What changed in this filing

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Item 1. Business

2022-02-23 compared with 2021-02-24 · 84 added, 99 removed, 449 unchanged (29% of the section changed)

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(together with all of its subsidiaries, collectively referred to as the “Corporation,” “FBFS,” “we,” “us,” or “our”) is a registered bank holding company originally incorporated in 1986 under the laws of the State of Wisconsin and is engaged in the commercial banking business through its wholly-owned bank subsidiary, First Business Bank (“FBB” or the “Bank”), headquartered in Madison, Wisconsin.

All of our operations are conducted through FBB and First Business Specialty Finance, LLC (“FBSF”), a wholly-owned subsidiary of FBB formerly known as First Business Equipment Finance, LLC (“FBEF”).

All of our operations are conducted through FBB and First Business Specialty Finance, LLC (“FBSF”).

The Bank operates as a business bank, delivering a full line of commercial banking products and services tailored to meet the specific needs of small and medium-sized businesses, business owners, executives, professionals, and high net worth individuals.

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Within business banking, we offer commercial lending, asset-based lending, accounts receivable financing, equipment financing, floorplan financing, vendor financing, Small Business Administration (“SBA”) lending and servicing, treasury management services, and company retirement plans.

Our private wealth services include trust and estate administration, financial planning, investment management, consumer lending and private banking for executives and owners of our business banking clients and others.

Our private wealth management services include trust and estate administration, financial planning, investment management, consumer lending and private banking for executives and owners of our business banking clients and others.

Our bank consulting experts provide investment portfolio administrative services, asset liability management services, and asset liability management process validation for other financial institutions.

We do not utilize a branch network to attract retail clients.

Our operating philosophy is predicated on deep client relationships within our commercial bank markets and skilled expertise within our nationwide specialty finance business lines, combined with the efficiency of centralized administrative functions, such as information technology, loan and deposit operations, finance and accounting, credit administration, compliance, marketing, and human resources.

Our operating philosophy is predicated on deep client relationships within our commercial bank markets and extensive expertise within our nationwide specialized lending business lines, combined with the efficiency of centralized administrative functions, such as information technology, loan and deposit operations, finance and accounting, credit administration, compliance, marketing, and human resources.

Our focused model allows experienced staff to provide the level of financial expertise needed to develop and maintain long-term relationships with our clients.

We conduct our business operations through one operating segment.

We conduct our commercial banking business operations through one operating segment.

As of December 31, 2021, on a consolidated basis, we had total assets of $2.653 billion, total gross loans and leases of $2.241 billion, total deposits of $1.958 billion, and total stockholders’ equity of $232.4 million.

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We strive to meet the specific commercial lending needs of small- to medium-sized companies in our primary markets in Wisconsin, Kansas, and Missouri, predominantly through lines of credit and term loans to businesses with annual sales of up to $75 million.

Through FBB, we service the South Central Wisconsin, Southeast Wisconsin, Northeast Wisconsin, and the greater Kansas City Metro.

Through FBB, we service South Central Wisconsin, Southeast Wisconsin, Northeast Wisconsin, and the greater Kansas City Metro.

Our commercial loans are typically secured by various types of business assets, including inventory, receivables, and equipment.

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As of December 31, 2021, our conventional commercial real estate and commercial loans – excluding consumer lending, asset-based lending, accounts receivable financing, equipment financing, floorplan financing, and SBA lending described below – represented approximately 78% of our total gross loans and leases receivable.

Consumer and Other Lending

The Bank originates a small amount of consumer loans.

As of December 31, 2020, our consumer and other loans represented approximately 2% of our total gross loans and leases receivable.

Asset-Based Lending

First Business Bank, through its wholly-owned subsidiary FBSF, provides asset-based lending to small- to medium-sized companies.

FBB, through its wholly-owned subsidiary FBSF, provides asset-based lending to small- to medium-sized companies.

With sales offices located in several states, our asset-based lending team serves clients nationwide.

We primarily provide revolving lines of credit and term loans for financial and strategic acquisitions, capital expenditures, working capital to support rapid growth, bank debt refinancing, debt restructuring, corporate turnaround strategies, and debtor-in-possession financing in the course of bankruptcy proceedings or the exit therefrom.

As a bank-owned, asset-based lender with strong underwriting standards, our team is positioned to provide cost-effective financing solutions to companies which do not

have the established, stable cash flows necessary to qualify for traditional commercial lending products.

As a bank-owned, asset-based lender with strong underwriting standards, our team is positioned to provide cost-effective financing solutions to companies which do not have the established, stable cash flows necessary to qualify for traditional commercial lending products.

These borrowing relationships generally range between $2 million and $15 million with terms of 24 to 60 months.

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This line of business complements our traditional commercial loan portfolio and provides us with more diverse income opportunities.

As of December 31, 2020, asset-based lending – excluding accounts receivable financing described below – represented approximately 5% of our total gross loans and leases receivable.

As of December 31, 2021, asset-based lending represented approximately 8% of our total gross loans and leases receivable.

Accounts Receivable Financing

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With sales offices located in several states, our accounts receivable financing team serves clients nationwide.

Our accounts receivable financing team provides competitive rates to clients needing cash flow to support their growth, or who are experiencing financial issues.

Our accounts receivable financing team provides working capital to support growth and other cash flow needs.

Accounts receivable financing typically generates higher yields than traditional commercial lending and complements our traditional commercial portfolio.

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These financings generally range between $250,000 and $5 million with terms of 36 to 84 months.

FBSF also delivers small ticket vendor equipment financing through its proprietary, online, application-only credit decision architecture.

FBSF also delivers small ticket vendor equipment financing through its proprietary, online, credit scoring architecture.

Through this nationwide distribution channel, FBSF provides financing solutions for equipment vendors and their end users.

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Floorplan Financing

In June 2020, FBB, through its wholly-owned subsidiary FBSF, began offering floorplan financing for independent car dealerships nationwide.

Floorplan financing allows car dealers the flexibility to finance their acquisition of used cars, preserving cash flow and allowing dealers to purchase inventory.

Floorplan financing is the latest expansion of First Business Bank’s specialty finance solutions, offering floorplanning programs from $500,000 to $10 million for larger, well-established independent car dealers.

FBB, through its wholly-owned subsidiary FBSF, offers floorplan financing for independent car dealerships nationwide.

Floorplan financing allows car dealers the flexibility to finance their acquisition of preowned cars, preserving liquidity and allowing dealers to purchase inventory.

Floorplan financing is the latest expansion of the Bank’s specialized lending solutions, offering floorplan programs from $500,000 to $10 million for larger, well-established independent car dealers.

As of December 31, 2021, floorplan financing represented approximately 2% of our total gross loans and leases receivable.

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We leverage this program authority and capacity to package, underwrite, process, service, and liquidate, if necessary, SBA loans nationwide.

Excluding PPP loans, which are discussed in further detail in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations , our SBA loans fall into three categories:

Excluding Paycheck Protection Program (“PPP”) loans, our SBA loans fall into three categories:

loans originated under the SBA’s 7(a) term loan program;

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This program typically provides a guaranty of 75% of principal and interest.

In the event of default on the loan, the lender may request that the SBA purchase the guaranteed portion of the loan for an amount equal to outstanding principal plus accrued interest permissible under SBA

In addition, the SBA will share on a pro-rata basis in certain costs of collection, subject to SBA rules and limits, as well as the proceeds of liquidation.

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We receive a premium on each loan sold, resulting in the recognition of a gain in the period of sale.

Second, we receive servicing income from the holder of the securitized asset over the life of the loan.

Second, we receive servicing income from the holder

of the securitized asset over the life of the loan.

As of December 31, 2021, the on-balance sheet portion of SBA loans represented approximately 2% of our total gross loans and leases receivable.

Treasury Management Services

The Bank provides comprehensive cash management services for commercial banking and specialty finance clients to manage their cash and liquidity, including lockbox, accounts receivable collection services, electronic payment solutions, fraud detection and protection, information reporting, reconciliation, and data integration solutions.

FBB provides comprehensive cash management services for commercial banking and specialized lending clients to manage their cash and liquidity, including lockbox, accounts receivable collection services, electronic payment solutions, fraud detection and protection, information reporting, reconciliation, and data integration solutions.

For our clients involved in international trade, the Bank offers international payment services, foreign exchange, and trade letters of credit.

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Company Retirement Plan Services

First Business Bank acts as fiduciary and investment manager for corporate clients, creating and executing asset allocation strategies tailored to each corporation’s unique situation.

FBB acts as fiduciary and investment manager for corporate clients, creating and executing asset allocation strategies tailored to each corporation’s unique situation.

FBB acts as a discretionary trustee and investment fiduciary, sharing responsibility for monitoring assets to match the client’s specifications.

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Private Wealth Management

First Business Bank acts as fiduciary and investment manager for individual clients, creating and executing asset allocation strategies tailored to each client’s unique situation.

FBB acts as fiduciary and investment manager for individual clients, creating and executing asset allocation strategies tailored to each client’s unique situation.

FBB has full fiduciary powers and offers trust and estate administration, financial planning, and investment management, acting in a trustee or agent capacity.

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As of December 31, 2021, FBB had $2.557 billion of private wealth assets under management and administration.

The Bank also originates a small amount of consumer loans to its Private Wealth Management clients.

As of December 31, 2021, our consumer and other loans represented approximately 2% of our total gross loans and leases receivable.

Bank Consulting Services

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These services include investment portfolio management and administrative services, asset liability management services, and asset liability process validations required by regulators.

The Bank encounters strong competition across all of our lines of business.

FBB encounters strong competition across all of our lines of business.

Such competition includes banks, savings institutions, mortgage banking companies, credit unions, finance companies, equipment finance companies, mutual funds, insurance companies, brokerage firms, investment banking firms, and FinTech companies.

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None of our employees are represented by a union or subject to a collective bargaining agreement.

Information with respect to Human Capital Management included in the definitive Proxy Statement for the Annual Meeting of the Shareholders to be held on April 30, 2021 under the captions “Human Capital Management” is incorporated herein by reference.

Information with respect to Human Capital Management is included in the definitive Proxy Statement for the Annual Meeting of the Shareholders to be held on April 29, 2022 under the caption “Human Capital Management” and is incorporated herein by reference.

First Business Bank

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In 1990, FBB relocated its home office to Madison, Wisconsin, and began focusing on providing high-quality banking services to small- to medium-sized businesses located in Madison and the surrounding area.

FBB’s business lines include commercial loans, commercial real estate loans, asset-based loans, accounts receivable financing, SBA lending and servicing, floorplan financing, equipment loans and leases, commercial deposit accounts, company retirement solutions, and treasury management services.

FBB’s business lines include commercial loans, commercial real estate

loans, asset-based loans, accounts receivable financing, SBA lending and servicing, floorplan financing, equipment loans and leases, commercial deposit accounts, company retirement solutions, and treasury management services.

FBB offers a variety of deposit accounts and personal loans to business owners, executives, professionals, and high net worth individuals.

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FBB has four full-service banking locations in Madison, Brookfield, and Appleton, Wisconsin, and Leawood, Kansas.

FBB has eight wholly-owned subsidiaries.

Refer to Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-bank Consolidated Subsidiaries for additional information on FBB’s subsidiaries.

As of December 31, 2020, FBB had total gross loans and leases receivable of $2.151 billion, total deposits of $1.859 billion, and total stockholders’ equity of $232.6 million.

As of December 31, 2021, FBB had seven wholly-owned subsidiaries and total gross loans and leases receivable of $2.241 billion, total deposits of $1.958 billion, and total stockholders’ equity of $265.0 million.

FBFS Statutory Trust II

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Our principal executive offices are located at 401 Charmany Drive, Madison, Wisconsin 53719 and our telephone number is (608) 238-8008.

The contents of our website are not incorporated by reference into this Form 10-K.

We maintain an Internet website at www.firstbusiness.bank.

This Form 10-K and all of our other filings under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available free of charge through that website, including copies of our proxy statement, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we file those materials with, or furnish them to, the Securities and Exchange Commission (“SEC”).

The contents of our website are not incorporated by reference into this Form 10-K.

Although certain of our business lines are marketed throughout the Midwest and beyond, our primary markets lie in Wisconsin, Kansas, and Missouri.

Specifically, our three markets in Wisconsin consist of the South Central Wisconsin, Southeast Wisconsin, and Northeast Wisconsin.

We serve the greater Kansas City Metro through our Leawood, Kansas office, which is located in the Kansas City metropolitan statistical area.

Specifically, our three markets in Wisconsin consist of South Central Wisconsin, Southeast Wisconsin, and Northeast Wisconsin.

We serve the greater Kansas City Metro through our Leawood, Kansas office, which is located in the Kansas City metropolitan area.

Each of our primary markets provides a unique set of economic and demographic characteristics which provide us with a variety of strategic opportunities.

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Our Southeast Wisconsin market, the primary commercial and industrial hub for Southeast Wisconsin, provides a diverse economic base, with both a highly skilled labor force and significant manufacturing base.

The most prominent economic sectors in the Milwaukee market include manufacturing, financial services, health care, diversified service companies, and education.

Milwaukee is home to several major hospitals, providing health services to the greater Southeast Wisconsin market, several large academic institutions including the University of Wisconsin-Milwaukee and Marquette University, and a wide variety of small- to medium-sized firms with representatives in nearly every industrial classification.

The most prominent economic sectors include manufacturing, financial services, health care, diversified service companies, and education.

The area is home to several major hospitals, providing health services to the greater Southeast Wisconsin market, several large academic institutions including the University of Wisconsin-Milwaukee and Marquette University, and a wide variety of small- to medium-sized firms with representatives in nearly every industrial classification.

Northeast Wisconsin

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He also currently serves as a director for our subsidiary FBSF.

Seiler has over 25 years of financial services experience including his previous position as Managing Director (formerly Senior Vice President/Manager) of the Correspondent Banking Division with BMO Harris Bank in Milwaukee, Wisconsin which he held from 2007 to 2016.

Bank in Milwaukee, Wisconsin which he held from 2007 to 2016.

Prior to that, he held the position of Senior Vice President/Team Leader, Correspondent Real Estate Division from 2005 to 2007 and Vice President, Relationship Manager, Commercial Real Estate from 2002 to 2005.

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Quade held the position of Senior Vice President with Johnson Bank in Milwaukee, Wisconsin which he held from 2008 to 2019.

Quade holds a bachelor’s degree in Accounting and Finance from the University of Wisconsin-Milwaukee and is a Certified Public Accountant.

Hartlieb , age 51, has served as President of FBB since 2015.

Hartlieb joined FBB in 2009 as Senior Vice President of Greater Dane County.

Hartlieb has over 25 years of financial services experience.

Prior to joining FBB, Mr.

Hartlieb held the position of Regional President with AMCORE Bank in Madison, Wisconsin, which he held from 1998 to 2009.

SUPERVISION AND REGULATION

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These laws, and the regulations of the bank regulatory agencies issued under them, affect, among other things, the scope of our business, the kinds and amounts of investments the Corporation and the Bank may make, reserve requirements, required capital levels relative to assets, the nature and amount of collateral for loans, the establishment of branches, the ability to merge, consolidate and acquire, dealings with the Corporation’s and the Bank’s insiders and affiliates, and payment of dividends.

In reaction to the global financial crisis beginning in 2008 (the “global financial crisis”) and particularly following the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), we experienced heightened regulatory requirements and scrutiny.

In reaction to the global financial crisis beginning in 2008 (the “global financial crisis”) and particularly following the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), we experienced heightened regulatory requirements and scrutiny.

Although the reforms primarily targeted systemically important financial service providers, their influence filtered down in varying degrees to community banks over time and caused our compliance and risk management processes, and the costs thereof, to increase.

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For a discussion of capital requirements, see The Role of Capital below.

It also eliminated questions about the applicability of certain Dodd-Frank Act reforms to community bank systems, including relieving

the Bank of any requirement to engage in mandatory stress tests, name a risk committee, or comply with the Volcker Rule’s complicated prohibitions on proprietary trading and ownership of private funds.

The Regulatory Relief Act also eliminated questions about the applicability of certain Dodd-Frank Act reforms to community bank systems, including relieving the Bank of any requirement to engage in mandatory stress tests, name a risk committee, or comply with the Volcker Rule’s complicated prohibitions on proprietary trading and ownership of private funds.

The Corporation believes these reforms are generally favorable to its operations.

The supervisory framework for U.S.

banking organizations subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination reports and ratings that are not publicly available and can impact the conduct and growth of their business.

These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors.

banking organizations subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination reports and ratings that are not publicly

available and can impact the conduct and growth of their business.

The regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law, or are otherwise inconsistent with laws and regulations.

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The Basel III Rule .

The risk-based capital guidelines for U.S.

banks since 1989 were based upon the 1988 capital accord known as “Basel I” adopted by the international Basel Committee on Banking Supervision, a committee of central banks and bank supervisors that acts as the primary global standard setter for prudential regulation, as implemented by the U.S.

bank regulatory agencies on an interagency basis.

The principles reached as part of Basel I have been subject to change in subsequent years.

On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced agreement on a strengthened set of capital requirements for banking organizations around the world, known as Basel III, to address deficiencies recognized in connection with the global financial crisis.

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The Basel III Rule increased the required quantity and quality of capital and, for nearly every class of assets, it requires a more complex, detailed and calibrated assessment of risk and calculation of risk-weight amounts.

of treasury stock), retained earnings, and Common Equity Tier 1 minority interests subject to certain regulatory adjustments.

The Basel III Rule also changed the definition of capital by establishing more stringent criteria that instruments must meet to be considered Additional Tier 1 Capital (primarily non-cumulative perpetual preferred stock that meets certain requirements) and Tier 2 Capital (primarily other types of preferred stock and subordinated debt, subject to limitations).

Not only did the Basel III Rule increase most of the required minimum capital ratios in effect prior to January 1, 2015, but it introduced the concept of Common Equity Tier 1 Capital, which consists primarily of common stock, related surplus (net of treasury stock), retained earnings, and Common Equity Tier 1 minority interests subject to certain regulatory adjustments.

Tier 2 Capital (primarily other types of preferred stock and subordinated debt, subject to limitations).

A number of instruments that qualified as Tier 1 Capital under Basel I do not qualify, or their qualifications changed.

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(vii) requiring that senior executive officers or directors be dismissed;

(viii) prohibiting the institution from

accepting deposits from correspondent banks;

(viii) prohibiting the institution from accepting deposits from correspondent banks;

(ix) requiring the institution to divest certain subsidiaries;

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The decision to opt into or out of the CBLR framework is monitored on an ongoing basis.

First Business Financial Services, Inc.

As the sole shareholder of the Bank, we are a bank holding company.

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as to be a proper incident thereto.” This authority permits the Corporation to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development), and mortgage banking and brokerage services.

The BHCA does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies.

Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking, and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the Federal Reserve determines by order to be complementary to any such financial activity

and does not pose a substantial risk to the safety or soundness of FDIC-insured institutions or the financial system generally.

The BHCA does not place territorial restrictions on the domestic activities of non-bank subsidiaries of bank holding companies.

Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of non-banking activities, including securities and insurance underwriting and sales, merchant banking, and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the Federal Reserve determines by order to be complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of FDIC-insured institutions or the financial system generally.

The Corporation has not elected to operate as a financial holding company.

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or (iii) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

The Federal Reserve also possesses enforcement powers over bank holding companies and their nonbank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations.

The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations.

Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies.

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publicly traded companies.

The Dodd-Frank Act increased shareholder influence over boards of directors by requiring companies to give shareholders a nonbinding vote on executive compensation and so-called “golden parachute” payments, and by authorizing the SEC to promulgate rules that would allow shareholders to

nominate and solicit voters for their own candidates using a company’s proxy materials.

The legislation also directed the Federal Reserve to promulgate rules prohibiting excessive compensation paid to executives of bank holding companies, regardless of whether such companies are publicly traded.

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The FDIC applies the credits each quarter (beginning with the September 2019 assessment invoice for the second quarter of 2019) that the reserve ratio is at least 1.38% to offset the regular deposit insurance assessments of institutions with credits.

As of June 30, 2020, the most recent available date, the reserve ratio was 1.30%.

Effective June 26, 2020, the FDIC adopted a final rule to mitigate the effect on deposit insurance assessments when an insured institution participates in the Paycheck Protection Program (“PPP”), the Paycheck Protection Program Liquidity Facility (“PPPLF”), and Money Market Mutual Fund Liquidity Facility (“MMLF”).

Under the rule, the FDIC provides adjustments to the risk based premium formula and certain of its risk ratios, and provides an offset to an insured institution’s total assessment amount due for the increase to its assessment base attributable to participation in the PPP and MMLF.

FICO Assessments .

In addition to paying basic deposit insurance assessments, FDIC-insured institutions have long been required to pay Financing Corporation (“FICO”) assessments.

FICO is a mixed-ownership governmental corporation chartered by the former Federal Home Loan Bank (“FHLB”) Board pursuant to the Competitive Equality Banking Act of 1987 to function as a financing vehicle for the recapitalization of the former Federal Savings and Loan Insurance Corporation.

FICO issued 30-year noncallable bonds of approximately $8.1 billion that mature through 2019.

The final FICO assessment was on March 29, 2019.

As of September 30, 2021, the most recent available date, the reserve ratio was 1.27%.

Supervisory Assessments.

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Because the global financial crisis was in part a liquidity crisis, Basel III also includes a liquidity framework that requires FDIC-insured institutions to measure their liquidity against specific liquidity tests.

One test, referred to as the Liquidity Coverage Ratio (“LCR”), is designed to ensure that the banking entity has an adequate stock of unencumbered high-quality

liquid assets that can be converted easily and immediately in private markets into cash to meet liquidity needs for a 30-calendar day liquidity stress scenario.

One test, referred to as the Liquidity Coverage Ratio (“LCR”), is designed to ensure that the banking entity has an adequate stock of unencumbered high-quality liquid assets that can be converted easily and immediately in private markets into cash to meet liquidity needs for a 30-calendar day liquidity stress scenario.

The other test, known as the Net Stable Funding Ratio (“NSFR”), is designed to promote more medium- and long-term funding of the assets and activities of FDIC-insured institutions over a one-year horizon.

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The federal banking agencies have adopted operational and managerial standards to promote the safety and soundness of FDIC-insured institutions.

The standards apply to internal controls, information systems, internal audit systems, risk mitigation, deposit and loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fiduciary risk, asset quality, and earnings.

The standards apply to internal controls, information systems, internal audit systems, risk mitigation, bank operations, compliance, credit underwriting, interest rate exposure, asset growth, compensation, fiduciary risk, asset quality, and earnings.

In general, the safety and soundness standards prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals.

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Noncompliance with safety and soundness may also constitute grounds for other enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments.

During the past several years, the bank regulatory agencies have increasingly emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the FDIC-insured institutions they

Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become even more important as new technologies, product innovation, and the size and speed of financial transactions have changed the nature of banking markets.

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Federal law permits state and national banks to merge with banks in other states subject to:

(i) regulatory approval;

(i) regulatory

(ii) federal and state deposit concentration limits;

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Transaction Account Reserves.

As announced on March 15, 2020, the Federal Reserve reduced reserve requirement ratios to zero percent effective March 26, 2020.

As announced on March 15, 2020, the Federal Reserve reduced reserve requirement ratios to zero percent by way of an interim final rule that was effective March 26, 2020, and a subsequent final rule adopting the interim final rule effective March 12, 2021.

This action eliminated reserve requirements for all depository institutions.

The Federal Reserve Act authorizes the Federal Reserve to establish reserve requirements within specified ranges for purposes of implementing monetary policy on certain types of deposits and other liabilities of depository institutions and impose reserve requirements on transaction accounts, nonpersonal time deposits, and Eurocurrency liabilities.

The dollar amount of a depository institution's reserve requirement is determined by applying the reserve requirement ratios specified in the Federal Reserve's Regulation D (Reserve Requirements of Depository Institutions, 12 CFR Part 204) to an institution's reservable liabilities.

The Federal Reserve Act authorizes the Federal Reserve to establish reserve requirements within specified ranges for purposes of implementing monetary policy on certain types of deposits and other liabilities of depository institutions and impose reserve requirements on transaction accounts, non-personal time deposits, and Eurocurrency liabilities.

Prior to the change effective March 26, 2020, reserve requirement ratios on net transaction accounts differed based on the amount of net transactions accounts at the depository institution.

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An unsatisfactory rating may be used as a basis for denial of such an application.

On December 12, 2019, the FDIC and the Office of the Comptroller of the Currency (“OCC”) issued a proposed rule to modernize their respective regulations under the CRA.

On June 5, 2020, the OCC issued a final rule implementing the proposed rule.

The final rule (i) clarifies which activities qualify for CRA credit and (ii) requires banks to identify an additional assessment area based on where they receive a significant portion of their domestic retail products, thus creating two assessment areas:

a deposit-based assessment area and a facility-based assessment area.

Citing the burden being faced by banks in light of the COVID pandemic, he FDIC opted not to join in the issuance of the final rule, meaning that the FDIC’s CRA regulations remain unchanged.

On December 14, 2021, the Office of the Comptroller of the Currency (OCC) issued a final rule to rescind the June 2020 Community Reinvestment Act (CRA) rule and replace it with a rule based on the rules adopted jointly by the federal banking agencies in 1995, as amended.

The final rule aligns the OCC’s CRA rules with the current Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation rules and thereby facilitates the ongoing interagency work to modernize the CRA regulatory framework and create consistency for all insured depository institutions.

Anti-Money Laundering.

The Corporation is subject to several federal laws that are designed to combat money laundering and terrorist financing, and to restrict transactions with persons, companies, or foreign governments sanctioned by United States authorities.

The Bank is subject to several federal laws that are designed to combat money laundering and terrorist financing, and to restrict transactions with persons, companies, or foreign governments sanctioned by United States authorities.

This category of laws includes the Bank Secrecy Act (the “BSA”), the Money Laundering Control Act, the USA PATRIOT Act (collectively, “AML laws”) and implementing regulations as administered by the United States Treasury Department’s Office of Foreign Assets Control (“sanctions laws”).

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Depository institutions are required by their respective federal regulators to maintain policies and procedures in order to ensure compliance with the above obligations.

Federal regulators regularly examine BSA/Anti–Money Laundering (“AML”) and sanctions compliance programs to ensure their adequacy and effectiveness, and the frequency and extent of such examinations and the remedial actions resulting therefrom have been increasing.

resulting therefrom have been increasing.

Non–compliance with sanctions laws and/or AML laws or failure to maintain an adequate BSA/AML compliance program can lead to significant monetary penalties and reputational damage, and federal regulators evaluate the effectiveness of an applicant in combating money laundering when determining whether to approve a proposed bank merger, acquisition, restructuring, or other expansionary activity.

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The Bank is subject to many U.S.

federal and state laws and regulations governing requirements for maintaining policies and procedures to protect non-public confidential information of their customers.

federal and state laws and regulations governing requirements for maintaining policies and procedures to protect non-public personal information of their consumers.

These laws require the Bank to periodically disclose their privacy policies and practices relating to sharing such information and permit consumers to opt out of their ability to share information with unaffiliated third parties under certain circumstances.

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Multiple states and Congress are considering additional laws or regulations that could create or alter individual privacy rights and impose additional obligations on banks and related financial services companies in possession of or with access to personal data.

For example, on December 18, 2020, the FDIC, along with the other federal financial regulatory agencies, announced a proposal that would require supervised banking organizations to promptly notify their primary federal regulator in the event of a computer security incident.

On November 18, 2021, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve System, and the Office of the Comptroller of the Currency (OCC) (collectively, the agencies) issued a joint final rule, to establish computer-security incident notification requirements for banking organizations and their bank service providers.

The rule will provide the agencies with early awareness of emerging threats to banking organizations and the broader financial system, including potentially systemic cyber events.

The final rule takes effect on April 1, 2022, with full compliance extended to May 1, 2022.

Concentrations in Commercial Real Estate .

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The CRE Guidance does not limit banks’ levels of commercial real estate lending activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their commercial real estate concentrations.

On December 18, 2015,

the federal banking agencies issued a statement to reinforce prudent risk-management practices related to CRE lending, having observed substantial growth in many CRE asset and lending markets, increased competitive pressures, rising CRE concentrations in banks, and an easing of CRE underwriting standards.

On December 18, 2015, the federal banking agencies issued a statement to reinforce prudent risk-management practices related to CRE lending, having observed substantial growth in many CRE asset and lending markets, increased competitive pressures, rising CRE concentrations in banks, and an easing of CRE underwriting standards.

The federal bank agencies reminded FDIC-insured institutions to maintain underwriting discipline and exercise prudent risk-management practices to identify, measure, monitor, and manage the risks arising from CRE lending.

6 unchanged sentences

Because abuses in connection with residential mortgages were a significant factor contributing to the financial crisis, many new rules issued by the CFPB and required by the Dodd-Frank Act addressed mortgage and mortgage-related products, their underwriting, origination, servicing, and sales.

The Dodd-Frank Act significantly expanded underwriting requirements applicable to loans secured by 1-4 family residential real property and augmented federal law combating predatory lending practices.

The Dodd-Frank Act significantly expanded underwriting requirements

applicable to loans secured by 1-4 family residential real property and augmented federal law combating predatory lending practices.

In addition to numerous disclosure requirements, the Dodd‑Frank Act imposed new standards for mortgage loan originations on all lenders, including banks and savings associations, in an effort to strongly encourage lenders to verify a borrower’s ability to repay, while also establishing a presumption of compliance for certain “qualified mortgages.” The Regulatory Relief Act provided relief in connection with mortgages for banks with assets of less than $10 billion, and, as a result, mortgages the Bank makes are now considered to be qualified mortgages if they are held in portfolio for the life of the loan.

12 unchanged sentences

The COVID-19 pandemic has created unprecedented health and economic uncertainty in the United States and internationally and has prompted federal, state, and local legislative and regulatory action designed to address the pandemic’s challenges.

On March 22, 2020, the federal bank regulatory agencies issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus , which publicly encouraged regulated depository institutions to work with borrowers experiencing financial hardship due to COVID-19.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), a $2.2 trillion economic stimulus law, was enacted.

The CARES Act and various regulations promulgated thereunder contain many provisions that impact financial institutions, including, among others, the following:

• Forbearance, Foreclosure, and Evictions .

The CARES Act provides forbearance protections for borrowers with federally-backed one-to-four family mortgage loans and federally-backed multifamily mortgage loans experiencing financial hardship due to COVID-19, and eviction protections for tenants in multifamily properties that are taking

advantage of forbearance protections.

In addition, the CARES Act provides a prohibition on the initiation of foreclosure actions by servicers of federally-backed mortgage loans.

• Troubled Debt Restructurings .

The CARES Act provides banks with relief from characterizing loan modifications related to the COVID-19 pandemic as “troubled debt restructurings”, including impairment accounting for such modifications.

• Paycheck Protection Program .

The CARES Act also establishes the PPP, initially a $349 billion fund available in the form of Small Business Administration (“SBA”) 7(a) loans made by financial institutions to eligible borrowers.

The SBA opened the PPP on April 3, 2020, and the initial available funds were exhausted as of April 16, 2020.

PPP loans are federally-guaranteed carrying an annual interest rate of 1% and may be forgiven if borrowers meet certain statutorily mandated conditions relating to, for example, employee retention and permissible uses of loan proceeds.

After the initial fund for PPP loans was exhausted, the program was extended multiple times until expiring on August 8, 2020.

In January 2021, the SBA reopened PPP for eligible borrowers that did not receive a PPP loan during the initial PPP phase, as well as for a certain subset of borrowers who had received an initial PPP loan previously.

To further support the financing and liquidity necessitated by the various economic programs designed to alleviate the impact of COVID-19, the Federal Reserve, in cooperation with the Department of the Treasury, established several financing and liquidity facilities, including, for example, the Main Street Lending Program, the MMLF, and the PPPLF.

In particular, the PPPLF is designed to provide an adequate liquidity source to financial institutions for purposes of funding PPP loans.

The federal bank regulatory agencies issued multiple rules throughout 2020 that were designed to provide relief to financial institutions from any adverse regulatory capital or liquidity impacts resulting from the Federal Reserve’s liquidity facilities.

Beginning in March 2020, the federal bank regulatory agencies began issuing various rulemakings and interagency statements providing temporary resources, flexibility and relief for financial institutions.

These rulemakings and statements related to, among other things, deferrals for certain borrowers and compliance with capital adequacy guidelines.

In addition, on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), a $2.2 trillion economic stimulus law, was enacted.

The CARES Act and various regulations promulgated thereunder contain many provisions that impact financial institutions, including, among others, forbearance protections for certain borrowers, relief from characterizing loan modifications as “troubled debt restrictions, a new Paycheck Protection Program (“PPP”) available in the form of Small Business Administration 7(a) loans made by financial institutions to eligible borrowers, and various liquidity facilities to fund the PPP and other pandemic-related financing programs.

After the initial fund for PPP loans was exhausted, the PPP was extended multiple times until expiring on August 8, 2020.

In January 2021, the SBA reopened the PPP for eligible borrowers that did not receive a PPP loan during the initial PPP phase, as well as for a certain subset of borrowers who had received an initial PPP loan previously.

The PPP expired for any new applicants on May 31, 2021 .

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 1. Business