As confidentially submitted to the Securities and Exchange Commission on July 2, 2024

This draft registration statement has not been publicly filed with the Securities and Exchange Commission and all

information herein remains strictly confidential

Registration No. 333-     

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Chain Bridge Bancorp, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware		6021		20-4957796
(State or Other Jurisdiction of Incorporation or Organization)		(Primary Standard Industrial Classification Code Number)		(IRS Employer Identification Number)

1445-A Laughlin Avenue

McLean, VA 22101

(703)-748-2005

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Rachel G. Miller

Senior Vice President, Counsel & Corporate Secretary

Chain Bridge Bancorp, Inc.

1445-A Laughlin Avenue

McLean, VA 22101

(703)-748-2005

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

Copies to:

Catherine M. Clarkin Stephen M. Salley Sullivan & Cromwell LLP 125 Broad Street New York, New York 10004 Telephone: (212) 558-4000		Kevin M. Houlihan Mark R. Goldschmidt William H. Levay Holland & Knight LLP 800 17th Street N.W. Washington, DC 20006 Telephone: (202) 955-3000

 

 

Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after the Registration Statement is declared effective.

 

 

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☒
				Emerging growth company		☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell, nor does it seek an offer to buy, these securities in any jurisdiction where such offer or sale is not permitted.

 

Subject to Completion

Preliminary Prospectus dated      , 2024

PROSPECTUS

   Shares

 

 

Chain Bridge Bancorp, Inc.

Class A Common Stock

 

 

This is the initial public offering of shares of Class A common stock, par value $0.01 per share, of Chain Bridge Bancorp, Inc. We are offering    shares of our Class A common stock.

Prior to this offering, there has been no public market for our Class A common stock. It is currently estimated that the initial public offering price per share of our Class A common stock will be between $   and $   per share. We intend to apply to list our Class A common stock on The New York Stock Exchange under the symbol “CBNA.”

Following this offering, we will have two classes of common stock, Class A common stock and Class B common stock. The rights of Class A common stock and Class B common stock are identical, except voting and conversion rights. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to 10 votes and is convertible at any time into one share of Class A common stock. After the completion of this offering, the holders of our Class B common stock are expected to collectively beneficially own shares of our common stock representing a substantial majority of the combined voting power of our common stock. Members of the Fitzgerald Family (as defined herein) are expected to beneficially own in the aggregate at least   % of our outstanding Class B common stock. The dual class structure of our common stock has the effect of concentrating voting power with the holders of our Class B common stock, including the members of the Fitzgerald Family, which will limit or preclude your ability to influence corporate matters, including the election of our board of directors. Our amended and restated certificate of incorporation will provide certain protections for the holders of Class A common stock. See “Description of Capital Stock.”

We are an “emerging growth company” and a “smaller reporting company” as defined under the U.S. federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements. See “Summary — Implications of Being an Emerging Growth Company and a Smaller Reporting Company.”

Shares of our common stock are not saving accounts, deposits or other obligations of a bank and are not insured by the Federal Deposit Insurance Corporation or any other government agency.

 

 

Investing in our Class A common stock involves significant risks. See “Risk Factors” beginning on page 26 of this prospectus for a discussion of certain risks you should consider before deciding to invest in our Class A common stock.

Neither the Securities and Exchange Commission, any state securities commission, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

		Per Share				Total
Initial public offering price		$				$
Underwriting discount and commissions(1)		$				$
Proceeds, before expenses, to us		$				$

 

(1)	We have agreed to reimburse the underwriters for certain expenses in connection with this offering. See “Underwriting.”

 

 

We have granted the underwriters an option to purchase up to an additional    shares of our Class A common stock at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus.

The underwriters expect to deliver the shares of Class A common stock against payment on or about   , 2024.

 

 

 

Piper Sandler		Raymond James

 

		Hovde

 

The date of this prospectus is     , 2024.

TABLE OF CONTENTS

 

		Page
Summary			1
Risk Factors			26
Cautionary Note Regarding Forward-Looking Statements			56
Use of Proceeds			58
Dividend Policy and Dividends			59
Capitalization			60
Dilution			62
Management’s Discussion and Analysis of Financial Condition and Results of Operations			64
Business			96
Supervision and Regulation			115
Management			125
Executive and Director Compensation			135
Security Ownership of Certain Beneficial Owners andManagement			140
Certain Relationships and Other Related Party Transactions			144
Description of Capital Stock			146
Shares Eligible for Future Sale			152
Material United States Tax Consequences to Non-U.S. Holders of Common Stock			154
Underwriting			158
Validity of Class A Common Stock			162
Experts			162
Where You Can Find More Information			162
Index to Financial Statements			F-1

 

 

We have not, and the underwriters have not, authorized anyone to provide any information or to make any representation other than those contained in this prospectus or any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of our Class A common stock only in jurisdictions where offers and sales are permitted. You should assume that the information appearing in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our Class A common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

Through and including    , 2024 (the 25th day after the date of this prospectus), all dealers effecting transactions in our Class A common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

Market and Industry Data

Within this prospectus, we reference certain industry and sector information and statistics. We have obtained this information and statistics from various independent, third-party sources. Nothing in the data used or derived from third-party sources should be construed as advice. Some data and other information are also based on our good faith estimates, which are derived from our review of internal surveys and independent sources. We believe that these external sources and estimates are reliable, but have not independently verified them. Statements as to our market position are based on market data currently available to us. Although we are not aware of any misstatements regarding the demographic, economic, employment, industry and trade association data presented herein, these estimates involve inherent risks and uncertainties and are based on assumptions that are subject to change.

 

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Trademarks, Service Marks and Copyrights

We own or have rights to certain trademarks, trade names and service marks appearing in this prospectus that are used in our business. This prospectus also contains additional trademarks, trade names and service marks belonging to Chain Bridge or one of its affiliates or another third party. Solely for convenience, the trademarks, trade names and service marks appearing in this prospectus are without the ^® and ^™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, trade names and service marks. All trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners.

Basis of Presentation, Historical Performance

All consolidated financial statements presented in this prospectus have been prepared in U.S. dollars in accordance with generally accepted accounting principles in the United States of America (“GAAP”). All financial information presented in this prospectus is derived from the consolidated financial statements included elsewhere in this prospectus and has been presented in accordance with GAAP.

Any discrepancies included in this prospectus between totals and the sums of the percentages and dollar amounts presented are due to rounding.

Our historical performance is not a guarantee of future results or returns. We make no representation regarding future performance. See “Risk Factors.”

Certain Defined Terms

Unless we state otherwise or the context otherwise requires, references in this prospectus to:

 

•

the “Bank” and “Chain Bridge Bank, N.A.” refer to Chain Bridge Bank, National Association, a nationally chartered bank;

•

“BHC Act” refers to the U.S. Bank Holding Company Act of 1956, as amended;

•

our “Charter” refers to our amended and restated certificate of incorporation that will take effect prior to the completion of this offering. The Charter will authorize the establishment of our Class A common stock and Class B common stock and effect the reclassification of each outstanding share of our common stock into 170 shares of Class B common stock;

•

“Class A common stock” refers to our Class A common stock, par value $0.01 per share;

•

“Class B common stock” refers to our Class B common stock, par value $0.01 per share;

•

our “common stock” refers to our Class A common stock and our Class B common stock;

•

“FDIC” means the Federal Deposit Insurance Corporation;

•

“Federal Reserve” refers to the Board of Governors of the Federal Reserve System;

•

“Fitzgerald Family” refers collectively to the lineal descendants of Gerald Francis Fitzgerald, deceased, and Marjorie Gosselin Fitzgerald, their spouses or surviving spouses, children, and grandchildren, and the spouses of their children and grandchildren. These persons include, but are not limited to, Peter Gosselin Fitzgerald, Gerald Francis Fitzgerald, Jr., James Gosselin Fitzgerald, Thomas Gosselin Fitzgerald, Julie Fitzgerald Schauer, Thomas Gosselin Fitzgerald, Jr., and Andrew James Fitzgerald;

•

“OCC” means the Office of the Comptroller of the Currency;

•

“old common stock” refers to our common stock, par value $1.00 per share, prior to the Reclassification;

•

the term “political organizations” means campaign committees, party committees, separate segregated funds (including trade association political action committees (“PACs”) and corporate PACs), non-connected committees (including independent expenditure-only organizations (“Super PACs”), Hybrid PACs, and Leadership PACs), and other tax-exempt 527 organizations;

 

ii

•

the “Reclassification” refers to the reclassification of each outstanding share of our common stock into 170 shares of Class B common stock;

•

“transaction accounts” have the meaning as defined in the instructions for the Federal Financial Institutions Examination Council (“FFIEC”) Consolidated Reports of Condition and Income; and

•

“we,” “our,” “us,” “Chain Bridge,” “our company” and “the Company” refer to Chain Bridge Bancorp, Inc., a Delaware corporation, and its consolidated subsidiary, Chain Bridge Bank, National Association.

 

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RISK FACTORS

Investing in our common stock involves a significant degree of risk. The material risks and uncertainties that management believes affect us are described below. Before investing in our common stock, you should carefully consider the risks and uncertainties described below, in addition to the other information contained in this prospectus. Any of the following risks, as well as risks that we do not know or that we currently deem immaterial, could have a material adverse effect on our business, financial condition and results of operations. As a result, the trading price of our Class A common stock could decline, and you could lose some or all of your investment. Further, to the extent that any of the information in this prospectus constitutes forward-looking statements, the risk factors below are cautionary statements identifying important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. See “Cautionary Note Regarding Forward-Looking Statements.”

Interest Rate Risk

Changes in interest rates may adversely affect our earnings and financial condition.

Changes in interest rates may adversely affect our earnings and financial condition. Interest rates are highly sensitive to many factors beyond our control, including inflation, unemployment, changes in the money supply, international events, events in world financial markets, competition, general economic conditions and monetary and fiscal policies of various governmental and regulatory authorities, including the Federal Reserve.

Our operating income and net income depend to a great extent on net interest margin (i.e., the difference between the interest yields earned on cash, loans, securities and other interest-bearing assets and the interest rates paid on interest-bearing deposits, borrowings and other liabilities). Net interest margin is affected by changes in market interest rates because different types of assets and liabilities may react differently, and at different times, to market interest rate changes. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a period, an increase in market rates of interest could reduce net interest income. Similarly, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could reduce net interest income. In addition, because a significant majority of our funding consists of non-interest-bearing deposits and a substantial amount of our assets are invested in cash and cash equivalents, a decrease in short-term interest rates would be expected to immediately reduce our interest income without a corresponding reduction in our interest expense, which would reduce our net interest income. Similarly, we have benefitted from an inverted yield curve because short-term rates have become higher than long-term rates, and if the yield curve flattens or normalizes, our net interest income could be adversely affected. Any of these conditions would be expected to adversely affect our business, results of operations and financial condition.

A substantial portion of our assets are invested in interest-bearing reserves at the Federal Reserve. If the Federal Reserve decreases the interest it pays on these reserves, or ceases to pay interest on these reserves entirely, our net interest income could be adversely affected. Further, a reduction in the interest rate paid on these reserves or in the accessibility of these reserves could compel us to seek alternative, potentially higher-risk investments to generate interest income, which could adversely affect our business, results of operations and financial condition.

Increases in interest rates will likely also adversely affect the market value of our investment and loan portfolios, and if we are required to sell securities at a discount prior to their maturity, our unrealized losses would then turn into realized losses. See “Increases in interest rates could result in losses on our investment securities portfolio.”

We attempt to manage risk from changes in market interest rates by adjusting the rates, maturity, repricing, and balances of the different types of interest-earning assets and interest-bearing liabilities, but interest rate risk management techniques are not exact. As a result, a rapid increase or decrease in interest rates could have an adverse effect on our net interest margin and results of operations. Market interest rates for types of products and

 

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services in our market also may vary significantly over time based upon competition and local or regional economic factors. Our interest rate risk management process depends upon a number of assumptions which may prove to be inaccurate. There can be no assurance that we will be able to successfully manage our interest rate risk.

Increases in interest rates could result in losses on our investment securities portfolio.

We invest a significant portion of assets in investment securities. As of March 31, 2024, we held 45.6% of our assets in an investment securities portfolio containing U.S. government, municipal, and corporate bonds that are sensitive to broad economic conditions, especially interest rates. Interest rate increases have recently resulted in, and could in the future result in, unrealized losses in our investment securities portfolio, as increases in interest rates ordinarily decrease the estimated fair value of fixed income securities and result in decreased unrealized gains or increased unrealized losses on fixed income securities. We recognize the accumulated change in estimated fair value of these fixed income securities in net income when we realize a gain or loss upon the sale of the security. As of March 31, 2024, our net unrealized losses on securities available for sale, net of tax, totaled $7.9 million and our net unrealized losses on securities held to maturity, net of tax, totaled $20.6 million, which collectively equaled 28.8% of our Tier 1 capital. If we were required to sell all or a material portion of our investment securities portfolio, we may recognize significant losses that would adversely affect our business, results of operations or financial condition and reduce our regulatory capital ratios.

If the average interest rate we pay on our deposits increases, our cost of funds would rise.

A significant majority of our funding consists of non-interest-bearing deposits. As of March 31, 2024, 72.7% of our liabilities consisted of non-interest-bearing deposits. During periods of high or increasing interest rates, our clients have in the past shifted, and may in the future shift, their funds to accounts or financial institutions that offer higher interest rates. Such movements increase our cost of funds and adversely affect our business, financial condition or results of operations. Further, to the extent clients withdraw their deposits and move their funds to competitors or alternative investments, we would lose a lower-cost source of funding, which would be expected to adversely affect our business, financial condition or results of operations. See “— Liquidity Risk — Loss of deposits could increase our funding costs or require us to sell assets or borrow.”

Liquidity Risk

Liquidity risks could adversely affect our business, financial condition and results of operations.

Liquidity risk is the risk that we will not be able to meet our obligations, including financial commitments, as they come due and is inherent in our operations. An inability to raise funds through deposits, borrowings, the sale of investment securities and from other sources could have a substantial negative effect on our liquidity.

Our most important source of funds consists of our clients’ deposits. Deposit balances can decrease for a variety of reasons, and if clients move money out of deposits for any reason, we could lose a relatively low cost source of funds, or we may need to sell assets or borrow for liquidity. See “Loss of deposits could increase our funding costs or require us to sell assets.” Further, we estimate a majority of our deposit balances were sourced from political organizations as of March 31, 2024, which cause our deposit balances to fluctuate due to the seasonality of fundraising and spending around elections. See “Our demand deposits are concentrated in political organizations, which can vary significantly in volume due to seasonality or changes in political activity or campaign finance laws.”

Another primary source of liquidity is our account at the Federal Reserve, which held $338.0 million at March 31, 2024, which supports our daily and ongoing activities. We also maintain secured lines of credit with the Federal Home Loan Bank (the “FHLB”) and the Federal Reserve’s discount window and receive principal and interest payments on our loans and investment securities. Cash on hand, cash at third-party banks and available for sale debt securities are our most liquid assets. Our investment portfolio is composed of investment

 

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grade securities. Our access to funding sources in amounts adequate to finance or capitalize our activities or on terms that are acceptable to us could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry. Economic conditions and a loss of confidence in financial institutions may increase our cost of funding and limit access to certain customary sources of capital, including inter-bank borrowings and borrowings from the discount window of the Federal Reserve.

Any decline in available funding could adversely impact our ability to continue to implement our business plan, including originating loans, investing in securities, meeting our expenses or fulfilling obligations such as repaying our borrowings and meeting deposit withdrawal demands, any of which could have a material adverse effect on our business, financial condition and results of operations.

Loss of deposits could increase our funding costs or require us to sell assets or borrow.

Like many banking companies, we rely on client deposits to meet a considerable portion of our funding, and we continue to seek client deposits to maintain this funding base. We accept deposits directly from consumer and commercial clients and, as of March 31, 2024, we had $1.1 billion in total deposits. If we are unable to sufficiently maintain or grow our deposits to meet liquidity objectives, we may be subject to paying higher funding costs or unable to satisfy our funding needs.

Our deposits may be subject to dramatic fluctuations in availability or price due to certain factors outside our control, such as a loss of confidence by clients in us or the banking sector generally, client perceptions of our financial health and general reputation, increasing competitive pressures from other financial services firms for consumer or commercial client deposits, changes in interest rates and returns on other investment classes, which could result in significant outflows of deposits within short periods of time or significant changes in pricing necessary to maintain current client deposits or attract additional deposits. Notably, we estimate our deposits received from political organizations constituted a majority of our total deposits as of March 31, 2024, and these deposits are generally more seasonal than typical commercial or consumer deposits, aligning with the cycle of federal election campaigns. See “Our demand deposits are concentrated in political organizations, which can vary significantly in volume due to seasonality or changes in political activity or campaign finance laws.” Further, as of March 31, 2024, we estimate that approximately 65.6% of our total deposits were not insured by the FDIC, and these uninsured deposits may be more likely to be withdrawn if we experience, or are perceived to experience, financial distress or during periods of real or perceived stress or instability in financial markets more generally. See “Our demand deposits are concentrated in uninsured deposits.” In addition, if our competitors raise the rates they pay on deposits, our funding costs may increase, either because we raise our rates to avoid losing deposits or because we lose deposits and must rely on more expensive sources of funding. Also, clients typically move money from bank deposits to alternative investments during high or rising interest rate environments. Checking and savings account balances and other forms of client deposits may decrease when clients perceive alternative investments as providing a better risk/return trade-off. Our clients could take their money out of the Bank and put it in alternative investments, causing us to lose a lower cost source of funding. Clients may also move non-interest-bearing deposits to interest-bearing accounts, increasing the cost of those deposits. Obtaining adequate funding to meet our deposit obligations may be more challenging during periods of elevated prevailing interest rates, such as the present, and our ability to attract depositors during a time of actual or perceived distress or instability in the marketplace may be limited. Higher funding costs could reduce our net interest margin and net interest income and could have a material adverse effect on our business, financial condition and results of operations.

Most of our deposits come from a relatively small number of commercial relationships.

We serve a smaller number of commercial deposit clients compared to the larger number of consumer deposit clients served by most other banks. As of March 31, 2024, there were 13 clients with individual deposit balances exceeding 1% of our total deposits, accounting for 29.1% of our total deposits, and approximately 91.8% of our total deposit balances were from commercial entities, including businesses, political organizations,

 

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trade associations, and nonprofit organizations. These deposit clients are typically intermediated by personal relationships between Bank officers and the commercial client account signers, and therefore can require significant investments of time and resources to maintain. Any deterioration in such relationships, particularly those associated with significant deposit size, could lead to an outflow of deposits and compel us to liquidate interest-earning assets, which could lead to a decline in our earnings. Changes in personnel in these relationships, whether at the Bank or on the part of the client, could cause the relationship to deteriorate and the depositor to leave the Bank. Further, a concentrated number of firms provide treasury and regulatory compliance services for political organizations and open deposit accounts with the Bank on behalf of their clients. These firms are a significant source of our deposits. If our relationships with these firms deteriorate, this could lead to an outflow of deposits from multiple existing clients or we could fail to acquire new clients from these firms in the future. Additionally, we are not very well known outside of the commercial sectors we primarily serve, especially political organizations, and have little consumer brand recognition in the Washington, D.C. metropolitan area market and no consumer brand recognition in other markets, and as a result our deposit base and earnings may continue to be heavily dependent on our commercial deposit clients for the foreseeable future.

Our demand deposits are concentrated in political organizations, which can vary significantly in volume due to seasonality or changes in political activity or campaign finance laws.

As of March 31, 2024, we estimate a majority of our demand deposits were represented by political organizations. These deposits exhibit more seasonality than typical commercial or consumer deposits. Federal election cycles influence our deposit levels and revenues. In the quarters leading up to federal elections, especially presidential elections, our deposits, net interest income, and non-interest income generally increase. Conversely, in the quarters immediately before, during, and after a federal election, we usually experience an outflow of political organization deposits, causing revenue to decline until clients resume fundraising for the next election cycle. The precise amount and timing of these outflows remain uncertain and may differ from historical patterns. Post-election fundraising activities are generally influenced by the outcome of the federal elections, and will likely be influenced by the 2024 presidential election. Even within our classification of political organizations, some types may exhibit more seasonality. For instance, certain party committee accounts may maintain funds throughout election cycles, while some campaign committees may have accounts that are only established for a single campaign. During periods of high interest rates this seasonality may be exacerbated. We may underestimate the proportion of our deposits subject to seasonality, potentially leading to greater than expected deposit outflows. If our deposit levels decline due to seasonality and we replace them with higher-cost deposits or borrowings, sell investment securities at a discount before maturity, or reduce our interest-bearing assets, our net interest margin, earnings, and earnings per share could be adversely affected.

Due to our concentration in seasonal deposits, the Bank typically maintains a higher proportion of its assets in highly liquid investments, such as reserve balances at the Federal Reserve or U.S. Treasury securities, to fund withdrawals associated with seasonal demand deposits and to minimize the risk of principal loss. These highly liquid, zero-risk-weighted investments generally have lower yields than fully risk-weighted assets such as commercial or consumer loans.

During periods of growth in seasonal deposits, assets could reach a level that would require the Bank to control the level of these deposits, which could constrain the Bank’s earnings or growth, or require the Company to obtain additional capital, which could dilute existing stockholders, to maintain a satisfactory Tier 1 leverage ratio. In the past, we have managed our Tier 1 leverage ratio by moving certain deposit accounts off our balance sheet through the ICS^® network, but there is no assurance we could do so in the future. See “— Other Risks Related to Our Business — We place a significant portion of our clients’ deposits with other banks through the ICS^® network, which exposes us to risks that may adversely affect our business, financial condition or results of operations.”

The level of deposits by political organizations may also be adversely affected by changes in political activity or campaign finance laws. For example, following the U.S. Supreme Court’s decision in Citizens United v. Federal Election Commission in 2010, we have experienced significant deposit inflows from Super

 

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PACs that are permitted to accept unlimited contributions for the purpose of making independent expenditures. Any changes in political contributions or spending, including as a result of a change in campaign finance laws that restrict our clients’ ability to accept contributions or spend funds, could reduce our deposit inflows and adversely affect our business, financial condition, or results of operations.

Our demand deposits are concentrated in uninsured deposits.

As of March 31, 2024, we estimate that approximately 65.6% of our total deposits were not insured by the FDIC. These uninsured deposits may be more likely to be withdrawn if we experience, or are perceived to experience, financial distress or during periods of real or perceived stress or instability in financial markets more generally. For example, bank failures have caused ongoing concerns about the liquidity of the financial services industry, which could exacerbate deposit outflows due to concerns that deposits held at the Bank exceed the FDIC’s $250,000 per client insurance limit. These concerns may be exacerbated by negative media attention and the rapid spread of rumors, concerns and misinformation on social media could cause panic among investors, depositors, clients and the general public. If many clients withdraw their deposits, it could have a material adverse effect on our business, financial condition and results of operations. See “Loss of deposits could increase our funding costs or require us to sell assets.”

We participate in the ICS^® network to provide our clients with additional FDIC insurance coverage for their uninsured balances. For our clients that opt into the ICS^® network, this service allows us to place their deposits in increments up to the FDIC insurance limits at other banks within the ICS^® network. However, there can be no assurance that the availability of the ICS^® network will limit outflows of our uninsured deposits. See “— We place a significant portion of our clients deposits with other banks through the ICS^® network, which exposes us to risks that may adversely affect our business, financial condition or results of operations.”

Our liquidity is dependent on dividends from the Bank.

We are a legal entity separate and distinct from our bank subsidiary, Chain Bridge Bank, N.A. Dividends from the Bank provide virtually all of our cash flow. Various federal and state laws and regulations limit the amount of dividends that our Bank may pay to us. For example, under applicable regulations, the Bank may not, without prior regulatory approval, declare dividends in excess of the sum of the current year’s net profits plus the retained net profits from the prior two years or in excess of the sum of the Bank’s retained earnings and current period net income. See “— Risks Related to Our Class A Common Stock — We do not intend to pay dividends on our Class A common stock for the foreseeable future, and our future ability to pay dividends is subject to restrictions.” Also, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. In the event the Bank is unable to pay dividends to us, we may not be able to service any debt we may incur, pay obligations or pay dividends on our common stock. The inability to receive dividends from the Bank could affect our liquidity and have a material adverse effect on our business, financial condition and results of operations.

We may need to raise additional capital in the future, and such capital may not be available when needed or at all.

We may need to raise additional capital, in the form of additional debt or equity, in the future to have sufficient capital resources and liquidity to meet our commitments and fund our business needs and future growth, particularly if the quality of our assets or earnings were to deteriorate significantly. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial condition. Economic conditions and a loss of confidence in financial institutions may increase our cost of funding and limit access to certain customary sources of capital, including inter-bank borrowings, repurchase agreements and borrowings from the discount window of the Federal Reserve System. We may not be able to obtain capital on acceptable terms, or at all. Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of debt purchasers, depositors of the Bank or counterparties participating in the capital markets or other disruption in capital markets, may adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity. Further, if we need to

 

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raise additional capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors. An inability to raise additional capital on acceptable terms when needed could have a material adverse effect on our business, financial condition and results of operations.

In addition, an inability to raise capital when needed may subject us to increased regulatory supervision and the imposition of restrictions on our growth and business. These restrictions could negatively affect our ability to operate or further expand our operations through loan growth, acquisitions or otherwise. These restrictions may also result in increases in operating expenses and reductions in revenues that could have a material adverse effect on our business, financial condition and results of operations.

If we raise additional capital by incurring debt at the holding company level, including to fund capital contributions to the Bank, it could reduce the returns on our Class A common stock or put our ownership of the Bank at risk. For example, we currently have a $10.0 million unsecured line of credit with a third-party commercial bank that matures in December 2024, with an outstanding balance of $5.0 million as of March 31, 2024. We may not be able to extend or replace this line of credit after it matures, or if we are able to extend or replace this line of credit, we may only be able to do so on less favorable terms. We could also elect to incur additional debt at the holding company in order to provide additional capital to the Bank, or other secured lending, which could be secured by a pledge of all, or a majority, of the stock of the Bank through the issuance of notes or debentures, or similar securities or instruments. While the line of credit is currently unsecured, we could take these actions, including pledging the stock of the Bank, without any shareholder approval. While the use of leverage at the holding company level may limit the dilution of our earnings and book value, the interest we accrue and pay on our current or future debt could adversely affect our earnings, equity, stockholder returns and the value of the Class A common stock. In addition, if the debt is secured by the Bank’s stock then the failure to make regular payments on the debt on interest payment dates or at maturity, or the failure to comply with financial covenants or other conditions of the borrowing, could result in the sale of the Bank in order to pay the debt, and such sale may not be in a manner which would maximize stockholder value.

Credit Risk

Our results of operations and financial condition would be adversely affected if the Bank’s allowance for credit losses is insufficient to absorb actual losses or needs to be increased.

Our financial results and condition could be negatively impacted if our allowance for credit losses isn’t enough to cover actual losses or if we need to increase this allowance. While we have historically maintained low levels of non-performing assets and net charge-offs, there is no guarantee this trend will continue. Banking regulations, specifically those set forth by the OCC and the FDIC, require that the securities we hold must be investment grade. However, no similar regulation applies to our loan portfolio. The main risks associated with our loan portfolio include: (1) the geographic concentration of our loans in the Washington, D.C. area; (2) our exposure to certain categories of loans with relatively higher credit risk, including commercial real estate and commercial and industrial loans; (3) the relatively large size of some residential mortgage loans; and (4) the newness of certain loans made later in the economic cycle. Even though we believe that our allowance for credit losses is reasonably sufficient to cover expected losses, estimating loan losses involves judgment and inherent uncertainties. Despite our efforts to monitor credit quality and identify problem loans early, we may not always succeed in detecting deteriorating loans before they become non-performing, nor can we guarantee that we will be able to limit losses. As a result, we may need to significantly and unexpectedly increase our allowance for credit losses in the future, which could materially affect our financial performance and condition.

Losses related to a single large loan could have a significant impact on the Bank’s financial condition and results of operations.

As a result of the Bank’s concentrations of single-family residential jumbo mortgage loans and large commercial loans, two of which have balances in excess of 5.0% of our total stockholders’ equity as of March 31, 2024, a loss on any single large loan or multiple loans could negatively impact our results of

 

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operations. Additionally, commercial and industrial loans not primarily secured by real estate are typically made based on the ability of the borrower to make payment on the loan from the cash flow of the business, and are collateralized primarily by business assets such as equipment and accounts receivable. These assets are often subject to depreciation over time and may be more difficult than real estate collateral to evaluate, and the value of such assets may be more difficult to realize upon liquidation. As a result, the availability of funds for repayment of such loans is often contingent on the success of the business itself. Although the Bank officers strive to rigorously underwrite and structure loans and diligently monitor the financial condition of borrowers in an effort to avoid or minimize losses, unexpected reversals in the business of an individual borrower can occur, and the resulting decline in the quality of loans to such borrowers, and related provisions for credit losses, could have a material adverse effect on our results of operations and financial condition. Despite our best efforts, it is not always possible to predict or prevent every potential financial issue that borrowers may face.

The Bank relies upon independent appraisals to determine the value of the real estate that secures a significant portion of its loans, and the values indicated by such appraisals may not be realizable if the Bank is compelled to foreclose upon such loans.

A significant portion of the Bank’s loan portfolio consists of loans secured by residential and commercial real estate. The Bank relies upon independent appraisers to estimate the value of such real estate. Appraisals are only estimates of value and the independent appraisers may make mistakes of fact or judgment, which may adversely affect the reliability of their appraisals. In addition, events occurring after the initial appraisal may cause the value of the real estate to increase or decrease. As a result of any of these factors, the real estate securing some loans may be more or less valuable than anticipated at the time the loans were made. If a default occurs on a loan secured by real estate that is less valuable than originally estimated, the Bank may not be able to recover the outstanding balance of the loan and will suffer a loss.

Other Risks Related to Our Business

Our business may be adversely affected by conditions in the financial markets and economic conditions generally.

Our financial performance generally is dependent upon the business environment in the markets in which we operate and in the United States as a whole, and may be adversely affected by conditions in the financial markets and economic conditions. Unfavorable or uncertain economic and market conditions can be caused by, among other factors, declines in economic growth, business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; changes in inflation, interest rates or monetary policy; increases in real estate and other state and local taxes; high unemployment; natural disasters; geopolitical issues, conflicts and uncertainty; public health emergencies or pandemics; and other external factors or a combination of these or other factors.

Unfavorable economic or market conditions can result in a deterioration in the credit quality of our borrowers, the value of collateral securing our loans and leases and the demand for our products and services, an increase in the number of loan delinquencies, defaults and charge-offs, additional provisions for credit losses and an overall material adverse effect on the quality of our loan portfolio, each of which could adversely affect our business, results of operations or financial condition. Our deposit balances and earning assets may also be impacted by economic and market factors such as output, inflation, interest rates, wages, asset values, and government spending. In addition to any impact on our balance sheet, inflation can increase our operating costs primarily through labor and technology overhead. Political fundraising comprises a large share of our deposit base and is dependent on contributions from high-net-worth and small-dollar donors across the United States, which may decline during periods of unfavorable economic or market conditions. High-earning professionals in fields such as public affairs, law, government contracting, and consulting are a substantial source of our deposits and loans, and to the extent such professionals are adversely affected by unfavorable economic or market conditions, they may withdraw some or all of their deposits or become unable to repay their loans. We also have a significant portion of our assets in an investment securities portfolio containing U.S. government, municipal, and corporate bonds that are sensitive to broad economic conditions, especially interest rates.

 

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The geographic concentration of our business in the Washington, D.C. metropolitan area makes our business highly susceptible to local economic conditions and reductions or changes in government spending.

Our operations are concentrated in the Washington D.C. metropolitan area market, where our banking office is located. For example, our mortgage financing portfolio contains mostly single-family home loans within the Washington, D.C. metropolitan area, and a significant portion of our lending portfolio is secured by single-family home mortgages in this geographic region. Further, a majority of our consumer deposit clients are located in the Washington, D.C. metropolitan area.

The Washington, D.C. metropolitan area’s economy is heavily dependent on federal government spending, as a significant number of businesses in the area are federal government contractors or subcontractors, or depend on such businesses for a significant portion of their revenues. If the U.S. federal government were to cut or slow its spending on employment, government contracts, and real estate leases, that would adversely impact the Washington, D.C. metropolitan area’s economy. If economic conditions in the region deteriorate, or there is significant volatility or weakness in the Washington, D.C. metropolitan area’s economy, or any significant sector of the area’s economy, our ability to maintain or develop our business relationships may be diminished, the quality and collectability of our loans may be adversely affected, the value of collateral securing our loans may decline, loan demand may be reduced, and we may experience consumer deposit withdrawals. These developments could negatively impact our business, results of operations and financial condition.

While we do not have a significant level of loans to federal government contractors or their subcontractors, the impact of a decline in federal government spending, a reallocation of government spending to different industries or different areas of the country, or a delay in payments to such contractors could adversely affect our clients. Temporary layoffs, staffing freezes, salary reductions, or shutdown and furloughs of government employees or government contractors could have adverse impacts on other businesses in our market and the general economy of the greater Washington, D.C. metropolitan area, and may indirectly lead to a loss of revenues by our clients, including vendors and lessors to the federal government and government contractors or to their employees, as well as a wide variety of commercial and retail businesses. Accordingly, such actions by the federal government could lead to increases in loan delinquencies, defaults, and charge-offs, or a decline in liquidity.

Our investment securities portfolio exposes us to risks beyond our market area.

As of March 31, 2024, 45.6% of our assets were invested in securities. The size of the investment securities portfolio depends on the seasonality of demand deposits from campaigns and elections industry depositors, the concomitant need to maintain a higher degree of liquidity to meet the withdrawal needs of these depositors, and the demand for loans that meet our underwriting criteria.

We invest in a wide variety of securities, including U.S. government and agency obligations, taxable and non-taxable municipal bonds, including general obligation and revenue bonds, and investment grade corporate bonds. Under national banking laws, all bank-owned securities must be investment grade at the time of purchase. Investments in municipal and corporate bonds, in particular, expose us to the economic risks of communities and businesses across the country. If the economy were to enter a recession, the financial condition of many states and municipalities and of many corporations would likely weaken. Lower tax revenues could impair the ability of states and localities to repay their bond indebtedness. Similarly, lower corporate sales could impair the ability even of investment grade corporations to repay their indebtedness. Furthermore, although the Bank only purchases investment grade securities, it is possible that some of the corporate bonds it has purchased could be downgraded to below investment grade after the bank purchases them. The Bank seeks to broadly diversify its investment securities and to limit its exposure to any one bond issue, issuer or project, but there can be no assurance that we will not incur losses related to its investment activities.

 

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Our significant investment in securities held to maturity exposes us to risks that may adversely affect our business, financial condition or results of operations.

As of March 31, 2024, 25.0% of our assets were invested in securities held to maturity (measured at amortized cost, net of allowance for credit losses), which subject us to certain risks that may adversely affect our business, financial condition or results of operations, including the following:

 

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Securities held to maturity are carried at amortized cost, and their fair value is not adjusted for changes in interest rates. Consequently, if interest rates rise, the fair value of our securities held to maturity would be expected to decline, but this decrease would not be immediately reflected in our net income or stockholders’ equity. However, this could result in significant unrealized losses, which could impact our ability to borrow from correspondent banks. Further, if we were required to sell all or a material portion of our securities held to maturity, we may recognize significant losses that would adversely affect our business, results of operations or financial condition. See “— Interest Rate Risk — Increases in interest rates could result in losses on our investment securities portfolio.” As of March 31, 2024, the carrying value (net of allowance for credit losses) of our securities held to maturity was $308.0 million, compared to a fair value of $282.3 million.

•

In general, we cannot sell any of our securities held to maturity without potentially tainting our entire securities held to maturity portfolio, except under specific circumstances permitted by accounting standards. This constraint would limit our ability to quickly reallocate our investment portfolio in response to changes in market conditions or liquidity needs. If we are required to sell securities held to maturity, including to meet liquidity needs, we may realize significant losses that would adversely affect our business, results of operations or financial condition.

•

Changes in accounting standards or regulatory guidance could require us to reclassify our securities held to maturity, which would adversely affect our stockholders’ equity and could lead to increased volatility in our reported earnings and capital ratios. Additionally, future regulatory requirements may impose higher capital charges on securities held to maturity.

Any of these risks related to our securities held to maturity may be exacerbated by negative market perceptions or investor confidence. In particular, adverse changes, or perceptions of adverse changes, in market conditions or the financial health of the issuers of our securities held to maturity could lead to concerns about our financial condition or risk management practices.

There can be no assurance that we will be able to maintain or increase our current levels of transaction accounts, non-interest-bearing demand deposits, and levels of profitability or growth.

As of March 31, 2024, a substantial portion of our deposits were held in transaction accounts, most of which are non-interest-bearing accounts that offer an earnings credit in lieu of interest to offset service charges. Transaction accounts have comprised over 50% of the Bank’s total deposits at each year-end since 2014. As of March 31, 2024, 91.8% and 73.4% of the Company’s deposits were in transaction accounts and non-interest-bearing accounts, respectively. There can be no assurance that the high levels of transaction accounts or non-interest-bearing demand deposits will continue to be held by the Bank, or that they will not decline, and there can be no assurance that the Bank will be able to replace any such deposits at a similar cost, or increase its lending business on a profitable basis. There can be no assurance that we will be able to maintain profitability, continue to grow in a profitable manner, or increase our book value per share, which is one of the metrics we use to measure our performance.

We place a significant portion of our clients’ deposits with other banks through the ICS^® network, which exposes us to risks that may adversely affect our business, financial condition or results of operations.

We participate in the ICS^® network to provide our clients with additional FDIC insurance coverage for their uninsured balances. For our clients that opt into the ICS^® network, this service allows us to place their deposits in increments up to the FDIC insurance limits at other banks within the ICS^® network. In exchange, we may elect to either receive reciprocal deposits from other banks within the ICS^® network or place the deposits at other banks as one-way sales and receive a deposit placement fee. If we elect to receive reciprocal deposits from other banks,

 

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the amount of deposits on our balance sheet does not decrease and we earn interest income on these reciprocal balances. If we elect to receive a deposit placement fee instead of receiving reciprocal deposits, the amount of deposits on our balance sheet decreases, which allows us to better control the size of our balance sheet and this fee increases our non-interest income. As of March 31, 2024, $388.5 million of our deposits were placed at other banks using the ICS^® network, for which we elected to receive $99.3 million in reciprocal deposits. The $289.2 million in excess deposits as of March 31, 2024 were placed at other participating banks as one-way sales and our deposit placement services income was $1.1 million for the three months ended March 31, 2024. If we convert these deposits into reciprocal deposits and bring them back onto our balance sheet, we may receive interest income on these deposits, but our deposit placement services income would decline, which could adversely affect our business, financial condition or results of operations.

If we or our clients are no longer able to participate in the ICS^® network, including because the ICS^® network ceases or because of regulatory changes, we may experience deposit withdrawals, lose revenue from deposit placement fees, or experience a sudden increase in our balance sheet that could adversely affect our regulatory capital ratios. In order to sell a client’s deposits through the ICS^® network, the client must first opt into the ICS^® network, and not all of our clients have opted into the ICS^® network, nor can all of our clients be expected to opt into the ICS^® network in the future. Further, our ability to provide our clients with deposit placement services through the ICS^® network depends on the participation of other banks within the ICS^® network, and any issues affecting these banks, including concerns related to participating banks’ financial stability, could disrupt our ability to provide these services to our clients. Any of these conditions could adversely affect our business, financial condition or results of operations.

Our Trust & Wealth Department exposes us to certain risks and there can be no assurance the department will contribute meaningfully to our revenues or become profitable on a standalone basis.

Our Trust & Wealth Department exposes us to certain risks. The department, which began operations in the third quarter of 2020 after receiving approval from the OCC for fiduciary powers, manages a variety of trusts, including special needs trusts. The products and services provided by the department include trustee services, investment management, financial planning, estate administration, and custody. Risks specifically related to our Trust & Wealth Department include:

 

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Fiduciary Duty Compliance: We have a legal obligation to act in the best interests of our clients, which includes the duty to manage trust assets prudently. Failure to comply with these fiduciary duties can result in legal claims and significant financial liability.

•

Litigation Risks: Trust and estate matters often involve disputes among beneficiaries or between beneficiaries and trustees. These disputes can lead to litigation, which can be costly and time consuming, potentially resulting in substantial legal expenses and damages.

•

Regulatory Compliance: The trust department is subject to stringent regulatory oversight by federal and state authorities. Non-compliance with fiduciary regulations can lead to enforcement actions, fines, and other regulatory sanctions that could adversely affect our operations and reputation.

•

Market Risks: Investment management services provided by the trust department are exposed to market risks. Poor investment performance can result in claims of mismanagement or breach of fiduciary duty, leading to potential legal liabilities.

•

Personnel Risks: The success of our Trust & Wealth Department heavily relies on retaining specialized trust and wealth management personnel. The market for such skilled professionals is highly competitive. Losing key personnel could adversely impact our ability to manage trust accounts effectively and meet client expectations.

•

Risks Specific to Special Needs Trusts: Managing special needs trusts exposes us to additional risks. These trusts are designed to provide financial support to individuals with disabilities without affecting their eligibility for government benefits like Medicaid and Supplemental Security Income (SSI). However, the rules governing these trusts are complex and state-specific. Failure to adhere to these rules can disqualify the trust, leading to the loss of benefits for the beneficiary and potential legal liabilities for the trustee.

 

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In addition, the department generated revenues of approximately $565 thousand for the year ended December 31, 2023, but has not achieved standalone profitability. There can be no assurance that the Trust & Wealth Department will contribute meaningfully to our revenues or become profitable on a standalone basis. The unpredictability of assets under management and associated revenue further complicates our financial planning. Additionally, the highly competitive and commoditized nature of the wealth management industry poses ongoing challenges to our trust and asset management business.

We may be adversely affected by changes in the actual or perceived soundness or condition of other financial institutions.

Financial services institutions may be interconnected as a result of trading, investment, liquidity management, clearing, counterparty and other relationships. Within the financial services industry, loss of public confidence, including through default by any one institution, could lead to liquidity challenges or to defaults by other institutions. Concerns about, or a default by or failure of, one institution could lead to significant liquidity problems and losses or defaults by other institutions, as the commercial and financial soundness of many financial institutions is closely related as a result of these credit, trading, clearing and other relationships. Even the perceived lack of creditworthiness of, or questions about, a counterparty may lead to market-wide liquidity problems and losses or defaults by various institutions. This systemic risk may adversely affect financial intermediaries, such as clearing agencies, banks and exchanges with which we interact on a daily basis or key funding providers such as the FHLB, any of which could have a material adverse effect on our access to liquidity or otherwise have a material adverse effect on our business, financial condition and results of operations.

In addition, our securities portfolio includes investments in other financial institutions. As of March 31, 2024, we held $4.8 million principal amount of subordinated debt issued by other bank holding companies. Any changes to the actual or perceived soundness of other financial institutions could adversely affect the value of these securities, which could cause us to incur losses.

There is no assurance that the Bank will be able to compete successfully with others for its business.

The Bank competes for loans, deposits, fiduciary services and capital with other banks and other kinds of financial institutions and enterprises, such as securities firms, insurance companies, savings and loan associations, credit unions, mortgage brokers, and private lenders, many of which have substantially greater resources or are subject to less stringent regulations. The differences in resources and regulations may make it more difficult for the Bank to compete profitably, including because the Bank may be required to reduce the rates that it charges on loans and investments or increase the rates it offers on deposits in order to compete, which would adversely affect the Bank’s business, financial condition and results of operations. Further, the Bank’s profitability, in large part, results from its ability to maintain high levels of non-interest-bearing demand deposits, which are provided by campaigns and elections industry clients. There can be no assurance that the Bank will be able to effectively compete to maintain or grow its current share of deposits from these businesses and organizations.

We could fail to attract, retain or motivate skilled and qualified personnel, including our senior management, other key employees or directors, which could adversely affect our business.

Our ability to implement our strategic plan depends on our ability to attract, retain and motivate skilled and qualified personnel, including our senior management and other key employees and directors. The marketplace for skilled personnel is becoming more competitive, and the cost of hiring, incentivizing and retaining skilled personnel may continue to increase. The failure to attract or retain, including as a result of an untimely death or illness of key personnel, or replace a sufficient number of appropriately skilled and key personnel could place us at a competitive disadvantage and prevent us from successfully implementing our strategy, which could have a material adverse effect on our business, financial condition and results of operations.

 

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In addition, our business is service-oriented and depends to a large extent upon the client relationships that our senior officers develop and maintain, particularly with clients that maintain high levels of non-interest-bearing demand deposits. Any deterioration in such relationships, particularly those associated with significant deposit size, could lead to an outflow of deposits. See “— Liquidity Risk — We do not have a large consumer deposit base and most of our deposits come from a relatively small number of commercial relationships.” Accordingly, if we are unable to retain any of our executive officers or other senior employees, including our Chairman, Peter G. Fitzgerald, our Chief Executive Officer John J. Brough, our President, David M. Evinger, and our Chief Financial Officer, Joanna R. Williamson, our business, results of operations, and financial condition could be adversely affected.

Certain clients, including our political organization clients, may be subject to, and are particularly sensitive to, negative publicity, which may subject us to enhanced reputational risk.

Certain clients, including political organizations may be sensitive to public opinion and if we are not able to effectively manage negative publicity regarding the Bank or our client relationships, our relationships with these clients could suffer, which could lead to deposit withdrawals. As a public company, we and our relationships with our clients may be subject to increased public scrutiny, and certain of our clients may move their deposit accounts to other non-public institutions that they perceive as providing greater privacy. Further, if our clients are subject to negative publicity, our association with such clients may, in turn, cause us to be subject to negative publicity, which could harm our reputation and the public perception of our business. Any of these conditions could adversely affect our business, financial condition and results of operations.

Fulfilling our public company financial reporting and other regulatory obligations and transitioning to a public company will be expensive and time consuming and may strain our resources.

As a public company, we will be subject to the reporting requirements of the Exchange Act and will be required to implement specific corporate governance practices and adhere to a variety of reporting requirements under the Sarbanes-Oxley Act and the related rules and regulations of the SEC, as well as the rules of NYSE. The Exchange Act will require us to file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act will require, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. Compliance with these requirements will place additional demands on our legal, accounting, finance, operations and investor relations staff and on our accounting, financial and information systems, and will increase our legal and accounting compliance costs as well as our compensation expense as we expect to hire additional legal, accounting, tax, finance and investor relations staff. As a public company we may need to enhance our investor relations and corporate communications functions and attract additional qualified board members. These additional efforts may strain our resources and divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations. We expect to incur additional incremental ongoing and one-time expenses in connection with our transition to a public company. The actual amount of the incremental expenses we will incur may be higher, perhaps significantly, from our current estimates for a number of reasons, including, among others, additional costs we may incur that we have not currently anticipated.

In accordance with Section 404 of the Sarbanes-Oxley Act, our management will be required to conduct an annual assessment of the effectiveness of our internal control over financial reporting and include a report on these internal controls in the annual reports we will file with the SEC on Form 10-K. Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal controls until we are no longer an emerging growth company and no longer a non-accelerated filer. When required, this process will require significant documentation of policies, procedures and systems, review of that documentation by our internal auditing and accounting staff and our outside independent registered public accounting firm and testing of our internal control over financial reporting by our internal auditing and accounting staff and our outside independent registered public accounting firm. This process will involve considerable time and attention, may

 

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strain our internal resources and will increase our operating costs. We may experience higher than anticipated operating expenses and outside auditor fees during the implementation of these changes and thereafter. If our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock could be negatively affected, and we could become subject to investigations by NYSE, the SEC or other regulatory authorities, which could require additional financial and management resources.

We have not performed an evaluation of our internal control over financial reporting nor have we engaged our independent registered public accounting firm to perform an audit of our internal control over financial reporting, in each case as contemplated by Section 404 of the Sarbanes-Oxley Act, as of any balance sheet date reported in our financial statements. Had we performed such an evaluation of our internal control over financial reporting or had our independent registered public accounting firm performed an audit of our internal control over financial reporting, control deficiencies, including material weaknesses and significant deficiencies, may have been identified.

If we are unable to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results, or report them within the time frames required by law or stock exchange regulations. Failure to comply with the Sarbanes-Oxley Act, when and as applicable, could also potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. If material weaknesses or other deficiencies occur, our ability to accurately and timely report our financial position could be impaired, which could result in late filings of our annual and quarterly reports under the Exchange Act, restatements of our consolidated financial statements, a decline in our stock price, or suspension or delisting of our Class A common stock from NYSE and could have a material adverse effect on our business, results of operations and financial condition. Even if we are able to report our financial statements accurately and in a timely manner, any failure in our efforts to implement the improvements or disclosure of material weaknesses in our future filings with the SEC could cause our reputation to be harmed and our stock price to decline significantly.

Operational Risks

We are subject to operational risk, which could adversely affect our business and reputation and create material legal and financial exposure.

Like all businesses, we are subject to operational risk, which represents the risk of loss resulting from human error or misconduct, inadequate or failed internal processes and systems, and external events, including the risk of loss resulting from fraud by employees or persons outside the Bank, and breaches in data security. Because the Bank engages in a high volume of funds transfer activity, we may be subject to a greater degree of payment risk than other similarly-sized banks. Our political organization clients use our payment services heavily leading up to elections, and the payment size for such payments is typically much larger than for retail banking payment services. The Bank frequently receives or sends payment orders that are a high percentage of its total capital, and on a few occasions in the past it has sent and received, and in the future it may send and receive, payment orders that exceed the Bank’s total capital. Processing errors by employees of the Bank or violations of related regulations could lead to a significant financial loss and legal liability.

We are also exposed to the above-referenced operational risks through outsourcing arrangements, as such outsourcing vendors, which are exposed to operational risks themselves, as well as the effects that changes in circumstances or capabilities of our outsourcing vendors can have on our ability to continue to perform operational functions necessary to our business.

Although we seek to mitigate operational risk through a system of internal controls that are reviewed and updated, no system of controls, however well designed and maintained, is infallible. Control weaknesses or failures or other operational risks could result in charges, increased operational costs, harm to our reputation or foregone business opportunities.

 

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The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents could have a material adverse effect on our business, financial condition and results of operations.

As a financial institution, we are susceptible to fraudulent activity, information security breaches and cybersecurity-related incidents that may be committed against us, our service providers or our clients, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client information, misappropriation of assets, litigation or damage to our reputation. Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Information security breaches and cybersecurity-related incidents may include fraudulent or unauthorized access to systems used by us, our service providers or our clients, denial or degradation of service attacks, ransomware, malware or other cyberattacks or human error. In recent periods, several large corporations, including financial institutions and retail companies, have suffered major data breaches, in some cases exposing not only confidential and proprietary corporate information but also sensitive financial and other personal information of their clients and employees and potentially subjecting them to fraudulent activity. Our clients are subject to risks related to identity theft, credit and debit card fraud and other fraudulent activity that could involve their accounts with us. We have in the past been, and may in the future be, the target of attempted electronic fraudulent activity, security breaches and cybersecurity-related attacks. The increased use of mobile and cloud technologies, as well as remote work arrangements, can heighten these and other operational risks, and because we do not maintain a branch network and instead rely more heavily on our mobile and desktop applications to provide services to our clients, the consequences of fraudulent activity, information security breaches and cybersecurity-related incidents may be more severe for us compared to other banks. All of this could have a material adverse effect on our business, financial condition and results of operations.

In addition, increases in criminal activity levels and sophistication, advances in computer capabilities, new discoveries, vulnerabilities in third-party technologies (including browsers and operating systems) or other developments could result in a compromise or breach of the technology, processes and controls that we use to prevent fraudulent transactions and to protect data about us, our clients and underlying transactions, as well as the technology used by our employees, third-party service providers and clients to access our systems. For example, we are exposed to risks arising from the use of artificial intelligence (“AI”) technologies by bad actors to commit fraud and misappropriate funds and to facilitate cyberattacks.

Although we have developed, and continue to invest in, systems and processes that are designed to detect and prevent security breaches and cyberattacks, our inability to anticipate, or failure to timely discover and adequately mitigate, breaches of security could result in: losses to us or our clients; our loss of business and/or clients; damage to our reputation; the incurrence of additional expenses; disruption to our business; our inability to grow our online services or other businesses; additional regulatory scrutiny or penalties; or our exposure to civil litigation and possible financial liability. Any such costs, losses or claims may not be covered by our insurance or could exceed the amount of insurance coverage available to us, which could have a material adverse effect on our business, financial condition and results of operations.

More generally, publicized information concerning information security and cybersecurity-related problems could inhibit the use or growth of electronic or web-based applications or solutions as a means of conducting commercial transactions. Such publicity may also cause damage to our reputation as a financial institution. All of this could have a material adverse effect on our business, financial condition and results of operations.

We also face risks related to cyberattacks and other security breaches involving external, third-party vendors and counterparties.

Information pertaining to us and our clients is maintained, and transactions are executed, on networks and systems maintained by us, our clients and certain of our third-party vendors, such as our online banking or reporting systems. The secure maintenance and transmission of confidential information, as well as execution of transactions over these systems, are essential to protect us and our clients against fraud and security breaches and

 

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to maintain our clients’ confidence. Some of these parties have in the past been, and may in the future be, the target of security breaches and cyberattacks, and because the transactions involve third parties and environments such as the point of sale that we do not control or secure, future security breaches or cyberattacks affecting any of these third parties could impact us through no fault of our own, and in some cases we may have exposure and suffer losses for material breaches or attacks relating to them. Although we are not aware of any material losses relating to cybersecurity incidents, there can be no assurance that unauthorized access or cybersecurity incidents will not become known or occur or that we will not suffer such losses in the future.

Additionally, we may not be able to ensure that our third-party vendors have appropriate controls in place to protect the confidentiality of the information they receive from us and our business, financial condition and results of operations could be adversely affected by a material breach of, or disruption to, the security of any of our or our vendors’ systems.

Our operations rely on certain external vendors, and our use of these vendors is subject to increasing regulatory requirements and attention.

Our business model of a single banking office serving a nationwide client base is dependent on relationships with third-party service providers that provide services, primarily information technology services, that are critical to our operations. We use external vendors to provide products and services necessary to maintain our day-to-day operations, including core banking services such as online banking, loan servicing, debit and credit card services, trust accounting and wealth management and other key components of our business infrastructure, including data processing and storage, internet connection and network access and various information technology services and services complementary to our banking products. In particular, we rely on a core technology provider for the banking software used by our clients and operations personnel. Accordingly, our operations are exposed to the risk that these vendors, including our core technology provider, will not perform in accordance with the contracted arrangements or under service-level agreements.

We are also exposed to the risk that a cyberattack, security breach, other information technology incident or other operational disruption at a common vendor to our third-party service providers, including our core technology provider, could impede their ability to provide services to us. See “We also face risks related to cyberattacks and other security breaches involving external, third-party vendors and counterparties.”

We may not be able to effectively monitor or mitigate operational risks relating to the use of common vendors by third-party service providers, including our core technology provider. If any of our third-party service providers experience difficulties in providing services or terminate their services and we are unable to replace our service providers with other service providers, our operations could be interrupted. It may be difficult for us to replace some of our third-party vendors, particularly vendors providing our core banking, mortgage-servicing and debit card services and information services, in a timely manner if they are unwilling or unable to provide us with these services in the future for any reason. If an interruption were to continue for a significant period, it could have a material adverse effect on our business, financial condition and results of operations. Even if we are able to replace them, it may be at higher cost to us, which could have a material adverse effect on our business, financial condition and results of operations. In addition, if a third-party provider fails to provide the services we require, fails to meet contractual requirements, such as compliance with applicable laws and regulations, or suffers a cyberattack or other security breach, our business could suffer economic and reputational harm that could have a material adverse effect on our business, financial condition and results of operations.

Furthermore, recent regulation requires us to enhance our due diligence, ongoing monitoring and control over our third-party vendors and other ongoing third-party business relationships. In certain cases, we may be required to renegotiate our agreements with these vendors to meet these enhanced requirements, which could increase our costs. We expect that our regulators would hold us responsible for deficiencies in our oversight and control of our third-party relationships and in the performance of the parties with which we have these relationships, including in connection with the improper use or disclosure of confidential information, which could also harm our reputation, financial position and current and future business relationships. As a result, if our

 

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regulators conclude that we have not exercised adequate oversight and control over our third-party vendors or other ongoing third-party business relationships or that such third parties have not performed appropriately, we could be subject to enforcement actions, including civil money penalties or other administrative or judicial penalties or fines, as well as requirements for client remediation, any of which could have a material adverse effect our business, financial condition and results of operations. In June 2023, the U.S. federal banking agencies issued an interagency guidance, which requires banks, such as us, to analyze the risk associated with each third-party relationship and to calibrate its risk management processes. Any future changes in requirements or standards applicable to our third-party relationships could negatively affect us in substantial and unpredictable ways, and increase our costs. All of which could have a material adverse effect on our business, financial condition and results of operations.

The development and use of artificial intelligence present risks and challenges that may adversely impact our business.

We have incorporated, and our third-party vendors, clients or counterparties may develop or incorporate, AI technology in certain business processes, services or products. The development and use of AI present a number of risks and challenges to our business. The legal and regulatory environment relating to AI is uncertain and rapidly evolving and includes regulation targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment and other laws applicable to the use of AI. 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. AI models, particularly generative AI models, may produce output or take action that is incorrect, that results in the release of private, confidential or proprietary information, that reflects biases included in the data on which they are trained, infringes on the intellectual property rights of others, or that is otherwise harmful. In addition, the complexity of many AI models makes it challenging to understand why they are generating particular outputs. 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. 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. 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.

We depend on the accuracy and completeness of information about clients and counterparties.

In deciding whether to extend credit or enter into other transactions, and in evaluating and monitoring our loan and lease portfolio on an ongoing basis, we typically rely on information furnished by or on behalf of clients and counterparties, including financial statements, credit reports and other financial information. We may also rely on representations of those clients or counterparties, or of other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate, incomplete, unaudited, fraudulent or misleading financial statements, credit reports or other financial or business information, or the failure to receive such information on a timely basis, could result in loan and lease losses, reputational damage or other effects that could have a material adverse effect on our business, financial condition and results of operations.

Our reliance on accounting estimates and risk management framework may not always prevent or mitigate risks effectively, leading to potential differences between actual results and our forecasts.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Our management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with GAAP and reflect management’s judgment of the most

 

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appropriate manner to report our financial condition and results. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet which may result in our reporting materially different results than would have been reported under a different alternative.

Certain accounting policies are critical to presenting our financial condition and results of operations. They require management to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. These critical accounting policies include the allowance for loan and lease losses, revenue and expense recognition, goodwill, fair value measurements and income taxes. Because of the uncertainty of estimates involved in these matters, we may be required to significantly increase the allowance for credit losses or sustain losses that are significantly higher than the reserve provided or reduce the carrying value of an asset measured at fair value. Any of these could have a material adverse effect on our business, financial condition and results of operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates.”

Our internal controls, disclosure controls, processes and procedures and corporate governance policies and procedures are based in part on certain assumptions and can provide only reasonable (not absolute) assurances that the objectives of the system are met. Any failure or circumvention of our controls, processes and procedures or failure to comply with regulations related to controls, processes and procedures could necessitate changes in those controls, processes and procedures, which may increase our compliance costs, divert management attention from our business or subject us to regulatory actions and increased regulatory scrutiny.

We have established policies and procedures intended to identify and manage the types of risk to which we are subject, including credit risk, interest rate risk, liquidity risk, price risk, operational risk, cyber risk, compliance risk, strategic risk and reputation risk. There are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that were not appropriately anticipated or identified. In addition, we rely on both qualitative and quantitative factors, including models, to monitor, measure and analyze certain risks and to estimate certain financial values, which are subject to error. If our risk management framework proves ineffective, we could become subject to litigation or negative regulatory action, and we could suffer unexpected losses that could affect our business, financial condition, or results of operations.

Legal, Regulatory and Compliance Risks

Government regulation significantly affects our business and may result in higher costs and lower stockholder returns.

The banking industry is heavily regulated. Banking regulations are primarily intended to protect the federal deposit insurance fund (“DIF”), depositors, and consumers, not stockholders. The Bank is regulated and supervised by the OCC and the FDIC. The Company is regulated by the Federal Reserve. The burden imposed by federal regulations puts banks at a competitive disadvantage compared to less regulated competitors such as nonbank finance companies, mortgage-banking companies, digital fin-tech lenders, and leasing companies. Changes in the laws, regulations, and regulatory practices affecting the banking industry may increase the costs of doing business or otherwise adversely affect the Bank and create competitive advantages for others. Regulations affecting banks and financial services companies undergo continuous change, and we cannot predict the ultimate effect of these changes, which could have a material adverse effect on profitability or financial condition. In addition, changes to other laws or regulations, such as tax laws, could also have a disproportionate impact on us, based on the way those laws or regulations are applied to financial services and financial firms or due to our corporate structure or where or how we provide these services.

Changes in federal and state legislation and regulation may affect our operations. New and modified regulations, such as the regulations promulgated pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and the rules adopted by the federal banking agencies under the

 

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December 2010 framework of the Basel Committee on Banking Supervision, or the Basel III Rules, may have unforeseen or unintended consequences on the banking industry. The Dodd-Frank Act implemented significant changes to the U.S. financial system, including new regulatory agencies (such as the Financial Stability Oversight Committee to oversee systemic risk and the Consumer Financial Protection Board (“CFPB”), to develop and enforce rules for consumer financial products), changes in retail banking regulations, and changes to deposit insurance assessments. Additionally, the Basel III Rules have revised risk-based and leverage capital requirements and also limits capital distributions and certain discretionary bonuses if a banking organization does not hold a “capital conservation buffer.” This additional regulation increases Bank compliance costs and may otherwise adversely affect operations. The potential also exists for additional federal or state laws or regulations, or changes in policy or interpretations, to affect operations, including capital levels, lending and funding practices, insurance assessments, and liquidity standards. The effect of any such changes and their interpretation and application by regulatory authorities cannot be predicted, may increase the Company’s cost of doing business and otherwise affect operations, may significantly affect the markets in which the Company does business, and could have a material adverse effect on the Company.

In addition, in response to the recent bank failures and loss of public confidence in the banking sector, the government has increased its scrutiny of financial institutions. State and federal lawmakers and regulators have proposed new measures and regulations regarding capital levels, deposit concentrations, liquidity, risk management and deposit insurance. Such legal and regulatory changes could materially and adversely affect our business, results of operations or financial condition. The government’s response to the condition of the global financial markets and the banking industry has also increased costs and may further increase costs for items such as federal deposit insurance. The FDIC insures deposits at FDIC-insured institutions, such as the Bank, up to applicable limits. The FDIC charges the insured financial institutions premiums to maintain the DIF at a minimum of 2% of total estimated insured deposits. Increases in deposit insurance premiums to increase the coverage ratio to required levels, to meet revised rules to measure risk or to pay depositors of additional failed institutions could adversely affect the Company’s financial condition and results of operations.

We are also exposed to risks resulting from changes in public policy, laws and regulations, or market and public perceptions and preferences in connection with the transition to a less carbon-dependent economy. These changes could adversely affect our business, financial condition, results of operations and reputation. For example, our reputation and client relationships may be damaged as a result of our or our clients’ involvement in certain industries or projects perceived to be associated with causing or exacerbating climate change.

The failure to fully comply with applicable laws and regulations, particularly those related to consumer compliance and lending, could result in additional regulatory scrutiny being placed on the Bank, the Company or the Bank being subjected to informal or formal enforcement actions, or the imposition of civil money penalties against the Company, the Bank, and/or their respective officers or directors. Even if the Company or the Bank avoided such enforcement actions following a compliance lapse, expenses required to come into compliance and maintain such compliance, and to avoid any threatened enforcement action, could have an adverse effect on earnings, divert management attention from other opportunities and otherwise adversely affect stockholder returns.

Litigation and regulatory actions, including possible enforcement actions, could subject us to significant fines, penalties, judgments, or restrictions on our business activities.

We have in the past been, and may in the future be, named as a defendant in legal actions in connection with our activities. Legal actions could include claims for substantial compensatory or punitive damages or claims for indeterminate amounts of damages. For example, in 2020, a lawsuit alleged that the Bank improperly returned a wire transfer in the amount of $456.9 million and remained obligated to pay that sum. While the lawsuit was dismissed in our favor, we incurred significant legal expenses in connection with the lawsuit, and there can be no assurance that the outcome of any future lawsuit will be favorable.

 

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The Bank’s Trust & Wealth Department is particularly subject to the risk that clients or others may sue us, claiming that we or third parties for whom they say we are responsible have failed to perform under a contract or otherwise failed to carry out a duty perceived to be owed to them. This risk is heightened when we act as a fiduciary for our clients and may be further heightened during periods when credit, equity or other financial markets are deteriorating in value or are particularly volatile, or when clients or investors are experiencing losses. Further, our Trust & Wealth Department offers certain specialized trust services, such as special needs trusts, that may subject us to an increased risk of legal liability. See “— Risks Related to Our Business — Our Trust & Wealth Department exposes us to certain risks and there can be no assurances the department will contribute meaningfully to our revenues or become profitable on a standalone basis.”

Further, in the future our regulators may impose consent orders, civil money penalties, matters requiring attention, or similar types of supervisory criticism. We may also, from time to time, be the subject of subpoenas, requests for information, reviews, investigations and proceedings (both formal and informal) by governmental agencies regarding our activities.

Any such legal or regulatory actions may subject us to substantial compensatory or punitive damages, significant fines, penalties, obligations to change our business practices or other requirements, resulting in increased expenses, diminished income and damage to our reputation. Our involvement in any such matters, whether tangential or otherwise and even if the matters are ultimately determined in our favor, could also cause significant harm to our reputation and divert management attention from the operation of our business. Further, any settlement, consent order or adverse judgment in connection with any formal or informal proceeding or investigation by government agencies may result in litigation, investigations or proceedings as other litigants and government agencies begin independent reviews of the same activities. As a result, the outcome of legal and regulatory actions could have an adverse effect on our business, results of operations and results of operations.

The Bank’s primary regulator has broad powers to place limitations on the conduct of a bank’s business, or to close an institution.

The OCC has broad supervisory powers to limit a bank’s conduct of its business in the event that its capital position or financial condition decline, or if it engages in unsafe or unsound practices. Such powers include the ability to limit distributions of dividends. As a result of capital insufficiency, including but not limited to if a bank’s level of Tier 1 capital falls below 2%, becoming undercapitalized with no reasonable prospect of becoming adequately capitalized, liquidity issues or other regulatory concerns, including engaging in unsafe or unsound banking practices or being in an unsafe or unsound condition, a bank could be subject to the imposition of additional restrictions or conditions on its operation, or to being closed by its regulators without compensation to the banks stockholders, including its bank holding company. If the Bank were to be closed by its regulators, there can be no assurance that the Company would be able to find a buyer for the Company or the Bank in the event that it is unable to continue as an independent entity.

Generally, a conservator or receiver may be appointed for an insured depository institution where: (1) its obligations exceed its assets; (2) there is substantial dissipation of the institution’s assets or earnings as a result of any violation of law or any unsafe or unsound practice; (3) the institution is in an unsafe or unsound condition; (4) there is a willful violation of a cease-and-desist order; (5) the institution is unable to pay its obligations in the ordinary course of business; (6) losses or threatened losses deplete all or substantially all of an institution’s capital, and there is no reasonable prospect of becoming “adequately capitalized” without assistance; (7) there is any violation of law or unsafe or unsound practice or condition that is likely to cause insolvency or substantial dissipation of assets or earnings, weaken the institution’s condition, or otherwise seriously prejudice the interests of depositors or the insurance fund; (8) an institution ceases to be insured; (9) the institution is undercapitalized and has no reasonable prospect that it will become adequately capitalized, fails to become adequately capitalized when required to do so, or fails to submit or materially implement a capital restoration plan; or (10) the institution is critically undercapitalized or otherwise has substantially insufficient capital.

 

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We face significant risks of non-compliance and potential enforcement actions under the Bank Secrecy Act and other anti-money laundering statutes and regulations.

The Bank Secrecy Act of 1970, the Uniting and Strengthening America by Providing Appropriate Tools to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”), and other related laws and regulations impose extensive anti-money laundering (“AML”) requirements on financial institutions. These regulations mandate the establishment and maintenance of effective AML programs, including customer due diligence, ongoing monitoring, and the filing of required reports, such as suspicious activity reports and currency transaction reports.

Federal and state banking regulators, the Financial Crimes Enforcement Network, and other government agencies are authorized to impose significant civil money penalties and other sanctions for violations of AML requirements. Additionally, our operations are also subject to regulations enforced by the Office of Foreign Assets Control (“OFAC”), which can impose fines, civil money penalties and other regulatory actions for deficiencies in our OFAC compliance program. Such actions may include restrictions on business operations, the ability to pay dividends, mergers and acquisitions activity, expansion, and entering new business lines.

Regulatory expectations for AML and OFAC compliance are increasingly stringent. Failure to meet these regulatory expectations can result in heightened scrutiny, increased regulatory actions, and significant penalties. If a financial institution’s risk assessments, customer due diligence, monitoring systems, or other aspects of its AML and OFAC compliance programs fail to comply with AML or OFAC requirements or fail to meet these regulatory expectations, it can result in heighted scrutiny, regulatory actions, including substantial fines, penalties or restrictions on our operations, or reputational damage. These consequences could materially adversely affect our business, financial condition, or results of operations.

The Bank is subject to numerous “fair and responsible banking” laws designed to protect consumers, and failure to comply with these laws could lead to a wide variety of sanctions.

The Community Reinvestment Act (“CRA”), the Equal Credit Opportunity Act (“ECOA”), the Fair Housing Act (“FHA”) and other fair lending laws and regulations, including state laws and regulations, prohibit discriminatory lending practices by financial institutions. The Federal Trade Commission Act and the Dodd-Frank Act prohibit unfair, deceptive, or abusive acts or practices by financial institutions. The U.S. Department of Justice, federal banking agencies, and other federal and state agencies are responsible for enforcing these fair and responsible banking laws and regulations. A challenge to an institution’s compliance with fair and responsible banking laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on the Bank’s reputation, business, financial condition and results of operations.

We engage in lending secured by real estate and may be forced to foreclose on the collateral and own the underlying real estate, subjecting us to potential costs, risks and consumer protection laws.

Since we originate loans secured by real estate, we may have to foreclose on the collateral property to protect our investment and may thereafter own and operate such property. The amount that we, as a mortgagee, may realize after a foreclosure depends on factors outside of our control, including, but not limited to, general or local economic conditions, assessments, interest rates, real estate tax rates, condition of the collateral property, operating expenses of the mortgaged properties, our ability to obtain and maintain adequate occupancy of the properties, zoning laws, environmental cleanup liabilities, governmental and regulatory rules and natural disasters. Our inability to manage the amount of costs or size of the risks associated with the ownership of real estate, or write-downs in the value of our other real estate owned, could have a material adverse effect on our business, financial condition and results of operations.

 

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Consumer protection initiatives or changes in state or federal law may substantially increase the time and expenses associated with the foreclosure process or prevent us from foreclosing at all. A number of states in recent years have either considered or adopted foreclosure reform laws that make it substantially more difficult and expensive for lenders to foreclose on properties in default. Additionally, federal and state regulators have prosecuted or pursued enforcement action against a number of mortgage-servicing companies for alleged consumer law violations. If new federal or state laws or regulations are ultimately enacted that significantly raise the cost of foreclosure or raise outright barriers to foreclosure, they could have a material adverse effect on our business, financial condition and results of operations.

Additionally, if the Bank forecloses on, and takes title to, real estate, it may become subject to environmental liabilities associated with such properties, which could adversely affect our business, financial condition and results of operations. We may be liable for remediation costs, as well as for personal injury and property damage, civil fines and criminal penalties regardless of when the hazardous conditions or toxic substances first affected the property. Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability, and we may not have adequate remedies against the prior owner or other responsible parties and could find it difficult or impossible to sell the affected properties.

Any violation of laws regarding, or incidents involving, the privacy, information security and protection of personal, confidential or proprietary information could damage our reputation and otherwise adversely affect our business.

The Bank’s business requires the collection and retention of large volumes of client data, including personally identifiable information (“PII”) in various information systems that it maintains and in those maintained by third-party service providers. It also maintains important internal company data such as PII about employees and information relating to operations. The Bank is subject to complex and evolving laws and regulations governing the privacy and protection of PII of individuals (including clients, employees, and other third parties). These include the Gramm-Leach-Bliley Act, which, among other things: (1) imposes certain limitations on the Bank’s ability to share nonpublic PII about clients with nonaffiliated third parties; (2) requires that it provide certain disclosures to clients about its information collection, sharing and security practices and afford clients the right to “opt out” of any information sharing by us with nonaffiliated third parties (with certain exceptions); and (3) requires that it develop, implement, and maintain a written comprehensive information security program containing appropriate safeguards based on size and complexity, the nature and scope of activities, and the sensitivity of client information the Bank processes, as well as plans for responding to data security breaches. Various federal and state banking regulators and states have also enacted data breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in the event of a security breach. Ensuring that the collection, use, transfer, and storage of PII complies with all applicable laws and regulations can increase costs. Furthermore, the Bank may not be able to ensure that clients and other third parties have appropriate controls in place to protect the confidentiality of the information that they exchange, particularly where such information is transmitted by electronic means. If personal, confidential or proprietary information of clients or others were to be mishandled or misused (in situations where, for example, such information was erroneously provided to parties who are not permitted to have the information, or where such information was intercepted or otherwise compromised by third parties), the Bank could be exposed to litigation or regulatory sanctions under privacy and data protection laws and regulations. Concerns regarding the effectiveness of measures to safeguard PII, or even the perception that such measures are inadequate, could cause the Bank to lose clients or potential clients and thereby reduce revenues. Accordingly, any failure, or perceived failure to comply with applicable privacy or data protection laws and regulations may subject the Bank to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices or in significant liabilities, fines or penalties, and could damage its reputation and otherwise adversely affect its operations, financial condition and results of operations.

 

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Increases in FDIC insurance premiums could adversely affect our earnings and results of operations.

The Bank is a member of the FDIC and the deposits of each of its depositors are insured to the maximum amount provided by the Federal Deposit Insurance Act (“FDIA”), subject to the Bank’s payment of deposit insurance premiums to the FDIC. The FDIC calculates assessment rates applicable to the Bank based on a variety of factors, including capital adequacy, asset quality, management practices, earnings performance, liquidity, and sensitivity to market risk. Any deterioration of these factors could result in an increase in the Bank’s FDIC assessment rate. In addition, to maintain a strong funding position and restore the reserve ratios of the DIF following the financial crisis, the FDIC increased deposit insurance assessment rates generally and, in response to recent bank failures, charged special assessments applicable to certain FDIC-insured financial institutions. Further increases in assessment rates or special assessments may occur in the future, especially if there are significant additional financial institution failures. Any future special assessments, increases in assessment rates or required prepayments in FDIC insurance premiums could reduce our profitability or limit our ability to pursue certain business opportunities, which could have a material adverse effect on our business, financial condition and results of operations.

The Federal Reserve may require us to commit capital resources to support the Bank at a time when our resources are limited, which may require us to borrow funds or raise capital on unfavorable terms.

The Company is required by the Federal Reserve to act as a source of financial and managerial strength to the Bank and may be required to commit capital and financial resources to support the Bank. Such support may be required at times when, absent this requirement, the Company otherwise might determine not to provide it, including because our resources may be limited, and we may be required to borrow the funds or raise capital to make the required capital injection. Any loan by the Company to the Bank would be subordinate in right of repayment to payments to depositors and certain other creditors of the Bank. In the event of the Company’s bankruptcy, the bankruptcy trustee will assume any commitment by the Company to a federal bank regulatory agency to maintain the capital of the Bank. Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the Company’s general unsecured creditors, including the holders of any note obligations. Thus, any borrowing by the Company for making a capital injection to the Bank may be more difficult and expensive relative to other corporate borrowings. Borrowing funds or raising capital on unfavorable terms for such a capital injection may have a material adverse effect on our business, financial condition and results of operations.

Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition.

From time to time, the accounting standard setters, including the Financial Accounting Standards Board (“FASB”) and the SEC, change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be difficult to predict and can materially impact how we record and report our financial condition and results of operations. As a result of changes to financial accounting or reporting standards, we could be required to change certain of the assumptions or estimates we have previously used in preparing our financial statements, which could negatively impact how we record and report our results of operations and financial condition generally. In some instances, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements.

Risks Related to Our Dual Class Common Stock Structure

The dual class structure of our common stock has the effect of concentrating voting power with the holders of our Class B common stock, including the members of the Fitzgerald Family, which will limit or preclude your ability to influence corporate matters.

Upon the completion of the offering, we will have two classes of common stock:

 

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Class A common stock, par value $0.01 per share, which is entitled to one vote per share; and

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Class B common stock, par value $0.01 per share, which is entitled to 10 votes per share.

 

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As of the date of this prospectus, members of the Fitzgerald Family, in the aggregate, beneficially own 50.69% of the outstanding shares of our old common stock. Following the Reclassification and the completion of this offering, assuming no conversions of shares of Class B common stock into shares of Class A common stock, the holders of our outstanding Class B common stock will hold  % (or  % assuming the underwriters exercise their option to purchase additional shares of our Class A common stock from us in full) of the combined voting power of our outstanding common stock, with the members of the Fitzgerald Family in the aggregate beneficially owning   % (or  % assuming the underwriters exercise their option to purchase additional shares of our Class A common stock from us in full) of the combined voting power of our outstanding common stock. While the combined voting power of the shares held by members of the Fitzgerald Family, when aggregated, will exceed 50%, the members of the Fitzgerald Family are not party to any voting agreement or other arrangement or understanding regarding the voting of our shares and have no present intention to act together for any purpose.

This concentrated control by holders of our Class B common stock, including members of the Fitzgerald Family, will limit or preclude your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval, subject to the protections that will be provided in the Charter for holders of our Class A common stock. In addition, the dual class structure may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interests as one of our stockholders.

In addition, pursuant to the terms of our Charter, some stockholders may over time voluntarily convert shares of Class B common stock to Class A common stock and some shares of Class B common stock may automatically convert into shares of Class A common stock under certain circumstances, including upon certain transfers (such as a transfer in connection with a sale). As such conversions occur, the converted shares of Class B common stock with 10 votes per share will be converted into shares of Class A common stock carrying only one vote per share. Accordingly, stockholders who continue to hold Class B common stock will, by virtue of the reduction of the number of outstanding shares of Class B common stock and the consequent reduction in the total number of votes, realize an increase in their relative voting power. As a result, there is a possibility that the degree of voting control of our Chairman, Peter G. Fitzgerald, and the other members of the Fitzgerald Family, may substantially increase over time.

Members of the Fitzgerald Family and other holders of Class B common stock could aggregate their holdings and sell a controlling interest in us to a third party in a private transaction.

Following the completion of this offering, members of the Fitzgerald Family in the aggregate will beneficially own shares of our common stock representing a substantial proportion, which may constitute a majority, of the voting power with respect to all of the outstanding shares of our common stock. Currently, the members of the Fitzgerald Family are not party to any voting agreement or other arrangement or understanding regarding the voting of our shares and have no present intention to act together for any purpose. However, in the future, should they choose to do so, the members of the Fitzgerald Family and other holders of Class B common stock could aggregate their holdings, subject to the limitations set forth in the Change in Bank Control Act of 1978 (the “CIBC Act”) and the Charter, to sell some or all of its shares of our common stock, including our Class A common stock, in a privately negotiated transaction, which, if sufficient in size, could result in a change of control of our company. However, subject to certain exceptions, any transfer of Class B common stock to a third party would cause, or require the optional conversion, of such shares into Class A common stock. Shares of Class A common stock are entitled to one vote per share, compared to 10 votes per share of Class B common stock. Accordingly, any acquirer of our common stock from members of the Fitzgerald Family and other holders of Class B common stock may not be able to exercise the same aggregate amount of voting power with respect to such shares.

The ability of the members of the Fitzgerald Family and other holders of Class B common stock to aggregate their shares and privately sell them, with no requirement for a concurrent offer to be made to acquire all of the shares of our outstanding common stock that will be publicly traded hereafter, could prevent you from

 

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realizing any change-of-control premium on your shares of our common stock that may accrue to members of the Fitzgerald Family and other holders of Class B common stock in such private sale of our common stock. In addition, if the members of the Fitzgerald Family and other holders of Class B common stock were to privately sell a significant equity interest in our company, we may become subject to the control of a presently unknown third party. Such third party may have interests that conflict with those of other stockholders. If there were to be such a change of control, it may adversely affect our ability to run our business as described in this prospectus and could have a material adverse effect on our business, financial condition and results of operations.

Conflicts of interest and other disputes may arise between the members of the Fitzgerald Family and us that may be resolved in a manner unfavorable to us and our other stockholders.

Conflicts of interest and other disputes may arise between the members of the Fitzgerald Family and us in connection with our past and ongoing relationships, and any future relationships we may establish in a number of areas, including, but not limited to, the following:

 

•

Competing Business Activities. Members of the Fitzgerald Family may also engage in activities where their interests conflict or are competitive with our or our other stockholders’ interests. These activities may include a Fitzgerald Family member’s interests in any transaction it may conduct with us, any sale by a Fitzgerald Family member of a substantial interest in us to a third party or any investments by the Fitzgerald Family member in, or business activities conducted by the Fitzgerald Family member for, one or more of our competitors. Any of these disputes or conflicts of interests that arise may be resolved in a manner adverse to us or to our stockholders other than the Fitzgerald Family member and their affiliates. As a result, our future competitive position and growth potential could be adversely affected.

•

Business Opportunities. Members of the Fitzgerald Family or their affiliates may engage in a corporate opportunity in the same or similar lines of business in which we or our affiliates now engage or propose to engage or otherwise compete with us or our affiliates. As a result of competition, our future competitive position and growth potential could be adversely affected.

While our Charter will provide certain protections for the holders of Class A common stock, these and other conflicts of interest and potential disputes could have a material adverse effect on our business, financial condition, results of operations or on the market price of our Class A common stock. See “Description of Capital Stock” and “Certain Relationships and Other Related Party Transactions.”

The multi-class structure of our common stock may adversely affect the trading market for our Class A common stock.

Certain stock index providers have excluded companies with multiple classes of shares of common stock from being added to certain stock indices. Accordingly, the multi-class structure of our common stock would make us ineligible for inclusion in indices with such restrictions and, as a result, mutual funds, exchange-traded funds, and other investment vehicles that attempt to passively track those indices may not invest in our Class A common stock. In addition, several stockholder advisory firms and large institutional investors have been critical of the use of multi-class structures. Such stockholder advisory firms may publish negative commentary about our corporate governance practices or our capital structure, which may dissuade large institutional investors or other investors from purchasing shares of our Class A common stock. These actions could make our Class A common stock less attractive to other investors and may result in a less active trading market for our Class A common stock.

Risks Related to Our Class A Common Stock

No prior public market exists for our Class A common stock, and one may not develop.

Before this offering, there has not been a public trading market for our Class A common stock, and an active trading market may not develop or be sustained after this offering. If an active trading market does not develop, you may have difficulty selling your shares of Class A common stock at an attractive price — or at all. The initial

 

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public offering price for our Class A common stock sold in this offering will be determined by negotiations among us and the underwriters. This price may not be indicative of the price at which our Class A common stock will trade after this offering. The market price of our Class A common stock may decline below the initial offering price, and you may not be able to sell your Class A common stock at or above the price you paid in this offering — or at all.

The market price of shares of our common stock may be volatile or may decline regardless of our operating performance, which could cause the value of your investment to decline.

Even if a trading market develops, the market price of our Class A common stock may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume on our Class A common stock may fluctuate and cause significant price variations to occur. If the market price of our Class A common stock declines significantly, you may be unable to resell your shares of Class A common stock at or above your purchase price, if at all. We cannot assure you that the market price of our Class A common stock will not fluctuate or decline significantly in the future. Stock markets and the price of our shares of Class A common stock may experience extreme price and volume fluctuations. Some, but certainly not all, of the factors that could negatively affect the price of our Class A common stock, or result in fluctuations in the price or trading volume of our Class A common stock, include:

 

•

general market conditions;

•

domestic and international economic factors unrelated to our performance;

•

variations in our quarterly operating results or failure to meet the market’s earnings expectations;

•

publication of research reports about us or the financial services industry in general;

•

the failure of securities analysts to cover our Class A common stock after this offering;

•

additions or departures of our key personnel;

•

adverse market reactions to any indebtedness we may incur or securities we may issue in the future;

•

actions by our stockholders;

•

the expiration of contractual lock-up agreements;

•

the operating and securities price performance of companies that investors consider to be comparable to us;

•

changes or proposed changes in laws or regulations affecting our business; and

•

actual or potential litigation and governmental investigations.

In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of the Class A common stock could decline for reasons unrelated to our business, financial conditions or results of operations. In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

Investors in this offering will experience immediate and substantial dilution of $   per share.

Purchasers of our Class A common stock in this offering will experience immediate and substantial dilution in the net tangible book value per share of Class A common stock for accounting purposes. After giving effect to the Reclassification and sale of    shares of Class A common stock that we are offering (assuming the underwriters do not exercise their option to purchase additional shares) at an assumed initial public offering price of $   per share (the midpoint of the range set forth on the cover of this prospectus), the deduction of underwriting discounts and commissions and estimated offering expenses payable by us and the use of the net proceeds as described under “Use of Proceeds,” our pro forma as adjusted net tangible book value at March 31, 2024 would have been $   million, or $   per share of Class A common stock.

This represents an immediate increase in the pro forma as adjusted net tangible book value of $   per share to our existing owners and immediate dilution (i.e., the difference between the offering price and the adjusted pro forma net tangible book value after this offering) to new investors purchasing shares of Class A common stock in this offering of $   per share. See “Dilution.”

 

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We have broad discretion in the use of the net proceeds to us from this offering, and our use of these proceeds may not yield a favorable return on your investment.

We intend to use the net proceeds from this offering for general corporate purposes, which may include repaying debt, supporting continued organic deposit growth and funding potential strategic expansion while maintaining our targeted regulatory capital levels. We have not specifically allocated the amount of net proceeds to us that will be used for these purposes and our management will have broad discretion over how these proceeds are used and could spend these proceeds in ways with which you may not agree. In addition, we may not use the net proceeds to us from this offering effectively or in a manner that increases our market value or enhances our profitability. We have not established a timetable for the effective deployment of the net proceeds to us, and we cannot predict how long it will take to deploy these proceeds. Investing the net proceeds to us in securities until we can deploy these proceeds will provide lower yields than we generally earn on loans, which may have a material adverse effect on our profitability. Although we may, from time to time in the ordinary course of business, evaluate potential acquisition opportunities that we believe provide attractive risk-adjusted returns, we do not have any immediate plans, arrangements or understandings relating to any acquisitions, nor are we engaged in negotiations with any potential acquisition targets.

We may issue shares of preferred stock in the future, which adversely affect holders of our common stock and depress the price of our common stock.

Our Charter will authorize us to issue up to 10,000,000 shares of one or more series of preferred stock. Our Board will have the authority to determine the preferences, limitations and relative rights of shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our stockholders. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our common stock. The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our common stock at a premium over the market price, and materially adversely affect the market price and the voting and other rights of the holders of our common stock.

We do not intend to pay dividends on our Class A common stock for the foreseeable future, and our future ability to pay dividends is subject to restrictions.

Holders of our Class A common stock are only entitled to receive dividends when, as and if declared by our Board out of funds legally available for dividends. We currently do not intend to pay cash dividends on our common stock, including our Class A common stock, in the foreseeable future. Any declaration and payment of dividends on our Class A common stock in the future will depend on regulatory restrictions, our earnings and financial condition, our liquidity and capital requirements, the general economic climate, contractual restrictions, our ability to service any equity or debt obligations senior to our Class A common stock and other factors deemed relevant by our Board. Furthermore, consistent with our strategic plans, business objectives, capital availability, projected liquidity needs and other factors, we have made, and will continue to make, capital management decisions and policies that could adversely affect the amount of dividends, if any, paid to our common stockholders. See “Dividend Policy and Dividends.”

The Federal Reserve has indicated that bank holding companies should carefully review their dividend policy in relation to the organization’s overall asset quality, current and prospective earnings and level, composition and quality of capital. The guidance provides that we inform and consult with the Federal Reserve prior to declaring and paying a dividend that exceeds earnings for the period for which the dividend is being paid or that could result in an adverse change to our capital structure, including interest on the senior promissory note, the subordinated debt obligations, the subordinated debentures underlying our trust preferred securities and our other debt obligations. If required payments on our debt obligations are not made, or dividends on any preferred stock we may issue are not paid, we will be prohibited from paying dividends on our common stock. Among other considerations, our ability to pay dividends further depends on the following factors:

 

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•

because the Company is a legal entity separate and distinct from the Bank and does not have any stand-alone operations, our ability to pay dividends depends on the ability of the Bank to pay dividends to us, and the OCC and Delaware state law may, under certain circumstances, restrict the payment of dividends to us from the Bank;

•

Federal Reserve policy requires bank holding companies to pay cash dividends on common shares only out of net income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition; and

•

our Board may determine that, even though funds are available for dividend payments, retaining the funds for internal uses, such as expansion of our operations, is necessary or appropriate in light of our business plan and objectives.

An investment in our Class A common stock is not an insured deposit.

An investment in our Class A common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other DIF or by any other public or private entity. Investment in our Class A common stock is inherently risky, including for the reasons described herein, and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire our Class A common stock, you could lose some or all of your investment.

If the Bank fails or is put into receivership or conservatorship by the FDIC and its primary regulator, investors will likely lose their entire investment in the Company.

The Class A common stock of the Company is effectively subordinate to the claims of all creditors, including depositors, of the Bank. Based on the history of the FDIC in resolving failed institutions, if the Bank fails, or is placed into receivership, it is expected that the FDIC would incur a loss on the payout of the Bank’s insured deposits, uninsured deposits and sale of assets. As such, it is extremely unlikely that there would be any remaining funds available for payment to the Company as the sole stockholder of the Bank, or to its creditors or stockholders. The Class A common stock is an investment in the Company only, and is not a deposit, savings account, or other liability of the Bank, and is not insured by the FDIC or any other governmental agency. As the Bank is the principal asset of the Company, its receivership will likely result in the Company’s bankruptcy, and the loss of stockholders’ investments in their entirety.

We qualify as an “emerging growth company” and “smaller reporting company,” and the reduced public company reporting requirements applicable to emerging growth companies and smaller reporting companies may make our Class A common stock less attractive to investors.

We are an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the JOBS Act. As an emerging growth company, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. See “Summary — Implications of Being an Emerging Growth Company and a Smaller Reporting Company.”

Although we are still evaluating our options under the JOBS Act, we may take advantage of some or all of the reduced regulatory and reporting obligations that will be available to us so long as we qualify as an “emerging growth company,” and thus the level of information we provide may be different from that of other public companies. If we do take advantage of any of these exemptions, some investors may find our securities less attractive, which could result in a less active trading market for our Class A common stock, and the price of our Class A common stock may be more volatile.

As an “emerging growth company” under the JOBS Act, we are permitted to delay the adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We do not intend to take advantage of this extended transition period, which

 

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means that the financial statements included in this prospectus, as well as any financial statements that we file in the future, will be subject to all new or revised accounting standards generally applicable to public companies. The decision not to take advantage of the extended transition period is irrevocable.

We could remain an “emerging growth company” until the earliest to occur of: (1) the end of the fiscal year following the fifth anniversary of this offering; (2) the first fiscal year after our annual gross revenues are $1.235 billion or more; (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (4) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act. We have taken advantage of reduced disclosure regarding executive compensation arrangements and the presentation of certain historical financial information in this prospectus, and we may choose to take advantage of some but not all of these reduced disclosure obligations in future filings. If we do, the information that we provide to our stockholders may be different from what you might get from other public companies in which you hold stock.

We are also a smaller reporting company, as defined in the Exchange Act. Even after we no longer qualify as an emerging growth company, we may still qualify as a smaller reporting company, which would allow us to continue taking advantage of many of the same exemptions from disclosure requirements, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. In addition, for so long as we continue to qualify as a non-accelerated filer, we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.

We cannot predict if investors will find our securities less attractive due to our reliance on these exemptions. If investors were to find our securities less attractive as a result of our election, we may have difficulty raising in this offering and future offerings and the market price of our securities may be more volatile.

Future sales of our Class A common stock in the public market, including any sales by members of the Fitzgerald Family, could lower our stock price, and any increase in shares may dilute your ownership in us.

The sale of substantial amounts of shares of our Class A common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of Class A common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. Upon completion of this offering, we will have    shares of Class A common stock outstanding (or    shares if the underwriters elect to exercise in full their option to purchase additional shares from us), all of which will be sold in this offering. These will be freely tradable without restriction or further registration under the Securities Act, except that any shares purchased or held by our affiliates, as that term is defined under Rule 144 of the Securities Act, may be sold only in compliance with the limitations described in “Shares Eligible for Future Sale.”

Our remaining shares outstanding will be restricted securities as defined under Rule 144 subject to certain restrictions on resale. However, federal securities law permit stockholders who are not our affiliates and have held our securities, including our Class A common stock, for least one year to sell such securities without regard to the restrictions Rule 144.

Upon completion of this offering, we will have    shares of Class B common stock outstanding. All of these shares will be “restricted securities” as defined in Rule 144 and may be sold in the public market only if registered under the Securities Act or if they qualify for an exemption from registration under Rule 144. Our Charter will provide that each share of our Class B common stock is convertible at any time, at the option of the holder, into one share of Class A common stock. Shares of our Class A common stock issuable to our stockholders upon conversion of shares of Class B common stock would be considered “restricted securities,” as that term is defined under Rule 144.

We have agreed with the underwriters not to offer, pledge, sell or otherwise dispose of or hedge any shares of our Class A common stock, subject to certain exceptions, for the 180-day period following the date of this prospectus, without the prior consent of Piper Sandler & Co. on behalf of the underwriters. In addition, members

 

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of the Fitzgerald Family, our directors and executive officers and holders of more than 4.5% of our common stock have entered into similar lock-up agreements with the underwriters. The underwriters may, at any time, release us, the members of the Fitzgerald Family or any of our executive officers, directors or holders of more than 4.5% of our common stock from this lock-up agreement. The remaining shares of Class B common stock that are not subject to the contractual lockup, upon conversion to shares of Class A common stock, may be sold in the public market if they qualify for an exemption from registration under Rule 144.

Upon the expiration of the lock-up agreements described above, all of such shares will be eligible for resale in a public market, subject, in the case of shares held by our affiliates, to volume, manner of sale and other limitations under Rule 144 or registration under the Securities Act. As restrictions on resale end, the market price of our shares of Class A common stock could drop significantly. We have no control over the timing and manner of the sale by our principal stockholders, including any member of the Fitzgerald Family. Generally speaking, public resales by members of the Fitzgerald Family will be subject to the volume limitations under Rule 144 absent registration under the Securities Act. Members of the Fitzgerald Family could also sell all or a significant tranche of their shares to a single third-party purchaser. Any such sales could impact the price of our shares of Class A common stock and may be at prices below the current trading price of our Class A common stock.

We cannot predict the size of future issuances or sales of our Class A common stock or the effect, if any, that future issuances or sales of shares of our Class A common stock may have on the market price of our Class A common stock. Sales or distributions of substantial amounts of our Class A common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may cause the market price of our Class A common stock to decline.

If securities or industry analysts do not publish research or reports about our business, or if they downgrade their recommendations regarding our Class A common stock, our stock price and trading volume could decline.

The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these securities analysts, and they may not cover our Class A common stock. If securities analysts do not cover our Class A common stock, the lack of research coverage may adversely affect our market price. If we are covered by securities analysts and if any of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our Class A common stock price may decline. If analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our Class A common stock price or trading volume to decline and our Class A common stock to be less liquid.

Certain banking laws, certain provisions of our organizational documents and Delaware law may discourage or delay acquisition attempts for us that you might consider favorable.

Provisions of federal banking laws, including regulatory approval requirements, could make it difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our stockholders. Acquisition of ten percent (10%) or more of any class of voting stock of a bank holding company or depository institution, individually or as part of a group acting in concert, including shares of our Class A common stock following completion of this offering, generally creates a rebuttable presumption that the acquirer “controls” the bank holding company or depository institution, and therefore requires prior approval of a federal banking agency, under the CIBC Act. Also, a bank holding company must obtain the prior approval of the Federal Reserve before, among other things, acquiring direct or indirect ownership or control of more than five percent (5%) of the voting shares of any bank, including the Bank, under the BHC Act.

In addition, our Charter and Bylaws will contain provisions that may make the merger or acquisition of our company more difficult. These provisions will include, among others:

 

•

a dual-class common stock structure, which provides for concentrated voting power in the holders of our Class B common stock, including members of the Fitzgerald Family, which provides significant

 

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influence over matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets.

•

no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

•

a class vote of the holders of a majority of the outstanding shares of any affected class of common stock, voting together as a separate class, to approve any amendment to our Charter that would adversely affect the rights or preferences of the Class A common stock or the Class B common stock;

•

the affirmative vote of the holders of a majority of voting power of the outstanding shares held by stockholders other than the Founders (as defined in our Charter), voting together as a separate class, to approve any amendment to our Charter that would disproportionately benefit the Founders relative to stockholders other than the Founders;

•

authorization to issue shares of one or more series of preferred stock, the terms of which series may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend or other rights or preferences superior to the rights of the holders of Class A common stock;

•

no stockholders action by written consent;

•

special stockholder meetings may be called at any time by the Board, the chairman of our Board or the chief executive officer or our secretary upon the written request of the record holders of at least fifteen percent (15%) or more of the total voting power of the then-outstanding shares of common stock;

•

advance notice requirements for nominations for elections to our Board or for proposing matters that can be acted upon by stockholders at stockholder meetings; and

•

a class vote of the holders of Class A common stock, voting as a separate class, to approve any merger, consolidation or business combination of us into another corporation, in which any Founder, or an affiliate thereof, is part of the purchaser group.

These anti-takeover provisions and other provisions under the DGCL could discourage, delay or prevent a transaction involving a change in control of our company, including actions that our stockholders may deem advantageous, or negatively affect the trading price of our Class A common stock. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire. For further discussion of these and other such anti-takeover provisions, see “Description of Capital Stock — Anti-Takeover Provisions.”

Our Charter and Bylaws will designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders.

Our Charter and Bylaws will provide that, unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for: (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a breach of breach of fiduciary duty owed by any of our directors, officers or stockholders to us or to our stockholders; (iii) any action asserting a claim against us arising under the DGCL, our Charter or our Bylaws; or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine.

Although we believe this exclusive forum provision benefits us by providing increased consistency in the application of Delaware law, the forum selection clauses that will be in our Charter and Bylaws may impose additional litigation costs on stockholders in pursuing any such claims, particularly if the stockholders do not reside in or near the State of Delaware. Additionally, this choice-of-forum provision may limit a stockholder’s ability to bring a claim in a different judicial forum, including one that it may find favorable or convenient for a specified class of disputes with us or our directors, officers, other stockholders or employees, which may discourage such lawsuits even though an action, if successful, might benefit our stockholders. The Court of Chancery of the State of Delaware may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements, which involve risks and uncertainties. You should not place undue reliance on forward-looking statements because they are subject to numerous uncertainties and factors relating to our operations and business, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other variations or comparable terminology and expressions. All statements other than statements of historical facts contained in this prospectus, including statements regarding our strategies, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and include, among other things, statements relating to:

 

•

Changes in trade, monetary and fiscal policies of, and other activities undertaken by, governments, agencies, central banks and similar organizations, including the effects of United States federal government spending;

•

The level of, or changes in the level of, interest rates and inflation, including the effects on our net interest income and the market value of our investment and loan portfolios;

•

The level and composition of our deposits, including our ability to attract and retain, and the seasonality of, client deposits;

•

The level and composition of our loan portfolio, including our ability to maintain the credit quality of our loan portfolio;

•

Current and future business, economic and market conditions in the United States generally or in the Washington, D.C. metropolitan area in particular;

•

The effects of disruptions or instability in the financial system, including as a result of the failure of a financial institution or other participants in it, or geopolitical instability, including war, terrorist attacks, pandemics and man-made and natural disasters;

•

The impact of, and changes, in applicable laws, regulations, regulatory expectations and accounting standards and policies;

•

Our likelihood of success in, and the impact of, legal, regulatory or other actions, investigations or proceedings related to our business;

•

Adverse publicity or reputational harm to us, our senior officers, directors, employees or clients;

•

Our ability to effectively execute our growth plans or other initiatives;

•

Changes in demand for our products and services;

•

Our levels of, and access to, sources of liquidity and capital;

•

The ability to attract and retain essential personnel or changes in our essential personnel;

•

Our ability to effectively compete with banks, non-bank financial institutions, and financial technology firms and the effects of competition in the financial services industry on our business;

•

The effectiveness of our risk management and internal disclosure controls and procedures;

•

Any failure or interruption of our information and technology systems, including any components provided by a third party;

•

Our ability to identify and address cybersecurity threats and breaches;

•

Our ability to keep pace with technological changes;

•

Our ability to receive dividends from the Bank and satisfy our obligations as they become due;

•

The one-time and incremental costs of operating as a public company;

•

Our ability to meet our obligations as a public company, including our obligation under Section 404 of Sarbanes-Oxley;

•

The effect of our dual class structure and the concentrated ownership of our Class B common stock, including beneficial ownership of our shares by the Fitzgerald Family; and

 

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•

The number of shares of our Class B common stock converted into shares of Class A common stock.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus. And while we believe such information provides a reasonable basis for such statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements. Past performance is not a guarantee of future results or returns and no representation or warranty is made regarding future performance.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from this offering will be approximately $  million (or approximately $  million if the underwriters elect to exercise in full their option to purchase additional shares of Class A common stock from us) after deducting underwriting discounts and commissions and estimated offering expenses, based on an assumed initial public offering price of $  per share (the midpoint of the estimated price range set forth on the cover page of this prospectus).

A $1.00 increase (decrease) in the assumed initial public offering price of $   per share would increase (decrease) the amount of net proceeds to us from this offering by $   million (or approximately $  million if the underwriters elect to exercise in full their option to purchase additional shares from us), assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses.

We intend to use the net proceeds from this offering for general corporate purposes, which may include repaying debt, supporting continued organic deposit growth and funding potential strategic expansion while maintaining our targeted regulatory capital levels.

Our management will retain broad discretion to allocate the net proceeds of this offering, and the precise amounts and timing of our use of the net proceeds of this offering will depend upon market conditions, as well as other factors. Until we deploy the proceeds of this offering for the uses described above, we expect to hold such proceeds in short-term investments.

 

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DIVIDEND POLICY AND DIVIDENDS

We do not currently intend to pay dividends on our common stock, including our Class A common stock, in the foreseeable future. Instead, we currently anticipate that we will retain all of our earnings to support our continued organic growth, including growth in our transaction deposit accounts. We have not declared or paid any dividends to our stockholders since 2019, opting to retain all earnings to support our growth. Any future declarations of dividends will be at the discretion of our Board. In determining the amount of any future dividends, our Board will take into account: (1) our financial results; (2) our available cash, as well as anticipated cash requirements (including debt servicing); (3) our capital requirements and the capital requirements of Chain Bridge Bank, N.A.; (4) contractual, legal, tax and regulatory restrictions on, and implications of, the payment of dividends by us to our stockholders or by Chain Bridge Bank, N.A. to us; (5) general economic and business conditions; and (6) any other factors that our Board may deem relevant. Therefore, there can be no assurance that we will pay any dividends to holders of our stock, or as to the amount of any such dividends. See “Risk Factors — Risks Related to Our Class A Common Stock — We do not intend to pay dividends on our Class A common stock for the foreseeable future, and our future ability to pay dividends is subject to restrictions” and “Material United States Tax Consequences To Non-U.S. Holders Of Common Stock — Dividends.”

Our ability to declare and pay dividends on our stock is also subject to numerous limitations applicable to bank holding companies and banks under federal banking laws, regulations and policies. Federal bank regulators are authorized to determine under certain circumstances relating to the financial condition of a bank holding company or a bank that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof.

In addition, under the Delaware General Corporation Law (the “DGCL”), we may only pay dividends from legally available surplus or, if there is no such surplus, out of our net profits for the fiscal year in which the dividend is declared and the preceding fiscal year. Surplus is generally defined as the excess of the fair value of our total assets over the sum of the fair value of our total liabilities plus the aggregate par value of our issued and outstanding capital stock.

Because we are a holding company and do not engage directly in other business activities of a material nature, our ability to pay dividends on our stock depends primarily upon our receipt of dividends from Chain Bridge Bank, N.A., the payment of which is subject to numerous limitations under applicable banking laws, regulations and policies. Under the National Bank Act and OCC regulations, a national bank, such as the Bank, may not, without the prior approval of the OCC, declare dividends in excess of the sum of the current year’s net profits plus the retained net profits from the prior two years or in excess of the sum of the bank’s retained earnings and current period net income. The federal banking agencies’ regulatory capital rules further limit the amount of dividends that may be paid by the Bank if it does not satisfy its minimum capital requirements and buffer requirement in full. In addition, under the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), the Bank may not pay any dividend if it is undercapitalized or if payment would cause it to become undercapitalized. In addition, the federal bank regulatory agencies have issued policy statements providing that FDIC-insured depository institutions and their holding companies should generally pay dividends only out of their current operating earnings. See “Supervision and Regulation — Dividends” for more information on applicable banking laws, regulations and policies limiting our and the Banks’s ability to declare and pay dividends.

The Bank’s current and future dividend policy is also subject to the discretion of its board of directors. The Bank is not obligated to pay dividends to us. See “Risk Factors — Risks Related to Our Class A Common Stock — We do not intend to pay dividends on our Class A common stock for the foreseeable future, and our future ability to pay dividends is subject to restrictions.”

 

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CAPITALIZATION

The following table sets forth our capitalization and capital ratios on a consolidated basis as of March 31, 2024:

 

•

on an actual basis; and

•

on an adjusted basis, after giving effect to (1) the Reclassification transactions described under “Summary — Reclassification” and (2) the net proceeds from the sale by us of shares of Class A common stock in this offering (assuming the underwriters do not exercise their option to purchase additional shares of Class A common stock from us) at an initial public offering price of $  per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses.

A $1.00 increase (decrease) in the assumed initial public offering price of $  per share would increase (decrease) the as adjusted amount of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $   million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses. If the underwriters’ option to purchase additional shares is exercised in full, the as adjusted amount of each of cash and cash equivalents additional paid-in capital, total stockholders’ equity and total capitalization by approximately $   million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses as described under “Use of Proceeds” above.

You should read the following table in conjunction with the sections titled “Summary — Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto appearing elsewhere in this prospectus.

 

		As of March 31, 2024
		Actual				As Adjusted
		(dollars in thousands)
Cash and cash equivalents		$	346,305			$
Debt:
Short-term borrowings		$	5,000			$
Long-term borrowings			—
Total borrowings			5,000
Stockholder’s Equity:
Preferred stock, no par value; 100,000 shares authorized, none issued and outstanding, actual; preferred stock; no par value, 10,000,000 shares authorized, none issued and outstanding, pro forma			—
Old common stock, $1.00 par value; 200,000 shares authorized, 26,876 shares issued and outstanding, actual; old common stock, $1.00 par value; no shares authorized, no shares issued and outstanding, pro forma			27
Class A common stock, $0.01 par value; no shares authorized, no shares issued and outstanding, actual; Class A common stock, $0.01 par value; 20,000,000 shares authorized,    shares issued and outstanding, pro forma			—
Class B common stock, $0.01 par value; no shares authorized, no shares issued and outstanding, actual; Class B common stock, $0.01 par value; 10,000,000 shares authorized,    shares issued and outstanding, pro forma			—
Additional paid-in capital			38,295
Retained earnings			60,609

 

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		As of March 31, 2024
		Actual				As Adjusted
		(dollars in thousands)
Accumulated other comprehensive loss			(11,330	)
Total stockholder’s equity			87,601
Total capitalization		$	92,601			$
Capital Ratios:
Tangible common equity to tangible total assets ratio(1)			7.10	%				%
Common equity Tier 1 capital ratio			24.08	%				%
Tier 1 capital ratio			24.08	%				%
Total risk-based capital ratio			25.22	%				%
Tier 1 leverage ratio			8.66	%				%

 

(1)	The ratio of tangible common equity to tangible total assets is calculated in accordance with GAAP and represents the ratio of common equity to total asset. The Company did not have any intangible assets or goodwill as of March 31, 2024.

 

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DILUTION

If you invest in our Class A common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock in this offering and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering.

Our pro forma net tangible book value as of March 31, 2024 was $   million, or $   per share. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities divided by the number of our shares of Class A common stock and Class B common stock outstanding as of March 31, 2024, after giving effect to the Reclassification and the filing and effectiveness of our Charter, which will be in effect prior to the completion of this offering.

After giving effect to (1) the pro forma adjustments set forth above and (2) the sale by us of      shares of our Class A common stock in this offering (assuming the underwriters do not exercise their option to purchase additional shares) at an assumed initial public offering price of $   per share (the midpoint of the estimated price range set forth on the cover page of this prospectus), and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2024 would have been $   million, or $   per share. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $   per share to our existing stockholders and an immediate dilution in pro forma as adjusted net tangible book value of $   per share to new investors purchasing our Class A common stock in this offering.

The following table illustrates the calculation of the amount of dilution per share that a purchaser of our Class A common stock in this offering will incur given the assumptions above:

 

Initial public offering price per share		$
Pro forma net tangible book value per share at March 31, 2024
Increase in pro forma as adjusted net tangible book value per share attributable to new investors
Pro forma as adjusted net tangible book value per share upon completion of the offering
Dilution in pro forma as adjusted net tangible book value per share to new investors from offering		$

The dilution information discussed above is illustrative only and may change based on the actual initial public offering price and other terms of this offering. A $1.00 increase (decrease) in the assumed initial public offering price of $   per share of Class A common stock (the midpoint of the estimated price range set forth on the cover page of this prospectus) would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by $   per share and increase (decrease) the dilution to new investors by $   per share, in each case assuming the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 100,000 shares in the number of shares of Class A common stock offered by us would increase (decrease) our pro forma as adjusted net tangible book value by approximately $   per share and decrease (increase) the dilution to new investors by approximately $   per share, in each case assuming the assumed initial public offering price of $   per share (the midpoint of the estimated price range set forth on the cover page of this prospectus) remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

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If the underwriters exercise their option to purchase additional shares of Class A common stock from us in full, the pro forma net tangible book value per share, as adjusted to give effect to this offering, would be $   per share, and the dilution in pro forma net tangible book value per share to investors in this offering would be $   per share.

The following table summarizes, as of March 31, 2024, on a pro forma as adjusted basis as described above, the number of shares of Class A common stock purchased from us, the total consideration and the average price per share (1) paid to us by existing stockholders, and (2) to be paid by new investors acquiring our Class A common stock in this offering at an assumed initial public offering price of $   per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

		Shares Purchased								Total Consideration								Average Price
		Number				Percent				Amount				Percent				Per Share
Existing stockholders								%		$						%		$
New investors in this offering								%		$						%		$
Total							100	%		$					100	%		$

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with “Summary Historical Consolidated Financial and Operating Information” and our consolidated financial statements and related notes thereto and other financial information included elsewhere in this prospectus. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. Factors that could cause such differences are discussed in the sections entitled “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this prospectus. We assume no obligation to update any of these forward-looking statements except to the extent required by law.

The following discussion relates to our historical results, on a consolidated basis. Because we conduct all our material business operations through our wholly owned subsidiary, Chain Bridge Bank, N.A., the discussion and analysis primarily focus on activities conducted at the subsidiary level.

Introduction

Chain Bridge Bancorp, Inc. is a Delaware-chartered bank holding company and the parent of its wholly-owned subsidiary, Chain Bridge Bank, N.A., a nationally chartered commercial bank with fiduciary powers granted by the OCC. The Company was incorporated on May 26, 2006, and the Bank opened on August 6, 2007. The Company conducts substantially all of its operations through the Bank and has no other subsidiaries.

We offer a range of commercial and personal banking services, including deposits, treasury management, payments, loans, commercial lending, residential mortgage financing, consumer loans, trusts and estate administration, wealth management, and asset custody.

Our mission is to deliver exceptional banking and trust services nationwide, blending financial strength, personalized service, and advanced technology to offer tailored solutions to businesses, non-profit organizations, political organizations, individuals, and families. We aspire to grow responsibly by adapting our personalized service and advanced technology solutions to our clients’ evolving needs while emphasizing strong liquidity, asset quality, and financial strength. We aim to be recognized for our “Strength, Service, Solutions: Your Bridge to Better Banking Nationwide.”

Three Months ended March 31, 2024 Highlights

Highlights of our results of operations and financial condition as of and for the three months ended March 31, 2024 (“Q1 2024”) are provided below.

Financial Performance

 

•

Consolidated net income of $3.9 million in Q1 2024, compared to $1.0 million in the three months ended March 31, 2023 (“Q1 2023”). Earnings per share in Q1 2024 of $145.74, compared to $39.01 in Q1 2023.

•

Net interest income, before recapture of, or provision for, credit losses, of $8.8 million in Q1 2024, compared to $6.5 million in Q1 2023. Net interest income, after recapture of, or provision for, credit losses of $9.0 million in Q1 2024, compared to $5.7 million in Q1 2023.

•

Return on average equity of 18.33% in Q1 2024, compared to 6.00% in Q1 2023. Return on average assets in Q1 2024 of 1.39%, compared to 0.42% in Q1 2023.

•

Yield on average earning assets of 3.47% in Q1 2024, compared to 2.96% in Q1 2023. Cost of funds decreased to 0.35% in Q1 2024 from 0.38% in Q1 2023.

 

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Balance Sheet

 

•

Total assets were $1.234 billion as of March 31, 2024, compared to $1.205 billion as of December 31, 2023 and $1.049 billion as of March 31, 2023. Total deposits were $1.136 billion as of March 31, 2024, compared to $1.112 billion as of December 31, 2023 and $968.0 million as of March 31, 2023. Total one-way sell ICS® deposits held through the InfraFi Cash Service® (“ICS®”) network of $289.2 million as of March 31, 2024 and $240.8 million as of December 31, 2023 were excluded from these totals. There were no one-way sell ICS® deposits as of March 31, 2023.

•

No non-performing assets or other real estate owned (“OREO”) were reported as of March 31, 2024, December 31, 2023 and March 31, 2023.

•

Cash balances held at the Federal Reserve were $338.0 million as of March 31, 2024, compared to $309.8 million as of December 31, 2023 and $113.6 million as of March 31, 2023.

•

As of March 31, 2024, the Bank’s total investment securities portfolio balance was $563.3 million, compared to $566.7 million as of December 31, 2023 and $590.8 million as of March 31, 2023.

•

Book value per share was $3,259.44 as of March 31, 2024, compared to $3,104.98 as of December 31, 2023 and $2,700.54 as of March 31, 2023.

•

As of March 31, 2024, the Bank exceeded the minimum requirements to be well-capitalized for bank regulatory purposes, with a total risk-based capital ratio of 26.44% and a tier 1 risk-based capital ratio of 25.30%.

•

As of March 31, 2024, our liquidity ratio was 79.36%, compared to 78.75% as of December 31, 2023 and 72.18% as of March 31, 2023.

Significant Factors Impacting our Business, Financial Condition and Results of Operations

Several key factors impact our financial performance:

Short-term interest rates: The cyclical nature of our balance sheet and our focus on liquidity cause our primary revenue source, net interest income, to be highly correlated to short-term interest rates. We maintain higher liquidity and lower loan-to-deposit ratios than most banks. Higher rates generally increase our net interest income because of our high levels of liquid interest-earning assets and low levels of interest-bearing deposits and loans. Conversely, if short-term interest rates fall, our net interest income would likely decrease due to our high levels of cash. This relationship between our revenue and the yield curve is different from that at most other banks, which generally have lower levels of cash and liquidity and higher loan-to-deposit ratios.

Political organizations and federal election cycles: We provide deposit services to political organizations, which we estimate represented a majority of our demand deposits as of March 31, 2024. These accounts typically come to our Bank through treasurers and other finance managers who are familiar with our experience in this sector.

Federal election cycles significantly influence our deposit levels. These cycles also impact revenue-generating activities, such as wire transfers, payments, check processing, debit card usage, and treasury management services. In the United States, federal elections occur every two years in the fourth quarter, on the first Tuesday after the first Monday in November. Primary elections for federal offices, determined by the state and political parties, typically occur in the first, second, or third quarter of the year. Historically, in the quarters leading up to federal elections, especially presidential elections, our deposits, net interest income, and non-interest income generally increase. Deposit growth tends to be stronger leading up to presidential elections, which occur every four years, compared to biennial midterm elections. In the quarters immediately before, during, and after a federal election, we usually experience an outflow of our political deposits, causing our balance sheet and revenue to decline until clients resume fundraising for the next election cycle. Campaign-related deposits, which increase during federal election years before they are spent, depend almost exclusively on political fundraising. Our deposit levels fluctuate significantly during the political cycle, peaking in the lead-up to elections and decreasing afterward. As of June 2024, the Bank is experiencing increased deposit levels ahead of the November 2024 presidential election, consistent with patterns observed in previous election cycles. As a result of the 2024 presidential election, we expect deposit outflows during the third and fourth quarters of 2024,

 

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with the possibility of some outflows extending into early 2025. The precise amount and timing of such outflows remain uncertain and may differ from historical cycles. In addition, fundraising activities post-election likely will be influenced by the outcome of the federal elections. This cyclical pattern and the potential for prolonged lower fundraising activity could affect our financial condition and results of operations, as discussed in “Risk Factors.” In order to mitigate seasonality risk, we maintain a relatively high level of cash reserve deposits at the Federal Reserve.

Lending approach: Our lending policies are designed to manage credit risk. We seek borrowers with a strong capacity to repay, substantial equity who have good financial habits, avoid debt, and prefer to repay loans quickly. We aim to mitigate credit risk on commercial loans with appropriate structuring, reasonably margined collateral, personal guarantees, a primary deposit relationship, and sometimes compensating balances. Our lending policies typically attract borrowers who may qualify for lower borrowing rates than those of most other banks, which may result in lower yields for us.

Economic conditions: General economic conditions, including conditions in the Washington, D.C. metropolitan area, and government spending influence our deposit levels and earnings. The majority of our deposits are campaign-related deposits, making us less dependent on the broader economy than most other banks. However, if the economy worsens, some political donors may contribute less, negatively impacting our deposit levels and income. In addition, a national or regional recession could increase the risk of loan defaults and negatively affect our municipal and corporate bonds, potentially leading to defaults. In particular, significant changes in government spending, particularly federal budget cuts, could adversely affect the Washington, D.C. metropolitan area economy and, consequently, our loan performance and deposit levels. Such changes may also impact the value of our investment securities portfolio, which includes U.S. government, municipal, and corporate bonds. Finally, rising inflation can increase our operational costs, including labor and technology expenses, while also potentially diminishing the purchasing power of our clients, further impacting our deposit and loan levels.

Monetary Policy: We rely on the Federal Reserve’s payment of interest on reserve balances as a source of interest income. The rate of interest on reserve balances is determined by the Federal Open Market Committee, which meets regularly every six-and-a-half weeks. Because this rate affects other money market yields, it can have a significant impact on our interest income. We are most exposed to monetary policy during federal election years such as in 2024 when campaign-related deposits rise and we match those liabilities with short-term assets such as Federal Reserve balances, which reprice immediately, and Treasury bills. Although higher interest rates decrease the value of our investment securities portfolio, they increase our interest income. The Federal Reserve has additional monetary tools that can impact our interest income through changes in rates, such as the overnight reverse repo rate and open market operations.

Regulatory and Supervisory Environment: We incur significant costs due to our regulation and supervision by the federal government. As a bank holding company, we are subject to comprehensive supervision and regulatory oversight by the Federal Reserve. The Bank’s primary regulator and supervisor is the OCC, which through regular examinations oversees our operations, risk management, compliance, and corporate governance. The Bank is also subject to FDIC secondary regulatory oversight that focuses on insurance standards, risk management practices, and overall regulatory compliance. We pay assessments to the FDIC and the OCC for their insurance and supervision. In addition, we manage our balance sheet to meet regulatory standards, such as capital ratio requirements. Failure to meet these standards may result in corrective actions, restrictions, and increased scrutiny from federal regulators. By adhering to these requirements, we aim to maintain our financial health and strengthen our market position. See “Supervision and Regulation.”

Uninsured Deposits: Most of our deposits come from commercial clients rather than retail clients, resulting in a relatively high level of account balances exceeding the FDIC coverage limits. As of March 31, 2024, we estimate that approximately 65.6% of our total deposits were not insured by the FDIC. To manage the associated risks, we aim to maintain high levels of liquidity, asset quality, and financial strength.

 

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For clients with uninsured balances, we offer access to additional FDIC insurance coverage by placing their deposits in increments within the insurance limits at other banks through the ICS^® network. We typically earn fee income from ICS^® for deposits that leave our balance sheet, or interest income when we elect to receive reciprocal deposits from ICS^®. Using the ICS^® program helps us to manage the size of our balance sheet. See “— Financial Condition — Deposits” below.

Public Company Costs: In preparation for, and following the completion of, this offering, we expect to incur additional costs associated with operating as a public company. We expect that these costs will include additional personnel, legal, consulting, regulatory, insurance, accounting, investor relations and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, as well as rules adopted by the SEC and national securities exchanges, requires public companies to implement specified corporate governance practices that are currently inapplicable to us as a private company. These additional rules and regulations will increase our legal, regulatory and financial compliance costs and will make some activities more time consuming and costly.

Primary Factors Used to Evaluate Our Business

The most significant factors we use to evaluate our business and results of operations are net income, return on average equity, return on average assets and return on average risk-weighted assets. We also use net interest income, non-interest income and non-interest expense.

Net Income. Our net income depends substantially on net interest income, which is the difference between interest earned on interest earning assets (usually interest-bearing cash, investment securities and loans) and the interest expense incurred in connection with interest-bearing liabilities (usually interest-bearing deposits and borrowings). Our net income also depends on non-interest income, which is income generated other than by our interest earning assets. Other factors that influence our net income include our provisions for credit losses, income taxes, and non-interest expenses, which include our fixed and variable overhead costs and other miscellaneous operating expenses.

Return on Average Equity. We use return on average equity to assess our effectiveness in utilizing stockholders’ equity to generate net income. In determining return on average equity for a given period, net income is divided by the average stockholders’ equity for that period.

Return on Average Assets. We monitor return on average assets to measure our operating performance and to determine how efficiently our assets are being used to generate net income. In determining return on average assets for a given period, net income is divided by the average total assets for that period.

Return on Average Risk-Weighted Assets. We use return on average risk-weighted assets, which are computed and reported on the quarterly call report, to measure how efficiently our assets are being used to generate net income on a risk-adjusted basis. Return on average risk-weighted assets is calculated as net income divided by average risk-weighted assets.

Net Interest Income. Net interest income, representing interest income less interest expense, is the largest component of our net income. The level of net interest income is primarily a function of the average balance of interest earning assets, the average balance of interest-bearing liabilities and the spread between the realized yield on such assets and the cost of such liabilities. Net interest income is impacted by the relative mix of interest earning assets and interest-bearing liabilities and movements in market interest rates. Net interest income and net interest margin in any one period can be significantly affected by a variety of factors, including the mix and overall size of our earning assets portfolio and the cost of funding those assets.

Non-Interest Income. Non-interest income consists primarily of service charge income earned from deposit placement services, service charges on accounts, revenue from trust and wealth management services, gains on sale of mortgage loans, net gains or losses on sales of securities and other income. The Company records as non-interest

 

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income deposit placement services income for one-way sell ICS^® deposits which are sold into the ICS^® network. See “— Financial Condition — Deposits” for more information on these deposits. Service charges on deposit accounts include fees earned from monthly service charges, account analysis charges and interchange fee income. It also includes fees charged for transaction activities such as wire transfers, cash letters and overdrafts. Trust and wealth management income represents monthly service charges due from clients for managing and administering clients’ assets. Services include investment management and advisory services, custody of assets, trust services, and financial planning. Other income primarily relates to rental income and other minor items.

Non-Interest Expense. Non-interest expense relates to fixed and variable overhead costs, the largest component of which is personnel expenses, including salaries and employee benefits. Certain expenses tend to vary based on the volume of activity and other factors, including data processing and communication expenses, occupancy, equipment expense, regulatory assessments and fees, marketing and business development costs, insurance expenses and other operating expenses.

Data processing and communication expenses primarily relate to expenses paid to third party providers of core processing, cloud computing and cybersecurity, a substantial component of which is paid to a core technology provider we rely on for the banking software used by our clients and back office functions. Professional services expenses include internal and external audit, legal, loan review, compliance audit and compliance monitoring fees. Occupancy and equipment expenses includes depreciation for buildings and improvements, fixtures and furniture, equipment, and technology related items as well as building related expenses such as utilities and maintenance costs. The Commonwealth of Virginia levies a capital-based franchise tax on banks operating within the state, replacing the state income tax. FDIC and regulatory assessments represent costs incurred to cover quarterly or semi-annual payments to the FDIC or OCC for their insurance or supervision. FDIC assessments are based on a complicated matrix of factors to form an assessment rate, which is then applied to a base of quarterly average assets less quarterly tangible equity. Directors’ fees represent fees paid to our directors for board or committee meetings. Marketing and business development costs include sponsorships, membership dues, as well as marketing and advertising costs, which are subject to normal variability based on the volume and cost of sponsorship and business development activities. Other operating costs include other operating and administrative costs such as other vendor and employee costs, postage and printing, office supplies, and subscriptions.

As discussed above, we expect our non-interest expenses to increase as a result of the additional costs associated with being a public company.

Primary Factors Used to Evaluate Our Financial Condition

The most significant factors we use to evaluate and manage our financial condition include liquidity, asset quality and capital.

Liquidity. Maintaining an adequate level of liquidity depends on our ability to efficiently meet both expected and unexpected cash flows and collateral needs without adversely affecting our daily operations or the financial condition of the Bank. Because low-cost deposits form a primary source of our funding, and generally can be withdrawn on demand, managing our liquidity is a top priority. Our account at the Federal Reserve, which held $338.0 million as of March 31, 2024, is a primary source of our liquidity for daily and ongoing activities. For regulatory reporting purposes, the liquidity ratio is typically calculated as the sum of cash and cash equivalents plus unpledged securities classified as investment grade divided by total liabilities. Based on this calculation method, as of March 31, 2024 and December 31, 2023, our reported liquidity ratios were was 79.36% and 78.75%, respectively. It is important to note that these ratios are point-in-time measurements and may not be indicative of future liquidity positions.

Asset Quality. We monitor the quality of our assets based upon several factors, including the level and severity of deterioration in borrower cash flows and asset quality. We aim to adjust the allowance for credit losses to reflect loan volumes, identified credit and collateral conditions, economic conditions and other qualitative factors.

 

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Capital. We manage capital to comply with our internal planning targets and regulatory capital standards. We monitor capital levels on an ongoing basis, perform periodic evaluations under stress scenarios and project capital levels in connection with our strategic goals to ensure appropriate capital levels. We evaluate a number of capital ratios, including Tier 1 capital to total quarterly average assets (the leverage ratio) and total Tier 1 capital to risk weighted assets.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements according to generally accepted accounting principles in the United States (“GAAP”). Preparing these statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities on the balance sheet and the reported amounts of revenues and expenses during the reporting period. We believe that the estimates most susceptible to significant change in the near term relate to determining the allowance for credit losses on loans and held-to-maturity securities. Our significant accounting policies and the effects of new accounting pronouncements are detailed in Note 1, “Organization and Summary of Significant Accounting Policies” to our consolidated financial statements and the notes thereto included elsewhere in this prospectus.

Results of Operations

Net Income

The following table sets forth the principal components of net income for the periods indicated.

 

		For Three Months Ended, March 31,																For Years Ended December 31,
(dollars in thousands)		2024				2023				$ Change				% Change				2023				2022				$ Change				% Change
Interest and dividend income		$	9,699			$	7,343			$	2,356				32.1	%		$	31,789			$	27,384			$	4,405				16.1	%
Interest expense			907				882				25				2.8	%			4,046				1,283				2,763				215.4	%
Net interest income			8,792				6,461				2,331				36.1	%			27,743				26,101				1,642				6.3	%
(Recapture of) provision for credit losses			(194	)			775				(969	)			NM				641				822				(181	)			(22.0	%)
Net interest income			8,986				5,686				3,300				58.0	%			27,102				25,279				1,823				7.2	%
Non-interest income			1,648				283				1,365				482.3	%			3,281				3,110				171				5.5	%
Non-interest expense			5,741				4,715				1,026				21.8	%			19,477				18,226				1,251				6.9	%
Net income before taxes			4,893				1,254				3,639				290.2	%			10,906				10,163				743				7.3	%
Income tax expense			976				206				770				373.8	%			2,076				1,882				194				10.3	%
Net income		$	3,917			$	1,048			$	2,869				273.8	%		$	8,830			$	8,281			$	549				6.6	%

 

NM — Comparisons from positive to negative values or to zero values are considered not meaningful.

For the three months ended March 31, 2024, our net income increased by $2.9 million compared to the three months ended March 31, 2023 primarily due to a $2.3 million, or 36.1%, increase in net interest income. Earnings also benefited from a $1.4 million increase in non-interest income, derived primarily from fee income earned from one-way sell ICS^® deposit accounts, and the reduction of the credit loss provision totaling $969 thousand, primarily resulting from the partial recovery of a bond in the first quarter of 2024 that was charged off during the first quarter of 2023. An increase of $1.0 million in non-interest expense, driven most notably by increases in employment and professional services costs, partially offset these positive earnings components.

For the year ended December 31, 2023, our net income increased by $549 thousand, or 6.6%, compared to the prior year primarily due a $1.6 million, or 6.3%, increase in net interest income, partially offset by an increase of $1.3 million, or 6.9%, in non-interest expenses driven by growing employee compensation and data processing costs.

 

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Net Interest Income Analysis

Our operating results depend primarily on our net interest income, which is calculated as the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Interest and dividend income consists of interest and fees on loans, interest and dividends on taxable and tax-exempt securities, and interest on interest-bearing deposits in banks. Interest expense consists of interest we pay on deposits and short-term borrowings.

 

		For Three Months Ended, March 31,																For Years Ended December 31,
(dollars in thousands)		2024				2023				$ Change				% Change				2023				2022				$ Change				% Change
Interest and dividend income Interest and fees on loans		$	3,280			$	3,388			$	(108	)			(3.2	%)		$	13,402			$	11,311			$	2,091				18.5	%
Interest and dividends on securities, taxable			2,866				2,823				43				1.5	%			11,112				9,190				1,922				20.9	%
Interest on securities, tax exempt			294				307				(13	)			(4.2	%)			1,219				1,294				(75	)			(5.8	%)
Interest on interest-bearing deposits in banks			3,259				825				2,434				295.0	%			6,056				5,589				467				8.4	%
Total interest and dividend income			9,699				7,343				2,356				32.1	%			31,789				27,384				4,405				16.1	%
Interest expense Interest on deposits			808				790				18				2.3	%			3,664				1,082				2,582				238.6	%
Interest on short-term borrowings			99				92				7				7.6	%			382				201				181				90.0	%
Total interest expense			907				882				25				2.8	%			4,046				1,283				2,763				215.4	%
Net interest income		$	8,792			$	6,461			$	2,331				36.1	%		$	27,743			$	26,101			$	1,642				6.3	%

 

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