What changed in this filing

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Item 1A. Risk Factors

2022-03-04 compared with 2021-03-05 · 73 added, 173 removed, 236 unchanged (51% of the section changed)

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Our net interest income has been negatively impacted primarily due to reduced interest rates on variable-rate commercial loans resulting from the Federal Open Market Committee (“FOMC”) significantly decreasing the targeted federal funds rate by 225 basis points during the second half of 2019 and the first quarter of 2020.

Due to the Coronavirus Pandemic, the targeted federal funds rate is unlikely to be increased for the foreseeable future, resulting in prolonged pressure on our net interest income, which could reduce our net income in future periods.

Our results may also be negatively impacted by a deterioration in the quality of our loan portfolio due to the impact of the Coronavirus Pandemic on our loan customers.

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and that we may face litigation due to our handling of the challenges associated with the Coronavirus Pandemic, including our participation in the Paycheck Protection Program.

While we believe that we have navigated the difficult environment associated with the Coronavirus Pandemic with success thus far, we may not be able to continue to do so, and this could expose our business, financial condition and results of operations to risks that could have a negative impact on your investment.

While we believe that we have navigated the difficult environment associated with the Coronavirus Pandemic with success thus far, there remains a high level of uncertainty due to the potential spread of new variants and surges in cases, and this could expose our business, financial condition and results of operations to risks that could have a negative impact on your investment.

Adverse changes in economic conditions or interest rates may negatively affect our earnings, capital and liquidity.

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The unanticipated loss of our executive officers, or any of our other senior managers, could have an adverse effect on our growth and performance.

 In addition, we continue to depend on our key commercial loan officers.

Several of our commercial loan officers are responsible, or share responsibility, for generating and managing a significant portion of our commercial loan portfolio.

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These agreements make it more difficult for us to hire loan officers with experience in our markets who can immediately solicit their former or new customers on our behalf.

Changes in the method of determining Libor, or the replacement of Libor with an alternative reference rate, may adversely affect interest income or expense.

Many of the commercial loans we make bear interest at a floating rate based on Libor, the London inter-bank offered rate.

We pay interest on certain subordinated notes related to our trust preferred securities at rates based on Libor.

Direct and indirect effects of climate change may adversely affect us.

Climate change presents immediate and long-term risks to us and to our customers and communities, with risks expected to increase over time.

Climate change refers to risk of life and property damage occurring due to naturally occurring events induced by human behavior and is divided into physical risk and indirect risk.

Physical risk refers to results of severe weather, such as floods, hurricanes, rising sea levels, fires and water availability.

Indirect risk refers to how changes in regulation, conscious consumer choices, competition for sustainable products, and reduced demand for goods or services that produce significant green-house gas emissions may have on the results and operations of a company.

Physical effects of climate change to our offices, branches or personnel could have an immediate adverse effect on our operations and financial condition, whereas indirect consequences may result in increased expenditures to comply with climate-related regulations.

Similarly, physical effects could have a severe impact on the business and operations of our customers and vendors.

Furthermore, consumer choices and shareholder demands could require our customers to invest more in cleaner energy manufacturing and procurement and to compete with innovative new products that generate lower emissions, which may or may not be successful.

If our customers are not able to keep up with evolving climate change effects, it could ultimately have an adverse effect on our business and results of operations.

Lastly, like other financial institutions, we also run a reputational risk of financing businesses that are responsible for significant green-house gas emissions or are related to carbon-based energy sources.

While our risk management framework monitors various types of risks and applies risk mitigation techniques including for environmental risks, and while we have been conscious of our own carbon footprint and have established an ESG Committee, introduction of new climate-related legislation and related compliance costs as well as the unpredictable effects of climate change on us or our customers could have a negative impact on our business, financial condition and results of operations, even if temporary in nature.

The adoption of the Secured Overnight Funding Rate may adversely affect interest income or expense, and may be more volatile than other benchmark or market interest rates.

On July 27, 2017, the United Kingdom Financial Conduct Authority (“FCA”), which oversees Libor, formally announced that it could not assure the continued existence of Libor in its current form beyond the end of 2021, and that an orderly transition process to one or more alternative benchmarks should begin.

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The Federal Reserve Bank of New York (“FRBNY”) began publication of the SOFR in April 2018.

In May 2018, the Chicago Mercantile Exchange began trading SOFR futures contracts.

The existence of a futures market may permit the development of a SOFR term curve.

In July 2018, the Federal National Mortgage Association (“FNMA”) issued bonds using SOFR (an overnight rate) as a pricing mechanism.

This was possible because of an unusual bond structure, in which interest was payable quarterly, but the interest reset period was daily.

By the end of 2020, each of FNMA and the Federal Home Loan Mortgage Corporation (“FHLMC”) had issued more than $125 billion in SOFR-indexed debt instruments in the capital markets.

In January 2019, ICE Benchmark Administration, the current provider of Libor, proposed for comment to market participants a U.S.

Dollar ICE Bank Yield Index.

This index would be based on two types of U.S.

dollar-denominated transaction data:

primary market wholesale, unsecured funding transactions for large, internationally active banks;

and secondary market transactions in wholesale, unsecured bonds issued by large, internationally active banks.

These data would be used to construct a yield curve from which one-month, three-month and six-month settings could be obtained.

Following comments from market participants, the ICE Benchmark Administration modified the methodology of calculation of its index (which it is continuing to test).

In May 2020, it announced that the index may be made available as a credit-spread supplement to the SOFR.

If the index was accepted by market participants, it might furnish commercial bank-based term rates more directly comparable to the existing structure of Libor than the government securities-based SOFR.

During 2019 and 2020, among other things, the ARRC published a white paper on ways in which market participants could use SOFR in cash markets, conducted surveys of market participants, engaged with cognizant U.S.

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The FRBNY has stated that it will consider the potential benefits of introducing calendar month-based rates and/or adding further tenors as additional reference rates.

In July 2019, both FNMA and FHLMC announced their intention to develop new adjustable-rate mortgage loan products based on SOFR.

In February 2020, FNMA and FHLMC each announced that they would:

(i) require inclusion of ARRC-recommended transition language in all single-family adjustable rate mortgage (“ARM”) loans closed on or after June 1, 2020;

(ii) require all Libor-based single-family and multi-family ARM loans to have loan application dates on or before September 30, 2020 in order to be eligible for acquisition;

and (iii) cease acquisition of single-family and multi-family Libor ARM loans on or before December 31, 2020.

During the fourth quarter of 2020, each of FNMA and FHLMC began acquiring SOFR ARM loans and ceased purchasing Libor-based products.

In November 2020, the ICE Benchmark Administration announced a consultation regarding the cessation of the publication of Libor.

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The consultation period closed on January 25, 2021.

ICE Benchmark Administration indicated that it would share the results of the consultation with the FCA, and subsequently publish further guidance.

In coordinated announcements on November 30, 2020, the FCA and each of the U.S.

federal banking agencies recognized the proposed extension of Libor publication for the identified tenors of U.S.

dollar Libor.

The federal banking agencies noted that this would allow most legacy U.S.

dollar Libor contracts to mature before Libor experiences disruptions.

At the same time, the agencies stated that entry into new contracts using Libor as a reference rate after December 31, 2021 by supervised banking organizations would create safety and soundness risks.

Accordingly, the federal banking agencies encouraged supervised banking organizations to cease using Libor as a reference rate in their agreements as soon as possible, but in any event by December 31, 2021.

They also stated that new contracts entered into before December 31, 2021 should either utilize a reference rate other than Libor or have robust fallback language that includes a clearly defined alternative reference rate after Libor’s discontinuation.

Certain limited exceptions to that guidance were included by the federal banking agencies, in the event that the ICE Benchmark Administration does continue to publish Libor U.S.

dollar tenors after December 31, 2021.

On January 19, 2021, Governor Mario Cuomo presented the 2022 Executive Budget for the State of New York.

The Executive Budget included a draft Libor-fallback statute proposed by the ARRC.

The draft statute is intended to minimize legal uncertainty in Libor contracts governed by New York law, which includes many derivative contracts.

There can be no assurance whether, or in what form, such draft legislation may be enacted in New York.

On January 25, 2021, the International Swaps and Derivatives Association’s IBOR (interbank offered rates) Fallbacks Protocol (“Protocol”) and IBOR Fallbacks Supplement (“Supplement”) each took effect.

Effectiveness of the Protocol means that existing swaps and other derivative contracts will incorporate the new ISDA fallbacks if both counterparties have accepted the Protocol.

Effectiveness of the Supplement means that new derivatives contracts that incorporate standard ISDA definitions and reference a relevant IBOR will also incorporate the new fallbacks.

These measures are intended to provide greater certainty with respect to derivative contracts.

It is unclear whether, or in what form, Libor will continue to exist after 2021.

Any transition to an alternative benchmark will require careful consideration and implementation so as not to disrupt the stability of financial markets.

If Libor ceases to exist, we may need to take a variety of actions, including negotiating certain of our agreements based on an alternative benchmark that may be established, if any.

There is no guarantee that a transition from Libor to an alternative benchmark will not result in financial market disruptions, significant changes in benchmark rates, or adverse changes in the value of certain of our loans, and our income and expense.

The ICE Benchmark Administration concluded the consultation on its intent to cease publication of one week and two-month U.S.

dollar Libor on December 31, 2021 and to extend the publication of all remaining U.S.

dollar Libor tenors until June 30, 2023 for legacy contracts.

Effective January 1, 2022, we replaced the 30-Day Libor Rate with the CBM Term SOFR Rate for all new floating rate commercial loan commitments.

It is expected that currently outstanding commercial loans tied to the 30-Day Libor Rate will convert to an equivalent fallback SOFR Rate on or about June 30, 2023.

The FRBNY, that originally started publishing SOFR, states that it obtains information from DTCC Solutions LLC, an affiliate of DTCC.

FRBNY currently publishes SOFR daily on its website at https://apps.newyorkfed.org/markets/autorates/sofr.

FRBNY states on its publication page for SOFR that use of SOFR is subject to important disclaimers, limitations and indemnification obligations, including that FRBNY may alter the methods of calculations, publication schedule, rate revision practices or availability of SOFR at any time without notice.

The foregoing Internet website is an inactive textual reference only, meaning that the information contained on the website is not part of this filing or incorporated by reference herein.

Since the initial publication of SOFR, daily changes in the rate have, on occasion, been more volatile than daily changes in comparable benchmark or market interest rates, and SOFR over time may bear little or no relation to the historical actual or historical indicative data.

In addition, the return on and value of SOFR-linked instruments may fluctuate more than floating rate securities that are linked to less volatile interest rates.

Changes in SOFR could adversely affect the amount of interest that accrues on SOFR-linked instruments.

Because SOFR is published by the FRBNY based on data received from other sources, we have no control over its determination, calculation or publication.

There can be no assurance that SOFR will not be discontinued or fundamentally altered in a manner that is materially adverse to the interests of investors in SOFR-linked instruments.

If the manner in which SOFR is calculated is changed, that change may result in a change in the amount of interest that accrues on the SOFR-linked instruments.

In addition, the interest rate on SOFR-linked instruments may for any day not be adjusted for any modification or amendments to SOFR for that day that the FRBNY may publish if the interest rate for that day has already been determined prior to such determination.

There is no assurance that changes in SOFR could not have a material adverse effect on the yield on, value of, and market for SOFR-linked instruments.

Further, SOFR is a relatively new interest rate, and the FRBNY or any successor, as administrator of SOFR, may make methodological or other changes that could change the value of SOFR, including changes related to the methodology by which SOFR is calculated, eligibility criteria applicable to the transactions used to calculate SOFR or timing related to the publication of SOFR.

If the manner in which SOFR is calculated is changed, the change may result in a reduction of the amount of interest payable on loans we have made to customers.

The administrator of SOFR may withdraw, modify, suspend or discontinue the calculation or dissemination of SOFR in its sole discretion and without notice, and has no obligation to consider the interests of investors in calculating, withdrawing, modifying, amending, suspending or discontinuing SOFR.

Our accounting policies and methods are the basis for how we prepare our consolidated financial statements, and they require management to make estimates about matters that are inherently uncertain.

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Summary of Significant Accounting Policies”

beginning on page F-47 of this Annual Report.

beginning on page F-42 of this Annual Report.

We continually encounter technological change, and we may have fewer resources than our competitors to continue to invest in technological improvements.

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The timing and effect of Federal Reserve Board policy normalization remains uncertain.

In September 2014, the Federal Reserve Board announced principles it would follow to implement monetary policy normalization, that is, to raise the federal funds rate and other short-term interest rates to more historically normal levels and to reduce the Federal Reserve’s securities holdings, so as to promote its statutory mandate of maximum employment and price stability.

The Federal Open Market Committee (“FOMC”) took the initial step in that process by raising the federal funds rate by 25 basis points in December 2015, the first such action since December 2008.

Subsequently, the FOMC refined the normalization principles and announced greater detail about its planned approach.

In September 2017, the FOMC announced the start of a gradual reduction in the Federal Reserve’s securities holdings, commencing in October 2017.

In each of March, June, September and December 2018, the FOMC raised the federal funds rate by 25 basis points, and announced its intention to continue to raise the federal funds rate gradually over the next few years.

In January 2019, the FOMC announced its intention to continue to implement monetary policy in a regime in which an ample supply of reserves ensures that control of the federal funds and other short-term interest rates is exercised primarily through adjustment of its administered rates.

The FOMC stated that it was prepared to adjust the details of the reduction of its balance sheet in light of economic and financial developments, and would be prepared to use its full range of tools, including changing the size and composition of its balance sheet, if future economic conditions warranted a more accommodative monetary policy than could be achieved solely by reducing the federal funds rate.

In July 2019, the FOMC announced the cessation of the reduction in its securities portfolio and reduced the federal funds rate by 25 basis points.

In August 2019, the FOMC commenced reinvestment of principal payments received from agency debt and agency mortgage-backed securities in Treasury securities and agency mortgage-backed securities, as well as the rollover of maturing Treasury securities in its portfolio.

In September 2019, the FOMC again lowered the federal funds rate by 25 basis points.

In October 2019, the FOMC issued a reaffirmation of its January 2019 statement, and announced that in light of recent and expected increases in the Federal Reserve’s non-reserve liabilities and in order to maintain ample reserve balances over time at or above levels prevailing in early September 2019, the Federal Reserve would purchase Treasury bills at least into the second quarter of 2020.

The statement also announced that the Federal Reserve would conduct term and overnight repurchase agreement operations at least through January 2020 to ensure that the supply of reserves remained ample, even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures.

At its regular October 2019 meeting, the FOMC again lowered the federal funds rate by 25 basis points.

In light of the evolving risks to economic activity posed by the Coronavirus Pandemic, the FOMC took five separate actions in March, 2020.

In light of the evolving risks to economic activity posed by the Coronavirus Pandemic, the FOMC took five separate actions in March, 2020 impacting the federal funds rate.

Taken together, those actions reduced the federal funds target range to 0.00% to 0.25%, directed expanded purchases of U.S.

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The revised Statement has been reflected in subsequent actions by the FOMC.

At its meeting on January 27, 2021, the FOMC kept the target range for the federal funds rate at 0.00% to 0.25%, and stated that it expects to maintain this target range until labor market conditions have reached levels consistent with the FOMC’s assessment of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.

To foster smooth market functioning and accommodative monetary conditions, at the same time the FOMC directed continued monthly increases in its holdings of U.S.

Treasury securities of at least $80 billion, and of agency mortgage-backed securities of at least $40 billion.

There can be no assurance that the operations announced in January 2021 will continue, that they will be effective to accomplish their stated policy goals, or as to the actual impact of those operations and policies on the financial markets, the broader economy, or on our business, financial condition, results of operations, access to credit or the trading price of our common stock.

The effect of financial services legislation and regulations remains uncertain.

In response to the 2008 financial crisis, on July 21, 2010, President Obama signed the Dodd-Frank Act, the most comprehensive reform of the regulation of the financial services industry since the Great Depression of the 1930’s.

Among many other things, the Dodd-Frank Act provides for increased supervision of financial institutions by regulatory agencies, more stringent capital requirements for financial institutions, major changes to deposit insurance assessments by the FDIC, prohibitions on proprietary trading and sponsorship or investment in hedge funds and private equity funds by insured depository institutions, holding companies, and their affiliates, heightened regulation of hedging and derivatives activities, a greater focus on consumer protection issues, in part through the formation of a new Consumer Financial Protection Bureau (“CFPB”) having powers formerly split among different regulatory agencies, extensive changes to the regulation of residential mortgage lending, imposition of limits on interchange transaction and network fees for electronic debit transactions and repeal of the prohibition on payment of interest on demand deposits.

Many of the Dodd-Frank Act’s provisions have delayed effective dates, while other provisions require implementing regulations of various federal agencies, some of which have not yet been adopted in final form.

On February 3, 2017, however, President Trump signed Executive Order 13772, specifying new core principles for regulating the U.S.

financial system.

Among other things, the President directed the Secretary of the Treasury, in consultation with federal regulatory agencies, to review existing laws and regulations and report on the extent to which they were consistent with the core principles.

The Treasury Department has published several reports in response to the Executive Order.

In addition, beginning in February 2017, Congress passed, and the President signed, more than a dozen resolutions under the Congressional Review Act, repealing various federal regulations, including regulations adopted by the CFPB.

On May 24, 2018, EGRRCPA was enacted, amending numerous provisions of the Dodd-Frank Act.

While some of the changes affect only much larger institutions, a number of provisions relax or eliminate restrictions applicable to us and our bank.

Among these latter changes are:

simplified capital adequacy requirements;

exemption from the proprietary trading and other restrictions of the Volcker Rule;

less frequent periodic supervisory examinations;

reductions in certain periodic reporting requirements;

exclusion of specified amounts of reciprocal deposits, received by our bank from other insured depository institutions, from the “brokered deposit”

limitations of the Federal Deposit Insurance Act;

revised capital treatment for certain high volatility commercial real estate loans;

and relaxation of certain requirements applicable to residential mortgage loans made to our customers.

While some of those EGRRCPA changes became effective immediately upon enactment, many others required implementing regulations by the federal banking agencies before becoming effective.

At the dates indicated, the federal banking agencies adopted regulations in final form, applicable to us and our bank, implementing EGRRCPA provisions simplifying capital adequacy requirements (September 2019), granting exemption from the proprietary trading and other restrictions of the Volcker Rule (July 2019), reducing the frequency of periodic supervisory examinations (December 2018), reducing certain periodic reporting requirements (June 2019), excluding specified amounts of reciprocal deposits, received by our bank from other insured depository institutions, from the “brokered deposit”

limitations of the Federal Deposit Insurance Act (March 2019), providing clarifications and revised capital treatment for certain high volatility commercial real estate loans as well as clarifying the capital treatment of certain financings of one-to-four family residential properties and the development of land (November 2019), and relaxing appraisal requirements for certain real property mortgage transactions (September 2019).

In December 2019, the FDIC (which regulates our bank) and the Office of the Comptroller of the Currency (“OCC”) jointly proposed significant revisions to their respective versions of the existing uniform regulations (jointly adopted by the Federal Reserve, FDIC, and the OCC) that implement the Community Reinvestment Act.

On May 20, 2020, the OCC adopted a final revised rule, but the Chair of the FDIC announced that the FDIC was not prepared to do so at that time.

The Federal Reserve (which regulates our company) did not participate in the OCC/FDIC proposal.

Rather, the Federal Reserve published an advance notice of proposed rulemaking, requesting feedback on different approaches to modernizing its Community Reinvestment Act regulation.

The comment period has expired.

There can be no assurance whether or when any proposed changes in the existing regulations will be adopted by the FDIC or the Federal Reserve.

On January 20, 2021, President Biden signed a Memorandum on Modernizing Regulatory Review, and Executive Order No.

13992, revoking a number of Executive Orders concerning federal regulation.

Also, the President’s chief of staff issued a Memorandum to all Executive Departments and Agencies directing, subject to certain exceptions, a temporary freeze on proposal or issuance of new or pending regulations until a designee of President Biden reviews and approves the rule.

Thus, the effect of financial services legislation and regulations remains uncertain.

The implementation, amendment, or repeal of federal financial services laws or regulations may limit our business opportunities, impose additional costs on us, impact our revenues or the value of our assets, or otherwise adversely affect our business.

At the conclusion of its meeting on January 26, 2022, the FOMC issued the following statement:

Indicators of economic activity and employment have continued to strengthen.

The sectors most adversely affected by the pandemic have improved in recent months but are being affected by the recent sharp rise in COVID-19 cases.

Job gains have been solid in recent months, and the unemployment rate has declined substantially.

Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation.

Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S.

households and businesses.

The path of the economy continues to depend on the course of the virus.

Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation.

Risks to the economic outlook remain, including from new variants of the virus.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.

In support of these goals, the Committee decided to keep the target range for the federal funds rate at 0 to 0.25 percent.

With inflation above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate.

The Committee decided to continue to reduce the monthly pace of its net asset purchases, bringing them to an end in early March.

Beginning in February, the Committee will increase its holdings of Treasury securities by at least $20 billion per month and of agency mortgage-backed securities by at least $10 billion per month.

The Federal Reserve’s ongoing purchases and holdings of securities will continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook.

The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.

The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

We are subject to significant government regulation, and any regulatory changes may adversely affect us.

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Some of these laws may benefit us, others may increase our costs of doing business, or otherwise adversely affect us and create competitive advantages for others.

Regulations affecting banks and financial services companies undergo continuous change, which may be accelerated by the recent change in the federal administration, and we cannot predict the ultimate effect of these changes, which could have a material adverse effect on our profitability or financial condition.

Regulations affecting banks and financial services companies undergo continuous change, which may be accelerated by changes in the federal administration, and we cannot predict the ultimate effect of these changes, which could have a material adverse effect on our profitability or financial condition.

Federal economic and monetary policy may also affect our ability to attract deposits, make loans and achieve satisfactory interest spreads.

Minimum capital requirements have increased.

The provisions of the Dodd-Frank Act relating to capital to be maintained by financial institutions approach convergence with the standards (generally known as Basel III) adopted in December, 2010 by the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision.

Among other things, those standards contain a narrower definition of elements qualifying for inclusion as Tier 1 capital and higher minimum risk-based capital levels than those specified in previous U.S.

law and regulations.

In July, 2013, the U.S.

federal bank regulatory agencies adopted regulations to implement the provisions of the Dodd-Frank Act and Basel III for U.S.

financial institutions.

The new regulations became applicable to us and our bank effective January 1, 2015.

The new regulations implemented (i) revised definitions of regulatory capital elements, (ii) a new common equity Tier 1 (“CET 1”) minimum capital ratio requirement, (iii) an increase in the existing minimum Tier 1 capital ratio requirement, (iv) new limits on capital distributions and certain discretionary bonus payments if an institution does not hold a specified amount of CET 1 (called a capital conservation buffer) in addition to the amount required to meet its minimum risk-based capital requirements, (v) new risk-weightings for certain categories of assets, and (vi) other requirements applicable to banking organizations which have total consolidated assets or total consolidated on-balance sheet foreign exposure exceeding specified amounts (that are greatly in excess of those of us and our bank), which elect to use the advanced measurement approach for calculating risk-weighted assets, or which are subsidiaries of banking organizations that use the advanced measurement approach (“Advanced Approaches Entities”).

Among other things, the new regulations generally require banking organizations to recognize in regulatory capital most components of accumulated other comprehensive income (“AOCI”), including accumulated unrealized gains and losses on available for sale securities.

This requirement, which was not imposed under previous risk-based capital regulations, may be avoided by banking organizations, such as us and our bank, that are not Advanced Approaches Entities, by making a one-time, irrevocable election on the first quarterly regulatory report following the date on which the regulations become effective as to them.

We made the one-time, irrevocable election regarding the treatment of AOCI on March 31, 2015.

In addition, the new regulations (unlike the original proposal), permit companies such as us, which had total assets of less than $15 billion on December 31, 2009, and had issued trust preferred securities on or prior to May 19, 2010, to continue to include such securities in Tier 1 capital.

On January 1, 2015, for banking organizations such as us and our bank that are not Advanced Approaches Entities, the new regulations mandated a minimum ratio of CET 1 to standardized total risk-weighted assets (“RWA”) of 4.5%, an increased ratio of Tier 1 capital to RWA of 6.0% (compared to the prior requirement of 4.0%), a total capital ratio (that is, the sum of Tier 1 and Tier 2 capital to RWA) of 8.0%, and a minimum leverage ratio (that is, Tier 1 capital to adjusted average total consolidated assets) of 4.0%.

The calculation of these amounts is affected by the new definitions of certain capital elements.

The capital conservation buffer comprised solely of CET 1 was phased-in commencing January 1, 2016, beginning at 0.625% of RWA and rising to 2.5% of RWA on January 1, 2019.

Failure by a banking organization to maintain the aggregate required minimum capital ratios and capital conservation buffer will impair its ability to make certain distributions (including dividends and stock repurchases) and discretionary bonus payments to executive officers.

On May 24, 2018, EGRRCPA was enacted, amending numerous provisions of the Dodd-Frank Act.

Among other things, the new law simplified capital requirements for certain organizations (such as us and our bank) by directing the federal banking agencies to develop a Community Bank Leverage Ratio (“CBLR”).

The CBLR, to be set between 8% and 10% of tangible equity capital to average total consolidated assets, would apply to Qualified Community Banks.

The law defines Qualified Community Banks as those depository institutions and depository institution holding companies having total consolidated assets of less than $10 billion that meet other specified risk criteria, to be determined by regulations of the federal banking agencies based on factors prescribed in the statute.

A Qualified Community Bank satisfying the CBLR, by reason of the EGRRCPA provision, would be deemed to be in compliance with all applicable leverage and risk-based capital requirements and, in the case of a depository institution, be deemed “well-capitalized”

for purposes of the Federal Deposit Insurance Act.

In February 2019, the federal banking agencies published in the Federal Register a notice of proposed rule-making to implement this EGRRCPA capital adequacy provision.

Final rules were adopted by each of the federal banking agencies in November 2019, which became effective January 1, 2020.

The final rules represent an alternative to the capital adequacy rules that became applicable to us and our bank on January 1, 2015, and that are described above (the generally applicable rules).

The final rules based on the EGRRCPA provision establish a CBLR of 9%.

A “Qualifying Community Banking Organization”

as defined in the final rules (a “QCBO”), may opt into the rules.

To be a QCBO, a banking organization must satisfy the following criteria:

(i) not be an Advanced Approaches Entity;

(ii) have a leverage capital ratio greater than 9%;

(iii) total consolidated assets of less than $10 billion;

(iv) total off-balance sheet exposures (excluding certain derivatives) of 25% or less of total consolidated assets;

and (v) a sum of total trading assets and trading liabilities of 5% or less of total consolidated assets.

For this purpose, the leverage capital ratio of a banking organization is the ratio of its Tier 1 capital to its average total consolidated assets, minus amounts deducted from Tier 1 capital.

A banking organization meeting the QCBO criteria may elect to opt in to the CBLR framework (an electing banking organization).

An electing banking organization is deemed to have met the “well-capitalized”

ratio requirements of, and otherwise to be in compliance with, the generally applicable rules.

It will not be required to calculate and report risk-based capital ratios under the generally applicable rules.

In the case of an electing banking organization that is an insured bank, it will also be considered to have met the well-capitalized ratio requirements of the prompt corrective action provisions of the Federal Deposit Insurance Act.

We did not opt into the CBLR framework.

If an electing banking organization subsequently fails to satisfy any of the criteria of a QCBO, but continues to report a leverage capital ratio greater than 8%, it may continue to use the CBLR framework for a grace period of up to two quarters.

As long as the electing banking organization can return to compliance with all of the QCBO criteria within the two quarters, it will continue to be deemed to meet the “well-capitalized”

ratio requirements and be in compliance with the generally applicable rules.

A banking organization will be required to comply with the generally applicable rules, and file the relevant regulatory reports, if it:

(i) is unable to restore compliance with all of the QCBO criteria (including the greater than 9% leverage capital ratio) during the two-quarter grace period;

(ii) reports a leverage capital ratio of 8% or less;

or (iii) ceases to satisfy the QCBO criteria because of a merger transaction.

In response to a mandate in the CARES Act, adopted in response to the Coronavirus Pandemic, the federal banking agencies adopted interim rules temporarily reducing the required CBLR.

As adopted in final form, effective October 1, 2020, the required CBLR is 8% until December 31, 2020, 8.5% in 2021, and returns to 9% thereafter.

The final rule also provides a community banking organization that temporarily fails to meet the QCBO criteria will remain deemed well-capitalized during a two-quarter grace period if its leverage capital ratio remains greater than the following levels during the periods indicated:

before December 31, 2020, 7%;

during 2021, 7.5%;

and any time thereafter, 8%.

To alleviate impacts of the Coronavirus Pandemic, on December 2, 2020, the federal banking agencies adopted an interim final rule regarding regulatory thresholds based on asset size of banking organizations.

Under the interim final rule, banking organizations may use total assets as of December 31, 2019 in determining eligibility under various regulatory regimes.

Among the regulations covered by the interim final rule is the CBLR framework.

Under the interim final rule, otherwise applicable regulatory requirements regarding asset size determinations will once again apply as of January 1, 2022.

The increased minimum capital requirements may adversely affect our ability (and that of our bank) to pay cash dividends, reduce our profitability, or otherwise adversely affect our business, financial condition or results of operations.

In the event of a need for additional capital to meet these requirements, there can be no assurance of our ability to raise funding in the equity and capital markets.

Factors that we cannot control, such as the disruption of financial markets or negative views of the financial services industry generally, could impair our ability to raise qualifying equity capital.

In addition, our ability to raise qualifying equity capital could be impaired if investors develop a negative perception of our financial prospects.

If we were unable to raise qualifying equity capital, it might be necessary for us to sell assets in order to maintain required capital ratios.

The implementation, amendment or repeal of federal financial services laws or regulations may limit our business opportunities, impose additional costs on us, impact our revenues or the value of our assets, or otherwise adversely affect our business, financial condition or results of operations.

Minimum capital requirements may adversely affect our ability (and that of our bank) to pay cash dividends, reduce our profitability, or otherwise adversely affect our business, financial condition or results of operations.

We are subject to federal banking capital regulations.

These regulations, among other things, establish minimum requirements to qualify as a “well-capitalized”

If our bank were to fail to maintain its status of “well-capitalized”

under the applicable regulatory capital regulations, we may be subjected to a consent agreement requiring us to bring our bank back to a “well-capitalized”

Such an agreement may impose restrictions on our activities.

If we were to fail to enter into such an agreement, or fail to comply with the terms of such agreement, the Federal Reserve may impose more severe restrictions on our activities, including requiring us to cease and desist activities permitted under the Bank Holding Company Act of 1956.

The current regulatory environment is fluid, with requirements frequently being introduced or amended.

It is possible that increases in regulatory capital requirements and changes in how regulatory capital is calculated could cause us to increase our capital levels by issuing additional securities that qualify as regulatory capital, thus potentially diluting our existing shareholders, or by taking other actions, such as selling assets, in order to maintain required capital ratios.

We may be unable to sell some of our assets, or we may have to sell assets at a discount from market value, either of which could adversely affect our results of operations, cash flow and financial condition.

Risks Related to Our Stock

Future sales of our common stock or other securities may dilute the value of our common stock.

Issuance of debt securities or sales of our common stock or other securities may dilute the value of our common stock.

We have issued both trust preferred securities and subordinated notes.

In the event of our liquidation, the holders of our debt securities would receive a distribution of our available assets before distributions are made to holders of our common stock.

In many situations, our Board of Directors has the authority, without any vote of our shareholders, to issue shares of our authorized but unissued preferred or common stock, including shares authorized and unissued under our equity incentive plans.

In the future, we may issue additional securities, through public or private offerings, in order to raise additional capital.

Any such issuance would dilute the percentage of ownership interest of existing shareholders and may dilute the per share book value of the common stock.

In the future, we may issue additional debt or equity securities, through public or private offerings, in order to raise additional capital.

Any such issuance of equity securities would dilute the percentage of ownership interest of existing shareholders and may dilute the per share book value of the common stock.

In addition, option holders under our stock-based incentive plans may exercise their options at a time when we would otherwise be able to obtain additional equity capital on more favorable terms.

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 or want to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business needs, particularly if our asset quality or earnings were to deteriorate significantly.

We may need or want to raise additional capital in the future by issuing debt or equity securities to provide us with sufficient capital resources and liquidity to meet our commitments and business needs, particularly if our asset quality or earnings were to deteriorate significantly.

Our ability to raise additional capital will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial performance.

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There can be no assurance that capital will be available 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 equity or debt purchasers, or counterparties participating in the capital markets, may adversely affect our capital costs and our ability to raise capital and, potentially, our liquidity.

Any occurrence that may limit our access to the capital markets, such as a decrease in our credit rating or a decline in the confidence of equity or debt purchasers, or counterparties participating in the capital markets, may adversely affect our capital costs and our ability to raise capital and, potentially, our liquidity.

Also, if we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would have to compete with those institutions for investors.

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What changed 10-K

Item 1A. Risk Factors