What changed in this filing

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Item 1A. Risk Factors

2022-02-23 compared with 2021-02-24 · 57 added, 48 removed, 156 unchanged (40% of the section changed)

4 unchanged sentences

The concentration of the Company’s banking business in the United States particularly exposes it to downturns in the U.S.

During 2020, the U.S.

economy has suffered adverse economic conditions as a result of the COVID-19 pandemic.

Almost a year into the COVID-19 pandemic, the uncertainty in the economic outlook as of December 31, 2020 continued to affect the Company's financial results and operations.

Almost two years into the COVID-19 pandemic, the uncertainty in the economic outlook as of December 31, 2021 continued to affect the Company's financial results and operations.

In particular, the Company may face the following risks in connection with market conditions:

• In 2020, the U.S.

economy entered a recession, which ended the longest expansion in its history.

Brought on by the COVID-19 pandemic late in the first quarter of 2020, the U.S.

economy saw significant declines in employment and production, which contributed to the start of the recession.

Although the unemployment rate has decreased during 2020 to 6.7% in December 2020, from a high of nearly 15% in April 2020, it is still almost twice as high as the rate at the end of 2019.

economy entered a recession, driven by the onset of the COVID-19 pandemic and the mitigating strategies implemented to attempt to prevent the transmission of COVID-19.

economy improved significantly in 2021.

However, the COVID-19 pandemic has not yet subsided and could continue to materially and adversely impact the U.S.

economy is affected by global events and conditions, including the COVID-19 pandemic.

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Large, national financial institutions have substantial capital, technology and marketing resources.

These new competitors may lower fees to grow market share, which could result in a loss of

customers and lower fee revenue for the Company.

They may have greater access to capital at a lower cost than the Company, and may have higher loan limits, both of which may adversely affect the Company’s ability to compete effectively.

These new competitors may lower fees to grow market share, which could result in a loss of customers and lower fee revenue for the Company.

They may have greater access to capital at a lower cost than the Company,

and may have higher loan limits, both of which may adversely affect the Company’s ability to compete effectively.

The Company must continue to make investments in its products and delivery systems to stay competitive with the industry, or its financial performance may suffer.

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In 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced that LIBOR would likely be discontinued at the end of 2021 as panel banks would no longer be required to submit estimates that are used to construct LIBOR.

regulatory authorities have voiced similar support for phasing out LIBOR.

The Company has a significant number of loans, derivative contracts, and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR.

As of December 31, 2020, the Company had $2.4 billion of commercial loans, $1.4 billion of notional value of derivative contracts, and $783.6 million of investment securities that mature after December 31, 2021.

These amounts will vary in future periods as current contracts payoff or terminate early and either new or replacement contracts use LIBOR or an alternative reference rate.

The impact of alternatives to LIBOR on the valuations, pricing and operation of the Company's financial instruments is not yet known.

The Company is coordinating with industry groups to identify an appropriate replacement rate for contracts expiring after 2021, as well as preparing for this transition as it relates to new and existing contracts and customers.

The Company has established a LIBOR Transition Program, which is led by the LIBOR Transition Steering Committee (Committee) whose purpose is to guide the overall transition process for the Company.

regulatory authorities voiced similar support for phasing out LIBOR.

On March 5, 2021, LIBOR’s regulator and its administrator announced that the publication of certain LIBOR tenors will cease immediately after December 31, 2021 and the remaining LIBOR tenors, including 1-month USD LIBOR, will cease immediately after June 30, 2023.

The Alternative Rates Reference Committee (the “ARRC”), a group of market participants convened by the Federal Reserve Board and the New York Fed to help ensure a successful transition from LIBOR, identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate.

The Company established a LIBOR Transition Program, which is led by the LIBOR Transition Steering Committee (Committee) whose purpose is to guide the overall transition process for the Company.

The Committee is an internal, cross-functional team with representatives from all relevant business lines, support functions and legal counsel.

An initial LIBOR impact and risk assessment has been performed, and the Company has developed and prioritized action items.

Changes to the Company's systems have been identified and the process of installing and testing code has started.

A LIBOR impact and risk assessment has been performed, and the Company has developed and prioritized action items.

All financial contracts that reference LIBOR have been identified and are being monitored on an ongoing basis.

Remediation of these contracts is expected to be consistent with industry timing.

LIBOR fallback language has been included in key loan provisions of new and renewed loans in preparation for transition from LIBOR to the new benchmark rate when such transition occurs.

The process of remediating these contracts has started.

LIBOR fallback language has been included in key loan provisions of new and renewed loans in preparation for the transition from LIBOR.

Changes to the Company's systems have been identified, and the process of installing and testing code was started in the third quarter of 2021.

The process of installing and testing code on impacted systems is expected to be completed in 2022.

The Company has a significant number of loans, derivative contracts, and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR, mostly 1-month LIBOR.

As of December 31, 2021, the Company had approximately $1.9 billion of commercial loans, $1.4 billion of derivative contracts (notional value), and $840 million of investment securities that are expected to mature after June 30, 2023.

These amounts will decrease in future periods as the Company works with customers to replace contracts that use LIBOR with alternative reference rates.

The Company ceased entering any new loan contracts that use USD LIBOR as a reference rate in December 2021.

The impact of alternatives to LIBOR on the valuations, pricing and operation of the Company's financial instruments is not yet known.

The Company may be adversely affected if the interest rates currently tied to LIBOR on the Company's loans, derivatives, and other financial instruments are not able to be transitioned to an alternative rate.

Furthermore, the Company may be faced with disputes or litigation with counterparties regarding interpretation and enforcement of fallback language in new and renewed loans as the transition to a new benchmark rate continues to evolve.

Furthermore, the Company may be faced with disputes or litigation with customers regarding interpretation and enforcement of fallback language used in loan agreements as the transition to a new benchmark rate continues to evolve.

The Company’s asset valuation may include methodologies, models, estimations and assumptions which are subject to differing interpretations and could result in changes to asset valuations that may materially adversely affect its results of operations or financial condition.

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These losses include, but are not limited to, costs and expenses for card reissuance as well as losses resulting from fraudulent card transactions.

The Company plans to convert its core customer and deposit systems during 2021 and may encounter significant adverse developments.

The Company plans to replace its core customer and deposit systems and other ancillary systems (collectively referred to as core system).

The core system is used to track customer relationships and deposit accounts.

The core system is integrated with channel applications that are used to service customer requests by bank personnel or directly by customers (such as online banking and mobile applications).

The new core system will provide a new platform based on current technology, will enable the Company to integrate other systems more efficiently, and is a significant improvement compared to our current core system.

However, changing the core system will subject the Company to operational risks during and after the conversion, including disruptions to its technology systems, which may adversely impact our customers.

The Company has plans, policies and procedures designed to prevent or limit the risks of a failure during or after the conversion of our core system.

The Company converted its core customer and deposit systems during 2022 and may encounter significant adverse developments.

The Company replaced its core customer and deposit systems and other ancillary systems (collectively referred to as core system) during the first quarter of 2022.

The core system is used to track customer relationships and deposit accounts and is integrated with channel applications that are used to service customer requests by bank personnel or directly by customers (such as online banking and mobile applications).

The new core system provides a platform based on current technology, enables the Company to integrate other systems more efficiently, and is a significant improvement compared to the Company's previous core system.

The initial conversion was completed successfully, however, the Company may face operational risks in the months following conversion, including disruptions to its technology systems, which may adversely impact customers.

The Company has plans, policies and procedures designed to prevent or limit the risks of a failure after the conversion of its core system.

However, there can be no assurance that any such adverse development will not occur or, if they do occur, that they will be timely and adequately remediated.

4 unchanged sentences

In 2016, the Financial Accounting Standards Board (FASB) issued a new accounting standard "Measurement of Credit Losses on Financial Instruments" (ASU 2016-13), which became effective January 1, 2020 and was adopted by the Company at that time.

This new standard significantly altered the way the allowance for credit losses is determined.

The new standard utilizes a life of loan loss concept and required significant operational changes, especially in data collection and analysis.

This new standard significantly altered the way the allowance for credit losses is determined and utilizes a life of loan loss concept and required significant operational changes, especially in data collection and analysis.

The level of the allowance is based on management’s methodology that utilizes historical net charge-off rates, and adjusts for the impacts in the reasonable and supportable forecast and other qualitative factors.

Key assumptions include the application of historical loss rates, prepayment speeds, forecast results of a reasonable and supportable period, the period to revert to historical loss rates, and qualitative factors.

As a result of COVID-19, the allowance for credit losses on loans and the liability for unfunded lending commitments increased substantially during the year, which negatively affected the Company's results of operations, as the U.S.

economy suddenly and dramatically deteriorated.

The Company’s allowance level is subject to review by regulatory agencies, and that review could also result in adjustments to the allowance for credit losses.

4 unchanged sentences

Certain mortgage and asset-backed securities (which are collateralized by residential mortgages, credit cards, automobiles, mobile homes or other assets) may decline in value due to actual or expected deterioration in the underlying collateral.

Under accounting rules, when an available for sale debt security is in an unrealized loss position, the entire loss in fair value is required to be recognized in current earnings if the Company intends to sell the security or believes it is probable that the Company will be required to sell the security before the value recovers.

Under accounting rules, when an available for sale debt security is in an unrealized loss position, the entire loss in fair value is required to be recognized in current earnings if the Company intends to sell the security or believes it is more likely than not that the Company will be required to sell the security before the value recovers.

Additionally, the current expected credit loss model (CECL) implemented by the Company on January 1, 2020, requires that lifetime expected credit losses on securities be recorded in current earnings.

25 unchanged sentences

These problems might include significant time delays, cost overruns, loss of key people, and technological system failures.

Failure to successfully keep pace with technological change affecting the financial services industry or failure to successfully complete

the replacement of technological systems could have a material adverse effect on the Company’s business, financial condition and results of operations.

successfully keep pace with technological change affecting the financial services industry or failure to successfully complete the replacement of technological systems could have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company must attract and retain skilled employees.

1 unchanged sentence

Competition for the best people can be intense, and the Company spends considerable time and resources attracting, hiring, and retaining qualified people for its various business lines and support units.

Companies throughout the U.S.

saw significant turnover during 2021, and the number of candidates in the job market was generally much lower than the demand for talent.

The unexpected loss of the services of one or more of the Company’s key personnel could have a material adverse impact on the Company’s business because of their skills, knowledge of the Company’s market, and years of industry experience, as well as the difficulty of promptly finding qualified replacement personnel.

2 unchanged sentences

A widespread healthcare crisis, such as an outbreak of a communicable disease could adversely affect the global economy and the Company’s financial performance.

For example, the ongoing global COVID-19 pandemic has destabilized the financial markets in which the Company operates and likely will continue to cause significant disruption in the global economies and financial markets, including the Company's local markets.

For example, the ongoing global COVID-19 pandemic has destabilized the financial markets in which the Company operates and may continue to cause significant disruption in the global economies and financial markets, including the Company's local markets.

The Company is dependent upon the willingness and ability of its customers to conduct banking and other financial transactions.

In reaction to and as preventative measure to attempt to slow the spread of the pandemic, government authorities have in many states and municipalities implemented mandatory closures, shelter-in-place orders, and social distancing protocols, including orders within many of the geographic areas that the Company operates.

Although the Company is considered an essential business, access to its branches and office locations have been restricted, for the safety of its employees and customers.

Limiting customers' access to the Company's physical business has prevented some customers from transacting with the Company and lowered demand for lending and other services offered by the Company, adversely affecting its cash flows, financial condition, results of operations, profitability and asset quality and could continue to do so for an indefinite period of time.

This could have a material adverse effect on the Company’s results of operations, financial condition, and liquidity.

In reaction to and as preventative measures to attempt to slow the spread of the pandemic that began in 2020, government authorities in many states and municipalities implemented mandatory closures, shelter-in-place orders, and social distancing protocols, including orders within many of the geographic areas that the Company operates.

Although the Company is considered an essential business, access to its branches and office locations were previously and may again be restricted, for the safety of its employees and customers.

Restricting customers' access to the Company's physical business locations has limited some customers from transacting with the Company and lowered demand for certain lending and other services offered by the Company and could continue to do so for an indefinite period of time.

Conversely, the ongoing COVID-19 pandemic has increased demand for certain other products and services, requiring the Company to pivot its focus in certain strategic initiatives.

The Company's ability to meet customer demand in this changing environment could result in increased expenses, and this could have a material adverse effect on the Company’s results of operations, financial condition, and liquidity.

In particular, the continued spread of COVID-19 and efforts to contain the virus could:

7 unchanged sentences

• cause other unpredictable events.

The situation surrounding COVID-19 remains uncertain and the potential for a material impact on the Company’s results of operations, financial condition, and liquidity increases the longer the virus impacts activity levels in the United States and globally.

The ultimate extent of the impact on the Company's business, financial condition, liquidity, results of operations and cash flows will depend on future developments, which are highly uncertain and cannot be predicted.

The Company continues to adapt to the changing dynamics of the COVID-19 impacts to the economy, needs of its employees and customers, and authoritative measures mandated by federal, state, and local governments.

However, there is no assurance that the Company's business continuity and disaster recovery program can adequately mitigate the risks of such business disruptions and interruptions.

New information regarding the severity of the COVID-19 pandemic and ongoing reactions to the pandemic by customers and government authorities will continue to impact access to the Company's business, as well as the economies and markets in which the Company operates.

T he COVID-19 pandemic may cause prolonged global or national recessionary economic conditions or longer lasting effects on economic conditions than currently exist, which could have a material adverse effect on the Company's business, results of operations and financial condition.

Beyond the current COVID-19 pandemic, the potential impacts of epidemics, pandemics, or other outbreaks of an illness, disease, or virus could therefore materially and adversely affect the Company's business, revenue, operations, financial condition, liquidity and cash flows.

The situation surrounding the COVID-19 pandemic remains uncertain and the potential for a material impact on the Company’s results of operations, financial condition, and liquidity increases the longer the virus impacts activity levels in the United States and globally.

The Company continues to adapt to the changing dynamics of the COVID-19 impacts to the economy and the needs of its employees and customers.

New information regarding the severity of the COVID-19 pandemic and ongoing reactions to the pandemic by customers, vendors, and government authorities will continue to impact access to the Company's business, as well as the economies and markets in which the Company operates.

While the U.S.

economy improved significantly during 2021, t he COVID-19 pandemic or fallout from economic and societal changes resulting from the pandemic may cause prolonged global or national recessionary economic conditions, which could have a material adverse effect on the Company's business, results of operations and financial condition.

Beyond the current COVID-19 pandemic, the potential

impacts of epidemics, pandemics, or other outbreaks of an illness, disease, or virus could therefore materially and adversely affect the Company's business, revenue, operations, financial condition, liquidity and cash flows.

Our business and financial results may be affected by societal and governmental responses to climate change and related environmental issues.

The current and anticipated effects of climate change have raised concerns for the condition of the global environment.

These concerns have changed and will continue to change the behavior of consumers and businesses.

Further, governments have increased their attention on the issue of climate change.

As a result, international agreements have been signed to attempt to reduce global temperatures and federal and state legislative and regulatory initiatives have been proposed to seek to mitigate the effects of climate change.

The Company and its customers may need to respond to new laws and regulations as well as new consumer and business preferences resulting from climate change concerns.

These changes may result in cost increases, asset value reductions, and operating process changes to the Company and its customers.

The impact on our customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities.

Among the impacts to the Company could be a drop in demand for our products and services, particularly in certain industries.

In addition, the Company could experience reductions in creditworthiness on the part of some customers or in the value of assets securing loans.

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

UNRESOLVED STAFF COMMENTS

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

What changed 10-K

Item 1A. Risk Factors