CASH 2018 Annual Report

57 We operate in a highly regulated environment, and changes in laws and regulations to which we are subject may adversely affect our results of operations. The Company and the Bank operate in a highly regulated environment and we are subject to extensive regulation, supervision, and examination by the OCC and the Federal Reserve. In addition, the Bank is subject to regulation by the FDIC and, to a lesser degree, the Bureau. See Part I, Item 1 “Business - Regulation” herein. Applicable laws and regulations may change, and the enforcement of existing laws and regulations may vary when actions are evaluated by these regulators. Any such changes could adversely affect our business. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including, but not limited, to the imposition of restrictions on the operation of an institution, the classification of assets by the institution, and the adequacy of an institution’s allowance for loan and lease losses. Any change in such regulation and oversight, whether in the form of restrictions on activities, regulatory policy, regulations or legislation, could have a material impact on our operations. For example, on February 3, 2017, 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. 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 Bureau. Moreover, inMay 2018,Congress passed, and President Trump signed, the Regulatory Relief Act, which includes a variety of provisions intended to ease the cost of compliance and its related burdens for insured depository institutions. Additionally, proposals to modify existing regulations in light of the new core principles are under consideration by various federal regulatory agencies, including the Bureau. There can be no assurance that any such legislation will be enacted, or that changes in existing regulations will be adopted to implement the new core principles. As a result, the effect of financial services legislation and regulations remains uncertain. The implementation, amendment, or repeal of federal financial services laws or regulations may limit the Bank and its divisions’ business opportunities, impose additional costs on the Company and the Bank, impact the Company’s and the Bank’s revenues or the value of their assets, or otherwise adversely affect the Company or the Bank and its divisions’ businesses. Changes to the Small Business Administration’s rules, regulations, and loan products could adversely impact the Bank. The Crestmark division solicits commercial customers that want to utilize the U.S. Small Business Administration’s commercial lending programs to establish or expand their existing businesses. By their nature, these loans typically fall outside the Bank’s commercial underwriting criteria, either because they are in the “start-up” phase or because their business plan or business metrics pose challenges that the Bank has traditionally believed to be outside its risk parameters. The economic support provided by the SBA, however, positively affects underwriting scoring, allowing such loans to be originated by the Bank. SBA loans do not provide participating banks with blanket guaranties; typically, only a portion of such loans (usually about 75%) are guaranteed. The process to file for the guaranteed funds can be complicated and payments can be significantly delayed; moreover, to the extent the SBA were to review the underlying loan package and raise any issues in connection with the Bank’s documentation of such loans, it could decline the guaranty or require additional paperwork to support the lending decision, which may be costly to prepare. Further, payment on the guaranty may only be claimed after the Bank liquidates the collateral and seeks payment from any loan guarantors. As such, there may be a significant period of time between loan default and realization on the SBA guarantee. See also “--The Crestmark Division generates numerous government-backed loans funded by the Bank, any of which could be negatively impacted by a variety of factors.” While such loans are backed by the full faith and credit of the U.S. government, these programs are subject to Congressional appropriation and could be materially modified either by Congress or by the SBA in connection with its rule-writing authority. To the extent such modifications negatively affect participation or demand in the market for such loans in the future, the Bank could be negatively impacted.