CASH 2018 Annual Report

60 Legal challenges to our, or the Bank’s, operations could have a significant material adverse effect on us. From time to time, we, the Bank or our other subsidiaries are subject to legal proceedings and claims in the ordinary course of business. An adverse resolution in litigation, including litigation or other actions brought by our shareholders, customers or another third party, such as a state attorney general, could result in substantial damages or otherwise negatively impact our business, reputation and financial condition. See also Part I, Item 3, "Legal Proceedings." We are subject to certain operational risks, including, but not limited to, data processing system failures, errors, breaches and customer or employee fraud. There have been a number of publicized cases involving errors, fraud, or other misconduct by employees of financial services firms in recent years. Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers, or improper use of confidential information. Employee fraud, errors, and employee and customer misconduct could subject us to financial losses or regulatory sanctions and significantly harm our reputation. It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Employee errors could also subject us to civil claims for negligence. Although we maintain a system of internal controls and procedures designed to reduce the risk of loss from employee or customer fraud or misconduct and employee errors, and although we maintain insurance coverage to mitigate losses that may be attributable to operational risks, including data processing system failures and errors and customer or employee fraud, these internal controls may fail to prevent or detect such an occurrence, or such an occurrence and related losses may not be insured or exceed applicable insurance limits. In addition, there have been a number of cases where financial institutions have been the victim of fraud related to unauthorized wire and automated clearinghouse transactions. The facts and circumstances of each case vary but generally involve criminals posing as customers ( i.e. , stealing bank customers’ identities) to transfer funds out of the institution quickly in an effort to place the funds beyond recovery prior to detection. Although we have policies and procedures in place to verify the authenticity of our customers and prevent identity theft, we can provide no assurances that these policies and procedures will prevent all fraudulent transfers. In addition, our computer systems could be infiltrated by hackers or other intruders. We can provide no assurances that the safeguards we have in place or may implement in the future will prevent all unauthorized infiltrations or breaches. Identity theft, successful unauthorized intrusions, and similar unauthorized conduct could result in reputational damage and financial losses to the Company. Changes in technology could be costly. The banking industry is undergoing technological innovation at a fast pace. To keep up with our competition, we need to stay abreast of innovations and evaluate those technologies that will enable us to compete on a cost-effective basis. This is especially true with respect to our MPS division. The cost of such technology, including personnel, has been high in both absolute and relative terms and additional funds continue to be used to enhance existing management information systems. There can be no assurance, given the fast pace of change and innovation, that our technology, either purchased or developed internally, will meet our needs, in a timely, cost-effective manner. During the course of implementing new technology into our or the Bank’s operations, we may experience system interruptions and failures. In addition, there can be no assurances that we will recognize, in a timely manner or at all, the benefits that we may expect as a result of our implementing new technology into our operations. Moreover, in connection with our integration of the Crestmark division into the broader operations of the Bank, we may experience significant, one-time or recurring technology-related costs relating to the integration of systems used by the Crestmark division into the Bank’s existing systems. See also “-Acquisitions could disrupt our business and may not be successful.”