What changed in this filing

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Item 1A. Risk Factors

2025-03-14 compared with 2024-03-20 · 46 added, 40 removed, 421 unchanged (17% of the section changed)

8 unchanged sentences

Credit losses could have a material adverse effect on our business, financial condition, and results of operations.

We have significant exposure to risks associated with commercial and residential real estate.

We have exposure to risks associated with commercial and residential real estate.

A substantial portion of our loan portfolio consists of commercial and residential real estate-related loans, including construction and residential and commercial mortgage loans.

53 unchanged sentences

Additionally, to the extent that economic conditions worsen, impacting our consumer and commercial borrowers or underlying collateral, and credit losses are worse than expected, as may be caused by persistent inflation, an economic recession or otherwise, we may increase our provision for credit losses, which could have an adverse effect on our results of operations and could negatively impact our financial condition.

Continuing deterioration in economic conditions, including inflation, a possible recession, higher interest rates, unresolved or new adverse effects of the COVID-19 pandemic, and unanticipated problem loans, may necessitate an increase in our allowance for credit losses.

In addition, bank regulatory authorities may require an increase or future charge-offs based on their judgments which may differ from ours.

We may be required to increase our provisions for credit losses and to charge off loans in the future, which increases and charges could materially adversely affect us.

Continuing deterioration in economic conditions, including inflation, a possible recession, higher interest rates, unresolved or new adverse effects of a pandemic, and unanticipated problem loans, may necessitate an increase in our allowance for credit losses.

In addition, bank regulatory authorities may require an increase to the allowance for credit losses to cover future charge-offs, based on their judgments which may differ from ours.

We may be required to increase our provisions for credit losses and to charge off loans in the future, which increases in provision and charges could materially adversely affect us.

There is no precise method of predicting the timing of loan losses.

4 unchanged sentences

Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require us to increase our allowance for credit losses.

Increases in nonperforming loans have a significant impact on our allowance for loan losses.

Increases in nonperforming loans have a significant impact on our allowance for credit losses.

In addition, bank regulatory agencies periodically review our allowance for credit losses and may require us to increase the provision for credit losses or to recognize further loan charge-offs, based on judgments that differ from those of management.

16 unchanged sentences

Any significant environmental liabilities could cause an adverse effect on our business, financial condition and results of operations.

The implementation of the Current Expected Credit Loss accounting standard could require us to increase our allowance and future provisions for credit losses and may have a material adverse effect on our financial condition and results of operations .

Effective January 1, 2023, we were required to adopt the Financial Accounting Standards Board (the “FASB”) Accounting Standards Update 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments , commonly referred to as “CECL.” Under CECL the allowance for credit losses methodology has been changed from an incurred loss concept to an expected loss concept, which is more dependent on future economic forecasts, assumptions and models than previous accounting standards and could result in increases in, and add volatility to, our allowance for credit losses and future provisions for credit losses.

These forecasts, assumptions, and models are inherently uncertain and are based upon management’s reasonable judgments in light of currently available information.

As a result, our allowance for credit losses may not be adequate to absorb actual credit losses, and, if not adequate, could materially and adversely affect our financial condition and results of operations.

We are subject to environmental liability risk associated with our lending activities.

In the course of our business, we may foreclose on and take title to real estate.

Although we exercise prudent due diligence when making loans, we could be subject to environmental liabilities with respect to these properties.

We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination or may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property.

The costs associated with investigation or remediation activities could be substantial.

In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property.

Any significant environmental liabilities could cause an adverse effect on our business, financial condition and results of operations.

Climate change could have a material negative impact on us.

11 unchanged sentences

In an attempt to help the overall economy and in response to inflationary pressures, throughout 2022 and 2023 the Federal Reserve increased its targeted Fed Funds rate.

The Federal Reserve also announced its intention to take other actions to mitigate growing signs of inflation.

As the Federal Reserve continues its mission, overall interest rates have been impacted.

More recently, the Federal Reserve began decreasing the federal funds rate.

At this time there is considerable uncertainty regarding future interest rate levels.

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

4 unchanged sentences

Higher interest payment obligations could also adversely affect certain borrowers, particularly our floating-rate borrowers.

Substantial and prolonged increases in market interest rates could have a material adverse effect on our financial condition and results of operation.

Substantial and prolonged increases in market interest rates could have a material adverse effect on our financial condition, results of operation, and liquidity.

We have implemented strategies to lessen the potential effects of interest rate changes on our financial condition and results of operations.

However, such strategies may only mitigate these effects and not always be successful.

Liquidity Risk

29 unchanged sentences

BAAS Software Solutions .

In 2021, the Company began development of a proprietary BaaS software solution, Avenu, which provides an embedded banking solution that connects our partners (fintechs, application developers, money movers, and entrepreneurs) directly and seamlessly to our Software as a Service (SaaS) solution.

Developing and deploying a software program may add additional risk, including cybersecurity, compliance, financial, and reputational concerns.

Developing and deploying a software program has added, and may contain to add, additional risk, including financial, cybersecurity, compliance and reputational concerns.

In 2021, the Company began development of a proprietary BAAS solution, Avenu, to provide an embedded banking solution that connects our partners (fintech, application developers, money movers, and entrepreneurs) directly and seamlessly to our Software as a Service (SAAS).

At the end of 2024, management reviewed the Avenu platform’s performance.

Delays in bringing Avenu to market and subsequent changes in revenue generation potential necessitated a review for impairment and a resulting charge to earnings of the full value of its capitalized intangible software.

For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We face risks related to our operational, technological, and organizational infrastructure.

15 unchanged sentences

Operations Risk.

Our business is dependent on our ability to process, store and transmit, on a daily basis, a number of transactions.

Our business is dependent on our ability to process, store and transmit, on a daily basis, numerous transactions.

These transactions, as well as the information technology services we provide to clients, often must adhere to client-specific guidelines, as well as legal and regulatory standards.

14 unchanged sentences

While we have a vendor management program policy in place and believe we have selected our vendors appropriately, we cannot directly control their employees or their operating environments.

A breach or failure of a chosen vendor could have a material adverse impact on our operating environment.

A breach or failure of a chosen vendor could have a material adverse impact on our operating environment and may expose the Company’s or our customers’ data which could result in operational, compliance and/or reputational risks.

Replacing a chosen vendor could also result in a significant delay and expense.

130 unchanged sentences

In order to keep deposits required for funding purposes, it may be necessary to raise deposit rates without commensurate increases in asset pricing in the short term.

Prior to 2022, it has been the policy of the Federal Reserve to maintain interest rates at historically low levels through its targeted federal funds rate and the purchase of mortgage-backed securities.

As a result, market rates on the loans we have originated and the yields on securities we have purchased have been at historically low levels.

Prior to 2022, it had been the policy of the Federal Reserve to maintain interest rates at historically low levels through its targeted federal funds rate and the purchase of mortgage-backed securities.

As a result, market rates on the loans we originated and the yields on securities we purchased during that period have been at historically low levels.

As discussed above, rates are fluctuating, and due to a number of factors including changes in monetary policies of the Federal Reserve, will likely continue to fluctuate.

25 unchanged sentences

This contagion risk can also occur when a perceived lack of trust in the banking system spreads throughout the industry based upon the results of a few poorly managed larger financial institutions.

Our stock price may be negatively impacted by unrelated bank failures and negative customer confidence in financial institutions.

Our stock price and our required liquidity may be negatively impacted by unrelated bank failures and negative customer confidence in financial institutions.

On March 9, 2023, Silvergate Bank, La Jolla, California, announced its decision to voluntarily liquidate its assets and wind down operations;

6 unchanged sentences

These events have led to a greater focus by institutions, investors and regulators on the on-balance sheet liquidity of and funding sources for financial institutions, the composition of their deposits, including the amount of uninsured deposits, the amount of accumulated other comprehensive loss, capital levels and interest rate risk management.

If we are unable to adequately manage our liquidity, we may experience an adverse effect on our financial condition and results of operations.

Additional required capital may not be available.

4 unchanged sentences

If we cannot raise additional capital when needed, it may have a material adverse effect on our financial condition, results of operations and prospects.

Compliance and Regulatory Risks

Compliance, Legislative, and Regulatory Risks

We operate in a highly regulated environment, and we may be adversely affected by changes in laws and regulations.

We are subject to extensive regulation, supervision and examination by the Federal Reserve, our primary federal regulator, the Virginia Bureau of Financial Institutions, our chartering authority and the FDIC, as insurer of our deposits.

Such regulation and supervision govern the activities in which we may engage, and are intended primarily for the protection of the insurance fund and the depositors and borrowers of the Bank rather than for holders of our common stock.

Various consumers and compliance laws also affect our operations.

2 unchanged sentences

The earnings of the Bank, and therefore the earnings of the Company, are affected by changes in federal and state legislation and actions of various regulatory authorities.

We may be affected by possible regulatory reform and legislation.

Legislative and regulatory initiatives introduced in Congress and state legislatures, as well as by regulatory agencies, may include proposals to expand or contract the powers of financial institutions, or proposals to substantially change the overall financial institution regulatory system.

Such legislation could change banking statutes and the operating environment of the Company in substantial and unpredictable ways.

If enacted, such legislation could increase or decrease our cost of doing business, limit or expand permissible activities, or affect the balance among competing financial institutions.

The Company cannot predict the effect that any such legislation and/or implementing regulations, if adopted, may have on the Company.

A change in statutes, regulations and/or regulatory policies applicable to us, if material, could have an adverse effect on our business, financial condition, results of operations and prospects.

We may be adversely affected by changes in federal and state tax laws and regulations.

We are subject to federal and applicable state tax laws and regulations.

Such tax requirements are often complex and require interpretation.

Material changes in these laws and regulations could negatively impact our business, financial condition, results of operations and prospects.

In the normal course of business, we are routinely subject to examinations and challenges from federal and applicable state tax authorities regarding our tax obligations.

Federal and state taxation authorities may challenge tax positions of financial institutions, including us.

These positions may relate to tax compliance, sales and use, franchise, gross receipts, payroll, property and income taxation issues, including tax base, apportionment and available tax credits.

The challenges made by tax authorities may adjust the timing or amount of taxable income or deductions or the allocation of income.

Any such challenges not resolved in our favor could have a material adverse effect.

Our participation in the New Markets Tax Credit ( “ NMTC ” ) Program entails certain risks.

Our Bank is a participant as an investor and lender in the NMTC Program which provides a tax incentive for private investment into projects and businesses located in low-income communities.

NMTCs are allocated by the Community Development Financial Institutions Fund to qualified community development interests.

Refer to Note 3 for additional information regarding the current investments in the NMTC Program.

NMTCs are subject to recapture for seven years after an equity investment is made in a CDE if:

The CDE ceases to be certified;

“Substantially all” of the equity investment proceeds are no longer used for qualified businesses;

The CDE redeems the investment.

Risks Associated with Our Common Stock

29 unchanged sentences

Furthermore, if the Company experiences a material deterioration in its financial condition, liquidity, capital, results of operations or risk profile, the Company’s regulators may not permit it to make future payments on its preferred stock, thereby preventing the payment of dividends on the common stock.

We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

As an emerging growth company, we also are not subject to Section 404(b) of the Sarbanes Oxley Act of 2002, which would require that our independent auditors review and attest as to the effectiveness of our internal control over financial reporting.

In this Form 10-K, we have elected to take advantage of the reduced disclosure requirements relating to executive compensation, and in the future we may take advantage of any or all of these exemptions for so long as we remain an emerging growth company.

In addition to the relief described above, the JOBS Act permits us an extended transition period for complying with new or revised accounting standards affecting public companies.

We have elected not to take advantage of this extended transition period, which means that the financial statements included in this Form 10-K, as well as any financial statements that we file in the future, will be subject to all new or revised accounting standards generally applicable to public companies.

We will cease to be an emerging growth company upon the earliest of:

(i)the first fiscal year after our annual gross revenues are $1.07 billion or more;

(ii)the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities;

or (iii)the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year, or five years after completing our initial public offering.

Investors may find our common stock less attractive because we choose to rely on these exemptions.

If some investors find our common stock less attractive as a result of our choices to reduce disclosure, there may be a less active trading market for our common stock and the price of our common stock may be more volatile.

General Risk Factors

39 unchanged sentences

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