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If these events occur, we may experience a decrease in the value of our loan and lease portfolio and our revenue, and may incur additional operational expenses, each of which could have a material adverse effect on our financial condition and results of operations.
−Removed: We may be adversely affected by the world-wide coronavirus (COVID-19) pandemic — The coronavirus (COVID-19) outbreak that began during 2020 has continued to have an adverse impact on certain of our customers directly or indirectly.
−Removed: Entire industries within our loan and lease portfolio such as buses, auto rental and hotels were immediately impacted due to reduced demand related to quarantines and travel re strictions.
−Removed: Other industries within our loan and lease portfolio or the communities we serve are likely to experience similar prolonged disruptions and economic hardships as the current coronavirus pandemic persists.
−Removed: In addition, such events affect the stability of our deposit base, lead to mass layoffs and furloughs which could impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, result in lost revenue or cause us to incur additional expenses.
−Removed: Additionally, the Federal Reserve reduced interest rates substantially during 2020 in an attempt to boost consumer spending due to the coronavirus pandemic which could have a sustained negative impact on our results of operations.
−Removed: Pandemic related disruptions in labor markets and upended global supply chains have led to the emergence of high inflation which may not subside until societies feel assured future outbreaks can be reasonably contained.
−Removed: Even with operational precautions we have implemented such as mask utilization, social distancing and disinfection of surfaces, the continued spread or prolonged impact of the coronavirus could negatively impact the availability of key personnel or significant numbers of our staff, who are necessary to conduct our business.
−Removed: Such a continued spread or outbreak could also impact the business and operations of third party service providers who perform critical services for our business.
−Removed: Similarly, the adverse impacts already seen by our commercial and retail customers from the pandemic, may be exacerbated or more prolonged than we currently anticipate.
−Removed: If new coronavirus variants continue to form and spread and containment and mitigation responses are unable to curtail the global impact of the coronavirus pandemic for a prolonged period of time, we could experience a material adverse effect on our business, financial condition, and results of operations.
Fluctuations in interest rates could reduce our profitability and affect the value of our assets — Like other financial institutions, we are subject to interest rate risk.
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The agencies also stated that the act of entering into new contracts that use USD LIBOR as a reference rate after December 31, 2021 would create safety and soundness risks.
−Removed: The exact impact this ongoing transition will have on financial markets and their individual participants is not currently known.
−Removed: Various substitute benchmarks are developing in the marketplace but at this time it is not feasible to predict exactly which of these will emerge as enduring substitutes for LIBOR.
+Added: The transition is progressing, but the exact impact it will have on financial markets and their individual participants is not currently known.
+Added: Several substitute benchmarks are developing in the marketplace, with various permutations of the Secured Overnight Financing Rate (SOFR) emerging as primary market alternatives, but at this time it is not feasible to predict exactly which benchmarks will emerge as enduring substitutes for LIBOR.
We convened a transition committee in 2019 to monitor market developments and implement a transition plan.
−Removed: Existing loans impacted by the transition are actively tracked, appropriate legal fallback language has been created and incorporated into documentation where appropriate and we are an adhering party to the ISDA IBOR Fallbacks Protocol.
−Removed: In 2021, we began to utilize other interest rate benchmarks to remain in alignment with the regulatory prohibitions of originating LIBOR-denominated loans in 2022, and are continuing our transition efforts.
−Removed: As of December 31, 2021, we have approximately $1.1 billion of loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR.
+Added: Existing loans impacted by the transition have been actively tracked, appropriate legal fallback language has been created and incorporated into documentation where appropriate and we are an adhering party to the ISDA IBOR Fallbacks Protocol.
+Added: In 2021, we began to utilize other interest rate benchmarks and took necessary steps to comply with the regulatory prohibitions of originating LIBOR-denominated loans starting in 2022.
+Added: We continue with our transition efforts with the expectation of completing all necessary steps prior to the June 30, 2023 deadline.
+Added: As of December 31, 2022, we have approximately $719 million of loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR that are scheduled to mature after June 30, 2023.
The impact of the transition away from LIBOR may adversely affect revenues, expenses and the value of those financial instruments.
−Removed: Such transition could result in litigation with counterparties impacted by the transition as well as increased regulatory scrutiny and other adverse consequences.
+Added: Federal legislation governing the transition was adopted in 2022, although the transition could result in litigation with counterparties impacted by the transition as well as increased regulatory scrutiny and other adverse consequences.
Any replacement benchmark ultimately adopted as a substitute for LIBOR may behave differently than LIBOR in a manner detrimental to our financial performance.
Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operation.
+Added: Continued elevated levels of inflation could adversely impact our business and results of operations — The U.S.
+Added: has recently experienced elevated levels of inflation, with the consumer price index climbing approximately 7% in 2022.
+Added: Continued elevated levels of inflation could have complex effects on our business and results of operations, some of which could be materially adverse.
+Added: The Federal Reserve has increased interest rates dramatically during 2022 in an effort to halt and reverse continued elevated inflation, which has negatively impacted the value of our available-for-sale investment securities portfolio.
+Added: In addition, inflation-related increases in our interest expense is due to increased rates paid on deposits.
+Added: Elevated levels of inflation has also caused increased volatility and uncertainty in the business environment, which could adversely affect loan demand and our clients’ ability to repay indebtedness.
+Added: Governmental responses to the current inflationary environment could adversely affect our business, such as severe changes to monetary and fiscal policy, or the imposition or threatened imposition of price controls.
+Added: The duration and severity of the current inflationary period and the resulting impact on us cannot be predicted with precision.
Liquidity Risks
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Nonetheless, negative publicity may arise regarding our business, employees, or customers, with or without merit, and could result in the loss of customers, investors, or employees, costly litigation, a decline in revenues, and increased government regulation.
−Removed: In addition, increased focus on environmental, social and governance (“ESG”) issues could damage our reputation or prospects.
−Removed: Customers, prospective customers, investors or third parties assigning ESG ratings may believe that our practices, including our lending practices, are not sufficiently robust from an ESG perspective.
+Added: In addition, focus among investors, customers, and regulators on environmental, social and governance (“ESG”) issues has continued to increase in recent years.
+Added: Customers, prospective customers, investors or third parties evaluate us based on their assessment of our achievement of ESG objectives and may assign their ESG ratings to us.
+Added: Such persons may believe that our practices, including our lending practices, are not sufficiently robust from an ESG perspective and may publish their views.
+Added: Adverse publicity regarding such assessments of our ESG performance could damage our reputation or prospects.
Unresolved Staff Comments.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.