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Significant increases in market interest rates on loans, or the perception that an increase may occur, could adversely affect both our ability to originate new loans and our ability to grow.
−Removed: Beginning early in 2022, in response to growing signs of inflation, the Federal Reserve Bank has increased interest rates rapidly and the federal funds rate currently sits at a 22-year high.
−Removed: Although the FRB left its benchmark rates steady in September and November of 2023, the FRB suggested that additional rate increases in the future may be necessary to mitigate inflationary pressures.
+Added: Beginning early in 2022, in response to growing signs of inflation, the Federal Reserve Bank increased interest rates rapidly, causing the federal funds rate to reach a 22-year high.
+Added: Although the FRB reduced its benchmark rates in September 2024, the inflationary outlook in the United States is currently uncertain.
Rapid changes in interest rates make it difficult for the Bank to balance its loan and deposit portfolios, which may adversely affect our results of operations by, for example, reducing asset yields or spreads, creating operating and system issues, or having other adverse impacts on our business.
−Removed: The increased market interest rates could also adversely affect the ability of our floating-rate borrowers to meet their higher payment obligations.
+Added: Persistent inflation could lead to higher interest rates, which could, in turn, increase the borrowing costs of our customers, making it more difficult for them to repay their loans or other obligations.
+Added: High interest rates could also push down asset prices and weaken economic activity.
Further, our profitability is dependent to a large extent upon net interest income, which is the difference (or “spread”) between the interest earned on loans, securities and other interest-earning assets and the interest paid on deposits, borrowings, and other interest-bearing liabilities.
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However, the yields generated by long-term loans, such as single-family residential and multifamily mortgage loans, and securities are typically driven by longer-term (10 year) interest rates, which are set by the market and vary from day to day.
−Removed: Further, recent changes in the Federal Reserve Bank's purchase of assets, commonly known as "quantitative easing," have created significant volatility in market interest rates and recent, rapid increases in federal benchmark rates and additional increases in such rates are creating additional uncertainty and making it more difficult for us to balance our loan and deposit portfolios.
−Removed: As a result of the high interest rates, our interest expense on both deposits and borrowings has increased significantly.
+Added: As a result of the interest rate increases experienced in 2022 and 2023, our interest expense on both deposits and borrowings increased significantly.
Because of the differences in maturities and repricing characteristics of our interest-earning assets and interest-bearing liabilities, changes in interest rates do not produce equivalent changes in interest income earned on interest-earning assets and interest paid on interest-bearing liabilities.
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The same could be true if interest rates on interest-earning assets decline faster than the rates on interest-bearing liabilities.
−Removed: Net interest income and earnings would be similarly impacted were the interest rates on interest-earning assets to decline more quickly than the interest rates on interest-bearing liabilities.
+Added: Net interest income and earnings would be similarly impacted if the interest rates on interest-earning assets decline more quickly than the interest rates on interest-bearing liabilities.
In addition, changes in interest rates could affect the Bank's ability to originate loans and attract and retain deposits;
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We may also be exposed to movements in market rates to a degree not experienced by other financial institutions, as a result of our significant portfolio of fixed-rate single-family home loans, which are longer-term in nature than the customer accounts and borrowed money that constitute our liabilities.
−Removed: We are currently anticipating that there will be further increases in the target federal funds rate in 2024 to combat recent inflationary trends;
−Removed: however, if interest rates do not rise, or if the Federal Reserve were to rapidly lower the target federal funds rate, the reduction in rates could continue to constrain our interest rate spread and may adversely affect our business forecasts.
−Removed: On the other hand, increases in interest rates, to combat inflation or otherwise, may result in a change in the mix of noninterest and interest-bearing accounts.
−Removed: All else being equal, if the interest rates on the Company's interest-bearing liabilities
−Removed: increase at a faster pace than the interest rates on our interest-earning assets, the result would be a reduction in net interest income and with it, a reduction in net earnings.
+Added: We are currently anticipating that there will be further decreases in the target federal funds rate in 2025 but the inflationary outlook remains uncertain.
+Added: However, if interest rates do not decrease, or if the Federal Reserve were to rapidly increase the target federal funds rate, the increase in rates could continue to constrain our interest rate spread and may adversely affect our business forecasts.
+Added: On the other hand, decreases in interest rates, may result in a change in the mix of noninterest and interest-bearing accounts.
We are unable to predict changes in interest rates, which are affected by factors beyond our control, including inflation, deflation, recession, unemployment, money supply and other changes in financial markets.
+Added: We are exposed to risks related to fraud and cyber-attacks.
+Added: Cybersecurity, and the continued development and enhancement of controls, processes, and practices designed to protect customer information, systems, computers, software, data, and networks from attack, damage, or unauthorized access remain a priority for the Company.
+Added: As cybersecurity threats continue to evolve, we may be required to expend additional resources to continue to enhance, modify, and refine our protective measures against these evolving threats.
+Added: We are continuously enhancing and expanding our digital products and services to meet customer and business needs with desired outcomes.
+Added: These digital products and services often include storing, transmitting, and processing confidential customer, employee, financial, and business information.
+Added: Due to the nature of this information, and the value it has for internal and external threat actors, we, and our third-party service providers, continue to be subject to cyber-attacks and fraud activity that attempts to gain unauthorized access, misuse information and information systems, steal information, disrupt or degrade information systems, spread malicious software, and other illegal activities.
+Added: We believe we have robust preventive, detective, and administrative safeguards and security controls to minimize the probability and magnitude of a material event.
+Added: However, if we are unable to maintain them, we may fall victim to a material adverse cybersecurity event.
+Added: Because the tactics and techniques used by threat actors to bypass safeguards and security controls change frequently, and often are not recognized until after an event has occurred, we may be unable to anticipate future tactics and techniques, or to implement adequate and timely protective measures.
+Added: We are subject to additional risk with respect to third-party vendors that process or handle personal and financial data of our customers, partners, suppliers or employees.
+Added: These third-party vendors may themselves use other vendors to store or process our data, which further elevates our risk exposure.
+Added: Our third-party vendors have been, and may in the future be, subject to security incidents, including those caused by computer viruses, malware, ransomware, phishing attempts, social engineering, hacking or other means of unauthorized access.
+Added: Control failures of security measures managed by our third-party service providers could cause us to suffer damage to our reputation and could require us to incur substantial expenses, which could have a materially adverse effect on our business, financial condition, and results of operations.
+Added: To date, we have no knowledge of a material cyber-attack or other material information security incident affecting the systems we operate and control.
+Added: However, our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, the continuation of a remote or hybrid work environment for our employees and service providers, and our plans to continue to implement and expand digital banking services, expand operations, and use third-party information systems that includes cloud-based infrastructure, platforms, and software.
+Added: Recent instances of attacks specifically targeting banks and financial services businesses indicate that the risk to our systems remains significant.
+Added: We, and our third-party providers, are regularly the subject of attempted attacks and the ability of the attackers and the method of their attacks continues to grow in sophistication.
+Added: Threat actors, including nation state attackers, could also use artificial intelligence for malicious purposes, increasing the frequency and complexity of their attacks.
+Added: Potential threats to our technologies, systems, networks, and other devices, as well as those of our employees, third party vendors, and other third parties with whom we interact, include Distributed Denial of Service ("DDoS") attacks, computer viruses, hacking, malware, ransomware, credential stuffing, phishing, and other forms of social engineering.
+Added: Such cyber-attacks and other security incidents are designed to lead to various harmful outcomes, such as unauthorized transactions against our customers’ accounts, unauthorized or unintended access to confidential information, or the release, gathering, monitoring, disclosure, loss, destruction, corruption, disablement, encryption, misuse, modification or other processing of confidential or sensitive information (including personal information), intellectual property, software, methodologies or business secrets, disruption, sabotage or degradation of service, systems or networks, or other damage.
+Added: These threats may derive from, among other things, error, fraud or malice on the part of our employees, insiders, or third parties or may result from accidental technological failure.
+Added: Any of these parties may also attempt to fraudulently induce employees, service providers, customers, partners or other third-party users of our systems or networks to disclose confidential or sensitive information (including personal information) in order to gain access to our systems, networks or data or that of our customers, partners, or third parties with whom we interact, or to unlawfully obtain monetary benefit through misdirected or otherwise improper payment.
+Added: A cyber-attack or other security incident on the systems we operate and control could cause us to suffer damage to our reputation, result in productivity losses, require us to incur substantial expenses, including response costs associated with investigation and resumption of services, remediation expenses costs associated with customer notification and credit monitoring services, increased insurance premiums, regulatory penalties and fines, and costs associated with civil litigation, any of which could have a materially adverse effect on our business, financial condition, and results of operations.
+Added: We also face additional costs when our customers become the victims of cyber-attacks.
+Added: For example, various retailers have reported that they have been the victims of a cyber-attack in which large amounts of their customers’ data, including debit and credit card information, is obtained.
+Added: Our customers may be the victims of phishing scams, providing cyber criminals access to their accounts, or credit or debit card information.
+Added: In these situations, we incur costs to replace compromised cards and address fraudulent transaction activity affecting our customers, as well as potential increases to insurance premiums for policies we may maintain to cover these losses.
+Added: Both internal and external fraud and theft are risks.
+Added: If confidential customer, employee, monetary, or business information were to be mishandled or misused, we could suffer significant regulatory consequences, reputational damage, and financial loss.
+Added: Such mishandling or misuse could include, for example, if such information were erroneously provided to parties who are not permitted to have the information, either by fault of our systems, employees, or counterparties, or if such information were to be intercepted or otherwise inappropriately taken by third parties, or if our own employees abused their access to financial systems to commit fraud against our customers and the Company.
+Added: These activities can occur in connection with activities such as the origination of loans and lines of credit, ACH transactions, wire transactions, ATM transactions, and checking transactions, and result in financial losses as well as reputational damage.
+Added: Operational errors can include information system misconfiguration, clerical or record-keeping errors, or disruptions from faulty or disabled computer or telecommunications systems.
+Added: Because the nature of the financial services business involves a high volume of transactions, certain errors, which may be automated or manual, may be repeated or compounded before they are discovered and successfully rectified.
+Added: Because of the Company’s large transaction volume and its necessary dependence upon automated systems to record and process these transactions, there is a risk that technical flaws, tampering, or manipulation of those automated systems, arising from events wholly or partially beyond its control, may give rise to disruption of service to customers and to financial loss or liability.
+Added: The occurrence of any of these risks could result in a diminished ability for us to operate our business, additional costs to correct defects, potential liability to clients, reputational damage, and regulatory intervention, any of which could adversely affect our business, financial condition and results of operations.
Inflationary pressures and rising prices may affect our results of operations and financial condition.
−Removed: Inflation rates remained elevated in 2023 however we did see a decrease from the highs seen in 2022.
−Removed: Inflation pressures are currently expected to remain elevated throughout 2023 and are likely to continue into 2024 as the inflation rate remains above the Federal Reserve Bank’s target rate of 2%.
−Removed: Inflation has led to increased costs to our customers, making it more difficult for them to repay their loans or other obligations increasing our credit risk.
−Removed: Sustained higher interest rates by the Federal Reserve may be needed to tame persistent inflationary price pressures, which could push down asset prices and weaken economic activity.
+Added: Inflation rates moved closer to the FRB’s target rate in 2024, but remained somewhat elevated and as of September 2024, above the FRB’s target of 2%.
+Added: The inflation experienced in 2022 and 2023 has led to increased costs to our customers, making it more difficult for them to repay their loans or other obligations increasing our credit risk.
+Added: The inflationary outlook in the United States is currently uncertain.
+Added: If inflationary pressures do not subside, sustained higher interest rates by the Federal Reserve may be needed to tame persistent inflationary price pressures, which could push down asset prices and weaken economic activity.
A deterioration in economic conditions in the United States and our markets could result in a further 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.
−Removed: The Company’s pending merger with Luther Burbank Corporation may expose the Company to certain risks.
−Removed: On November 13, 2022, the Company announced that it had entered into a definitive merger agreement pursuant to which it intends to acquire Luther Burbank Corporation (“Luther Burbank”) and its wholly-owned subsidiary, Luther Burbank Savings, in an all-stock transaction valued at approximately $654 million based upon the closing price of the Company’s Common Stock on November 11, 2022.
−Removed: As part of the merger agreement, shares of common stock of Luther Burbank will be converted into, and canceled in exchange for, the right to receive 0.3353 shares of the Company’s Common Stock, with Luther Burbank shareholders receiving cash in lieu of fractional shares of Company Common Stock.
−Removed: On May 4, 2023, the Company's shareholders approved the issuance of shares of Company Common Stock to the shareholders of Luther Burbank in connection with the merger, and the Luther Burbank shareholders approved the proposed merger agreement and merger with the Company and a proposal to approve on a non-binding basis the compensation that certain named executives of Luther Burbank may receive that is based on or otherwise relates to the merger.
−Removed: The Company has submitted an application for approval of the Merger to the Washington State Department of Financial Institutions (“WDFI”), the Federal Deposit Insurance Corporation (“FDIC”) and the Board of Governors of the Federal Reserve System (“Federal Reserve”).
−Removed: On October 13, 2023, the WDFI approved the Merger, subject to approval by the Federal Reserve and the FDIC.
−Removed: The Company continues to work with the Federal Reserve and the FDIC, and the merger remains subject to their approval.
−Removed: If approved, the Merger will result in the Bank’s footprint expanding to include the state of California.
−Removed: Because regulatory approval has not yet been achieved, it is possible the transaction may not be consummated as planned or at all, and may expose the Company to certain risks, prior to or after completion, including but not limited to:
−Removed: • Regulatory approvals may not be received, may take longer than expected, or may impose conditions not presently anticipated or that could have an adverse effect on the combined company following the merger.
−Removed: • The Company and Luther Burbank will be subject to business uncertainties and contractual restrictions on their respective operations while the merger is pending and the announcement and pendency of the merger could cause disruptions in the businesses of the Company and Luther Burbank, which could have an adverse effect on their respective business and financial results, and consequently on the combined company if the merger is consummated.
−Removed: • Litigation from shareholders of either Luther Burbank or the Company could attempt to prevent or delay the consummation of the merger and result in additional unanticipated costs.
−Removed: • Denial or delay of approval as a result of the February 3, 2023 comment letter to the FDIC from the California Reinvestment Coalition co-signed by other community groups and organizations.
−Removed: This letter requested that the FDIC hold public hearings on the bank merger application, and urged the FDIC to deny the bank merger application.
−Removed: • Termination of the merger agreement or failure to complete the merger for whatever reason could adversely impact the Company.
−Removed: • The value of the merger consideration to be issued by the Company is uncertain because the market price of the Company’s Common Stock will fluctuate.
−Removed: • The market price of the Company’s stock after the merger may be affected by factors different from those that currently affect the shares of the Company.
−Removed: • Changes in the operations and prospects of the Company or Luther Burbank, general market and economic conditions and other factors that may be beyond the control of the Company and Luther Burbank may alter the value of WaFd or Luther Burbank or the market price for shares of Company Common Stock or Luther Burbank common stock by the time the merger is completed.
−Removed: • Combining Luther Burbank with the Company may prove more difficult, costly or time consuming than expected, and the anticipated benefits and cost savings of the merger may not be realized.
−Removed: • The merger is subject to certain closing conditions that, if not satisfied or waived, will result in the merger not being completed, which may cause the price of the Company’s Common Stock to decline.
−Removed: • The growth opportunities and cost savings from the merger may not be fully realized or may take longer to realize than expected.
−Removed: • Operating costs, customer losses and business disruption following the merger, including adverse effects of relationships with employees, may be greater than expected.
−Removed: • The interest rate environment has changed, causing margins to compress and adversely affecting net interest income.
−Removed: • The fair value of the Luther Burbank assets to be acquired in the merger are sensitive to the interest rate environment and may fluctuate as a result of changes in interest rates, which could reduce or eliminate the anticipated benefits of the merger for the Company.
−Removed: • The combined company may be unable to retain Company and/or Luther Burbank personnel.
−Removed: • The Company may incur substantial costs associated with the merger and the integration of Luther Burbank.
−Removed: • Issuance of shares of Company Common Stock in connection with the merger may adversely affect the market price of Company Common Stock.
+Added: Integrating Luther Burbank with the Company may prove more difficult, costly or time consuming than expected, and the anticipated benefits and cost savings of the Merger may not be realized.
+Added: On March 1, 2024, the Company closed the Merger with Luther Burbank.
+Added: The Merger involves the integration of two companies that have previously operated independently and with different business models.
+Added: The ultimate success of the Merger will depend, in part, on our ability to realize the anticipated cost savings from combining the businesses of WaFd and Luther Burbank.
+Added: To realize the anticipated benefits and cost savings from the Merger, we must successfully integrate Luther Burbank’s operations with ours in a manner that permits those cost savings to be realized, without adversely affecting current revenues and future growth.
+Added: If the integration is more costly than projected, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected.
+Added: While we have realized 45% in annualized cost-savings due to the merger as of September 30, 2024, exceeding the original 25% target, an inability to maintain the full extent of these cost savings following the Merger, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, levels of expenses and operating results of the combined company, which may adversely affect the value of our Common Stock.
+Added: It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures, and policies that adversely affect the companies’ ability to maintain relationships with clients, customers, depositors, and employees or to achieve the anticipated benefits and cost savings of the Merger.
+Added: Integration efforts between the companies may also divert management attention and resources.
+Added: These integration matters could have an adverse effect on the combined company for an undetermined period after completion of the Merger.
Current uncertain economic conditions pose challenges, and could adversely affect our business, financial condition and results of operations.
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debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the United States.
−Removed: There remain increased risks of a government shutdown if the spending bills necessary to fund the government through the fiscal year that ends September 30, 2024 are not passed by Congress.
+Added: There remain increased risks of a government shutdown if the spending bills necessary to fund the government through the fiscal year that ends September 30, 2025 are not
+Added: passed by Congress.
Future deterioration in the U.S.
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government and agency obligations, and further downgrades could affect the stability of securities issued or guaranteed by the federal government and the valuation or liquidity of our portfolio of such investment securities.
−Removed: While a government-wide shutdown can reduce GDP growth, the additional economic uncertainty, or a recessionary or stagnant economy, could result in financial stress on the Bank's borrowers, which could adversely affect our business, financial condition and results of operations.
−Removed: We decreased the expense for credit losses over fiscal year 2021 and 2022 as the economy began to recover, however, deteriorating conditions in the regional economies we serve, or in certain sectors of those economies, in excess of the reasonable and supportable forecasts used to estimate credit losses, could drive losses beyond that which is provided for in our allowance for loan losses.
+Added: Economic uncertainty, or a recessionary or stagnant economy, could result in financial stress on the Bank's borrowers, which could adversely affect our business, financial condition and results of operations.
+Added: Deteriorating conditions in the regional economies we serve, or in certain sectors of those economies, in excess of the reasonable and supportable forecasts we used to estimate credit losses, could drive losses beyond that which is provided for in our allowance for loan losses.
We could also face the following risks in connection with the following events:
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The global credit and financial markets have from time-to-time experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, high rates of inflation, and uncertainty about economic stability.
−Removed: The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict, including the conflict between Russia and Ukraine, and the evolving conflict in Israel and Gaza.
+Added: Changes in trade policies by the United States or other countries, such as tariffs or retaliatory tariffs, may cause inflation which could impact the prices of products sold by our borrowers and have the potential to reduce demand for their products impacting their profitability and making it difficult for our borrowers to repay their loans.
+Added: The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict, including the conflict between Russia and Ukraine, and the evolving conflict in the Middle East.
These events have increased and are expected to continue to increase volatility in commodity and energy prices, including oil, and continuing hostilities raise the possibility of supply disruptions.
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and abroad, therefore having a broader effect on financial markets.
−Removed: Sanctions imposed by the United States and other countries in response to such conflict could further adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability.
+Added: Changes in trade policies or sanctions imposed by the United States and other countries in response to such conflict could further adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability.
Our general business strategy may be adversely affected by any such economic downturn, volatile business environment, hostile third-party action or continued unpredictable and unstable market conditions.
Our allowance for credit losses ("ACL") may not be adequate to cover future loan losses, which could adversely affect our financial condition and results of operations.
−Removed: Due to the declining economic conditions, our customers may not be able to repay their loans according to the original terms, and the collateral securing the payment of those loans may be insufficient to pay any remaining loan balance.
+Added: If our customers are unable to repay their loans according to the original terms, and the collateral securing the payment of those loans is insufficient to pay any remaining loan balance, we will be required to characterize the loan as non-performing or write it off as a loss.
We maintain an ACL to provide for loan defaults and non-performance, however, losses may exceed the value of the collateral securing the loans and the allowance may not fully cover any excess loss.
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Our ACL is based on these judgments, as well as historical loss experience and an evaluation of the other risks associated with our loan portfolio, including but not limited to, economic trends and conditions, changes in underwriting standards, management, competition, and trends in delinquencies, non-accrual and adversely classified loans, the size and composition of the loan portfolio, current economic conditions and geographic concentrations within the portfolio.
−Removed: Federal regulatory agencies, as part of their examination process, review our loans and ACL.
+Added: Banking regulatory agencies, as part of their examination process, review our loans and ACL.
If our assumptions and judgments used to determine the ACL prove to be incorrect, if the value of the collateral securing the loans decreases substantially or if regulators disagree with our judgments, we may need to increase the ACL in amounts that exceed our expectations.
−Removed: Material additions to the ACL would adversely affect our results of operations and financial condition.
+Added: Material additions to the ACL, or losses in excess of the ACL, would adversely affect our results of operations and financial condition.
We are exposed to risks related to our operational, technological, and third-party provided technology infrastructure.
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If this occurs, we may see a loss of customers, and our financial results and ability to execute on our strategic plan may be adversely impacted.
−Removed: We are exposed to risks related to fraud and cyber-attacks.
−Removed: Cybersecurity, and the continued development and enhancement of controls, processes, and practices designed to protect customer information, systems, computers, software, data, and networks from attack, damage, or unauthorized access remain a priority for the Company.
−Removed: As cybersecurity threats continue to evolve, we may be required to expend additional resources to continue to enhance, modify, and refine our protective measures against these evolving threats.
−Removed: We are continuously enhancing and expanding our digital products and services to meet customer and business needs with desired outcomes.
−Removed: These digital products and services often include storing, transmitting, and processing confidential customer, employee, financial, and business information.
−Removed: Due to the nature of this information, and the value it has for internal and external threat actors, we, and our third-party service providers, continue to be subject to cyber-attacks and fraud activity that attempts to gain unauthorized access, misuse information and information systems, steal information, disrupt or degrade information systems, spread malicious software, and other illegal activities.
−Removed: We believe we have robust preventive, detective, and administrative safeguards and security controls to minimize the probability and magnitude of a material event.
−Removed: However, if we are unable to maintain them, we may fall victim to a material adverse cybersecurity event.
−Removed: Because the tactics and techniques used by threat actors to bypass safeguards and security controls change frequently, and often are not recognized until after an event has occurred, we may be unable to anticipate future tactics and techniques, or to implement adequate and timely protective measures.
−Removed: We are subject to additional risk with respect to third-party vendors that process or handle personal and financial data of our customers, partners, suppliers or employees.
−Removed: These third-party vendors may themselves use other vendors to store or process our data, which further elevates our risk exposure.
−Removed: Our third-party vendors have been, and may in the future be, subject to security incidents, including those caused by computer viruses, malware, ransomware, phishing attempts, social engineering, hacking or other means of unauthorized access.
−Removed: Control failures of security measures managed by our third-party service providers could cause us to suffer damage to our reputation and could require us to incur substantial expenses, which could have a materially adverse effect on our business, financial condition, and results of operations.
−Removed: To date, we have no knowledge of a material cyber-attack or other material information security incident affecting the systems we operate and control.
−Removed: However, our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, the continuation of a remote or hybrid work environment for our employees and service providers, and our plans to continue to implement and expand digital banking services, expand operations, and use third-party information systems that includes cloud-based infrastructure, platforms, and software.
−Removed: Recent instances of attacks specifically targeting banks and financial services businesses indicate that the risk to our systems remains significant.
−Removed: We, and our third-party providers, are regularly the subject of attempted attacks and the ability of the attackers continues to grow in sophistication.
−Removed: Potential threats to our technologies, systems, networks, and other devices, as well as those of our employees, third party vendors, and other third parties with whom we interact, include Distributed Denial of Service ("DDoS") attacks, computer viruses, hacking, malware, ransomware, credential stuffing, phishing, and other forms of social engineering.
−Removed: Such cyber-attacks and other security incidents are designed to lead to various harmful outcomes, such as unauthorized transactions against our customers’ accounts, unauthorized or unintended access to confidential information, or the release, gathering, monitoring, disclosure, loss, destruction, corruption, disablement, encryption, misuse, modification or other processing of confidential or sensitive information (including personal information), intellectual property, software, methodologies or business secrets, disruption, sabotage or degradation of service, systems or networks, or other damage.
−Removed: These threats may derive from, among other things, error, fraud or malice on the part of our employees, insiders, or third parties or may result from accidental technological failure.
−Removed: Any of these parties may also attempt to fraudulently induce employees, service providers, customers, partners or other third-party users of our systems or networks to disclose confidential or sensitive information (including personal information) in order to gain access to our systems, networks or data or that of our customers, partners, or third parties with whom we interact, or to unlawfully obtain monetary benefit through misdirected or otherwise improper payment.
−Removed: A cyber-attack or other security incident on the systems we operate and control could cause us to suffer damage to our reputation, result in productivity losses, require us to incur substantial expenses, including response costs associated with
−Removed: investigation and resumption of services, remediation expenses costs associated with customer notification and credit monitoring services, increased insurance premiums, regulatory penalties and fines, and costs associated with civil litigation, any of which could have a materially adverse effect on our business, financial condition, and results of operations.
−Removed: We also face additional costs when our customers become the victims of cyber-attacks.
−Removed: For example, various retailers have reported that they have been the victims of a cyber-attack in which large amounts of their customers’ data, including debit and credit card information, is obtained.
−Removed: Our customers may be the victims of phishing scams, providing cyber criminals access to their accounts, or credit or debit card information.
−Removed: In these situations, we incur costs to replace compromised cards and address fraudulent transaction activity affecting our customers, as well as potential increases to insurance premiums for policies we may maintain to cover these losses.
−Removed: Both internal and external fraud and theft are risks.
−Removed: If confidential customer, employee, monetary, or business information were to be mishandled or misused, we could suffer significant regulatory consequences, reputational damage, and financial loss.
−Removed: Such mishandling or misuse could include, for example, if such information were erroneously provided to parties who are not permitted to have the information, either by fault of our systems, employees, or counterparties, or if such information were to be intercepted or otherwise inappropriately taken by third parties, or if our own employees abused their access to financial systems to commit fraud against our customers and the Company.
−Removed: These activities can occur in connection with activities such as the origination of loans and lines of credit, ACH transactions, wire transactions, ATM transactions, and checking transactions, and result in financial losses as well as reputational damage.
−Removed: Operational errors can include information system misconfiguration, clerical or record-keeping errors, or disruptions from faulty or disabled computer or telecommunications systems.
−Removed: Because the nature of the financial services business involves a high volume of transactions, certain errors, which may be automated or manual, may be repeated or compounded before they are discovered and successfully rectified.
−Removed: Because of the Company’s large transaction volume and its necessary dependence upon automated systems to record and process these transactions, there is a risk that technical flaws, tampering, or manipulation of those automated systems, arising from events wholly or partially beyond its control, may give rise to disruption of service to customers and to financial loss or liability.
−Removed: The occurrence of any of these risks could result in a diminished ability for us to operate our business, additional costs to correct defects, potential liability to clients, reputational damage, and regulatory intervention, any of which could adversely affect our business, financial condition and results of operations.
−Removed: A resurgence of the COVID-19 pandemic, or a similar health crisis, may adversely affect our business and our customers, counterparties, employees, and third-party service providers in the future.
−Removed: The spread of COVID-19 created a global public-health crisis that resulted in significant economic uncertainty, and has impacted household, business, economic, and market conditions, including in the western United States where we conduct nearly all of our business.
−Removed: Throughout the pandemic our operations were impacted by the need to close certain offices and limit how customers conduct business through our branch network.
−Removed: Many of our employees continue to work remotely, which exposes us to increased cybersecurity risks such as phishing, malware, and other cybersecurity attacks, all of which could expose us to liability and could seriously disrupt our business operations.
−Removed: A resurgence of the COVID-19 pandemic, or a similar crisis, could negatively impact our capital, liquidity, and other financial positions and our business, results of operations, and prospects.
−Removed: A resurgence in spread, caused by the rise of new variants, could affect significantly more households and businesses, or cause additional limitations on commercial activity, increased unemployment, increased property vacancy rates and general economic and financial instability.
−Removed: A slow-down or reversal in the economic recovery of the regions in which we conduct our business could result in declines in loan demand and collateral values.
−Removed: Negative impacts on our customers caused by COVID-19 or other pathogens could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans.
−Removed: Future actions of governmental authorities taken in response to a pandemic or similar crisis, such as eviction forbearance, occupancy restrictions, vaccine mandates, or suspension of mortgage foreclosures, could have a negative impact on our business.
+Added: We are subject to complex state and federal laws, rules, regulations and standards regarding data privacy and cybersecurity, which impact how we conduct our business.
+Added: We are subject to complex and evolving data privacy laws, rules, regulations, standards and contractual obligations (collectively “data privacy laws”) that relate to the privacy and security of the personal information of customers, employees or others.
+Added: These data privacy laws require, among other things, that we make certain privacy disclosures, maintain a robust security program, require disclosures and notifications during a cyber or information security incident, and regulate our collection, use, sharing, retention, and safeguarding of consumer or employee information.
+Added: State and federal regulators may also hold us responsible for privacy and data protection obligations performed by our third-party service providers while providing services to us, as well as disclosures and notifications during a cyber or information security incident.
+Added: Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services.
+Added: State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations.
+Added: Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and provide detailed requirements with respect to these programs, including data encryption requirements.
+Added: Many states have also recently implemented or modified their data breach notification and data privacy requirements.
+Added: We expect this trend of state-level activity in those areas to continue and are continually monitoring developments in the states in which the Company operates.
+Added: As the regulatory environment becomes more rigorous, we anticipate that compliance with these requirements will result in additional costs and expenses, and may impact the way we conduct business.
+Added: Our failure to comply with data privacy laws could result in potentially significant regulatory or governmental investigations, litigation, fines, or
+Added: sanctions, or cause damage to our reputation, which could have a material adverse effect on our business, financial condition or results of operations.
+Added: The development and use of Artificial Intelligence (“AI”) presents risks and challenges that may adversely impact our business.
+Added: We or our third-party (or fourth party) vendors, clients or counterparties may develop or incorporate AI technology in certain business processes, services, or products.
+Added: The development and use of AI presents a number of risks and challenges to our business.
+Added: The legal and regulatory environment relating to AI is uncertain and rapidly evolving, both in the U.S.
+Added: and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment, and other laws applicable to the use of AI.
+Added: These evolving laws and regulations could require changes in our implementation of AI technology and increase our compliance costs and the risk of non-compliance.
+Added: AI models, particularly generative AI models, may produce output or take action that is incorrect, that reflects biases included in the data on which they are trained, that results in the release of private, confidential, or proprietary information, that infringes on the intellectual property rights of others, or that is otherwise harmful.
+Added: In addition, the complexity of many AI models makes it difficult to understand why they are generating particular outputs.
+Added: This limited transparency increases the challenges associated with assessing the proper operation of AI models, understanding and monitoring the capabilities of the AI models, reducing erroneous output, eliminating bias, and complying with regulations that require documentation or explanation of the basis on which decisions are made.
+Added: Further, we may rely on AI models developed by third parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, including risks arising from the inclusion of any unauthorized material in the training data for their models and the effectiveness of the steps these third parties have taken to limit the risks associated with the output of their models, matters over which we may have limited visibility.
+Added: Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business or the effectiveness of our security measures.
If we are not able to retain or attract key employees, or if we were to suffer the loss of a significant number of employees, we could experience a disruption in our business.
If a key employee or a substantial number of employees depart or become unable to perform their duties, it may negatively impact our ability to conduct business as usual.
−Removed: Unanticipated departures might require us to divert resources from other areas of our operations, which could create additional stress for other employees, including those in key positions.
−Removed: loss of qualified and key personnel, or an inability to continue to attract, retain and motivate key personnel could adversely affect our business and consequently impact our financial condition and results of operations.
+Added: Unanticipated departures, including in connection with acquisition activity, such as our recent acquisition of Luther Burbank, might require us to divert resources from other areas of our operations, which could create additional stress for other employees, including those in key positions.
+Added: The loss of qualified and key personnel, or an inability to continue to attract, retain and motivate key personnel could adversely affect our business and consequently impact our financial condition and results of operations.
Our risk management framework may not be effective in mitigating risks and losses to us.
−Removed: Our risk management framework is comprised of various processes, systems and strategies, and is designed to manage the types of risks to which we are subject, including, among others, credit, market, liquidity, interest rate and compliance.
+Added: Our risk management framework is comprised of various processes, systems and strategies designed to manage the types of risks to which we are subject, including, among others, credit, market, liquidity, interest rate, cybersecurity and compliance.
Our framework also includes financial or other modeling methodologies that involve management assumptions and judgment.
−Removed: Our risk management framework may not be effective under all circumstances and may not adequately mitigate any risk of loss to us.
+Added: Because we rely on assumptions and judgment calls, our risk management framework may not be effective under all circumstances and may not adequately mitigate any risk of loss to us.
If our framework is not effective, we could suffer unexpected losses and our financial condition, operations or business prospects could be materially and adversely affected.
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Our business, reputation and ability to attract and retain employees may also be harmed if our response to climate change is perceived to be ineffective or insufficient.
−Removed: Furthermore, the long-term impacts of climate change will have a negative impact on our customers and their business.
−Removed: Physical risks include extreme storms or wildfires that damage or destroy property and inventory securing loans we make, or may interrupt our customer’s business operations, putting them in financial difficulty, and increasing the risk of default.
−Removed: Our customers are also facing changes in energy and commodity prices driven by climate change, as well as new regulatory requirements resulting in increased operational costs.
+Added: Furthermore, the long-term impacts of climate change have and will continue to have a negative impact on our business, as well as on our customers and their business.
+Added: Physical risks include extreme storms, tsunamis, floods, wildfires or other catastrophic events that damage or destroy offices or other assets, or that damage or destroy property and inventory securing loans we make.
+Added: These catastrophic events may also interrupt our customer’s business operations, putting them in financial difficulty, and increasing the risk of default.
+Added: Our customers are also facing increases in energy, insurance and commodity costs driven by climate change, as well as new regulatory requirements resulting in increased operational costs.
+Added: A pandemic or similar health crisis, may adversely affect our business and our customers, counterparties, employees, and third-party service providers in the future.
+Added: The spread of COVID-19 created a global public-health crisis that resulted in significant economic uncertainty, and impacted household, business, economic, and market conditions across the world, including in the western United States where we conduct nearly all of our business.
+Added: Throughout the pandemic our operations were impacted by the need to close certain offices and limit how customers conduct business through our branch network.
+Added: Many of our employees continue to work remotely, which exposes us to increased cybersecurity risks such as phishing, malware, and other cybersecurity attacks, all of which could expose us to liability and could seriously disrupt our business operations.
+Added: A similar pandemic or major health crisis could negatively impact our capital, liquidity, and other financial positions and our business, results of operations, and prospects, affect significantly more households and businesses, or cause additional limitations on commercial activity, increased unemployment, increased property vacancy rates and general economic and financial instability.
+Added: A slow-down or reversal in the economic recovery of the regions in which we conduct our business could result in declines in loan demand and collateral values.
+Added: Negative impacts on our customers caused by a pandemic or other major health crisis could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans.
+Added: Future actions of governmental authorities taken in response to a pandemic or similar crisis, such as eviction forbearance, occupancy restrictions, vaccine mandates, or suspension of mortgage foreclosures, could have a negative impact on our business.
Regulatory and Litigation Risks
+Added: Non-Compliance with banking rules and regulations, including the USA PATRIOT Act, Bank Secrecy Act, Community Reinvestment Act, Fair Lending Laws, Real Estate Settlement Procedures Act, Truth-in-Lending Act, Flood Insurance Reform Act or other laws and regulations could result in fines or sanctions, and curtail our expansion opportunities.
+Added: Financial institutions are required under the USA PATRIOT Act of 2001 (the “Patriot Act”) and Bank Secrecy Act ("BSA") to develop programs to prevent financial institutions from being used for money-laundering and terrorist activities.
+Added: Financial institutions are also obligated to file suspicious activity reports with the U.S.
+Added: Treasury Department's Office of Financial Crimes Enforcement Network.
+Added: These rules also require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts.
+Added: Our failure or our inability to comply with the Patriot Act and BSA statutes and regulations could result in fines or penalties, curtailment of expansion opportunities, enforcement actions, intervention or sanctions by regulators and costly litigation or expensive additional controls and systems.
+Added: The Bank was previously subject to a Consent Order from the Office of the Comptroller of the Currency (“OCC”) for its BSA program that was issued in February 2018 (the “BSA Consent Order”).
+Added: The BSA Consent Order resulted in the Bank incurring significant expenses to implement an effective AML/CFT Program, including payment of a $2,500,000 civil money penalty.
+Added: The OCC terminated the BSA Consent Order in December 2021.
+Added: However, the Bank remains subject to the BSA, the Patriot Act, and other laws and regulations requiring financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate.
+Added: Expanded laws and regulations relating to residential and consumer lending activities could create significant new compliance burdens and financial costs.
+Added: Failure to maintain an effective AML/CFT program could have serious business, financial and reputational consequences for the Bank.
+Added: The Community Reinvestment Act (“CRA”), the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose community investment requirements and nondiscriminatory lending requirements on financial institutions.
+Added: The FDIC, CFPB, the United States Department of Justice and other federal agencies are responsible for enforcing these laws and regulations.
+Added: A successful regulatory challenge to our performance under the CRA, receiving a less than satisfactory CRA rating, or challenges related to other fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages, civil money penalties, injunctive relief, imposition of restrictions on merger and acquisition activity, and restrictions on expansion activity, including opening new branches or entering new lines of business.
+Added: Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private
+Added: class action litigation.
+Added: Any of these actions could have a material adverse effect on our business, financial condition and results of operations.
Failure to comply with the 2020 and 2013 Consent Orders from the Consumer Financial Protection Bureau regarding our Home Mortgage Disclosure Act submissions could result in additional regulatory enforcement action.
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Any of these results could have a material adverse effect on our business, financial condition and results of operations.
−Removed: Non-Compliance with the USA PATRIOT Act, Bank Secrecy Act, Real Estate Settlement Procedures Act, Truth-in-Lending Act, Community Reinvestment Act, Fair Lending Laws, Flood Insurance Reform Act or other laws and regulations could result in fines or sanctions, and curtail our expansion opportunities.
−Removed: Financial institutions are required under the USA PATRIOT Act of 2001 (the “Patriot Act”) and Bank Secrecy Act ("BSA") to develop programs to prevent financial institutions from being used for money-laundering and terrorist activities.
−Removed: Financial institutions are also obligated to file suspicious activity reports with the U.S.
−Removed: Treasury Department's Office of Financial Crimes Enforcement Network.
−Removed: These rules also require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts.
−Removed: Our failure or our inability to comply with the
−Removed: Patriot Act and BSA statutes and regulations could result in fines or penalties, curtailment of expansion opportunities, enforcement actions, intervention or sanctions by regulators and costly litigation or expensive additional controls and systems.
−Removed: During the last few years, several banking institutions have received large fines for non-compliance with these laws and regulations, and we were subject to a Consent Order and have paid a civil money penalty with respect to our Anti Money Laundering/Combating the Financing of Terrorism Program, (“AML/CFT Program”) (formerly known as our BSA Program), as described below.
−Removed: In addition, the U.S.
−Removed: Government imposed and is expected to continue to expand laws and regulations relating to residential and consumer lending activities that could create significant new compliance burdens and financial costs.
−Removed: The Bank was previously subject to a Consent Order from the Office of the Comptroller of the Currency (“OCC”) for its BSA program that was issued in February 2018 (the “BSA Consent Order”).
−Removed: The BSA Consent Order resulted in the Bank incurring significant expenses to implement an effective AML/CFT Program, including payment of a $2,500,000 civil money penalty.
−Removed: The OCC terminated the BSA Consent Order in December 2021.
−Removed: However, the Bank remains subject to the BSA, the Patriot Act, and other laws and regulations requiring financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate.
−Removed: Failure to maintain an effective AML/CFT program could have serious business, financial and reputational consequences for the Bank.
−Removed: Any of these results could have a material adverse effect on our business, financial condition and results of operations.
We operate in a highly regulated industry, which limits the manner and scope of our business activities.
−Removed: We are subject to extensive supervision, regulation and examination by the WDFI, CFPB and the FDIC.
−Removed: In addition, the FRB is responsible for regulating the holding company.
+Added: We are subject to extensive supervision, regulation and examination by the WDFI, the FDIC and the CFPB.
+Added: In addition, the Federal Reserve is responsible for regulating the holding company.
This regulatory structure is designed primarily for the protection of the deposit insurance funds and consumers and not to benefit our shareholders.
−Removed: This regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies to address not only compliance with applicable laws and regulations (including laws and regulations governing consumer credit, and anti-money laundering and anti-terrorism laws), but also capital adequacy, asset quality and risk, management ability and performance, earnings, liquidity, data reporting and various other factors.
+Added: This regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies to address not only compliance with applicable laws and regulations (including laws and regulations governing consumer credit, CRA, and anti-money laundering and anti-terrorism laws), but also capital adequacy, asset quality and risk, management ability and performance, earnings, liquidity, data reporting and various other factors.
As part of this regulatory structure, we are subject to policies and other guidance developed by the regulatory agencies with respect to capital levels, the timing and amount of dividend payments, the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.
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Failure to comply with applicable laws and regulations can result in a range of sanctions and enforcement actions, including the imposition of civil money penalties, formal agreements and cease and desist orders;
−Removed: identified deficiencies in our HMDA reporting and AML/CFT programs have resulted in Consent Orders from the CFPB and OCC, required us to incur significant expenses and compliance costs and subjected us to civil penalties.
+Added: prior-identified deficiencies in our HMDA reporting and AML/CFT programs have resulted in Consent Orders from the CFPB and OCC, required us to incur significant expenses and compliance costs and subjected us to civil penalties.
Failure to meet regulatory requirements could require the Bank to incur additional significant costs in order to bring our programs and operations into compliance, negatively impact our reputation, and have a material adverse effect on our business, financial condition and results of operations.
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While many of the rules required by the Dodd-Frank Act have been implemented, others are still being drafted.
−Removed: As a result, the impact of the future regulatory requirements continues to be uncertain.
+Added: As a result, the impact of the future regulatory requirements continue to be uncertain.
We expect the way we conduct business to continue to be affected by these regulatory requirements, including through limitations on our ability to pursue certain lines of business, capital requirements, enhanced reporting obligations, and increased costs.
−Removed: The recent failures of Silicon Valley Bank and Signature Bank are expected to result in modifications to or additional laws and regulations governing banks and bank holding companies, including increasing capital requirements, modifications to regulatory requirements with respect to liquidity risk management, deposit concentrations, capital adequacy, stress testing and contingency planning, and safe and sound banking practices, or enhanced supervisory or enforcement activities.
+Added: The failures of Silicon Valley Bank and Signature Bank are expected to result in modifications to or additional laws and regulations governing banks and bank holding companies, including increasing capital requirements, modifications to regulatory requirements with respect to liquidity risk management, deposit concentrations, capital adequacy, stress testing and contingency planning, and safe and sound banking practices, or enhanced supervisory or enforcement activities.
Other legislative initiatives could detrimentally impact our operations in the future.
−Removed: Regulatory bodies may enact new laws or
−Removed: promulgate new regulations or view matters or interpret laws and regulations differently than they have in the past, or commence investigations or inquiries into our business practices.
+Added: Regulatory bodies may enact new laws, promulgate new regulations or view matters or interpret laws and regulations differently than they have in the past, or commence investigations or inquiries into our business practices.
For example, the Biden Administration announced a government-wide effort to eliminate “junk fees” which could subject our business practices to even further scrutiny.
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In order to restore the DIF to its statutorily mandated minimums, the FDIC significantly increased deposit insurance premium rates, including the Bank's, resulting in increased expenses.
−Removed: The revised assessment rate schedules became effective January 1, 2023, and are applicable to the first quarterly assessment period of 2023 (i.e., January 1 through March 31, 2023, with an invoice payment date of June 30, 2023).
−Removed: The FDIC may further increase the assessment rates or impose additional special assessments in the future to restore and then steadily increase the DIF to these statutory target levels.
−Removed: Any increase in the Bank's FDIC premiums could have an adverse effect on its business, financial condition and results of operations.
+Added: The revised assessment rate schedules became effective January 1, 2023, and were applicable to the first quarterly assessment period of 2023 (i.e., January 1 through March 31, 2023, with an invoice payment date of June 30, 2023).
+Added: In November 2023, the FDIC approved a final rule to impose a special assessment to recover the losses to the deposit insurance fund resulting from the closures of Silicon Valley Bank and Signature Bank.
+Added: Beginning in the first calendar quarter of 2024, the FDIC began collecting the special assessment and it is expected to continue collecting the special assessment for a total of eight quarters.
+Added: The FDIC may further increase the assessment rates or impose additional special assessments in the future to restore and then steadily increase the DIF.
FDIC insurance premiums could increase in the future in response to similar declining economic conditions.
+Added: A material increase in the Bank's FDIC premiums could have an adverse effect on its business, financial condition and results of operations.
We are subject to various claims and litigation, which could result in significant expenses, losses and damage to our reputation.
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These claims and legal actions could include supervisory or enforcement actions by our regulators, criminal proceedings by prosecutorial authorities, or civil claims by our customers, former customers, contractual counterparties, and current and former employees.
−Removed: We may also face class action lawsuits for alleged violations of employment, state wage and hour and consumer protection laws.
+Added: We may also face class action lawsuits for, among other things, alleged violations of employment, state wage and hour and consumer protection laws.
These claims could involve large monetary demands, including civil money penalties or fines imposed by government authorities, and significant defense costs.
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In 2022, the Bank paid $495,000 plus claims administrative expenses to settle a class action lawsuit related to allegations of improper assessments of overdraft and insufficient funds fees.
−Removed: In April 2023, we received a letter from an attorney alleging violations of the FLSA and seeking to recover damages for allegedly unpaid wages and overtime for certain of our non-exempt employees.
−Removed: We do not believe these allegations have merit and will oppose any lawsuit if one is filed.
−Removed: If this, or another class action lawsuit is filed or determined adversely to us, or we were to enter into a settlement agreement in connection with such a matter, we could be exposed to monetary damages, reputational harm, or subject to limits on our ability to operate our business, which could have an adverse effect on our financial condition, and operating results.
+Added: In May 2024, we received court approval for the settlement of a class action claim related to alleged violations of the FLSA associated with claims for allegedly unpaid wages and overtime for certain of our non-exempt employees under which the Bank ultimately paid approximately $2.1 million.
+Added: If another class action lawsuit is filed or determined adversely to us, or we were to enter into a settlement agreement in connection with such a matter, we could be exposed to monetary damages, reputational harm, or subject to limits on our ability to operate our business, which could have an adverse effect on our financial condition, and operating results.
Our real estate lending also exposes us to the risk of environmental liabilities.
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Hazardous substances or waste, contaminants, pollutants or sources thereof may be discovered on properties during our ownership or after a sale to a third party.
−Removed: We could be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic
−Removed: substances or chemical releases at such properties.
+Added: We could be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances or chemical releases at such properties.
The costs associated with investigation or remediation activities could be substantial and could substantially exceed the value of the real property.
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Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system.
−Removed: The recent high-profile bank failures have generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks like the Company.
−Removed: These market developments have negatively impacted customer confidence in the safety and soundness of regional banks.
−Removed: While the Department of the Treasury, the FRB, and the FDIC have taken steps to ensure that depositors of these recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly.
−Removed: If other banks and financial institutions enter receivership or become insolvent in the future due to financial conditions affecting the banking system and financial markets, it could cause further disruption to the financial services industry and customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations.
−Removed: Reflecting concerns about liquidity and the uncertain economic environment, many lenders have reduced funding to borrowers.
−Removed: This tightening of credit has also contributed to a lack of consumer confidence and increased market volatility.
−Removed: A worsening of any of the foregoing conditions would likely exacerbate the adverse effects of these challenging market conditions on us and others in the banking industry.
−Removed: In particular, we may face increased regulation of our industry, including increased compliance costs and limitations on our ability to pursue business opportunities;
−Removed: significantly higher Federal Deposit Insurance Corporation premiums;
+Added: The high-profile bank failures of 2023 generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks like the Company.
+Added: These market developments also negatively impacted customer confidence in the safety and soundness of regional banks.
+Added: While the Department of the Treasury, the FRB, and the FDIC took steps to ensure that depositors of the failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly.
+Added: If other bank failures occur and financial institutions enter receivership or become insolvent in the future due to financial conditions affecting the banking system and financial markets, it could disrupt the financial services industry and customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations.
+Added: As a result of the bank failures, the FDIC imposed a special assessment to recoup losses to the deposit fund.
+Added: If additional bank failures were to occur, we could face increased regulation of our industry, including increased compliance costs and limitations on our ability to pursue business opportunities;
+Added: significantly higher Federal Deposit Insurance Corporation premiums or additional special assessments;
adverse impacts on our stock price and volatility of our Common Stock;
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We have significant investments in bank premises and equipment for our branch network as well as our retail work force and other branch banking assets.
−Removed: Advances in technology such as e-commerce, telephone, internet and mobile banking, and in-branch self-service technologies including automatic teller machines and other equipment, as well as changing customer preferences for these other methods of accessing our products and services, could decrease the value of our branch network or other retail distribution assets and may cause us to change our retail distribution strategy, close and/or sell certain branches or parcels of land held for development and restructure or reduce our remaining branches and work force.
+Added: Advances in technology, as well as changing customer preferences for accessing our products and services, are requiring us to change our retail distribution strategy.
As a result of the current market environment and customer behavior, we have undertaken a branch optimization strategy that has led to the closure, consolidation or sale of certain branches in our network.
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Our operations are focused in the western United States, subjecting us to the risks of general economic conditions in these market areas.
−Removed: Substantially all of the Bank's loans are to individuals, businesses and real estate developers in the Pacific Northwest, Arizona, Utah, Texas, New Mexico and Nevada.
+Added: Substantially all of the Bank's loans are to individuals, businesses and real estate developers in the Pacific Northwest, California, Arizona, Utah, Texas, New Mexico and Nevada.
As a result, our business depends significantly on general economic conditions in these market areas.
−Removed: A substantial increase in unemployment rates, or severe declines in housing prices and property values in these primary market areas could have a material adverse effect on our business due to a number of factors, including:
+Added: A substantial increase in unemployment rates, or severe declines in housing prices and property values in any of these primary market areas could have a material adverse effect on our business due to a number of factors, including:
• Loan delinquencies may increase.
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Foreclosure process issues and the potential legal and regulatory responses to them could negatively impact the process and timing to completion of foreclosures for residential mortgage lenders, including the Bank.
−Removed: During the COVID-19 emergency, certain states in which we do business enacted temporary stays on evictions and foreclosures, or instituted a right to forbearance for homeowners experiencing financial hardship.
+Added: During the COVID-19 pandemic, certain states in which we do business enacted temporary stays on evictions and foreclosures, or instituted a right to forbearance for homeowners experiencing financial hardship.
Even before the adoption of these emergency policies, foreclosure timelines have increased in recent years due to, among other reasons, delays associated with the significant increase in the number of foreclosure cases as a result of economic downturns, additional consumer protection initiatives related to the foreclosure process and voluntary or mandatory programs intended to permit or require lenders to consider loan modifications or other alternatives to foreclosure.
Should these stays or rights to forbearance be enacted again, or if new legislation is passed regarding residential foreclosures, we may be limited in our ability to take timely possession of real estate assets collateralizing loans, which may increase our loan losses.
−Removed: Increases in the foreclosure timeline may also have an adverse effect on collateral values and the our ability to minimize our losses.
+Added: Increases in the foreclosure timeline could also result in increased costs, and may have an adverse effect on collateral values and our ability to minimize our losses.
Impairment of goodwill may adversely impact future results of operations.
Accounting standards require that we account for acquisitions using a method that could result in goodwill.
−Removed: If the purchase price of the acquired company exceeds the fair value of the acquired net assets, the excess will be included in the Company's Statement of Financial Condition as goodwill.
−Removed: The Company has a significant goodwill balance and, in accordance
−Removed: with GAAP, we evaluate it for impairment at least annually and more often if events or circumstances indicate the possibility of impairment.
+Added: If the purchase price of the acquired company exceeds the fair value of the acquired net assets, the excess will be included in the
+Added: Company's Statement of Financial Condition as goodwill.
+Added: The Company has a significant goodwill balance and, in accordance with GAAP, we evaluate it for impairment at least annually and more often if events or circumstances indicate the possibility of impairment.
Evaluations may be based on many factors, some of which are the price of our Common Stock, discounted cash flow projections and data from comparable market acquisitions.
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Many competitors, including fintech companies, offer the same types of loan and deposit services that the Company offers.
−Removed: These competitors include national and multinational banks, other regional banks, savings associations, community banks, credit unions and other financial intermediaries.
−Removed: In particular, our competitors include national banks and major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and mount extensive promotional and advertising campaigns.
+Added: These competitors include national and multinational banks, other regional banks, savings associations, community banks, credit unions, fintechs, and other financial intermediaries.
+Added: In particular, our competitors include national banks and major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations, launch new technologies and mount extensive promotional and advertising campaigns.
+Added: The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.
+Added: Many of our competitors have substantially greater resources to invest in technological improvements than we do.
+Added: Our future success will depend, in part, upon our ability to address the needs of our clients by using technology to provide products and services that will satisfy client demands for convenience, as well as to create additional efficiencies in our operations.
+Added: We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.
+Added: In addition, the implementation of technological changes and upgrades to maintain current systems and integrate new ones may also cause service interruptions, transaction processing errors and system conversion delays and may cause us to fail to comply with applicable laws.
+Added: There can be no assurance that we will be able to successfully manage the risks associated with our increased dependency on technology.
Additionally, recent technological breakthroughs have made it possible for other non-traditional competitors to enter the marketplace and compete for traditional banking services.
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Downturns in the stock market and the market price of our stock, changes in our capital position, and changes in our regulatory standing could each have a negative impact on our ability to complete future acquisitions.
−Removed: The Company’s entry into California may present increased risk that may adversely impact our business, prospects and financial condition.
−Removed: The merger will result in WaFd significantly expanding our operations into the state of California where we have limited operating experience.
+Added: Our entry into California may present increased risk that may adversely impact our business, prospects and financial condition.
+Added: The Merger with Luther Burbank resulted in the Bank’s initial entry into the state of California.
+Added: We have no operating experience in California, are new to this market area, and will be relying on the experience and expertise of Luther Burbank’s lending and business development officers to help with our transition.
+Added: We may be unsuccessful in retaining those existing employees.
The banking and financial services business in California is highly competitive.
−Removed: Our entry into California will present us with different competitive conditions and we will be required to compete for loans, deposits and customers for financial services with many new competitors in California.
−Removed: Many of these competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader array of financial services than we do.
−Removed: As a result, there can be no assurance that we will be able to compete effectively in California, and the results of our operations could be materially and adversely affected if we are unable to compete effectively.
+Added: The entry of the Bank into California presents us with different competitive conditions, and we will be required to compete for loans, deposits and customers for financial services with other commercial banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions, fintechs, and other nonbank financial service providers in California.
+Added: Many of these competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader array of financial services than the Company.
+Added: As a result, there can be no assurance that we will be able to compete effectively in California, and if we are unable to compete effectively in California, the benefits we were anticipating from the Merger may not be fully achieved, and our results of operations and financial conditions could be materially and adversely affected.
Security Ownership Risks
4 unchanged sentences
If the Bank is unable to pay dividends to the Company, then we may not be able to pay dividends on our preferred or Common Stock to our shareholders.
−Removed: If the Bank earnings are not sufficient to make dividend payments to us while maintaining adequate capital levels, then our liquidity may be affected and our stock price may be negatively affected by our inability to pay dividends, which will have an adverse impact on both the Company and our shareholders.
+Added: If the Bank's earnings are not sufficient to make dividend payments to us while maintaining adequate capital levels, then our liquidity may be affected and our stock price may be negatively affected by our inability to pay dividends, which will have an adverse impact on both the Company and our shareholders.
Our 4.875% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Stock”) ranks senior to our Common Stock, and we are prohibited from paying dividends on our Common Stock unless we have paid dividends on our Series A Preferred.
6 unchanged sentences
The market price of our Common Stock could fluctuate substantially in the future in response to a number of factors, including those discussed below.
−Removed: The market price of our Common Stock has in the past fluctuated significantly.
+Added: The market price of our Common Stock has in the past fluctuated significantly, including in 2023 as a result of the high-profile bank failures.
We expect to see additional volatility in the financial markets due to the uncertainty caused by the continuing global conflicts, commodity shortages and price fluctuations, recent bank failures, uncertainty over the U.S.
2 unchanged sentences
• general conditions in the financial markets and real estate markets.
+Added: • bank failures and the regulatory response.
• macro-economic and political conditions in the U.
3 unchanged sentences
• changes in securities analysts' estimates of our future performance and the future performance of our competitors.
−Removed: • announcements by the Company or our competitors of mergers, acquisitions and strategic partnerships, including the pending merger with Luther Burbank.
+Added: • announcements by the Company or our competitors of mergers, acquisitions and strategic partnerships.
• additions or departure of key personnel.
4 unchanged sentences
These broad market fluctuations are expected to continue for the near future, and may adversely affect the trading price of our Common Stock.
−Removed: If the merger with Luther Burbank is approved, the Company’s shareholders will have less influence as a shareholder of the combined company than as a shareholder of Company.
−Removed: The Company’s shareholders currently have the right to vote in the election of the Board of Directors and on other matters affecting the Company.
−Removed: Based on WaFd’s stock price as of November 1, 2023, following completion of the merger, the shareholders of Luther Burbank as a group are expected to hold a maximum ownership interest of approximately 21% of the Company.
−Removed: As a result, after the merger, a current Company's shareholders’ percentage ownership of the combined company will be smaller than such shareholder’s current percentage ownership of the Company’s Common Stock.
There may be future sales or other dilution of the Company's equity, which may adversely affect the market price of our Common Stock or depositary shares.
−Removed: Our Board of Directors is authorized to cause the Company to issue one or more classes or series of preferred stock junior to our Series A Preferred Stock from time to time without any action on the part of our shareholders, and our Board of Directors also has the power, without shareholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights, and preferences over the Common Stock with respect to dividends or upon our dissolution, winding up and liquidation and other terms.
+Added: Our Board of Directors is authorized to cause the Company to issue one or more classes or series of preferred stock junior to our Series A Preferred Stock from time to time without any action on the part of our shareholders, and our Board of Directors also has the power, without shareholder approval, to set the terms of any such classes or series of preferred stock that
+Added: may be issued, including voting rights, dividend rights, and preferences over the Common Stock with respect to dividends or upon our dissolution, winding up and liquidation and other terms.
The issuance of any additional shares of common or of preferred stock or convertible securities or the exercise of such securities could be substantially dilutive to existing shareholders.
−Removed: We may also elect to use Common Stock to fund new acquisitions, which will further dilute existing shareholders.
−Removed: Holders of our Common Stock have no preemptive rights that
−Removed: entitle holders to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution to our shareholders.
+Added: As we did for the Merger with Luther Burbank, we may also elect to use Common Stock to fund new acquisitions, which will further dilute existing shareholders.
+Added: Holders of our Common Stock have no preemptive rights that entitle holders to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution to our shareholders.
We rely, in part, on external financing to fund our operations and the unavailability of such funding in the future could adversely impact our growth and prospects.
23 unchanged sentences
The perceived uncertainty as to the Company’s future direction resulting from activist strategies could also affect the market price and volatility of the Company’s common shares.
−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.