have the full force and effect of law, it sets out supervisory priorities and expectations regarding safe and sound operation.

Cybersecurity risks and disclosures are increasingly regulated by various government agencies, including federal and state bank regulatory agencies and the Securities and Exchange Commission.

Failure to observe such guidance may result in supervisory identification of unsafe or unsound practices or other deficiencies in risk management or other areas that do not constitute violations of law or regulation.

Regulatory Risks

We are subject to significant government regulation, and any regulatory changes may adversely affect us.

9 unchanged sentences

We are subject to extensive capital regulations imposed by federal and state banking regulations.

These regulations, among other things, establish minimum requirements to qualify as a “well-capitalized”

If our bank were to fail to maintain its status of “well-capitalized”

under the applicable regulatory capital regulations, we may lose our status as a financial holding company and be subjected to a consent agreement requiring us to bring our bank back to a “well-capitalized”

These regulations, among other things, establish minimum requirements to qualify as a “well-capitalized” institution.

If our bank were to fail to maintain its status of “well-capitalized” under the applicable regulatory capital regulations, we may lose our status as a financial holding company and be subjected to a consent agreement requiring us to bring our bank back to a “well-capitalized” status.

Such an agreement may impose restrictions on our activities.

11 unchanged sentences

In addition, option holders under our stock-based incentive plans may exercise their options at a time when we would otherwise be able to obtain additional equity capital on more favorable terms.

Regulatory Risks

We may need to raise additional capital in the future, and such capital may not be available when needed or at all.

7 unchanged sentences

Our Articles of Incorporation and By-laws and the laws of the State of Michigan contain provisions that may discourage or prevent a takeover of our company and reduce any takeover premium.

Our Articles of Incorporation and By-laws, and the corporate laws of the State of Michigan, include provisions which are designed to provide our Board of Directors with time to consider whether a hostile takeover offer is in our and our shareholders’

best interest.

These provisions, however, could discourage potential acquisition proposals and could delay or prevent a change in control.

2 unchanged sentences

The Michigan Business Corporation Act contains provisions intended to protect shareholders and prohibit or discourage various types of hostile takeover activities.

In addition to these provisions and the provisions of our Articles of Incorporation and By-laws, federal law requires the Federal Reserve Board’s approval prior to acquiring “control”

of a bank holding company.

In addition to these provisions and the provisions of our Articles of Incorporation and By-laws, federal law requires the Federal Reserve Board’s approval prior to acquiring “control” of a bank holding company.

All of these provisions may delay or prevent a change in control without action by our shareholders and could adversely affect the price of our common stock.

2 unchanged sentences

The issuance of new shares of our common stock also may affect the market for our common stock.

Our common stock is traded on the Nasdaq Global Select Market under the symbol “MBWM.”

The development and maintenance of an active public trading market depends upon the existence of willing buyers and sellers, the presence of which is beyond our control.

Our common stock is traded on the Nasdaq Global Select Market under the symbol “MBWM.” The development and maintenance of an active public trading market depends upon the existence of willing buyers and sellers, the presence of which is beyond our control.

While we are a publicly-traded company, the volume of trading activity in our stock is still relatively limited.

1 unchanged sentence

The value of securities in our investment securities portfolio may be negatively affected by disruptions in securities markets.

Prices and volumes of transactions in the nation’s securities markets can be affected suddenly by economic crises, or by other national or international crises, such as national disasters, acts of war or terrorism, changes in commodities markets, or instability in foreign governments.

Disruptions in securities markets may detrimentally affect the value of securities that we hold in our investment portfolio, such as through reduced valuations due to the perception of heightened credit and liquidity risks.

There can be no assurance that declines in market value associated with these disruptions will not result in other-than-temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels.

Unresolved Staff Comments

We have received no written comments regarding our periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more before the end of our 2022 fiscal year and that remain unresolved.

There can be no assurance that declines in market value associated with these disruptions will not result in a loss in principal value of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels.

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