What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2025-03-12 compared with 2024-03-07 · 345 added, 331 removed, 830 unchanged (45% of the section changed)

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Market Information

Our common stock is listed on the Nasdaq Global Market (the “Nasdaq”) under the symbol “ISTR.” As of March 4, 2024, there were approximately 712 holders of record of our common stock including participants in security position listings.

Our common stock is listed on the Nasdaq Global Market under the symbol “ISTR.” As of March 10, 2025, there were approximately 677 holders of record of our common stock including participants in security position listings.

Dividend Policy

The Company has paid a quarterly dividend since 2011 and intends to continue to declare dividends on a quarterly basis.

The declaration of dividends is at the discretion of our board of directors and will depend on our financial performance, future prospects, regulatory requirements and other factors deemed relevant by the board of directors.

Since we are a holding company with no material business activities, our ability to pay dividends is substantially dependent upon the ability of Investar Bank to transfer funds to us in the form of dividends, loans and advances.

The declaration of dividends is at the discretion of our Board and will depend on our financial performance, future prospects, regulatory requirements and other factors deemed relevant by the Board.

Since we are a holding company with no material business activities, our ability to pay dividends is substantially dependent upon the ability of the Bank to transfer funds to us in the form of dividends, loans and advances.

The Bank’s ability to pay dividends and make other distributions and payments to us depends upon the Bank’s earnings, financial condition, general economic conditions, compliance with regulatory requirements and other factors.

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In addition, as a Louisiana corporation, we are subject to certain restrictions on dividends under the Louisiana Business Corporation Act.

Generally, a Louisiana corporation may pay dividends to its shareholders unless, after giving effect to the dividend, either (1) the corporation would not be able to pay its debts as they come due in the usual course of business or (2) the corporations’ total assets are less than the sum of its total liabilities and the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights of shareholders whose preferential rights are superior to those receiving the dividend.

Generally, a Louisiana corporation may pay dividends to its shareholders unless, after giving effect to the dividend, either (1) the corporation would not be able to pay its debts as they come due in the usual course of business or (2) the corporation’s total assets are less than the sum of its total liabilities and the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights of shareholders whose preferential rights are superior to those receiving the dividend.

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 at “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.

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

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The Company has had a stock repurchase program since 2015.

On July 19, 2023, the Company announced that its board of directors authorized the repurchase of an additional 350,000 shares of the Company’s common stock under its stock repurchase plan.

As of December 31, 2023, the Company had 514,266 shares remaining available under the program.

At December 31, 2024, the Company had 495,645 shares of our common stock remaining authorized for repurchase under the program.

Securities Authorized for Issuance under Equity Compensation Plans

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Management ’ s Discussion and Analysis of Financial Condition and Results of Operations

This section presents management’s perspective on the financial condition and results of operations of Investar Holding Corporation and its wholly-owned subsidiary, Investar Bank, National Association (the “Bank,” together with Investar Holding Corporation, the “Company,” “we,” “our,” or “us”).

The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and related notes and other supplemental information included herein.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K, both in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere, contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

These forward-looking statements include statements relating to our projected growth, anticipated future financial performance, changes in our allowance for credit losses including due to the adoption of ASU 2016-13, anticipated future credit quality and our potential ability to achieve performance and strategic goals, as well as statements relating to the anticipated effects of these factors on our business, financial condition and results of operations.

This Annual Report on Form 10-K, both in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere, contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.

These forward-looking statements include statements relating to our projected growth, anticipated future financial performance, changes in our ACL including due to the adoption of ASU 2016-13, anticipated future credit quality and our potential ability to achieve performance and strategic goals, as well as statements relating to the anticipated effects of these factors on our business, financial condition and results of operations.

These statements can typically be identified through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “think,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature.

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changes in inflation, interest rates, yield curves and interest rate spread relationships that affect our loan and deposit pricing;

our ability to continue to successfully execute the pivot of our near-term strategy from primarily a growth strategy to a strategy primarily focused on consistent, quality earnings through the optimization of our balance sheet, and our ability to successfully execute a long-term growth strategy;

our ability to successfully execute our near-term strategy to pivot from primarily a growth strategy to a strategy primarily focused on consistent, quality earnings through the optimization of our balance sheet, and our ability to successfully execute a long-term growth strategy;

our ability to achieve organic loan and deposit growth, and the composition of that growth;

a reduction in liquidity, including as a result of a reduction in the amount of deposits we hold or other sources of liquidity, which may be caused by, among other things, disruptions in the banking industry similar to those that occurred in early 2023 that caused bank depositors to move uninsured deposits to other banks or alternative investments outside the banking industry;

our ability to identify and enter into agreements to combine with attractive acquisition partners, finance acquisitions, complete acquisitions after definitive agreements are entered into, and successfully integrate and grow acquired operations;

our ability to identify and enter into agreements to combine with attractive acquisition candidates, finance acquisitions, complete acquisitions after definitive agreements are entered into, and successfully integrate and grow acquired operations;

our adoption on January 1, 2023 of ASU 2016-13, and inaccuracy of the assumptions and estimates we make in establishing reserves for credit losses and other estimates;

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and other matters beyond our control.

other circumstances, many of which are beyond our control.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included herein.

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We qualify all of our forward-looking statements by these cautionary statements.

Through our wholly-owned subsidiary Investar Bank, National Association, we provide full banking services, excluding trust services, tailored primarily to meet the needs of individuals, professionals, and small to medium-sized businesses.

Through the Bank, we provide full banking services, excluding trust services, tailored primarily to meet the needs of individuals, professionals, and small to medium-sized businesses.

Our primary areas of operation are south Louisiana (approximat ely 78% of our tota l deposits as of December 31, 2024), including Baton Rouge, New Orleans, Lafayette, Lake Charles, and their surrounding areas;

southeast Texas, primarily Houston and its surrounding area and Alabama, including York and Oxford and their surrounding areas.

As of March 7, 2024 , we operated 28 fu ll service bran ches comprised of 20 full service branches in Louisiana, two full service branches in Texas, and six full service branches in Alabama.

Our Bank commenced operations in 2006 and we completed our initial public offering in July 2014.

southeast Texas, primarily Houston and its surrounding area;

and Alabama, including York and Oxford and their surrounding areas.

As of March 12, 2025 , we operated 29 fu ll service bran ches comprised of 20 full service branches in Louisiana, three full service branches in Texas, and six full service branches in Alabama.

The Bank commenced operations in 2006 and we completed our initial public offering in July 2014.

On July 1, 2019, the Bank changed from a Louisiana state bank charter to a national bank charter and its name changed to Investar Bank, National Association.

During 2023, we pivoted our near-term strategy from primarily a growth strategy to primarily a focus on consistent, quality earnings through the optimization of our balance sheet.

Our strategy includes a focus on originating and renewing high quality, primarily variable-rate, loans and allowing higher risk credit relationships to run off.

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

Our long-term strategy includes organic growth through high quality loans and growth through acquisitions, including whole-bank acquisitions, strategic branch acquisitions and asset acquisitions.

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Our most recent whole bank acquisition was completed in April 2021.

During our last three fiscal years, we have not opened any de novo branch locations;

however, 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 opened a loan a nd deposit production office in our Texas market in the first quarter of 2024 and converted it to a full-service branch location in the fourth quarter of 2024.

Additionally, 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.

During the third and fourth quarters of 2023, we purchased commercial and industrial revolving lines of credit with an unpaid principal balance of $162.7 million in two tranches.

We have continued to evaluate opportunities to improve our branch network efficiency, leverage our digital initiatives, and further reduce costs.

We closed five branches during our last three fiscal years, and one in Alabama during the first quarter of 2024.

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.

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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.

In an effort to focus more on our core business and optimize profitability, in the third quarter of 2023, we made the strategic decision to exit the consumer mortgage origination business.

Consumer mortgage loan products are typically long-term and fixed-rate and generally require a higher relative allowance for credit losses than other loan products.

Consumer mortgage loan products are typically long-term and fixed-rate and generally require a higher relative ACL than other loan products.

Consumer mortgage volumes have decreased to historical lows due to the combination of rising housing prices and interest rates and constriction of housing supply.

As a result of this decision, we further optimized our workforce and will continue to dedicate resources to our more profitable business lines.

Related severance expense was $0.1 million.

As a result of this decision, we further optimized our workforce and will continue to dedicate resources to our more profitable products and services.

Substantially all of the consumer mortgage portfolio is included in the 1-4 family loan category.

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We measure our performance through our net interest margin, return on average assets, and return on average equity, among other metrics, while seeking to maintain appropriate regulatory leverage and risk-based capital ratios.

For certain GAAP performance measures, see “ Certain Performance Indicators ” below.

We also monitor changes in our tangible equity, tangible assets, tangible book value per share, and our efficiency ratio, shown in the section “ Certain Performance Indicators:

For certain GAAP performance measures, see “ Certain Performance Indicators:

GAAP Financial Measures ” below.

We also monitor changes in our tangible equity, tangible assets, and tangible book value per share, shown in the section “ Certain Performance Indicators:

Non-GAAP Financial Measures ” below.

Certain Performance Indicators:

GAAP Financial Measures

As of and for the years ended December 31,

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Dividend payout ratio

Efficiency Ratio

Noninterest expense

Net interest income

Noninterest income

Efficiency ratio (4)

Capital Ratios

Total equity to total assets

Tangible equity to tangible assets (3)

During 2023 we purchased commercial and industrial lines of credit with an unpaid principal balance of $162.7 million.

We also sold certain assets, deposits, and other liabilities associated with two branches in Texas previously acquired from PlainsCapital Bank.

The following acquisitions are included from the date of each acquisition:

On March 1, 2019, the Company acquired Mainland Bank, by merger with and into the Bank.

On November 1, 2019, the Company acquired Bank of York, by merger with and into the Bank.

On February 21, 2020, the Bank acquired two branches from PlainsCapital Bank.

On April 1, 2021, the Company acquired Cheaha Financial Group, Inc.

and its wholly-owned subsidiary Cheaha Bank, by merger with and into the Company and Bank, respectively.

Non-GAAP financial measure.

See reconciliation below.

On February 21, 2020, the Bank acquired two branches from PlainsCapital Bank.

Calculated as noninterest expense divided by the sum of net interest income (before provision for credit losses) and noninterest income.

Certain Performance Indicators:

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However, we also evaluate our performance based on certain additional metrics.

The efficiency ratio, tangible book value per share, and the ratio of tangible equity to tangible assets are not financial measures recognized under GAAP and, therefore, are considered non-GAAP financial measures.

Tangible book value per share and the ratio of tangible equity to tangible assets are not financial measures recognized under GAAP and, therefore, are considered non-GAAP financial measures.

Our management, banking regulators, financial analysts and investors use these non-GAAP financial measures to compare the capital adequacy of banking organizations with significant amounts of preferred equity and/or goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions.

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Moreover, the manner in which we calculate tangible equity, tangible assets, tangible book value per share and any other related measures may differ from that of other companies reporting measures with similar names.

The following table reconciles, as of the dates set forth below, stockholders’ equity (on a GAAP basis) to tangible equity and total assets (on a GAAP basis) to tangible assets and calculates both our tangible book value per share and efficiency ratio (dollars in thousands).

The following table reconciles, as of the dates set forth below, stockholders’ equity (on a GAAP basis) to tangible equity and total assets (on a GAAP basis) to tangible assets and calculates our tangible book value per share (dollars in thousands).

As of and for the years ended December 31,

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Tangible equity to tangible assets

Efficiency ratio (1)

Noninterest expense

Net interest income

Noninterest income

Efficiency ratio

Calculated as noninterest expense divided by the sum of net interest income (before provision for credit losses) and noninterest income.

Critical Accounting Estimates

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Allowance for Credit Losses .

In June 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard (Accounting Standards Update “ASU” 2016-13), referred to as the Current Expected Credit Loss (“CECL”) standard, which became effective for us, as a smaller reporting company, on January 1, 2023.

In June 2016, the FASB issued a new accounting standard (ASU 2016-13), referred to as the CECL standard, which became effective for us, as a smaller reporting company, on January 1, 2023.

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 period 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.

Results for reporting periods beginning prior to January 1, 2023 are presented in accordance with ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable 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.

Results for reporting periods beginning on and after January 1, 2023 are presented in accordance with ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

For reporting periods beginning on and after January 1, 2023, reflecting the adoption of ASU 2016-13:

On January 1, 2023, we adopted Accounting Standards Codification (“ASC”) Topic 326, “ Financial Instruments—Credit Losses ,” commonly referred to as Current Expected Credit Losses (“CECL”), on a modified retrospective basis.

On January 1, 2023, we adopted ASC Topic 326, “ Financial Instruments—Credit Losses ,” commonly referred to as the CECL standard, on a modified retrospective basis.

The provisions of this guidance required a material change to the manner in which the Company estimates and reports losses on financial instruments, including loans and unfunded lending commitments, select investment securities, and other assets carried at amortized cost.

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Actual results could differ from these estimates.

Management considers the appropriateness of these critical assumptions as part of its allowance review and believes the allowance for credit loss level is appropriate based on information available through the financial statement date.

Management considers the appropriateness of these critical assumptions as part of its allowance review and believes the ACL level is appropriate based on information available through the financial statement date.

Please refer to Note 3.

Loans and Allowance for Credit Losses, and Note 1.

Summary of Significant Accounting Policies – Allowance for Credit Losses and – Accounting Standards Adopted in 2023, for additional discussion.

Summary of Significant Accounting Policies – Allowance for Credit Losses for additional discussion.

For reporting periods prior to January 1, 2023, prior to the adoption of ASU 2016-13:

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Through December 31, 2022, the allowance for loan losses was based on the amount that management believed would be adequate to absorb probable losses inherent in the loan portfolio based on, among other things, evaluations of the collectability of loans and prior loan loss experience.

The evaluations took into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect borrowers’ ability to pay.

Another component of the allowance was losses on loans assessed as impaired under FASB Accounting Standards Codification (“ASC”) Topic 310,“ Receivables ” (“ASC 310”).

Another component of the allowance was losses on loans assessed as impaired under FASB ASC Topic 310,“ Receivables ” (“ASC 310”).

The balance of the loans determined to be impaired under ASC 310 and the related allowance was included in management’s estimation and analysis of the allowance for loan losses.

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For reporting periods beginning on and after January 1, 2023, reflecting the adoption of ASU 2016-13:

ASU 2016-13 amended the accounting model for purchased financial assets and replaced the guidance for purchased credit impaired (“PCI”) financial assets with the concept of purchased credit deteriorated (“PCD”) assets.

For PCD assets, the CECL estimate is recognized through the allowance for credit losses with an offset to the amortized cost basis of the PCD asset at the date of acquisition.

Subsequent changes in the allowance for credit losses for PCD assets are recognized through a provision for credit losses on loans.

ASU 2016-13 amended the accounting model for purchased financial assets and replaced the guidance for PCI financial assets with the concept of PCD assets.

For PCD assets, the CECL estimate is recognized through the ACL with an offset to the amortized cost basis of the PCD asset at the date of acquisition.

Subsequent changes in the ACL for PCD assets are recognized through a provision for credit losses on loans.

We used the prospective transition approach for PCD loans that were previously classified as PCI and accounted for under ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”).

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Please refer to Note 1.

Summary of Significant Accounting Policies – Acquisition Accounting and – Accounting Standards Adopted in 2023 , for additional discussion.

Summary of Significant Accounting Policies – Acquisition Accounting , for additional discussion.

For reporting periods prior to January 1, 2023, prior to the adoption of ASU 2016-13:

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As of the end of each fiscal quarter, we evaluated the present value of the acquired loans using the effective interest rates.

For any increases in cash flows expected to be collected, we adjusted the amount of accretable yield recognized on a prospective basis over the loan’s or pool’s remaining life, while we recognized a provision for loan loss in the consolidated statement of operations if the cash flows expected to be collected had decreased.

For any increases in cash flows expected to be collected, we adjusted the amount of accretable yield recognized on a prospective basis over the loan’s or pool’s remaining life, while we recognized a provision for loan loss in the consolidated statement of income if the cash flows expected to be collected had decreased.

Overview of Financial Condition and Results of Operations

Net income for the year ended December 31, 2023 totaled $16.7 million, or $1.69 per diluted share, compared to $35.7 million, or $3.50 per diluted share, for the year ended December 31, 2022.

This represents a $19.0 million, or a 53.3%, decrease in net income.

Net income decreased primarily due to a $15.3 million decrease in net interest income and an $11.8 million decrease in noninterest income, partially offset by a $2.0 million negative provision for credit losses in 2023 compared to a provision for credit losses of $2.9 million in 2022.

The decrease in net interest income was a result of a $43.9 million increase in interest expense partially offset by a $28.6 million increase in interest income, as the Bank experienced margin compression due to rising market interest rates.

The decrease in noninterest income is mainly attributable to $8.1 million of swap termination fees and $1.4 million of income from insurance proceeds recorded during the year ended December 31, 2022 and the loss on sale or disposition of fixed assets of $1.3 million during the year ended December 31, 2023, primarily resulting from the sale of the Alice and Victoria, Texas branches, compared to a loss on sale or disposition of fixed assets of $0.3 million for the year ended December 31, 2022.

The negative provision for credit losses of $2.0 million for the year ended December 31, 2023 was primarily due to net recoveries of $2.3 million in 2023.

Net income for the year ended December 31, 2024 totaled $20.3 million, or $2.04 per diluted common share, compared to $16.7 million, or $1.69 per diluted common share, for the year ended December 31, 2023.

This represents a $3.6 million, or a 21.4%, increase in net income.

Net income increased primarily due to a $7.7 million increase in noninterest income, partially offset by a $4.8 million decrease in net interest income and a $0.4 million increase in noninterest expense.

There was also a $3.5 million negative provision for credit losses in 2024 compared to a negative provision for credit losses of $2.0 million in 2023.

The increase in noninterest income is mainly attributable to a $3.5 million increase in income from BOLI primarily due to the receipt of death benefit proceeds in the fourth quarter of 2024 and a gain on sale or disposition of fixed assets of $0.4 million recorded during the year ended December 31, 2024, primarily resulting from the closure of one branch in the Alabama market, compared to a loss on sale or disposition of fixed assets of $1.3 million recorded during the year ended December 31, 2023, primarily resulting from the sale of the Alice and Victoria, Texas branches, the disposition of ATMs and a reclassification of bank premises and equipment to other real estate owned.

In addition, we recorded noninterest income from a legal settlement of $1.1 million during the year ended December 31, 2024 related to one loan relationship that became impaired in the third quarter of 2021 as a result of Hurricane Ida.

We also recorded a gain on sale of other real estate owned of $0.7 million during the year ended December 31, 2024, primarily related to that loan relationship, compared to a loss on sale of other real estate owned of $0.1 million recorded during the year ended December 31, 2023.

The decrease in net interest income was a result of a $15.4 million increase in interest expense partially offset by a $10.7 million increase in interest income, as we experienced margin compression due to rising market interest rates.

The increase in noninterest expense primarily resulted from a $1.5 million increase in salaries and employee benefits, partially offset by a $0.7 million decrease in depreciation and amortization and a $0.4 million decrease in occupancy expense.

At December 31, 2024, the Company and the Bank each were in compliance with all regulatory capital requirements, and the Bank was considered “well-capitalized” under prompt corrective action regulations.

Additional key components of the Company’s performance during the year ended December 31, 2024 are summarized below.

Credit quality metrics improved as nonperforming loans were 0.26% of total loans at December 31, 2023 compared to 0.54% at December 31, 2022.

We recognized net recoveries of $2.3 million in the loan portfolio during the year ended December 31, 2023 primarily attributable to recoveries on one loan relationship that became impaired in the third quarter of 2021 as a result of Hurricane Ida.

We recognized interest recoveries of $1.5 million during the year ended December 31, 2023, $1.1 million of which are attributable to one commercial and industrial oil and gas loan relationship.

Return on average assets increased to 0.73% for the year ended December 31, 2024, compared to 0.60% for the year ended December 31, 2023.

Return on average equity increased to 8.60% for the year ended December 31, 2024 compared to 7.63% for the year ended December 31, 2023.

Book value per common share increased to $24.55 at December 31, 2024, or 5.5%, compared to $23.26 at December 31, 2023.

Consistent with our strategy of optimizing the balance sheet, total loans decreased $85.5 million, or 3.9% to $2.13 billion at December 31, 2024, compared to $2.21 billion at December 31, 2023.

Variable-rate loans as a percentage of total loans was 32% at December 31, 2024 compared to 27% at December 31, 2023.

For the year ended December 31, 2024 , we recorded a $3.5 million negative provision for credit losses.

Nonperforming loans were 0.42% of total loans at December 31, 2024 compared to 0.26% at December 31, 2023.

Total deposits were $2.35 billion at December 31, 2024, an increase of $90.2 million, or 4.0%, compared to deposits of $2.26 billion at December 31, 2023.

Noninterest-bearing deposits decreased $16.6 million, or 3.7%, to $432.1 million compared to $448.8 million at December 31, 2023.

Time deposits and brokered time deposits increased, and other deposit categories decreased.

At December 31, 2024, estimated uninsured deposits represented approximately 31% of our total deposits.

Total loans increased $105.9 million, or 5.0% to $2.2 billion at December 31, 2023, compared to $2.1 billion at December 31, 2022.

Excluding approximately $13.9 million in loans associated with the Alice and Victoria, Texas branches sold in January 2023 and approximately $162.7 million in revolving lines of credit purchased during 2023, total loans decreased $43.0 million, or 2.1%, to $2.05 billion at December 31, 2023, compared to $2.09 billion at December 31, 2022.

On January 1, 2023, Investar adopted ASU 2016-13.

Also referred to as the CECL standard, ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

Upon adoption, we recorded a one-time, cumulative effect adjustment to increase the allowance for credit losses by $5.9 million and reduce retained earnings, net of tax, by $4.3 million.

Our allowance for credit losses to total loans was 1.38% at December 31, 2023.

During the year ended December 31, 2024, we redeemed $20.0 million in principal amount and repurchased $8.0 million in principal amount of our subordinated debt and recorded a $0.3 million gain on extinguishment of subordinated debt.

N et interest income for the year ended December 31, 2024 was $69.8 million, a decrease of $4.8 million, or 6.4% , compared to $74.5 million for the year ended December 31, 2023 , driven primarily by an increase in the rates paid on interest-bearing liabilities, partially offset by increase s in the volume and yield earned on interest-earning assets.

We experienced pressure on our net interest margin as interest rates rose rapidly during 2022 and 2023, and we raised rates offered on deposits and incurred higher costs on our borrowings.

For the year ended December 31, 2024 , our net interest margin was 2.63% , compared to 2.83% for the year ended December 31, 2023

Return on average assets decreased to 0.60% for the year ended December 31, 2023, compared to 1.37% for the year ended December 31, 2022.

Return on average equity was 7.63% for the year ended December 31, 2023 compared to 15.63% for the year ended December 31, 2022.

At December 31, 2024, we had no outstanding borrowings under the BTFP compared to $212.5 million at December 31, 2023 with a weighted average rate of 4.83%.

We repurchased 18,621 shares of our common stock at an average price of $16.13 per share during 2024 and repurchased 222,448 shares of our common stock at an average price of $13.47 per share during 2023.

We increased dividends by 4% to $0.41 per share for 2024 from $0.395 per share for 2023.

Stockholders’ equity increased 5.1% to $226.8 million at December 31, 2023, compared to December 31, 2022, due to net income for 2023 and a decrease in accumulated other comprehensive loss due to an increase in the fair value of the Bank’s AFS securities portfolio, partially offset by the cumulative effect adjustment as a result of the adoption of ASU 2016-13 reflected in retained earnings.

Stockholders’ equity increased 6.4% to $241.3 million at December 31, 2024, compared to December 31, 2023, due to net income for 2024, partially offset by dividends and stock repurchases, and an increase in accumulated other comprehensive loss due to a decrease in the fair value of the Bank’s AFS securities portfolio.

Certain Events That Affect Year-over-Year Comparability

Rising Inflation and Interest Rates .

Changing Inflation and Interest Rates .

During the entirety of 2021, the federal funds target rate was 0% to 0.25%, and it remained at that rate until March 2022.

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 recent historical periods.

After June 2022, the rate of inflation generally declined;

however, it began increasing in the later part of 2024 and has remained above the Federal Reserve’s target inflation rate of 2%.

In response, the Federal Reserve raised the federal funds target rate multiple times from March 2022 through July 2023.

Through these incremental increases to the target rate, the Federal Reserve has raised, on a cumulative basis, the target rate from 0% to 0.25% by 525 basis points to 5.25% to 5.50%.

Disruptions in the Banking Industry in 2023 .

Between March 10, 2023 and March 12, 2023, state banking supervisors closed Silicon Valley Bank (“SVB”) and Signature Bank and named the FDIC as receiver.

Through these incremental increases to the target rate, the Federal Reserve raised, on a cumulative basis, the target rate from 0% to 0.25% by 525 basis points to 5.25% to 5.50%.

During 2023, the Federal Reserve raised the federal funds target rate four times, from 4.25% to 4.50%, to 5.25% to 5.50% where it remained until September 2024.

The Federal Reserve reduced the federal funds target rate three times in 2024 by 100 basis points on a cumulative basis to 4.25% to 4.50%.

Disruptions in the Banking Industry .

Between March 10, 2023 and March 12, 2023, state banking supervisors closed Silicon Valley Bank and Signature Bank and named the FDIC as receiver.

At the time of closure, they were among the 30 largest U.S.

Reports indicated that, among other things, both banks had grown in asset size in recent periods at a faster rate than their peers, had large proportions of uninsured deposits (approximately 87.5% and 89.7% of total deposits, respectively) and high unrealized losses on investment securities.

SVB’s business strategy focused on serving the technology and venture capital sectors, and Signature Bank had significant exposure to deposits from the digital asset industry.

While the reasons for their failure are complex and have not been fully investigated, reports indicate that, among other things, both banks had grown in asset size in recent periods at a faster rate than their peers, had large proportions of uninsured deposits (approximately 87.5% and 89.7% of total deposits, respectively) and high unrealized losses on investment securities.

Silicon Valley Bank’s business strategy focused on serving the technology and venture capital sectors, and Signature Bank had significant exposure to deposits from the digital asset industry.

Prior to their closure, both banks experienced sudden and rapid deposit withdrawals.

These events caused bank deposit customers, particularly those with uninsured deposits, to become concerned regarding the safety of their deposits, and in some cases caused customers to withdraw deposits.

In response to the disruptions, among other things, the Federal Reserve announced a new Bank Term Funding Program (“BTFP”) to provide eligible banks with loans of up to one-year maturity backed by collateral pledged at par value.

In response to the disruptions, among other things, the Federal Reserve announced a new BTFP to provide eligible banks with loans of up to one-year maturity backed by collateral pledged at par value.

On April 24, 2023, San Francisco-based First Republic Bank, also among the 30 largest U.S.

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On May 1, 2023, regulators seized First Republic Bank and sold all of its deposits and most of its assets to JPMorgan Chase Bank.

In response to the disruptions and related publicity, we formed an internal task force that included members of our Asset/Liability Committee (“ALCO”).

In response to the disruptions and related publicity, we formed an internal task force that included members of our ALCO.

The task force met frequently to review our liquidity position and liquidity sources, and oversaw the Bank’s process to qualify for the BTFP.

In addition, we took steps to inform our customers about our financial position, liquidity and insured deposit products.

During the second quarter of 2023, we utilized the BTFP and reduced Federal Home Loan Bank (“FHLB”) advances.

During the second quarter of 2023, we utilized the BTFP and reduced FHLB advances.

The Bank utilized this source of funding due to its lower rate, the ability to prepay the obligations without penalty, and as a means to lock in funding.

During the fourth quarter of 2023 and again in the first quarter of 2024, the Bank refinanced its BTFP borrowings with new borrowings under the program due to more favorable rates.

In January 2024, the Federal Reserve announced that it will cease making new loans under the BTFP on March 11, 2024.

The Federal Reserve ceased making new loans under the BTFP on March 11, 2024.

During the third quarter of 2024, we began paying down borrowings under the BTFP and repaid all of the remainingborrowings under the BTFP in the fourth quarter of 2024.

As of December 31, 2024, estimated uninsured deposits represented approximately 31% of our total deposits.

For additional information, see “Discussion and Analysis of Financial Condition – Deposits, Borrowings, Liquidity and Capital Resources” and Part I.

For additional information, see “Discussion and Analysis of Financial Condition – “Deposits,” “Borrowings,” and “Liquidity and Capital Resources” and Part I.

Risk Factors.

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Since the third quarter of 2021, as of December 31, 2024, we have recorded net recoveries related to this loan relationship of $2.5 million, substantially all of which were in 2023.

Additionally, d uring 2024, we recorded a gain on sale of other real estate owned of $0.7 million and noninterest income of $1.1 million from a legal settlement related to this loan relationship.

COVID-19 Pandemic.

In March 2020, COVID-19 was declared a pandemic by the World Health Organization.

Our business remained open through the pandemic, although it was significantly disrupted in the early stages of the pandemic as we adjusted to various and changing government and voluntary restrictions on activities.

The pandemic generally slowed business lending activity from the level we would otherwise have expected, particularly in 2020, except for our participation in the Paycheck Protection Program (“PPP”) under which we made loans to qualified borrowers that under specified conditions were subject to forgiveness and repayment by the federal government.

We began participating in the PPP in the second quarter of 2020 and made loans totaling $178.0 million, almost all of which had been repaid by the end of 2022.

The pandemic and the PPP created excess liquidity in the market, contributing to increases in our noninterest and interest-bearing demand deposits, and in money market deposit accounts and savings accounts in 2021.

We took actions to protect our customers and employees throughout the pandemic, including increasing our remote banking and working options.

We recorded an increased provision for loan losses during 2020 as a result of the impact of the pandemic.

Market conditions generally improved during 2021 and 2022 compared to 2020, as vaccines became available and government restrictions lessened.

The federal government declared an end to the COVID-19 public health emergency in May 2023.

Acquisitions.

On April 1, 2021, the Company completed its acquisition of Cheaha Financial Group, Inc.

(“Cheaha”) and its wholly-owned subsidiary, Cheaha Bank, an Alabama state bank headquartered in Oxford, Alabama that served the residents of Calhoun Country, Alabama through four branch locations.

All of the issued and outstanding shares of Cheaha were converted into aggregate cash merger consideration of $41.1 million.

On the date of the acquisition, Cheaha had total assets with a fair value of $240.8 million, including $120.4 million in loans, and we assumed $207.0 million in deposits.

The Company recorded a core deposit intangible and goodwill of $0.8 million and $11.9 million, respectively, related to the acquisition of Cheaha.

The COVID-19 pandemic and related governmental control measures severely disrupted financial markets and overall economic conditions in 2020 and 2021.

While the impact of the pandemic and the associated uncertainties remained in 2022 and 2023, there was significant progress made with COVID-19 vaccination levels, which resulted in the easing of restrictive measures in the U.S.

At the same time, many industries experienced supply chain disruptions and labor shortages.

Inflation increased significantly during 2021 and 2022, and in response the Federal Reserve raised the federal funds target rate multiple times in 2022 and 2023, as discussed above.

On April 10, 2023, the COVID-19 national emergency was ended by Congress, and the national public health emergency ended on May 11, 2023.

Adoption of ASU 2016-13.

As discussed throughout this report, we adopted ASU 2016-13 on January 1, 2023, and recorded a one-time, cumulative effect adjustment that increased the allowance for credit losses by $5.9 million and decreased retained earnings, net of tax, by $4.3 million.

As discussed throughout this report, we adopted ASU 2016-13 on January 1, 2023, and recorded a one-time, cumulative effect adjustment that increased the ACL by $5.9 million and decreased retained earnings, net of tax, by $4.3 million.

Loan Purchase Agreement.

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For additional discussion, see “Overview.”

Branch Closures.

We closed one branch location in Prairieville, Louisiana in April 2021 and one branch location in Dickinson, Texas in October 2021.

Branch Activity.

We closed one branch location in Baton Rouge, Louisiana and one branch location in Westlake, Louisiana in May 2022.

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During 2022, we also sold three tracts of land that were held for future branch locations.

In the first quarter of 2024, we closed one branch in Alabama.

In January 2024, we closed one branch in Alabama.

We continue to evaluate opportunities to reduce our physical branch footprint and further improve efficiency through digital initiatives.

Subordinated Debt Issuance and Redemption.

In April 2022, we completed a private placement of $20.0 million in aggregate principal amount of our 5.125% Fixed-to-Floating Subordinated Notes due 2032 (the “2032 Notes”).

In June 2022, we used the majority of the proceeds to redeem $18.6 million of our 2017 issuance of 6.00% Fixed-to-Floating Rate Subordinated Notes due 2027 (the “2027 Notes”).

Subordinated Debt Repurchases.

During the first quarter of 2024, we repurchased $1.0 million in principal amount of our 2032 Notes.

During the second quarter of 2024, we repurchased $5.0 million in principal amount of our 2029 Notes and $2.0 million in principal amount of our 2032 Notes.

Subordinated Debt Issuance and Redemptions.

In April 2022, we completed a private placement of $20.0 million in aggregate principal amount of our 2032 Notes.

In June 2022, we used the majority of the proceeds to redeem $18.6 million of our 2027 Notes.

We utilized the remaining proceeds for share repurchases and for general corporate purposes.

During the fourth quarter of 2024, we redeemed all of the remaining $20.0 million in principal amount of the 2029 Notes.

As of December 31, 2024, our outstanding subordinated debt consisted of $17.0 million in principal amount of our 2032 Notes.

BOLI Restructuring.

During the first quarter of 2024, we surrendered approximately $8.4 million of BOLI and reinvested the proceeds in higher yielding policies.

BOLI Death Benefit Proceeds.

During the fourth quarter of 2024, we received BOLI death benefit proceeds totaling $5.5 million, and recorded a related $3.1 million in nontaxable noninterest income from BOLI.

Discussion and Analysis of Financial Condition

Total assets were $2.82 billion at December 31, 2023, an increase of $61.3 million, or 2.2%, compared to total assets of $2.75 billion at December 31, 2022.

The growth experienced since December 31, 2022 can mainly be attributed to growth in loans of $105.9 million primarily due to the purchase of commercial and industrial revolving lines of credit, partially offset by a decrease of $43.2 million in the available for sale securities portfolio .

Total assets were $2.7 billion at December 31, 2024, a decrease of $92.3 million, or 3.3%, compared to total assets of $2.8 billion at December 31, 2023.

The decrease can mainly be attributed to an $85.5 million decrease in loans and a $30.8 million decrease in the AFS securities portfolio, partially offset by a $22.2 million increase in the HTM securities portfolio .

Loans, constitute our most significant asset, comprising 78% and 79%, of our total assets at December 31, 2024 and 2023, respectively.

Loans increased $105.9 million, or 5.0%, to $2.2 billion at December 31, 2023 from $2.1 billion at December 31, 2022.

The increase in loans was primarily the result of the purchase of approximately $162.7 million in revolving lines of credit during 2023 as described in Certain Events that Affect Year-Over-Year Comparability – Loan Purchase Agreement , partially offset by lower demand and the sale of approximately $13.9 million in loans associated with the sale of the Alice and Victoria, Texas branches.

Given the elevated interest rate environment, we are emphasizing origination of high margin loans that promote long-term profitability and proactively exiting credit relationships that do not fit this strategy.

Loans decreased $85.5 million, or 3.9%, to $2.13 billion at December 31, 2024 from $2.21 billion at December 31, 2023.

The decrease in loans was primarily the result of lower demand and loan amortization.

Given the high interest rate environment, we have been emphasizing origination of high margin loans that promote long-term profitability and proactively exiting credit relationships that do not fit this strategy.

The table below sets forth the balance of loans outstanding by loan type as of the dates presented, and the percentage of each loan type to total loans (dollars in thousands).

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Commercial and industrial

At December 31, 2023, the Company’s total business lending portfolio, which consists of loans secured by owner-occupied commercial real estate properties and commercial and industrial loans, was $993.0 million, an increase of $112.8 million, or 12.8%, compared to the business lending portfolio of $880.2 million at December 31, 2022.

The increase in the business lending portfolio as of December 31, 2023 is primarily driven by the purchase of commercial and industrial revolving lines of credit described above, partially offset by lower loan demand due to higher rates.

Largely as a result of the loan portfolio purchase, our variable-rate loans as a percentage of total loans increased to 27% at December 31, 2023 compared to 22% at December 31, 2022.

We continue to focus on a relationship-driven banking strategy and have increased our emphasis on originating higher margin commercial and industrial and owner-occupied commercial real estate loans.

Nonowner-occupied loans totaled $488.1 million at December 31, 2023, a decrease of $25.0 million, or 4.9% compared to $513.1 million at December 31, 2022, primarily due to a reclassification of approximately $24.1 million nonowner-occupied loans to multifamily loans due to a change to the primary use of the property.

At December 31, 2024, the Company’s total business lending portfolio, which consists of loans secured by owner-occupied commercial real estate properties and commercial and industrial loans, was $976.2 million, a decrease of $16.8 million, or 1.7%, compared to the business lending portfolio of $993.0 million at December 31, 2023.

The decrease in the business lending portfolio is primarily driven by loan amortization consistent with our strategy of optimizing the balance sheet, partially offset by conversions of construction and development loans to owner-occupied loans upon completion of construction.

Largely as a result of our strategy to optimize the balance sheet, our variable-rate loans as a percentage of total loans increased to 32% at December 31, 2024 compared to 27% at December 31, 2023.

We continue to focus on a relationship-driven banking strategy and have increased our emphasis on originating higher margin commercial and industrial and owner-occupied commercial real estate loans that promote long-term profitability.

Nonowner-occupied loans totaled $495.3 million at December 31, 2024, an increase of $7.2 million, or 1.5% compared to $488.1 million at December 31, 2023, primarily due to a reclassification of a $15.9 million multifamily loan to a nonowner-occupied loan and conversions of construction and development loans to nonowner-occupied loans upon completion of construction, partially offset by loan amortization.

As discussed above under “Overview,” during the third quarter of 2023 we exited the consumer mortgage loan origination business to transition into shorter duration, higher risk-adjusted return asset classes, in an effort to focus more on our core business and optimize profitability.

The consumer mortgage portfolio was approximately $261.6 million at December 31, 2023 , substantially all of which is included in the 1-4 family category.

The consumer mortgage portfolio was approximately $242.5 million at December 31, 2024 , a decrease of $19.1 million, or 7.3%, compared to $261.6 million at December 31, 2023, substantially all of which is included in the 1-4 family category.

The remaining loans in the category consisted primarily of second mortgages, home equity loans, home equity lines of credit, and business purpose loans secured by 1-4 family residential real estate.

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At December 31, 2024 and December 31, 2023, we had no concentrations of loans exceeding 10% of total loans other than loans in the categories listed in the table above.

The table below sets forth the balance of owner-occupied loans by industry based on NAICS code and nonowner-occupied loans by property type as of the dates presented (dollars in thousands).

Percentage of Total

Owner-Occupied

Wholesale trade

Healthcare and social assistance

Other services (except public administration)

Accommodation and food services

Professional, scientific, and technical services

Manufacturing

Educational services

Total owner-occupied

Nonowner-Occupied

Total nonowner-occupied

Total commercial real estate

The following table sets forth loans outstanding at December 31, 2024, which, based on remaining scheduled repayments of principal, a re due in the periods indicated, as well as the amount of loans with fixed and variable rates in each maturity range.

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Investment securities represented 14% of our total assets and totaled $373.8 million at December 31, 2024, a decrease of $8.6 million, or 2.2%, from $382.4 million at December 31, 2023.

The decrease in investment securities at December 31, 2023 compared to December 31, 2022 was driven primarily by a $20.3 million decrease in residential mortgage-backed securities, a $9.8 million decrease in obligations of the U.S.

The decrease in investment securities was driven by a $23.5 million decrease in residential mortgage-backed securities, a $4.3 million decrease in obligations of the U.S.

Treasury and U.S.

government agencies and corporations, and an $8.4 million decrease in commercial mortgage-backed securities, partially offset by an $11.0 million increase in obligations of state and political subdivisions.

Due in large part to higher interest rates and market volatility, net unrealized losses in our investment portfolio totaled $57.3 million at December 31, 2023 and $62.1 million at December 31, 2022.

government agencies and corporations, and a $3.5 million decrease in commercial mortgage-backed securities, partially offset by a $21.9 million increase in obligations of state and political subdivisions and a $0.9 million increase in corporate bonds.

Due in large part to higher interest rates and market volatility, net unrealized losses in our AFS investment securities portfolio totaled $61.4 million at December 31, 2024 and $57.4 million at December 31, 2023.

The table below shows the carrying value of our investment securities portfolio by investment type and the percentage that such investment type comprises of our entire portfolio as of the dates indicated (dollars in thousands).

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Total investment securities

The investment portfolio consists of available for sale (“AFS”) and held to maturity (“HTM”) securities.

The investment portfolio consists of AFS and HTM securities.

We do not hold any investments classified as trading.

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The carrying values of our AFS securities are adjusted for unrealized gains or losses not attributable to credit losses as valuation allowances, and any gains or losses are reported on an after-tax basis as a component of other comprehensive income (loss).

For additional information regarding accounting for our investment securities upon the adoption of ASU 2016-13, see Note 1.

Summary of Significant Accounting Policies – Accounting Standards Adopted in 2023.

During the year ended December 31, 2023, we purchased $14.1 million of HTM securities classified as obligations of state and political subdivisions.

There were no purchases of HTM securities during the year ended December 31, 2022.

For additional information regarding accounting for our investment securities, see Note 1.

Summary of Significant Accounting Policies – Allowance for Credit Losses.

During the year ended December 31, 2024, we purchased $27.0 million of HTM securities classified as obligations of state and political subdivisions, compared to $14.1 million during the year ended December 31, 2023.

During the year ended December 31, 2024, we purchased $27.6 million of AFS investment securities, compared to $107.9 million during the year ended December 31, 2023.

Proceeds from maturities, prepayments and calls of AFS investment securities were $140.7 million in 2023 compared to $60.2 million in 2022, and we sold $15.0 million of AFS investment securities in 2023 compared to none in 2022.

Proceeds from maturities, prepayments and calls of AFS securities were $35.6 million in 2024 compared to $140.7 million in 2023, and we sold $18.0 million of AFS investment securities in 2024 compared to $15.0 million in 2023.

Proceeds from maturities, prepayments and calls of HTM securities were $4.8 million in 2024 compared to $1.9 million in 2023.

Mortgage-backed securities represente d 55% and 4% of the AFS securities we purchased in 2024 and 2023 , respectively.

Treasury and U.S.

government agencies and corporations securities represented 23% and 96% of the AFS securities we purchased in 2024 and 2023 , respectively.

We utilized excess funds in the third quarter of 2023 to purchase $40.0 million in obligations of the U.S.

Treasury and U.S.

government agencies and corporations, which matured in October 2023.

Mortgage-backed securities represente d 4% and 84% of the AFS securities we purchased in 2023 and 2022 , respectively.

We did not purchase any other investment type in 2023.

Of the remaining AFS securities purchased in 2022 , 5% were corporate bonds and 2% were municipal securities.

Of the remaining AFS securities purchased in 2024 , 13% were obligations of state and political subdivisions and 9% were corporate bonds.

We only purchase corporate bonds that are investment grade securities issued by seasoned corporations.

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The maturity of mortgage-backed securities reflects scheduled repayments based upon the contractual maturities of the securities.

Weighted average yields on tax-exempt obligations have been computed on a fully tax equivalent basis assuming a federal tax rate of 21%.

Weighted average yields on tax-exempt securities are calculated based on amortized cost on a fully tax equivalent basis assuming a federal tax rate of 21%, when applicable.

Premises and Equipment

Bank premises and equipment decreased $3.5 million, or 7.9%, to $40.7 million at December 31, 2024 from $44.2 million at December 31, 2023.

The decrease was primarily attributable to the sale of the Alice and Victoria, Texas locations and the closure of one branch and one stand-alone ATM in Louisiana, which decreased bank premises and equipment by $1.4 million and $1.7 million, respectively.

The remaining decrease was primarily attributable to depreciation.

The decrease was primarily attributable to depreciation.

The remaining decrease was primarily attributable to the closure of one branch in our Alabama market in January 2024, which decreased bank premises and equipment by $0.9 million.

Deferred Tax Asset

At December 31, 2024 , the net deferred tax asset was $17.1 million, compared to $16.9 million at December 31, 2023 .

The increase in the deferred tax asset at December 31, 2023 compared to December 31, 2022 was primarily driven by the adoption of ASU 2016-13, partially offset by a decrease in the net unrealized losses of the Bank’s AFS securities portfolio.

The increase in the deferred tax asset was primarily driven by an increase in the net unrealized losses of the Bank’s AFS securities portfolio, partially offset by a decrease in our ACL.

The Bank acquired net operating loss carryforwards as a result of acquisitions.

At December 31, 2023, we held ap proximately $4,000 and $0.3 million in net operating loss carryforwards that expire in 2033 and 2039, respectively.

tax law imposes annual limitations under Internal Revenue Code Section 382 on the amount of net operating loss carryforwards that may be used to offset federal taxable income.

Under these laws, we may apply up to approximately $0.6 million to offset our taxable income each year.

In addition to this limitation, our ability to utilize net operating loss carryforwards depends upon the Company generating taxable income.

Given the substantial amount of time before our net operating loss carryforwards begin to expire, we currently expect to utilize these net operating loss carryforwards in full before their expiration.

During the year ended December 31, 2024 , we utilized $0.3 million in net operating loss carryforwards to offset federal taxable income.

At December 31, 2024, we held no net operating loss carryforwards.

The following table sets forth the composition of our deposits and the percentage of each deposit type to total deposits at December 31, 2024 and 2023 (dollars in thousands).

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Interest-bearing demand deposits

Money market deposit accounts

Savings accounts

Money market deposits

Brokered demand deposits

Savings deposits

Brokered time deposits

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Total deposits were $2.35 billion at December 31, 2024, an increase of $90.2 million, or 4.0%, from total deposits of $2.26 billion at December 31, 2023.

Time deposits and brokered time deposits increased, and other deposit categories decreased.

The majority of the increase in time deposits at December 31, 2023 compared to December 31, 2022 is due to organic growth and existing customer funds migrating from other deposit categories as a result of rising interest rates.

Brokered time deposits increased to $269.1 million at December 31, 2023 from $10.0 million December 31, 2022.

We utilize brokered time deposits, entirely in denominations of less than $250,000, to secure fixed cost funding and reduce short-term borrowings.

The increase in interest-bearing demand deposits, money market deposits, and time deposits is primarily due to organic growth.

The decrease in noninterest-bearing demand deposits and savings deposits is primarily due to customers drawing down on their existing deposit accounts and shifts into interest-bearing deposit products with higher rates.

Brokered time deposits decreased to $245.5 million at December 31, 2024 from $269.1 million December 31, 2023 We utilize brokered time deposits, entirely in denominations of less than $250,000, to secure fixed cost funding and reduce short-term borrowings.

We utilized shorter term brokered time deposits, which were laddered in duration to provide flexibility, to fund a portion of the purchase of commercial and industrial revolving lines of credit in 2023.

At December 31, 2023, the balance of brokered time deposits remained below 10% of total assets, and the remaining weighted average duration was approximately 12 months with a weighted average rate of 5.18%.

The Company had no brokered demand deposits at December 31, 2023 and 2022 or at December 31, 2021.

Prior to December 31, 2021, the Bank utilized brokered demand deposits to satisfy the borrowings under its interest rate swap agreements due to more favorable pricing.

In the third quarter of 2021, we voluntarily terminated multiple swap agreements, the borrowings for which matured in October 2021.

During 2022, we voluntarily terminated our remaining interest rate swap agreements.

At December 31, 2024, the balance of brokered time deposits remained below 10% of total assets, and the remaining weighted average duration was approximately seven months with a weighted average rate of 4.99%.

The Company had $47.3 million of brokered demand deposits at December 31, 2024 compared to none at December 31, 2023.

We utilize brokered demand deposits when pricing is more favorable than other short-term borrowings.

Estimated uninsured deposits were $737.6 million and $720.1 m illion at December 31, 2024 and 2023, respectively.

The estimates are based on the same methodologies and assumptions used for our regulatory reporting requirements.

T he estimates are based on the same methodologies and assumptions used for our regulatory reporting requirements.

The insured deposit data for 2024 and 2023 does not reflect an evaluation of all of the account ownership category distinctions that would determine the availability of deposit insurance to individual accounts based on FDIC regulations.

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Over twelve months

Total borrowings include securities sold under agreements to repurchase, federal funds purchased, advances from the Federal Home Loan Bank (“FHLB”), borrowings under the BTFP, subordinated debt issued in 2019 and 2022, and junior subordinated debentures assumed through acquisitions.

We also maintain unsecured lines of credit with First National Bankers Bank (“FNBB”) and The Independent Bankers Bank (“TIB”) totaling $60.0 million, which are federal funds lines of credit used for overnight borrowing only.

We had no outstanding balances drawn on the unsecured lines of credit at December 31, 2023 or 2022.

Our advances from the FHLB were $23.5 million at December 31, 2023 , a decrease of $363.5 million from FHLB advances of $387.0 million at December 31, 2022 .

FHLB advances are used to fund increased loan and investment activity that is not funded by deposits or other borrowings.

Based on original maturities, at December 31, 2023, all of our $23.5 million of FHLB advances were long-term, compared to $333.5 million short-term and $53.5 million long-term FHLB advances at December 31, 2022.

We utilized federal funds purchased during 2023 and 2022 although none were outstanding at year-end.

We had $8.6 million of securities sold under agreements to repurchase at December 31, 2023 compared to none at December 31, 2022 .

The carrying value of the subordinated debt was $44.3 million and $44.2 million at December 31, 2023 and December 31, 2022, respectively.

Junior subordinated debt of $8.6 million and $8.5 million at December 31, 2023 and 2022 , respect ively, represents the junior subordinated debentures that we assumed in connection with our acquisitions of Cheaha in 2021, BOJ Bancshares, Inc.

in 2017 (“BOJ”), and First Community Bank in 2013.

At December 31, 2024 , total borrowings include securities sold under agreements to repurchase, advances from the FHLB, subordinated debt issued in 2022, and junior subordinated debentures assumed through acquisitions.

Our advances from the FHLB were $67.2 million at December 31, 2024 , an increase of $43.7 million from FHLB advances of $23.5 million at December 31, 2023 .

FHLB advances are used to fund loan and investment activity that is not funded by deposits or other borrowings.

Based on original maturities, at December 31, 2024, $7.2 million were short-term and $60.0 million of FHLB advances were long-term, compared to no short-term and $23.5 million long-term FHLB advances at December 31, 2023.

We utilized federal funds purchased during the years ended December 31, 2024 and 2023, although none were outstanding at the year-ends.

We had $8.4 million of securities sold under agreements to repurchase at December 31, 2024 compared to $8.6 million at December 31, 2023 .

At December 31, 2024, we had $17.0 million in principal amount of our 2032 Notes outstanding.

At December 31, 2023, we had $20.0 million in principal amount of our 2032 Notes outstanding and $25.0 million in principal amount of our 2029 Notes outstanding.

The carrying value of this subordinated debt was $16.7 million and $44.3 million at December 31, 2024 and December 31, 2023, respectively.

Junior subordinated debt of $8.7 million and $8.6 million at December 31, 2024 and 2023 , respect ively, represents the junior subordinated debentures that we assumed in connection with our acquisitions of Cheaha Financial Group Inc.

in 2021, BOJ Bancshares, Inc.

in 2017, and First Community Bank in 2013.

On March 12, 2023, the Federal Reserve established the BTFP.

The BTFP is a one-year program which provides additional liquidity through borrowings for a term of up to one year secured by the pledging of certain qualifying securities and other assets valued at par.

Beginning in the second quarter, we utilized the BTFP to secure fixed rate funding for a one-year term and reduce short-term FHLB advances, which are priced daily.

Beginning in the second quarter of 2023, we utilized the BTFP to secure fixed rate funding for a one-year term and reduce short-term FHLB advances, which are priced daily.

We utilized this source of funding due to its lower rate and the ability to prepay the obligations without penalty.

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During the fourth quarter of 2023 and again in the first quarter of 2024, we refinanced all of our borrowings under the BTFP with new loans under the BTFP with a one-year term due to more favorable rates.

At December 31, 2023, outstanding borrowings under the BTFP were $212.5 million with a weighted average rate of 4.83%.

During the third quarter of 2024, we began paying down borrowings under the BTFP and repaid all of the remaining borrowings under the BTFP in the fourth quarter of 2024.

At December 31, 2024, we had no outstanding borrowings under the BTFP compared to $212.5 million at December 31, 2023 with a weighted average rate of 4.83%.

The BTFP ceased making new loans as scheduled on March 11, 2024.

Typically, the main source of our short-term borrowings are advances from the FHLB;

however, during 2023, our primary source of short-term borrowings were borrowings under the BTFP due to more favorable rates.

however, during the years ended December 31, 2024 and 2023, our primary source of short-term borrowings were borrowings under the BTFP due to more favorable rates.

The rate charged for advances from the FHLB is directly tied to the Federal Reserve’s federal funds target rate.

As previously discussed, the Federal Reserve raised the federal funds target rate multiple times in 2022 and 2023.

As previously discussed, the Federal Reserve raised the federal funds target rate multiple times in 2022 and 2023 and reduced the federal funds target rate multiple times in the second half of 2024.

As of December 31, 2024, the federal funds target rate was 4.25% to 4.50%.

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Cost of Short-term Borrowings

Federal funds purchased, short-term FHLB advances and other short-term borrowings

Federal funds purchased and short-term FHLB advances

Borrowings under BTFP

Securities sold under agreements to repurchase

Repurchase agreements

Total short-term borrowings

At December 31, 2024 and 2023, we had $17.0 million and $20.0 million in principal amount of our 2032 Notes outstanding, respectively.

On April 6, 2022, we entered into a Subordinated Note Purchase Agreement with certain institutional accredited investors and qualified institutional buyers (the “Purchasers”) under which we issued $20.0 million in aggregate principal amount of our 2032 Notes to the Purchasers at a price equal to 100% of the aggregate principal amount of the 2032 Notes.

The 2032 Notes were issued under an indenture, dated April 6, 2022 (the “Indenture”), by and among the Company and UMB Bank, National Association, as trustee.

The 2032 Notes have a stated maturity date of April 15, 2032 and will bear interest at a fixed rate of 5.125% per year from and including April 6, 2022 to but excluding April 15, 2027 or earlier redemption date.

From April 15, 2027 to but excluding the stated maturity date or earlier redemption date, the 2032 Notes will bear interest a floating rate equal to the then current three-month term secured overnight financing rate (“SOFR”), plus 277 basis points.

The 2032 Notes have a stated maturity date of April 15, 2032 and bear interest at a fixed rate of 5.125% per year from and including April 6, 2022 to but excluding April 15, 2027 or earlier redemption date.

As provided in the 2032 Notes, the interest rate on the 2032 Notes during the applicable floating rate period may be determined based on a rate other than three-month term SOFR.

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We used the majority of the net proceeds to redeem our 2027 Notes in June 2022, and utilized the remaining proceeds for share repurchases and for general corporate purposes.

On November 12, 2019, the Company issued $25.0 million in aggregate principal amount of its 5.125% Fixed-to-Floating Rate Subordinated 2029 Notes due 2029 (“2029 Notes”) at 100% of their face amount in a private placement to certain institutional and other accredited investors.

The 2029 Notes have a maturity date of December 30, 2029.

From and including the date of issuance to, but excluding December 30, 2024, the 2029 Notes will bear interest at an initial fixed rate of 5.125% per annum, payable semi-annually in arrears.

From and including December 30, 2024 and thereafter, the 2029 Notes will bear interest at a floating rate equal to the then-current three-month LIBOR as calculated on each applicable date of determination, or an alternative rate determined in accordance with the terms of the 2029 Notes if the three-month LIBOR cannot be determined, plus 3.490%, payable quarterly in arrears.

The Company may redeem the 2029 Notes, in whole or in part, on or after December 30, 2024 or, in whole but not in part, under certain limited circumstances set forth in the 2029 Notes.

During the year ended December 31, 2024, we repurchased $3.0 million in principal amount of the 2032 Notes.

At December 31, 2024, none of our 2029 Notes were outstanding.

At December 31, 2023, we had $25.0 million in principal amount of our 2029 Notes outstanding.

On November 12, 2019, the Company issued $25.0 million in aggregate principal amount of its 2029 Notes at 100% of their face amount in a private placement to certain institutional and other accredited investors.

The 2029 Notes had a maturity date of December 30, 2029.

From and including the date of issuance to, but excluding December 30, 2024, the 2029 Notes bore interest at an initial fixed rate of 5.125% per annum, payable semi-annually in arrears.

From and including December 30, 2024 and thereafter, the 2029 Notes were to bear interest at a floating rate equal to the then-current three-month LIBOR as calculated on each applicable date of determination, or an alternative rate determined in accordance with the terms of the 2029 Notes if the three-month LIBOR could not be determined, plus 3.490%, payable quarterly in arrears.

The Company could redeem the 2029 Notes, in whole or in part, on or after December 30, 2024 or, in whole but not in part, under certain limited circumstances set forth in the 2029 Notes.

Any redemption by the Company would be at a redemption price equal to 100% of the principal balance being redeemed, together with any accrued and unpaid interest to the date of redemption.

Principal and interest on the 2029 Notes are not subject to acceleration, except upon certain bankruptcy-related events.

The 2029 Notes are unsecured, subordinated obligations of the Company and rank junior in right of payment to the Company’s current and future senior indebtedness and to the Company’s obligations to its general creditors.

The 2029 Notes are obligations of the Company only and are not obligations of, and are not guaranteed by, any of the Company’s subsidiaries.

The 2029 Notes are intended to qualify as Tier 2 capital for regulatory capital purposes.

Principal and interest on the 2029 Notes were not subject to acceleration, except upon certain bankruptcy-related events.

The 2029 Notes were unsecured, subordinated obligations of the Company and ranked junior in right of payment to the Company’s current and future senior indebtedness and to the Company’s obligations to its general creditors.

The 2029 Notes were obligations of the Company only and were not obligations of, and were not guaranteed by, any of the Company’s subsidiaries.

The 2029 Notes were intended to qualify as Tier 2 capital for regulatory capital purposes.

During the second quarter of 2024, we repurchased $5.0 million in principal amount of our 2029 Notes.

On December 30, 2024, we redeemed the remaining $20.0 million in principal amount i n full accordance with their terms at a redemption price equal to 100% of the outstanding principal balance plus accrued and unpaid interest up to but excluding the December 30, 2024 redemption date.

At December 31, 2024 and 2023, none of our 2027 Notes were outstanding.

On March 24, 2017, the Company issued $18.6 million in aggregate principal amount of its 2027 Notes due March 20, 2027 at 100% of the aggregate principal amount.

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The 2027 Notes were intended to qualify as Tier 2 capital for regulatory capital purposes.

In June 2022, we redeemed the 2027 Notes in full in accordance with their terms at a redemption price equal to 100% of the outstanding principal balance plus accrued and unpaid interest up to but excluding the June 30, 2022 redemption date (“Redemption Date”).

The aggregate redemption price, excluding accrued interest, totaled $18.6 million.

Interest on the 2027 Notes no longer accrued on or after the Redemption Date.

Stockholders’ Equity

Stockholders’ equity was $241.3 million at December 31, 2024, an increase of $14.5 million, or 6.4%, compared to December 31, 2023.

The increase in stockholders’ equity is primarily attributable to net income for fiscal year 2023 and a decrease in accumulated other comprehensive loss due to an increase in the fair value of the Bank’s AFS securities portfolio, partially offset by the cumulative effect adjustment as a result of the adoption of ASU 2016-13, reflected in retained earnings.

The increase in stockholders’ equity is primarily attributable to net income for fiscal year 2024, partially offset by an increase in accumulated other comprehensive loss due to a decrease in the fair value of the Bank’s AFS securities portfolio, $4.0 million in dividends declared, and $0.3 million in share repurchases.

Results of Operations

Performance Summary

For the year ended December 31, 2024, net income was $20.3 million, or $2.06 per basic common share and $2.04 per diluted common share, compared to net income of $16.7 million, or $1.69 per basic and diluted common share, for the year ended December 31, 2023.

The primary driver of the increase in net income is a $7.7 million increase in noninterest income, partially offset by a $4.8 million decrease in net interest income and a $0.4 million increase in noninterest expense.

There was also a $3.5 million negative provision for credit losses in 2024 compared to a negative provision for credit losses of $2.0 million in 2023.

Return on average assets increased to 0.73% for the year ended December 31, 2024 from 0.60% for the year ended December 31, 2023.

Return on average equity was 8.60% for the year ended December 31, 2024 compared to 7.63% for the year ended December 31, 2023.

The increase in both return on average assets and return on average equity is mainly attributable to the $3.6 million increase in net income.

For the year ended December 31, 2023, net income was $16.7 million, or $1.69 per basic and diluted common share, compared to net income of $35.7 million, or $3.54 per basic common share and $3.50 per diluted common share, for the year ended December 31, 2022.

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The decrease in both return on average assets and return on average equity is mainly attributable to the $19.0 million decrease in net income.

For the year ended December 31, 2022, net income was $35.7 million, or $3.54 per basic common share and $3.50 per diluted common share, compared to net income of $8.0 million, or $0.77 per basic common share and $0.76 per diluted common share, for the year ended December 31, 2021.

The primary driver of the increase in net income is related to a decrease in provision for loan losses due to the $21.6 million impairment charge recorded during the third quarter of 2021 as a result of Hurricane Ida.

As shown on the consolidated statement of income for the year ended December 31, 2022, a provision for loan losses of $2.9 million was recorded, compared to a provision for loan losses of $22.9 million for the year ended December 31, 2021.

We had record annual net income in 2022 primarily as a result of increases in interest income and noninterest income as well as a decrease in noninterest expense compared to 2021.

Return on average assets increased to 1.37% for the year ended December 31, 2022 from 0.31% for the year ended December 31, 2021.

Return on average equity was 15.63% for the year ended December 31, 2022 compared to 3.22% for the year ended December 31, 2021.

The increase in both return on average assets and return on average equity is mainly attributable to the $27.7 million increase in net income.

Net Interest Income and Net Interest Margin

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The Federal Reserve Board sets various benchmark rates, including the federal funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions.

On March 3, 2020, the Federal Reserve lowered the federal funds target rate to 1.00% to 1.25%, which the Federal Reserve stated was in response to the evolving risks to economic activity posed by the coronavirus.

In a measure aimed at lessening the economic impact of COVID-19, the Federal Reserve reduced the federal funds target rate to 0% to 0.25% on March 16, 2020, where it remained until March 2022 when the Federal Reserve began increasing the federal funds target rate a total of seven times during 2022 and four times during 2023 to 5.25% to 5.50% as discussed in Certain Events That Affect Year-over-Year Comparability – Rising Inflation and Interest Rates.

The federal funds target rate increased substantially during 2022 and 2023, before decreasing during the second half of 2024, as discussed in more detail in Certain Events That Affect Year-over-Year Comparability – Changing Inflation and Interest Rates.

Net interest income decreased 6.4% to $69.8 million for the year ended December 31, 2024 from $74.5 million for the same period in 2023.

Net interest margin was 2.63% for the year ended December 31, 2024, a decrease of 20 basis points from 2.83% for the year ended December 31, 2023.

The decrease in net interest income resulted primarily from an increase in the rates paid on interest-bearing deposits and short-term borrowings partially offset primarily by an increase in the yield earned on loans.

Average time deposits increased $272.2 million primarily due to organic growth and customer funds migrating from other deposit categories due to higher rates offered, which along with higher rates paid, resulted in a $20.6 million increase in interest expense compared to the year ended December 31, 2022.

Average short-term borrowings increased $126.5 million, as we utilized advances from the FHLB and borrowings under the BTFP to fund loan growth and investment activity, which along with higher rates paid, resulted in an $8.8 million increase in interest expense compared to the year ended December 31, 2022.

Average interest-bearing demand deposits decreased $211.6million but increases in rates led to a $6.5 million increase in interest expense compared to the year ended December 31, 2022.

The decrease in net interest income resulted primarily from an increase in the rates paid on time deposits and interest-bearing demand deposits and an increase in the volume of brokered time deposits, partially offset primarily by an increase in both the average balance of, and the yield earned on, loans and a decrease in both the average balance of, and rates paid on, short-term borrowings.

Average time deposits increased $45.4 million primarily due to organic growth and customer funds migrating from other deposit categories due to higher rates offered, which along with higher rates paid, resulted in an $8.8 million increase in interest expense compared to the year ended December 31, 2023.

Average interest-bearing demand deposits increased $3.6 million.

Higher rates paid on interest-bearing demand deposits led to a $5.1 million increase in interest expense compared to the year ended December 31, 2023.

Average brokered time deposits were $249.7 million during the year ended December 31, 2024 compared to $163.9 million during the year ended December 31, 2023, which along with higher rates paid added $4.7 million to interest expense.

Average loans increased $39.9 million primarily due to the purchase of commercial and industrial revolving lines of credit in the second half of 2023, which, in addition to higher loan yields, resulted in a $10.6 million increase in interest income compared to the year ended December 31, 2023.

Average short-term borrowings decreased $70.8 million, as we repaid our borrowings under the BTFP, which along with lower rates paid, resulted in a $4.1 million decrease in interest expense compared to the year ended December 31, 2023.

Average noninterest-bearing deposits decreased $58.7 million.

Average loans increased $186.0 million primarily due to organic growth and the purchase of commercial and industrial revolving lines of credit which, in addition to higher loan yields, resulted in a $24.5 million increase in interest income compared to the year ended December 31, 2022.

Our yield on interest-earning assets increased as did our rate paid on interest-bearing liabilities primarily as a result of the overall increase in prevailing interest rates.

We experienced margin pressure beginning late in 2022, which continued in 2023.

We raised rates offered on deposits and incurred higher costs on our borrowings, compared to the year ended December 31, 2022.

We may experience additional pressure on our net interest margin during 2024 if our cost of funds increases faster than the yield on our interest-earning assets.

We experienced margin pressure beginning late in 2022, which continued in 2023 and 2024.

We raised rates offered on interest-bearing deposits and experienced a decrease in noninterest-bearing deposits, compared to the year ended December 31, 2023.

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

Interest income was $143.9 million for the year ended December 31, 2024 compared to $133.2 million for the same period in 2023.

Loan interest income made up substantially all of our interest income for the years ended December 31, 2023 and 2022, although interest on investment securities contributed 9.8% of interest income for the years ended December 31, 2023 and 2022.

Interest on our commercial real estate loans, commercial and industrial loans, and 1-4 family residential real estate loans constituted the three largest components of our loan interest income for both of the years ended December 31, 2023 and 2022 at 84% total interest income on loans.

Loan interest income made up substantially all of our interest income for the years ended December 31, 2024 and 2023, although interest on investment securities contributed 8.5% of interest income for the year ended December 31, 2024 compared to 9.8% for the year ended December 31, 2023.

Interest on our commercial real estate loans, commercial and industrial loans, and 1-4 family residential real estate loans constituted the three largest components of our loan interest income for the years ended December 31, 2024 and 2023 at 85% and 84% of total interest income on loans, respectively.

The overall yield on interest-earning assets increased 37 basis points to 5.43% for the year ended December 31, 2024 compared to 5.06% for the same period in 2023.

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Interest expense was $74.1 million for the year ended December 31, 2024, an increase of $15.4 million compared to interest expense of $58.7 million for the year ended December 31, 2023.

The increase in interest expense is primarily attributable to the increase in the rates paid for interest-bearing liabilities, primarily interest-bearing deposits, and to a lesser extent the increase in the volume of interest-bearing liabilities for the year ended December 31, 2023 compared to December 31, 2022.

For the year ended December 31, 2023, the cost of interest-bearing deposits increased 207 basis points to 2.49% and the cost of short-term borrowings increased 188 basis points to 4.93% primarily due to increases in the federal funds target rate.

As previously discussed, the federal funds target rate increased from 0% to 0.25% to 4.25% to 4.50% during 2022 and to 5.25% to 5.50% during 2023, which affects the rate the Company pays for deposits, immediately available overnight funds, borrowings under the BTFP, and long-term borrowings.

The increase in interest expense is primarily attributable to the increase in the rates paid on interest-bearing liabilities, primarily time deposits and interest-bearing demand deposits, and to a lesser extent the increase in the volume of interest-bearing liabilities, primarily brokered time deposits, for the year ended December 31, 2024 compared to December 31, 2023.

For the year ended December 31, 2024, the cost of interest-bearing deposits increased 89 basis points to 3.38% primarily due to increases in the federal funds target rate.

As previously discussed, the federal funds target rate increased during 2023 to 5.25% to 5.50% and decreased beginning in September 2024 to 4.25% to 4.50%, which affects the rate the Company pays for deposits, immediately available overnight funds, and long-term borrowings.

The cost of short-term borrowings decreased 35 basis points to 4.58% primarily due to our refinancing of our borrowings under the BTFP in the first quarter of 2024.

For the year ended December 31, 2024, the cost of interest-bearing liabilities increased 66 basis points to 3.55% compared to the same period in 2023.

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Net interest income/net interest margin

Interest income and net interest margin are expressed as a percentage of average interest-earning assets outstanding for the indicated periods.

Interest income and net interest margin are expressed as a percentage of average interest-earning assets outstanding for the indicated periods and are not presented on a tax equivalent basis.

Interest expense is expressed as a percentage of average interest-bearing liabilities for the indicated periods.

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Noninterest Income

Noninterest income includes, among other things, service charges on deposit accounts, gains and losses on call or sale of investment securities, gains and losses on sales or dispositions of fixed assets and other real estate owned, swap termination fee income, gain on sale of loans, servicing fees and fee income on serviced loans, intercha nge fees, income from bank owned life insurance, changes in the fair value of equity securities, and income from insurance proceeds.

Noninterest income includes, among other things, service charges on deposit accounts, gains and losses on call or sale of investment securities, gains and losses on sales or dispositions of fixed assets and other real estate owned, swap termination fee income, gain on sale of loans, servicing fees and fee income on serviced loans, intercha nge fees, income from BOLI, changes in the fair value of equity securities, income from legal settlement, and income from insurance proceeds.

We expect to continue to develop new products that generate noninterest income, and enhance our existing products, in order to diversify our revenue sources.

Total noninterest income decreased $11.8 million, or 64.4%, to $6.5 million for the year ended December 31, 2023 compared to $18.4 million for the year ended December 31, 2022.

The decrease is mainly attributable to $8.1 million of swap termination fees and $1.4 million of income from insurance proceeds recorded during the year ended December 31, 2022 and the loss on sale or disposition of fixed assets of $1.3 million during the year ended December 31, 2023, primarily resulting from the sale of the Alice and Victoria, Texas branches, compared to a loss on sale or disposition of fixed assets of $0.3 million for the year ended December 31, 2022.

Total noninterest income increased $7.7 million, or 117.3%, to $14.2 million for the year ended December 31, 2024 compared to $6.5 million for the year ended December 31, 2023.

The increase is mainly attributable to a $3.5 million increase in income from BOLI primarily due to the receipt of death benefit proceeds in the fourth quarter of 2024 and a gain on sale or disposition of fixed assets of $0.4 million recorded during the year ended December 31, 2024, primarily resulting from the closure of one branch in the Alabama market, compared to a loss on sale or disposition of fixed assets of $1.3 million recorded during the year ended December 31, 2023, primarily resulting from the sale of the Alice and Victoria, Texas branches, the disposition of ATMs and a reclassification of bank premises and equipment to other real estate owned.

There was also $1.1 million of income from legal settlement recorded for the year ended December 31, 2024 related to a lending relationship that became impaired in the third quarter of 2021 as a result of Hurricane Ida, compared to none for the year ended December 31, 2023.

Service charges on deposit accounts include maintenance fees on accounts, account enhancement charges for additional deposit account features, per item charges, overdraft fees, and treasury management charges.

Service charges on deposit accounts were $3.1 million for both of the years ended December 31, 2023 and 2022.

There was a $0.3 million loss on call or sale of investment securities for the year ended December 31, 2023 compared to a de minimis gain for the year ended December 31, 2022.

We sold approximately $15.0 million of securities during the year ended December 31, 2023 compared to no sales and de minimis calls during the year ended December 31, 2022.

Loss on sale or disposition of fixed assets for the year ended December 31, 2023 increased to $1.3 million from $0.3 million for the year ended December 31, 2022.

During 2023, a loss on sale or disposition of fixed assets of $1.3 million was recorded as a result of the sale of the Alice and Victoria, Texas branches, the disposition of ATMs, and a reclassification of bank premises and equipment to other real estate owned.

During 2022, a loss on sale or disposition of fixed assets of $0.5 million was recorded as a result of the Bank closing two branches in Louisiana, which was partially offset by a gain on sale or disposition of fixed assets as a result of the sale of three tracts of land that were being held for future branch locations.

There was a $0.1 million loss on sale of other real estate owned for the year ended December 31, 2023 compared to a de minimis gain for the year ended December 31, 2022.

Service charges on deposit accounts increased 4.9% to $3.2 million for the year ended December 31, 2024 compared to $3.1 million for the same period in 2023.

There was a $0.8 million loss on call or sale of investment securities for the year ended December 31, 2024 compared to a $0.3 million loss for the year ended December 31, 2023.

We sold approximately $18.0 million of securities during the year ended December 31, 2024 compared to $15.0 million during the year ended December 31, 2023.

There was a $0.7 million gain on sale of other real estate owned for the year ended December 31, 2024 compared to a $0.1 million loss for the year ended December 31, 2023.

The gain on sale of other real estate owned for the year ended December 31, 2024 resulted primarily from the sale of a property during the second quarter of 2024 related to one loan relationship that became impaired in the third quarter of 2021 as a result of Hurricane Ida.

We sold approximately $2.1 million of other real estate owned during the year ended December 31, 2024 compared to $1.5 million of sales during the year ended December 31, 2023.

No swap termination fee income was recorded during the year ended December 31, 2023.

Swap termination fee income of $8.1 million was recorded for the year ended December 31, 2022 when we voluntarily terminated a number of our interest rate swap agreements during the first and second quarters of 2022 in response to market conditions.

There was a $0.1 million gain on sale of loans for the year ended December 31, 2023 as a result of the sale of the Alice and Victoria, Texas branches, compared to no gain or loss for the year ended December 31, 2022.

Servicing fees and fee income on serviced loans decreased $60,000, or 81.1%, to $14,000 for the year ended December 31, 2023.

This decrease is a result of the Bank exiting the indirect auto loan origination business at the end of 2015.

Since the Bank did not originate auto loans for sale during the years ended December 31, 2023 and 2022, the servicing portfolio, which experienced regularly scheduled paydowns, was not replaced with new loans.

We expect servicing fees and fee income on serviced loans to decrease over time until all serviced loans are paid off.

Interchange fees, which are fees earned on the usage of the Bank’s credit and debit cards, decreased $0.1 million, or 4.8%, to $1.6 million for year ended December 31, 2024 from $1.7 million for the year ended December 31, 2023.

The decrease in interchange fees can primarily be attributed to the decrease in the volume of debit and credit card transactions.

Income from bank owned life insurance increased $0.1 million to $1.4 million for the year ended December 31, 2023 from $1.3 million for the year ended December 31, 2022.

This increase reflects increased interest earned on the Company’s bank owned life insurance policies.

No income from insurance proceeds was recorded for the year ended December 31, 2023.

Income from insurance proceeds totaled $1.4 million for the year ended December 31, 2022 .

Nontaxable income related to an insurance policy for the former Chief Financial Officer of the Company and the Bank of $1.4 million was recorded during the fourth quarter of 2022.

Other operating income includes, among other things, credit card, ATM and wire fees, derivative fee income, changes in the net asset value of other investments and rental income.

The $0.6 million decrease in other operating income for the year ended December 31, 2023 is primarily attributable to a $0.5 million decrease in derivative fee income compared to the year ended December 31, 2022.

Income from BOLI increased $3.5 million to $4.9 million for the year ended December 31, 2024 from $1.4 million for the year ended December 31, 2023.

During the first quarter of 2024, we surrendered approximately $8.4 million of BOLI and reinvested the proceeds in higher yielding policies, which resulted in increased interest earned on our BOLI policies.

During the fourth quarter of 2024 , we received BOLI death benefit proceeds totaling $5.5 million and recorded $3.1 million in nontaxable income from BOLI.

Other operating income includes, among other things, credit card, ATM and wire fees, derivative fee income, changes in the net asset value of other investments and lease income.

The $0.5 million increase in other operating income for the year ended December 31, 2024 is primarily attributable to a $0.3 million increase in derivative fee income and a $0.1 million increase in the change in net asset value of other investments compared to the year ended December 31, 2023.

For a detailed discussion of our noninterest income for 2023 compared to 2022, see Item 7.

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Total noninterest expense was $63.0 million for the year ended December 31, 2024, an increase of $0.4 million, or 0.6%, from $62.6 million for the year ended December 31, 2023.

This increase was primarily driven by the increases in salaries and employee benefits and other operating expenses, partially offset by a decrease in depreciation and amortization.

This increase was primarily driven by an increase in salaries and employee benefits, partially offset by decreases in depreciation and amortization and occupancy expense.

Salaries and employee benefits increased $1.5 million, or 4.0%, to $38.6 million for the year ended December 31, 2024, compared to $37.1 million for the year ended December 31, 2023.

Included in salaries and employee benefits for the year ended December 31, 2022 is a $2.3 million employee retention credit (“ERC”) recognized as a credit to payroll taxes, which decreased salaries and employee benefits reported for 2022.

The increase in salaries and employee benefits is mainly attributable to increases in health insurance claims and payroll taxes, partially offset by decreases in incentive-based compensation and severance.

Salaries and employee benefits for 2022 also included $0.6 million of severance due to the separation agreement with the former Chief Financial Officer of the Company and the Bank.

Please refer to Note 1.

Summary of Significant Accounting Policies – Employee Retention Credit, for additional discussion regarding the ERCs.

As of December 31, 2023, we had 320 full-time and 11 part-time employees, compared to 331 full-time and seven part-time employees as of December 31, 2022.

The increase in salaries and employee benefits is primarily due to investment in people with an emphasis on our Texas markets to remix and strengthen our balance sheet and deferred compensation expense, partially offset by a decrease in health insurance claims and severance expense.

As of December 31, 2024, we had 327 full-time and eight part-time employees, compared to 320 full-time and 11 part-time employees as of December 31, 2023.

Depreciation and amortization decreased $0.7 million, or 18.1%, to $3.1 million for the year ended December 31, 2024, compared to $3.8 million for the year ended December 31, 2023.

The decrease in depreciation and amortization is primarily driven by the sale of the Alice and Victoria, Texas branches and the closure of one branch during the first quarter of 2023 and two branches during 2022.

Data processing decreased $0.1 million, or 3.3%, to $3.5 million for the year ended December 31, 2023 from $3.6 million for the same period in 2022.

The decrease in depreciation and amortization is primarily driven by the closure of one branch during the first quarter of 2024 and the sale of the Alice and Victoria, Texas branches and the closure of one branch during the first quarter of 2023.

Data processing increased $0.1 million, or 3.7%, to $3.6 million for the year ended December 31, 2024 from $3.5 million for the same period in 2023.

We did not complete any acquisitions, which typically drive higher data processing expenses, during the years ended December 31, 2024 and 2023.

We regularly review existing contracts with the goal of negotiating favorable terms to offset the increased variable cost components of our data processing costs, such as new accounts and increased transaction volume.

Occupancy expense increased $0.1 million, or 2.7%, to $3.0 million for the year ended December 31, 2023 from $2.9 million for the year ended December 31, 2022.

This increase is primarily attributable to $0.4 million in occupancy expense recorded primarily to terminate remaining contractually obligated lease payments due under non-cancelable operating leases, partially offset by a decrease in building rent, both as a result of the sale the Alice and Victoria, Texas branches in January 2023.

Occupancy expense decreased $0.4 million, or 14.0%, to $2.6 million for the year ended December 31, 2024 from $3.0 million for the year ended December 31, 2023.

This decrease is primarily attributable to $0.4 million in occupancy expense recorded during the year ended December 31, 2023 primarily to terminate remaining contractually obligated lease payments due under non-cancelable operating leases as a result of the sale of the Alice and Victoria, Texas branches.

Other operating expenses include security, business development, FDIC and OCC assessments, bank shares and property taxes, collection and repossession, charitable contributions, repair and maintenance costs, personnel training and development, filing fees, and other costs related to the operation of our business.

Other operating expenses increased $0.3 million, or 2.0%, to $13.3 million for the year ended December 31, 2024 from $13.0 million for the year ended December 31, 2023.

The increase in other operating expenses was primarily due to increases in FDIC assessments, other real estate expense, and bank shares taxes, partially offset by a decrease in collection and repossession expenses, the majority of which was related to one impaired loan relationship impacted by Hurricane Ida.

The increase in other operating expenses was primarily due to increases in collection and repossession expenses, FDIC assessments, and write-down of other real estate owned, partially offset by a decrease in bank shares taxes.

For a detailed discussion of our noninterest expense for 2023 compared to 2022, see Item 7.

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Income Tax Expense

Income tax expense for the years ended December 31, 2023, 2022 and 2021 was $3.8 million, $8.6 million, and $1.9 million, respectively.

Income tax expense for the years ended December 31, 2024 and 2023, was $4.2 million and $3.8 million, respectively.

The effective tax rates for the years ended December 31, 2024 and 2023 were 17.0% and 18.4%, respectively.

For the years ended December 31, 2023 and 2021, the effective tax rate differs from the statutory rate of 21% primarily due to tax-exempt interest income earned on certain loans and investment securities and income from bank owned life insurance.

For the year ended December 31, 2022, the effective tax rate differs from the statutory rate of 21% primarily due to nontaxable income from insurance proceeds and tax-exempt interest income earned on certain loans and investment securities and income from bank owned life insurance.

During the first quarter of 2024, we surrendered approximately $8.4 million of BOLI contracts and reinvested the proceeds in higher yielding policies, which resulted in $0.3 million of income tax expense.

The restructuring had an expected earn-back period of just over one year.

During the fourth quarter of 2024 , we received BOLI death benefit proceeds totaling $5.5 million and recorded $3.1 million in nontaxable income from BOLI.

For the year ended December 31, 2024, the effective tax rate differs from the statutory rate of 21% primarily due to tax-exempt interest income earned on certain loans and investment securities and income from BOLI, partially offset by the surrender of BOLI contracts.

For the year ended December 31, 2023, the effective tax rate differs from the statutory rate of 21% primarily due to tax-exempt interest income earned on certain loans and investment securities and income from BOLI.

Risk Management

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The risk of loss should a borrower default on a loan is inherent in any lending activity.

Our portfolio and related credit risk are monitored and managed on an ongoing basis by our risk management department, the board of directors’ loan committee and the full board of directors.

Our portfolio and related credit risk are monitored and managed on an ongoing basis by our risk management department, the Board’s loan committee and the full Board.

We utilize a ten point risk-rating system, which assigns a risk grade to each borrower based on a number of quantitative and qualitative factors associated with a loan transaction.

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Loans and Allowance for Credit Losses – Credit Quality Indicators .

At December 31, 2023 and December 31, 2022, there were no loans classified as loss, while there were no loans and $0.2 million of loans, respectively, classified as doubtful, $12.0 million and $15.0 million, respectively, of loans classified as substandard, and $10.8 million and $12.8 million, respectively, of loans classified as special mention as of such dates.

Of our aggregate $22.9 million and $28.0 million doubtful, substandard and special mention loans at December 31, 2023 and December 31, 2022, respectively, $2.3 million and $4.7 million, respectively, were acquired and marked to fair value at the time of their acquisition.

At December 31, 2024 and December 31, 2023, there were no loans classified as Loss or Doubtful, $32.7 million and $12.0 million, respectively, of loans classified as Substandard, and $7.8 million and $10.8 million, respectively, of loans classified as Special Mention as of such dates.

Of our aggregate $40.5 million and $22.9 million Substandard and Special Mention loans at December 31, 2024 and December 31, 2023, respectively, $2.0 million and $2.3 million, respectively, were acquired and marked to fair value at the time of their acquisition.

The increase in loans classified as Substandard is primarily due to one loan relationship in which $13.6 million of construction and development and commercial real estate loans were downgraded and are still accruing and one nonowner-occupied commercial real estate relationship totaling $2.4 million, which was placed on nonaccrual.

An independent loan review is conducted annually, whether internally or externally, on at least 40% of commercial loans utilizing a risk-based approach designed to maximize the effectiveness of the review.

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In addition, credit analysts periodically review certain commercial loans to identify negative financial trends related to any one borrower, any related groups of borrowers or an industry.

All loans not categorized as pass are put on an internal watch list, with quarterly reports to the board of directors.

All loans not categorized as Pass are put on an internal watch list, with quarterly reports to the Board.

In addition, a written status report is maintained by our special assets division for all commercial loans categorized as Substandard or worse.

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Allowance for Credit Losses .

Effective January 1, 2023, we adopted ASU 2016-13, which uses the CECL accounting methodology for the allowance for credit losses.

Upon adoption, we recorded a one-time, cumulative effect adjustment to increase the allowance for credit losses by $5.9 million.

The allowance for credit losses was $30.5 million at December 31, 2023, an increase compared to $24.4 million at December 31, 2022 and $20.9 million at December 31, 2021, respectively.

Effective January 1, 2023, we adopted ASU 2016-13, which uses the CECL accounting methodology for the ACL.

Upon adoption, we recorded a one-time, cumulative effect adjustment to increase the ACL by $5.9 million.

The ACL was $26.7 million at December 31, 2024, a decrease compared to $30.5 million at December 31, 2023 and an increase compared to $24.4 million at December 31, 2022.

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 period through a provision for credit losses for changes in the expected lifetime credit losses.

For the years ended December 31, 2023, 2022 and 2021, the provision for credit losses on loans was negative $2.0 million, $2.9 million, and $22.9 million, respectively.

The negative provision for credit losses for the year ended December 31, 2023 was primarily driven by net recoveries of $2.3 million in the loan portfolio primarily attributable to recoveries on one loan relationship that became impaired in the third quarter of 2021 as a result of Hurricane Ida.

We maintain a separate ACL on unfunded loan commitments, which is included in “Accrued taxes and other liabilities” in the accompanying consolidated balance sheets.

The ACL is generally increased by the provision for credit losses and decreased by charge-offs, net of recoveries.

For the years ended December 31, 2024 and 2023, the negative provision for credit losses on loans was $3.5 million and $2.0 million, respectively.

For the year ended December 31, 2022, the provision for credit losses was $2.9 million.

The negative provision for credit losses for the year ended December 31, 2024 was primarily driven by a decrease in total loans, aging of existing loans, an improvement in the economic forecast and, to a lesser extent, the completion of our annual CECL allowance model recalibration, which resulted in lower historical loss rates.

The provision for loan losses for the year ended December 31, 2023 was primarily driven by net recoveries of $2.3 million in the loan portfolio primarily attributable to recoveries on one loan relationship that became impaired in the third quarter of 2021 as a result of Hurricane Ida.

The provision for loan losses for the year ended December 31, 2022 reflects provisioning related to our organic loan growth.

The provision for loan losses for the year ended December 31, 2021 includes a $21.6 million impairment charge related to one loan relationship impacted by Hurricane Ida, as discussed in Certain Events That Affect Year-over-Year Comparability – Hurricane Ida .

During the first quarter of 2024, we completed our annual model recalibration process.

Our annual review includes peer group analysis, updates to our probability of default and loss-given default models, including prepayment and curtailment assumptions, and qualitative factor scorecard ranges, as needed.

The changes resulting from the model recalibration reduced the ACL by approximately $0.5 million.

Refer to Note 1.

Summary of Significant Accounting Policies – Allowance for Credit Losses and – Accounting Standards Adopted in 2023, for information regarding our adoption of ASU 2016-13.

Results for reporting periods beginning after December 31, 2022 are presented in accordance with ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable U.S.

Summary of Significant Accounting Policies – Allowance for Credit Losses for further discussion of our ACL accounting policy.

Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” for further discussion.

The following table presents the allocation of the allowance for credit losses by loan category as of the dates indicated (dollars in thousands).

The following table presents the allocation of the ACL by loan category as of the dates indicated (dollars in thousands).

Allowance for Credit Losses

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Commercial and industrial

The following table presents the amount of the allowance for credit losses allocated to each loan category as a percentage of total loans as of the dates indicated.

The following table presents the amount of the ACL allocated to each loan category as a percentage of total loans as of the dates indicated.

Mortgage loans on real estate:

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Commercial and industrial

As discussed above, the balance in the allowance for credit losses is principally influenced by the provision for credit losses and by net loan loss experience.

As discussed above, the balance in the ACL is principally influenced by the provision for credit losses and by net loan loss experience.

Additions to the allowance are charged to the provision for credit losses.

Losses are charged to the allowance as incurred and recoveries on losses previously charged to the allowance are credited to the allowance at the time recovery is collected.

The table below reflects the activity in the allowance for credit losses and key ratios for the periods indicated (dollars in thousands).

The table below reflects the activity in the ACL and key ratios for the periods indicated (dollars in thousands).

Year ended December 31,

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Nonaccrual loans to total loans - period end

For the year ended December 31, 2023, the negative provision for credit losses of $2.0 million on the consolidated statement of income includes a negative provision for loan losses of $2.0 million and a negative provision for unfunded loan commitments of $36,000.

We recognized net recoveries of $2.4 million and net charge-offs of $21.6 million in the loan portfolio during the years ended December 31, 2023 and 2021, respectively, attributable to one loan relationship that became impaired in the third quarter of 2021 as a result of Hurricane Ida.

The allowance for credit losses to total loans increased to 1.38% at December 31, 2023 compared to 1.16% at December 31, 2022 while the allowance for credit losses to nonaccrual loans ratio increased to 529% at December 31, 2023 from 244% at December 31, 2022.

The increase in the allowance for credit losses to total loans at December 31, 2023 compared to December 31, 2022 is primarily due to the one-time, cumulative effect adjustment to increase the allowance for credit losses by $5.9 million recorded upon adoption of ASU 2016-13 on January 1, 2023.

The increase in the allowance for credit losses to nonaccrual loans and the decrease in nonaccrual loans to total loans are due to the decrease in nonaccrual loans primarily due to large paydowns on one loan relationship impacted by Hurricane Ida.

Nonaccrual loans were $5.8 million, or 0.26% of total loans, at December 31, 2023, a decrease of $4.2 million compared to $10.0 million, or 0.47% of total loans, at December 31, 2022.

Many of the loans comprising the total relationship were placed on nonaccrual following the impairment in the third quarter of 2021.

On January 1, 2023, the Company adopted ASU 2016-13, which introduced a new model known as CECL.

Refer to Note 1.

Summary of Significant Accounting Policies for more information on the adoption of ASU 2016-13.

Amounts for the years ended December 31, 2024 and December 31, 2023 reflect the impact of adopting the CECL accounting standard and the Company’s transition from a probable incurred loss methodology to the current expected credit loss methodology.

Amounts for the year ended December 31, 2022 represent the allowance for loan losses under the probable incurred loss methodology.

For the year ended December 31, 2024, the $3.5 million negative provision for credit losses on the consolidated statement of income includes a $3.2 million negative provision for loan losses and a $0.3 million negative provision for unfunded loan commitments.

For the year ended December 31, 2023, the $2.0 million negative provision for credit losses on the consolidated statement of income includes a $2.0 million negative provision for loan losses and a $36,000 negative provision for unfunded loan commitments.

The ACL to total loans decreased to 1.26% at December 31, 2024 compared to 1.38% at December 31, 2023 while the ACL to nonaccrual loans ratio decreased to 302.8% at December 31, 2024 from 529.3% at December 31, 2023.

The decrease in the ACL to total loans at December 31, 2024 compared to December 31, 2023 is primarily due to the one-time, cumulative effect adjustment to increase the ACL by $5.9 million recorded upon adoption of ASU 2016-13 on January 1, 2023.

The decrease in the ACL to nonaccrual loans and the increase in nonaccrual loans to total loans are primarily due to the increase in nonaccrual loans.

Nonaccrual loans were $8.8 million, or 0.42% of total loans, at December 31, 2024, an increase of $3.1 million compared to $5.8 million, or 0.26% of total loans, at December 31, 2023.

The following table presents the allocation of net (charge offs) recoveries by loan category for the periods indicated (dollars in thousands).

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Average balance

Ratio of Net Charge-offs to Average Loans

Ratio of Net Charge-offs (Recoveries) to Average Loans

Net (Charge-offs) Recoveries

Average balance

Ratio of Net Charge-offs to Average Loans

Ratio of Net Charge-offs (Recoveries) to Average Loans

Net (Charge-offs) Recoveries

Average balance

Ratio of Net Charge-offs to Average Loans

Ratio of Net Charge-offs (Recoveries) to Average Loans

Mortgage loans on real estate:

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Net charge-offs include recoveries of amounts previously charged off.

Net recoveries for the years ended December 31, 2023 and 2022 were $2.3 million and $0.6 million, respectively, equal to 0.11% and 0.03% of the average loan balance for the respective periods.

Net charge-offs for the year ended December 31, 2024 were $0.6 million, or 0.03% of the average loan balance.

Net recoveries for the years ended December 31, 2023 and 2022 were $2.3 million and $0.6 million, respectively, equal to 0.11% and 0.03%, of the average loan balance for the respective periods.

Net charge-offs for the year ended December 31, 2024 were primarily attributable to a charge-off on one $0.7 million commercial and industrial loan relationship.

Net recoveries for the year ended December 31, 2023 were primarily attributable to recoveries on one loan relationship that became impaired in the third quarter of 2021 as a result of Hurricane Ida.

Net recoveries for the year ended December 31, 2022 were primarily driven by one $0.9 million recovery on a commercial and industrial loan relationship.

Net charge-offs for the year ended December 31, 2021 were primarily due to charge-offs of $21.6 million in the third quarter of 2021 due to the impairment charge related to one loan relationship impacted by Hurricane Ida.

Commercial and industrial loans and commercial real estate loans were the categories affected.

Management believes the allowance for credit losses at December 31, 2023 is sufficient to provide adequate protection against losses in our loan portfolio.

Management believes the ACL at December 31, 2024 is sufficient to provide adequate protection against losses in our loan portfolio.

However, there can be no assurance that this allowance will prove to be adequate over time to cover ultimate losses in connection with our loans.

This allowance may prove to be inadequate due to higher inflation and interest rates than anticipated, other unanticipated adverse changes in the economy, unanticipated effects of the current geopolitical and domestic political conflicts, a resurgence of COVID-19, or discrete events adversely affecting specific customers or industries.

This allowance may prove to be inadequate due to higher inflation and interest rates than anticipated, other unanticipated adverse changes in the economy, unanticipated effects of the current geopolitical and domestic political conflicts, a public health crisis, or discrete events adversely affecting specific customers or industries.

Our results of operations and financial condition could be materially adversely affected to the extent that the allowance is insufficient to cover such changes or events.

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Effective January 1, 2023, we adopted ASU 2022-02, “ Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures ”, which eliminated the accounting guidance for troubled debt restructurings (“TDRs”).

Troubled Debt Restructurings and Vintage Disclosures, ” which eliminated the accounting guidance for TDRs.

Prior to our adoption of ASU 2022-02, we accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a TDR.

Occasionally, we modify loans to borrowers in financial distress by providing certain concessions, such as principal forgiveness, term extension, an other-than-insignificant payment delay, an interest rate reduction, or a combination of such concessions.

When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

When principal forgiveness is provided, the amount of forgiveness is charged-off against the ACL.

Upon our determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is written off.

Other Real Estate Owned .

Other real estate owned consists of properties acquired through foreclosure or acceptance of a deed in lieu of foreclosure, as well as any properties owned by the Company that are not intended to be used to carry out its operations.

These properties are initially recorded at the lower of cost or fair market value based on appraisal at the time of foreclosure, less estimated selling cost.

Losses arising at the time of foreclosure of properties are charged to the allowance for credit losses.

Other real estate owned consists of properties acquired through foreclosure or acceptance of a deed in lieu of foreclosure and real property no longer used in the Bank’s business operations.

Real estate acquired through foreclosure is initially recorded at fair value at the time of foreclosure, less estimated selling cost, and any related write-down is charged to the ACL.

Real property no longer used in the Bank’s business operations is recorded at the lower of its net book value or fair value at the date of transfer to other real estate owned.

For the year ended December 31, 2024, additions to other real estate owned were $2.0 million, which were primarily driven by transfers of 1-4 family loans to other real estate owned.

During the same year, we transferred land that was previously being held for a future branch location from bank premises and equipment to other real estate owned, as we did not intend to use the property for banking operations.

Also during the year ended December 31, 2024, we recorded a $0.2 million write-down of other real estate owned primarily related to a former branch location based on a third-party appraisal.

For the year ended December 31, 2023, additions to other real estate owned were $3.9 million, which were primarily driven by transfers of properties related to one loan relationship that became impaired in the third quarter of 2021 as a result of Hurricane Ida.

During the year ended December 31, 2023, we closed one branch and one stand-alone ATM and transferred the associated land and buildings from bank premises and equipment to other real estate owned, as we did not intend to use the properties for banking operations.

Other real estate owned with a cost basis of $1.5 million and $5.8 million was sold during the years ended December 31, 2023 and 2022, respectively, resulting in a net loss of $0.1 million and a net gain of $9,000 for the respective periods, compared to a cost basis of $0.9 million and a net loss of $5,000 for the year ended December 31, 2021.

Other real estate owned with a cost basis of $2.1 million and $1.5 million was sold during the years ended December 31, 2024 and 2023, respectively, resulting in a net gain of $0.7 million and a net loss of $0.1 million for the respective periods, compared to a cost basis of $5.8 million and a net gain of $9,000 for the year ended December 31, 2022.

The following table provides details of our other real estate owned as of the dates indicated (dollars in thousands).

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Inflation reached a near 40-year high in late 2021 primarily due to effects of the COVID-19 pandemic, and continued rising through June 2022.

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

however, it has remained above the Federal Reserve’s target inflation rate of two percent through March 7, 2024.

In response to higher inflation, the Federal Reserve increased the federal funds target rate during 2022 and 2023 as discussed in Certain Events That Affect Year-over-Year Comparability – Rising Inflation and Interest Rates , which generally increased the amount we earn on our interest-earning assets but also increased the amount we pay on our interest-bearing liabilities as discussed throughout this report.

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

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 inflation rate of two percent.

In response to higher inflation, the Federal Reserve increased the federal funds target rate during 2022 and 2023 as discussed in Certain Events That Affect Year-over-Year Comparability – Changing Inflation and Interest Rates , which generally increased the amount we earn on our interest-earning assets but also increased the amount we pay on our interest-bearing liabilities as discussed throughout this report.

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 has also increased and may continue to increase the costs of goods and services we purchase, including the costs of salaries and benefits.

In January 2024, the Federal Reserve decided not to change the federal funds target rate.

Many economists expect the Federal Reserve to decrease the federal funds target rate one or more times during the remainder of 2024.

As noted above, the rate of inflation generally declined after June 2022.

In response, from September 2024 to December 2024, the Federal Reserve reduced the federal funds target rate by 100 basis points to 4.25% to 4.50%, where it remained as of March 12, 2025.

The inflationary outlook in the U.S.

remains uncertain.

A decrease in the general level of interest rates may lead to, among other things, prepayments on our loan and mortgage-backed securities portfolios as borrowers refinance their loans at lower rates, lower rates on new loans, lower rates on existing variable rate loans and lower yields on investment securities, which may be offset by lower costs of interest-bearing liabilities.

If 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.

Significant fluctuations in interest rates makes our business and balance sheet more challenging to manage.

For additional information, see Interest Rate Risk below, and Item 1A.

Risk Factors – Risks Related to our Business – 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 and – Inflation and rising prices may continue to adversely affect our results of operations and financial condition.

Risk Factors – Risks Related to our Business – Changes in interest rates could have an adverse effect on our profitability and – Inflation and rising prices may continue to adversely affect our results of operations and financial condition.

Interest Rate Risk

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To that end, management actively monitors and manages our interest rate risk exposure.

The ALCO has been authorized by the board of directors to implement our asset/liability management policy, which establishes guidelines with respect to our exposure to interest rate fluctuations, liquidity, loan limits as a percentage of funding sources, exposure to correspondent banks and brokers and reliance on non-core deposits.

The ALCO has been authorized by the Board to implement our asset/liability management policy, which establishes guidelines with respect to our exposure to interest rate fluctuations, liquidity, loan limits as a percentage of funding sources, exposure to correspondent banks and brokers and reliance on non-core deposits.

The goal of the policy is to enable us to maximize our interest income and maintain our net interest margin without exposing the Bank to excessive interest rate risk, credit risk and liquidity risk.

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Net interest income simulation is the Bank’s primary tool for benchmarking near term earnings exposure.

Given the ALCO’s objective to understand the potential risk/volatility embedded within the current mix of assets and liabilities, standard rate scenario simulations assume total assets remain static (i.e.

Given the ALCO’s objective to understand the potential risk and volatility embedded within the current mix of assets and liabilities, standard rate scenario simulations assume total assets remain static (i.e.

The Bank may also use a standard gap report in its interest rate risk management process.

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Excess short-term liquidity is usually invested in overnight federal funds sold.

Our core deposits, which are deposits excluding time deposits greater than $250,000 and deposits of municipalities and other political entities, are our most stable source of liquidity to meet our cash flow needs due to the nature of the long-term relationships generally established with our customers.

Our core deposits, which are deposit s excluding brokered demand deposits, brokered time deposits, t ime deposits greater than $250,000 and deposits of municipalities and other political entities, are our most stable source of liquidity to meet our cash flow needs due to the nature of the long-term relationships generally established with our customers.

Maintaining the ability to acquire these funds as needed in a variety of markets, and within ALCO compliance targets, is essential to ensuring our liquidity.

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The sale of securities in a loss position would cause us to record a loss on sale of investment securities in noninterest income in the period during which the securities were sold.

Some securities are pledged to secure certain deposit types or short-term borrowings, such as FHLB advances and borrowings under the BTFP, which impacts their liquidity.

At December 31, 2023, securities with a carrying value of $296.2 million were pledged to secure certain deposits, borrowings, and other liabilities compared to $165.7 million in pledged securities at December 31, 2022 with the increase due primarily to the pledge of securities to secure borrowings under the BTFP.

Some securities are pledged to secure certain deposit types or short-term borrowings, such as FHLB advances, which impacts their liquidity.

At December 31, 2024, securities with a carrying value of $68.1 million were pledged to secure certain deposits, borrowings, and other liabilities compared to $296.2 million in pledged securities at December 31, 2023 with the decrease due primarily to our repayment of borrowings under the BTFP.

Other sources available for meeting liquidity needs include advances from the FHLB, repurchase agreements and other borrowings.

FHLB advances may be used to meet day to day liquidity needs, particularly if the prevailing interest rate on an FHLB advance compares favorably to the rates that we would be required to pay to attract deposits.

At December 31, 2023, the balance of our outstanding advances with the FHLB was $23.5 million, all long-term advances based on original maturity, a decrease from $387.0 million at December 31, 2022, consisting of $333.5 million short-term and $53.5 million long-term advances;

we decreased our use of FHLB advances as we utilized the BTFP.

The total amount of the remaining credit available to us from the FHLB at December 31, 2023 was $919.5 million.

At December 31, 2024, the balance of our outstanding advances with the FHLB was $67.2 million, consisting of $7.2 million short-term and $60.0 million long-term advances based on original maturity, an increase from $23.5 million, all long-term advances based on original maturity, at December 31, 2023.

The total amount of remaining credit available to us from the FHLB at December 31, 2024 was approximately $733.7 million.

At December 31, 2024, our FHLB borrowings were collateralized by a blanket pledge of certain loans totaling approximately $979.7 million.

Beginning in March 2023, we became eligible to borrow from the BTFP, which provides additional liquidity through borrowings secured by the pledging of certain qualifying securities and other assets valued at par.

The BTFP is a one-year program ending March 11, 2024, and we can borrow any time during the term and can repay the obligation at any time without penalty.

During the second quarter, we utilized the BTFP to secure fixed rate funding for a one-year term and reduce short-term FHLB advances, which are priced daily.

During the fourth quarter of 2023 and again in the first quarter of 2024, we refinanced all of our borrowings under the BTFP with new borrowings under the BTFP with a one-year term due to more favorable rates.

At December 31, 2023, borrowings outstanding under the BTFP were $212.5 million, and our remaining borrowing capacity under the BTFP was $58.5 million based on the value of securities available to be used as collateral, valued at par value as permitted under the program.

Repurchase agreements are contracts for the sale of securities which we own with a corresponding agreement to repurchase those securities at an agreed upon price and date.

Our policies limit the use of repurchase agreements to those collateralized by certain investment securities.

We had $8.6 million of repurchase agreements outstanding at December 31, 2023, and none at December 31, 2022.

We maintain unsecured lines of credit with FNBB and TIB totalin g $60.0 million.

We had $8.4 million and $8.6 million of repurchase agreements outstanding at December 31, 2024 and 2023, respectively.

We maintain unsecured lines of credit with First National Bankers Bank and The Independent Bankers Bank totalin g $60.0 million.

The se lines of credit are federal funds lines of credit and are used for overnight borrowing only.

There w ere no outstandi ng balances on our unsecured lines of credit at December 31, 2024 or 2023.

At December 31, 2023, we held $32.0 million of cash and cash equivalents and maintained approximately $1.04 billion of available funding from FHLB advances, the BTFP, and unsecured lines of credit with correspondent banks.

Cash and cash equivalents and available funding represent 149% of uninsured deposits of $720.1 million at December 31, 2023.

In addition, at both December 31, 2023 and 2022 we had $45.0 million in aggregate principal amount of subordinated debt outstanding.

At December 31, 2024, we held $27.9 million of cash and cash equivalents, maintained approximately $733.7 million of available funding from FHLB advances and maintained $60.0 million in unsecured lines of credit with correspondent banks, totaling $821.6 million, which represents 111% of uninsured deposits of $737.6 million at December 31, 2024.

In addition, at December 31, 2024 and 2023 we had $17.0 million and $45.0 million, respectively, in aggregate principal amount of subordinated debt outstanding.

During the year ended December 31, 2024, we redeemed $20.0 million in principal amount and repurchased $8.0 million in principal amount of our subordinated debt.

In April 2022, we completed a private placement of $20.0 million in aggregate principal amount of our 2032 Notes, and used the majority of the proceeds to redeem $18.6 million of our 2027 Notes in June 2022.

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In recent periods, the proportion of our deposits represented by noninterest-bearing deposits has declined primarily due to rising market interest rates as customers have migrated to higher yielding alternatives.

At December 31, 2023, we held $269.1 million of brokered time deposits and no brokered demand deposits, as defined for federal regulatory purposes, to secure fixed cost funding and reduce FHLB advances.

At December 31, 2024, we held $245.5 million of brokered time deposits and $47.3 million of brokered demand deposits, as defined for federal regulatory purposes.

At December 31, 2023, we held $269.1 million of brokered time deposits and no brokered demand deposits, as defined for federal regulatory purposes.

We have historically utilized brokered demand deposits, due to more favorable pricing, to satisfy the required borrowings under interest rate swap agreements.

We utilize brokered time deposits to secure fixed cost funding and reduce short-term borrowings.

We utilize brokered demand deposits when pricing is more favorable than other short-term borrowings.

We also hold QwickRate® deposits, included in our time deposit balances, which we obtain through a qualified network, to address liquidity needs when rates on such deposits compare favorably with deposit rates in our markets.

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Year ended December 31,

Noninterest-bearing demand

Interest-bearing demand

Noninterest-bearing demand deposits

Interest-bearing demand deposits

Brokered demand deposits

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We may issue capital stock and debt securities from time to time to fund acquisitions and support our organic growth.

In April 2022, we completed a private placement of $20.0 million in aggregate principal amount of our 2032 Notes, which are intended to quality as Tier 2 capital for regulatory purposes, and used the majority of the proceeds to redeem $18.6 million of our 2027 Notes in June 2022.

During 2019, we issued $25.0 million of our 2029 Notes, which are intended to qualify as Tier 2 capital for regulatory capital purposes.

For additional information see Discussion and Analysis of Financial Condition – Borrowings .

During 2024, we paid $4.0 million in dividends, compared to $3.8 million in 2023 and $3.6 million in 2022.

Our board of directors has authorized a share repurchase program and during 2023 we paid $3.0 million to repurchase our shares, compared to $10.5 million in 2022 and $6.9 million in 2021 .

Our Board has authorized a share repurchase program and during 2024 we paid $0.3 million to repurchase our shares, compared to $3.0 million in 2023 and $10.5 million in 2022 .

The aggregate purchase price does not include the effect of excise tax expense incurred on net share repurchases.

On July 19, 2023 and September 21, 2022, the board of directors approved an additional 350,000 shares and 300,000 shares, respectively, of the Company’s common stock for repurchase.

On July 19, 2023 and September 21, 2022, the Board approved an additional 350,000 shares and 300,000 shares, respectively, of the Company’s common stock for repurchase.

At December 31, 2024 , we had 495,645 shares of our common stock remaining authorized for repurchase under the program.

For additional information, see Note 13.

Subordinated Debt Securities and Note 13.

Stockholders ’ Equity.

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Swap Contracts.

The Bank historically has entered into interest rate swap contracts, some of which are forward starting, to manage exposure against the variability in the expected future cash flows (future interest payments) attributable to changes in the 1-month LIBOR associated with the forecasted issuances of 1-month fixed rate debt arising from a rollover strategy.

The Bank historically has entered into interest rate swap contracts, some of which have been forward starting, to manage exposure against the variability in the expected future cash flows (future interest payments) attributable to changes in the 1-month SOFR associated with the forecasted issuances of 1-month fixed rate debt arising from a rollover strategy.

An interest rate swap is an agreement whereby one party agrees to pay a fixed rate of interest on a notional principal amount in exchange for receiving a floating rate of interest on the same notional amount for a predetermined period of time, from a second party.

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During the year ended December 31, 2022, we voluntarily terminated our remaining interest rate swap agreements with a total notional amount of $115.0 million in response to market conditions.

During year ended December 31, 2021, we voluntarily terminated interest rate swap agreements with a total notional amount of $150.0 million in response to market conditions and as a result of excess liquidity.

For years ended December 31, 2022 and December 31, 2021, unrealized gains of $6.4 million and $1.4 million, respectively, net of tax expenses of $1.7 million and $0.4 million, respectively, were reclassified from “Accumulated other comprehensive (loss) income” and recorded as “Swap termination fee income” in noninterest income in the accompanying consolidated statements of income.

For the years ended December 31, 2022 and December 31, 2021, a gain of $4.3 million, net of a $1.2 million tax expense, and a gain of $5.3 million, net of a $1.4 million tax expense, respectively, was recognized in “Other comprehensive income (loss)” in the accompanying consolidated statements of comprehensive (loss) income for the change in fair value of the interest rate swap contracts.

For the year ended December 31, 2022, an unrealized gain of $6.4 million, net of tax expense of $1.7 million, was reclassified from “Accumulated other comprehensive loss” and recorded as “Swap termination fee income” in noninterest income in the accompanying consolidated statement of income.

For the year ended December 31, 2022, a gain of $4.3 million, net of a $1.2 million tax expense, was recognized in “Other comprehensive loss” in the accompanying consolidated statement of comprehensive income (loss) for the change in fair value of the interest rate swap contracts.

The Company also enters into interest rate swap contracts that allow commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement.

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” The Company did not recognize any gains or losses in other income resulting from fair value adjustments during the years ended December 31, 2024 , 2023 , and 2022 .

At December 31, 2023 , we had notional amounts of $174.9 million in interest rate swap contracts with customers and $174.9 million in offsetting interest rate swap contracts with other financial institutions.

The fair value of the swap contracts consisted of gross assets of $17.3 million and gross liabilities of $17.3 million recorded in “Other assets” and “Accrued taxes and other liabilities”, respectively, in the accompanying consolidated balance sheet.

At December 31, 2024 and 2023 , we had notional amounts of $186.9 million and $174.9 million, respectively, in interest rate swap contracts with customers and $186.9 million and $174.9 million, respectively, in offsetting interest rate swap contracts with other financial institutions.

At December 31, 2024 and 2023 , the fair values of the swap contracts consisted of gross assets of $17.2 million and $17.3 million, respectively, and gross liabilities of $17.2 million and $17.3 million, respectively, recorded in “Other assets” and “Accrued taxes and other liabilities,” respectively, in the accompanying consolidated balance sheets.

Unfunded Commitments.

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Collateral (e.g., securities, receivables, inventory, equipment, etc.) is obtained based on management’s credit assessment of the customer.

The credit risk associated with these commitments is evaluated in a manner similar to the allowance for credit losses.

The credit risk associated with these commitments is evaluated in a manner similar to the ACL.

The reserve for unfunded loan commitments is included in “Accrued taxes and other liabilities” in the accompanying consolidated balance sheets.

At December 31, 2023 and 2022, the reserve for unfunded loan commitments was $0.3 million and $0.4 million, respectively.

At December 31, 2024 and 2023, the reserve for unfunded loan commitments was $42,000 and $0.3 million, respectively.

Loan commitments and standby letters of credit do not necessarily represent future cash requirements, in that while the customer typically has the ability to draw upon these commitments at any time, these commitments often expire without being drawn upon in full or at all.

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The Company will continue this process as new commitments are entered into or existing commitments are renewed.

Additionally, at December 31, 2023, the Company had unfunded commitments of $1.3 million for its investment in Small Business Investment Company qualified funds.

Additionally, at December 31, 2024, the Company had unfunded commitments of $1.0 million for its investment in SBIC qualified funds.

For each of the years ended December 31, 2024 and 2023, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations, or cash flows currently or in the future.

14 unchanged sentences

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 5. Market for Registrant’s Common Equity