Item 1A. Risk Factors
ITEM 1A.
RISK FACTORS
There are no material changes to the risk factors as previously discussed in Part I, Item 1A. of our 2022 Annual Report on Form 10-K, except as described below.
Risks Related to Our Business and Industry
Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the
banking system.
The recent high-profile bank failures have generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks like
the Company. These market developments have negatively impacted customer confidence in the safety and soundness of regional banks. As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding
short-term fixed income securities, all of which could materially adversely impact the Company's liquidity, loan funding capacity, net interest margin, capital and results of operations. While the Department of the Treasury, the Federal Reserve and
the FDIC have made statements ensuring that depositors of the recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence
in regional banks and the banking system more broadly.
Rising interest rates have decreased the value of the Company's held-to-maturity securities portfolio, and the Company would
realize losses if it were required to sell such securities to meet liquidity needs.
As a result of inflationary pressures and the resulting rapid increases in interest rates over the last year, the trading value of previously issued government and other
fixed income securities has declined significantly. These securities make up a majority of the securities portfolio of most banks in the U.S., including the Company's, resulting in unrealized losses embedded in the held-to-maturity portion of U.S.
banks' securities portfolios. While the Company does not currently intend to sell these securities, if the Company were required to sell such securities to meet liquidity needs, it may incur losses, which could impair the Company's capital, financial
condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability. While the Company has taken actions to maximize its funding sources, there is no guarantee
that such actions will be successful or sufficient in the event of sudden liquidity needs. Furthermore, while the Federal Reserve Board has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S.
treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral at par, to mitigate the risk of potential losses on the sale of such instruments, there is no guarantee that such programs will be effective in
addressing liquidity needs as they arise.
Risks Related to Legal, Governmental and Regulatory Changes
Any regulatory examination scrutiny or new regulatory requirements arising from the recent events in the banking industry could
increase the Company's expenses and affect the Company's operations.
The Company also anticipates increased regulatory scrutiny - in the course of routine examinations and otherwise - and new regulations directed towards banks of similar
size to the Bank, designed to address the recent negative developments in the banking industry, all of which may increase the Company's costs of doing business and reduce its profitability. Among other things, there may be an increased focus by both
regulators and investors on deposit composition and the level of uninsured deposits. The cost of resolving the recent bank failures may prompt the FDIC to increase its premiums above the recently increased levels or to issue additional special
assessments.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)
Not applicable
(b)
Not applicable
(c)
None
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4.
MINE SAFETY DISCLOSURES
None
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