What changed in this filing

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Item 1A. Risk Factors

2025-03-12 compared with 2024-03-07 · 114 added, 97 removed, 350 unchanged (38% of the section changed)

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Our financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services we offer, is highly dependent upon the business environment in the primary markets where we operate and in the U.S.

For example, high inflation in 2021 through 2023 resulted in the Federal Reserve raising target interest rates, on a cumulative basis, by 525 basis points since March 2022, causing increases in the costs of credit, capital and deposits and limitations on the availability of credit and capital.

This business environment has been significantly impacted in recent periods by changing inflation and monetary policy.

For example, high inflation in 2021 through 2023 resulted in the Federal Reserve raising target interest rates, on a cumulative basis, by 525 basis points between March 2022 and July 2023, causing increases in the costs of credit, capital and deposits, limitations on the availability of credit and capital, and decreasing the market value of our investment securities portfolio.

In response to generally declining inflation during 2023 and 2024, the Federal Reserve decreased target interest rates from September to December 2024, on a cumulative basis, by 100 basis points.

Our business may also be adversely affected by declines in economic growth, business activity, investor or business confidence;

declines in real estate values;

rising unemployment;

rising domestic political tensions;

unemployment;

rising domestic political tensions, such as uncertainty caused by the transition to a new Presidential administration in 2025;

risks of government shutdowns;

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and globally, disruptions in international trade patterns, and slow growth or declines in economic sectors of the global and U.S.

Changes in U.S.

trade policies may also adversely impact our business and operations.

For example, changes in tariffs imposed or threatened to be imposed by the new Presidential administration may cause inflation, which can adversely affect our business as discussed elsewhere in this report.

Economic uncertainty and negative events in the economy or in domestic political or geopolitical matters could have a material adverse effect on our business, results of operations and financial condition, including our liquidity position.

Among other things, they may result in higher than expected loan delinquencies, a decline in the value of collateral securing our loans, instability in our deposit base, further increases in our costs of capital and deposits, disruptions in our ability to complete acquisitions, and a decline in demand for our products and services.

They may cause us to incur losses, including losses on loans beyond those provided for in our allowance for credit losses, and losses in our investment securities portfolio, impairments of assets including goodwill, and may adversely impact our regulatory capital.

Increasing and high interest rates in 2022 and 2023 caused interest expense on both deposits and borrowings to increase significantly in 2023;

further increases in interest rates could continue to have an adverse effect on our profitability.

Among other things, they may result in higher than expected loan delinquencies, a decline in the value of collateral securing our loans, instability in our deposit base, increases in our costs of capital and deposits, disruptions in our ability to complete acquisitions, and a decline in demand for our products and services.

They may cause us to incur losses, including losses on loans beyond those provided for in our ACL, and losses in our investment securities portfolio, impairments of assets including goodwill, and may adversely impact our regulatory capital.

Changes in interest rates could have an adverse effect on our profitability.

The majority of our assets and liabilities are monetary in nature and, as a result, we are subject to significant risk from changes in interest rates.

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Inflation increased rapidly during 2021 through June 2022.

Since June 2022, the rate of inflation generally has declined;

however, it has remained at high levels compared to the Federal Reserve’s target rate of inflation of two percent.

In response, the Federal Reserve raised the federal funds target rate multiple times from March 2022 through July 2023, by 525 basis points on a cumulative basis.

After June 2022, the rate of inflation generally declined;

however, it began increasing in the later part of 2024 and has remained higher than the Federal Reserve’s target rate of inflation of two percent.

The inflationary outlook in the U.S.

remains uncertain.

The Federal Reserve raised the federal funds target rate multiple times from March 2022 through July 2023, by 525 basis points on a cumulative basis.

Between September 2024 and December 2024, the Federal Reserve lowered the federal funds target rate by 100 basis points on a cumulative basis.

Our earnings depend significantly on our net interest income, which is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings.

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

Additionally, an increase in the general level of interest rates may also, among other things, adversely affect our current borrowers’ ability to repay variable rate loans, the demand for and our ability to originate loans, negatively affect the value of our investment securities portfolio, and decrease loan prepayment rates, or could increase the cost of the Company’s deposits and borrowings.

Rising and high interest rates in 2022 and 2023 caused interest expense on both deposits and borrowings to increase significantly in 2023, putting pressure on our net interest margin.

Our cost of interest-bearing deposits rose to 2.49% in 2023 from 0.42% in 2022, an increase of 207 basis points.

Our costs of short-term borrowings rose to 4.93% in 2023 from 3.05% in 2022, an increase of 188 basis points.

Additionally, an increase in the general level of interest rates may also, among other things, adversely affect our current borrowers’ abilities to repay variable rate loans, the demand for and our ability to originate loans, negatively affect the value of our investment securities portfolio, and decrease loan prepayment rates, or could increase the cost of the Company’s deposits and borrowings.

High interest rates in 2023 and 2024 caused interest expense on deposits t o increase significantly in 2023 and 2024, putting pressure on our net interest margin.

Our cost of interest-bearing deposits rose to 3.38% in 2024 from 2.49% in 2023 and 0.42% in 2022.

We may experience additional pressure on our net interest margin during 2025 if our cost of funds increases faster than the yield on our interest-earning assets.

Additionally, due in large part to higher interest rates and market volatility during 2022 and 2023, gross unrealized losses in our investment portfolio totaled $57.7 million at December 31, 2023 and $62.5 million at December 31, 2022.

Additionally, due in large part to higher interest rates and market volatility during 2023 and 2024, gross unrealized losses in our AFS investment securities portfolio totaled $61.7 million at December 31, 2024 and $57.7 million at December 31, 2023.

These losses may continue or worsen during 2025, and we may experience realized losses in our portfolio.

A continued high general level of interest rates or any additional increases in such rates could result in increased loan defaults, foreclosures and charge-offs, and also necessitate further increases to the allowance for credit losses.

A high general level of interest rates or any increases in such rates could result in increased loan defaults, foreclosures and charge-offs, and also necessitate further increases to the ACL.

At the same time, the marketability and value of the property securing a loan may be adversely affected by any reduced demand resulting from sustained higher or increased interest rates.

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We also may not be able to adequately prepare for or compensate for the consequences of such changes.

Significant increases in interest rates, as has occurred during the last two fiscal years, makes our business and our balance sheet more challenging to manage.

Significant increases in interest rates, as occurred in 2022 and 2023, makes our business and our balance sheet more challenging to manage.

Any failure to predict and prepare for changes in interest rates or adjust for the consequences of these changes may adversely affect our earnings and capital levels.

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The primary source of the Bank’s funds are customer deposits, loan repayments and investment securities maturities or sales, while borrowings are a secondary source of liquidity.

We also use brokered deposits from time to time and our use of brokered deposits increased during 2023.

We also use brokered deposits from time to time and our use of brokered deposits increased over the last two years.

Brokered deposits tend to be more sensitive to changes in interest rates than other types of deposits and therefore can be a more expensive and uncertain source of funds.

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As noted above, inflation increased rapidly during 2021 and continued rising through June 2022.

Since June 2022, the rate of inflation generally has declined;

however, it has remained at high levels compared to the Federal Reserve’s target rate of inflation of two percent.

After June 2022, the rate of inflation generally declined;

however, it began increasing in the later part of 2024 and has remained at elevated levels compared to the Federal Reserve’s target rate of inflation of two percent.

Inflation increases our borrowers’ costs of living and costs of doing business, which may make it more difficult for them to repay their loans, increasing our credit risk.

Inflation also increases many of our operating costs, including the costs of goods and services we purchase and the costs of salaries and benefits.

We believe that higher rates resulting from inflation and related factors led to constrained loan demand during 2023.

We believe that higher rates resulting from inflation and related factors led to constrained loan demand during 2023 and 2024.

When the rate of inflation accelerates, there is an erosion of consumer and customer purchasing power.

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Inflation and related higher rates have led and may continue to lead to lower loan re-financings.

In addition, inflation has led to the Federal Reserve raising interest rates during 2022 and 2023, as discussed above.

In addition, inflation led to the Federal Reserve raising interest rates during 2022 and 2023, as discussed above.

Our allowance for credit losses may prove to be insufficient to absorb losses inherent in our loan portfolio, and we may be required to further increase our provision for credit losses.

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As a lender, we are exposed to the risk that the principal of and interest on a loan will not be paid timely or at all, and that the value of any collateral supporting a loan will be insufficient to cover any exposure to loss on a loan.

Management maintains an allowance for credit losses, which is a reserve established through a provision for credit losses charged to expense, to absorb credit losses in the loan portfolio.

Management maintains an ACL, which is a reserve established through a provision for credit losses charged to expense, to absorb credit losses in the loan portfolio.

The determination of the appropriate level of the allowance is inherently subjective, involves a high degree of judgment and complexity, and requires us to make significant estimates, all of which are subject to material changes.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard (Accounting Standards Update “ASU” 2016-13), referred to as Current Expected Credit Loss (“CECL”) that requires that the measurement of all expected credit losses for financial assets held at the reporting date be based on historical experience, current conditions, and reasonable and supportable forecasts, and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio.

In addition, the new standard amends the accounting for credit losses on purchased financial assets with credit deterioration.

In June 2016, the FASB issued ASU 2016-13, referred to as CECL, that requires that the measurement of all expected credit losses for financial assets held at the reporting date be based on historical experience, current conditions, and reasonable and supportable forecasts, and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio.

In addition, the standard amends the accounting for credit losses on purchased financial assets with credit deterioration.

ASU 2016-13 became effective for us, as a smaller reporting company, on January 1, 2023.

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The CECL methodology requires that lifetime “expected credit losses” be recorded at the time the financial asset is originated or acquired, and be adjusted each quarter for changes in expected lifetime credit losses.

The CECL methodology replaces multiple prior impairment models under U.S.

GAAP that generally required that a loss be “incurred” before it was recognized, and represents a significant change from prior U.S.

The CECL methodology replaces multiple prior impairment models under GAAP that generally required that a loss be “incurred” before it was recognized, and represents a significant change from prior GAAP.

Our ongoing estimates of expected credit losses will depend upon our models and assumptions, existing and forecasted macroeconomic conditions and the credit quality, composition and other characteristics of our loan and other applicable portfolios.

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These types of loans are also typically larger than residential real estate loans and other consumer loans.

Because our loan portfolio contains a significant number of commercial and industrial and commercial real estate loans with relatively large balances, the deterioration of a material amount of these loans may cause a significant increase in our allowance for credit losses, non-performing assets, and/or past due loans.

An increase in our allowance for credit losses, non-performing assets, and/or past due loans could result in a loss of earnings, or an increase in loan charge-offs, which would have an adverse impact on our results of operations and financial condition.

Inaccurate management assumptions, including with respect to economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require us to increase our allowance for credit losses.

In addition, bank regulatory agencies periodically review the allowance for credit losses and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management.

Finally, if actual charge-offs in future periods exceed the allowance for credit losses, we will need additional provisions to increase the allowance for credit losses.

Any increases in the allowance for credit losses will result in a decrease in net income and, possibly, capital and may have a material adverse effect on our business, financial condition, and results of operations.

If our actual credit losses exceed our allowance for credit losses, our net income will decrease.

An increase in our ACL, non-performing assets, and/or past due loans could result in a loss of earnings, or an increase in loan charge-offs, which would have an adverse impact on our results of operations and financial condition.

In addition, bank regulatory agencies periodically review the ACL and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management.

Finally, if actual charge-offs in future periods exceed the ACL, we will need additional provisions to increase the ACL.

Any increases in the ACL will result in a decrease in net income and, possibly, capital and may have a material adverse effect on our business, financial condition, and results of operations.

If our actual credit losses exceed our ACL, our net income will decrease.

Our pivot during 2023 from primarily a growth strategy to a near-term strategy focused primarily on consistent, quality earnings through the optimization of our balance sheet may not be successful in increasing our profitability .

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Our new strategy may not be successful in increasing our profitability.

Our long-term business strategy includes the continuation of our multi-state growth plans, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.

Our near-term strategy includes continuing to consider acquisitions on an opportunistic basis.

Our long-term business strategy includes both organic growth and the continuation of our multi-state growth plans, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.

In addition to organic growth, we have grown our business through de novo branching and through the acquisition of other financial institutions and branch locations.

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There are considerable costs involved in opening or acquiring branches, and de novo branches generally do not generate sufficient revenues to offset their costs until they have been in operation for at least a year or more.

We have not opened a de novo branch since 2020, except that in the third quarter of 2023 we converted an existing loan and deposit production office in Tuscaloosa, Alabama to a cashless branch designed to provide a digital banking experience.

We have not opened a de novo branch since 2020.

In the third quarter of 2023, we converted an existing loan and deposit production office in Tuscaloosa, Alabama to a cashless branch designed to provide a digital banking experience;

and in the fourth quarter of 2024, we converted an existing loan and deposit production office in our Texas market to a full-service branch location .

We do not expect to open de novo branches in 2025.

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Of our Bank’s branch network, these two locations were geographically the most distant from our Louisiana headquarters.

During 2024, we began to reinvest within our Texas markets, including through the conversion of an existing loan and deposit production office to a full-service branch location in the southeast Texas market and strategic hires.

Acquisition and Integration Risks .

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Changes in retail distribution strategies and consumer behavior may adversely impact our business, financial condition and results of operations.

We have significant investments in our physical branch network, including in bank premises and equipment as well as in our branch work force.

We have significant investments in our physical branch network, including in bank premises and equipment as well as in our branch workforce.

Advances in technology as well as changing customer preferences for remote methods of accessing our products and services could decrease the value of our branch network and may cause us to further change our retail distribution strategy, and close, consolidate or sell certain branches or parcels of land held for future branch locations.

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In recent periods, we have focused on enhancing our online banking platform and plan to continue to introduce new technologies, with the goal of delivering products and services more efficiently with fewer branches and people.

We closed five branches during our last three fiscal years .

Three of the branches had been acquired, and the closures involved anticipated synergies that resulted in significant cost savings.

We closed four branches during our last three fiscal years .

Two of the branches had been acquired, and the closures involved anticipated synergies that resulted in significant cost savings.

In 2022, we sold five former branch locations and three tracts of land that were being held for future branch locations.

In January 2023, we completed the sale of certain assets, deposits and other liabilities associated with two of our Texas branches in order to focus more on our core markets.

In 2023, we completed the sale of certain assets, deposits and other liabilities associated with two of our Texas branches in order to focus more on our core markets.

Of the Bank’s entire branch network, these two locations were geographically the most distant from our Louisiana headquarters.

During the third quarter of 2023, we ceased operation of 14 ATMs and in January 2024 we closed a branch in our Alabama market.

We also ceased operation of 14 ATMs in 2023.

In January 2024 we closed a branch in our Alabama market.

We could incur material losses in the future due to the closure or consolidation of branches or sale of land held for future branch locations.

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As of December 31, 2024 , our primary markets were south Louisiana (approximately 78% of our total deposits of $2.3 billion), southeast Texas (approximately 6% of our total deposits) and Alabama (approximately 16% of our total deposit s).

At December 31, 2023, approximately 60%, 5%, and 5% of the secured loans in our total loan portfolio were secured by properties and other collateral located in Louisiana, Texas and Alabama, respectively.

At December 31, 2024, approximately 59%, 6%, and 4% of t he secured loans in our total loan portfolio were secured by properties and other collateral located in Louisiana, Texas and Alabama, respectively.

This geographic concentration imposes a greater risk to us than to our competitors in the area who maintain significant operations outside of our selected markets.

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We have a significant number of loans secured by real estate, and a downturn in the real estate market could result in losses and negatively impact our profitability.

At December 31, 2023, approximately 75% of our total loan portfolio had real estate as a primary or secondary component of the collateral securing the loan.

At December 31, 2024, approximately 75% of our total lo an portfolio had real estate as a primary or secondary component of the collateral securing the loan.

The real estate provides an alternate source of repayment in the event of a default by the borrower, but its value may deteriorate during the time the credit is extended.

Declines in real estate values in our markets could significantly impair the value of the particular collateral securing our loans and our ability to sell the collateral upon foreclosure for an amount necessary to satisfy the borrower’s obligations to us.

Furthermore, in a declining real estate market, we often will need to further increase our allowance for credit losses to address the deterioration in the value of the real estate securing our loans.

Furthermore, in a declining real estate market, we often will need to further increase our ACL to address the deterioration in the value of the real estate securing our loans.

Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

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Additionally, as of December 31, 2024 56% of our commercial and industrial loans were variable rate loans;

rising interest rates increase interest payments due on such loans and may increase the risk of default by the borrower.

rising interest rates increase interest payments due on such loans and may increase the risk of default by the borrower, whereas declining interest rates will decrease the interest we earn on the loans.

We have been increasing the proportion of commercial and industrial loans in our loan portfolio.

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Loans to consumer finance lending companies accounted for approximately 8% of our total loans at December 31, 2024.

The increase from year-end 2021 to year-end 2022 was driven primarily by an increase in public finance loans and loan production by our Commercial and Industrial Division.

Commercial and industrial loans include public finance loans made to governmental entities, which can be taxable or tax-exempt, for purposes including debt refinancing, economic development, quality of life projects, short-term cash-flow needs, and infrastructure enhancements, among other things.

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Public finance loans comprise less than 5% of our loan portfolio as of December 31, 2024.

Changes in deposit mix have increased our funding costs, which could continue, and loss of deposits could also increase our funding costs.

Deposits have historically been a low cost and stable source of funding.

We compete with banks and other financial institutions for deposits.

Funding costs could increase if the Company loses deposits and replaces them with more expensive sources of funding, if customers shift their deposits into higher cost products, or if the Company needs to raise its interest rates to avoid losing deposits.

Higher funding costs reduce the Company’s net interest margin, net interest income and net income.

As interest rates began to rise significantly during 2022, competition for deposits increased, and the Bank raised rates it offered on deposits to remain competitive in its markets.

During 2023, interest rates continued to rise, and they remained high in 2024.

Customers continued to shift into interest-bearing deposit products, and we utilized more brokered time deposits.

These factors contributed to an increase in our total cost of deposits by 207 basis points from 2022 to 2023 and 89 basis points from 2023 to 2024.

Disruptions in the banking industry during the first half of 2023 discussed elsewhere in this report highlighted the speed at which deposits can be moved from bank to bank or outside the banking system, heightening liquidity concerns of traditional banks.

Any further increases in interest rates, sustained high interest rates or any new events producing concerns among customers about the safety of uninsured deposits could further increase our cost of deposits or cause us to lose deposits, which would increase our costs of funds and reduce net income.

Loss of our senior executive officers or other key employees and our inability to recruit or retain suitable replacements could adversely affect our business, results of operations and ability to successfully execute our business strategy .

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As a result of Hurricane Ida, the Borrower’s business operations were disrupted, and due to this impact on the Borrower’s operations, certain of the collateral supporting the loan relationship experienced a significant reduction in value.

Hurricane Francine made landfall in Louisiana in September 2024 as a Category 2 hurricane.

The severity and impact of future severe weather events are difficult to predict and may be exacerbated by global climate change.

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The occurrence of any such event could, therefore, result in decreased revenue and loan losses that have a material adverse effect on our business, financial condition, results of operations and ability to successfully execute our business strategy.

Climate related events and legislative and societal responses regarding climate change present risks to our business.

Climate change may intensify severe weather events such as hurricanes and rainstorms that recur in our market areas, which may adversely impact our locations and business and those of our customers and suppliers.

In addition, there has been an increased focus among businesses, consumers and investors regarding transitioning to renewable energy and a net zero economy.

If we fail to adequately anticipate and address these changing preferences, our business could be adversely impacted.

We are also subject to risks relating to potential new climate change-related legislation or regulations, which could increase our and our customers’ costs.

The risks associated with these matters are continuing to evolve rapidly and the ultimate impact on our business is difficult to predict with any certainty.

Our failure to effectively implement new technologies could adversely affect our operations and financial condition.

Our industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services, including those using artificial intelligence.

Our failure to effectively implement new technologies including artificial intelligence could adversely affect our operations and financial condition.

Our industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services, including those using AI.

Our ability to compete successfully to some extent depends on whether we can implement new technologies to provide products and services to our customers more efficiently while avoiding significant operational challenges that increase our costs or delay full implementation, especially relative to our peers, many of which have greater resources to devote to technological improvements.

The development and use of new technologies presents a number of risks and challenges to our business.

For example, we must have or develop in-house capabilities to implement, manage and use the new technologies, or outsource the implementation, management and use of the new technologies to third parties, and develop appropriate internal controls and third-party oversight.

In particular, the business, legal and regulatory environment relating to AI is uncertain and rapidly evolving, and could require changes in our approach to AI technology and increase our compliance costs and the risk of non-compliance.

The use of AI may also increase our exposure to cyberattacks or other security risks, as discussed further below.

We rely on information technology and telecommunications systems, many of which are provided by third-party vendors.

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Cyberattacks or other security breaches could adversely affect our operations, net income or reputation.

The financial services industry is particularly at risk for cybersecurity concerns because of the proliferation of new and emerging technologies, and the use of the internet and telecommunications technologies to conduct financial transactions.

The financial services industry is particularly at risk for cybersecurity concerns because of the proliferation of new and emerging technologies, including AI, and the use of the internet and telecommunications technologies to conduct financial transactions.

Additionally, increased use of internet and mobile banking products, and applications and plans to use or develop additional remote connectivity solutions increase our cybersecurity risks and exposure.

In recent years we have increased our offerings of online and mobile banking services, including on-line bill payment, on-line funds transfers, mobile deposits, mobile wallets, video banking and Zelle®.

In recent years we have increased our offerings of online and mobile banking services, including online bill payment, online funds transfers, mobile deposits, mobile wallets, video banking and Zelle®.

These risks are heightened when customers use near real-time money transfer solutions such as Zelle®, where fraudulent and scam transactions can be more difficult to detect, prevent and recover.

Additionally, as part of our banking business, we and certain of our third-party vendors collect, use and hold sensitive data concerning individuals and businesses with whom we have a banking relationship.

Threats to data security, including unauthorized access and cyberattacks, rapidly emerge and change and are becoming increasingly sophisticated, exposing us to additional costs to secure our data in accordance with customer expectations and statutory and regulatory requirements.

The holding of such sensitive data by our third-party vendors may enhance the risk of unauthorized access, as the security measures of the third-party vendors’ systems are outside of our direct control.

There have been multiple data security incidents in recent years in which a bank’s customer data was accessed by a cybercriminal due to a breach of a vendor’s systems.

Threats to data security, including unauthorized access and cyberattacks, rapidly emerge and change and are becoming increasingly sophisticated, exposing us and our third-party vendors to additional costs to secure our data in accordance with customer expectations and statutory and regulatory requirements.

We could also experience a breach by intentional or negligent conduct on the part of our employees or other internal sources or by merchants using our customers’ debit and credit cards, software bugs, other technical malfunctions, or other causes.

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Our systems and those of our third-party vendors may become vulnerable to damage or disruption due to circumstances beyond our or their control, such as from catastrophic events, power anomalies or outages, natural disasters, network failures, and viruses and malware.

Events may occur that increase our and other companies’ vulnerability with respect to cybersecurity risks, such as a sudden and substantial increase in remote work by employees as occurred during the early stages of the pandemic or may occur during adverse weather events, and as a result of increased cyberattacks by foreign actors, including in connection with the wars and violence in Ukraine and Israel and surrounding areas.

A breach of security that results in unauthorized access to our data could result in violations of applicable privacy and other laws and expose us to disruptions in our daily operations as well as to data loss, litigation, damages, fines and penalties, regulatory sanctions, customer notification requirements, significant increases in compliance and insurance costs, increases in costs for measures to minimize and remediate these risks and breaches, loss of confidence in our security measures, and reputational damage, any of which could individually or in the aggregate have a material adverse effect on our business, results of operations, financial condition, prospects, and shareholder value.

Events may occur that increase our and other companies’ vulnerability with respect to cybersecurity risks, such as a sudden and substantial increase in remote work by employees as occurred during the early stages of the COVID-19 pandemic or may occur during adverse weather events, and as a result of increased cyberattacks by foreign actors, including in connection with the wars and violence in Ukraine and Israel and surrounding areas.

A breach of security that results in unauthorized access to our data could result in violations of applicable privacy, information security, data protection, and other laws and expose us to disruptions in our daily operations as well as to data loss, litigation, damages, fines and penalties, regulatory sanctions, customer notification requirements, significant increases in compliance and insurance costs, increases in costs for measures to minimize and remediate these risks and breaches, loss of confidence in our security measures, and reputational damage, any of which could individually or in the aggregate have a material adverse effect on our business, results of operations, financial condition, prospects, and shareholder value.

We have attempted to address these concerns by backing up our systems as well as retaining qualified third-party vendors to test and audit our network.

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We may not be able to anticipate all cyber security breaches or implement effective preventative measures against such breaches.

Changes in deposit mix have increased our funding costs, which could continue, and loss of deposits could also increase our funding costs.

Deposits have historically been a low cost and stable source of funding.

We compete with banks and other financial institutions for deposits.

Higher funding costs reduce the Company’s net interest margin, net interest income and net income.

As interest rates began to rise significantly during 2022, competition for deposits increased, and the Bank raised rates it offered on deposits to remain competitive in its markets.

During 2023, as interest rates continued to rise and remain high, customers continued to shift into interest-bearing deposit products and we also utilized brokered time deposits, which increased our total costs of deposits by 207 basis points from 2022 to 2023.

We may need to raise additional capital in the future to execute our long-term business strategy or to comply with regulatory requirements.

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Our ability to raise additional capital depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities, and on our financial condition and performance.

Rising interest rates as experienced during 2022 and 2023 increased our costs of short-term borrowings and long-term debt.

Rising interest rates increased our costs of long-term debt in 2022, 2023, and 2024.

Further increases in interest rates would increase the costs of our variable rate borrowings.

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If we are unable to successfully compete, our business, financial condition, and results of operations will be materially adversely affected.

If the goodwill that we record in connection with a business acquisition becomes impaired, it could require charges to earnings, which would have a negative impact on our financial condition and results of operations.

Goodwill represents the amount by which the cost of an acquisition exceeded the fair value of net assets we acquired in connection with the purchase of another financial institution.

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

We determine impairment by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill.

If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

Any such adjustments are reflected in our results of operations in the periods in which they become known.

As of December 31, 2023, our goodwill totaled $40.1 million.

While we have not recorded any such 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.

The value of the securities in our investment portfolio may decline in the future, and we may incur losses with respect to our investment securities.

Our investment securities portfolio may be impacted by market conditions beyond our control, including fluctuations in interest rates, rating agency downgrades of the securities, credit deterioration or default of issuers of the securities, and inactivity or instability in the credit markets.

For example, during 2022, increases in interest rates had a negative effect, particularly on the value of our available for sale investment securities portfolio, which we carry at fair value on our consolidated balance sheets.

As of December 31, 2023, gross unrealized losses in our investment portfolio, primarily reflected in accumulated other comprehensive loss on the consolidated balance sheets, totaled $57.7 million.

For example, changes in interest rates impact the value of our AFS investment securities portfolio, which we carry at fair value on our consolidated balance sheets.

As of December 31, 2024, gross unrealized losses in our AFS investment securities portfolio, primarily reflected in accumulated other comprehensive loss on the consolidated balance sheets, totaled $61.7 million, compared to $57.7 million and $62.5 million at year-end 2023 and 2022, respectively.

If investment securities in an unrealized loss position are sold, such losses would become realized, which would adversely affect our results of operations.

We evaluate our investment securities on at least a quarterly basis, and more frequently if economic and market conditions warrant, to determine whether any decline in fair value below amortized cost is the result of an other-than-temporary impairment.

The process for determining impairment and any credit losses with respect to our investment securities often requires complex, subjective judgments about the future financial performance.

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Certain fraud risks, including identity theft and account takeover, may increase as a result of customers’ accounts or personally identifiable information being obtained through breaches of retailers’ or other third parties’ networks.

Fraud attacks against us and other companies in the financial services industry, and against our customers when engaged in financial transactions, have increased in recent years and have become more sophisticated and more difficult to detect.

There has been a significant increase in check fraud in which checks are stolen in the mail and fraudulently deposited into the criminal’s account.

We expect that detecting and preventing fraud, and remediating losses caused by fraud, will continue to require ongoing and potentially increased attention and investment.

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These risks include the cybersecurity risks discussed above.

Climate related events and legislative and societal responses regarding climate change present risks to our business.

In addition, businesses, consumers and investors have focused on transitioning to renewable energy and a net zero economy.

If we fail to adequately anticipate and address these changing preferences, our business could be adversely impacted.

We are also subject to risks relating to potential new climate change-related legislation or regulations, which could increase our and our customers’ costs, and while this appears unlikely to occur during the current Presidential administration, it could occur in the future.

The risks associated with these matters are continuing to evolve rapidly and the ultimate impact on our business is difficult to predict with any certainty.

Goodwill represents the amount by which the cost of an acquisition exceeded the fair value of net assets we acquired in connection with the purchase of another financial institution.

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

We determine impairment by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill.

If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

Any such adjustments are reflected in our results of operations in the periods in which they become known.

As of December 31, 2024, our goodwill totaled $40.1 million.

Risks Related to Our Industry

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If an institution’s performance under the fair lending laws and regulations is found to be deficient, the institution could be subject to damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines, among other sanctions.

In addition, the OCC’s assessment of our compliance with the Community Reinvestment Act (“CRA”) is taken into account when evaluating any application we submit for, among other things, approval of the acquisition or establishment of a branch or other deposit facility, an office relocation, a merger or the acquisition of another financial institution.

In addition, the OCC’s assessment of our compliance with the CRA is taken into account when evaluating any application we submit for, among other things, approval of the acquisition or establishment of a branch or other deposit facility, an office relocation, a merger or the acquisition of another financial institution.

Our failure to satisfy our CRA obligations could, at a minimum, result in the denial of such applications and limit our growth.

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We may be required to pay significantly higher FDIC deposit insurance premiums in the future.

The deposits of Investar Bank are insured by the FDIC up to legal limits and, accordingly, subject it to the payment of FDIC deposit insurance assessments.

The deposits of the Bank are insured by the FDIC up to legal limits and, accordingly, subject it to the payment of FDIC deposit insurance assessments.

We are generally unable to control the amount of premiums that we are required to pay for FDIC deposit insurance.

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In order to maintain a strong funding position and restore the reserve ratios of the Deposit Insurance Fund, the FDIC has, in the past, increased deposit insurance assessment rates and charged a special assessment to all FDIC-insured financial institutions.

While the FDIC’s special assessment in 2023 generally only applied to banks with over $5 billion in total assets, further increases in assessment rates or special assessments that apply to all banks may occur in the future, especially if there are significant financial institution failures.

In 2023, the FDIC completed a special assessment that generally only applied to banks with over $5 billion in total assets, but further increases in assessment rates or special assessments that apply to all banks may occur in the future, especially if there are significant financial institution failures.

Any future special assessments, increases in assessment rates or required prepayments in FDIC insurance premiums could reduce our profitability or limit our ability to pursue certain business opportunities, which could have an adverse effect on our business, financial condition and results of operations.

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As of December 31, 2024, we had 9,828,413 shares outstanding and 260,602 shares subject to options granted under our incentive plan.

Because our outstanding shares of common stock either were issued in an offering registered under the Securities Act of 1933, as amended (the “Securities Act”) or have been held for more than one year, such shares are freely tradable, except for shares held by our affiliates (approximately 6% of shares outstanding as of December 31, 2023) and 336,749 shares that represent unvested restricted shares under our incentive plan.

Because our outstanding shares of common stock either were issued in an offering registered under the Securities Act or have been held for more than one year, such shares are freely tradable, except for shares held by our affiliates (approximately 6% of shares outstanding as of December 31, 2024) and 323,820 shares that represent unvested restricted shares under our incentive plan.

Shares issued under our incentive plan will be available for sale into the public market, except for shares held by our affiliates.

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Our dividend policy may change without notice, and our future ability to pay dividends is subject to restrictions.

Holders of our common stock are entitled to receive only such cash dividends as our board of directors may declare out of funds legally available for the payment of dividends.

Holders of our common stock are entitled to receive only such cash dividends as our Board may declare out of funds legally available for the payment of dividends.

We have no obligation to continue paying dividends, and we may change our dividend policy at any time without notice to our shareholders.

In addition, our existing and future debt agreements limit, or may limit, our ability to pay dividends.

Under the terms of our 5.125% Fixed-to-Floating Rate Subordinated Notes due 2029, we may not pay a dividend if either our parent company or the Bank, both immediately prior to the declaration of the dividend and after giving effect to the payment of the dividend, would not maintain regulatory capital ratios that are as “well capitalized” levels for regulatory capital purposes.

We are also prohibited from paying dividends upon and during the continuance of any Event of Default under such notes.

Under the terms of our 5.125% Fixed-to-Floating Rate Subordinated Notes due 2032, we are prohibited from paying dividends upon and during the continuance of any Event of Default under such notes.

Under the terms of our 2032 Notes, we are prohibited from paying dividends upon and during the continuance of any Event of Default under such notes.

Our ability to pay dividends may be limited on account of the junior subordinated debentures that we assumed through acquisitions.

We must make payments on the junior subordinated debentures before any dividends can be paid on our common stock.

Since the Company’s primary asset is its stock of Investar Bank, we are dependent upon dividends from the Bank to pay our operating expenses, satisfy our obligations and to pay dividends on the Company’s common stock.

Accordingly, any declaration and payment of dividends on common stock will substantially depend upon the Bank’s earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate and other factors deemed relevant by our board of directors.

Since the Company’s primary asset is its stock of the Bank, we are dependent upon dividends from the Bank to pay our operating expenses, satisfy our obligations and to pay dividends on the Company’s common stock.

Furthermore, consistent with our strategic plans, capital availability, projected liquidity needs, and other factors, we have made, and will continue to make, capital management decisions and policies that could adversely impact the amount of dividends, if any, paid to our common shareholders.

In addition, there are numerous laws and banking regulations that limit our and Investar Bank’s ability to pay dividends.

In addition, there are numerous laws and banking regulations that limit our and the Bank’s ability to pay dividends.

For further discussion of the regulatory restrictions on our ability to pay dividends, see Item 1.

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

enable our board of directors to issue additional shares of authorized, but unissued capital stock.

enable our Board to issue additional shares of authorized, but unissued capital stock.

In particular, our Board may issue “blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by the Board;

enable our board of directors to increase the size of the board and fill the vacancies created by the increase;

enable our board of directors to amend our by-laws without shareholder approval;

enable our Board to increase the size of the Board and fill the vacancies created by the increase;

enable our Board to amend our by-laws without shareholder approval;

require advance notice for director nominations and other shareholder proposals;

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Our issuance of preferred stock could adversely affect holders of our common stock and discourage a takeover.

Our shareholders authorized our board of directors to issue up to 5,000,000 shares of preferred stock without any further action on the part of our shareholders.

Our shareholders authorized our Board to issue up to 5,000,000 shares of preferred stock without any further action on the part of our shareholders.

The Board also has the power, without shareholder approval, to set the terms of any series of preferred stock that may be issued, including voting rights, dividend rights, preferences over our common stock with respect to dividends or in the event of a dissolution, liquidation or winding up and other terms.

In the event that we issue preferred stock in the future that has preference over our common stock with respect to payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of the holders of our common stock or the market price of our common stock could be adversely affected.

In addition, the ability of our board of directors to issue shares of preferred stock without any action on the part of our shareholders may impede a takeover of us and prevent a transaction perceived to be favorable to our shareholders.

In addition, the ability of our Board to issue shares of preferred stock without any action on the part of our shareholders may impede a takeover of us and prevent a transaction perceived to be favorable to our shareholders.

An investment in our common stock is not an insured deposit and is subject to risk of loss.

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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