What changed in this filing

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Item 1. Business

2024-03-15 compared with 2023-03-15 · 98 added, 65 removed, 655 unchanged (20% of the section changed)

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We believe our integrated business model distinguishes us from other banks and non-bank financial services companies in the markets in which we operate.

As of December 31, 2022, we provided fiduciary and advisory services on $6.11 billion of trust and investment management assets (referred to as "AUM"), and we had total assets of $2.87 billion, total loans of $2.48 billion, total deposits of $2.41 billion and total shareholders’ equity of $240.9 million.

As of December 31, 2023, we provided fiduciary and advisory services on $6.75 billion of trust and investment management assets ("AUM"), and we had total assets of $2.98 billion, total loans, excluding mortgage loans held for sale, of $2.53 billion, total deposits of $2.53 billion and total shareholders’ equity of $242.7 million.

Our mission is to be the best private bank for the Western wealth management client.

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Our target clients include successful entrepreneurs, professionals and other high net worth individuals or families, along with their businesses and philanthropic organizations.

We offer our services through a branded network of boutique private trust bank offices, loan production offices, and trust offices, which we believe are strategically located in affluent and high-growth markets in nineteen locations across Colorado, Arizona, Wyoming, California, and Montana.

We offer our services through a branded network of boutique private trust bank offices, loan production offices, and trust offices, which we believe are strategically located in affluent and high-growth markets in eighteen locations across Colorado, Arizona, Wyoming, Montana, and California.

We generate a significant portion of our revenues from non-interest income, which we produce from our trust, investment management and other advisory services as well as through the origination and sale of mortgage loans.

The balance of our revenue is generated from net interest income, which we derive from our traditional banking products and services.

For the year ended December 31, 2022, non-interest income was $28.4 million, or 26.3% of total income before non-interest expense and net interest income was $83.2 million, or 77.1% of total income before non-interest expense.

For the year ended December 31, 2023, non-interest income was $21.9 million or 26.5% of total income before non-interest expense and net interest income, before the provision for credit losses, was $71.1 million, or 86.0% of total income before non-interest expense.

We believe that we have developed a unique approach to private banking to best serve our Western wealth management clients primarily as a result of the combination of the following factors:

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Since we completed an initial public offering of our common stock on July 23, 2018, our common stock has been listed on the NASDAQ Global Select Market under the symbol "MYFW."

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Our Business Strategy

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• Deepening Existing Client Relationships.

We deliver our services though our nineteen local boutique private trust bank offices, loan production offices, and trust offices.

We deliver our services though our eighteen local boutique private trust bank offices, loan production offices, and trust offices.

This allows us to use multi-discipline sales and client service teams, in-market, to ensure we are meeting each client’s comprehensive set of needs.

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In surveys, our clients generally rate us very favorably overall in areas of professionalism, reliability, service-orientation, and trust.

We have added wealth advisors in many of our profit centers as commissioned sales associates to enhance our acquisition of new clients.

• Developing Client Relationships through our Product Groups.

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Our central product groups are designed to support a significantly larger client and AUM base, providing an opportunity for significant operating leverage as we open additional profit centers.

We have sales and service specialists in our product groups, such as Retirement Services and Mortgage Services, who are able to build relationships within their area of expertise and provide expertise and high quality service that creates an opportunity for a broader relationship across our suite of products and services.

We have sales and service specialists in our product groups, such as Retirement Services and Mortgage Services, who are able to build relationships within their area of expertise and provide high quality service that creates an opportunity for a broader relationship across our suite of products and services.

• Expanding to New Markets .

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A key part of our strategy is to continue to enhance our funding sources by continuing to build our private and commercial banking capabilities to keep building our base of attractively priced core deposits.

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• Attracting Talent .

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We have a record of hiring experienced associates to enhance our organic growth, and sourcing and hiring talent will continue to be a core focus for us.

We have significant insider ownership, and, in 2021, the Board approved stock ownership guidelines to further align management and shareholder interests.

We believe that our client service model, financial strength, growth strategy and public company status will further enhance our ability to attract and retain this talent.

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The local team includes deposit, loan, trust, wealth planning, and related professionals, creating a strong interdisciplinary sales and service team.

In addition to this service team, we added wealth advisors as a commissioned sales force to several profit centers to enhance our acquisition of new clients.

We provide a broad array of products and services through our boutique private trust bank offices, largely comprised of the products and services described below.

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We also provide clients loans collateralized by cash and marketable securities.

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We employ experienced banking and business development teams who provide superior client service, value-add lending solutions and competitive pricing to market our lending products and services.

As of December 31, 2023, our loan portfolio contained a balanced and diverse mix of loans, as shown below:

Gross Loans (1)

(1) Gross loans excludes $13.7 million in consumer and other loans acc ounted for under the fair value option.

Our loan portfolio includes commercial and industrial loans, residential real estate loans, commercial real estate loans, and other consumer loans.

The principal risk associated with each category of loans we make is the creditworthiness of the borrower.

Borrower creditworthiness is affected by general economic conditions and the attributes of the borrower and the borrower’s market or industry.

Borrower creditworthiness is affected by general economic conditions, the attributes of the borrower and the borrower’s market or industry.

We underwrite for strong cash flow, multiple sources of repayment, adequate collateral, borrower experience and backup guarantors.

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These loans typically enable borrowers to purchase or refinance existing homes, most of which serve as the primary residence of the owner.

In addition, some borrowers secure a commercial purpose loan with 1-4 family residential properties.

In a ddition, some borrowers secure a commercial purpose loan with 1-4 family residential properties.

As of December 31, 2023, 1-4 family residential loans were $928.0 million, or 36.9% of our total loan portfolio, consisting of $122.2 million and $805.8 million of fixed-rate and adjustable-rate loans, respectively.

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Commercial loans secured by 1-4 family residential real estate are dependent on the strength of the local economy and local residential and commercial real estate markets.

Borrower demand for adjustable-rate compared to fixed-rate loans is a function of the level of interest rates, the expectations of changes in the level of interest rates, and the difference between the interest rates and loans fees offered for fixed-rate mortgage loans as compared to the interest-rates and loans fees for adjustable rate loans.

Borrower demand for adjustable-rate compared to fixed-rate loans is a function of the level of interest rates, the expectations of changes in the level of interest rates, and the difference between the interest rates and loan fees offered for fixed-rate mortgage loans as compared to the interest-rates and loan fees for adjustable rate loans.

The loan fees, interest rates, and other provisions of mortgage loans are determined by us on the basis of our own pricing criteria and competitive market conditions.

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Generally, our loans conform to Fannie Mae and Freddie Mac underwriting guidelines and conform to internal policies for debt-to-income or free cash flow levels.

We retain a valid lien on real estate, obtain a title insurance policy that insures that the property is free from encumbrances and require hazard insurance.

We retain a valid lien

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on real estate, obtain a title insurance policy that insures that the property is free from encumbrances and require hazard insurance.

Our focus for mortgage lending is to originate high-quality loans to drive growth in our mortgage loan portfolio.

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Loans held for investment accounted for under the fair value option are also classified within this line item and had an unpaid principal balance of $14.1 million as of December 31, 2023.

Consumer and other loans were $50.0 million, or 2.0% of our total loan portfolio.

Consumer and other loans were $27.0 million, or 1.1% of our loan portfolio, excluding $13.7 million in consumer and other loans accounted for under the fair value option.

This segment of our portfolio is affected by a variety of local and national economic factors affecting borrowers’ employment prospects, income levels, and overall economic sentiment.

Commercial and Industrial .

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These loans are primarily dependent on the strength of the industries of the related borrowers and the success of their businesses.

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Construction and Development .

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Concentrations .

Most of our lending activity and credit exposure, including real estate collateral for many of our loans, are concentrated in Colorado, Arizona, Wyoming, California, and Montana, as approximately 83.6% of the loans in our loan portfolio as of December 31, 2022 were made to borrowers who live in or conduct business in those states.

Most of our lending activity and credit exposure, including real estate collateral for many of our loans, are concentrated in Colorado, Arizona, Wyoming, Montana, and California, as approximately 83.2% of the loans in our loan portfolio as of December 31, 2023 were made to borrowers who live in or conduct business in those states.

Our commercial real estate loans are generally secured by first liens on real property.

The remaining commercial and industrial loans are typically secured by general business assets, accounts receivable, inventory and/or the corporate guaranty of the borrower and personal guaranty of its principals.

The geographic concentration subjects the loan portfolio to the general economic conditions within Colorado, Arizona, Wyoming, California, and Montana.

The risks created by such concentrations have been considered by management in the determination of the adequacy of the allowance for loan losses.

As of December 31, 2022, management believes the allowance for loan losses is adequate to absorb probable incurred losses in our loan portfolio.

The geographic concentration subjects the loan portfolio to the general economic conditions within Colorado, Arizona, Wyoming, Montana, and California.

The risks created by such concentrations have been considered by management in the determination of the adequacy of the allowance for credit losses.

As of December 31, 2023, management believes the allowance for credit losses is adequate to absorb losses in our loan portfolio.

Sound risk management practices and appropriate levels of capital are essential elements of the commercial real estate lending program.

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In addition, a third-party loan review is performed to assist in the identification of problem assets and to confirm our internal risk rating of loans.

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Our loan policies include other underwriting guidelines for loans collateralized by real estate.

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an environmental review;

loans to employees, executive officers and directors;

loans to employees;

executive officers and directors;

problem loan identification;

maintenance of an adequate allowance for loan losses;

maintenance of an adequate allowance for credit losses;

and other matters relating to lending practices.

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We analyze loans individually by classifying the loans as to credit risk on a quarterly basis.

We attempt to identify potential problem loans early in an effort to seek aggressive resolution of these situations before the loans become a loss, record any necessary charge-offs promptly and maintain adequate allowance levels for probable incurred loan losses in the loan portfolio.

In response to the COVID-19 pandemic, the Company performed increased reviews on clients that could be more impacted by shutdowns or other pandemic related issues.

See our risk factors and Notes to the Consolidated Financial Statements for more on our response to the pandemic.

We attempt to identify potential problem loans early in an effort to seek aggressive resolution of these situations before the loans become a loss, record any necessary charge-offs promptly and management believes the allowance for credit losses is adequate to absorb losses in our portfolio.

Lending Limits.

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We provide a broad range of deposit products and services, including demand deposits, interest-bearing transaction accounts, money market accounts, time and savings deposits, ICS ® , certificates of deposit and CDARS ® reciprocal products.

We provide demand deposits, interest-bearing transaction accounts, money market accounts, time and savings deposits, ICS®, certificates of deposit and CDARS® reciprocal products.

We also offer a range of treasury management products including cash manager and commercial analysis accounts, electronic receivables management, remote deposit capture, cash vault services, merchant services and other cash management services.

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For liquidity purposes, the Bank occasionally uses brokered deposits.

As of December 31, 2022 and 2021, we had brokered deposits of $115.3 mill ion a nd $22.3 mill ion, respectively.

As of December 31, 2023 and 2022, we had brokered deposits of $165.4 million and $115.3 million, respectively.

We have experienced banking and business development teams who we believe provide superior client service, creative cash management solutions and competitive pricing to market our depository products and services.

As of December 31, 2023 , total deposits we re $2.53 billion, a n increase of $123.8 million, or 5.1%, compared to $2.41 billion as of December 31, 2022.

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As of December 31, 2023 , our deposit portfolio contained a balanced and diverse mix of deposits, as shown below:

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These local teams have personal and professional networks and relationships with centers of influence to market our wealth advisory products and services.

As of December 31, 2022 , total AUM was $6.11 billion , a decrea se of $1.24 billion, or 16.9%, compared to $7.35 billion as of December 31, 2021.

As of December 31, 2023 , total AUM was $6.75 billion, an increase of $646.0 million, or 10.6%, compared to $6.11 billion as of December 31, 2022.

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As of December 31, 2023 , we provided fiduciary and advisory services on $6.75 billion of trust and investment management assets, as shown below:

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By combining internal research and a dedicated team of accredited specialized advisors like Chartered Financial Analysts and Certified Financial Planners with our pairing of proprietary and third-party investment options, we create unique solutions tailored to the specific needs of each of our clients.

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Other Products

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Our mortgage banking loan sales activities are primarily directed at originating single family mortgages that are priced and underwritten to conform to previously agreed criteria before loan funding and are delivered to the investor shortly after funding.

The level of future loan originations, loan sales and loan repayments depends on overall credit availability, the interest rate environment, the strength of the general economy, local real estate markets and the housing industry, and conditions in the secondary loan sale

The amount of gain or loss on the sale of loans is primarily driven by market conditions and changes in interest rates, as well as our pricing and asset liability management strategies.

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Sales and marketing support is provided centrally but delivered locally.

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• Our investment platform is controlled by our central investment research group, which has a strong research focus and includes many associates who have Chartered Financial Analyst designations, with oversight by our Chief Investment Officer and our Investment Policy Committee.

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Treasury and other U.S.

government agencies, corporate or sponsored entities, including mortgage-backed securities, collateralized mortgage obligations,

subordinated debt bonds, and mutual funds.

We participate in the Mortgage Partnership Finance Program ("MPF") and are required to maintain an investment in Federal Home Loan Bank of Topeka ("FHLB") stock, which investment is based on the level of our FHLB borrowings.

government agencies, corporate or sponsored entities, including mortgage-backed securities, collateralized mortgage obligations, subordinated debt bonds, and mutual funds.

We participate in the Mortgage Partnership Finance Program ("MPF") and are required to maintain an investment in Federal Home Loan Bank of Topeka ("FHLB") stock, for which the investment is based on the level of our FHLB credit obligations.

Our board of directors has the overall responsibility for the investment portfolio, including approval of our investment policy.

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In addition, business resiliency testing and planning ensures the capability of critical vendors to fail over to fully-hot replicated systems that provide complete redundancy in the event of a disaster.

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Enterprise Risk Management

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Our Enterprise Risk Management ("ERM") Committee oversees our ERM program.

This group contains key members of management including the Chief Executive Officer and the Chief Operating Officer/Chief Financial Officer.

This group contains key members of management including the Chief Executive Officer, the Chief Operating Officer, and the Chief Financial Officer.

In order to carry out the ERM program, we have developed the following objectives to:

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Associates are our trusted partners both within their teams and with our clients as we build a partnership for generations to come.

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We strive to be a high performing financial institution producing consistent, strong financial results, coming from a well-executed strategy.

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Those elements include an internally developed manager training program designed to train our managers to be great bosses in support of a culture of learning, collaboration, growth and development.

Providing meaningful work for our associates by connecting their role to the Company’s mission and vision as well as simplifying and streamlining repetitive tasks to make work more interesting and value added.

We provide meaningful work for our associates by connecting their role to the Company’s mission and vision as well as simplifying and streamlining repetitive tasks to make work more interesting and value added.

We are building career paths, development opportunities and accountabilities into each role so that throughout the associates lifecycle there is opportunity to master skills and pursue professional and personal growth.

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We believe in a corporate culture where all people are empowered to reach their full potential through autonomy, mastery, and purpose.

The Company’s Board of Directors fosters this belief by ensuring that strategies are adopted that result in the Company understanding both associate performance and engagement at every level.

We continue to take steps to expand our role as an employer that champions diversity, equity, and inclusion grounded in and by our core values.

In 2020, we established a DEI Task Force, led by our CEO, to develop and support DEI programs and policies.

We established six subcommittees devoted to carrying out our goal of fostering a diverse, equitable, and inclusive Company and workforce.

In late 2022 we began the process of redefining our DEI program to

include four action-oriented groups.

Once implemented, the members of each ARG (Associate Resource Group) will work towards moving initiatives forward to meet goals established by leadership.

In addition, we are members of Colorado Inclusive Economy, a business-led non-profit focused on promoting effective DEI initiatives.

The Company’s Board of Directors fosters this belief by ensuring that strategies are adopted that result in the Company understanding both associate performance and engagement at every l evel.

The Company has invested in developing the necessary formal infrastructure to ensure fair pay across job classes and our geographic footprint.

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Our compensation program includes competitive salary/hourly pay and incentive pay in the form of an annual bonus and stock awards to officers and certain members of the management team.

We have significant insider ownership, and, in 2021, the Board approved stock ownership guidelines applicable to our executive officers and other key position holders to further align management and shareholder interests.

In addition, the Company offers a 401(k) Plan with an employer matching contribution.

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Our structure, with local teams and central experts, is designed to serve clients that have assets, liabilities, families, businesses, and long term goals that each require different types of expertise.

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Respectful – For First Westerners, Respectful means valuing the unique knowledge and experiences each stakeholder brings to a discussion.

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We are always looking for ways to improve processes, products, and services.

Client focused – First Western’s fiduciary DNA guides us to act in the client’s interest while protecting the Bank.

Client focused – First Western’s highly ethical DNA guides us to act in the client’s interest while protecting the Bank.

Our clients know that as their trusted partner, FW has the strength and sophistication to help them for generations.

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They may also require us to provide financial support to any bank that we control, maintain capital balances in excess of those desired by management, and pay higher deposit insurance premiums as a result of a general deterioration in the financial condition of the Bank or other depository institutions we control.

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The description below summarizes certain elements of the applicable bank regulatory framework.

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The Basel III Capital Rules also attempt to improve the quality of capital by implementing changes to the definition of capital.

Among the most important changes are stricter eligibility criteria for regulatory capital instruments that disallow the inclusion of certain instruments, such as trust preferred securities (other than grandfathered trust preferred securities such as those issued by the Company), in Tier 1 capital going forward and new constraints on the inclusion of minority interests, mortgage-servicing assets, deferred tax assets and certain investments in the capital of unconsolidated financial institutions.

Among the most important changes are stricter eligibility criteria for regulatory capital instruments that disallow the inclusion of certain instruments, such as trust preferred securities (other than grandfathered trust preferred securities), in Tier 1 capital going forward and new constraints on the inclusion of minority interests, mortgage-servicing assets, deferred tax assets and certain investments in the capital of unconsolidated financial institutions.

In addition, the Basel III Capital Rules require that most regulatory capital deductions be made from CET1 capital.

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In addition, these rules include greater recognition of collateral and guarantees, and revised capital treatment for derivatives and repo-style transactions.

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The federal bank regulators have modified certain aspects of the Basel III Capital Rules since the rules were initially published, and additional modifications may be made in the future.

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The Company filed an election and became a financial holding company in 2006.

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Sound Banking Practices.

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In reviewing applications seeking approval of merger and acquisition transactions, the bank regulatory authorities generally consider, among other things, the competitive effect and public benefits of the transactions, the financial and managerial resources and future prospects of the combined organization (including the capital position of the combined organization), the applicant’s performance record under the Community Reinvestment Act, (see the section captioned "Community Reinvestment Act" included below in this item), fair housing laws and the effectiveness of the subject organizations in combating money laundering activities.

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The Company is also subject to the Change in Bank Control Act of 1978 ("Control Act") and related Federal Reserve regulations, which provide that any person who proposes to acquire at least 10% (but less than 25%) of any class of a bank holding company’s voting securities is presumed to control the company (unless the company is not publicly held or some other shareholder owns a greater percentage of voting stock).

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The FDIC may also direct state nonmember banks that are poorly rated or subject to written supervisory actions not to pay dividends in order to ensure adequate capital exists to support their risk profile.

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In 2009, the Federal Reserve issued a supervisory letter providing greater clarity to its policy statement on the payment of dividends by bank holding companies.

In this letter, the Federal Reserve stated that when a holding company’s

board of directors is deciding on the level of dividends to declare, it should consider, among other factors:

In this letter, the Federal Reserve stated that when a holding company’s board of directors is deciding on the level of dividends to declare, it should consider, among other factors:

(i) overall asset quality, potential need to increase reserves and write down assets, and concentrations of credit;

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Regulation Y requires that a bank holding company that is not well capitalized or well managed, or that is subject to any unresolved supervisory issues, provide prior notice to the Federal Reserve for any repurchase or redemption of its equity securities for cash or other value that would reduce by 10% or more the holding company’s consolidated net worth aggregated over the preceding 12-month period.

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Annual Reporting;

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The Company is required to provide annual audited financial statements and other information to the FDIC as required under Part 363 of FDIC rules and regulations.

In July 2023, the federal banking regulators proposed revisions to the Basel III Capital Rules to implement the Basel IV standards and make other changes to the Basel III Capital Rules.

The proposal introduces revised credit, equity, and operational risks, as well as credit valuation adjustment risk and market risk requirements, among other changes.

However, the revised capital requirements of the proposed rule would not apply to the Company or the Bank because they have less than $100 billion in total consolidated assets and trading assets and liabilities below the threshold for market risk requirements.

In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted.

Among other things, the IRA imposes a new 1% excise tax on the fair market value of stock repurchased after December 31, 2022 by publicly traded U.S.

corporations.

With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements.

Imposition of Liability for Undercapitalized Subsidiaries.

FDIA requires bank regulators to take "prompt corrective action" to resolve problems associated with insured depository institutions.

The FDIA requires bank regulators to take "prompt corrective action" to resolve problems associated with insured depository institutions.

In the event an institution becomes "undercapitalized," it must submit a capital restoration plan.

The capital restoration plan will not be accepted by the regulators unless each company "having control of" the undercapitalized institution "guarantees" the subsidiary’s compliance with the capital restoration plan until it becomes "adequately capitalized." For purposes of this statute, the Company has control of the Bank.

Under FDIA, the aggregate liability of all companies controlling a particular institution is limited to the lesser of five percent of the depository institution’s total assets at the time it became undercapitalized or the amount necessary to bring the institution into compliance with applicable capital standards.

FDIA grants greater powers to bank regulators in situations where an institution becomes "significantly" or "critically" undercapitalized or fails to submit a capital restoration plan.

Under the FDIA, the aggregate liability of all companies controlling a particular institution is limited to the lesser of five percent of the depository institution’s total assets at the time it became undercapitalized or the amount necessary to bring the institution into compliance with applicable capital standards.

The FDIA grants greater powers to bank regulators in situations where an institution becomes "significantly" or "critically" undercapitalized or fails to submit a capital restoration plan.

For example, a bank holding company controlling such an institution can be required to obtain prior Federal Reserve approval of proposed distributions, or might be required to consent to a merger or to divest the troubled institution or other affiliates.

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For example, FDIC regulations provide that higher capital may be required to take adequate account of, among other things, interest rate risk and the risks posed by concentrations of credit, nontraditional activities or securities trading activities.

As of December 31, 2022, and 2021, the Bank exceeded all regulatory minimum capital requirements.

As of December 31, 2023 an d 2022, the Bank exceeded all regulatory minimum capital requirements.

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Prompt Corrective Regulatory Action.

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In addition, for a capital restoration plan to be acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan.

If a depository institution fails to submit an acceptable

plan, it is treated as if it is "significantly undercapitalized." "Significantly undercapitalized" depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become "adequately capitalized," requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks.

If a depository institution fails to submit an acceptable plan, it is treated as if it is "significantly undercapitalized." "Significantly undercapitalized" depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become "adequately capitalized," requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks.

"Critically undercapitalized" institutions are subject to the appointment of a receiver or conservator.

As of December 31, 2022 , the Bank qualified as "well capitalized" under the prompt corrective action rules.

As of December 31, 2023 and 2022, the Bank qualified as "well capitalized" under the prompt corrective action rules.

Deposit Insurance Assessments.

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If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including the parent bank holding company, with respect to any extensions of credit they have made to such insured depository institution.

In November 2023, the FDIC issued a final rule to implement a special assessment to recover losses to the DIF incurred as a result of recent bank failures and the FDIC's use of the systemic risk exception to cover certain deposits that were otherwise uninsured.

The special assessment was based on estimated uninsured deposits as of December 31, 2022 (excluding the first $5.0 billion) and will be assessed at a quarterly rate of 3.36 basis points, over eight quarterly assessment periods, beginning in the first quarter of 2024.

As a result of the exclusion for the first $5.0 billion in the final rule, we are not required to pay an assessment.

Under the final rule, the estimated loss pursuant to the systemic risk determination will be periodically adjusted, and the FDIC has retained the ability to cease collection early, extend the special assessment collection period and impose a final shortfall special assessment on a one-time basis.

The extent to which any such additional future assessments will impact our future deposit insurance expense is currently uncertain.

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Consumer Financial Protection.

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Violations of applicable consumer protection laws can result in significant potential liability from litigation brought by clients, including actual damages, restitution, and attorneys’ fees.

Federal bank regulators, state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other remedies, including regulatory sanctions, customer rescission rights, action by the state and local attorneys general in each jurisdiction in which we operate and civil money penalties.

Federal bank regulators, the U.S.

Department of Justice, state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other remedies, including regulatory sanctions, customer rescission rights, action by the U.S.

Department of Justice, the state and local attorneys general in each jurisdiction in which we operate and civil money penalties.

Failure to comply with consumer protection requirements may also result in our failure to obtain any required bank regulatory approval for merger or acquisition transactions the Company may want to pursue or our prohibition from engaging in such transactions even if approval is not required.

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The CFPB has been particularly active in issuing rules and guidelines concerning residential mortgage lending and servicing, issuing numerous rules and guidance related to residential mortgages.

Perhaps the most significant of these guidelines is the "Ability-to-Repay and Qualified Mortgage Standards under the Truth in Lending Act" portions of

Regulation Z.

Perhaps the most significant of these guidelines is the "Ability-to-Repay and Qualified Mortgage Standards under the Truth in Lending Act" portions of Regulation Z.

Under the Dodd-Frank Act, creditors must make a reasonable and good faith determination, based on verified and documented information, that the consumer has a reasonable "ability to repay" a residential mortgage according to its terms.

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Undercapitalized institutions are generally not permitted to accept, renew, or roll over brokered deposits.

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Community Reinvestment Act.

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A violation of these restrictions may result in the assessment of substantial civil monetary penalties on the affected bank or any officer, director, employee, agent, or other person participating in the conduct of the affairs of that bank, the imposition of a cease and desist order, and other regulatory sanctions.

In October 2023, the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency (“OCC”), issued a joint final rule to modernize the CRA regulatory framework.

The final rule is intended, among other things to adapt to changes in the banking industry, including internet and the expanded role of mobile and online banking, and to tailor performance standards to account for differences in bank size, and business models.

The final rule introduces new tests under which the performance of banks with over $2 billion in assets will be assessed.

The new rule also includes data collection and reporting requirements, some of which are applicable only to banks with over $10 billion in assets.

Most provisions of the final rule will become effective on January 1, 2026, and the data reporting requirements will become effective on January 1, 2027.

Safety and Soundness Standards.

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The privacy provisions of the GLB Act affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.

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Anti-Money Laundering.

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Thus, the Company and the Bank are not currently subject to the Volcker Rule.

Concentration in Commercial Real Estate Lending

Concentration in Commercial Real Estate Lending ("CRE")

As a part of their regulatory oversight, the federal regulators have issued guidelines on sound risk management practices with respect to a financial institution’s CRE lending activities.

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The Company’s CRE concentrations are discussed in the "Risk Factors" section below.

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Interstate Banking and Branching

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The Dodd-Frank Act permits a national or state bank, with the approval of its regulator, to open a de novo branch in any state if the law of the state in which the branch is proposed would permit the establishment of the branch if the bank was charted in such state.

The Federal Reserve, the Office of the Comptroller of the Currency and FDIC jointly issued a final rule in 1997 that adopted uniform regulations implementing Section 109 of the Riegle-Neal Act.

The Federal Reserve, the OCC and FDIC jointly issued a final rule in 1997 that adopted uniform regulations implementing Section 109 of the Riegle-Neal Act.

Section 109 which prohibits any bank from establishing or acquiring a branch or branches outside of its home state primarily for the purpose of deposit production.

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If we fail to remain compliant with changing components of this regulation, we could be subject to various regulatory sanctions, including financial penalties.

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The FFIEC's examination procedures regarding overall business continuity management ("BCM") focus on enterprise-wide approaches that address technology, business operations, testing, and communication strategies critical to the continuity of the business.

The BCM procedures describe principles and practices for information technology ("IT") and operations designed to achieve safety and soundness, consumer financial protection, and compliance with applicable

laws, regulations, and rules.

Continued testing, training, and program updates ensure appropriate response to cyber and non-cyber, human and non-human disaster events.

While we are compliant with BCM measures, the scope and severity of cyber and non-cyber, human, and non-human disaster events is unpredictable.

The Company has a robust pandemic plan, which covers disaster events similar to COVID-19 and includes detailed preparation, training, and testing that have been conducted over multiple years prior to COVID-19.

This preparation includes a comprehensive, annual Business Impact Analysis.

As such, the Company remains poised to react to a pandemic event;

however, future pandemic strains may be unpredictable in scope and severity of impact.

The Federal Trade Commission's (FTC) Safeguard's Rule was updated effective January 2022.

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The increasingly complex and diverse global landscape for cloud services providers and users to be compliant and to also be able to weather operational challenges with inconsistent regulatory frameworks.

Despite the challenges noted by the OCCIP, the Treasury Department intends to be guided by its Strategic Vision for Supporting the Resilience of the Financial Sector’s Use of Cloud Services and will address issues that could impact operational resilience of the financial institution sector.

The Company is currently exploring adoption of a Zero Trust Network Architecture and related cloud security infrastructure to support its migration to the cloud.

In 2023, the Treasury Department conveyed its commitment to work with financial regulators, industry, and cloud service providers to drive increased collaboration and transparency by building trust and cooperation to promote safe and effective migration for financial institutions choosing to adopt cloud services.

Despite the challenges noted by the Treasury Department, it intends to be guided by its Strategic Vision for Supporting the Resilience of the Financial Sector’s Use of Cloud Services and will address issues that could impact operational resilience of the financial institution sector.

The Company is in the process of adoption of a Zero Trust Network Architecture and related cloud security infrastructure to support its migration to the cloud.

Despite extensive due diligence with our technology and security advisors and the known benefits of cloud adoption, unforeseen risks and threats in cyberspace continue to evolve to challenge our cybersecurity controls .

In 2023, the SEC issued a final rule that requires disclosure of material cybersecurity incidents, as well as cybersecurity risk management, strategy and governance.

Under this rule, banking organizations that are SEC registrants must generally disclose information about a material cybersecurity incident within four business days of determining it is material with periodic updates as to the status of the incident in subsequent filings as necessary.

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Anti-Money Laundering Act of 2020

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Some of the key requirements of the AML Act requires FinCEN to:

(1) establish standards for the reporting of information on beneficial ownership, build an IT system to collect

and secure the data, and create access protocols;

(1) establish standards for the reporting of information on beneficial ownership, build an IT system to collect and secure the data, and create access protocols;

(2) establish national anti-money laundering and countering the financing of terrorism priorities;

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The nature of future monetary policies and the effects of these policies on the Bank’s business and earnings cannot be predicted.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business