This Management's Discussion and Analysis should be read in conjunction with the
accompanying consolidated financial statements and notes included elsewhere in
this Annual Report on Form 10-K. Forward-looking statements in this Management's
Discussion and Analysis are not guarantees of future performance and may involve
risks and uncertainties that could cause actual results to differ materially
from those projected. See "Cautionary Note Regarding Forward-Looking Statements"
above and "Item 1A. Risk Factors" for discussions of these risks and
uncertainties. A comparative discussion of results of operations for the years
ended December 31, 2020 and 2019 is provided in "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Company's
Annual Report on Form 10-K for the year ended December 31, 2020 and is
incorporated by reference herein.
57
Table of Contents
Executive Summary
Internal Review, Investigations and Regulatory Matters Related to the Advantage
Loan Program
On December 9, 2019, the Company announced it had voluntarily suspended its
Advantage Loan Program in connection with the Internal Review. The primary focus
of the Internal Review, which has been led by outside legal counsel under the
direction of the Special Committee, has involved the origination of residential
real estate loans under the Advantage Loan Program and related matters. The
Internal Review has indicated that certain employees engaged in misconduct in
connection with the origination of a significant number of such loans, including
with respect to verification of income and employment, the amount of income
reported for borrowers, reliance on third parties, and related documentation. As
a result, the Company permanently discontinued the Advantage Loan Program, and a
significant number of officers and employees have been terminated or resigned,
including the top loan producers within the Advantage Loan Program. While the
Internal Review is substantially complete, the Company expects it to remain open
during the pendency of the government investigations discussed below, and it is
possible additional work will be required in connection with the Internal
Review.
The Bank is currently under formal investigation by the OCC, is responding to
grand jury subpoenas from the DOJ and is responding to a formal investigation by
the SEC, all of which are related to the Advantage Loan Program and, with
respect to the DOJ and the SEC, the related disclosures of that program in the
Company's federal securities law filings. The Bank also continues to be subject
to the OCC Agreement, which relates primarily to certain aspects of the Bank's
BSA/AML compliance program as well as its credit administration. The OCC
Agreement requires the Bank to: (i) establish a compliance committee to monitor
and oversee the Bank's compliance with the provisions of the OCC Agreement; (ii)
develop a revised customer due diligence and enhanced due diligence program;
(iii) develop a revised suspicious activity monitoring program; (iv) engage an
independent, third-party consultant to review and provide a written report on
the Bank's suspicious activity monitoring; (v) develop revised policies and
procedures to ensure effective BSA/AML model risk management for the Bank's
automated suspicious activity monitoring system, which must be validated by a
qualified, independent third party; (vi) ensure that the Bank's BSA Department
maintains sufficient personnel; and (vii) develop revised policies and
procedures to ensure effective controls over loan underwriting. In addition to
these requirements, while the OCC Agreement remains in effect, the Bank is
subject to certain restrictions on expansion activities, such as growth through
acquisition or branching to supplement organic growth of the Bank.
The Company incurred significant legal, consulting and other third-party
expenses during the years 2020 and 2021 in connection with the Internal Review;
the OCC, DOJ and SEC investigations; compliance with the OCC Agreement; and
defending litigation related to the Advantage Loan Program. For additional
information regarding risks related to the Internal Review, the government
investigations and the OCC Agreement, as well as other aspects of and
consequences arising from the Advantage Loan Program, see the risk factors under
"Item 1A. Risk Factors-Risks Related to the Advantage Loan Program."
Impact of COVID-19
The COVID-19 pandemic continues to create extensive disruptions to U.S. and
global economic conditions and financial markets and to businesses and the lives
of individuals throughout the world. Federal and state governments have taken
unprecedented actions to contain the spread of the disease, including
quarantines, travel bans, shelter-in-place orders, closures of businesses and
schools, fiscal stimuli, and legislation designed to deliver monetary aid and
other relief to businesses and individuals impacted by the pandemic. During the
third quarter of 2021, the Company determined it qualified for the employee
retention credit ("ERC") under the CARES Act for the first three quarters of
2021 because the Company's gross receipts in 2021 decreased more than 20% from
each of the respective quarters of 2019. The Company recorded an ERC of $6.5
million, resulting in a net reduction of salaries and employee benefits for the
third quarter of 2021. The Infrastructure Investment and Jobs Act, which was
signed into law by President Biden during the fourth quarter of 2021, terminated
the availability of the ERC for periods following the third quarter of 2021.
The spread of COVID-19 has caused us to modify our business practices, including
curtailing employee travel, changing employee work locations and cancelling
in-person participation in meetings, events and conferences. We have many
employees working remotely, and we may take further actions as may be required
by government authorities or that we determine are in the best interests of our
employees, customers and business partners. We continue to actively monitor
developments related to COVID-19 and its impact on our business, customers,
employees, counterparties, vendors, and service providers. For further
discussion regarding risks related to the COVID-19 pandemic, see "Item 1A. Risk
Factors-Risks Related to the COVID-19 Pandemic."
58
Table of Contents
© Edgar Online, source Glimpses