What changed in this filing

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Item 1A. Risk Factors

2025-02-25 compared with 2024-02-23 · 149 added, 115 removed, 305 unchanged (46% of the section changed)

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The level of our commercial real estate loan portfolio may subject us to additional regulatory scrutiny.

The FDIC and the other federal bank regulatory agencies have promulgated joint guidance on sound risk management practices for financial institutions with concentrations in commercial real estate lending.

Under the guidance, a financial institution that, like us, is actively involved in commercial real estate lending should perform a risk assessment to identify concentrations.

The FDIC and the other federal banking regulatory agencies have jointly promulgated the CRE Lending Guidance on sound risk management practices for financial institutions with concentrations in commercial real estate lending.

Under the CRE Lending Guidance, a financial institution that, like us, is actively involved in commercial real estate lending should perform a risk assessment to identify concentrations.

A financial institution may have a concentration in commercial real estate lending if, among other factors, (i) total reported loans for construction, land acquisition and development, and other land represent 100% or more of total capital, or (ii) total reported loans secured by multi-family and non-farm residential properties, loans for construction, land acquisition and development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300% or more of total capital.

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The particular focus of the guidance is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be at greater risk to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution).

The purpose of the guidance is to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations.

The guidance states that management should employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing.

The purpose of the CRE Lending Guidance is to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations.

The CRE Lending Guidance states that management should employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing.

While we believe we have implemented policies and procedures with respect to our commercial real estate loan portfolio consistent with this guidance, bank regulators could require us to implement additional policies and procedures consistent with their interpretation of the guidance that may result in additional costs to us or that may result in a curtailment of our multi-family and commercial real estate lending that would adversely affect our loan originations and profitability.

For additional information, see “Supervision and Regulation—Federal Banking Regulation—Real Estate Lending Standards and Guidance.”

If the allowance for credit losses is not sufficient to cover actual credit losses, our earnings could decrease.

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Changes in laws and regulations and the cost of compliance with new laws and regulations may adversely affect our operations and our income.

The Company and Northwest Bank are subject to extensive regulation, supervision and examination by the Federal Reserve Board, the Department of Banking and the FDIC.

The Company and Northwest Bank operate in a highly regulated industry and are subject to extensive laws, regulation, supervision and examination by the Federal Reserve Board, the Department of Banking, the FDIC and the CFPB.

These laws and regulations are imposed primarily for the protection and benefit of depositors and other customers, the DIF the U.S.

banking and financial system, and the broader economy, not for the protection or benefit of the Company’s investors or non-deposit creditors.

These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the ability to impose restrictions on Northwest Bank’s operations, reclassify assets, determine the adequacy of Northwest Bank’s allowance for credit losses and determine the level of deposit insurance premiums assessed.

The laws and regulations applicable to us are subject to frequent change and interpretations.

The laws and regulations applicable to us are subject to frequent

change and interpretations and the supervisory environment may be heightened at the regulators’ discretion.

For example, the Company is unable to predict what, if any, changes to the regulatory environment may be enacted by Congress, both chambers of which became under Republican control beginning in 2025, or the new presidential administration and what the impact of any changes will be on the Company.

We expect the Trump administration will seek to implement a regulatory reform agenda that is significantly different than that of the Biden administration, impacting the rulemaking, supervision, examination, and enforcement priorities of the federal banking agencies.

Any change in these regulations and oversight, whether in the form of regulatory policy, new regulations or legislation or additional deposit insurance premiums could have a material impact on our operations.

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Moreover, bank regulatory agencies have been active in responding to concerns and trends identified in examinations, and have issued many formal enforcement orders requiring capital ratios in excess of regulatory requirements.

Bank regulatory agencies, such as the Federal Reserve Board, the Department of Banking, the CFPB and the FDIC, govern the activities in which we may engage, primarily for the protection of depositors, and not for the protection or benefit of potential investors.

In addition, new laws and regulations may increase our costs of regulatory compliance and of doing business, and otherwise affect our operations.

New laws and regulations may significantly affect the markets in which we do business, the markets for and value of our loans and investments, the fees we can charge and our ongoing operations, costs and profitability.

Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.

The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities.

If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S.

Treasury’s Office of Financial Crimes Enforcement Network.

These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts.

Failure to comply with these regulations could result in fines or sanctions or affect our ability to pursue further acquisition opportunities.

During the last year, several banking institutions have received large fines for non-compliance with these laws and regulations.

While we have developed policies and procedures designed to assist in compliance with these laws and regulations, these policies and procedures may not be effective in preventing violations of these laws and regulations.

We are subject to the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to material penalties.

The Community Reinvestment Act (“CRA”), the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions.

A successful regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity and restrictions on expansion.

Non-compliance with the Bank Secrecy Act, as amended, and its implementing regulations, or other laws and regulations could result in fines or sanctions.

The BSA, as amended, and its implementing regulations require certain financial institutions, such as banks, to develop compliance programs that prevent the financial institutions from being used to facilitate money laundering, terrorist financing and other illicit financial crimes.

If a financial institution detects suspicious activities, financial institutions are obligated to, among other things, file suspicious activity reports with the U.S.

Treasury’s FinCEN.

The BSA, as amended, and its implementing regulations also require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open accounts at the financial institution.

Failure to comply with the Bank Secrecy, as amended, and its implementing regulations could result in fines or sanctions or affect our ability to pursue further acquisition opportunities.

During the last year, several banking institutions have received large fines for non-compliance with the BSA, as amended, and its implementing regulations.

While we have developed policies and procedures designed to promote compliance with the BSA, as amended, and its implementing regulations, these policies and procedures may not be effective in preventing violations of the law.

We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to material penalties and other sanctions.

The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions.

The DOJ and other federal agencies are responsible for enforcing these laws and regulations.

A successful regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion and restrictions on entering new business lines.

Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation.

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We could become subject to more stringent capital requirements, which could adversely impact our return on equity, require us to raise additional capital, or constrain us from paying dividends or repurchasing shares.

Federal regulations establish minimum capital requirements for insured depository institutions, including minimum risk-based capital and leverage ratios, and define “capital” for calculating these ratios.

The minimum capital requirements are:

(i) a common equity Tier 1 capital ratio of 4.5%;

(ii) a Tier 1 to risk-based assets capital ratio of 6%;

(iii) a total capital ratio of 8%;

and (iv) a Tier 1 leverage ratio of 4%.

Unrealized gains and losses on certain “available-for-sale” securities holdings are to be included for purposes of calculating regulatory capital requirements unless a one-time opt-out was exercised.

The Bank exercised this one-time opt-out option.

The regulations also establish a “capital conservation buffer” of 2.5% and the following minimum ratios:

(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.

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

At December 31, 2023, Northwest Bank has met all of these requirements, including the full 2.5% capital conservation buffer.

Federal regulations establish minimum capital requirements for bank holding companies and insured depository institutions, including minimum risk-based capital and leverage ratios.

The regulations also establish a “capital conservation buffer” of 2.5%.

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 2.5% capital conservation buffer.

The primary source of funds for the Company is dividends from Northwest Bank, which is also subject these obligations to maintain sufficient capital and by other restrictions on its dividends under federal and Pennsylvania law.

From time to time, the regulators implement changes to these regulatory capital requirements.

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.

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 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.

Changes to applicable capital requirements, including to asset risk weightings for risk-based capital calculations, items included or deducted in calculating regulatory capital and/or capital 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.

Furthermore, changes to the Basel III capital rules, including the implementation of Basel III endgame, that apply to banking organizations that are larger or more internationally active than the Company and Northwest may be informally applied or considered by the Federal Reserve Board and the FDIC in their regulation, supervision and examination of, and indirectly adversely impact, smaller institutions such as the Company and the Bank.

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

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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.

There have been proposals made by members of Congress and others that would reduce the amount distressed borrowers are otherwise contractually obligated to pay under their mortgage loans and limit an institution’s ability to foreclose on mortgage collateral.

Were proposals such as these, or other proposals limiting our rights as a creditor, to be implemented, we could experience increased credit losses or increased expense in pursuing our remedies as a creditor.

Legal and regulatory proceedings and related matters could adversely affect us or the financial services industry in general.

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however, it is inherently difficult to assess the outcome of these matters, and other participants in the financial services industry or we may not prevail in any proceeding or litigation.

For example, financial institutions, such as ourselves, are subject to comprehensive regulation and periodic examination by federal and state banking regulators and face significant regulatory scrutiny, which can lead to proceedings that result in remedial actions.

These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in the Company’s capital, to restrict the Company’s growth, to change the asset composition of the Company’s portfolio or balance sheet, to assess civil money penalties against the Company’s officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate Northwest Bank’s deposit insurance.

There could be substantial cost and management diversion in such litigation and proceedings, and any adverse determination could have a materially adverse effect on our business, brand or image, or our financial condition and results of our operations.

Monetary policies and regulations of the Federal Reserve Board could adversely affect our business, financial condition and results of operations.

In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve Board.

An important function of the Federal Reserve Board is to regulate the money supply and credit conditions.

Among the instruments used by the Federal Reserve Board to implement these objectives are open market purchases and sales of U.S.

government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits.

These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits.

Their use also affects interest rates charged on loans or paid on deposits.

The monetary policies and regulations of the Federal Reserve Board have had a significant effect on the operating results of financial institutions in the past and are expected to continue to do so in the future.

The effects of such policies upon our business, financial condition and results of operations cannot be predicted.

Data privacy and cybersecurity are areas of heightened legislative and regulatory scrutiny.

As data privacy and cybersecurity risks for the financial services industry have significantly increased in recent years, data privacy and cybersecurity issues have become the subject of increasing legislative and regulatory scrutiny.

For more information regarding applicable data privacy and cybersecurity laws and regulations, see “Item 1.

Business” under the heading “Supervision and Regulation—Data Privacy and Cybersecurity.”

We also make public statements about our collection, use, transfer, storage, disclosure and other processing of personal information through our privacy policies, information provided on our website and press statements.

Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be alleged to have failed to do so.

Our public statements and documentation that provide promises and assurances about data privacy and cybersecurity can subject us to liability or regulatory action if they are found to be deceptive, unfair or misrepresentative of our actual practices.

Further, our agreements with third parties may also contain contractual commitments with which we are required to adhere related to data privacy and cybersecurity.

Ensuring that our collection, use, transfer, storage, disclosure and other processing of personal information complies with increasingly stringent and evolving data privacy and cybersecurity laws and regulations, as well as our contractual commitments and other obligations related to data privacy and cybersecurity, can increase our costs, expose us to increased liability and regulatory risk, and result in other adverse effects.

We also may be adversely affected if we become subject to new data privacy or cybersecurity laws and regulations or if existing laws and regulations are amended or interpreted in such a manner that requires us to change our business practices, policies or systems or otherwise incur significant additional costs in order to comply.

Any failure to address data privacy and cybersecurity concerns or to comply with applicable data privacy or cybersecurity laws, regulations, contractual commitments or other obligations, or any perceived failure with respect to the foregoing, even if unfounded, could result in litigation, liability, regulatory action, fines, penalties, sanctions, claims, orders to cease or change our processing of personal information, changes to our business practices, reputational harm or other adverse effects.

Risks Related to Market Interest Rates

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

Although they have decreased since

late 2023 in response to the Federal Reserve Board’s rate decreases, they remain at historically high levels.

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.

While we strive to control the impact of changes in interest rates on our net income, our results of operations and financial condition could be significantly affected by changes in interest rates.

Our results of operations depend substantially on our net interest income, which is the difference between the interest income we earn on our interest-earning assets, such as loans and investment securities, and the interest expense we pay on our interest-bearing liabilities, such as deposits, borrowings and trust preferred securities.

Because it is difficult to perfectly match the maturities and cash flows from our financial assets and liabilities our net income could be adversely impacted by changes in the level of interest rates or the slope of the Treasury yield curve.

Our results of operations and financial condition could be significantly affected by changes in interest rates.

Our results of operations and net interest income depend substantially on our net interest income, which is the difference between the interest income we earn on our interest-earning assets, such as loans and investment securities, and the interest expense we pay on our interest-bearing liabilities, such as deposits, borrowings and trust preferred securities.

Our net interest income could be adversely impacted by changes in the level and pace of change of interest rates or the slope of the Treasury yield curve, as well as balance sheet growth, customer loan and deposit preferences and competitive dynamics.

In addition, our net interest income may be adversely affected by resurgent inflationary pressures and new global supply chain challenges, fiscal policies, geopolitical matters, including as a result of changes in U.S.

presidential administrations or Congress, the implementation of tariffs and other protectionist trade policies, weather events or other developments.

Changes in interest rates may also affect the average life of loans and mortgage-related securities.

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Net unrealized losses on these securities totaled $282 million at December 31, 2024.

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.

During the year ended December 31, 2024, we incurred other comprehensive loss of $6 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.

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

Risk Related to the COVID-19 Pandemic

The economic impact of the COVID-19 outbreak could continue to affect our financial condition and results of operations.

Global health concerns relating to the COVID-19 pandemic and related government actions taken to reduce the spread of the virus have continued to affect the macroeconomic environment, both nationally and in the Company’s existing geographic footprint.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business.

The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be fully controlled and abated.

The COVID-19 pandemic and the related adverse local and national economic consequences could result in a material, adverse effect on our business, financial condition, liquidity, and results of operations.

Risks Related to Economic Conditions

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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 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 effect on our business, financial condition, liquidity and results of operations:

• demand for our products and services may decline;

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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.

The monetary policies of the Federal Reserve Board could adversely affect our business, financial condition and results of operations.

In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve Board.

An important function of the Federal Reserve Board is to regulate the money supply and credit conditions.

Among the instruments used by the Federal Reserve Board to implement these objectives are open market purchases and sales of U.S.

government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits.

These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits.

Their use also affects interest rates charged on loans or paid on deposits.

The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of financial institutions in the past and are expected to continue to do so in the future.

The effects of such policies upon our business, financial condition and results of operations cannot be predicted.

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

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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.

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.

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.

We could be adversely affected by the soundness of other financial institutions and other third parties we rely on.

Adverse developments affecting the overall strength and soundness of other financial institutions, the financial services industry as a whole and the general economic climate and the U.S.

Treasury market could have a negative impact on perceptions about the strength and soundness of the Company’s business even if the Company is not subject to the same adverse developments.

In addition, adverse developments with respect to third parties with whom the Company has important relationships could also negatively impact

perceptions about the Company.

These perceptions about the Company could cause its business to be negatively affected and exacerbate the other risks that the Company faces.

The Company may be impacted by actual or perceived soundness of other financial institutions, including as a result of the financial or operational failure of a major financial institution, or concerns about the creditworthiness of such a financial institution or its ability to fulfill its obligations, which can cause substantial and cascading disruption within the financial markets and increased expenses, including FDIC insurance premiums, and could affect the Company’s ability to attract and retain depositors and to borrow or raise capital.

For example, during 2023 the FDIC took control and was appointed receiver of Silicon Valley Bank, Signature Bank, and First Republic Bank.

The failure of other banks and financial institutions and the measures taken by governments, businesses, and other organizations in response to those events could adversely impact the Company’s business, financial condition and results of operations.

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.

The Company’s ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions.

Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships.

We have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including commercial banks, the FHLB, brokers and dealers, investment banks and other institutional customers.

As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and losses of depositor, creditor and counterparty confidence and could lead to losses or defaults by the Company or by other institutions.

Many of these transactions expose us to credit risk in the event of a default by a counterparty or client.

In addition, our credit risk may be exacerbated when our collateral cannot be foreclosed upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due.

Furthermore, successful operation of our debit card and cash management solutions business depends on the soundness of third party processors, clearing agents and others that we rely on to conduct our merchant business.

Any losses resulting from such third parties could adversely affect our business, financial condition and results of operations.

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

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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.

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 Board or regulatory actions that decrease customer access to particular products.

Increased adoption of consumer banking technology can result in reduced deposit stickiness due to the relative ease with which depositors may transfer deposits if confidence is lost in Northwest Bank.

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.

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We would seek acquisition partners that offer us either significant market presence or the potential to expand our market footprint and improve profitability through economies of scale or expanded services.

Acquiring other banks, businesses, or branches may have an adverse effect on our financial results and may involve various other risks commonly associated with acquisitions, including, among other things:

For example, on December 16, 2024, we entered into the Merger Agreement with Penns Woods.

The Merger Agreement provides for a business combination whereby Penns Woods will merge with and into the Company, with the Company as the surviving corporation in the merger.

Acquiring other banks, such as Penns Woods, businesses, or branches may have an adverse effect on our financial results and may involve various other risks commonly associated with acquisitions, including, among other things:

• difficulty in estimating the value of the target company;

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• potential changes in banking or tax laws or regulations that may affect the target company.

Loans that were acquired as part of our acquisitions of other depository institutions were not underwritten or originated in accordance with our credit standards, including environmental matters, and we did not have long-standing relationships with many of these borrowers at the time of acquisition.

Loans that were acquired as part of our acquisitions of other depository institutions, such as Penns Woods, were not underwritten or originated in accordance with our credit standards, including environmental matters, and we did not have long-standing relationships with many of these borrowers at the time of acquisition.

The acquired loans are re-risked at that date of acquisition based on our credit standards, which can temporarily increase loans classified as special mention and substandard for a period of time until these loans are integrated and conform to our credit standards.

Although we reviewed the loan portfolios of each institution acquired as part of the diligence process, and believe that we have established reasonable credit marks with regard to all loans acquired, we may incur losses in excess of the credit marks with regard to these acquired loans, and any such losses, if they occur, may have a material adverse effect on our business, financial condition, and results of operations.

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 merger with Penns Woods and other mergers and 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 during unfavorable market conditions.

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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.

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Initial timetables for the development and introduction of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible.

Furthermore, if customers do not perceive our new offerings as providing significant value, they may fail to accept our new products and services.

Furthermore, if customers do not perceive our new offerings as providing

significant value, they may fail to accept our new products and services.

External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service.

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Competition in the banking and financial services industry is intense.

We compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, fintech companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere.

We compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, fintech companies, money market funds and other mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere.

Many of these competitors (whether regional or national institutions) have substantially greater resources and lending limits than we have and may offer certain services that we do not or cannot provide.

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Our profitability depends upon our ability to successfully compete in our market areas.

We may be subject to intellectual property-related disputes or may fail to effectively obtain, maintain, defend, or enforce our intellectual property rights.

Our competition, or other third parties, may allege that we have infringed, misappropriated, or otherwise violated their intellectual property rights or challenge our rights in intellectual property that is important to our business.

To defend against such allegations and challenges, we may have to engage in litigation that could be expensive, time-consuming, disruptive to our operations, and distracting to management.

We may not be successful in defending against any such allegations or challenges, which could subject us to significant monetary damages, require significant license fees or royalty payments (which also may not be available on acceptable terms), restrict our ability to offer our products or services, or otherwise require changes to the way we conduct our business.

We rely on, and expect to continue to rely on, a variety of measures to obtain, maintain, defend, and enforce our intellectual property rights, including intellectual property laws and contractual provisions, including confidentiality agreements, invention assignments, and intellectual property licenses.

These measures may not prevent third parties from infringing, misappropriating or otherwise violating our intellectual property rights or otherwise duplicating or improving upon our products or services, any of which may adversely affect our competitive position.

Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Operational Matters

Risks associated with system failures, interruptions, or breaches of security could negatively affect our earnings.

Risks associated with system failures, interruptions, or cybersecurity breaches could negatively affect our earnings.

Information technology systems are critical to our business.

We use various technology systems to manage our customer relationships, general ledger, deposits, and loans.

We have established policies and procedures to prevent or limit the impact of system failures, interruptions, and security breaches, but such events may still occur or may not be adequately addressed if they do occur.

In addition, any compromise of our systems could deter customers from using our products and services.

Although we rely on security systems to provide security and authentication necessary to effect the secure transmission of data, these precautions may not protect our systems from compromises or breaches of security.

Our business is subject to the Gramm-Leach-Bliley Act which, among other things:

(i) imposes certain limitations on our ability to share nonpublic personal information about our customers with nonaffiliated third parties;

(ii) requires that we provide certain disclosures to customers about our information collection, sharing and security practices and afford customers the right to “opt out” of any information sharing by us with nonaffiliated third parties (with certain exceptions);

and (iii) requires that we develop, implement and maintain a written comprehensive information security program containing appropriate safeguards based on our size and complexity, the nature and scope of our activities, and the sensitivity of customer information we process, as well as plans for responding to data security breaches.

Ensuring that our collection, use, transfer and storage of personal information complies with all applicable laws and regulations can increase our costs.

Despite the defensive measures we take to manage our internal technological and operational infrastructure, threats may originate externally from third parties such as foreign governments, organized crime and other hackers, and outsource or infrastructure-support providers and application developers, or may originate internally from within our organization.

Furthermore, we may not be able to ensure that all of our clients, suppliers, counterparties and other third parties have appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means.

Our heavy reliance on information technology systems exposes us to operational risks, which include the risk of malfeasance by employees or persons outside of our organization, errors relating to transaction processing and technology, systems failures or interruptions, failures to properly implement systems upgrades, breaches of our internal control systems and compliance requirements, and business continuation and disaster recovery.

In addition, we outsource a significant amount of our data processing to certain third-party providers.

If these third-party providers encounter difficulties, or if we have difficulty communicating with them, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely affected.

Threats to information security also exist in the processing of customer information through various other vendors and their personnel.

The occurrence of any system failures, interruption, or breach of security could damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to litigation and possible financial liability.

We use various information technology systems to manage our customer relationships, general ledger, deposits, and loans.

We have established policies and procedures to prevent or limit the impact of system failures, interruptions, and cybersecurity breaches, but such events may still occur or may not be adequately addressed if they do occur.

In addition, any compromise of our information technology systems could deter customers from using our products and services.

Although we rely on information technology systems designed to provide security and authentication necessary to effect the secure transmission of data, these precautions may not protect our information technology systems from system failures, interruptions, or cybersecurity breaches.

Despite the defensive measures we take designed to manage our internal technological and operational infrastructure, threats may originate externally from foreign governments, state-sponsored actors, organized crime, terrorists, hackers, and other third parties or internally from within our organization, including our personnel or third-party providers (including infrastructure-support providers and application developers).

Furthermore, we may not be able to ensure that all of our clients, suppliers and other third-party providers, counterparties and other third parties have appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means.

Our heavy reliance on information technology systems exposes us to operational risks, which include the risk of malfeasance by personnel or persons outside of our organization, denial of service attacks, computer viruses, worms, ransomware, social engineering (including phishing attacks), service outages, software bugs or defects, server failures, errors relating to transaction processing and technology, failures to properly implement systems upgrades, breaches of our internal control systems and compliance requirements, business continuation and disaster recovery issues and other system failures, interruptions, or cybersecurity breaches.

Such risks have significantly increased in recent years in part because of the proliferation of new technologies, including artificial intelligence, and the use of the internet and telecommunications technologies to conduct financial transactions.

In addition, we outsource a significant amount of our data processing to, and otherwise rely on, certain third-party providers, and our ability to monitor such third-party providers’ data privacy and cybersecurity practices is limited.

If these third-party providers encounter difficulties or experience system failures, interruptions, or cybersecurity breaches, or if we have difficulty communicating with them, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely affected.

Additionally, any system failures, interruptions or cybersecurity breaches impacting such third-party providers may not be disclosed to us in a timely manner, and we cannot guarantee that we can obtain adequate or any reimbursement from such third-party providers in the event we should suffer any disruption, compromise, failure, liability, reputational harm or other cost or expense.

Due to applicable laws and regulations or contractual obligations, we may be held responsible for system failures, interruptions, or cybersecurity breaches attributed to such third-party providers as they relate to the information we share with them.

The occurrence, or perceived occurrence (whether unfounded or not), of any system failure, interruption, or cybersecurity breach affecting our information technology systems, or those of our third-party providers, could damage our reputation, result in a loss of customers and business, violate applicable laws and regulations, subject us to additional regulatory scrutiny, or expose us to litigation, liability or other costs or expenses.

Any of these events could have a material adverse effect on our financial condition and results of operations.

In addition, any insurance coverage we may have may not be adequate to compensate for losses from any of the foregoing.

We also cannot be sure that such insurance coverage will continue to be available on acceptable terms or at all or that any applicable insurer will not deny coverage as to any future claim.

Our risk management framework may not be effective in mitigating risk and reducing the potential for significant losses.

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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.

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 (“CIO”), and Chief Operating Officer.

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

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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.

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 CISO, CIO, Chief Operational Risk Management 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.

Our loans to businesses and individuals and our deposit relationships and related transactions are subject to exposure to the risk of loss due to fraud and other financial crimes.

Incidents of fraud and other financial crimes could also lead to significant reputational risks and other negative effects on our financial condition and results of operations.

Nationally, reported incidents of fraud and other financial crimes have increased.

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While we have policies and procedures designed to prevent such losses, losses may still occur.

We could be adversely affected by the soundness of other financial institutions and other third parties we rely on.

Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships.

We have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks and other institutional customers.

Many of these transactions expose us to credit risk in the event of a default by a counterparty or client.

Any losses resulting from such third parties could adversely affect our business, financial condition and results of operations.

Risks Related to Environmental and Other Global Matters

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The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on us.

Societal responses to climate change could adversely affect our business and performance, including indirectly through impacts on our customers.

Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts.

Consumers and businesses also may change their behavior on their own as a result of these concerns.

We and our customers will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns.

A slowdown in economic growth or a resumption of recessionary economic conditions due to global events could have an adverse effect on our business in the future.

The economy is subject to worldwide events, such as the COVID-19 pandemic and geopolitical tensions in the Middle East and Europe, as well as domestic events, any or all of which could impact inflationary pressures and interest rates to dampen demand.

These and other political and market developments are affecting and could continue to affect consumer confidence levels and cause adverse changes in loan payment patterns, causing increases in delinquencies and default rates, which may impact our charge-offs and the provision for credit losses.

Changes in the financial services industry and the effects of current and future law and regulations that may be imposed in response to future market developments also could negatively affect us by restricting our business operations, including our ability to originate or sell loans, and adversely impact our financial performance.

Climate-related risks could adversely affect our business and performance, including indirectly through impacts on our customers.

There continues to be concern, including on the part of our regulators, regarding climate change and its impacts.

Climate change could manifest as a financial risk to us either through changes in the physical climate or from the process of transitioning to a low-carbon economy.

Both physical risks and transition risks associated with climate change could have negative impacts on the financial condition or creditworthiness of our customers, and on its exposure to those customers.

Physical risks include the increased frequency or severity of acute weather events, such as floods, wildfires and tropical cyclones, and chronic shifts in the climate, such as persistent changes in precipitation levels, rising sea levels, or increases in average ambient temperature.

Transition risks arise from societal adjustment to a low-carbon economy, such as changes in public policy, adoption of new technologies or changes in consumer preferences towards low-carbon goods and services.

These risks could also be influenced by changes in the physical climate.

Concerns over the anticipated and unanticipated impacts of climate change (including physical risk and transition risk) have led and will continue to lead to governmental efforts to mitigate those impacts.

We may be compelled to change or cease some of our business or operational practices or to incur additional capital, compliance, and other costs because of climate- or environmental-driven

changes in applicable law or supervisory expectations or due to related political, social, market, or similar pressure.

We and our customers may face cost increases, asset value reductions, operating process changes and other issues.

The impact on our customers will likely vary depending on their specific attributes, including reliance on role in carbon intensive activities, among the impacts to us could be a drop in demand for our products and services, particularly in certain sectors.

In addition, we could face reductions in creditworthiness on the part of some customers or in the value of asset securing loans.

Our efforts to take these risks into account in making lending and other decisions, including by increasing our business with climate-friendly companies, may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior.

Our efforts to take these risks into account in making lending and other decisions may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior.

Further, there is increased scrutiny of climate change-related policies, goals and disclosures.

Our stakeholders may disagree with these policies and goals or, conversely, believe that these policies and goals are insufficient.

This may lead to a decrease in demand for our products and services or damage to our reputation.

We may also incur additional costs and require additional resources as we evolve our strategy, practices and related disclosures with respect to these matters.

In addition, there are and will continue to be challenges related to capturing, verifying, analyzing and disclosing climate-related data that is subject to measurement uncertainties.

Our business, financial condition, and results of operations could be adversely affected by natural disasters, health epidemics, and other catastrophic events.

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Changes in management’s estimates and assumptions may have a material impact on our Consolidated Financial Statements and our financial condition or operating results.

In preparing this annual report as well as periodic reports we are required to file under the Securities Exchange Act of 1934, including our Consolidated Financial Statements, our management is and will be required under applicable rules and regulations to make estimates and assumptions as of a specified date.

In preparing this annual report as well as periodic reports we are required to file under the Exchange Act, including our Consolidated Financial Statements, our management is and will be required under applicable rules and regulations to make estimates and assumptions as of a specified date.

These estimates and assumptions are based on management’s best estimates and experience as of that date and are subject to substantial risk and uncertainty.

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We could record future losses on our investment securities portfolio.

A number of factors or combinations of factors could require us to conclude in one or more future reporting periods that an unrealized loss that exists with respect to these and ot her securities constitutes a credit related impairment, which could result in material losses to us.

A number of factors or combinations of factors could require us to conclude in one or more future reporting periods that an unrealized loss that exists with respect to these and other securities constitutes a credit related impairment, which could result in material losses to us.

These factors include, but are not limited to, failure by the issuer to make scheduled interest payments, the issuer of the securities and their creditworthiness, any changes to the rating of the security and any adverse conditions specifically related to the security that would render us unable to forecast a full recovery in value.

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.

During the year ended December 31, 2024, we incurred other comprehensive losses of $6 million related to net changes in unrealized holding losses in the available-for-sale investment securities portfolio.

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.

Our exposure to municipalities may lead to operating losses.

Our municipal bond portfolio may be impacted by the effects of economic stress on state and local governments.

Our municipal bond portfolio may be impacte d by the effects of economic stress on state and local governments.

At December 31, 2024, we had $69 million invested in debt obligations of states, municipalities and political subdivisions (collectively referred to as our municipal bond portfolio).

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State and local governments may experience financial stress due to:

(i) declining revenues;

(i) declinin g revenues;

(ii) large unfunded liabilities to government workers;

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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.

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.

We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance.

We are a community bank, and our reputation is one of the most valuable components of our business.

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 super majority 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.

Our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance.

Our reputation is one of the most valuable components of our business.

A key component of our business strategy is to rely on our reputation for customer service and knowledge of local markets to expand our presence by capturing new business opportunities from existing and prospective customers in our current market and contiguous areas.

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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 1A. Risk Factors