What changed in this filing

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Item 1A. Risk Factors

2025-03-07 compared with 2024-03-01 · 49 added, 23 removed, 535 unchanged (12% of the section changed)

95 unchanged sentences

Since we originate loans secured by real estate, we may have to foreclose on the collateral property to protect our investment and may thereafter, own and operate such property, in which case, we would be exposed to the risks inherent in the ownership of real estate.

As of December 31, 2023, we held approximately $1.7 million in other real estate owned (“OREO”) of which $279,000 is related to former bank facilities.

As of December 31, 2024, we held approximately $5.5 million in other real estate owned (“OREO”).

The amount that we, as a mortgagee, may realize after a default is dependent upon factors outside of our control, including, but not limited to general or local economic conditions, environmental cleanup liability, assessments, interest rates, real estate tax rates, operating expenses of the mortgaged properties, ability to obtain and maintain adequate occupancy of the properties, zoning laws, governmental and regulatory rules, and natural disasters.

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As of December 31, 2024, our average loan size (including unfunded commitments) was approximately $447,000.

Further, as of December 31, 2023, our 10 largest borrowing relationships ranged from approximately $35.4 million to $77.6 million (including unfunded commitments) and averaged approximately $4.4 million in total commitments and $3.0 million in principal balance, respectively.

Further, as of December 31, 2024, our 10 largest borrowing relationships ranged from approximately $23.0 million to $95.2 million (including unfunded commitments) and averaged approximately $44.6 million in total commitments.

Along with other risks inherent in our loans, such as the deterioration of the underlying businesses or property securing these loans, the higher average size of our loans presents a risk to our lending operations.

Because we have a large average loan size, if only a few of our largest borrowers become unable to repay their loan obligations as a result of economic or market conditions or personal circumstances, our nonperforming loans and our provision for credit losses could increase significantly, which could have an adverse effect on our business, financial condition and results of operations.

Because we have a large average loan size, if only a few of our largest borrowers become unable to repay their loan

obligations as a result of economic or market conditions or personal circumstances, our nonperforming loans and our provision for credit losses could increase significantly, which could have an adverse effect on our business, financial condition and results of operations.

Our allowance for credit losses may prove to be insufficient to absorb losses inherent in our loan portfolio, which could have a material adverse effect on our business, financial condition and results of operations.

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Finally, the measure of our allowance for credit losses is dependent on the adoption and interpretation of accounting standards.

The Financial Accounting Standards Board (“FASB”) recently issued a new credit impairment model, the Current Expected Credit Loss (“CECL”) model, which became applicable to us on January 1, 2023.

The Financial Accounting Standards Board (“FASB”) issued a new credit impairment model, the Current Expected Credit Loss (“CECL”) model, which became applicable to us on January 1, 2023.

CECL requires financial institutions to estimate and develop a provision for credit losses at origination for the lifetime of the loan, as opposed to reserving for incurred or probable losses up to the balance sheet date.

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Because of the credit profile of our customers, we typically have a substantial amount of total unfunded credit commitments, which is not reflected on our balance sheet.

As of December 31, 2023, we had $1.2 billion in unfunded credit commitments to our customers.

As of December 31,

2024, we had $1.4 billion in unfunded credit commitments to our customers.

Actual borrowing needs of our customers may exceed our expectations, especially during a challenging economic environment when our customers’ companies may be more dependent on our credit commitments due to the lack of available credit elsewhere, the increasing costs of credit, or the limited availability of financings from venture firms.

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Similarly, when interest-earning assets mature or reprice more quickly, or to a greater degree than interest-bearing liabilities, falling interest rates could reduce net interest income.

As of December 31, 2023, 35.5% of our earning assets and 58.7% of our interest-bearing liabilities were variable rate.

As of December 31, 2023, our modeled interest sensitivity was close to neutral, but slightly asset sensitive.

As of December 31, 2024, 45.0% of our earning assets and 67.5% of our

interest-bearing liabilities were variable rate.

As of December 31, 2024, our modeled interest sensitivity is modestly asset sensitive.

Should the assumptions in the model occur, we estimate our net interest income to experience a minor increase if rates rise, and a minor decrease if rates decline.

1 unchanged sentence

Interest rates increased rapidly during 2022 and 2023 to levels that we have not experienced in recent history.

Interest rates may increase further, or they may remain at current levels for some time.

This new interest rate environment could have a number of effects on our business, which may include reduced loan demand, increased delinquencies and increased loan paydowns and payoffs.

Interest rates subsequently declined in 2024, but have not returned to pre-2022 levels.

An increase or stabilization in interest rates could have a number of effects on our business, which may include reduced loan demand, increased delinquencies and increased loan paydowns and payoffs.

Conversely, a decrease in the general level of interest rates may affect us through, among other things, increased prepayments on our loan portfolio and increased competition for deposits.

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Under these arrangements, we originate single family mortgages that are priced and underwritten to conform to previously agreed criteria before loan funding and are delivered to the investor shortly after funding.

However, in the recent past, disruptions in the secondary market for residential mortgage loans have limited the market for, and liquidity of, most mortgage loans other than conforming Fannie Mae and Federal Home Loan Mortgage Corporation, or Freddie Mac, loans.

However, in the recent past, disruptions in the secondary market for residential mortgage loans have limited the market for, and liquidity of, most mortgage loans other than conforming Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac") loans.

The effects of these disruptions in the secondary market for residential mortgage loans may reappear.

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As of December 31, 2024, $758.2 million, or approximately 11.6%, of our total deposits consisted of deposit accounts of public bodies, such as state or local municipalities, or public funds.

These types of deposits are often secured and typically fluctuate on a seasonal basis due to timing differences between tax collection and expenditures.

These types of deposits are often secured

and typically fluctuate on a seasonal basis due to timing differences between tax collection and expenditures.

Municipal deposits are also generally more sensitive to interest rates and may require competitive rates at placement and subsequent rollover dates, which may make it more difficult for the Bank to attract and retain public and municipal deposits.

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For example, fixed-rate securities are generally subject to decreases in market value when interest rates rise.

The Federal Open Market Committee raised the target federal funds rate several times in 2022 and 2023.

The Federal Open Market Committee raised the target federal funds rate several times in 2022 and 2023 and reduced them three times in 2024.

In addition to market interest rates, other factors that could cause adverse changes to the fair value of our securities include, but are not limited to, rating agency actions with respect to the securities, defaults by the issuer with respect to the underlying securities, and continued instability in the capital markets.

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Ensuring that we have adequate disclosure controls and procedures, including internal controls over financial reporting, in place so we can produce accurate financial statements on a timely basis is costly and time-consuming and needs to be reevaluated frequently.

As a public company, we are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act.

As a public company, we are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act").

Our internal controls, disclosure controls and procedures are based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met, due to certain inherent limitations.

1 unchanged sentence

failure to comply with regulations related to controls and procedures could have a material adverse effect on our reputation, business, financial condition and results of operations.

We have identified a material weakness in our internal control over financial reporting.

Failure to remediate, improve and maintain the quality of internal control over financial reporting could result in material misstatements in our financial statements and could materially and adversely affect our ability to provide timely and accurate financial information about the Company, which could harm our reputation and share price.

In January 2025, we identified control deficiencies involving the design and operation of information technology general controls (“ITGCs”) around change management segregation of duties with respect to certain information technology (“IT”) systems that support our financial reporting process, which we have outsourced to a third party service provider.

Specifically, user access controls at our third party service provider lacked sufficient segregation of duties as multiple end users had the ability to both install changes into the production environment and develop application source code via permissions inherited through group membership.

Management concluded that these control deficiencies constituted a material weakness in our internal control over financial reporting, as the identified deficiencies could have had a direct or indirect impact on some of our financial reporting controls that relied on certain IT system reports.

For further discussion of this material weakness, see “Item 9A, Controls and Procedures.”

A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Management cannot be certain that other deficiencies or material weaknesses will not arise or be identified or that the Company will be able to correct and maintain adequate controls over financial processes and reporting in the future.

Management, with oversight from the Audit Committee, is committed to maintaining a strong internal control environment, and has taken, and will continue to take, actions necessary to remediate the material weakness.

The identified material weakness in our internal control over financial reporting will not be considered remediated until the remediated controls operate for a sufficient period of time and can be tested and concluded by management to be designed and operating effectively.

Our remediation efforts include working with our third party service provider to ensure that it has taken steps to address its user access controls that led to the change management segregation of duties deficiencies.

Accordingly, we cannot provide any assurance that our remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts.

As we continue to evaluate operating effectiveness and monitor improvements to our internal control over financial reporting, we may take additional measures to address control deficiencies or modify our remediation efforts.

Unsuccessful remediation efforts could result in material misstatements in, or restatements of, the Company’s financial statements, could cause the Company to fail to meet its reporting obligations and/or could cause investors to lose confidence in the Company’s reported financial information, which would adversely affect the trading price of the Company’s common stock and harm the Company’s reputation.

In addition, such failures could result in violations of applicable securities laws, an inability to meet Nasdaq listing requirements, a default in covenants under the Company’s credit facilities, and/or exposure to lawsuits, investigations or other legal proceedings.

Our financial results depend on management ’ s selection of accounting methods and certain assumptions and estimates.

Our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP, and with general practices within the financial services industry.

Our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and with general practices within the financial services industry.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, disclosure of contingent assets and liabilities and the reported amount of related revenues and expenses.

Certain accounting policies inherently are based to a greater extent on estimates, assumptions and judgments of management and, as such, have a greater possibility of producing results that could be materially different than originally reported.

Certain accounting policies

inherently are based to a greater extent on estimates, assumptions and judgments of management and, as such, have a greater possibility of producing results that could be materially different than originally reported.

They require management to make subjective or complex judgments, estimates or assumptions, and changes in those estimates or assumptions could have a significant impact on our consolidated financial statements.

22 unchanged sentences

Any such misrepresentation or incorrect or incomplete information, whether fraudulent or inadvertent, may not be detected prior to funding.

In addition, one or more of our employees or vendors could cause a significant operational breakdown or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our loan documentation, operations or systems.

In addition, one or more of our employees or vendors could cause a significant operational breakdown or failure,

either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our loan documentation, operations or systems.

Whether a misrepresentation is made by the applicant or another third party, we generally bear the risk of loss associated with the misrepresentation.

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In certain cases, we may consider entering into licensing agreements for disputed intellectual property, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur.

These licenses may also significantly increase our operating expenses.

These licenses may also

significantly increase our operating expenses.

If legal matters related to intellectual property claims were resolved against us or settled, we could be required to make payments in amounts that could have an adverse effect on our business, financial condition and results of operations.

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Business – Supervision and Regulation – b1BANK – Capital Adequacy Requirements.

Federal and state banking agencies periodically conduct examinations of our business, including compliance with laws and regulations, and our failure to comply with any supervisory actions to which we are or become subject as a result of such examinations could have an adverse effect on our business, financial condition, results of operations and prospects.

The Board of Governors of the Federal Reserve System, or the Federal Reserve, the Federal Deposit Insurance Corporation, or the FDIC, and the Louisiana Office of Financial Institutions, or the Louisiana OFI, periodically conduct examinations of various aspects of our business, including our compliance with laws and regulations.

such examinations could have an adverse effect on our business, financial condition, results of operations and prospects.

The Board of Governors of the Federal Reserve System (the "Federal Reserve"), the Federal Deposit Insurance Corporation (the "FDIC"), and the Louisiana Office of Financial Institutions (the "Louisiana OFI") periodically conduct examinations of various aspects of our business, including our compliance with laws and regulations.

If, as a result of an examination, a federal or state banking agency were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we or the Bank were in violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate.

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We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.

The Bank Secrecy Act, the USA PATRIOT Act of 2001, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate.

The federal Financial Crimes Enforcement Network is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S.

The BSA, the USA PATRIOT Act of 2001, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate.

the individual federal banking regulators, as well as the U.S.

Department of Justice, Drug Enforcement Administration and Internal Revenue Service.

21 unchanged sentences

Loan collection is subject to extensive regulation by federal, state and local governmental authorities as well as to various laws and judicial and administrative decisions imposing requirements and restrictions on those activities.

The volume of new or modified laws and regulations has increased in recent years and, in addition, some individual municipalities have begun to enact laws that restrict loan collection activities including delaying or temporarily preventing foreclosures or forcing the modification of certain mortgages.

foreclosures or forcing the modification of certain mortgages.

If regulators impose new or more restrictive requirements, we may incur additional significant costs to comply with such requirements which may further adversely affect us.

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Our corporate governance documents, and certain corporate and banking laws applicable to us, could make a takeover more difficult.

Certain provisions of our articles of incorporation and bylaws, each as amended and restated, and corporate and federal banking laws, could make it more difficult for a third party to acquire control of our organization or conduct a proxy contest, even if those events were perceived by many of our shareholders as beneficial to their interests.

proxy contest, even if those events were perceived by many of our shareholders as beneficial to their interests.

These provisions, and the corporate and banking laws and regulations applicable to us:

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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