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Item 1A. Risk Factors

2025-02-26 compared with 2024-02-28 · 99 added, 134 removed, 192 unchanged (55% of the section changed)

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Risks Related to Our Business

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.

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

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

More specifically, the local economic conditions of the Carolinas and the specific markets in which we operate have a significant impact on the demand for our products and services, as well as the ability of our customers to repay loans to us.

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.

A deterioration in economic conditions, 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.

Throughout 2022 and 2023, the FOMC raised the target range for the federal funds rate on eleven separate occasions.

Beginning in September 2024, the FOMC began to lower the target range for the federal funds rate.

As of December 31, 2024, the target range was 4.25% to 4.50%.

In January 2025, the FOMC maintained the target range for the federal funds rate.

Although economic forecasts vary, the FOMC has indicated an expectation of two 25 basis point rate cuts during 2025.

Some economists are projecting that, due to changes in fiscal and economic policies, including tariffs, US economic activity may slow or decrease in 2025.

Economic weakness or persistent inflation could lead to decreased business and consumer confidence and weaker-than-anticipated spending, thereby leading to possible adverse impacts to our business including asset quality, deposit levels, loan demand and results of operations.

We also face credit risk arising from economic and geopolitical conditions, 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.

CRE values continue to fluctuate and the outlook for CRE remains dependent on the broader economic environment and, specifically, how major subsectors respond to ongoing economic and behavioral developments.

Some economic indicators suggest that CRE prices remain high relative to fundamentals and US market delinquency rates are elevated.

Credit performance over is susceptible to economic and market forces.

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.

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.

Additionally, inflation risk can have an adverse impact on our customers ability to repay their loans.

Our customers may 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 cash flows and their ability to repay their loans to us.

Lending activities involve substantial credit risk.

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.

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

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

Lending generally involves various degrees of risk pending on the facts and circumstances of the loan and borrower.

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.

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.

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 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.

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.

These factors involve model risk and are complex and could impact the Company's results of operations and capital levels, particularly in times of economic uncertainty or other unforeseen circumstances.

CECL requires a high degree of judgment related to risk characteristics, asset classification, loss drivers, impact of historical loss data and other factors to develop an estimate of expected lifetime losses.

The CECL methodology also may result in perceived small changes to future forecasts having a disproportionate impact on the ACL and resulting provision for loan losses from period to period.

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

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

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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.

In the latter months of 2024, due to lower, more consistent inflation levels, the Federal Reserve lowered its federal funds target rate by 100 basis points.

December 31, 2024, the target range for the federal funds rate was 4.25% - 4.50%.

It remains uncertain whether then FOMC will further decrease the federal funds rate to attain a monetary policy appropriate to keep inflation at normalized levels, leave the rate at its current level for a lengthy period of time or if it will resume increasing the target range.

Although not necessarily expected in 2025, 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, our net interest income, and therefore earnings, would 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.

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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.

In its assessment of the larger bank failures that occurred 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.

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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.

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 Bank 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.

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.

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For additional information regarding uninsured deposits and liquidity, see Deposits and Liquidity sections of 2024 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.

Cybersecurity incidents or other disruptions of communications or information systems 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 us and/or our third party service providers.

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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.

We rely heavily on communications and information systems to conduct our business.

Our daily operations depend on the operational effectiveness of our technology.

Any failure, interruption, or breach in security of our computer systems or outside vendor technology could result in failures or disruptions in general ledger, deposit, loan, customer relationship management, and other systems leading to inaccurate financial records.

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.

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

The secure transmission of confidential information over the internet is a critical element of online and mobile banking.

While we use qualified third party vendors to test and audit our network, our network could become vulnerable to unauthorized access, computer viruses, phishing schemes, and other security issues.

The Bank may be required to spend significant capital and other resources to alleviate problems caused by security breaches or computer viruses.

To the extent that the Bank’s activities or the activities of its customers involve the storage and transmission of confidential information, security breaches and viruses could expose the Bank to claims, litigation, and other potential liabilities.

Any inability to prevent security breaches or computer viruses could also cause existing customers to lose confidence in the Bank’s systems and could adversely affect its reputation and its ability to generate deposits.

We rely on certain external vendors.

We are reliant upon certain external vendors to provide products and services necessary to maintain our day-to-day operations.

We outsource the processing of our core data system, as well as other systems such as online banking, to third party vendors.

Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with applicable contractual arrangements or service level agreements.

We maintain a system of policies and procedures designed to monitor vendor risks including, among other things, changes in the vendor’s organizational structure, financial condition, and support for existing products and services.

could be disruptive to our operations, which could have a material adverse impact on our business and its financial condition and results of operations.

Additionally, if our third party vendors encounter difficulties or if we have difficulty in communicating with such third party, it will significantly affect our ability to adequately process and account for customer transactions, which would significantly affect our business operations.

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.

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.

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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.

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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.

As part of these transactions, 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.

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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.

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 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.

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

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

The Bank is subject to extensive regulation and supervision by 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.

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

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

The BSA, the Patriot Act, and other laws and regulations require financial institutions, among other duties, to institute and maintain effective anti-money laundering programs and file suspicious activity and currency transaction reports as appropriate.

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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.

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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.

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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.

Consumers may decide not to use banks or specifically our Company to complete their financial transactions.

Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks.

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Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks.

The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.

The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

Negative public opinion regarding our Company and the financial services industry in general, could damage our reputation and adversely impact our earnings.

Reputation risk, or the risk to our business, earnings, and capital from negative public opinion regarding our Company and the financial services industry in general, is inherent in our business.

Negative public opinion can result from actual or alleged conduct in any number of activities, including lending practices, corporate governance and acquisitions, and from actions taken by government regulators and community organizations in response to those activities.

Negative public opinion can adversely affect our ability to keep and attract clients and employees and can expose us to litigation and regulatory action.

Although we have taken steps to minimize reputation risk in dealing with our clients and communities, this risk always will be present given the nature of our business.

The soundness of other financial institutions could adversely affect us.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions.

Financial services companies are interrelated as a result of trading, clearing, counterparty or other relationships.

We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, and investment banks.

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

We face substantial competition in all areas of our operations from a variety of different competitors, both within and beyond our principal markets, many of which are larger and may have more financial resources.

Additionally, we face substantial competition in all areas of our operations from a variety of different competitors, both within and beyond our principal markets, many of which are larger and may have more financial resources.

Such competitors primarily include national, regional, and internet banks within the various markets in which we operate.

We also face competition from many other types of financial institutions, including, without limitation, thrifts, credit unions, finance companies, brokerage firms, insurance companies, and other financial intermediaries, such as online lenders and

The financial services industry could become even more competitive as a result of legislative and regulatory changes and continued consolidation.

In addition, as customer preferences and expectations continue to evolve, technology has lowered barriers to entry and made it possible for nonbanks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.

As customer preferences and expectations continue to evolve, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.

Banks, securities firms, and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting), and merchant banking.

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Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations.

Negative public opinion regarding our Company and the financial services industry in general, could damage our reputation and adversely impact our earnings.

Reputation risk, or the risk to our business, earnings, and capital from negative public opinion regarding our Company and the financial services industry in general, is inherent in our business.

Negative public opinion can adversely affect our ability to keep and attract clients and employees and can expose us to litigation and regulatory action.

Although we have taken steps to minimize reputation risk in dealing with our clients and communities, this risk always will be present given the nature of our business.

In addition, the financial stability of other financial institutions could adversely impact our ability to engage in routine funding transactions.

Defaults by, or even rumors or questions about one or more financials institutions can lead to market-wide liquidity challenges and could lead to losses or defaults by us or by other institutions.

Failure to keep pace with technological change could adversely affect our business.

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Our management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with GAAP and reflect management’s judgment of the most appropriate manner to report our financial condition and results.

In some cases, management must select the accounting policy

or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in reporting materially different results than would have been reported under a different alternative.

In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in reporting materially different results than would have been reported under a different alternative.

Certain accounting policies are critical to presenting our financial condition and results.

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

As of December 31, 2023, management identified a material weakness regarding management’s failure to maintain effective information technology general controls in the areas of user access management and segregation of duties, within an application supporting the Company’s accounting and reporting processes.

As a result, many of the Company’s manual controls dependent upon the information derived from this information technology application were also ineffective, as segregation of duties was not appropriately designed.

Management's report on internal controls over financial reporting and out plan for remediation of the identified material weakness is contained in Item 9A of this Report.

We may not be able to attract and retain skilled people.

Our success depends, in large part, on our ability to attract and retain skilled people.

Competition for the best people in most activities engaged in by us can be intense, and we may not be able to hire sufficiently skilled people or to retain them.

We may not be able to attract and retain skilled employees, adversely affecting our business.

The success of our business is highly dependent on the talents and efforts of our employees.

Additionally, relationships between our key employees and the customers with whom they maintain relationships contribute to our success.

Therefore, our success depends on our ability to attract and retain skilled people.

Competition for the best people can be intense, and we may not be able to hire or retain sufficiently qualified people.

The unexpected loss of services of one or more of our key personnel could have a material adverse impact on our business because of their skills, knowledge of our markets, years of industry experience, and/or the difficulty of promptly finding qualified replacement personnel.

Loss of key employees may disrupt relationships with certain customers.

Our business is primarily relationship-driven in that many of our key employees have extensive customer relationships.

Loss of a key employee with such customer relationships may lead to the loss of business if the customers were to follow that employee to a competitor or otherwise choose to transition to another financial services provider.

While we believe our relationship with our key personnel is good, we cannot guarantee that all of our key personnel will remain with our organization.

Loss of such key personnel could result in the loss of some of our customers.

Our business continuity plans or data security systems could prove to be inadequate, resulting in a material interruption in, or disruption to, our business and a negative impact on our results of operations.

We rely heavily on communications and information systems to conduct our business.

Our daily operations depend on the operational effectiveness of our technology to accurately track and record our assets and liabilities.

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

The secure transmission of confidential information over the internet is a critical element of online and mobile banking.

While we use qualified third party vendors to test and audit our network, our network could become vulnerable to

unauthorized access, computer viruses, phishing schemes, and other security issues.

The Bank may be required to spend significant capital and other resources to alleviate problems caused by security breaches or computer viruses.

Additionally, we outsource the processing of our core data system, as well as other systems such as online banking, to third party vendors.

Prior to establishing an outsourcing relationship, and on an ongoing basis thereafter, management monitors key vendor controls and procedures related to information technology, which includes reviewing reports of service auditor’s examinations.

If our third party vendor encounters difficulties or if we have difficulty in communicating with such third party, it will significantly affect our ability to adequately process and account for customer transactions, which would significantly affect our business operations.

We rely on certain external vendors.

We are reliant upon certain external vendors to provide products and services necessary to maintain our day-to-day operations.

Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with applicable contractual arrangements or service level agreements.

We maintain a system of policies and procedures designed to monitor vendor risks including, among other things, changes in the vendor’s organizational structure, changes in the vendor’s financial condition, and changes in the vendor’s support for existing products and services.

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.

The loss of business if the customers were to follow that employee to a competitor or otherwise choose to transition to another financial services provider could adversely impact our business.

While we believe we have strong relationships with our key personnel, there is no guarantee that all of our key personnel will remain with our organization.

We may be adversely affected by risks associated with potential and completed acquisitions.

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• Incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, and with integrating acquired businesses, resulting in the diversion of resources from the operation of our existing businesses;

• Acquisitions may also be subject to various regulatory approvals.

If we fail to receive the appropriate regulatory approvals, we will not be able to consummate acquisitions that we believe are in our best interests;

• Difficulty in estimating the value of target companies or assets and in evaluating credit, operations, management, and market risks associated with those companies or assets;

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• Difficulties, inefficiencies or cost overruns associated with the integration of the operations, personnel, technologies, services, and products of acquired companies with ours.

Further, expected revenue and/or operational synergies and cost savings associated with pending or recently completed acquisitions may not be fully realized or realized within the expected time frame;

• Inability to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits;

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• The possible loss of key employees and customers of the target company.

• Potential changes in banking, financial services or tax laws or regulations that may affect the target company.

Failure to successfully integrate the entities we acquire into our existing operations could increase our operating costs significantly and have a material adverse effect on our business, financial condition, and results of operations.

Attractive acquisition or expansion opportunities may not be available to us in the future.

We may consider acquiring other businesses or expanding into new product lines or markets that we believe will help us fulfill our strategic objectives.

We expect that other banking and financial companies, some of which have significantly greater resources, will compete with us to acquire such services businesses.

Our target base of attractive candidates may be limited, and competition could increase prices for potential acquisitions that we believe are attractive.

Acquisitions may also be subject to various regulatory approvals.

If we fail to receive the appropriate regulatory approvals, we will not be able to consummate acquisitions that we believe are in our best interests.

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

A component of our business strategy includes growth through acquisitions.

Costs or difficulties related to integrating the acquired business with the Company might be greater than expected.

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

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In deciding whether to extend credit or to enter into other transactions with clients and counterparties, we may rely on information furnished to us by or on behalf of clients and counterparties, including financial statements and other financial information, which we do not independently verify.

We also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors.

We also may rely on representations of clients and

counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors.

Our financial condition and results of operations could be negatively affected to the extent we rely on financial statements that do not comply with GAAP or are materially misleading, any of which could be caused by errors, omissions, or fraudulent behavior by our employees, clients, counterparties, or other third parties.

Risks Related Our Common Stock

Risks Related to Our Common Stock

An investment in our common stock is not an insured deposit.

Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC or by any other public or private entity.

An investment in our common stock is inherently risky for the reasons described in this "Risk

Factors" section and elsewhere in this Report and is subject to the same market forces that affect the price of common stock in any company.

An investment in our common stock is inherently risky for the reasons described in this "Risk Factors" section and elsewhere in this Report and is subject to the same market forces that affect the price of common stock in any company.

As a result, if you acquire our common stock, you may lose some or all of your investment.

Common stock is equity and is subordinate to our existing and future indebtedness and preferred stock and effectively subordinated to all the indebtedness and other non-common equity claims against our subsidiaries.

Shares of the common stock are equity interests in us and do not constitute indebtedness.

Common stock is equity and is subordinate to our existing and future indebtedness and effectively subordinated to all the indebtedness and other non-common equity claims against our subsidiaries.

Shares of our common stock are equity interests in the Company and do not constitute indebtedness.

As such, shares of the common stock rank junior to all of our indebtedness and to other non-equity claims against us and our assets available to satisfy claims against us, including our liquidation.

Upon liquidation, lenders and holders of our debt securities and any preferred stock that may be outstanding, would receive distributions of our available assets prior to holders of our common stock.

Upon liquidation, lenders and holders of our debt securities, would receive distributions of our available assets prior to holders of our common stock.

There can be no assurance that we will continue to pay cash dividends .

Although we have historically paid cash dividends, there is no assurance that we will continue to pay cash dividends.

Although we have historically paid cash dividends on our common stock, there is no assurance that we will continue to pay cash dividends.

Future payment of cash dividends, if any, will be at the discretion of our Board and will be dependent upon our financial condition, results of operations, capital requirements, economic conditions, and such other factors as the board may deem relevant.

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In accordance with our strategic plan, we evaluate opportunities to acquire other financial institutions, financial services companies and branch locations.

Such transactions could have a material effect on our operating results and financial condition, including short- and long-term liquidity, and could require us to issue a significant number of shares of common stock or other securities and/or to use a substantial amount of cash, other liquid assets, and/or incur debt.

Such transactions could have a material effect on our operating results and financial condition, including short- and long-term liquidity, and could require us to issue a significant number of

shares of common stock or other securities and/or to use a substantial amount of cash, other liquid assets, and/or incur debt.

Our acquisition activities could involve a number of additional risks, some of which are described in more detail elsewhere in this Report and include:

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incurring the time and expense required to integrate the operations and personnel of the combined businesses;

the possibility that we will be unable to successfully implement integration strategies due to challenges associated with integrating complex

systems, technology, banking centers, and other assets of the acquired company in a manner that minimizes any adverse effect on customers, suppliers, employees, and other constituencies;

the possibility that we will be unable to successfully implement integration strategies due to challenges associated with integrating complex systems, technology, banking offices, and other assets of the acquired company in a manner that minimizes any adverse effect on customers, suppliers, employees, and other constituencies;

the possibility of regulatory approval for the acquisition being delayed, impeded, restrictively conditioned or denied due to existing or new regulatory issues surrounding the Company, the target company, the assets acquired or the proposed combined entity;

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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