What changed in this filing

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Item 1A. Risk Factors

2024-02-23 compared with 2023-02-24 · 84 added, 42 removed, 336 unchanged (27% of the section changed)

26 unchanged sentences

As we continue to increase the amount of such loans, increased provisions for credit losses may be necessary, which would decrease our earnings.

In addition, any future credit deterioration, including as a result of COVID-19, could require us to increase our allowance for credit losses in the future.

In addition, any future credit deterioration could require us to increase our allowance for credit losses in the future.

Bank regulators periodically review our allowance for credit losses and may require an increase to the provision for credit losses or further loan charge-offs.

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The longer timelines have been the result of the economic crisis, additional consumer protection initiatives related to the foreclosure process, increased documentary requirements and judicial scrutiny, and, both voluntary and mandatory programs under which lenders may consider loan modifications or other alternatives to foreclosure.

These reasons and the legal and

regulatory responses have impacted the foreclosure process and completion time of foreclosures for residential mortgage lenders.

These reasons and the legal and regulatory responses have impacted the foreclosure process and completion time of foreclosures for residential mortgage lenders.

This may result in a material adverse effect on collateral values and our ability to minimize its losses.

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(i) a common equity Tier 1 capital ratio of 7%, (ii) a Tier 1 to risk-based assets capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%.

An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its

capital level falls below the buffer amount.

An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount.

These limitations will establish a maximum percentage of eligible retained income that can be utilized for such actions.

1 unchanged sentence

The application of more stringent capital requirements could, among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions if we were to be unable to comply with such requirements.

Furthermore, the imposition of liquidity requirements in connection with the implementation of Basel III could result in our having to lengthen the term of our funding, restructure our business models, and/or increase our holdings of liquid assets.

Implementation of changes to asset risk weightings for risk-based capital calculations, items included or deducted in calculating regulatory capital and/or additional capital conservation buffers could result in management modifying its business strategy, and could limit our ability to make distributions, including paying out dividends or buying back shares.

Specifically, Northwest Bank’s ability to pay dividends will be limited if it does not have the capital conservation buffer required by the capital rules, which may limit our ability to pay dividends to stockholders.

Specifically, Northwest Bank’s ability to pay dividends to stockholders will be limited if it does not have the capital conservation buffer required by the capital rules.

Furthermore, the imposition of liquidity requirements in connection with the implementation of Basel III could result in our having to increase our holdings of liquid assets, lengthen the term of our funding, and/or restructure our business model.

The Federal Reserve Board may require us to commit capital resources to support Northwest Bank.

1 unchanged sentence

Under the “source of strength” doctrine, the Federal Reserve Board may require a holding company to make capital injections into a troubled subsidiary bank and may charge the holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank.

A capital injection may be required at times when the holding company may not have the resources to provide it and therefore may be required to borrow the funds or raise capital.

Thus, any borrowing or funds needed to raise capital required to make a capital injection becomes more difficult and expensive and could have an adverse effect on our business, financial condition and results of operations.

A capital injection may be required at times when the holding company may not have sufficient resources and therefore may be required to borrow the funds or raise capital.

Any borrowing or capital raise could occur at a time that is more difficult and expensive and could have an adverse effect on our business, financial condition, and results of operations.

Future legislative or regulatory actions responding to perceived financial and market problems could impair our ability to foreclose on collateral.

16 unchanged sentences

Risks Related to Market Interest Rates

The reversal of the historically low interest rate environment may adversely affect our net interest income and profitability.

The reversal of the historically low interest rate environment has and may continue to adversely affect our net interest income and profitability.

The Federal Reserve Board decreased benchmark interest rates significantly, to near zero, in response to the COVID-19 pandemic.

The Federal Reserve Board has reversed its policy of near zero interest rates given its concerns over inflation.

Market interest rates have risen significantly in response to the Federal Reserve Board’s recent rate increases.

As discussed below, the increase in market interest rates is expected to have an adverse effect on our net interest income and profitability.

Beginning in 2022, the Federal Reserve Board reversed its policy of near zero interest rates given its concerns over inflation.

Market interest rates have risen significantly in response to the Federal Reserve Board’s rate increases.

As discussed below, the increase in market interest rates has had, and may continue to have, an adverse effect on our net interest income and profitability.

Changes in interest rates could adversely affect our results of operations and financial condition.

11 unchanged sentences

Net unrealized losses on these securities totaled $312.0 million at December 31, 2023.

During the year ended December 31, 2022, we incurred other comprehensive losses of $151.9 million related to net changes in unrealized holding losses in the available-for-sale investment securities portfolio.

Any increase in market interest rates may reduce our mortgage banking income.

During the year ended December 31, 2023, we incurred other comprehensive gains of $7.9 million related to net changes in unrealized holding losses in the available-for-sale investment securities portfolio.

The current level of, or any increases in market interest rates may reduce our mortgage banking income.

We generate revenues primarily from gains on the sale of mortgage loans to investors, and from the amortization of deferred mortgage servicing rights.

5 unchanged sentences

During periods of reduced loan demand, our results of operations may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in mortgage loan origination activity.

At December 31, 2022, our interest rate risk analysis indicated that the market value of our equity would decrease by 16.3% if there was an instant parallel 200 basis point increase in market interest rates.

See “Item 7A.

Quantitative and Qualitative Disclosures About Market Risk”.

Hedging against interest rate exposure may adversely affect our earnings .

On occasion we have employed various financial methodologies that limit, or “hedge,” the adverse effects of rising or decreasing interest rates on our loan portfolios and short-term liabilities.

We also engage in hedging strategies with respect to arrangements with our customers.

Our hedging activity varies based on the level and volatility of interest rates and other changing market conditions.

Hedging strategies can be imperfect and may fail to protect us from loss.

Moreover, hedging activities could result in costs if the hedge proves to be ineffective.

Additionally, hedging activities could fail to protect us or adversely affect us because, among other things:

• available interest rate hedging may not correlate to the risk for which protection is sought;

• the duration of the hedge may not match the duration of the related asset or liability;

• the counterparty in the hedging transaction may default on its obligation to pay;

• the credit quality of the counterparty may degrade to such an extent that it impairs our ability to sell or assign our side of the hedging transaction;

• the value of derivatives used for hedging may be adjusted from time to time in accordance with accounting rules to reflect changes in fair value;

• downward adjustments, or “mark-to-market” losses, would reduce our stockholders’ equity.

Risk Related to the COVID-19 Pandemic

9 unchanged sentences

Local economic conditions have a significant impact on the ability of our borrowers to repay loans and the value of the collateral securing loans.

A deterioration in economic conditions, as a result of COVID-19, recession or otherwise, could result in the following consequences, any of which could have a material adverse affect on our business, financial condition, liquidity and results of operations:

A deterioration in economic conditions could result in the following consequences, any of which could have a material adverse affect on our business, financial condition, liquidity and results of operations:

• demand for our products and services may decline;

3 unchanged sentences

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

In addition, deflationary pressures, while possibly lowering our operating costs, could have a significant negative effect on our borrowers, especially our business borrowers, and the values of underlying collateral securing loans, which could negatively affect our financial performance.

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

Inflation can have an adverse impact on our business and on our customers.

Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money.

Over the past year, in response to a pronounced rise in inflation, the Federal Reserve Board has raised certain benchmark interest rates to combat inflation.

As discussed under “Risks Related to Market Interest Rates - Changes in interest rates could adversely affect our results of operations and financial condition,” as inflation increases and market interest rates rise the value of our investment securities, particularly those with longer maturities, would decrease, although this effect can be less pronounced for floating rate instruments.

In addition, inflation generally increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our non-interest expenses.

Inflation generally increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our non-interest expenses.

Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us.

1 unchanged sentence

A deterioration in economic conditions in the United States and our markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely affect our business, financial condition and results of operations.

Beginning in 2022, in response to a pronounced rise in inflation, the Federal Reserve Board reversed its policy of “near zero” interest rates and has materially increased the target Fed Funds rate.

We may be negatively impacted by customer and depositor reaction to unrelated bank failures.

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

On March 10, 2023, Silicon Valley Bank, Santa Clara, California, was closed by the California Department of Financial Protection and Innovation.

On March 12, 2023, Signature Bank, New York, New York, was closed by the New York State Department of Financial Services, and on May 1, 2023, First Republic Bank, San Francisco, California, was closed by the California Department of Financial Protection and Innovation.

These banks had elevated levels of uninsured deposits, which may be less likely to remain at the bank over time and less stable as a source of funding than insured deposits.

These failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions.

These bank failures have led to an increased customer and regulatory focus on funding and liquidity at financial institutions, the composition of its 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 meet the increased expectations of our customers and regulatory agencies, it may have a material adverse effect on our financial condition and results of operations.

A lack of liquidity could adversely affect the Company’s financial condition and results of operations.

Liquidity is essential to the Company’s business.

The Company relies on its ability to generate deposits and effectively manage the repayment of its liabilities to ensure that there is adequate liquidity to fund operations.

An inability to raise funds through deposits, borrowings, the sale and maturities of loans and securities and other sources could have a substantial negative effect on liquidity.

The Company’s most important source of funds is its deposits.

Deposit balances can decrease when customers perceive alternative investments as providing a better risk adjusted return, which are strongly influenced by such external factors as the direction of interest rates, local and national economic conditions and the availability and attractiveness of alternative investments.

Further, the demand for deposits may be reduced due to a variety of factors such as negative trends in the banking sector, the level of and/or composition of our uninsured deposits, demographic patterns, changes in customer preferences, reductions in consumers’ disposable income, the monetary policy of the Federal Reserve or regulatory actions that decrease customer access to particular products.

If customers move money out of bank deposits and into other investments such as money market funds, the Company would lose a relatively low-cost source of funds, which would increase its funding costs and reduce net interest income.

Any changes made to the rates offered on deposits to remain competitive with other financial institutions may also adversely affect profitability and liquidity.

Other primary sources of funds consist of cash flows from operations, maturities and sales of investment securities and/or loans, brokered deposits, borrowings from the FHLB and/or FRB discount window, and unsecured borrowings.

The Company also may borrow funds from third-party lenders, such as other financial institutions.

The Company’s access to funding sources in amounts adequate to finance or capitalize its activities, or on terms that are acceptable, could be impaired by factors that affect the Company directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry, a decrease in the level of the Company’s business activity as a result of a downturn in markets or by one or more adverse regulatory actions against the Company or the financial sector in general.

Any decline in available funding could adversely impact the Company’s ability to originate loans, invest in securities, meet expenses, or to fulfill obligations such as meeting deposit withdrawal demands, any of which could have a material adverse impact on its liquidity, business, financial condition and results of operations.

Risks Related to our Business Strategy

19 unchanged sentences

Acquisitions may not enhance our cash flows, business, financial condition, results of operations or prospects as expected and such acquisitions may have an adverse effect on our results of operations, particularly during periods in which the acquisitions are being integrated into our operations.

Our continued pace of growth may require us to raise additional capital in the future, but that capital may not be available when it is needed.

Our continued pace of growth may require us to raise additional capital during unfavorable market conditions.

We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations.

We anticipate that we will have sufficient capital resources to satisfy our capital requirements for the foreseeable future.

We may at some point, however, need to raise additional capital to support our continued growth.

We may at some

point, however, need to raise additional capital to support our continued growth.

If we raise capital through the issuance of additional shares of our common stock or other securities, it would dilute the ownership interests of existing stockholders and may dilute the per share book value of our common stock.

61 unchanged sentences

Accordingly, we could suffer losses as a result of our failure to properly anticipate and manage these risks.

Our board of directors relies to a large degree on management and outside consultants in overseeing cybersecurity risk management.

The Board of the Company has an Innovation and Technology Sub-Committee, consisting of wholly independent directors chartered, among other items, with a focus on cybersecurity risk.

Additionally, the Company’s Board has a designated Risk Management Sub-Committee with the responsibility of monitoring enterprise level risks, including those related to cybersecurity.

Furthermore, management of the Company has both an Enterprise Risk Management Committee and an Information Technology Steering Committee (ITSC), both of which are comprised of the most senior members of management, including the Chief Executive Officer, Chief Information Officer, and Chief Operating Officer.

The ITSC meets monthly, or more frequently if needed, and the ERMC meets quarterly, or more frequently if needed.

Material items related to cybersecurity are reported to the Innovation and Technology and Risk Management Sub-Committees.

The Company also engages outside consultants to support its cybersecurity efforts.

The directors of the Company do not have significant experience in cybersecurity risk management in other business entities comparable to the Company and rely on members of management, including, but not limited to, the Chief Information Security Officer, Chief Information Security Officer, Chief Technology Officer and Chief Data Officer, for cybersecurity guidance.

Our business may be adversely affected by an increasing prevalence of fraud and other financial crimes.

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In addition, the fair values of securities could decline if the overall economy and the financial condition of some of the issuers deteriorates and there remains limited liquidity for these securities.

Management’s Discussion and Analysis of Financial Condition and Results of Operations-Balance Sheet Analysis-Securities” for a discussion of our securities portfolio and the unrealized losses related to the portfolio, as well as the “Marketable Securities” and “Disclosures about Fair Value of Financial Instruments” footnotes to the audited financial statements.

3 unchanged sentences

We also had $194.3 million of loans outstanding to municipalities and political subdivisions.

Widespread concern currently exists regarding the stress on state and local governments emanating from:

State and local governments may experience financial stress due to:

(i) declining revenues;

1 unchanged sentence

and (iii) entrenched cost structures.

Debt-to-gross domestic product ratios for the majority of states have been deteriorating due to, among other factors, declines in federal monetary assistance provided as the United States is currently experiencing the largest deficit in its history.

This concern has led to speculation about the potential for a significant deterioration in the municipal bond market, which could materially affect our results of operations, financial condition and liquidity.

Additionally, the debt-to-gross domestic product ratios for the majority of states have been deteriorating due to, among other factors, declines in federal monetary assistance.

These challenges have led to speculation about the potential for a significant deterioration in the municipal bond market, which could materially affect our results of operations, financial condition and liquidity.

We may not be able to mitigate the exposure in our municipal portfolio if state and local governments are unable to fulfill their obligations.

3 unchanged sentences

Given current market conditions, this sector has an enhanced level of credit risk.

Potential downgrades of U.S.

government securities by one or more of the credit ratings agencies could have a material adverse effect on our operations, earnings and financial condition.

A possible downgrade of the sovereign credit ratings of the U.S.

government and a decline in the perceived creditworthiness of U.S.

government-related obligations could impact the value of our investments, and the availability and pricing of funding transactions collateralized by those instruments.

We cannot predict if, when or how any changes to the credit ratings or perceived creditworthiness of these organizations will affect economic conditions.

Such ratings actions could result in a significant adverse impact on us.

Among other things, a downgrade in the U.S.

government’s credit rating could adversely impact the value of our securities portfolio and may trigger requirements that we post additional collateral for trades relative to these securities.

A downgrade of the sovereign credit ratings of the U.S.

government or the credit ratings of related institutions, agencies or instruments would significantly exacerbate the other risks to which we are subject and any related adverse effects on the business, financial condition and results of operations.

Risks Related to Our Debit and Credit Activities

23 unchanged sentences

This limitation does not apply to the purchase of shares by a tax-qualified employee stock benefit plan established by us.

In addition, our articles of incorporation and bylaws restrict who may call special meetings of stockholders and how directors may be removed from office.

In addition, our articles of incorporation and bylaws restrict who may call special meetings of stockholders and how directors may

be removed from office.

Additionally, in certain instances, the Maryland General Corporation Law requires a supermajority vote of our stockholders to approve a merger or other business combination with a large stockholder, if the proposed transaction is not approved by a majority of our directors.

10 unchanged sentences

Our funding sources may prove insufficient to replace deposits at maturity and support our future growth.

We must maintain sufficient funds to respond to the needs of depositors and borrowers.

As a part of our liquidity management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments.

We must maintain sufficient liquidity to respond to the needs of depositors and borrowers.

As such, we utilize a diverse set of funding sources in addition to core deposits.

As we continue to grow, we are likely to become more dependent on these sources, which may include FHLB advances, proceeds from the sale of loans, federal funds purchased and brokered certificates of deposit.

Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources.

Our financial flexibility will be severely 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.

Adverse operating results or changes in industry conditions could lead to difficulty or an inability to maintain timely access to these additional funding sources.

Our financial flexibility will 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.

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.

In this case, our operating margins and profitability would be adversely affected.

We are required to transition from the use of the LIBOR interest rate index in the future.

We have certain loans indexed to LIBOR to calculate the loan interest rate.

The LIBOR index will be discontinued for U.S.

Dollar settings effective June 30, 2023.

The implementation of a substitute index or indices for the calculation of interest rates under our loan agreements with our borrowers may incur significant expenses in effecting the transition, may result in reduced loan balances if borrowers do not accept the substitute index or indices, and may result in disputes or litigation with customers over the appropriateness or comparability to LIBOR of the substitute index or indices, which could have an adverse effect on our results of operations.

Additionally, since alternative rates are calculated differently, the transition may change our market risk profile, requiring changes to the risk and pricing models.

A protracted government shutdown may result in reduced loan originations and related gains on sale and could negatively affect our financial condition and results of operations.

8 unchanged sentences

The benefits of this strategy will depend on our ability to realize expected expense reductions without experiencing significant customer attrition.

UNRESOLVED STAFF COMMENTS

Not applicable.

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