ITEM 1A RISK FACTORS
−Removed: This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties.
+Added: This Form 10-K contains forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this Annual Report.
−Removed: Risks Related to the Merger
−Removed: The pendency of the Merger could adversely affect our business, results of operations and financial condition.
−Removed: The pendency of the Merger could cause disruptions in and create uncertainty surrounding our business, including affecting our relationships with our existing and future customers, suppliers and employees, which could have an adverse effect on our business, results of operations and financial condition, regardless of whether the proposed Merger is completed.
−Removed: In particular, we could potentially lose additional important personnel as a result of the departure of employees who decide to pursue other opportunities in light of the Merger.
−Removed: We could also potentially lose additional customers or suppliers, and business relationships with new customers or supplier contracts could be delayed or decreased.
−Removed: In addition, we have allocated, and will continue to allocate, significant management resources towards the completion of the transaction, which could adversely affect our business and results of operations.
−Removed: We are subject to restrictions on the conduct of our business prior to the consummation of the Merger as provided in the Merger Agreement, including, among other things, certain restrictions on our ability to acquire other businesses, sell or transfer our assets, and amend our organizational documents.
−Removed: These restrictions could result in our inability to respond effectively to competitive pressures, industry developments and future opportunities, retain key employees and may otherwise harm our business, results of operations and financial condition.
−Removed: Because of the risks associated with the Merger, we can provide no assurance that the Merger will close on the terms and conditions we currently anticipate.
−Removed: Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the Merger.
−Removed: Before the Merger may be completed, various consents, approvals, waiver or non-objections must be obtained from state and federal governmental authorities, including the Federal Reserve Board, the Office of the Comptroller of the Currency (“OCC”) and the Director of the State of Washington Department of Financial Institutions.
−Removed: Satisfying the requirements of these governmental authorities may delay the date of completion of the Merger, or one or more of these approvals may not be obtained at all.
−Removed: In addition, these governmental authorities may include conditions or restrictions on the completion of the Merger, or require changes to the terms of the Merger.
−Removed: Under the Merger Agreement, the parties are not obligated to complete the Merger should any required regulatory approval contain any condition or restriction that would reasonably be expected to have a “material adverse effect” (as defined in the Merger Agreement) on the surviving entity in the Merger and its subsidiaries, taken as a whole, after giving effect to the Merger and the related merger of HomeStreet Bank into a wholly owned subsidiary of FirstSun.
−Removed: The Merger Agreement and the transactions contemplated by the Merger Agreement are subject to approval by shareholders of the Company.
−Removed: The Merger cannot be completed unless, among other conditions, the Merger Agreement and the transactions contemplated by the Merger Agreement are approved by the affirmative vote of a majority of the outstanding shares of the Company’s common stock entitled to vote thereon (the “Requisite Company Vote”).
−Removed: If the Company’s shareholders do not approve the Merger and related transactions by the Requisite Company Vote, the Merger cannot be completed.
−Removed: Combining the companies may be more difficult, costly, or time-consuming than expected.
−Removed: The Company and FirstSun have operated and, until the completion of the Merger, will continue to operate independently.
−Removed: The success of the Merger, including anticipated benefits and cost savings, will depend, in part, on FirstSun’s ability to successfully combine and integrate the businesses of FirstSun and the Company in a manner that permits growth opportunities and does not materially disrupt the existing customer relations or result in decreased revenues due to loss of customers.
−Removed: It is possible that the integration process could result in the loss of key employees, the disruption of either company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that could adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the Merger.
−Removed: The loss of key employees could adversely affect the Company’s ability to successfully conduct its business, which could have an adverse effect on the Company’s financial results and the value of the Company’s common stock.
−Removed: If FirstSun experiences difficulties with the integration process, the anticipated benefits of the Merger may not be realized fully or at all, or may take longer to realize than expected.
−Removed: As with any merger of financial institutions, there also may be business disruptions that cause FirstSun and/or the Company to lose customers or cause customers to remove their accounts from FirstSun and/or the Company and move their business to competing financial institutions.
−Removed: Integration efforts will also divert management attention and resources.
−Removed: In addition, the actual cost savings of the Merger could be less than anticipated.
−Removed: Failure to complete the Merger could negatively impact the stock price of the Company and future businesses and financial results of the Company.
−Removed: The Merger Agreement is subject to a number of customary closing conditions, including the receipt of regulatory approvals and the Requisite Company Vote.
−Removed: Conditions to the closing of the Merger may not be fulfilled in a timely manner or at all and, accordingly, the Merger may be delayed or may not be completed.
−Removed: In addition, we and/or FirstSun may elect to terminate the Merger Agreement under certain conditions.
−Removed: If the Merger is not completed, the ongoing businesses, financial condition and results of operation of the Company may be adversely affected and market prices of the Company’s common stock may decline significantly, particularly to the extent that the current market prices reflect a market assumption that the Merger will be consummated.
−Removed: If the consummation of the Merger is delayed, including by the receipt of a competing acquisition proposal, the Company’s business, financial condition and results of operations may be materially adversely affected.
−Removed: In addition, the Company has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement, as well as the costs and expenses of filing, printing and mailing the joint proxy statement/prospectus and all filing and other fees paid to the SEC and other regulatory agencies in connection with the Merger.
−Removed: If the Merger is not completed, the Company would have to recognize these expenses without realizing the expected benefits of the Merger.
−Removed: Any of the foregoing, or other risks arising in connection with the failure of or delay in consummating the Merger, including the diversion of management’s attention from pursuing other opportunities and the constraints in the Merger Agreement on the ability to make significant changes to the Company’s ongoing business during the pendency of the Merger, could have a material adverse effect on the Company’s businesses, financial conditions and results of operations.
−Removed: Additionally, the Company’s business may be adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger.
−Removed: If the Merger Agreement is terminated and the Company’s board of directors seeks another merger or business combination, the Company’s shareholders cannot be certain that the Company will be able to find a party willing to engage in a transaction on more attractive terms than the proposed Merger.
−Removed: Because the market price of FirstSun common stock will fluctuate, the Company’s shareholders cannot be certain of the market value of the Merger consideration they will receive.
−Removed: In the Merger, each share of Company common stock that is issued and outstanding immediately prior to the effective time of the Merger (except for certain excluded shares) will be converted into 0.4345 of a share of FirstSun common stock.
−Removed: This exchange ratio is fixed and will not be adjusted for changes in the market price of either FirstSun common stock or Company common stock.
−Removed: Stock price changes may result from a variety of factors, including general market and economic conditions, changes in FirstSun’s and the Company’s businesses, operations and prospects, volatility in the prices of securities in global
−Removed: financial markets, including market prices for the common stock of other banking companies, and changes in laws and regulations, many of which are beyond FirstSun’s and the Company’s control.
−Removed: The value that the Company’s shareholders will receive upon the closing of the Merger will depend on the market price of FirstSun common stock at the closing of the Merger, which is currently traded only on the OTC Bulletin Board but is expected to be approved for listing on the Nasdaq Stock Market prior to the effective time of the Merger.
−Removed: Accordingly, at the time of the special meeting of shareholders of the Company to vote on the Merger Agreement, shareholders may not know the market value of the consideration that they will receive upon completion of the Merger.
−Removed: The market price of FirstSun common stock after the Merger may be affected by factors different from those currently affecting the shares of FirstSun common stock or Company common stock.
−Removed: Following the Merger, shareholders of the Company will become FirstSun stockholders.
−Removed: FirstSun’s business differs from that of the Company and certain adjustments may be made to FirstSun’s business as a result of the Merger.
−Removed: Accordingly, the results of operations of the combined company and the market price of FirstSun common stock after the completion of the Merger may be affected by factors different from those currently affecting the independent results of operations of each of FirstSun and the Company.
−Removed: Issuance of shares of FirstSun common stock in connection with the Merger may adversely affect the market price of FirstSun common stock.
−Removed: In connection with the payment of the merger consideration, FirstSun will issue shares of FirstSun common stock to the Company’s shareholders.
−Removed: In addition, FirstSun will issue 2,923,077 shares of its common stock to certain investors in exchange for $95 million concurrently with the closing of the Merger.
−Removed: The issuance of these new shares of FirstSun common stock may result in fluctuations in the market price of FirstSun common stock, including a stock price decrease.
−Removed: In connection with the Merger, FirstSun will assume the Company’s outstanding debt obligations under its indentures, and the combined company’s level of indebtedness following the completion of the Merger could adversely affect the combined company’s ability to raise additional capital and to meet its obligations under its existing indebtedness.
−Removed: In connection with the Merger, FirstSun will assume the Company’s outstanding debt obligations under the Company’s indentures.
−Removed: FirstSun’s existing debt, together with any future incurrence of additional indebtedness, and the assumption of the Company’s outstanding indebtedness, could have important consequences for the combined company’s creditors and the combined company’s stockholders.
−Removed: For example, it could:
−Removed: • limit the combined company’s ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;
−Removed: • restrict the combined company from making strategic acquisitions or cause the combined company to make non-strategic divestitures;
−Removed: • restrict the combined company from paying dividends to its stockholders;
−Removed: • increase the combined company’s vulnerability to general economic and industry conditions; and
−Removed: • require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on the combined company’s indebtedness, thereby reducing the combined company’s ability to use cash flows to fund its operations, capital expenditures and future business opportunities.
−Removed: The announcement of the proposed Merger could disrupt the Company’s and FirstSun’s respective relationships with their customers, suppliers, business partners and others, as well as their operating results and businesses generally.
−Removed: Whether or not the Merger is ultimately consummated, as a result of uncertainty related to the proposed transactions, risks relating to the impact of the announcement of the Merger on the Company’s and FirstSun’s businesses include the following:
−Removed: • their employees may experience uncertainty about their future roles, which might adversely affect FirstSun’s or the Company’s ability to retain and hire key personnel and other employees;
−Removed: • customers, suppliers, business partners and other parties with which FirstSun and the Company maintain business relationships may experience uncertainty about their respective futures and seek alternative relationships with third parties, seek to alter their business relationships with FirstSun and the Company or fail to extend an existing relationship with FirstSun and the Company;
−Removed: • FirstSun and the Company have each expended and will continue to expend significant costs, fees and expenses for professional services and transaction costs in connection with the proposed Merger.
−Removed: If any of the aforementioned risks were to materialize, they could lead to significant costs which may impact each party’s results of operations and financial condition.
−Removed: In addition, if the Merger Agreement is terminated and the Company seeks another merger or business combination, the market price of our common stock could decline, which could make it more difficult to find a party willing to offer equivalent or more attractive consideration than the consideration FirstSun has agreed to provide in the Merger.
−Removed: The Merger Agreement limits the Company’s ability to pursue alternatives to the Merger and may discourage other companies from trying to acquire the Company.
−Removed: The Merger Agreement contains “no shop” covenants that restrict each of FirstSun’s and the Company’s ability to, directly or indirectly, among other things, initiate, solicit, knowingly encourage or knowingly facilitate, inquiries or proposals with respect to, or, subject to certain exceptions generally related to the exercise of fiduciary duties by FirstSun’s and the Company’s respective board of directors, engage in any negotiations concerning, or provide any confidential or non-public information or data relating to, any acquisition proposal.
−Removed: These provisions, which include a $10 million termination fee payable by the Company under certain circumstances, may discourage a potential third-party acquirer that might have an interest in acquiring all or a significant part of the Company from considering or proposing that acquisition.
−Removed: Holders of Company common stock will have reduced ownership and voting interest in the combined company after the consummation of the Merger and have less influence over management and the policies of the combined company.
−Removed: Shareholders of FirstSun and the Company currently have the right to vote in the election of the board of directors and on other matters affecting FirstSun and the Company, respectively.
−Removed: Assuming the Merger is completed, each Company shareholder (subject to certain exceptions) will become a holder of common stock of the combined company, together with existing FirstSun stockholders.
−Removed: The Company shareholders will then own approximately 22% of the combined company (after taking into account 2,461,583 shares of FirstSun common stock issued to certain equity investors of FirstSun concurrently with the execution of the Merger Agreement and 2,923,077 shares to be issued to such equity investors concurrently with the closing of the Merger), which is lower than the public ownership of the Company prior to the consummation of the Merger, which was 97% as of February 23, 2024.
−Removed: Because of this, the Company’s shareholders in the aggregate will have less influence on the management and policies of the combined company than they now have on the management and policies of the Company.
−Removed: Shareholder litigation could prevent or delay the completion of the Merger or otherwise negatively impact the business and operations of FirstSun and the Company.
−Removed: Shareholders of FirstSun or the Company may file lawsuits against FirstSun, the Company and/or the directors and officers of either company in connection with the Merger.
−Removed: One of the conditions to the closing is that there must be no order, injunction or decree issued by any court or governmental entity of competent jurisdiction or other legal restraint preventing the consummation of the Merger or any of the other transactions contemplated by the Merger Agreement.
−Removed: If any plaintiff were successful in obtaining an injunction prohibiting FirstSun or the Company from completing the Merger or any of the other transactions contemplated by the Merger Agreement, then such injunction may delay or prevent the effectiveness of the Merger and could result in significant costs to FirstSun or the Company, including any cost associated with the indemnification of directors and officers of each company.
−Removed: FirstSun and the Company may incur costs in connection with the defense or settlement of any stockholder or shareholder lawsuits filed in connection with the Merger.
−Removed: Such litigation could have an adverse effect on the financial condition and results of operations of FirstSun and the Company and could prevent or delay the completion of the Merger.
Risk Related to Market Factors
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The Federal Reserve is responsible for regulating the supply of money in the United States, including open market operations used to stabilize prices in times of economic stress, as well as setting monetary policies.
−Removed: These activities strongly influence our rate of return on certain investments, our hedge effectiveness for mortgage servicing and our mortgage origination pipeline, as well as our costs of funds for lending and investing, all of which may adversely impact our liquidity, results of operations, financial condition and capital position.
+Added: These activities strongly influence market interest rates which impact our costs of funds for lending and investing, our rate of return on certain investments, our hedge effectiveness for mortgage servicing and our mortgage origination pipeline, all of which may adversely impact our liquidity, results of operations, financial condition and capital position.
Changes in market factors beyond our control, including fluctuation in interest rates, have and could further adversely impact our profitability and financial results.
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In addition, changes to market interest rates may impact the demand for loans, levels of deposits and investments and the credit quality of existing loans.
−Removed: These rate changes have and may further adversely impact our liquidity, financial condition, results of operations and capital position.
−Removed: The rate of prepayment of loans, which is impacted by changes in interest rates and general economic conditions, among other things, impacts the value of our MSRs.
+Added: These rate changes have and may further adversely impact our liquidity, results of operations, financial condition and capital position.
+Added: The rate of prepayment of loans, which is impacted by changes in interest rates and general economic conditions, among other things, impacts the value of our mortgage servicing rights ("MSRs") and loans held for sale ("LHFS").
We actively hedge this risk with financial derivative instruments to mitigate losses, but changes in interest rates can be difficult to predict and changes in our hedging instruments may not correlate with changes in the values of our MSRs and LHFS.
−Removed: In addition to overall fluctuations in interest rates, asymmetrical changes in interest rates, for example a greater increase in short term rates than in long term rates, could adversely impact our net interest income because our liabilities tend to be more sensitive to short term rates while our assets tend to be more sensitive to long term rates.
+Added: In addition to overall fluctuations in interest rates, asymmetrical changes in interest rates, for example a greater increase in short term rates than in long term rates, could adversely impact our net interest income because our liabilities tend to be more sensitive to short term rates while some of our assets tend to be more sensitive to long term rates.
In addition, it may take longer for our assets to reprice to adjust to a new rate environment because fixed rate loans do not fluctuate with interest rate changes and adjustable rate loans often have a specified initial fixed rate period before reset.
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Interest rate fluctuations may impact the value of these securities and as a result, shareholders’ equity, and may cause material fluctuations from quarter to quarter.
−Removed: Failure to hold our securities until maturity or until market conditions are favorable for a sale could adversely affect our operating results, financial condition and capital position.
−Removed: Inflation could negatively impact our business and profitability.
+Added: Failure to hold our securities until maturity or until market conditions are favorable for a sale could adversely affect our liquidity, results of operations, financial condition and capital position.
+Added: Adverse economic and business conditions, including inflation, could negatively impact our business and profitability.
+Added: Our business and operations are sensitive to business and economic conditions globally and domestically.
+Added: Adverse economic and business conditions in the U.S.
+Added: generally, and in our market areas, in particular, could affect our borrowers' ability to repay their loans and adversely affect our results of operations and financial condition.
+Added: Unfavorable or uncertain economic and market conditions can be caused by changes in trade policies by the U.S.
+Added: or other countries, such as tariffs or retaliatory tariffs as those proposed by the current U.S.
+Added: Administration, declines in economic growth, business activity or investor or business confidence;
+Added: limitations on the availability or increases in the cost of credit and capital;
+Added: increases in, or prolonged periods of, inflation or a combination of these or other factors.
Prolonged periods of inflation may impact our profitability by negatively impacting our fixed costs and expenses, including increasing funding costs and expenses related to talent acquisition and retention, and negatively impacting the demand for our products and services.
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We face pricing competition for loans and deposits, both in pricing and products, as well as in customer service and convenience.
−Removed: Our most direct competition comes from other banks, credit unions, mortgage banking companies and finance companies, and more recently, competition has also come from companies that rely heavily on technology to provide financial services, are moving to provide cryptocurrency products and offerings, and often target a younger customer demographic.
+Added: Our most direct competition comes from other banks, credit unions, mortgage banking companies and finance companies.
+Added: Competition has also come from companies that rely heavily on technology to provide financial services, are moving to provide cryptocurrency products and offerings, and often target a younger customer demographic.
The significant competition in attracting and retaining deposits and making loans, as well as in providing other financial services, throughout our market area may impact future earnings and growth.
−Removed: Our success depends, in part, on the ability to adapt products and services to evolving industry standards and customer preferences and trends and provide consistent customer service while keeping costs in line.
+Added: Our success depends, in part, on our ability to adapt products and services to evolving industry standards and customer preferences and trends and provide consistent customer service while keeping costs in line.
We sometimes experience increasing pressure to provide products and services at lower prices, which could reduce net interest income and noninterest income from fee-based products and services.
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We may not be successful in introducing new products and services or those new products may not achieve market acceptance.
−Removed: In addition, advances in technology such as telephone, text and online banking, e-commerce and self-service automatic teller machines and other equipment, as well as changing
−Removed: customer preferences to access our products and services through digital channels, could decrease the value of our branch network and other assets.
+Added: In addition, advances in technology such as artificial intelligence products and services, telephone, text and online banking, e-commerce and self-service automatic teller machines and other equipment, as well as changing customer preferences to access our products and services through digital channels, could decrease the value of our branch network and other assets.
As a result of these competitive pressures, our business, financial condition, results of operations and capital position may be adversely affected.
−Removed: The use of the Secured Overnight Financing Rate ("SOFR") as an index replacement for LIBOR may adversely impact our net interest income and create litigation exposure.
−Removed: In the U.S., the Alternative Rates Reference Committee, convened in 2014 by a group of market participants to help ensure a successful transition away from LIBOR, identified SOFR has its preferred alternative rate.
−Removed: SOFR is a single overnight rate, while LIBOR includes rates of different tenors, and SOFR is considered a credit risk-free rate, while LIBOR incorporates an evaluation of credit risk.
−Removed: In 2020, we transitioned to SOFR the majority of our products indexed to LIBOR.
−Removed: Implementation of SOFR is intended to have a minimal economic effect on borrowers under LIBOR-indexed instruments.
−Removed: Margins or spreads on new SOFR-indexed products may result in lower rates because SOFR is typically likely to be lower when compared to LIBOR, resulting in reduced spreads and a lower net interest income.
−Removed: However, it is impossible to predict whether the SOFR index could be more volatile than LIBOR, which could thereby increase loan rates and borrowing costs on borrowing facilities previously indexed to LIBOR.
−Removed: Borrowers may not fully understand SOFR as an index replacement or may be adversely impacted by implementation of SOFR.
−Removed: The transition to SOFR, or a transition to any other index that becomes widely accepted in the marketplace, could also result in borrower confusion and additional operational, compliance, systems and other related transition costs.
−Removed: This transition may also result in our customers challenging the determination of their interest payments, entering into fewer transactions or postponing their financing needs, and we may be subject to disputes or litigation with borrowers over the appropriateness or comparability of SOFR or other selected indices to LIBOR.
−Removed: These potential outcomes could have an adverse effect on our financial condition, results of operations and capital position.
To support our growth, we may need to rely on funding sources in addition to growth in deposits and such funding sources may not be adequate or may be more costly.
We must maintain sufficient funds to respond to the needs of depositors and borrowers.
−Removed: As a part of our liquidity management, we use a number of funding sources in addition to deposit growth and repayments and maturities of loans and investments, including Federal Home Loan Bank advances, proceeds from the sale of loans, federal funds purchased, brokered certificates of deposit and issuance of equity or debt securities.
−Removed: Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources and could make our existing funds more volatile.
+Added: As a part of our liquidity management, we use a number of funding sources in addition to deposit growth and repayments and maturities of loans and investments, including Federal Home Loan Bank advances, borrowings from the Federal Reserve, proceeds from the sale of loans, federal funds purchased, brokered certificates of deposit and issuance of equity or debt securities.
+Added: Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these funding sources and could make our existing funds
+Added: more volatile.
Our financial flexibility may be materially constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates.
−Removed: When interest rates change, the cost of our funding may change at a different rate than our interest income, which may have a negative impact on our net interest income and, in turn, our results of operations and capital position.
+Added: When interest rates change, the cost of our funding may change at a different rate than our interest income, which may have a negative impact on our net interest income and, in turn, our results of operations, financial condition and capital position.
If we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs.
−Removed: In that case, our results of operations and capital position would be adversely affected.
+Added: In that case, our results of operations, financial condition and capital position would be adversely affected.
Further, the volatility inherent in some of these funding sources, particularly brokered deposits, may increase our exposure to liquidity risk.
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Many of our employees work from home in a hybrid-remote work schedule.
−Removed: We face risks associated with having a significant portion of our employees working from home as we may have less oversight over certain internal controls and the confidentiality requirements of our compliance and contractual obligations may be more challenging to meet as confidential information is being accessed from a wider range of locations and there may be more opportunity for inadvertent disclosure or malicious interception.
−Removed: Many of our vendors also allow their workforce to work from home, which may create similar issues if our confidential information is being accessed by employees of those vendors in connection with their performance of services for us.
+Added: We face risks associated with having a significant portion of our employees working from home as we may have less oversight over certain internal controls and the confidentiality requirements of our compliance and contractual obligations are more challenging to meet as confidential information is being accessed from a wider range of locations and there is more opportunity for inadvertent disclosure or malicious interception.
+Added: Many of our vendors also allow their workforce to work from home, which create similar issues if our confidential information is being accessed by employees of those vendors in connection with their performance of services for us.
While we have not identified any significant concerns to date with our internal controls, compliance obligations or confidentiality requirements, the change in work environment, team dynamics and job responsibilities for us and our vendors could increase our risk of failure in these areas, which could have a negative impact on our financial condition and results of operations and heightened, compliance, operational and reputational risks.
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Any of these changes can have a negative impact on our liquidity, financial condition, results of operations and capital position.
−Removed: We are bound by representations or warranties we make to third party purchasers of our loans or mortgage servicing rights (“MSRs”) and may be liable for certain costs and damages if those representations are breached.
+Added: We are bound by representations or warranties we make to third party purchasers of our loans or MSRs and may be liable for certain costs and damages if those representations are breached.
We make certain representations and warranties to third party purchasers of our loans, including GSEs, about the loans and the manner in which they were originated, including adherence to strict origination guidelines for loans originated for sale to GSEs.
−Removed: Our sale agreements generally require us to either repurchase loans if we have breached any of these representations or warranties, which may result in recording a loss and/or bearing any subsequent loss on the loan, or pay monetary penalties.
−Removed: We may not be able to recover our losses from a borrower or other third party in the event of such a breach of representation or warranty due to a lack of remedies or lack of financial resources of the borrower, and may be required to bear the full amount of the related loss.
−Removed: Similarly, we have sold significant amounts of our MSRs in recent years, and the agreements governing those sales also have representations and warranties relating to the documentation and collectability of those MSRs;
−Removed: a breach of those representations and warranties could also require us to either pay monetary damages or, in some cases, repurchase the defective MSRs.
+Added: Our sale agreements generally require us to either repurchase loans if we have breached any of these representations or warranties, which may result in recording a loss and/or bearing any subsequent loss on the loan, and/or pay monetary penalties.
+Added: We may not be able to recover our losses from a borrower or other third party in the event of such a breach of representation or warranty due to a lack of remedies or lack of financial resources of the borrower, and we may be required to bear the full amount of the related loss.
We also originate, purchase, sell and service loans insured by the Federal Housing Administration (“FHA”) and U.S.
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We are subject to audits of our processes, procedures and documentation of such loans, and any violations of the guidelines can result in monetary penalties, which could be significant if there are systemic violations, as well as indemnification requirements or restrictions on participation in the program.
−Removed: If we experience increased repurchase and indemnity demands on loans or MSRs that we have sold or that we sell from our portfolios in the future, or if we are assessed significant penalties for violations of origination guidelines, our liquidity, financial condition, results of operations and capital position may be adversely affected.
+Added: If we experience increased repurchase and indemnity demands on loans that we have sold or that we sell from our portfolios in the future, or if we are assessed significant penalties for violations of origination guidelines, our liquidity, financial condition, results of operations and capital position may be adversely affected.
A portion of our revenue is derived from residential mortgage lending which is a market sector that experiences significant volatility.
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Our capital management strategy may impact the value of our common stock and could negatively impact our ability to maintain a well-capitalized position.
−Removed: We actively manage our capital levels with a goal of returning excess capital to shareholders, which we currently do through dividend and stock repurchase programs.
−Removed: While we have been able to sustain our dividend payments, a materially negative change to our business, results of operations and capital position, could cause us to suspend dividend payments to preserve capital.
−Removed: In addition, the amount and declaration of future cash dividends are subject to our level of profitability, approval by our Board of Directors and certain legal and regulatory restrictions.
−Removed: While the intent of our capital management strategy is to improve the long-term value of our stock, we cannot be assured that stock repurchases will actually enhance long-term shareholder value.
−Removed: Repurchases may affect our stock price and increase its volatility in the short term.
−Removed: While the existence of the program may increase the price and decrease liquidity in our stock in the short term, other market factors may cause the price of our common stock to fall below the price we paid for the repurchase of our common stock.
−Removed: As a result, shareholders may not see an increase in the value of their holdings.
−Removed: While we historically have maintained capital ratios at a level higher than the regulatory minimums to be “well-capitalized”, our capital ratios in the future may decrease due to economic changes, utilization of capital to take advantage of growth or investment opportunities, or the return of additional capital to our shareholders.
+Added: While we historically have maintained capital ratios at a level higher than the regulatory minimums to be “well-capitalized”, our capital ratios in the future may decrease due to losses, economic changes, utilization of capital to take advantage of growth or investment opportunities, or the return of additional capital to our shareholders.
In the event the quality of our assets or our economic position were to deteriorate significantly, lower capital ratios may require us to raise additional capital in the future in order to remain compliant with capital standards.
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Our business is geographically confined to certain metropolitan areas of the Western United States, and events and conditions that disproportionately affect those areas may pose a more pronounced risk for our business.
−Removed: Although we presently have retail deposit branches in four states, with lending offices in these states and two others, a substantial majority of our revenues are derived from operations in the Puget Sound region of Washington, the Portland, Oregon metropolitan area, the San Francisco Bay Area, and the Los Angeles, Orange County, Riverside and San Diego metropolitan areas in Southern California.
+Added: Although we presently have retail deposit branches in four states, with lending offices in these states and two others, a substantial majority of our revenues are derived from operations in the Puget Sound region of Washington, the Portland, Oregon metropolitan area, and the Los Angeles, Orange County, Riverside and San Diego metropolitan areas in Southern California.
All of our markets are located in the Western United States.
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Because our operations are not more geographically diversified, we may lack the ability to mitigate those impacts from operations in other regions of the United States.
−Removed: The significant concentration of real estate secured loans in our portfolio has had a negative impact on our asset quality and profitability in the past and it may not have such impact in the future.
−Removed: A substantial portion of our loans are secured by real property, including a growing portfolio of commercial real estate (“CRE”) loans.
+Added: The significant concentration of real estate secured loans in our portfolio has had a negative impact on our asset quality and profitability in the past and it may have such impact in the future.
+Added: A substantial portion of our loans are secured by real property, including a portfolio of commercial real estate (“CRE”) loans.
Our real estate secured lending is generally sensitive to national, regional and local economic conditions, making loss levels difficult to predict.
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We use a variety of estimates in our accounting processes which may prove to be imprecise and result in significant changes in valuation and inaccurate financial reporting.
−Removed: We use a variety of estimates in our accounting policies and methods, including complex financial models designed to value certain of our assets and liabilities, including our allowance for credit losses.
+Added: We use a variety of estimates in our accounting policies and methods, including complex financial models designed to value certain of our assets and liabilities, including our allowance for credit losses and MSRs.
These models are complex and use specific judgment-based assumptions about the effect of matters that are inherently uncertain.
1 unchanged sentence
The assumptions used may be impacted by numerous factors, including economic conditions, consumer behavior, changes in interest rates and changes in collateral values.
−Removed: A failure to make appropriate assumptions in these models could have a negative impact on our liquidity, result of operations and capital position.
+Added: A failure to make appropriate assumptions in these models could have a negative impact on our liquidity, financial position, results of operations and capital position.
We are subject to extensive and complex regulations which are costly to comply with and may subject us to significant penalties for noncompliance.
−Removed: Our operations are subject to extensive regulation by federal, state and local governmental authorities, including the FDIC, the Washington Department of Financial Institutions and the Federal Reserve, and to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations.
+Added: Our operations are subject to extensive regulation by federal, state and local governmental authorities, including the Federal Deposit Insurance Corporation (the "FDIC"), the Washington Department of Financial Institutions ("WDFI") and the Federal Reserve, and to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of
+Added: our operations.
Many of these laws are complex, especially those governing fair lending, predatory or unfair or deceptive practices, and the complexity of those rules creates additional potential liability for us because noncompliance could result in significant regulatory action, including restrictions on operations and fines, and could lead to class action lawsuits from shareholders, consumers and employees.
In addition, various states have their own laws and regulations, especially California, which has heightened data privacy, employment law and consumer protection regulations, and the cost of complying with state rules that differ from federal rules can significantly increase compliance costs.
−Removed: Our consumer business, including our mortgage and other consumer lending and non-lending businesses, is also governed by policies enacted or regulations adopted by the CFPB which under the Dodd-Frank Act has broad rulemaking authority over consumer financial products and services.
+Added: Our consumer business, including our mortgage and other consumer lending and non-lending businesses, is also governed by policies enacted or regulations adopted by the Consumer Financial Protection Bureau (the "CFPB") which under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 has broad rulemaking authority over consumer financial products and services.
Our regulators, including the FDIC, use interpretations from the CFPB and relevant statutory citations in certain parts of their assessments of our regulatory compliance, including the Real Estate Settlement Procedures Act, the Final Integrated Disclosure Rule, known as TRID, and the Home Mortgage Disclosure Act, adding to the complexity of our regulatory requirements, increasing our data collection requirements and increasing our costs of compliance.
−Removed: The laws, rules and regulations to which we are subject evolve and change frequently, including changes that come from
−Removed: judicial or administrative agency interpretations of laws and regulations outside of the legislative process that may be more difficult to anticipate, and changes to our regulatory environment are often driven by shifts of political power in the federal government.
+Added: The laws, rules and regulations to which we are subject evolve and change frequently, including changes that come from judicial or administrative agency interpretations of laws and regulations outside of the legislative process that may be more difficult to anticipate, and changes to our regulatory environment are often driven by shifts of political power in the federal government.
In addition, we are subject to various examinations by our regulators during the course of the year.
2 unchanged sentences
Moreover, an increasing amount of the regulatory authority that pertains to financial institutions is in the form of informal “guidance” such as handbooks, guidelines, examination manuals, field interpretations by regulators or similar provisions that could affect our business or require changes in our practices in the future even if they are not formally adopted as laws or regulations.
−Removed: Any such changes could adversely affect our cost of doing business and our profitability.
+Added: Any such changes could adversely affect our cost of doing business and our financial position, results of operations and capital position.
In addition, changes in regulation of our industry have the potential to create higher costs of compliance, including short-term costs to meet new compliance standards, limit our ability to pursue business opportunities and increase our exposure to potential fines, penalties and litigation.
12 unchanged sentences
We rely on a number of key employees who are highly sought after in the industry.
−Removed: If a key employee or a substantial number of employees depart or become unable to perform their duties, it may negatively impact our ability to conduct business as usual.
+Added: If a key employee or a substantial number of employees depart or become unable to perform their duties, it may
+Added: negatively impact our ability to conduct business as usual.
We might then have to divert resources from other areas of our operations, which could create additional stress for other employees, including those in key positions.
−Removed: The loss of qualified and key personnel, or an inability to continue to attract, retain and motivate key personnel could adversely affect our business and consequently impact our financial condition and results of operations.
−Removed: Our customers may be negatively impacted by a pandemic, which may result in adverse impacts to our financial position and results of operations.
+Added: The loss of qualified and key personnel, or an inability to continue to attract, retain and motivate key personnel could adversely affect our business and consequently impact our financial condition, results of operations and capital position.
+Added: Our customers may be negatively impacted by a public health crisis, which may result in adverse impacts to our financial position and results of operations.
In the event of future public health crises, epidemics, pandemics or similar events, the communities where we do business may be put under varying degrees of restrictions on social gatherings and retail operations.
1 unchanged sentence
Some of our customers may be unable to meet their debt obligations to us in a timely manner, or at all, and we may experience a heightened number of requests from customers for forbearances on loans.
−Removed: If pandemic related Federal, state and local moratoriums on evictions for non-payment of rent are enacted, they may negatively impact the ability of some borrowers to make payments on loans made for multifamily housing.
+Added: If health emergency related Federal, state and local moratoriums on evictions for non-payment of rent are enacted, they may negatively impact the ability of some borrowers to make payments on loans made for multifamily housing.
In addition, such action may ultimately cause a meaningful number of loans in our portfolio to need forbearance or significant modification and migrate to an adverse risk rating because of impacts of an economic recession.
6 unchanged sentences
Within the financial services industry, the commercial banking sector has generally experienced, and will continue to experience, increased electronic fraudulent activity, security breaches and cybersecurity-related incidents.
−Removed: The nature of our industry sector exposes us to these risks because our business and operations include the protection and storage of confidential and proprietary corporate and personal information, including sensitive financial and other personal data, and any breach thereof could result in identity theft, account or credit card fraud or other fraudulent activity that could involve their accounts and business with us.
−Removed: The risk to our organization may be further elevated over the near term because of recent geopolitical events in Eastern Europe and Asia, which may result in increased attacks against U.S.
+Added: The nature of our industry sector exposes us to these risks because our business and operations include the protection and storage of confidential and proprietary corporate and personal information, including sensitive financial and other personal data, and any breach thereof could result in identity theft, account or credit card fraud or other fraudulent activity.
+Added: The risk to our organization may be further elevated over the near term because of recent geopolitical events in Eastern Europe and the Middle East, which may result in increased attacks against U.S.
critical infrastructure, including financial institutions.
7 unchanged sentences
While we have experienced and continue to experience various forms of these cyber incidents in the past, we have not been materially impacted by them.
−Removed: Cyber incidents may not occur again, and they could occur more frequently and on a more significant scale.
−Removed: Our business and operations rely on the secure processing, transmission, protection and storage of confidential, private and personal information by our computer operation systems and networks, as well as our online banking or reporting systems used by customers to effect certain financial transactions, all of which are either managed directly by us or through our third-party data processing vendors.
−Removed: The secure maintenance and transmission of confidential information, and the execution of transactions through our systems, are critical to protecting us and our customers against fraud and security breaches and to maintain customer confidence.
+Added: However, cyber incidents may occur again and they could occur more frequently and on a more significant scale.
+Added: Our business and operations rely on the secure processing, transmission, protection and storage of confidential, private and personal information by our computer operation systems and networks, as well as our online banking or reporting systems used by customers to perform certain financial transactions, all of which are either managed directly by us or through our third-party data processing vendors.
+Added: The secure maintenance and transmission of confidential information, and the execution of
+Added: transactions through our systems, are critical to protecting us and our customers against fraud and security breaches and to maintaining customer confidence.
To access our products and services, our customers may use personal computers, smartphones, tablet PCs, and other mobile devices that function beyond our control systems.
2 unchanged sentences
Our computer systems could be vulnerable to unforeseen problems other than cybersecurity related incidents or other data security breaches, including the potential for infrastructure damage to our systems or the systems of our vendors from fire, power loss, telecommunications failure, physical break-ins, theft, natural disasters or similar catastrophic events.
−Removed: Any damage or failure that causes interruptions in operations may compromise our ability to perform critical functions in a timely manner (or may give rise to perceptions of such compromise) and could increase our costs of doing business, or have a material adverse effect on our results of operations results as well as our reputation and customer or vendor relationships.
+Added: Any damage or failure that causes interruptions in operations may compromise our ability to perform critical functions in a timely manner (or may give rise to perceptions of such compromise) and could increase our costs of doing business, or have a material adverse effect on our financial condition, results of operations or capital position, as well as our reputation and customer or vendor relationships.
In addition, some of the technology we use in our regulatory compliance, including our mortgage loan origination and servicing technology, as well as other critical business activities such as core systems processing, essential web hosting and deposit and processing services, as well as security solutions, are provided by third party vendors.
9 unchanged sentences
Nonetheless, our measures may be insufficient to prevent all physical and electronic break-ins, denial of service and other cyber-attacks or security breaches.
−Removed: If we do not properly comply with privacy regulations and contractual obligations that require us to protect confidential information, or if we experience a security breach or network compromise, we could face regulatory sanctions, penalties or fines, increased compliance costs, remedial costs such as providing credit monitoring or other services to affected customers, litigation and damage to our reputation, which in turn could result in decreased revenues and loss of customers, any or all of which would have a material adverse effect on our business, financial condition, results of operations and capital position.
+Added: If we do not properly comply with privacy regulations and contractual obligations that require us to protect confidential information, or if we experience a security breach or network compromise, we could face regulatory sanctions, penalties or fines, increased compliance costs, remedial costs such as providing credit monitoring or other services to affected customers, litigation and damage to our reputation, which in turn could result in decreased revenues and loss of customers, any or all of which would have a material adverse effect on our financial condition, results of operations and capital position.
We continually encounter technological change, and we may have fewer resources than many of our competitors to invest in technological improvements.
−Removed: The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services to better serve customers and to reduce costs.
+Added: The financial services industry undergoes rapid technological changes with frequent introductions of new technology-driven products and services to better serve customers and to reduce costs.
Our future success will depend, in part, upon our ability to provide products and services using technology that will satisfy client demands for convenience, as well as to create additional efficiencies in our operations.
11 unchanged sentences
The payment of dividends or other transfers of funds to us, depending on the financial condition of the Bank, could be deemed an unsafe or unsound practice.
−Removed: Accordingly, we can provide no assurance that we will receive dividends or other distributions from our bank subsidiary and our other subsidiaries in an amount sufficient to pay interest on or principal of the HomeStreet Notes.
+Added: Accordingly, we can provide no assurance that we will receive dividends or other distributions from the Bank in an amount sufficient to pay interest on or principal of the HomeStreet Notes.
Regulatory guidelines may restrict our ability to pay the principal of, and accrued and unpaid interest on, the HomeStreet Notes.
As a bank holding company, our ability to pay the principal of, and interest on, the HomeStreet Notes is subject to the rules and guidelines of the Federal Reserve regarding capital adequacy.
−Removed: We intend to treat the HomeStreet Notes as “Tier 2 capital” under these rules and guidelines.
+Added: We treat the HomeStreet Notes as “Tier 2 capital” under these rules and guidelines.
The Federal Reserve guidelines generally require us to review the effects of the cash payment of Tier 2 capital instruments, such as the HomeStreet Notes, on our overall financial condition.
5 unchanged sentences
Bankruptcy Code, then the bankruptcy trustee would be deemed to have assumed, and would be required to cure, immediately any deficit under any commitment we have to any of the federal banking agencies to maintain the capital of the Bank, and any other insured depository institution for which we have such a responsibility, and any claim for breach of such obligation would generally have priority over most other unsecured claims.
−Removed: Risks Related to Certain Environmental, Social and Governance Issues
−Removed: Our business is subject to evolving regulations and stakeholders’ expectations with respect to environmental, social and governance ("ESG") matters that could expose us to numerous risks.
−Removed: Increasingly regulators, customers, investors, employees and other stakeholders are focusing on ESG matters and related disclosures.
−Removed: These developments have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased management time and attention spent complying with or meeting ESG-related requirements and expectations.
−Removed: For example, developing and acting on ESG-related initiatives and collecting, measuring and reporting ESG-related information and metrics can be costly, difficult and time consuming and are subject to evolving reporting standards, including the SEC’s proposed climate-related reporting requirements.
−Removed: We may also communicate certain initiatives and goals regarding ESG-related matters in our SEC filings or in other public disclosures.
−Removed: These ESG-related initiatives and goals could be difficult and expensive to implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and we could be criticized for the accuracy, adequacy or completeness of the disclosures.
−Removed: statements about our ESG-related initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future.
−Removed: In addition, we could be criticized for the scope, prioritization or nature of such initiatives or goals, or for any revisions to these goals.
−Removed: If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our ESG-related goals on a timely basis, or at all, our reputation, business, financial performance and growth could be adversely affected.
−Removed: Climate change could have a material negative impact on us and our customers.
−Removed: Our business, as well as the operations and activities of our customers, we believe could be negatively impacted by climate change.
−Removed: Climate change presents both immediate and long-term risks to us and our customers and these risks are anticipated to increase over time.
−Removed: Climate changes presents multi-faceted risks, including (i) operational risk from the physical effects of climate events on our facilities and other assets as well as those of our customers;
−Removed: (ii) credit risk from borrowers with significant exposure to climate risk;
−Removed: and (iii) reputational risk from stakeholder concerns about our practices related to climate change and our carbon footprint.
−Removed: Our business, reputation, and ability to attract and retain employees may also be harmed if our response to climate change risk is perceived to be ineffective or insufficient.
−Removed: Climate change exposes us to physical risk as its effects may lead to more frequent and more extreme weather events, such as prolonged droughts or flooding, tornados, hurricanes, wildfires and extreme seasonal weather;
−Removed: and longer-term shifts, such as increasing average temperatures, ozone depletion, and rising sea levels.
−Removed: Such events and long-term shifts may damage, destroy or otherwise impact the value or productivity of our properties and other assets;
−Removed: reduce the availability of insurance;
−Removed: and/or disrupt our operations and other activities through prolonged outages.
−Removed: Such events and long-term shifts may also have a significant impact on our customers, which could amplify credit risk by diminishing borrowers’ repayment capacity or collateral values, and other businesses and counterparties with whom we transact, which could have a broader impact on the economy, supply chains, and distribution networks.
+Added: Market conditions or Company specific issues may restrict our ability to raise debt or capital to pay off our HomeStreet Notes upon maturity.
+Added: The Company may have to raise debt or capital to pay off our HomeStreet Notes upon maturity.
+Added: We may not be able to raise debt or capital at the time when we need it, or on terms that are acceptable to us, especially if capital markets are especially constrained, if our financial performance weakens, or if we need to do so at a time when many other financial institutions are competing for debt and capital from investors in response to changing economic conditions.
+Added: An inability to raise additional debt or capital on acceptable terms when needed could have a material adverse effect on our business, results of operations and capital position.
+Added: In addition, any capital raising alternatives could dilute the value of our outstanding common stock held by our existing shareholders and may adversely affect the market price of our common stock.
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.