What changed in this filing

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Item 1A. Risk Factors

2022-02-24 compared with 2021-02-25 · 73 added, 84 removed, 271 unchanged (37% of the section changed)

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The risks and uncertainties described below and in our other filings are not the only ones facing us.

Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business, particularly in light of the fast-changing nature of the COVID-19 pandemic, containment measures and the related

impacts to economic and operating conditions.

Additional risks

and uncertainties not presently known to us or that we currently deem immaterial may also affect our business, particularly in light of the fast-changing nature of the COVID-19 pandemic, containment measures and the related impacts to economic and operating conditions.

If any of these known or unknown risks or uncertainties actually occurs, our business, financial condition and results of operations could be impaired.

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RISKS RELATED TO THE COVID-19 PANDEMIC

The COVID-19 pandemic, and the measures taken to control its spread, will continue to adversely impact our employees, customers, business operations and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted.

The COVID-19 pandemic has impacted and is likely to continue to impact the national economy and the regional and local markets in which we operate, lower equity market valuations, create significant volatility and disruption in capital and debt markets, and increase unemployment levels.

Our business operations may be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic.

The COVID-19 pandemic, and the measures taken to control its spread, may continue to adversely impact our employees, customers, business operations and financial results.

The COVID-19 pandemic has impacted and is likely to continue to impact the national economy and the regional and local markets in which we operate.

Our business operations may be disrupted if significant portions of our workforce are unable to work effectively because of illness.

We are subject to heightened cybersecurity, information security and operational risks as a result of work-from-home arrangements that we and our third party service providers have put in place for employees.

Federal Reserve actions to combat the economic contraction caused by the COVID-19 pandemic, including the reduction of the target federal funds rate and quantitative easing programs, could, if prolonged, adversely affect our net interest income and margins, and our profitability.

The continued closures of many businesses and the institution of pandemic-related orders and directives in the states and communities we serve have reduced business activity and financial transactions.

Government policies and directives relating to the pandemic response are subject to change as the effects and spread of the COVID-19 pandemic continue to evolve.

It is unclear whether any COVID-19 pandemic-related businesses losses that we or our customers may suffer will be recovered by existing insurance policies.

Changes in customer behavior due to worsening business and economic conditions or legislative or regulatory initiatives may impact the demand for our products and services, which could adversely affect our revenue.

Additionally, certain government directives and social distancing protocols may hinder our ability to conduct timely appraisals of collateral securing loans and may cause disruption in the loan origination process and add uncertainty about the adequacy of our allowance for credit losses (“ACL”).

The measures we have taken to aid our customers, including loan payment deferments, may be insufficient to help our customers who have been negatively impacted by the economic fallout from the COVID-19 pandemic.

Loans that are currently in deferral status may become nonperforming loans.

More generally, because of adverse economic and market conditions, our borrowers may be unable to repay their loans.

A borrower’s default may result in lost principal and interest income and increased operating expenses as a result of the allocation of management time and external resources to the collection and workout of the loan.

If there is an increase in borrower defaults, we may be required to increase our provision for credit losses.

Further deterioration in economic and financial market conditions may cause us to recognize impairments on investment securities we hold, goodwill, intangible assets and right-of-use-assets.

The increase in financial market volatility and a corresponding increase in trading frequency also means that our Wealth Management Services business is subject to an increased risk of trading errors, and the risk that any trading errors are of an increased magnitude.

While the most notable adverse impact to the Corporation’s results of operations in 2020 was a higher provision for credit losses, the extent to which the COVID-19 pandemic will continue to impact our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic, as well as further actions we may take as may be required by government authorities or that we determine is in the best interests of our employees and customers.

Government policies and directives relating to the pandemic response are subject to change.

Changes in customer behavior due to work-from-home arrangements and other pandemic-related responses may impact the demand for our products and services, which could adversely affect our revenue.

The extent to which the COVID-19 pandemic will continue to impact our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic, as well as further actions we may take as may be required by government authorities or that we determine is in the best interests of our employees and customers.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the pandemic.

All of these risks and uncertainties can be expected to persist at least until the pandemic is demonstrably and sustainably contained, authorities cease curbing household and business activity, and consumer and business confidence recover.

Our participation in the SBA’s PPP may expose us to reputational harm, increased litigation risk, as well as the risk that the SBA may not fund some or all of the guarantees associated with PPP loans.

As of December 31, 2020, there were 1,706 PPP loans with a carrying value of $199.8 million included in our commercial and industrial loan portfolio.

Lenders participating in the PPP have faced increased public scrutiny about their loan application process and procedures, and the nature and type of the borrowers receiving PPP loans.

We depend on our reputation as a trusted and responsible financial services company to compete effectively in the

communities that we serve, and any negative public or customer response to, or any litigation or claims that might arise out of, our participation in the PPP and any other legislative or regulatory initiatives and programs that may be enacted in response to the COVID-19 pandemic, could adversely impact our business.

Other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP, and we may be subject to the same or similar litigation, in addition to litigation in connection with our processing of PPP loan forgiveness applications.

All of these risks and uncertainties can be expected to persist at least until the pandemic is demonstrably and sustainably contained, authorities cease curbing business activity, and consumer and business confidence recover.

Our participation in the SBA’s PPP may expose us to reputational harm, as well as the risk that the SBA may not fund some or all of the guarantees associated with PPP loans.

As of December 31, 2021, there were 347 PPP loans with a carrying value (outstanding principal balance net of unamortized deferred loan origination fees and costs) of $38.0 million included in our commercial and industrial loan portfolio.

As of February 15, 2022, 172 PPP loans with a carrying value of $21.9 million remain in our loan portfolio.

We depend on our reputation as a trusted and responsible financial services company to compete effectively in the communities that we serve, and any negative public or customer response to, or any litigation or claims that might arise out of, our participation in the PPP and any other legislative or regulatory initiatives and programs that may be enacted in response to the COVID-19 pandemic, could adversely impact our business.

In addition, if the SBA determines that there is a deficiency in the manner in which a PPP loan was originated, funded, or serviced by us, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency or the processing fee from us.

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Changes in the business and economic conditions, particularly those of southern New England, could adversely affect our financial condition and results of operations.

A worsening of economic conditions, increased levels of unemployment, downside economic shocks, or recessionary economic conditions could lead to erosion of customer confidence, a reduction in general business activity and increased market volatility.

The resulting economic pressure on consumers and businesses and lack of confidence in the financial markets could adversely affect our business, financial condition, results of operations and stock price.

Changes in business and economic conditions, increased levels of unemployment, downside economic shocks, or recessionary economic conditions could lead to erosion of customer confidence, a reduction in general business activity and increased market volatility.

The resulting economic pressure on consumers and businesses could adversely affect our business, financial condition, results of operations and stock price.

We primarily serve individuals and businesses located in southern New England, and a substantial portion of our loans are secured by properties in southern New England.

The real estate collateral securing the Bank’s loans provides an alternate source of repayment in the event of default by the borrower.

A weakening or deterioration in the economy of southern New England, including as a result of, among other things, real or threatened acts of war, natural disasters and adverse weather, could result in the following consequences:

A weakening or deterioration in the economy of

southern New England, including as a result of, among other things, real or threatened acts of war, natural disasters and adverse weather, could result in the following consequences:

• loan delinquencies may increase;

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These rates are highly sensitive to many factors beyond our control, including general economic conditions, both domestic and foreign, and the monetary and fiscal policies of various governmental and regulatory authorities.

At its January 2022 Federal Open Market Committee Meeting, the Federal Reserve indicated it expects to raise benchmark interest rates in 2022, partially in response to increasing inflation.

When interest rates increase, loan prepayments generally decline and depositors shift funds from accounts that have a comparatively lower cost, such as regular savings accounts, to accounts with a higher cost, such as certificates of deposit.

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Fixed-rate investment securities, mortgage-backed securities and mortgage loans typically decline in value as interest rates rise.

The Bank has adopted asset and liability management policies to mitigate the potential adverse effects of changes in interest rates on net interest income, primarily by altering the mix and maturity of loans, investments, funding sources,

and derivatives.

However, even with these policies in place, a change in interest rates can impact our results of operations or financial condition.

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We may experience losses and expenses if security interests granted for loans are not enforceable.

When Washington Trust makes loans it sometimes obtains liens, such as real estate mortgages or other asset pledges, to provide Washington Trust with a security interest in collateral.

If there is a loan default, Washington Trust may seek to foreclose upon collateral and enforce the security interests to obtain repayment and eliminate or mitigate the Corporation's loss.

Drafting errors, recording errors, other defects or imperfections in the security interests granted to Washington Trust and/or changes in law may render liens granted to the Washington Trust unenforceable.

The Corporation may incur losses or expenses if security interests granted to Washington Trust are not enforceable.

When we make loans we sometimes obtains liens, such as real estate mortgages or other asset pledges, to provide us with a security interest in collateral.

If there is a loan default, we may seek to foreclose upon collateral and enforce the security interests to obtain repayment and eliminate or mitigate our loss.

Drafting errors, recording errors, other defects or imperfections in the security interests granted to us and/or changes in law may render liens granted to the us unenforceable.

We may incur losses or expenses if security interests granted to us are not enforceable.

Environmental liability associated with our lending activities could result in losses.

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These events could have an adverse effect on our financial condition and results of operations.

We may be required to repurchase mortgage loans or indemnify buyers against losses in some circumstances, which could adversely affect our results of operations and financial condition.

When mortgage loans are sold, we are required to make customary representations and warranties to purchasers, guarantors and insurers, including government-sponsored entities, about the mortgage loans and the manner in which they were originated.

Whole loan sale agreements require us to repurchase or substitute mortgage loans, or indemnify buyers against losses, in the event we breach these representations or warranties.

In addition, we may be required to repurchase mortgage loans as a result of early payment default of the borrower on a mortgage loan.

If repurchase and indemnity demands increase and such demands are valid claims and are in excess of our provision for potential losses, our results of operations and financial condition may be adversely affected.

Our allowance for credit losses on loans may not be adequate to cover actual loan losses, and an increase in the allowance for credit losses on loans will adversely affect our earnings.

We maintain an ACL on loans that is based on relevant internal and external information related to past events, current economic conditions and reasonable supportable forecasts.

We maintain an Allowance for Credit Losses (“ACL”) on loans that is based on relevant internal and external information related to past events, current economic conditions and reasonable supportable forecasts.

Historical credit loss experience provides the basis for the estimation of expected credit losses.

The Corporation makes various assumptions and judgments about the quality and collectability of the loan portfolio, the creditworthiness of borrowers, the value of the underlying collateral, the enforceability of its loan documents, current economic conditions and reasonable and supportable forecasts.

If the assumptions underlying the determination of its ACL prove to be incorrect, the ACL may not be sufficient to cover actual loan losses and an increase to the ACL may be necessary to allow for different assumptions or adverse developments.

We make various assumptions and judgments about the quality and collectability of the loan portfolio, the creditworthiness of borrowers, the value of the underlying collateral, the enforceability of the loan documents, current economic conditions and reasonable and supportable forecasts.

If the assumptions underlying the determination of the ACL prove to be incorrect, the ACL may not be sufficient to cover actual loan losses and an increase to the ACL may be necessary to allow for different assumptions or adverse developments.

In addition, a problem with one or more loans could require a significant increase to the ACL.

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Any increases in our ACL will result in a decrease in our net income and, possibly, our capital, and could have an adverse effect on our financial condition and results of operations.

In 2020, significant deterioration in the economic forecast due to the COVID-19 pandemic was estimated in the ACL, however, continued uncertainty regarding the severity and duration of the pandemic and related economic effects will continue to affect the ACL.

Deteriorating conditions or assumptions could lead to further increases in the ACL.

We are subject to liquidity risk, which could negatively affect our funding levels.

We must maintain sufficient funds to respond to the needs of depositors and borrowers.

To manage liquidity, we draw upon a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments.

Market conditions or other events could negatively affect our access to or cost of funding, affecting our ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, or fund asset growth and new business initiatives at a reasonable cost, in a timely manner and without adverse consequences.

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We compete with banks and other financial institutions for deposits.

If, as a result of general economic conditions, market interest rates, competitive pressures, or otherwise, the amount of deposits at the Bank decreases relative to its overall banking operations, the Bank may have to rely more heavily on higher cost borrowings as a source of funds in the future or otherwise reduce its loan growth or pursue loan sales.

If, as a result of general economic conditions, market interest rates, competitive pressures, or otherwise, the amount of deposits at the Bank decreases relative to its overall banking operations, the Bank may have to rely more heavily on higher cost borrowings as a source of funds, such as the FHLB, in the future or otherwise reduce its loan growth or pursue loan sales.

Higher funding costs reduce our net interest margin, net interest income and net income.

In addition, significant components of our liquidity needs are met through our access to funding pursuant to our membership in the FHLB.

A significant component of our liquidity needs are met through our access to funding pursuant to our membership in the FHLB.

The FHLB is a cooperative that provides services to its member banking institutions.

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We seek to limit credit losses in our securities portfolios by generally purchasing only highly-rated securities.

The valuation and liquidity of our securities could be adversely impacted by reduced market liquidity, increased normal bid-asked spreads and increased uncertainty of market

participants, which could reduce the market value of our securities, even those with no apparent credit exposure.

The valuation and liquidity of our securities could be adversely impacted by reduced market liquidity, increased normal bid-asked spreads and increased uncertainty of market participants, which could reduce the market value of our securities, even those with no apparent credit exposure.

The valuation of our securities requires judgment and as market conditions change security values may also change.

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We cannot predict if, when or how any changes to the credit ratings or perceived creditworthiness of these organizations will affect economic conditions.

Such ratings actions could result in a significant adverse impact on us.

actions could result in a significant adverse impact on us.

Among other things, a downgrade of the sovereign credit ratings of the U.S.

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ICE Benchmark Administration (“IBA”), the authorized and regulated administrator of LIBOR recently announced it would consult on its plans for the discontinuation of LIBOR.

IBA intends to end publication of some LIBOR tenors on December 31, 2021 and the remaining LIBOR tenors in June 2023.

Financial services regulators recently issued guidance on the ongoing use of LIBOR, encouraging banks to transition away from LIBOR as soon as practicable and to not enter into new transactions referencing LIBOR after December 31, 2021.

Financial services regulators and industry groups have collaborated to develop alternate reference rate indices or reference rates.

IBA intends to end publication of remaining LIBOR tenors in June 2023.

Financial services regulators issued guidance on the ongoing use of LIBOR, encouraging banks to transition away from LIBOR as soon as practicable and to not enter into new transactions referencing LIBOR after December 31, 2021.

Financial services regulators and industry groups have collaborated to develop alternate reference rate indices or reference rates, such as the Secured Overnight Financing Rate (“SOFR”).

The transition to a new reference rate requires changes to contracts, risk and pricing models, valuation tools, systems, product design and hedging strategies.

The Corporation has established a cross-functional project team to address the LIBOR transition.

As of December 31, 2021 , the Corporation is generally no longer entering into new transactions referencing LIBOR.

We have approximately 330 financial instruments that reference LIBOR (predominantly commercial loans) with on-balance sheet amounts of $1.6 billion and 300 derivative instruments (loan related derivatives and cash flow hedging instruments) that reference LIBOR with total notional amounts of $2.4 billion as of December 31, 2021.

Late in the fourth quarter of 2021, the Corporation began processing modifications on loans that reference LIBOR to transition them to a new reference rate, primarily SOFR.

Given the complexity of the transition, as well as the different risk characteristics between LIBOR and the replacement reference rate, the Corporation continues to evaluate the impact the transition, which may, ultimately, adversely affect the Corporation’s business, financial condition, or results of operations.

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Revenues from wealth management services depend in large part on the level of AUA, which are primarily marketable securities.

Market volatility that results in clients liquidating investments, as well as lower asset values, can reduce the level of assets under management and administration and decrease the Corporation's wealth management revenues, which could materially adversely affect the Corporation's results of operations.

We may be required to repurchase mortgage loans or indemnify buyers against losses in some circumstances, which could adversely affect our results of operations and financial condition.

Whole loan sale agreements require us to repurchase or substitute mortgage loans, or indemnify buyers against losses, in the event we breach these representations or warranties.

In addition, we may be required to repurchase mortgage loans as a result of early payment default of the borrower on a mortgage loan.

Market volatility that results in clients liquidating investments, as well as lower asset values, can reduce the

level of assets under management and administration and decrease the Corporation's wealth management revenues, which could materially adversely affect the Corporation's results of operations.

Our wealth management business is highly regulated, and the regulators have the ability to limit or restrict our activities and impose fines or suspensions on the conduct of our business.

We offer wealth management services through the Bank and Weston Financial.

Weston Financial is a registered investment adviser under the Investment Advisers Act.

We offer wealth management services through the Bank and WTA.

WTA is a registered investment adviser under the Investment Advisers Act.

The Investment Advisers Act imposes numerous obligations on registered investment advisers, including fiduciary, record keeping, operational and disclosure obligations.

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Accordingly, we may be required to expend additional resources to enhance our protective measures or to investigate and remediate any information security vulnerabilities or exposures.

Any breach of our system security could result in disruption of our operations, unauthorized access to confidential customer information, significant regulatory costs, litigation exposure and other possible damages, loss or liability.

Such costs or losses could exceed the amount of available insurance coverage, if any, and would adversely affect our earnings.

Also, any failure to prevent a security breach or to quickly and

effectively deal with such a breach could negatively impact customer confidence, damaging our reputation and undermining our ability to attract and keep customers.

A breach could negatively impact customer confidence, damaging our reputation and undermining our ability to attract and keep customers.

We rely on other companies to provide key components of our business infrastructure.

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Such sanctions could include fines and suspension of trading in our stock, among others.

In addition, future system enhancements could have higher than expected costs and/or result in operating inefficiencies, which could increase the costs associated with the implementation as well as ongoing operations.

In addition, future system

enhancements could have higher than expected costs and/or result in operating inefficiencies, which could increase the costs associated with the implementation as well as ongoing operations.

Failure to properly utilize system enhancements that are implemented in the future could result in impairment charges that adversely impact our financial condition and results of operations and could result in significant costs to remediate or replace the defective components.

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The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services.

The widespread adoption of new technologies, including internet services, cryptocurrencies and payment systems, could require substantial expenditures to modify or adapt our existing products and services as we grow and develop our internet banking and mobile banking channel strategies in addition to remote connectivity solutions.

We might not be successful in developing or introducing new products and services, integrating new products or services into our existing offerings, responding or adapting to changes in consumer behavior, preferences, spending, investing and/or saving habits, achieving market acceptance of our products and services, reducing costs in response to pressures to deliver products and services at lower prices or sufficiently developing and maintaining loyal customers.

The widespread adoption of new technologies, including cryptocurrencies and payment systems, could require substantial expenditures to modify or adapt our existing products and services.

The introduction of new or modified products or services can entail significant time and resources.

We might not be successful in developing or introducing new or modified products and services, integrating new products or services into our existing offerings, responding or adapting to changes in consumer behavior, preferences, spending, investing and/or saving habits, achieving market acceptance of our products and services, reducing costs in response to pressures to deliver products and services at lower prices or sufficiently developing and maintaining loyal customers.

Products and services relying on internet and mobile technologies may expose us to fraud and cybersecurity risks.

Failure to successfully manage these risks in the development and implementation of new or modified products or services could have an adverse effect on our business and reputation.

We may incur significant losses as a result of ineffective risk management processes and strategies.

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Damage to our reputation could significantly harm our business, including our competitive position and business prospects.

We are dependent on our reputation within our market area, as a trusted and responsible financial services company, for all aspects of our business with customers, employees, vendors, third-party service providers, and others, with

whom we conduct business or potential future businesses.

Our ability to attract and retain customers and employees could be adversely affected if our reputation is damaged.

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We may not be able to compete effectively in our increasingly competitive industry.

We compete with financial and non-financial services firms, including traditional banks, online banks, financial technology companies, and investment management and wealth advisory firms, including commercial banks and trust companies, investment advisory firms, mutual fund companies, stock brokerage firms.

companies, investment advisory firms, mutual fund companies, stock brokerage firms.

These companies compete on the basis of, among other factors, size, location, quality and type of products and services offered, price, technology, brand recognition and reputation.

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A significant natural disaster, such as a hurricane, blizzard, flood, fire or earthquake, could have a material adverse impact on our ability to conduct business, and our insurance coverage may be insufficient to compensate for losses that may occur.

Acts of terrorism, war, civil unrest, or pandemics could cause disruptions to our business or the economy as a whole.

Acts of terrorism, war, civil unrest, or future pandemics could cause disruptions to our business or the economy as a whole.

While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition.

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Additionally, significant changes to accounting standards may require costly technology changes, additional training and personnel, and other expense that will negatively impact our results of operations.

For example, in June 2016, the FASB issued Accounting Standards Update No.

2016-13, “Financial Instruments - Credit Losses” ("ASU 2016-13") that, effective January 1, 2020, substantially changed the accounting for credit losses on loans and other financial assets held by banks, financial institutions, and other organizations.

The accounting standard removed the existing “probable” threshold in GAAP for recognizing credit losses and instead required companies to measure estimated lifetime credit losses.

Companies must also consider all relevant information when estimating expected credit losses, including details about past events, current conditions, and reasonable and supportable forecasts.

See Note 2 to the Consolidated Financial Statements for additional information on the adoption of ASU 2016-13.

The ongoing impact to earnings could be more volatile and could adversely impact our results of operations and lending activity.

Changes in tax laws and regulations and differences in interpretation of tax laws and regulations may adversely impact our financial statements.

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The Corporation assesses the deferred tax assets periodically to determine the likelihood of the Corporation’s ability to realize the benefits.

Management judgment is

required in determining the appropriate recognition and valuation of deferred tax assets and liabilities, including projections of future taxable income, as well as the character of that income.

Management judgment is required in determining the appropriate recognition and valuation of deferred tax assets and liabilities, including projections of future taxable income, as well as the character of that income.

A change in statutory tax rates may result in a decrease or increase to the Corporation’s deferred tax assets.

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We are required by regulatory authorities to maintain adequate levels of capital to support our operations.

We may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business needs.

We may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our

commitments and business needs.

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

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The FDIC and the banking divisions or departments of states in which we are licensed to do business have the power to issue consent orders to prevent or remedy unsafe or unsound practices or violations of law by banks subject to their regulation, and the Federal Reserve possesses similar powers with respect to bank holding companies.

In addition, Weston Financial, a registered investment advisor subsidiary, is subject to regulation under federal and state securities laws and fiduciary laws.

In addition, WTA, a registered investment advisor subsidiary, is subject to regulation under federal and state securities laws and fiduciary laws.

These and other restrictions limit the manner in which we may conduct business and obtain financing.

Federal regulations establish minimum capital requirements for insured depository institutions, including minimum risk-based capital and leverage ratios, and define “capital” for calculating these ratios.

The minimum capital requirements are:

(i) a common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6%; (iii) a total capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%.

The regulations also establish a “capital conservation buffer” of 2.5%.

An institution will be subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if its capital level falls below the capital conservation buffer amount.

The application of these capital requirements could, among other things, require us to maintain higher capital resulting in lower returns on equity, and we may be required to obtain additional capital to comply or result in regulatory actions if we are unable to comply with such requirements.

The laws, rules, regulations, and supervisory guidance and policies applicable to us are subject to regular modification and change.

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The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose community investment and nondiscriminatory lending requirements on financial institutions.

The Consumer Financial Protection Bureau, the Department of Justice and other federal agencies are responsible for enforcing these laws and regulations.

The Consumer Financial Protection Bureau, the Department of Justice and other federal agencies are

responsible for enforcing these laws and regulations.

A successful regulatory challenge to an institution’s performance under the Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act or other fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions, restrictions on expansion and restrictions on entering new business lines.

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We face significant legal risks, both from regulatory investigations and proceedings, and from private actions brought against us.

As a participant in the financial services industry, many aspects of our business involve substantial risk of legal liability.

From time to time we are named as a defendant or are otherwise involved in various legal proceedings, including class actions and other litigation or disputes with third parties.

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Actions currently pending against us may result in judgments, settlements, fines, penalties or other results adverse to us, which could materially adversely affect our business, financial condition or results of operations, or cause serious reputational harm to us.

As a participant in the financial services industry, it is likely that we will continue to experience litigation related to our businesses and operations.

We are subject to capital and liquidity standards that require banks and bank holding companies to maintain more and higher quality capital and greater liquidity than has historically been the case.

We became subject to new capital requirements in 2015.

These new standards, which are now fully phased-in, force bank holding companies and their bank subsidiaries to maintain substantially higher levels of capital as a percentage of their assets, with a greater emphasis on common equity as opposed to other components of capital.

The need to maintain more and higher quality capital, as well as greater liquidity, and generally increased regulatory scrutiny with respect to capital levels, may at some point limit our business activities, including lending, and our ability to expand.

It could also result in our being required to take steps to increase our regulatory capital and may dilute shareholder value or limit our ability to pay dividends or otherwise return capital to our investors through stock repurchases.

Unresolved Staff Comments.

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

What changed 10-K

Item 1A. Risk Factors