What changed in this filing

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Item 1A. Risk Factors

2026-02-26 compared with 2025-02-28 · 66 added, 11 removed, 365 unchanged (17% of the section changed)

32 unchanged sentences

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

The Federal Reserve Board's policies determine in large part the cost of funds for lending and investing and the return earned on those loans and investments, both of which affect our net interest margin.

Its policies can also adversely affect borrowers, potentially increasing the risk that they may fail to repay their loans.

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

2 unchanged sentences

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

Changes in Federal Reserve Board and other governmental policies, fiscal policy, and our regulatory environment generally are beyond our control, and we are unable to predict what changes may occur or the manner in which any future changes may affect our business, financial condition and results of operations.

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

25 unchanged sentences

Net unrealized losses on these securities totaled $15.7 million at December 31, 2025.

During the year ended December 31, 2024, we incurred other comprehensive losses of $994,000, net of tax benefit, related to net changes in unrealized holding losses in the available-for-sale investment securities portfolio.

During the year ended December 31, 2025, we incurred other comprehensive income of $6.5 million, net of tax expenses, related to net changes in unrealized holding losses in the available-for-sale investment securities portfolio.

Increases in interest rates can also have an adverse impact on our results of operations, as has happened in recent periods.

5 unchanged sentences

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

Although we had a mortgage banking income increase of $7.9 million during the year ended December 31, 2024, it remains a challenging environment.

We also earn interest on loans held for sale while awaiting delivery to our investors.

3 unchanged sentences

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

In addition, as a result of rising interest rates, we have experienced a shift in deposits from lower-cost (savings, NOW, and money market) accounts to higher-cost certificates of deposit.

However, the rates we earn on our loans did not increase as rapidly during the year ended December 31, 2024, as we have a significant amount of fixed-rate residential real estate loans where the interest rates did not increase commensurate with the increase in market interest rates.

We experienced a continued shift in deposits from lower-cost (savings and NOW) accounts to higher-cost certificates of deposit.

Although fed funds interest rate decreased in the past year, we continue to keep rates competitive in a challenging and competitive market.

Although we have implemented asset and liability management strategies designed to reduce the effects of changes in interest rates on our results of operations, any substantial, unexpected, prolonged change in market interest rate could have a material adverse effect on our financial condition and results of operations.

33 unchanged sentences

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

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

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

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

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

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

These events have led to a greater focus by institutions, investors and regulators on the on-balance sheet liquidity of and funding sources for financial institutions, the composition of its deposits, including the amount of uninsured deposits, the amount of accumulated other comprehensive loss, capital levels and interest rate risk management.

If we are unable to adequately manage our liquidity, deposits, capital levels and interest rate risk, it may have a material adverse effect on our financial condition and results of operations.

Significant changes to the size, structure, powers and operations of the federal government, changes to U.S.

economic policies, and uncertainties regarding the potential for these changes may cause economic disruptions that could, in turn, adversely impact our business, results of operations and financial condition.

The current U.S.

administration also has implemented rapid shifts in macroeconomic policies, such as those relating to trade restrictions and tariffs, which have created significant uncertainties regarding U.S.

economic growth, the potential for recession, and concerns over an increase in inflation.

Slow economic growth, economic contraction or recession, or shifts in broader consumer and business trends would significantly impact our ability to originate loans, the ability of borrowers to repay loans, and the value of the collateral securing loans.

Other political and economic events within the United States, including a contentious domestic political environment, changes in or disagreements over U.S.

monetary policy and actions of the FRS, disagreements over long-term federal budget and deficit reduction plans, disagreements over, or threats not to increase, the U.S.

government’s borrowing limit (or “debt ceiling”), and risk of further downgrade of the ratings of U.S.

government debt obligations, also may negatively impact financial markets and the U.S.

Further, the perception of the potential for additional, significant changes in federal regulatory or economic policy also has increased uncertainty and may exacerbate declines in investor and consumer confidence, which in turn may adversely impact financial markets and the broader economy of the U.S.

Regional business and economic conditions are a major driver of our results of operations.

Difficult conditions in the regional business and economic environment, including those caused by the lack of stability and predictability of U.S.

policymaking, may materially adversely affect our operating expenses, the quality of our assets, credit losses, and the demand for our products and services.

Risks Related to Lending Matters

84 unchanged sentences

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

Fraud by merchants or others could have a material adverse effect on our business and financial condition.

We may be liable for fraudulent transactions initiated by merchants or others.

Examples of fraud include when a merchant or other party knowingly uses a stolen or counterfeit card to make a transaction, or if a merchant intentionally fails to deliver the merchandise or services sold in an otherwise valid transaction.

Criminals are using increasingly sophisticated methods to engage in illegal activities such as counterfeiting and fraud.

It is possible that incidents of fraud could increase in the future.

Failure to effectively manage risk and prevent fraud would increase our chargeback liability or other liability.

Increases in chargebacks or other liability could have a material adverse effect on our business, financial condition, and results of operations.

The potential for fraud in the card payment industry is significant and could adversely affect our business and results of operations.

Issuers of prepaid and debit cards and other companies have suffered significant losses in recent years with respect to the theft of cardholder data that has been illegally exploited for personal gain.

The theft of such information is regularly reported and affects individuals and businesses.

Losses from various types of fraud have been substantial for certain card industry participants.

We also rely upon third parties for transaction processing services, which subjects us and our customers to risks related to the vulnerabilities of those third parties.

We, in many cases, have indemnification agreements with third parties;

however, these agreements may not fully cover losses.

Fraudulent activity could also result in the imposition of regulatory sanctions, including significant monetary fines, which could adversely affect our business, results of operations and financial condition.

Although fraud has not had a material impact on our profitability, it is possible that such activity could adversely impact profitability in the future.

We face funds transfer and payments-related risks.

As a financial institution, we bear funds transfer risks of different types, which result from large transaction volumes and large dollar amounts of incoming and outgoing money transfers.

Loss exposure may result if money is transferred before it is received, or legal rights to reclaim monies transferred are asserted, including payments made to merchants for payment clearing, while customers have statutory periods to reverse their payments.

Exposure also results from payments made prior to receipt of offsetting funds, as accommodations to customers.

We are subject to unique settlement risks as our transfers may be larger than typical financial institutions of our size.

Transfers could also be made in error or as a result of fraud.

Additionally, as with other financial institutions, we may incur legal liability or reputational risk, if we unknowingly process payments for companies in violation of money laundering laws or other regulations or immoral activities.

Our reliance on and integration of artificial intelligence (AI) and machine learning (ML) technologies expose us to various risks, including operational, data, regulatory, and reputational risks, which could materially affect our business and financial results.

Operational & Model Risk:

Our AI/ML models, used for credit scoring, fraud detection, customer service, and investment decisions, rely on complex algorithms and vast datasets.

Errors, biases, or "hallucinations" (generating false information) in these models, or unexpected system failures, could lead to flawed decisions, financial losses, compliance failures, or degraded customer experiences, impacting profitability and client retention.

Data Security & Privacy:

AI systems process sensitive customer data.

Security breaches or unauthorized access to these systems could result in data theft, loss of intellectual property, and significant penalties, damaging customer trust.

Regulatory & Compliance Risk:

The regulatory landscape for AI is rapidly evolving.

New laws could impose costly compliance burdens, restrict AI use, or introduce liabilities, particularly concerning algorithmic bias and fair lending practices (e.g., "digital redlining"), potentially increasing operational costs and limiting service offerings.

Talent & Third-Party Risk:

Attracting and retaining skilled AI professionals is crucial and competitive.

We also depend on third-party AI vendors, creating dependency risks and potential issues with data handling, model reliability, and licensing, all of which could disrupt operations.

Reputational & Ethical Risk:

Misuse of AI, biased outcomes, or privacy violations can harm our brand, erode customer confidence, and attract negative public attention, potentially affecting demand for our services.

If we cannot effectively manage these challenges, including adapting to rapid technological change and ensuring responsible AI governance, our reputation, competitive position, and financial performance could be significantly harmed.

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

46 unchanged sentences

Competitive factors driven by consumer sentiment or otherwise can also reduce our ability to generate fee income, such as through overdraft fees.

The grant of bank charters and special purpose fintech charters by the Office of the Comptroller of the Currency to fintech companies could present financial risk and market risk to us generally and the payments processing business specifically.

In 2018, the Office of the Comptroller of the Currency announced that it would begin to accept and evaluate charters for entities that wanted to conduct certain components of a banking business pursuant to a federal charter, known as a special purpose national bank charter.

Intended to promote economic opportunity and spur financial innovation, an institution with a special purpose national bank charter may engage in paying checks, lending money and taking deposits.

The Office of the Comptroller of the Currency has granted national bank charters to companies that were previously non-bank fintech companies.

If, in the future, the Office of the Comptroller of the Currency determines to grant any special purpose national bank charter applications or continues to grant bank charters to fintech applicants, recipients of such charters may enter the U.S.

payments market and other business activities that we conduct, which could increase the competition we face and have a material adverse effect on us.

This could result in lower fee income, and loss of deposits, related to our payments processing business.

Risks Related to Mortgage Banking Operations

119 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors