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Item 1A. Risk Factors

2024-02-28 compared with 2023-02-28 · 201 added, 143 removed, 125 unchanged (73% of the section changed)

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Risks Related to Our Business

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.

Our business is subject to periodic fluctuations based on national, regional, and local economic conditions.

These fluctuations are not predictable, cannot be controlled, and may have a material adverse impact on our operations and financial condition.

Our banking operations are primarily locally oriented and community-based.

Our retail and commercial banking activities are primarily concentrated within the same geographic footprint.

Worsening economic conditions within our markets could have a material adverse effect on our financial condition, results of operations, and cash flows.

Accordingly, we expect to continue to be dependent upon local business conditions as well as conditions in the local residential and commercial real estate markets we serve.

Unfavorable changes in unemployment, real estate values, interest rates, and other factors could weaken the economies of the communities we serve.

While economic growth and business activity has been generally favorable in our market area in recent years, there can be no assurance that economic conditions will persist, and these conditions could worsen.

Unfavorable global economic conditions may have a negative impact on financial markets and could adversely impact our customers, which in turn could lead to lower business activity and higher loan delinquencies.

Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including continuing hostilities between Russia and Ukraine, terrorism or other geopolitical events.

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

Changes and instability in economic conditions, geopolitical matters and financial markets, including a contraction of economic activity, could adversely impact our business, results of operations and financial condition.

Our success depends, to a certain extent, upon global, domestic and local economic and political conditions, as well as governmental monetary policies.

Conditions such as changes in interest rates, money supply, levels of employment and other factors beyond our control may have a negative impact on economic activity.

Any contraction of economic activity, including an economic recession, may adversely affect our asset quality, deposit levels and loan demand and, therefore, our earnings.

In particular, interest rates are highly sensitive to many factors that are beyond our control, including global, domestic and local economic conditions and the policies of various governmental and regulatory agencies and, specifically, the Federal Reserve.

Throughout 2022 and 2023, the FOMC raised the target range for the federal funds rate on eleven separate occasions, citing factors including the hardships caused by the ongoing Russia-Ukraine conflict, continued global supply chain disruptions and imbalances, and increased inflationary pressure.

The tightening of the Federal Reserve’s monetary policies, including repeated and aggressive increases in the target range for the federal funds rate as well as the conclusion of the Federal Reserve’s tapering of asset purchases, together with ongoing economic and geopolitical instability, have increased the risk of an economic recession.

Although forecasts have varied, many economists are projecting that, while indicators of U.S.

economic performance, such as income growth, may be strong and levels of inflation may continue to decrease, the U.S.

economy may be flat or experience a modest decrease in gross domestic output in 2024 while inflation is expected to remain elevated relative to historic levels in the coming quarters.

Any such downturn in economic output, especially domestically and in the markets in which we operate, may adversely affect our asset quality, deposit levels, loan demand and results of operations.

Recessionary conditions and economic factors could result in heightened credit risk and increases in our level of nonperforming loans which could adversely impact our results of operations and financial condition.

As a result of the economic and geopolitical factors discussed above, we also face heightened credit risk, among other forms of risk.

As we have a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral, which, in turn, can adversely affect the value of our loan and investment portfolios.

While CRE values continue to fluctuate, some markets are showing signs of stabilizing prices.

However, the outlook for CRE remains dependent on the broader economic environment and, specifically, how major subsectors respond to a rising interest rate environment and higher prices for commodities, goods and services.

Credit performance over the medium- and long-term is susceptible to economic and market forces and therefore forecasts remain uncertain.

Instability and uncertainty in the commercial and residential real estate markets, as well as in the broader commercial and retail credit markets, could have a material adverse effect on our financial condition and results of operations.

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 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 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.

In 2023 and 2022, there was a pronounced rise in inflation and the Federal Reserve raised certain benchmark interest rates in an effort to combat this trend.

While the inflation rate has responded favorably to actions taken by the Federal Reserve, our customers may continue be affected by inflation pressures 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 or to finance future home purchases.

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, 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.

Risk of loan defaults is unavoidable in the banking industry.

We attempt to limit exposure to this risk by monitoring carefully the amount of loans in specific industries and by exercising prudent lending practices.

However, the risk that substantial credit losses could result in reduced earnings or losses cannot be eliminated.

The Company's focus on lending to small- to mid-sized community-based businesses may increase its credit risk.

Most of our commercial business and commercial real estate loans are made to small business or middle-market customers.

These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions.

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 customer sector, our results of operations and financial condition may be adversely affected.

Further, the deterioration of 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.

Our ACL may not be adequate to cover actual losses.

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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.

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

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.

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

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 interest rate risk, which could negatively impact earnings.

Net interest income is the most significant component of our earnings.

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 and which can negatively impact net interest income.

Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve.

Changes in monetary policy, including changes in interest rates, influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but such changes could also affect (i) our ability to originate loans and obtain deposits;

(ii) the fair value of our financial assets and liabilities;

and (iii) the average duration of our mortgage portfolio and other interest-earning assets.

In January 2022, due to elevated levels of inflation and corresponding pressure to raise interest rates, the Federal Reserve announced after several periods of historically low federal funds rates and yields on Treasury notes that it would be slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time.

Therefore, the FOMC increased the target range eleven times throughout 2022 and 2023.

As of December 31, 2023, the target range for the federal funds rate had been increased to 5.25% - 5.50%.

It remains uncertain whether the FOMC will further increase the target range for the federal funds rate to attain a monetary policy sufficiently restrictive to return inflation to more normalized levels, begin to reduce the federal funds rate or leave the rate at its current elevated level for a lengthy period of time.

If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, as experienced in 2023, our net interest income, and therefore earnings, will generally be adversely affected.

Earnings could also be adversely affected if the interest rates received on our loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.

Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations, and any related economic downturn, especially domestically and in the markets in which we operate, may adversely affect our asset quality, deposit levels, loan demand and results of operations.

Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet.

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.

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.

Liquidity is essential to our business.

We rely on a number of different sources in order to meet our potential liquidity demands.

Our primary sources of liquidity are increases in deposit accounts, cash flows from loan payments, and our securities portfolio.

Borrowings also provide us with a source of funds to meet liquidity demands.

An inability to raise funds through from these or other sources could have a substantial negative effect on our liquidity.

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.

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.

The proportion of our deposit account balances that exceed FDIC insurance limits may expose the Bank to enhanced liquidity risk in times of financial distress.

In its assessment of the bank failures occurring in the first and second quarters of 2023, the FDIC concluded that a significant contributing factor to the failures of the institutions was the proportion of the deposits held by each institution that exceeded FDIC insurance limits.

Uninsured deposits historically have been viewed by the FDIC as less stable than insured deposits.

In July 2023, the federal banking agencies issued an interagency policy statement to underscore the importance of robust liquidity risk management and contingency funding planning.

In the policy statement, the regulators noted that banks should maintain actionable contingency funding plans that take into account a range of possible stress scenarios, assess the stability of their funding and maintain a broad range of funding sources, ensure that collateral is available for borrowing, and review and revise contingency funding plans periodically and more frequently as market conditions and strategic initiatives change.

If a significant portion of our deposits were to be withdrawn within a short period of time such that additional sources of funding would be required to meet withdrawal demands, the Company may be unable to obtain funding at favorable terms, which may have an adverse effect on our net interest margin.

Moreover, obtaining adequate funding to meet our deposit obligations may be more challenging during periods of elevated prevailing interest rates, such as the present period.

Our ability to attract depositors during a time of actual or perceived distress or instability in the marketplace may be limited.

Further, interest rates paid for borrowings generally exceed the interest rates paid on deposits.

This spread may be exacerbated by higher prevailing interest rates.

In addition, because our AFS investment securities lose value when interest rates rise, after-tax proceeds resulting from the sale of such assets may be diminished during periods when interest rates are elevated.

For additional information regarding uninsured deposits and liquidity, see Deposits and Liquidity sections of 2023 MD&A Item 7 following.

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

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.

Any successful cyberattack may subject us to regulatory investigations, litigation (including class action litigation) or enforcement, or require the payment of regulatory fines or penalties or undertaking costly remediation efforts with respect to third parties affected by a cybersecurity incident, all or any of which could adversely affect our business, financial condition or results of operations and damage our reputation.

In addition, we cannot guarantee that any costs and liabilities incurred in relation to an attack or incident will be covered by our existing insurance policies or that applicable insurance will be available to us in the future on economically reasonable terms or at all.

Information security risks for financial institutions continue to increase in part because of new technologies, the increased use of the internet and telecommunications technologies (including mobile devices and cloud computing) to conduct financial and other business transactions, political activism, and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists and others.

We rely on computer systems, hardware, software, technology infrastructure and online sites and networks for both internal and external operations that are critical to our business.

Operational risk related to cyberattacks is

increasing as cyberattacks evolve and have a greater and more pervasive economic impact.

In addition to cyberattacks or other security breaches involving the theft of sensitive and confidential information, hackers have engaged in attacks against financial institutions designed to disrupt key business services, such as customer-facing web sites.

Critical infrastructure sectors, including financial services, increasingly have been the targets of cyberattacks, including attacks emanating from foreign countries.

Cyberattacks involving financial institutions, including distributed denial of service attacks designed to disrupt external customer-facing services, nation state cyberattacks and ransomware attacks designed to deny organizations access to key internal resources or systems or other critical data, as well as targeted social engineering and phishing email and text message attacks designed to allow unauthorized persons to obtain access to an institution’s information systems and data or that of its customers, are becoming more common and increasingly sophisticated.

Further, threat actors are increasingly seeking to target vulnerabilities in software systems (including bugs, vulnerabilities in third-party systems or software and technical misconfigurations in hardware and software) and weak authentication controls used by large numbers of banking organizations in order to conduct malicious cyber activities.

These types of attacks have resulted in increased supply chain and third-party risk.

Because the methods of cyberattacks change frequently or, in some cases, are not recognized until launch, we are not able to anticipate or implement effective preventive measures against all possible security breaches and the probability of a successful attack cannot be predicted.

Although we employ detection and response mechanisms designed to contain and mitigate security incidents, early detection may be thwarted by persistent sophisticated attacks and malware designed to avoid detection.

Our inability to prevent, detect, and respond to cyberattacks may lead to reputational damage, litigation with third parties, and increased cybersecurity protection and remediation costs, which in turn could materially adversely affect our results of operations.

From time to time, we engage in acquisitions, including acquisitions of depository institutions.

The integration of core systems and processes for such transactions often occurs after the closing, which may create elevated risk of cyber incidents.

We may be subject to the data risks and cyber security vulnerabilities of the acquired company until we have sufficient time to fully integrate the acquiree’s customers and operations.

Although comprehensive due diligence of cybersecurity policies, procedures and controls of our acquisition counterparties is performed, and we maintain adequate policies, procedures, controls and information security protocols to facilitate a successful integration, there can be no assurance that such measures, controls and protocols are sufficient to withstand a cyberattack or other security breach with respect to the companies we acquire, particularly during the period of time between the transaction closing and final integration.

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

If our internal controls fail to work as expected, we could experience significant losses.

We process large volumes of transactions on a daily basis involving millions of dollars and are exposed to numerous types of operational risk, including the risk of fraud by persons inside or outside the Company, the execution of unauthorized transactions by employees, errors relating to transaction processing and systems, and breaches of the internal control system and compliance requirements.

This risk also includes potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards.

We establish and maintain systems of internal operational controls that provide us with timely and accurate information about our level of operational risk.

These systems have been designed to manage operational risk at appropriate, cost-effective levels.

Procedures exist that are designed to ensure that policies relating to conduct, ethics, and business practices are followed.

We continually monitor and improve our internal controls, data processing systems, and corporate-wide processes and procedures, but there can be no assurance that future losses will not occur.

Lack of system integrity or credit quality related to funds settlement could result in a financial loss.

We settle funds on behalf of financial institutions, other businesses and consumers and receive funds from clients, card issuers, payment networks and consumers on a daily basis for a variety of transaction types.

Transactions we facilitate include wire transfers, debit card, credit card and electronic bill payment transactions, supporting consumers, financial institutions and other businesses.

These payment activities rely upon the technology infrastructure that facilitates the verification of activity with counterparties and the facilitation of the payment.

If the continuity of our operations or integrity of our processing were compromised, this could result in a financial loss to us due to a failure in payment facilitation.

In addition, we may issue credit to consumers, financial institutions or

other businesses as part of the funds settlement.

A default on this credit by a counterparty could result in a financial loss to us.

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

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Failure to maintain and implement adequate programs to combat money laundering and terrorist financing also could have serious reputational consequences for us.

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

Federal and state fair lending laws and regulations, such as the Equal Credit Opportunity Act and the Fair Housing Act, impose nondiscriminatory lending requirements on financial institutions.

The Department of Justice, the CFPB, and other federal and state agencies are responsible for enforcing these laws and regulations.

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.

Recent volatility in the banking sector, triggered by the bank failures occurring in 2023 may result in legislative initiatives, agency rulemaking activities, or changes in agency policies and priorities that could subject the Company and the Bank to enhanced government regulation and supervision.

Investor and customer confidence in the banking sector, particularly with regard to mid-size and larger regional banking organizations, waned in response to the failures of Silicon Valley Bank, Signature Bank and First Republic Bank in early 2023.

Congress and the federal banking agencies have and continue to evaluate the events leading to these bank failures.

Legislators and the leadership of the federal banking agencies noted that inadequate prudential regulation of regional banking organizations (generally, institutions with less than $250 billion in total assets), insufficient supervision of such organizations, poor management and inadequate risk management practices, specifically including interest rate and liquidity risks in consideration of each institution’s business model, and substantial uninsured deposit liabilities were causes of the failures.

Further evaluation of recent developments in the banking sector may lead to governmental initiatives intended to prevent future bank failures and stem significant deposit outflows from the banking sector, including (i) legislation aimed at preventing similar future bank runs and failures and stabilizing confidence in the banking sector over the long term, (ii) agency rulemaking to modify and enhance relevant regulatory requirements, specifically with respect to liquidity risk management, deposit concentrations, capital adequacy, stress testing and contingency planning, and safe and sound banking practices, and (iii) enhancement of the agencies’ supervision and examination policies and priorities.

Although we cannot predict which initiatives may be pursued by lawmakers and regulators, any of the potential initiatives if implemented could subject us to additional costs, limit the types of financial services and products we may offer, and limit our future growth, any of which could materially and adversely affect our business, results of operations or financial condition.

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.

We are required to maintain adequate capital levels to support our operations.

In the future, we might need to raise additional capital to support growth, absorb loan losses, or meet more stringent capital requirements.

Our ability to raise additional capital will depend on conditions in the capital markets at that time, which are outside our control, and on our financial performance.

Accordingly, we cannot be certain of our ability to raise additional capital in the future if needed or on terms acceptable to us.

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

Consumers may decide not to use banks to complete their financial transactions.

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Defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions.

We are subject to interest rate risk, which could negatively impact earnings.

Net interest income is the most significant component of our earnings.

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.