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In addition, the impact of these changes may be magnified if we do not effectively manage the relative sensitivity of our assets and liabilities to changes in market interest rates, and our ability to manage such relative sensitivity may be adversely impacted by competitive conditions in the banking industry and in the financial markets.
−Removed: Due to the changing conditions in the national economy, we cannot predict with certainty how future changes in interest rates, deposit levels and loan demand will impact our business and profitability.
−Removed: Changes in the method pursuant to which the London Interbank Offered Rate (“LIBOR”) and other benchmark rates are determined, as well as the discontinuance and replacement of LIBOR as a reference rate, could adversely impact our business and results of operations.
−Removed: LIBOR and certain other interest rate benchmarks are the subject of recent national and international reform.
−Removed: We expect that the publication of the remaining LIBOR rates will cease immediately following the LIBOR publication on June 30, 2023.
−Removed: federal banking agencies have issued statements to encourage U.S.
−Removed: banks to transition away from U.S.
−Removed: dollar LIBOR as soon as practicable and not to enter into new contracts that use U.S.
−Removed: dollar LIBOR after December 31, 2021.
−Removed: Due to LIBOR’s extensive use across financial markets, the transition away from LIBOR pose risks and challenges to financial markets and financial institutions, including the Company, and liquidity in certain interbank markets on which LIBOR estimates are based has been declining.
−Removed: At this time, it is not possible to predict exactly when and to what extent banks will discontinue providing submissions for the calculation of LIBOR.
−Removed: Similarly, at this time, it is not possible to predict exactly how long LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become the generally accepted alternatives to LIBOR, or what the effect of any such changes in views or alternatives may be on the markets for LIBOR-linked financial instruments.
−Removed: Certain of our LIBOR-based financial products and contracts, including, but not limited to, hedging products, debt obligations, investments, and loans, extend beyond 2023.
−Removed: We are continuing to assess, and plan for, the impact that a cessation or market replacement of LIBOR will have on these various products and contracts and working to transition many LIBOR based products and contracts to other interest rate structures.
−Removed: The market transition away from LIBOR to alternative reference rates is a complex process and could have a range of effects on the Company’s business, financial condition and results of operations, including but not limited to by (i) adversely affecting the interest rates received or paid on the revenues and expenses associated with, or the value of the Company’s LIBOR-based assets and liabilities;
−Removed: (ii) adversely affecting the interest rates paid on or received from other securities or financial arrangements, given LIBOR’s historically prominent role in determining market interest rates globally, or (iii) resulting in disputes, litigation or other actions with borrowers or other counterparties about the interpretation or enforceability of certain fallback language contained in LIBOR-based loans, securities or other contracts.
−Removed: The discontinuation of LIBOR could result in operational, legal and compliance risks, and, if we are unable to adequately manage such risks and transition from LIBOR to new reference rates, our business, financial condition, results of operations and future prospects may be adversely impacted.
+Added: Due to the changing conditions in the national economy and uncertainty regarding the rate of inflation and the impacts of governmental policies to combat elevated inflation, we cannot predict with certainty how future changes in interest rates, deposit levels and loan demand will impact our business and profitability.
Our cost of funds may increase as a result of general economic conditions, interest rates and competitive pressures.
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We have traditionally obtained funds principally through local deposits as we have a base of lower cost transaction deposits.
−Removed: Our costs of funds and our profitability and liquidity are likely to be adversely affected if we have to rely upon higher cost borrowings from other institutional lenders or brokers to fund loan demand or liquidity needs.
+Added: Our cost of funds and our profitability and liquidity are likely to be adversely affected if we have to rely upon higher cost borrowings from other institutional lenders or brokers to fund loan demand or liquidity needs.
Also, changes in our deposit mix and growth could adversely affect our profitability and the ability to expand our loan portfolio, as well as our liquidity and funding mix.
+Added: During 2022 and 2023, in response to rising market interest rates, our cost of funds increased due to customer migration from lower-cost to higher-cost deposit accounts, including interest-bearing transaction accounts and time deposits, which negatively impacted our cost of funds and net interest margin.
Our investment securities portfolio could decline in value as a result of interest rate changes and changes in issuer credit quality or the strength of the associated collateral.
If interest rates change in the future, the market value of our investment securities portfolio may decline.
−Removed: Weaknesses in the credit quality of the issuers of the securities within our portfolio or in the strength of the collateral, if any, underlying those securities could also result in a decline in the value of our investment securities portfolio, which could negatively affect equity and potentially impact our earnings.
+Added: Weaknesses in the credit quality of the issuers of the securities within our portfolio or in the strength of the collateral, if any, underlying those securities could also result in a decline in the value of our investment securities portfolio, which could negatively affect equity and potentially impact our earnings or the liquidity that we could generate from our investment securities portfolio.
A lack of liquidity could impair our ability to fund our business and thereby adversely affect our financial condition and results of operations.
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This could result in a lack of liquidity, which could materially and adversely affect our business.
+Added: Changes in the method pursuant to which benchmark rates are determined, as well as the discontinuance and replacement of reference rates, could adversely impact our business and results of operations.
+Added: Certain interest rate benchmarks, including the London Interbank Offered Rate (“LIBOR”), have, over the course of recent years, been the subject of national and international reform.
+Added: For example, during 2023, the publication of LIBOR rates ceased.
+Added: The market transition away from a widely used benchmark rate to alternative reference rates is a complex process and can have (and has, on occasion, had) a range of effects on the Company’s business, financial condition and results of operations, including but not limited to, by (i) adversely affecting the interest rates received or paid on the revenues and expenses associated with, or the value of, the Company’s assets and liabilities;
+Added: (ii) adversely affecting the interest rates paid on or received from other securities or financial arrangements, given a benchmark rate’s historically prominent role in determining market interest rates globally, or (iii) resulting in disputes, litigation or other actions with borrowers or other counterparties about the interpretation or enforceability of certain fallback language contained in benchmark rate-based loans, securities or other contracts.
+Added: The future discontinuation of a benchmark rate could result in operational, legal and compliance risks, and, if we are unable to adequately manage such risks and transition, our business, financial condition, results of operations and future prospects may be adversely impacted.
+Added: The transition from LIBOR has resulted in and could continue to result in added costs and employee efforts and could present additional risk.
+Added: Since alternative reference rates are calculated differently than LIBOR, payments under contracts referencing new alternative reference rates will differ from those referencing LIBOR.
Risks Related to the Company’s Lending Activities
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Risks Related to Our Business, Industry, and Markets
+Added: Our business, financial condition, and results of operations could be adversely affected by developments impacting the financial services industry, such as recent bank failures or concerns involving liquidity.
+Added: Recent events in the financial services industry (including the 2023 closures of Silicon Valley Bank, Signature Bank and First Republic Bank) caused general uncertainty and concern regarding the adequacy of liquidity of the financial services industry generally.
+Added: While we rely on different sources of funding to meet potential liquidity needs, our business strategies are largely based on access to funding from customer deposits and supplemental funding provided by wholesale or other secondary liquidity sources.
+Added: Deposit levels may be affected by various industry factors, including interest rates paid by competitors, general interest rate levels, returns available to customers on alternative investments, conditions in the financial services industry specifically and general economic conditions that impact the amount of liquidity in the economy and savings levels, and also by factors that impact customers’ perception of our financial condition and capital and liquidity levels.
+Added: In response to the closures of Silicon Valley Bank and Signature Bank, in 2023 the Secretary of the U.S.
+Added: Department of the Treasury approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank and Signature Bank in a manner that fully protected depositors by utilizing the Deposit Insurance Fund, and the Federal Reserve announced it would make available additional funding for eligible depository institutions to help assure banks have the ability to meet the needs of their depositors.
+Added: While it appears these steps by the banking regulators helped customers’ perception of the financial markets and financial services industry generally, a number of factors, including further bank closures, or deposit outflows (and particularly sudden deposit outflows) from banks, may drive additional deposit outflows, increased borrowing and funding costs, and increased competition for liquidity, any of which could have a material adverse impact on our financial performance or financial condition.
Our business may be adversely affected by conditions in the financial markets and general economic conditions.
Changes in economic conditions could cause the values of assets and liabilities recorded in the financial statements to change rapidly, resulting in material future adjustments in asset values, the allowance for credit losses, or capital that could negatively impact the Company’s ability to meet regulatory capital requirements and maintain sufficient liquidity.
−Removed: The Great Recession elevated unemployment levels and negatively impacted consumer confidence.
−Removed: It also had a detrimental impact on industry-wide performance nationally as well as the Company’s market areas.
−Removed: While improvement in several economic indicators have been noted since 2013, including increasing consumer confidence levels, increased economic activity and a continued decline in unemployment levels, the COVID-19 pandemic led to extensive additional disruptions to the economy generally during 2020 and 2021.
In a significant recession, declining asset values, defaults on mortgages and consumer loans, and the lack of market and investor confidence, as well as other factors, can all combine to increase credit default swap spreads, to cause rating agencies to lower credit ratings, and to otherwise increase the cost and decrease the availability of liquidity, despite very significant declines in Federal Reserve borrowing rates and other government actions.
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In addition to pursuing the acquisition of existing viable financial institutions as opportunities arise we may also continue to engage in de novo branching to further our growth strategy.
−Removed: De novo branching and growing through acquisition involve numerous risks, including the following:
+Added: De novo branching and growing through acquisition involve numerous risks, including the following (among others):
• the inability to obtain all required regulatory approvals;
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We continue to experience fraud attempts and losses through, for example, deposit fraud (such as wire fraud and check fraud) and loan fraud.
−Removed: Fraud may also arise from the misconduct of our employees.
+Added: Fraud has also arisen from the misconduct of our employees.
The methods used to perpetrate and combat fraud continue to evolve, particularly as advances in technology occur.
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While we maintain a vendor management program designed to assist in the oversight and monitoring of our third-party service providers, there can be no assurance that we will not experience service-related issues associated with our vendors.
−Removed: Our controls and procedures may fail, or our employees may not adhere to them.
−Removed: It is critical that our internal controls, disclosure controls and procedures, and corporate governance policies and procedures be effective in order to provide assurance that our financial reports and disclosures are materially accurate.
−Removed: A failure or circumvention of our controls and procedures, or a failure to comply with regulations related to controls and procedures, could have a material adverse effect on our business, financial condition, and results of operations, as well as cause reputational harm, which could limit our ability to access the capital markets.
+Added: Our controls, policies and procedures may fail, or our employees may not adhere to them.
+Added: It is critical that our internal controls, disclosure controls and procedures, and corporate governance and operational policies and procedures be effective in order to provide assurance that our financial reports and disclosures are materially accurate.
+Added: A failure or circumvention of our controls, policies and procedures, or a failure to comply with regulations related to controls, policies and procedures, could have a material adverse effect on our business, financial condition, and results of operations, as well as cause reputational harm, which could limit our ability to access the capital markets.
Errors or mistakes in the provision of services to our customers or in carrying out our own transactions can subject us to liability, result in losses, or otherwise negatively impact our business.
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Accounting standards periodically change, and the application of our accounting policies and methods may require management to make estimates about matters that are uncertain.
−Removed: The regulatory bodies that establish accounting standards, including, among others, the FASB and the SEC, periodically revise or issue new financial accounting and reporting standards that govern the preparation of our consolidated financial statements.
+Added: The regulatory bodies that establish accounting standards, including, among others, the Financial Accounting Standards Board (“FASB”) and the SEC, periodically revise or issue new financial accounting and reporting standards that govern the preparation of our consolidated financial statements.
The effect of such revised or new standards on our financial statements can be difficult to predict and can materially impact how we record and report our financial condition and results of operations.
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Some of the provisions of legislation and regulation that have adversely impacted the Company include the “Durbin Amendment” to the Dodd-Frank Act, which mandates a limit to debit card interchange fees, and Regulation E amendments to the EFTA regarding overdraft fees.
−Removed: Future financial legislation and regulatory initiatives can limit the type of products we offer, the methods by which we offer them, and the prices at which they are offered.
+Added: Future financial legislation and regulatory initiatives can limit the type of products we offer, the methods by which we offer them, the prices at which they are offered, and the fees that are associated with them.
These provisions can also increase our costs in offering these products.
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From time to time, we are subject to litigation.
−Removed: Litigation and claims can arise in various contexts, including, among others, our lending activities, deposit activities, employment practices, commercial agreements, fiduciary responsibilities, compliance programs and other general business matters.
+Added: Litigation and claims can arise in various contexts, including, among others, our lending activities, deposit activities, employment practices, commercial agreements, fiduciary responsibilities, compliance programs, anti-money laundering programs and other general business matters.
These claims and legal actions, including supervisory actions by our regulators, could involve large amounts in controversy, significant fines or penalties, and substantial legal costs necessary for our defense.
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These provisions could also discourage proxy contests and make it more difficult for holders of our common stock to elect directors other than the candidates nominated by our Board of Directors.
−Removed: Risks Related to the COVID-19 Pandemic
−Removed: The COVID-19 pandemic and resulting economic conditions have adversely impacted our business, and may adversely impact our business in the future, as well as that of our customers and third-party vendors.
−Removed: The COVID-19 pandemic and responses to it have impacted, and may continue to impact, our business, results of operations, and financial condition, as well as those of our customers and third-party vendors.
−Removed: The COVID-19 pandemic caused significant disruptions to the global economy and the lives of people around the world.
−Removed: As a result of the pandemic, governmental authorities, businesses, and the public have taken unprecedented actions designed to limit the scope and duration of the COVID-19 pandemic, as well as mitigate its effects.
−Removed: We are unable to determine how long it may take for the pandemic to fully subside.
−Removed: Changes due to COVID-19 may continue to have adverse impacts on the Company’s business due to, among other things, reduced effectiveness of operations, supply-chain challenges, unavailability of personnel (including due to illness), and increased cybersecurity risks related to use of remote technology.
−Removed: We may experience financial losses and declines in our financial condition due to a number of factors associated with the pandemic, including, among other things, deteriorations in credit quality, past due loans, challenges faced by our third-party vendors who provide key services, and charge offs resulting from difficulties faced by our hospitality, retail, restaurant, energy, and other borrowers as a result of the pandemic and responses to it (although these difficulties recently seem to be improving).
−Removed: The COVID-19 pandemic has contributed to significant volatility in the financial markets.
−Removed: Depending on the extent and duration of the COVID-19 pandemic, and perceptions regarding national and global recovery from the pandemic, volatility in the financial markets may continue which may adversely impact the price of the Company’s common stock.
−Removed: The Company may still experience adverse impacts of the COVID-19 pandemic based on future developments, including, among other things, how long the pandemic lasts, how successful vaccination efforts are, the significant spread of new strains of the virus, and whether additional restrictions are imposed on businesses and individuals.
−Removed: Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future, or as a result of changes in the behavior of customers, businesses and their employees.
−Removed: Additionally, the COVID-19 pandemic may also have the effect of heightening many of the other risks described herein and in other filings we make with the SEC.
General Risk Factors
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Severe weather events or earthquakes could also impact the value of any collateral we hold, or significantly disrupt the local economies in the markets that we serve, manifesting in a decline in loan originations, as well as an increase in the risk of delinquencies, defaults, and foreclosures.
−Removed: UNRESOLVED STAFF COMMENTS
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.