What changed in this filing

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Item 1. Business

2024-03-01 compared with 2023-02-28 · 202 added, 215 removed, 493 unchanged (46% of the section changed)

We are a bank holding company within the meaning of the Bank Holding Company Act of 1956 and are headquartered in Birmingham, Alabama.

Through our wholly-owned subsidiary bank, we operate 26 full-service banking offices located in Alabama, Florida, Georgia, North Carolina, South Carolina, and Tennessee.

Through our wholly-owned subsidiary bank, we operate 30 full-service banking offices located in Alabama, Florida, Georgia, North Carolina, South Carolina, Tennessee, and Virginia.

We also operate loan production offices in Florida.

Through our bank, we originate commercial, consumer and other loans and accept deposits, provide electronic banking services, such as online and mobile banking, including remote deposit capture, deliver treasury and cash management services and provide correspondent banking services to other financial institutions.

 As of December 31, 2022, we had total assets of approximately $14.6 billion, total loans of approximately $11.7 billion, total deposits of approximately $11.5 billion and total stockholders’

equity of approximately $1.3 billion.

As of December 31, 2023, we had total assets of approximately $16.13 billion, total loans of approximately $11.66 billion, total deposits of approximately $13.27 billion, and total stockholders’ equity of approximately $1.44 billion.

We operate our bank using a simple business model based on organic loan and deposit growth, generated through high quality customer service, delivered by a team of experienced bankers focused on developing and maintaining long-term banking relationships with our target customers.

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This decentralized decision-making process allows individual lending officers varying levels of lending authority, based on the experience of the individual officer.

When the total amount of loans to a borrower exceeds an officer’s lending authority, further approval must be obtained by the applicable regional chief executive officer and/or our senior management team.

Rather than relying on a more traditional retail bank strategy of operating a broad base of multiple brick and mortar branch locations in each market, our strategy focuses on operating a limited and efficient branch network with sizable aggregate balances of total loans and deposits housed in each branch office.

We believe that this approach more appropriately addresses our customers’

banking needs and reflects a best-of-class delivery strategy for commercial banking services.

We believe that this approach more appropriately addresses our customers’ banking needs and reflects a best-of-class delivery strategy for commercial banking services.

Our principal business is to accept deposits from the public and to make loans and other investments.

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Each of these entities is consolidated into the Company.

As a bank holding company, we are subject to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).

We are required to file reports with the Federal Reserve and are subject to regular examinations by that agency.

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Focus on Core Banking Business.

 We deliver a broad array of core banking products to our customers.

While many large regional competitors and national banks have chosen to develop non-traditional business lines to supplement their net interest income, we believe our focus on traditional commercial banking products driven by a high margin delivery system is a superior method to deliver returns to our stockholders.

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Commercial Bank Emphasis.

 We have historically focused on people as opposed to places.

This strategy translates into a smaller number of brick and mortar branch locations relative to our size, but larger overall branch sizes in terms of total deposits.

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Scalable, Decentralized Business Model.

 We emphasize local decision-making by experienced bankers supported by centralized risk and credit oversight.

We believe that the delivery by our bankers of in-market customer decisions, coupled with risk and credit support from our corporate headquarters, allows us to serve our borrowers and depositors directly and in person, while managing risk centrally and on a uniform basis.

We intend to continue our growth by repeating this scalable model in each market in which we are able to identify a strong banking team.

We intend to continue our growth by repeating this scalable model in each market where we are able to identify a strong banking team.

Our goal in each market is to employ the highest quality bankers in that market.

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We have developed a business culture whereby our management team, from the top down, is actively involved in sales, which we believe is a key differentiator from our competition.

Local decision making has impacted how we managed our business during the COVID-19 pandemic. 

Our ability to use technology-based delivery channels to service our customers in a low-contact environment played an integral part in maintaining social distancing to help prevent the spread of COVID-19. 

In our operations, local decision-making has been pivotal in navigating challenges that could be posed by global health crises, such as pandemics.

Our strategic use of technology-enabled delivery channels has been essential in offering services to our customers within a low-contact framework, which helps to prevent the spread of disease while allowing continued customer service.

Identify Opportunities in Vibrant Markets.

 Since opening our original banking facility in Birmingham in 2005, we have expanded into ten additional markets as of December 31, 2022.

Since opening our original banking facility in Birmingham in 2005, we have expanded into ten additional markets as of December 31, 2023.

Our focus has been to expand opportunistically when we identify a strong banking team in a market with attractive economic characteristics and market demographics where we believe we can achieve a minimum of $300 million in deposits within five years of market entry.

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the economic attributes of the market necessary to drive quality lending opportunities coupled with deposit-related characteristics of the potential market.

Prior to entering a new market, historically we have identified and built a team of experienced, successful bankers with market-specific knowledge to lead the Bank’s operations in that market, including a regional chief executive officer.

Prior to entering a new market, we have historically identified and built a team of experienced, successful bankers with market-specific knowledge to lead the Bank’s operations in that market, including a regional chief executive officer.

Generally, we or members of our senior management team are familiar with these individuals based on prior work experience and reputation, and strongly believe in the ability of such individuals to successfully execute our business model.

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Markets and Competition

Our primary markets are broadly defined as the MSAs of Birmingham-Hoover, Huntsville, Montgomery, Dothan, Daphne-Fairhope-Foley and Mobile, Alabama, Crestview-Fort Walton Beach-Destin, Pensacola-Ferry Pass-Brent, North Port-Sarasota-Bradenton, Tallahassee, and Tampa-St.

Petersburg-Clearwater, Florida, Atlanta-Sandy Springs-Alpharetta and Columbus, Georgia, Asheville and Charlotte-Concord-Gastonia, North Carolina, Charleston-North Charleston, South Carolina and Nashville-Davidson-Murfreesboro, Tennessee.

Our primary markets are broadly defined in the tables below.

We draw most of our deposits from, and conduct most of our lending transactions in, these markets.

According to Federal Deposit Insurance Corporation (“FDIC”) reports, total deposits in each of our primary market areas have expanded from 2012 to 2022 (deposit data reflects totals as reported by financial institutions as of June 30 th  of each year) as follows:

According to Federal Deposit Insurance Corporation (“FDIC”) reports, total deposits in each of our primary market areas have expanded from 2013 to 2023 (deposit data reflects totals as reported by financial institutions as of June 30 th of each year) as follows:

Compound Annual Growth Rate

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Okaloosa County, Florida

Bay County, Florida

Cobb County, Georgia

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Douglas County, Georgia

North Carolina:

Mecklenburg County, North Carolina

Buncombe County, North Carolina

South Carolina:

Charleston County, South Carolina

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Davidson County, Tennessee

Virginia Beach (City), Virginia

Our bank is subject to intense competition from various financial institutions and other financial service providers.

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Pensacola-Ferry Pass-Brent MSA

Petersburg-Clearwater MSA

North Port-Sarasota-Bradenton MSA

Petersburg-Clearwater MSA

Panama City MSA

Crestview-Fort Walton Beach-Destin MSA

Tallahassee MSA

Orlando-Kissimmee-Sanford MSA

Atlanta-Sandy Springs-Alpharetta MSA

Columbus, GA-AL

Columbus, GA-AL MSA

North Carolina:

Charlotte-Concord-Gastonia, NC-SC MSA

South Carolina:

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Nashville-Davidson-Murfreesboro MSA

Virginia Beach-Norfolk-Newport News, VA-NC

The following table illustrates the combined total deposits for all financial institutions in the counties in which we operate as a percent of the total of all deposits in each state at June 30, 2023, as reported by the FDIC:

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Providing convenient locations, desired financial products and services, convenient office hours, quality customer service, quick local decision making, a strong community reputation and long-term personal relationships are all important competitive factors that we emphasize.

In our markets, our five largest competitors are Regions Bank, Wells Fargo Bank, PNC, Truist and Synovus Bank.

These institutions, as well as other competitors of ours, have greater resources, serve broader geographic markets, have higher lending limits, offer various services that we do not offer and can better afford, and make broader use of, media advertising, support services, and electronic technology than we can.

In our markets, our five largest competitors are Regions Financial Corporation, Wells Fargo & Company, PNC Financial Services Group, Inc., Truist Financial Corporation, and Synovus Financial Corp.

These institutions, as well as other competitors of ours, may have greater resources, serve broader geographic markets, have higher lending limits, offer various services that we do not offer and may better afford, and make broader use of, media advertising, support services, and electronic technology than us.

To offset these competitive disadvantages, we depend on our reputation for greater personal service, consistency, flexibility and the ability to make credit and other business decisions quickly.

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Commercial Loans

Our commercial lending activity is directed principally toward businesses and professional service firms whose demand for funds falls within our legal lending limits.

We make loans to small- and medium-sized businesses in our markets for the purpose of upgrading plant and equipment, buying inventory and for general working capital.

Typically, targeted business borrowers have annual sales generally between $2 million and $250 million.

This category of loans includes loans made to individual, partnership and corporate borrowers, and such loans are obtained for a variety of business purposes.

We offer a variety of commercial lending products to meet the needs of business and professional service firms in our service areas.

These commercial lending products include seasonal loans, bridge loans and term loans for working capital, expansion of the business, or acquisition of property, plant and equipment.

Our commercial lending activity is directed principally toward businesses and professional service firms whose demand for funds falls within our legal lending limits, and we offer a variety of commercial lending products to meet the needs of business and professional service firms in our service areas.

We make seasonal loans, bridge loans, and term loans to small- and medium-sized businesses in our markets for a variety of business purposes, including, but not limited to, expanding business, acquiring property, upgrading plant and equipment, buying inventory and for general working capital.

Typically, targeted business borrowers have annual sales between $2 million and $250 million.

This category of loans includes loans made to individual, partnership and corporate borrowers.

We also offer commercial lines of credit.

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Our commercial loans usually are collateralized.

Generally, collateral consists of business assets, including accounts receivable, inventory, equipment, or real estate.

Generally, collateral consists of business assets, including accounts receivable, inventory, equipment, and/or real estate.

Collateral is subject to the risk that we may have difficulty converting it to a liquid asset if necessary, as well as risks associated with degree of specialization, mobility and general collectability in a default situation.

To mitigate this risk, we underwrite collateral to strict standards, including valuations and general acceptability based on our ability to monitor its ongoing condition and value.

We underwrite our commercial loans primarily on the basis of the borrower’s cash flow, ability to service debt, and degree of management expertise.

To mitigate this risk, we have strict collateral underwriting standards, including valuations and general acceptability based on our ability to monitor its ongoing condition and value.

We underwrite our commercial loans primarily on the basis of the borrower’s cash flow, ability to service debt, and degree of management expertise.

As a general practice, we take as collateral a security interest in any available real estate, equipment or personal property.

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Interest rates may be fixed or adjustable, although rates generally will not be fixed for a period exceeding five years.

In addition, we generally will require personal guarantees from the principal owners of the property supported by a review by our management of the principal owners’

personal financial statements.

In addition, we generally require personal guarantees from the principal owners of the property supported by a review by our management of the principal owners’ personal financial statements.

Commercial real estate lending presents risks not found in traditional residential real estate lending.

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The ratio of the loan principal to the value of the collateral as established by independent appraisal typically will not exceed 80% of residential construction loans.

Speculative construction loans will be based on the borrower’s financial strength and cash flow position.

Development loans are generally limited to 75% of appraised value.

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During times of economic stress, construction and development loans typically have a greater degree of risk than other loan types.

To mitigate the risk of construction loan defaults in our portfolio, the board of directors and management tracks and monitors these loans closely. 

Total construction loans increased $429.2 million to $1.53 billion at December 31, 2022. 

There were no charge-offs on construction loans during 2022 and a net recovery of $38,000 in charge-offs during 2021. There were $1.2 million in construction loans rated as substandard at December 31, 2022 and were no construction loans rated as substandard at December 31, 2021. 

To mitigate the risk of construction loan defaults in our portfolio, the board of directors and management tracks and monitors these loans closely.

Total construction loans decreased $12.8 million, or 0.8%, at December 31, 2023, compared to December 31, 2022.

There were $105,000 in net charge-offs on construction loans during 2023 and no charge-offs on construction loans during 2022.

There were $1.1 million in construction loans rated as substandard at December 31, 2023 and $1.2 million construction loans rated as substandard at December 31, 2022.

Residential Real Estate Loans .

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All loans are made in accordance with our appraisal policy, with the ratio of the loan principal to the value of collateral as established by independent appraisal generally not exceeding 85%.

Risks associated with these loans are generally less significant than those of other loans and involve bankruptcies, economic downturn, customer financial problems and fluctuations in the value of real estate, and homes in our primary service areas may experience significant price declines in the future.

We have not made and do not expect to make any “Alt-A”

or subprime loans.

Risks associated with these loans are generally less significant than those of other loans.

Those risks involve bankruptcies, economic downturn, customer financial problems and fluctuations in the value of real estate, and the risk that homes in our primary service areas may experience significant price declines in the future.

We have not made and do not expect to make any “Alt-A” or subprime loans.

Consumer Loans

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Our consumer loans include home equity loans (open and closed-end), vehicle financing, loans secured by deposits, and secured and unsecured personal loans.

These various types of consumer loans all carry varying degrees of risk.

These types of consumer loans all carry varying degrees of risk.

Commitments and Contingencies

As of December 31, 2022, we had commitments to extend credit beyond current amounts funded of $4.2 billion, had issued standby letters of credit in the amount of $67.3 million, and had commitments for credit card arrangements of $368.7 million. 

As of December 31, 2023, we had commitments to extend credit beyond current amounts funded of $3.4 billion, had issued standby letters of credit in the amount of $86.1 million, and had commitments for credit card arrangements of $381.5 million.

In addition to loans, we purchase investments in securities, primarily in mortgage-backed securities and state and municipal securities.

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All securities held are traded in liquid markets, and we have no auction-rate securities.

We had no investments in any one security, restricted or liquid, in excess of 10% of our stockholders’

equity at December 31, 2022.

We had no investments in any one security, restricted or liquid, in excess of 10% of our stockholders’ equity at December 31, 2023.

Deposit Services

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Other Banking Services

Given client demand for increased convenience and account access, we offer a range of products and services, including 24-hour telephone banking, direct deposit, Internet banking, mobile banking, traveler’s checks, safe deposit boxes, attorney trust accounts and automatic account transfers.

We also participate in a shared network of automated teller machines and a debit card system that our customers are able to use, and, in certain accounts subject to certain conditions, we rebate to the customer the ATM fees automatically after each business day.

Additionally, we offer Visa®

credit cards.

Additionally, we offer Visa® credit cards.

Asset, Liability and Risk Management

We manage our assets and liabilities with the aim of providing an optimum and stable net interest margin, a profitable after-tax return on assets and return on equity, and adequate liquidity.

These management functions are conducted within the framework of written loan and investment policies.

These management strategies are conducted within the framework of written loan and investment policies.

To monitor and manage the interest rate margin and related interest rate risk, we have established policies and procedures to monitor and report on interest rate risk, devise strategies to manage interest rate risk, monitor loan originations and deposit activity and approve all pricing strategies.

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They also restrict our ability to repurchase stock or pay dividends, or to receive dividends from our bank subsidiary, and they impose capital adequacy and liquidity requirements.

These laws and regulations generally are intended to protect customers (including depositors), the FDIC’s Deposit Insurance Fund and the banking system as a whole, and generally are not intended for the protection of stockholders or other investors.

The consequences of noncompliance with these, or other applicable laws or regulations, can include substantial monetary and nonmonetary sanctions.

In addition, we and the Bank are subject to comprehensive supervision and periodic examination by the Federal Reserve, the FDIC, the Alabama State Banking Department (the “Alabama Banking Department”), and the U.S.

Consumer Financial Protection Bureau (the “CFPB”), among other regulatory bodies.

Those agencies consider not only compliance with applicable laws, regulations and supervisory policies, but also capital levels, asset quality, risk management effectiveness, the ability and performance of management and the board of directors, the effectiveness of internal controls, earnings, liquidity and various other factors.

Regarding the CFPB, we became subject to more comprehensive regulation by the CFPB in 2021.

The CFPB’s supervisory focus primarily involves an institution’s compliance with federal consumer protection laws.

The results of examination activity by any of our federal or state bank regulators potentially can result in the imposition of significant limitations on our activities and growth.

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The description is not intended to summarize all laws, regulations and supervisory policies applicable to us and is qualified in its entirety by reference to the full text of the statutes, regulations and supervisory policies described.

Further, the following discussion addresses the select material elements of the regulatory framework as in effect as of the date of this annual report on Form 10-K.

Further, the following discussion addresses the select material elements of the regulatory framework as in effect as of the date of this Form 10-K.

Legislation and regulatory action to revise federal and state banking laws and regulations, sometimes in a substantial manner, are continually under consideration by the U.S.

Congress, state legislatures and federal and state regulatory agencies.

Accordingly, the following discussion must be read in light of the enactment of any new federal or state banking laws or regulations or any amendment or repeal of existing laws or regulations, or any change in the policies of the regulatory agencies with jurisdiction over our operations, after the date of this annual report on Form 10-K.

Bank Holding Company Supervision and Regulation

Because we own all of the capital stock of the bank, we are a Bank holding company under the federal Bank Holding Company Act of 1956, as amended (the “BHC Act”).

Because we own all of the capital stock of the bank, we are a bank holding company under the federal Bank Holding Company Act of 1956, as amended (the “BHC Act”).

As a result, we are primarily subject to the supervision, examination and reporting requirements of the BHC Act and the regulations of the Federal Reserve.

Acquisition of Banks

The BHC Act requires every bank holding company to obtain the Federal Reserve’s prior approval before:

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acquiring direct or indirect ownership or control of any voting shares of any bank if, after the acquisition, the bank holding company will, directly or indirectly, own or control more than 5% of the bank’s voting shares;

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The BHC Act requires every bank holding company to obtain the Federal Reserve’s prior approval before:

acquiring all or substantially all of the assets of any bank;

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merging or consolidating with any other bank holding company.

In reviewing merger and other acquisition transactions, the Federal Reserve is required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served.

Capital Adequacy.”

The consideration of convenience and needs of the community to be served includes the institution’s performance under the Community Reinvestment Act (the “CRA”).

The Federal Reserve’s consideration of financial resources generally focuses on capital adequacy, which is discussed in the section below titled “Supervision and Regulation—Bank Supervision and Regulation – Capital Adequacy.” The consideration of convenience and needs of the community to be served includes the institution’s performance under the Community Reinvestment Act (the “CRA”).

Additionally, the BHC Act provides that the Federal Reserve may not approve a merger or other acquisition transaction if the transaction would result in or tend to create a monopoly or substantially lessen competition or otherwise function as a restraint of trade, unless the anti-competitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served.

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Change in Bank Control

Subject to various exceptions, the BHC Act and the Change in Bank Control Act, together with related regulations, require Federal Reserve approval prior to any person’s or company’s acquiring “control”

of a bank holding company.

Under a rebuttable presumption established by the Federal Reserve, the acquisition of 10% or more of a class of voting stock of a bank holding company would, under the circumstances set forth in the presumption, constitute acquisition of control of the bank holding company.

In addition, any person or group of persons must obtain the approval of the Federal Reserve before acquiring 25% (5% in the case of an acquirer that is already a bank holding company) or more of the outstanding common stock of a bank holding company, or otherwise obtaining control or a “controlling influence”

over the bank holding company.

Permissible Activities Under the BHC Act

Under the BHC Act, a bank holding company is generally permitted to engage in or acquire direct or indirect control of more than 5% of the voting shares of any company engaged in the following activities:

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banking or managing or controlling banks;

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any activity that the Federal Reserve determines to be so closely related to banking as to be a proper incident to the business of banking.

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and performing selected insurance underwriting activities.

Despite prior approval, the Federal Reserve may order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding company’s continued ownership, activity or control constitutes a serious risk to the financial safety, soundness, or stability of it or any of its bank subsidiaries.

In addition to the permissible bank holding company activities listed above, a bank holding company may qualify and elect to become a financial holding company, permitting the bank holding company to engage in activities that are financial in nature or incidental or complementary to financial activity without posing a substantial risk to the safety and soundness of a depository institution or to the financial system generally.

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and insurance company portfolio investments.

For us to qualify to become a financial holding company, the bank and any other depository institution subsidiary of ours must be well-capitalized and well-managed and must have a CRA rating of at least “satisfactory”.

Additionally, we must file an election with the Federal Reserve to become a financial holding company and must provide the Federal Reserve with 30 days written notice prior to engaging in a permitted financial activity.

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Under these requirements, a bank holding company is expected to commit financial resources and take other measures to support its bank subsidiaries even at times when the holding company may not be in a financial position to provide such resources or when the holding company may not be inclined to provide them.

In addition, where a bank holding company has more than one bank or thrift subsidiary, each of the bank holding company’s subsidiary depository institutions is responsible for any losses to the FDIC as a result of an affiliated depository institution’s failure.

As a result of these requirements, a bank holding company may, among other things, be compelled to loan money to a bank subsidiary in the form of subordinate capital notes or other instruments which qualify as capital under bank regulatory rules.

Any loans from the holding company to such subsidiary banks likely would be unsecured and subordinated to such bank’s depositors and perhaps to other creditors of the bank.

As a result of these requirements, a bank holding company may, among other things, be compelled to loan money to a bank subsidiary in the form of subordinate capital notes or other instruments that qualify as capital under bank regulatory rules.

Any loans from the holding company to such subsidiary banks likely would be unsecured and subordinated to such bank’s depositors and perhaps to other creditors of the bank.

Repurchase or Redemption of Securities

A bank holding company is generally required to give the Federal Reserve prior written notice of any purchase or redemption of its own then-outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth.

The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve order or directive, or any condition imposed by, or written agreement with, the Federal Reserve.

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The Bank is an Alabama state-chartered bank and, as such, is subject to examination and regulation by the Alabama Banking Department.

The Bank is not a member of the Federal Reserve System but is subject to various regulations and requirements promulgated by the Federal Reserve, the CFPB, the Federal Trade Commission, the Financial Crimes Enforcement Network, the Office of Foreign Assets Control (“OFAC”), and other federal regulatory agencies.

State non-member banks are, in addition to regulation by the applicable state regulatory authority, subject to supervision and regular examination by the FDIC.

The FDIC and the Alabama Banking Department regularly examine the Bank’s operations and have the authority to approve or disapprove mergers, the establishment of branches and similar corporate actions.

Both regulatory agencies have the power to prevent the development or continuance of unsafe or unsound banking practices or other violations of law.

Additionally, the Bank’s deposits are insured by the FDIC to the maximum extent provided by law.

The extensive state and federal banking laws and regulations to which the Bank is subject are generally intended to protect the Bank’s customers (including depositors), the FDIC’s Deposit Insurance Fund and the banking system as a whole, and generally is not intended for the protection of stockholders or other investors.

Additionally, the Bank’s deposits are insured by the FDIC to the maximum extent provided by law.

The following discussion describes the material elements of the regulatory framework that applies to the Bank.

FDIC Insurance Assessments

The Bank’s deposits are insured by the FDIC to the full extent provided in the Federal Deposit Insurance Act, and the Bank pays assessments to the FDIC for that coverage.

Under the FDIC’s risk-based deposit insurance assessment system, an insured institution’s deposit insurance premium is computed by multiplying the institution’s assessment base by the institution’s assessment rate.

The Bank’s deposits are insured by the FDIC to the full extent provided in the Federal Deposit Insurance Act, and the Bank pays assessments to the FDIC for that coverage.

An institution's assessment base and assessment rate are determined each quarter.

An institution’s assessment base equals the institution’s average consolidated total assets during a particular assessment period, minus the institution’s average tangible equity capital (that is, Tier 1 capital) during such period.

The method for determining an institution's risked-based assessment rate differs for small banks and large banks.

Small banks (generally, those with less than $10 billion in assets over four consecutive quarters) are assigned an individual rate based on a formula using financial data and ratings on capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risks, or so-called “CAMELS”

Large banks (generally, those with $10 billion or more in assets) are assigned an individual rate based on a scorecard.

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The Bank became subject to the large bank scorecard methodology in the second quarter of 2021.

In November 2023, the FDIC issued a final rule implementing a special assessment to recover the loss to the Deposit Insurance Fund associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank.

The assessment base for the special assessment equals an insured depository institution’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion.

The special assessment will be collected at an annual rate of approximately 13.4 basis points for an anticipated total of eight quarterly assessment periods.

The amount the Bank pays to the FDIC in assessments is affected not only by the risk the Bank poses to the Deposit Insurance Fund, but also by the adequacy of the fund to cover the risk posed by all insured institutions.

Any future increases could have a negative impact on our bank’s earnings.

From 2008 to 2013, the United States experienced an unusually high number of bank failures, resulting in significant losses to the Deposit Insurance Fund.

Moreover, the Dodd-Frank Act permanently increased the standard maximum deposit insurance amount from $100,000 to $250,000, and raised the minimum required Deposit Insurance Fund reserve ratio (i.e., the ratio of the amount on reserve in the Deposit Insurance Fund to the total estimated insured deposits) from 1.15% to 1.35%.

To support the Deposit Insurance Fund in response to those circumstances, the FDIC took several extraordinary actions, including imposing a one-time special assessment on insured institutions and requiring institutions to prepay quarterly assessments attributable to a three-year period.

The FDIC also has established a higher long-term target Deposit Insurance Fund ratio of 2%.

We cannot predict whether, as a result of an adverse change in economic conditions or other reasons, the FDIC will take similar extraordinary actions or otherwise increase deposit insurance assessment levels in the future.

Any future increases could have a negative impact on our bank’s earnings.

Termination of Deposit Insurance

The FDIC may terminate its insurance of deposits of a bank if it finds that the bank has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

Liability of Commonly Controlled Depository Institutions

Under the Federal Deposit Insurance Act, an FDIC-insured depository institution can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to any commonly controlled FDIC-insured depository institution in danger of default.

“Default”

is defined generally as the appointment of a conservator or receiver, and “in danger of default”

is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance.

The FDIC’s claim for damage is superior to claims of stockholders of the insured depository institution but is subordinate to claims of depositors, secured creditors, other general and senior creditors, and holders of subordinated debt (other than affiliates) of the institution.

Community Reinvestment Act

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Additionally, we must publicly disclose the terms of various CRA-related agreements.

In recent years, the federal banking agencies have indicated an intent, including through notices of proposed rulemaking, to modernize or otherwise modify their implementation of the CRA.

The effects of any potential changes to the agencies’

CRA rules will depend on the final form of any federal rulemaking and cannot be predicted at this time.

Management will continue to evaluate any changes to the CRA’s regulations and the impact they may have on us or the Bank.

On October 24, 2023, the federal banking agencies adopted a final rule to modernize the CRA regulations.

Under the final rule, (1) the federal banking agencies will evaluate bank performance across the varied activities they conduct and communities in which they operate in order to encourage banks to expand access to credit, investment, and banking services in low- and moderate-income communities, (2) the CRA regulations are updated to evaluate lending outside traditional assessment areas generated by the growth of non-branch delivery systems, such as online and mobile banking, branchless banking, and hybrid models, (3) a new metrics-based approach was adopted to evaluate bank retail lending and community development financing, using benchmarks based on peer and demographic data and (4) CRA evaluations and data collection are tailored according to bank size and type.

In addition, the final rule also exempts small and intermediate banks from new data requirements that apply to banks with assets of at least $2 billion and limits certain new data requirements to large banks with assets greater than $10 billion.

Most of the rule's requirements will be applicable beginning January 1, 2026.

The remaining requirements, including the data reporting requirements, will be applicable on January 1, 2027.

We continue to evaluate the new rule and its effects on our operations going forward.

Interest Rate Limitations

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Federal Laws Applicable to Consumer Credit and Deposit Transactions

The Bank’s loan and deposit operations are subject to a number of federal consumer protection laws and regulations, including, among others:

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The Bank’s loan and deposit operations are subject to a number of federal consumer protection laws and regulations, including, among others:

the Truth-In-Lending Act, as implemented by Regulation Z issued by the CFPB, governing, among other things, the disclosure of credit terms to consumers;

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the Real Estate Settlement Procedures Act, as implemented by Regulation X issued by the CFPB, prescribing, among other things, requirements in connection with residential mortgage loan applications, settlements, and servicing;

●         

the Home Mortgage Disclosure Act, as implemented by Regulation C issued by the CFPB, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

●         

the Equal Credit Opportunity Act, as implemented by Regulation B issued by the CFPB, prohibiting discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or certain other prohibited factors in all aspects of credit transactions, imposing certain requirements regarding credit applications, and prescribing certain disclosure obligations;

●         

the Fair Credit Reporting Act, as implemented in part by Regulation V issued by the CFPB, governing the use and provision of information to credit reporting agencies by imposing, among other things, requirements for financial institutions to develop policies and procedures to identify potential identity theft, requirements for entities that furnish information to consumer reporting agencies (which would include the Bank) to implement procedures and policies regarding the accuracy and integrity of the furnished information and respond to disputes from consumers regarding credit reporting issues, requirements for mortgage lenders to disclose credit scores to consumers, and limitations on the ability of a business that receives consumer information from an affiliate to use that information for marketing purposes;

●         

the Fair Debt Collection Practices Act, as implemented in part by Regulation F issued by the CFPB, governing the manner in which consumer debts may be collected by debt collectors;

●         

the Servicemembers’ Civil Relief Act, governing the repayment terms of, and property rights underlying, secured obligations of persons in military service;

●         

the Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

●         

the Electronic Funds Transfer Act, as implemented by Regulation E issued by the CFPB, governing automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

●         

the Servicemembers’ Civil Relief Act, governing the repayment terms of, and property rights underlying, secured obligations of persons in military service;

the Right to Financial Privacy Act, imposing a duty to maintain the confidentiality of consumer financial records and prescribing procedures for complying with administrative subpoenas of financial records;

the Electronic Funds Transfer Act, as implemented by Regulation E issued by the CFPB, governing automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

the Truth in Savings Act, as implemented by Regulation DD issued by the CFPB, governing, among other things, the disclosure of deposit terms to consumers;

the Fair Housing Act, prohibiting discrimination in most housing-related activities, including financing, based on race, color, sex, national origin or religion;

the Equal Credit Opportunity Act, as implemented by Regulation B issued by the CFPB, prohibiting discrimination in any aspect of a credit transaction.

Additionally, the Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.

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General Information .

The federal banking agencies view capital levels as important indicators of an institution’s financial soundness.

In this regard, we and the Bank are required to comply with the capital adequacy standards established by the Federal Reserve (in our case) and the FDIC and the Alabama Banking Department (in the case of the Bank).

Such standards are based on the December 2010 final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee on Banking Supervision (the “Basel Committee”).

The implementation of Basel III for United States institutions began on January 1, 2015.

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United States Implementation of Basel III .

In July 2013, the federal banking agencies published final rules (the “Basel III Capital Rules”) to implement, in part, the Basel III framework issued by the Basel Committee and certain provisions of the Dodd-Frank Act.

The Basel III Capital Rules apply to banking organizations, including us and the Bank.

Among other things, the Basel III Capital Rules:

(i) emphasize common equity tier 1 capital, or “CET1,”

which is predominately made up of retained earnings and common stock instruments;

(ii) specify that an institution’s tier 1 capital consists of CET1 and additional financial instruments satisfying specified requirements that permit inclusion in tier 1 capital;

(i) emphasize common equity tier 1 capital, or “CET1,” which is predominately made up of retained earnings and common stock instruments;

(ii) specify that an institution’s tier 1 capital consists of CET1 and additional financial instruments satisfying specified requirements that permit inclusion in tier 1 capital;

(iii) define CET1 narrowly by requiring that most deductions or adjustments to regulatory capital measures be made to CET1 and not to the other components of capital;

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The Basel III Capital Rules provide for the following minimum capital to risk-weighted assets ratios:

●         4.5% based upon CET1;

●         6.0% based upon tier 1 capital;

●         8.0% based upon total regulatory capital.

4.5% based upon CET1;

6.0% based upon tier 1 capital;

8.0% based upon total regulatory capital.

A minimum leverage ratio (tier 1 capital as a percentage of total assets) of 4.0% is also required under the Basel III Capital Rules.

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Banking organizations that fail to maintain the minimum 2.5% capital conservation buffer could face restrictions on capital distributions or discretionary bonus payments to executive officers.

The Basel III Capital Rules became effective as applied to us and the Bank on January 1, 2015, with a phase in period that generally extended from January 1, 2015 through January 1, 2019.

We and the Bank are currently in compliance with Basel III Capital Rules.

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Those revisions, with certain modifications, took effect in April 2020.

Similarly, in December 2017, the Basel Committee published revisions to its regulatory framework that it described as the finalization of the Basel III post-crisis regulatory reforms.

Among other things, these revisions were meant to strengthen credibility in the calculation of risk-weighted assets by enhancing the robustness and risk sensitivity of the standardized approaches for credit risk and operational risk and to add new capital requirements for certain “unconditional cancellable commitments,”

such as credit card lines.

Many of the December 2017 proposals are still under consideration by the U.S.

federal banking agencies, and the impact of the proposals on us and the bank will depend on the manner in which they ultimately are implemented.

In December 2017, the Basel Committee published revisions to its regulatory framework that it described as the finalization of the Basel III post-crisis regulatory reforms.

Among other things, these revisions are meant to strengthen credibility in the calculation of risk-weighted assets by enhancing the robustness and risk sensitivity of the standardized approaches for credit risk and operational risk and to add new capital requirements for certain “unconditional cancellable commitments,”

such as credit card lines.

These revisions were generally effective on January 1, 2022, with an aggregate output floor phasing in through January 1, 2027.

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Prompt Corrective Action .

The Federal Deposit Insurance Corporation Improvement Act of 1991 established a system of “prompt corrective action”

to resolve the problems of undercapitalized financial institutions.

The Federal Deposit Insurance Corporation Improvement Act of 1991 established a system of “prompt corrective action” to resolve the problems of undercapitalized financial institutions.

Under this system, which was modified by the Basel III Capital Rules, the federal banking agencies have established five capital categories (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) into which all institutions are placed.

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A bank holding company must guarantee that a subsidiary depository institution meets its capital restoration plan, subject to various limitations.

The controlling holding company’s obligation to fund a capital restoration plan is limited to the lesser of (i) 5% of an undercapitalized subsidiary’s assets at the time it became undercapitalized and (ii) the amount required to meet regulatory capital requirements.

An undercapitalized institution also is generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except under an accepted capital restoration plan or with FDIC approval.

The regulations also establish procedures for downgrading an institution to a lower capital category based on supervisory factors other than capital.

Banks that are not well capitalized may not accept or renew brokered deposits without a waiver from the FDIC.

Financial institutions are subject to significant regulatory scrutiny regarding their liquidity positions.

This scrutiny has increased over the last decade, as the economic downturn that began in the late 2000’s negatively affected the liquidity of many financial institutions.

This scrutiny has increased over the last decade, as the economic downturn in the late 2000’s negatively affected the liquidity of many financial institutions.

Various bank regulatory publications, including FDIC Financial Institution Letter FIL-13-2010 (Funding and Liquidity Risk Management) and FDIC Financial Institution Letter FIL-84-2008 (Liquidity Risk Management), address the identification, measurement, monitoring and control of funding and liquidity risk by financial institutions.

Regulatory scrutiny became even more enhanced during 2023 due to the failures of Silicon Valley Bank, Signature Bank and First Republic Bank.

In July 2023, the agencies issued updated guidance to remind depository institutions to maintain actionable contingency funding plans that take into account a range of possible stress scenarios.

Basel III also addresses liquidity management by proposing two new liquidity metrics for financial institutions.

The first metric is the “Liquidity Coverage Ratio”, and it aims to require a financial institution to maintain sufficient high quality liquid resources to survive an acute stress scenario that lasts for one month.

The second metric is the “Net Stable Funding Ratio,”

and its objective is to require a financial institution to maintain a minimum amount of stable sources relative to the liquidity profiles of the institution’s assets, as well as the potential for contingent liquidity needs arising from off-balance sheet commitments, over a one-year horizon.

The first metric is the “Liquidity Coverage Ratio,” and it aims to require a financial institution to maintain sufficient high quality liquid resources to survive an acute stress scenario that lasts for one month.

The second metric is the “Net Stable Funding Ratio,” and its objective is to require a financial institution to maintain a minimum amount of stable sources relative to the liquidity profiles of the institution’s assets, as well as the potential for contingent liquidity needs arising from off-balance sheet commitments, over a one-year horizon.

In the Basel III Capital Rules, the federal banking agencies did not address either the Liquidity Coverage Ratio or the Net Stable Funding Ratio.

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Neither we nor the Bank is subject to either set of rules.

While we are not subject to the Liquidity Coverage Ratio or the Net Stable Funding Ratio rules, increased liquidity requirements generally would be expected to cause the Bank to invest its assets more conservatively—and therefore at lower yields—than it otherwise might invest.

Such lower-yield investments likely would reduce the Bank’s revenue stream, and in turn its earnings potential.

Payment of Dividends

We are a legal entity separate and distinct from the Bank.

Our principal source of cash flow, including cash flow to pay dividends to our stockholders, is dividends the Bank pays to us as the Bank’s sole shareholder.

Statutory and regulatory limitations apply to the Bank’s payment of dividends to us as well as to our payment of dividends to our stockholders.

The requirement that a bank holding company must serve as a source of strength to its subsidiary banks also results in the position of the Federal Reserve that a bank holding company should not maintain a level of cash dividends to its stockholders that places undue pressure on the capital of its bank subsidiaries or that can be funded only through additional borrowings or other arrangements that may undermine the bank holding company’s ability to serve as such a source of strength.

Our principal source of cash flow, including cash flow to pay dividends to our stockholders, is dividends the Bank pays to us as the Bank’s sole shareholder.

Statutory and regulatory limitations apply to the Bank’s payment of dividends to us as well as to our payment of dividends to our stockholders.

Our ability to pay dividends is also subject to the provisions of Delaware corporate law.

The Alabama Banking Department also regulates the Bank’s dividend payments.

Under Alabama law, a state-chartered bank may not pay a dividend in excess of 90% of its net earnings until the Bank’s surplus is equal to at least 20% of its capital (our bank’s surplus currently exceeds 20% of its capital).

Moreover, our bank is also required by Alabama law to obtain the prior approval of the Superintendent of Banks (“Superintendent”) for its payment of dividends if the total of all dividends declared by the bank in any calendar year will exceed the total of (i) the bank’s net earnings (as defined by statute) for that year, plus (ii) its retained net earnings for the preceding two years, less any required transfers to surplus.

The Alabama Banking Department also regulates the Bank’s dividend payments.

Based on this, our bank would be limited to paying $573.9 million in dividends as of December 31, 2023, subject to maintaining certain required capital levels.

In addition, no dividends, withdrawals or transfers may be made from the bank’s surplus without the prior written approval of the Superintendent.

The bank’s payment of dividends may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines.

The federal banking agencies have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking practice.

In addition, no dividends, withdrawals or transfers may be made from the bank’s surplus without the prior written approval of the Superintendent.

The bank’s payment of dividends may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines.

The federal banking agencies have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking practice.

Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a depository institution may not pay any dividends if payment would cause it to become undercapitalized or if it already is undercapitalized.

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We are subject to Section 23A of the Federal Reserve Act, which places limits on the amount of:

a bank’s loans or extensions of credit to affiliates;

a bank’s investment in affiliates;

a bank’s loans or extensions of credit to affiliates;

a bank’s investment in affiliates;

assets a bank may purchase from affiliates, except for real and personal property exempted by the Federal Reserve;

loans or extensions of credit made by a bank to third parties collateralized by the securities or obligations of affiliates;

a bank’s guarantee, acceptance or letter of credit issued on behalf of an affiliate;

a bank’s transactions with an affiliate involving the borrowing or lending of securities to the extent they create credit exposure to the affiliate;

and a bank’s derivative transactions with an affiliate to the extent they create credit exposure to the affiliate.

The total amount of the above transactions is limited in amount, as to any one affiliate, to 10% of a bank’s capital and surplus and, as to all affiliates combined, to 20% of a bank’s capital and surplus.

a bank’s guarantee, acceptance or letter of credit issued on behalf of an affiliate;

a bank’s transactions with an affiliate involving the borrowing or lending of securities to the extent they create credit exposure to the affiliate;

and a bank’s derivative transactions with an affiliate to the extent they create credit exposure to the affiliate.

In addition to the limitation on the amount of these transactions, certain of these transactions must also meet specified collateral requirements.

The bank must also comply with other provisions designed to avoid the taking of low-quality assets.

An affiliate for purposes of Sections 23A and 23B includes a bank’s parent holding company and any subsidiary owned by the parent holding company.

We are also subject to Section 23B of the Federal Reserve Act, which, among other things, prohibits an institution from engaging in these transactions with affiliates unless the transactions are on terms substantially the same, or at least as favorable to the institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.

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There is also an aggregate limitation on all loans to insiders and their related interests.

These loans cannot exceed the institution’s total unimpaired capital and surplus, and the FDIC may determine that a lesser amount is appropriate.

Insiders are subject to enforcement actions for knowingly accepting loans in violation of applicable restrictions.

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Alabama law provides that unsecured loans by a bank to one person may not exceed an amount equal to 10% of the capital and unimpaired surplus of the bank or 20% in the case of secured loans.

For purposes of calculating these limits, loans to various business interests of the borrower, including companies in which a substantial portion of the stock is owned or partnerships in which a person is a partner, must be aggregated with those made to the borrower individually.

For purposes of calculating these limits, loans to various business interests of a single borrower, including companies in which a substantial portion of the stock is owned or partnerships in which a person is a partner, must be aggregated with those made to the borrower individually.

Loans secured by certain readily marketable collateral are exempt from these limitations, as are loans secured by deposits and certain government securities.

Commercial Real Estate Concentration Limits

The Federal Reserve and other federal banking agencies promulgated guidance governing financial institutions with concentrations in commercial real estate lending entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices”.

The guidance describes the criteria the agencies will use as indicators to identify institutions potentially exposed to commercial real estate (“CRE”) concentration risk.

An institution that has (i) experienced rapid growth in CRE lending, (ii) notable exposure to a specific type of CRE, (iii) total reported loans for construction, land development, and other land representing 100% or more of the institution’s capital, or (iv) total CRE loans representing 300% or more of the institution’s capital, and the outstanding balance of the institution’s CRE portfolio has increased by 50% or more in the prior 36 months, may be identified for further supervisory analysis of the level and nature of its CRE concentration risk.

bank regulatory agencies issued additional guidance titled “Statement on Prudent Risk Management for Commercial Real Estate Lending”

to remind financial institutions of existing guidance on prudent risk management practices for CRE lending activity.

The guidance describes the criteria the agencies will use as indicators to identify institutions potentially exposed to commercial real estate (“CRE”) concentration risk.

bank regulatory agencies issued additional guidance entitled “Statement on Prudent Risk Management for Commercial Real Estate Lending” to remind financial institutions of existing guidance on prudent risk management practices for CRE lending activity.

The agencies noted their belief that financial institutions had eased CRE underwriting standards in recent years and went on to identify actions that financial institutions should take to protect themselves from CRE-related credit losses during difficult economic cycles.

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Financial institutions, such as the Bank, are required by statute and regulation to notify consumers of their privacy policies and practices and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party.

In addition, such financial institutions must appropriately safeguard their customers’

nonpublic, personal information.

In addition, such financial institutions must appropriately safeguard their customers’ nonpublic, personal information.

Federal law and regulations also establish certain information security guidelines that require each financial institution, under the supervision and ongoing oversight of its board of directors or an appropriate committee thereof, to develop, implement, and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information, to protect against anticipated threats or hazards to the security or integrity of such information, and to protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.

Under federal guidance, banks have to provide notice to affected customers of a data breach under certain circumstances.

In recent years, privacy laws have been a particular focus in the United States, Europe, and elsewhere.

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federal banking agencies adopted a rule regarding notification requirements for banking organizations related to significant computer security incidents.

Under the final rule, a banking organization must notify its primary federal regulator within 36 hours of incidents that have materially disrupted or degraded, or are reasonably likely to materially disrupt or degrade, the banking organization’s ability to deliver services to a material portion of its customer base, jeopardize the viability of key operations of the banking organization, or impact the stability of the financial sector.

The rule became effective on April 1, 2022, with compliance required by May 1, 2022.

From an operational standpoint, cyberattacks and similar attempts to gain access to confidential customer information maintained by banks and other financial institutions have prompted the federal banking agencies to issue extensive guidance on cybersecurity.

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Failure to comply with these statutes, rules and regulations, or failure to maintain an adequate compliance program, could lead to monetary penalties and reputational damage to our bank.

Our banking regulators evaluate the effectiveness of our policies and procedures when determining whether to approve certain proposed banking activities.

Our banking regulators evaluate the effectiveness of our policies and procedures when determining whether to approve certain proposed banking activities, including branch application.

We believe the policies and procedures implemented by our board of directors are sufficient to be compliant with these laws.

Effect of Governmental Monetary Policies

Our bank’s earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies.

The Federal Reserve’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession.

Our bank’s earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies.

The monetary policies of the Federal Reserve affect the levels of bank loans, investments and deposits through its control over the issuance of United States government securities, its regulation of the discount rate applicable to member banks and its influence over reserve requirements to which member banks are subject.

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Overdraft Fees

Regulation E imposes restrictions on banks’

abilities to charge overdraft fees.

Regulation E imposes restrictions on banks’ abilities to charge overdraft fees.

The rule prohibits financial institutions from charging fees for paying overdrafts on ATM and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.

In recent months, certain members of Congress and the leadership of certain federal banking agencies have expressed a heightened interest in the overdraft programs of U.S.

banking organizations.

In December 2021, the CFPB published a report providing data on banks’

overdraft and non-sufficient funds fee revenues as well as observations regarding consumer protection issues relating to participation in such programs.

In addition, the U.S.

Office of the Comptroller of the Currency has identified potential options for reform of national bank overdraft protection practices, including providing a grace period before the imposition of a fee, refraining from charging multiple fees in a single day and eliminating fees altogether.

We continue to monitor developments in the rules and regulations that apply to overdraft fees charged by banking institutions.

There has been an enhanced focus by federal bank regulatory agencies with respect to industry practices relating to overdraft fees and non-sufficient funds fees.

For example, the Consumer Financial Protection Bureau issued a Request for Information in January 2022 seeking public input with respect to financial institution practices relating to, among other areas, credit card fees, overdraft fees and non-sufficient funds fees and stated its intent to reduce these types of fees through crafting rules, issuing industry guidance and focusing supervision and enforcement resources to achieve this goal.

In October 2022, the Consumer Financial Protection Bureau issued guidance with respect to certain practices relating to overdraft fees and bounced check fees.

The FDIC issued guidance in August 2022 with respect to bank practices involving charging multiple non-sufficient funds fees on the representment of items on a deposit account.

In February 2023, the Consumer Financial Protection Bureau issued a proposed rule that would restrict certain practices relating to credit card late fees.

On January 17, 2024, the Consumer Financial Protection Bureau issued a proposed rule that would require financial institutions with over $10 billion in total assets to treat overdraft loans like credit cards and other loans as well as to provide clear disclosures and other protections.

On January 24, 2024, the Consumer Financial Protection Bureau issued a proposed rule that would prohibit non-sufficient funds (NSF) fees on transactions that financial institutions decline in real time.

These types of transactions include declined debit card purchases and ATM withdrawals, as well as some declined peer-to-peer payments.

Interchange Fees

The Dodd-Frank Act, through a provision known as the Durbin Amendment, required the Federal Reserve to establish standards for interchange fees that are “reasonable and proportional”

to the cost of processing a debit card transaction and imposes other requirements on card networks.

The Dodd-Frank Act, through a provision known as the Durbin Amendment, required the Federal Reserve to establish standards for interchange fees that are “reasonable and proportional” to the cost of processing a debit card transaction and imposes other requirements on card networks.

In June 2011, the Federal Reserve implemented a rule, which includes a cap of 21 cents plus .05% of the transaction on the interchange fee for debit card issuers with $10 billion or more in assets.

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The Durbin Amendment rules did not have a material impact on our revenue.

In October 2023, the Federal Reserve requested comment on a proposal to lower the maximum interchange fee that a large debit card issuer can receive for a debit card transaction.

The proposal would also establish a regular process for updating the maximum amount every other year going forward.

Compensation Practices

Our compensation practices are subject to guidance provided by federal banking agencies designed to ensure that incentive compensation arrangements at banking organizations take into account risk and are consistent with safe and sound practices.

Agency guidance is subject to change from time to time.

For example, in 2016, several financial regulators jointly issued a proposed rule designed to prohibit incentive-based compensation arrangements that could encourage inappropriate risks by providing excessive compensation or that could lead to a material financial loss.

The proposed rule would have required incentive-based compensation arrangements to adhere to three basic principles;

(1) a balance between risk and reward, (2) effective risk management and controls, and (3) effective governance.

It also would require appropriate board of directors (or committee) oversight and recordkeeping and disclosures to the appropriate agency.

The proposed rule, which would have applied to banking institutions on a tiered basis based on asset size, has not yet been finalized.

Our compensation practices are subject to guidance provided by federal banking agencies.

The federal banking agencies have issued comprehensive guidance on incentive compensation policies.

This guidance is designed to ensure that a financial institution’s incentive compensation structure does not encourage imprudent risk taking, which may undermine the safety and soundness of the institution.

The guidance, which applies to all employees that have the ability to materially affect an institution’s risk profile, either individually or as part of a group, is based upon three primary principles:

(i) balanced risk taking incentives;

(ii) compatibility with effective controls and risk management;

and (iii) strong corporate governance.

The scope and content of the U.S.

banking agencies’

policies on compensation may continue to evolve in the near future.

It cannot be determined at this time whether compliance with such policies will adversely affect the company’s or the bank’s ability to hire, retain and motivate its key employees.

banking agencies’ policies on compensation may continue to evolve in the near future.

It cannot be determined at this time whether compliance with such policies will adversely affect the company’s or the bank’s ability to hire, retain and motivate its key employees.

The Volcker Rule

In December 2013, five U.S.

financial regulators, including the Federal Reserve and the FDIC, adopted a final rule implementing the so-called “Volcker Rule.”

The Volcker Rule was created by Section 619 of the Dodd-Frank Act and prohibits “banking entities”

from engaging in “proprietary trading”

and making investments and conducting certain other activities with “private equity funds and hedge funds.”

Although the final rule provides some tiering of compliance and reporting obligations based on size, the fundamental prohibitions of the Volcker Rule apply to banking entities of any size, including us and the bank.

financial regulators, including the Federal Reserve and the FDIC, adopted a final rule implementing the so-called “Volcker Rule.” The Volcker Rule was created by Section 619 of the Dodd-Frank Act and prohibits “banking entities” from engaging in “proprietary trading” and making investments and conducting certain other activities with “private equity funds and hedge funds.” Although the final rule provides some tiering of compliance and reporting obligations based on size, the fundamental prohibitions of the Volcker Rule apply to banking entities of any size, including us and the Bank.

Since the adoption of the final rule in 2013, U.S.

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These revisions became effective on January 1, 2020, with a required compliance date of January 1, 2021.

To date, the prohibitions under the Volcker Rule and the final rule adopted thereunder have not had, and we do not currently expect them to have in the future, a material effect on our businesses or revenue, but they do limit the scope of permissible activities in which we might engage. 

The Dodd-Frank Act

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The federal agencies were given significant discretion in drafting the implementing rules and regulations.

In May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”) was signed into law.

In many instances the EGRRCPA increased the Dodd-Frank mandated asset thresholds, to which enhanced supervision and prudential standards are applied.

Previously, bank holding companies with assets of $10 billion or more were subject to stress testing. 

The asset threshold has been increased to $250 billion.

A number of the effects of the Dodd-Frank Act are described or otherwise accounted for in various parts of this 

Supervision and Regulation  section.

A number of the effects of the Dodd-Frank Act are described or otherwise accounted for in various parts of this Supervision and Regulation section.

The following items provide a brief description of certain other provisions of the Dodd-Frank Act that may be relevant to us and the Bank.

●   

The Dodd-Frank Act created the CFPB and gave it broad powers to supervise and enforce consumer protection laws.

The CFPB now has broad rule-making authority for a wide range of consumer protection laws that apply to all banks, including the authority to prohibit “unfair, deceptive or abusive” acts and practices.

The CFPB has examination and enforcement authority over all banks with more than $10 billion in assets for four consecutive quarters.

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We are now subject to CFPB supervisory and enforcement authority and expenses related to regulatory compliance are likely to increase as a result.

●   

The Dodd-Frank Act imposed new requirements regarding the origination and servicing of residential mortgage loans.

The law created a variety of new consumer protections, including limitations on the manner by which loan originators may be compensated and an obligation on the part of lenders to verify a borrower’s “ability to repay” a residential mortgage loan.

●   

The Dodd-Frank Act imposes many investor-protection, corporate governance and executive compensation rules that have affected most U.S.

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(iii) requires companies listed on national securities exchanges to adopt incentive-based compensation clawback policies for executive officers;

(iv) authorizes the U.S.

Securities and Exchange Commission (the “SEC”) to promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy materials;

(iv) authorizes the SEC to promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy materials;

and (v) directs the federal banking agencies to issue rules prohibiting incentive compensation that encourages inappropriate risks.

●   

Although insured depository institutions have long been subject to the FDIC’s resolution process, the Dodd-Frank Act creates a new mechanism for the FDIC to conduct the orderly liquidation of certain “covered financial companies,” including bank holding companies and systemically significant non-bank financial companies.

Although insured depository institutions have long been subject to the FDIC’s resolution process, the Dodd-Frank Act creates a new mechanism for the FDIC to conduct the orderly liquidation of certain “covered financial companies,” including bank holding companies and systemically significant non-bank financial companies.

Upon certain findings being made, the FDIC may be appointed receiver for a covered financial company and would conduct an orderly liquidation of the entity.

The FDIC liquidation process is modeled on the existing Federal Deposit Insurance Act bank resolution process, and generally gives the FDIC more discretion than in the traditional bankruptcy context.

●   

Pursuant to the Dodd-Frank Act, national and state-chartered banks may open an initial branch in a state other than its home state ( e.g.

, a host state) by establishing a de novo  branch at any location in such host state at which a bank chartered in such host state could establish a branch.

, a host state) by establishing a de novo branch at any location in such host state at which a bank chartered in such host state could establish a branch.

Applications to establish such branches must still be filed with the appropriate primary state and federal banking agencies.

As noted above, the implementation of the Dodd-Frank Act is ongoing, and certain provisions of the Dodd-Frank Act are still subject to rulemaking.

On March 30, 2023, the CFPB issued a final rule implementing Section 1071 of the Dodd-Frank Act.

The final rule requires financial institutions to collect and report data to the CFPB on small business loan applicants, including demographic data, lending decisions and the price and terms of credit.

The purpose of the rulemaking is to increase transparency and combat discrimination in small business lending.

As noted above, the implementation of the Dodd-Frank Act is ongoing.

In addition, we are subject to heightened regulatory scrutiny and requirements as a result of our total assets exceeding $10 billion for four consecutive quarters ending with the first quarter in 2021.

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It is our policy to fully comply with all state and federal laws applicable to discrimination in the workplace.

A brief description of the background of each of our named executive officers as of December 31, 2022 is set forth below.

Broughton, III (67) –

Information about our Executive Officers

A brief description of the background of each of our executive officers as of December 31, 2023 is set forth below.

Broughton, III (68) – Mr.

Broughton has served as our President and Chief Executive Officer and a director since 2007 and as President, Chief Executive Officer and a director of the Bank since its inception in May 2005.

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In 1998, he became Regional Chief Executive Officer of Synovus Financial Corp., responsible for the Alabama and Florida markets.

Broughton’s Synovus region shifted, and he became Regional Chief Executive Officer for the markets of Alabama, Tennessee and parts of Georgia.

He continued his work in this position until his retirement from Synovus in August 2004.

Broughton’s experience in banking has afforded him opportunities to work in many areas of banking and has given him exposure to all bank functions.

Broughton served on the Board of Directors of Cavalier Homes, Inc.

from 1986 until 2009, when the company was sold to a subsidiary of Berkshire Hathaway.

Foshee (68) –

Foshee (69) – Mr.

Foshee has served as our Executive Vice President, Chief Financial Officer, Treasurer and Secretary since 2007 and as Executive Vice President, Chief Financial Officer, Treasurer and Secretary of the Bank since 2005.

1 unchanged sentence

Foshee is a Certified Public Accountant.

Rushing (65) –

Foshee will retire from his position as Chief Financial Officer effective as of the filing of this Form 10-K.

The Board appointed Kirk Pressley to succeed Mr.

Foshee as Chief Financial Officer following Mr.

Foshee’s retirement.

Kirk Pressley (58) – Mr.

Pressley was appointed Chief Financial Officer effective as of the filing of this Form 10-K, following the retirement of our former Chief Financial Officer, William M.

Pressley joined the Bank as Executive Vice President of Strategic Planning in June of 2023.

Prior to joining the Bank, Mr.

Pressley started his career as an external auditor focused on financial institutions for two large international public accounting firms.

Pressley then served as the Controller for BBVA USA Bancshares, previously BBVA Compass Bancshares, from 2003 to 2015.

He most recently held the position of Senior Executive Vice President and CFO of BBVA USA, Houston, Texas, from 2015 to 2021.

Rushing (66) – Mr.

Rushing has served as our Executive Vice President and Chief Operating Officer since February 2021.

3 unchanged sentences

At the time of his departure in March 2011, the correspondent banking division of BBVA Compass provided correspondent banking services to over 600 financial institutions.

Henry Abbott (42) –

Henry Abbott (41) – Mr.

Abbott has served as Senior Vice President and Chief Credit Officer for us and the Bank since April 2018.

4 unchanged sentences

Our corporate website is www.servisfirstbank.com.

We have direct links on this website to our Code of Ethics and the charters for our Audit, Compensation and Corporate Governance and Nominations Committees, accessible by clicking on “Investor Relations”

in the drop down menu.

We have direct links on this website to our Code of Ethics and the charters for our Audit, Compensation and Corporate Governance and Nominations Committees, accessible on the “Investor Relations” section of our website.

We also have direct links to our filings with the SEC, including, but not limited to, our annual reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and any amendments to these filings, which are available free of charge through our corporate website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.

1 unchanged sentence

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 1. Business