What changed in this filing

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Item 1A. Risk Factors

2023-02-28 compared with 2022-03-01 · 85 added, 81 removed, 183 unchanged (48% of the section changed)

In addition to other information contained in this Annual Report that may affect us, the risk factors described below, as well as any cautionary language in this Report, provide examples of risks, uncertainties, and events that could have a material adverse effect on our business, including our operating results and financial condition.

In addition to other information contained in this Report that may affect us, the risk factors described below, as well as any cautionary language in this Report, provide examples of risks, uncertainties, and events that could have a material adverse effect on our business, including our operating results and financial condition.

In addition to the risks and uncertainties described below, other risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially or adversely affect our business, financial condition, and results of operations.

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Risks Related to Our Business

The COVID-19 (including variants of the virus) pandemic has impacted the local economies in the communities we serve and our business.

The COVID-19 pandemic has negatively impacted the local, national, and global economies, disrupted global supply chains, increased unemployment, and created significant volatility and disruption in financial markets.

The duration of the COVID-19 pandemic and its effects cannot be determined with certainty, but the effects could be present for an extended period of time.

Since the onset of the pandemic, and as needed for spikes in infection rates, the majority of state and local jurisdictions have imposed, and others in the future may impose, varying levels of restrictions, including “shelter-in-place” orders, quarantines, executive orders and similar government orders to control the spread of COVID-19 and its variants.

At its height, the COVID-19 pandemic and the institution of social distancing and sheltering-in-place requirements resulted in temporary closures of, or operating restrictions, on many businesses.

While many of the closed businesses have reopened at varying levels of capacity, the occurrence of variants of the COVID-19 virus may result in future restrictions or closures.

As a result, the demand for our products and services may be significantly impacted.

Furthermore, the COVID-19 pandemic has influenced and may continue to influence the recognition of credit losses in our loan portfolios and our allowance for credit losses, particularly as some businesses remain closed and as more customers are expected to draw on their lines of credit or seek additional loans to help finance their businesses.

Our operations may also be disrupted if significant portions of our workforce are unable to work effectively, including due to illness, quarantines, government actions, or other restrictions in connection with the COVID-19 pandemic.

The economies of our market areas generally improved during 2021 as they recovered from the pandemic.

However, the ongoing impact on the Company of the continuing pandemic, including infection rate spikes and new strains of COVID-19, is uncertain.

The extent to which the COVID-19 virus and its variants have a further impact on our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other third parties in response to the COVID-19 pandemic.

We may fail to realize all of the anticipated benefits, including estimated cost savings, of our acquisition of GrandSouth or other potential future acquisitions.

The success of our acquisition of GrandSouth, which was consummated on January 1, 2023, will depend on, among other things, the ability to continue to successfully complete the integration of the two companies.

Developing successful synergy has demanded and will continue to demand, significant commitments of time, energy and resources from our management and directors, which can be detrimental to the performance of their other responsibilities.

If we are unable to achieve the desired levels of integration and synergy, the anticipated benefits of the acquisition may not be realized fully or at all, or may take longer than expected to be realized.

There is no guarantee that we will be able to successfully integrate the businesses of the Company and GrandSouth.

Combining the two companies may be more difficult, costly or time-consuming than expected and the anticipated benefits and cost savings of the GrandSouth acquisition may not be realized.

The success of the GrandSouth acquisition, including anticipated benefits and cost savings, will depend, in part, on the Company’s ability to successfully combine and integrate the businesses of the Company and GrandSouth in a manner that permits growth opportunities and does not materially disrupt the existing customer relations nor result in decreased revenues due to loss of customers.

Integration of an acquired business can be complex and costly, including combining relevant accounting and data processing systems and management controls, as well as managing relevant relationships with employees, clients, suppliers and other business partners.

Integration efforts could divert management attention and resources, which could adversely affect our financial condition and results of operations.

It is possible that the integration process could result in the loss of key employees, the disruption of either company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the acquisition.

The loss of key employees could

adversely affect the Company’s ability to successfully conduct its business, which could have an adverse effect on the Company’s financial results and the value of our common stock.

As with any merger of financial institutions, there also may be business disruptions that cause us to lose customers or cause customers to remove their accounts and move their business to competing financial institutions.

The lingering economic impact of the COVID-19 pandemic combined with the current inflationary pressures could adversely affect our financial condition and results of operations.

The COVID-19 pandemic caused significant economic disruption throughout the United States.

Although the economic activity has improved and there is growth in demand for goods and services, the lingering impact the COVID-19 pandemic has created certain adverse and persistent macroeconomic consequences, including labor shortages and disruptions of global supply chain, which may continue for some time and which have contributed to rising inflationary pressures and the risk of recession.

As a result of the lingering impact of the COVID-19 pandemic and the related adverse economic consequences, we could be subject to the following risks, among others, any of which individually or in combination with others could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

• Demand for our products and services may decline, making it difficult to grow assets and income;

• If we have high levels of unemployment for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

• Collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

• Limitations may be placed on our ability to foreclose on properties we hold as collateral;

• Our ACL may have to be increased if borrowers experience financial difficulties which will adversely affect our net income;

• The net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;

• Our cybersecurity risks are increased if employees work remotely;

• We rely on third-party vendors for certain services and the unavailability of a critical service could have an adverse effect on us;

• DIC premiums may increase if the FDIC experiences additional resolution costs.

Unfavorable economic conditions could adversely affect our business.

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Weakness in any of our market areas could have an adverse impact on our earnings, and consequently our financial condition and capital adequacy.

Inflation can have an adverse impact on our customers and their ability to repay.

Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money.

Recently, there has been a pronounced rise in inflation and the Federal Reserve has raised certain benchmark interest rates in an effort to combat this trend.

Our customers may also be affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us.

Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.

Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to information technology (IT) systems to sophisticated and targeted measures known as advanced persistent threats, directed at the Company and/or its third party service providers.

Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to information technology systems to sophisticated and targeted measures known as advanced persistent threats, directed at the Company and/or its third party service providers.

While we have experienced, and expect to continue to experience, these types of threats and incidents, none of them to date have been material to the Company.

Although we employ comprehensive measures to prevent, detect, address, and mitigate these threats (including access controls, employee training, data encryption, vulnerability assessments, continuous monitoring of our IT networks and systems and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations.

Although we employ comprehensive measures to prevent, detect, address, and mitigate these threats (including access controls, employee training, data encryption, vulnerability assessments, continuous monitoring of our networks and systems and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations.

The potential consequences of a material cybersecurity incident include reputational damage, litigation with third parties, and increased cybersecurity protection and remediation costs, which in turn could materially adversely affect our results of operations.

Our allowance for credit losses may not be adequate to cover actual losses;

under CECL our provisions for credit losses may increase significantly and the provisions for credit losses may be more volatile than in the past.

Like all financial institutions, we maintain an allowance for credit losses to provide for expected losses caused by customer loan defaults.

The ACL may not be adequate to cover actual loan losses, and in this case additional and larger provisions for loan losses would be required to replenish the allowance.

Provisions for loan losses are a direct charge against income.

We adopted CECL as of January 1, 2021.

Under the CECL model, credit deterioration is reflected in the income statement in the period of origination or acquisition of the loan, with changes in expected credit losses due to further credit deterioration or improvement reflected in the periods in which the expectation changes.

The CECL framework is expected to result in earlier recognition of credit losses and is expected to be significantly influenced by the composition, characteristics, and quality of the Company's loan portfolio, as well as the prevailing economic conditions and forecasts.

We establish the amount of the ACL based on our current estimate of credit losses for the remaining estimated lives of loans in our portfolio.

Because of the extensive use of estimates and assumptions, our actual loan losses could differ, possibly significantly, from our estimate.

We believe that our ACL at December 31, 2021 is adequate to provide for expected losses, but it is possible that the ACL will need to be increased for changes in economic forecasts, credit deterioration, or that regulators will require us to increase this allowance.

Our ACL may not be adequate to cover actual losses.

CECL requires that credit deterioration is reflected in the income statement in the period of origination or acquisition of a loan, with changes in expected credit losses due to further credit deterioration or improvement reflected in the periods in which the expectation changes.

CECL also requires significant management judgment that is supported by models, assumptions, and data elements which may be subjective in nature or, as in the case of macroeconomic forecasts, be volatile from period to period.

This is expected to increase the complexity and associated risk, particularly in times of economic uncertainty or other unforeseen circumstances, which could impact the Company's results of operations and capital levels.

CECL provides significant flexibility and requires a high degree of judgment with regards to pooling financial assets with similar risk characteristics and adjusting the relevant historical loss information in order to develop an estimate of expected lifetime losses.

It also may result in small changes to future forecasts having a significant impact on the ACL, which could make the ACL more volatile.

Because of the extensive use of estimates and assumptions, our actual loan losses could differ, possibly significantly, from our estimate and it is possible that the ACL will need to be increased for changes in economic forecasts, credit deterioration, or that regulators will require us to increase this allowance.

An increase in the ACL could materially and adversely affect our earnings and profitability.

The CECL standard provides significant flexibility and requires a high degree of judgment with regards to pooling financial assets with similar risk characteristics and adjusting the relevant historical loss information in order to develop an estimate of expected lifetime losses.

It also may result in small changes to future forecasts having a significant impact on the allowance, which could make the allowance more volatile, and regulators may impose additional capital buffers to absorb this volatility.

Recessionary conditions could result in increases in our level of nonperforming loans and/or reduce demand for our products and services, which would lead to lower revenue, higher loan losses and lower earnings.

Recessionary conditions and/or continued negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability.

Declines in real estate values and sales volumes and increased unemployment levels may result in higher than expected loan delinquencies, increases in our levels of nonperforming and classified assets and a decline in demand for our products and services.

These negative events may cause us to incur losses and may adversely affect our capital, liquidity, and financial condition.

We are subject to extensive regulation, which could have an adverse effect on our operations.

We are subject to extensive regulation and supervision from the Commissioner and the Federal Reserve.

This regulation and supervision is intended primarily to enhance the safe and sound operation of the Bank and for the protection of the FDIC insurance fund and our depositors and borrowers, rather than for holders of our equity securities and creditors.

The Bank is subject to extensive regulation and supervision from the Commissioner and the Federal Reserve.

This regulation and supervision is intended primarily to enhance the safe and sound operation of the Bank and for the protection of the DIF and our depositors and borrowers, rather than for holders of our equity securities and creditors.

In the past, our business has been materially affected by these regulations.

This trend is likely to continue in the future.

Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on operations, the classification of our assets, and the determination of the level of allowance for credit losses.

Changes in the regulations that apply to us, or changes in our compliance with regulations, could have a material impact on our operations.

Various federal banking laws and regulations imposed heightened requirements on certain large banks and bank holding companies with at least $50 billion in total consolidated assets, but certain of these requirements also apply to banks and bank holding companies with at least $10 billion in total consolidated assets.

The Company and the Bank exceeded this $10 billion threshold as of December 31, 2021.

Among the consequences of the circumstance are the following:

• the Bank will calculate its FDIC deposit using a “score card” system using forward-looking measures intended to assess the risk to the DIF;

• under the Federal Reserve’s rules pursuant to the Durbin Amendment, the Bank is no longer exempt from the Federal Reserve interchange fee maximum and may charge a fee only up to the maximum level determined by the Federal Reserve to be reasonable and proportionate;

• the Bank will be subject to a continuous supervision model in addition to an annual safety and soundness examination;

• the Bank will be examined primarily by the CFPB for compliance with federal consumer protection laws.

We face a risk of noncompliance with the BSA and other AML statutes and regulations and related enforcement actions.

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Our net interest income results from the difference between the yields we earn on our interest-earning assets, primarily loans and investments, and the rates that we pay on our interest-bearing liabilities, primarily deposits and borrowings.

When interest rates change, the yields we earn on our interest-earning assets and the rates we pay on our interest-bearing liabilities do not necessarily move in tandem with each other because of the difference between their maturities and repricing characteristics.

When interest rates change, and in particular during periods of rapid rate movements as experienced in 2022, the yields we earn on our interest-earning assets and the rates we pay on our interest-bearing liabilities do not necessarily move in tandem with each other because of the difference between their maturities and repricing characteristics.

This mismatch can negatively impact net interest income if the margin between yields earned and rates paid narrows.

Interest rate environment changes can occur at any time and are affected by many factors that are outside our control, including inflation, recession, unemployment trends, the Federal Reserve’s monetary policy, domestic and international disorder, and instability in domestic and foreign financial markets.

Interest rate environment changes can occur at any time and are affected by many factors that are outside our control, including inflation,

recession, unemployment trends, the Federal Reserve’s monetary policy, domestic and international disorder, and instability in domestic and foreign financial markets.

Our financial instruments expose us to certain market risks, including changing interest rates, and may increase the volatility of AOCI and total equity.

We hold certain financial instruments measured at fair value, primarily our AFS investments securities.

For those financial instruments measured at fair value, we are required to recognize the changes in the fair value of such instruments in AOCI each quarter which impacts our total equity.

Fair value can be affected by a variety of factors, many of which are beyond our control, including our credit position, interest rate volatility, capital markets volatility, and other economic factors.

Accordingly, the application of fair value accounting for our AFS securities may cause AOCI and total equity to be more volatile than would be suggested by our underlying performance.

In the normal course of business, we process large volumes of transactions involving millions of dollars.

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Our access to funding sources in amounts adequate to finance our activities, or on terms which are acceptable to us, could be impaired by factors that affect us specifically or the financial services industry or economy in general.

Factors that could detrimentally impact our access to liquidity sources include adverse regulatory action against us

or a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated.

Factors that could detrimentally impact our access to liquidity sources include adverse regulatory action against us or a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated.

Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in light of the recent turmoil faced by banking organizations or deterioration in credit markets.

If our goodwill becomes impaired, we may be required to record a significant charge to earnings.

We have goodwill recorded on our balance sheet as an asset with a carrying value as of December 31, 2021 of $364.3 million.

Under GAAP, goodwill is required to be tested for impairment at least annually and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The test for goodwill impairment involves comparing the fair value of a company’s reporting units to their respective carrying values.

We have two reporting units – 1) the Bank with $360.0 million in goodwill (including goodwill at the holding company level), and 2) SBA activities, including SBA Complete and our SBA Lending Division, with $4.3 million in goodwill.

The price of our common stock is one of several factors available for estimating the fair value of our reporting units and is most closely associated with our Bank reporting unit.

Subject to the results of other valuation techniques, if the price of our common stock falls below book value, it could indicate that a portion of our goodwill is impaired.

For this reason or other reasons that indicate that the goodwill at any of our reporting units is impaired, we could be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill is determined, which could have a negative impact on our results of operations.

We might be required to raise additional capital in the future, but that capital may not be available or may not be available on terms acceptable to us when it is needed.

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If we cannot raise additional capital when needed, our ability to conduct our business could be materially impaired.

We may be adversely impacted by the transition from LIBOR as a reference rate.

In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate LIBOR and that from January 1, 2022, publications of most LIBOR rates would end.

As of this date, LIBOR cannot be used as a reference for new loan originations or other transactions.

Currently, many LIBOR rates, including the one-week and two-month settings are no longer available, while the remaining LIBOR rates will be completely phased out by June 30, 2023.

Regulators, industry groups, and others have, among other things, published recommended replacement language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates (e.g.

the Secured Overnight Financing Rate), and proposed implementations of the recommended alternatives in floating rate instruments.

There is not yet consensus on what recommendations and proposals will be broadly accepted.

We have a significant number of loans and borrowings with attributes that are either directly or indirectly dependent on LIBOR.

The transition from LIBOR could create considerable costs and additional risk.

Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR.

The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design, and hedging strategies.

Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation.

Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition, and results of operations.

Uncertainty relating to the LIBOR determination process and LIBOR discontinuance may adversely affect our results of operations.

LIBOR is the reference rate used for certain transactions we are involved with, primarily our trust preferred securities and approximately 3% of our loan portfolio which is tied to LIBOR-based rates.

However, a reduced volume of interbank unsecured term borrowing coupled with recent legal and regulatory proceedings related to rate

manipulation by certain financial institutions has led to international reconsideration of LIBOR as a financial benchmark.

The United Kingdom FCA, which regulates the process for establishing LIBOR, announced in July 2017 that the sustainability of LIBOR could not be guaranteed.

The administrator for LIBOR announced on March 5, 2021 that it will permanently cease to publish most LIBOR settings beginning on January 1, 2022 and would cease to publish the overnight, one-month, three-month, six-month and 12-month LIBOR settings on July 1, 2023.

Accordingly, the FCA has stated that is does not intend to persuade or compel banks to submit to LIBOR after July 1, 2023.

Until such time, however, FCA panel banks have agreed to continue to support LIBOR.

The market transition away from LIBOR to an alternative reference rate is complex and could have a range of negative effects on the Company’s business, financial condition, and results of operations.

In particular, any such transition could:

• Adversely affect the interest rates paid on our trust preferred securities or received on our floating rate loans tied to LIBOR rates;

• Prompt inquiries or other actions from regulators in respect of the Company’s readiness and risk management processes for the replacement of LIBOR with an alternative reference rate;

• Result in disputes, litigation or other actions with counterparties regarding the interpretation and enforceability of certain fallback language in LIBOR-based securities.

We are subject to federal and state fair lending laws, and failure to comply with these laws could lead to material penalties.

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Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation.

A successful challenge to our performance under the fair lending laws and regulations could adversely impact our

CRA rating and result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on or delays in approving merger and acquisition activity, and restrictions on expansion activity, which could negatively impact our reputation, business, financial condition, and results of operations.

A successful challenge to our performance under the fair lending laws and regulations could adversely impact our CRA rating and result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on or delays in approving merger and acquisition activity, and restrictions on expansion activity, which could negatively impact our reputation, business, financial condition, and results of operations.

Focus on commercial loans may increase the risk of substantial credit losses.

We offer a variety of loan products, including residential mortgage, consumer, construction, and commercial loans.

At December 31, 2021, approximately 64% of loans were commercial and industrial loans and commercial loans secured by commercial real estate.

It is expected that, as we grow, this percentage will remain fairly constant.

However, future acquisitions of banks with a portfolio composition different from ours could cause this mix to change.

We offer a variety of loan products, including residential mortgage, consumer, construction, and commercial loans, with a majority of our portfolio consisting of commercial and industrial loans and commercial loans secured by commercial real estate.

Future growth or acquisitions of banks with a portfolio composition different from ours could cause our portfolio mix to change.

Commercial lending generally involves more risk than mortgage and consumer lending because loan balances are greater, and the borrower's ability to repay is contingent on the successful operation of a business.

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Additionally, these loans may increase concentration risk as to industry or collateral securing our loans.

If general economic conditions in the market areas in which we operate negatively impact this important customer sector, our results of operations and financial condition may be adversely affected.

Moreover, a portion of these loans has been made by the Company recently, and the borrowers may not have experienced a complete business or economic cycle.

The deterioration of the borrowers' businesses may hinder their ability to repay their loans with the Company, which could have a material adverse effect on our financial condition and results of operations.

If general economic conditions in the market areas in which we operate negatively impact this customer sector, our results of operations and financial condition may be adversely affected.

Further, the deterioration of a borrowers' businesses may hinder their ability to repay their loans with the Company, which could have a material adverse effect on our financial condition and results of operations.

We could experience losses due to competition with other financial institutions and non-banks.

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While we have disaster recovery and other policies and procedures designed to prevent or limit the effect of any failure, interruption, or security breach of our information systems, there can be no assurance that any such failures, interruptions, or security breaches will not occur or, if they do occur, that they will be adequately addressed.

The occurrence of any failures, interruptions, or security breaches of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory

scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our results of operations.

The occurrence of any failures, interruptions, or security breaches of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our results of operations.

In addition, the Bank provides its customers the ability to bank online and through mobile banking.

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While we believe these policies and procedures help to mitigate risk, and our vendors are not the sole source of service, the failure of an external vendor to perform in accordance with applicable contractual arrangements or the service level agreements could be disruptive to our operations, which could have a material adverse impact on our business and its financial condition and results of operations.

If the goodwill that we recorded in connection with a business acquisition becomes impaired, it could have a significant negative impact on our profitability.

Goodwill represents the amount of consideration exchanged over the fair value of net assets we acquired in the purchase of another financial institution.

We review goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate the carrying value of the asset might be impaired.

At December 31, 2022, our goodwill totaled $364.3 million.

While we have recorded no impairment charges since we initially recorded the goodwill, there can be no assurance that our future evaluations of goodwill will not result in findings of impairment and related write-downs, which may have a material adverse effect on our financial condition and results of operations.

We are subject to losses due to errors, omissions, or fraudulent behavior by our employees, clients, counterparties, or other third parties.

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This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control.

Given the relatively low trading volume of our common stock, significant sales of our common stock or other volatility in our shares in the public market, could cause the trading price of our common stock to decline or to be lower than it otherwise might be in the absence of those sales or perceptions.

Given the comparatively lower trading volume of our common stock relative to larger institutions, significant sales of our common stock or other volatility in our shares in the public market, could cause the trading price of our common stock to decline or to be lower than it otherwise might be in the absence of those sales or perceptions.

We may issue additional shares of stock or equity derivative securities that will dilute the percentage ownership interest of existing shareholders and may dilute the book value per share of our common stock and adversely affect the terms on which we may obtain additional capital.

Subject to applicable NASDAQ rules, our Board generally has the authority, without action by or vote of the shareholders, to issue all or part of any authorized but unissued shares of stock for any corporate purpose, including issuances of equity-based incentives under or outside of our equity compensation plans, issuances of equity in business combination transactions, and issuances of equity to raise additional capital to support growth or to otherwise strengthen our balance sheet.

Any issuance of additional shares of stock or equity derivative securities

will dilute the percentage ownership interest of our shareholders and may dilute the book value per share of our common stock.

We may make future acquisitions, which could dilute current shareholders’ stock ownership and expose us to additional risks.

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and losing key employees and customers as a result of an acquisition that is poorly received.

Our authorized capital includes 40,000,000 shares of common stock and 5,000,000 shares of preferred stock.

As of December 31, 2021, we had 35,629,177 shares of common stock outstanding.

In addition, at that date, we had reserved for issuance 445,231 shares of common stock pursuant to options and restricted stock under our existing equity compensation plan.

Any issuance of additional shares of stock or equity derivative securities will dilute the percentage ownership interest of our shareholders and may dilute the book value per share of our common stock.

Risks associated with acquisitions and the resulting integrations may affect costs, revenues, and market value.

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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