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Item 1A. Risk Factors

2024-03-01 compared with 2023-02-28 · 72 added, 131 removed, 307 unchanged (40% of the section changed)

RISK FACTORS.

Our business, financial condition and results of operations could be harmed by any of the following risks or by other risks identified in this annual report, as well as by other risks we may not have anticipated or viewed as material.

The following list identifies and briefly summarizes the material risk factors known to us as of the date of this Form 10-K.

Our business, financial condition and results of operations could be harmed by any of the following risks or by other risks identified in this Form 10-K, as well as by other risks we may not have anticipated or viewed as material as of the date of this Form 10-K.

Such risks and uncertainties could cause actual results to differ materially from those contained in forward-looking statements presented elsewhere by management.

The following list identifies and briefly summarizes certain risk factors.

This list should not be viewed as complete or comprehensive, and the risks identified below are not the only risks facing our company.

also “

Cautionary Note Regarding Forward-Looking Statements.

See also “ Cautionary Note Regarding Forward-Looking Statements.

Risks Related to Our Business

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Competition for employees is intense, and the process of locating key personnel with the combination of skills and attributes required to execute our business plan may be lengthy.

If any of our or the bank’s executive officers, other key personnel, or directors leaves us or the bank, our operations may be adversely affected.

If any of our or the Bank’s executive officers, other key personnel, or directors leaves us or the Bank, our operations may be adversely affected.

In particular, we believe that our named executive officers and our regional chief executive officers are extremely important to our success and the success of our bank.

If any of them leaves for any reason, our results of operations could suffer in such markets.

Additionally, our directors’

and advisory board members’

community involvement and diverse and extensive local business relationships are important to our success.

Additionally, our directors’ and advisory board members’ community involvement and diverse and extensive local business relationships are important to our success.

Any material changes in the composition of our board of directors or the respective advisory boards of the Bank could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may not be able to expand successfully into new markets.

We have opened new offices in Fort Walton, Florida, Venice, Florida, Sarasota, Florida, Orlando, Florida, Tallahassee, Florida, Columbus, Georgia, Charlotte, North Carolina, and Asheville, North Carolina in the past five years.

We may not be able to successfully manage this growth without sufficient human resources, training and operational, financial and technological resources.

We have opened new offices in Fort Walton, Florida, Venice, Florida, Sarasota, Florida, Orlando, Florida, Tallahassee, Florida, Columbus, Georgia, Charlotte and Asheville, North Carolina, and Virginia Beach, Virginia in the past five years.

We may not be able to successfully manage this growth with sufficient human resources, training and operational, financial and technological resources.

Any such failure could limit our ability to be successful in these new markets and may have a material adverse effect on our business, financial condition, results of operations and prospects.

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In addition, banks with total assets of at least $10 billion are primarily examined by the CFPB with respect to federal consumer protection laws and regulations.

As of September 30, 2021, we were reclassified as a large financial institution by the FDIC, and now are subject to additional requirements including, but not limited to, establishing a dedicated risk committee of our board of directors, calculating our FDIC deposit insurance assessment using the large bank pricing rule, and more frequent regulatory examinations.

As of September 30, 2021, we exceeded $10 billion in total assets and were reclassified as a large financial institution by the FDIC, and now are subject to additional requirements including, but not limited to, establishing a dedicated risk committee of our board of directors, calculating our FDIC deposit insurance assessment using the large bank pricing rule, and more frequent regulatory examinations.

As a result of these additional compliance obligations, we have incurred significant expenses and expect to continue to incur expenses to address heightened regulatory requirements.

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Our decisions regarding credit risk could be inaccurate and our allowance for credit losses may be inadequate, which could have a material adverse effect on our business, financial condition, results of operations and future prospects.

Our earnings are affected by our ability to make loans, and thus we could sustain significant loan losses and consequently significant net losses if we incorrectly assess the creditworthiness of our borrowers resulting in loans to borrowers who fail to repay their loans in accordance with the loan terms, the value of the collateral securing the repayment of their loans, or we fail to detect or respond to a deterioration in our loan quality in a timely manner.

Management makes various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans.

Our earnings are affected by our ability to make loans, and thus we could sustain significant loan losses and consequently significant net losses if we incorrectly assess (i) the creditworthiness of our borrowers resulting in loans to borrowers who fail to repay their loans in accordance with the loan terms or (ii) the value of the collateral securing the repayment of their loans, or we fail to detect or respond to a deterioration in our loan quality in a timely manner Management makes various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans.

We maintain an allowance for credit losses that we consider adequate to absorb losses inherent in the loan portfolio based on our assessment of the information available.

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Any material increase in our allowance for credit losses or loan charge-offs as required by these regulatory agencies could have a material adverse effect on our business, financial condition, results of operations and prospects.

In addition, the adoption of Accounting Standards Update (“ASU”) 2016-13, as amended, effective as of January 1, 2020 impacted our methodology for estimating the allowance for credit losses.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) gave financial institutions the option to delay adoption of ASU 2016-13 and we delayed our adoption of the update until December 31, 2020 ,  with an effective retrospective adoption date of January 1, 2020 .

Based on prevailing economic conditions and forecasts as of the January 1, 2020 adoption date, we recorded a net $2.0 million decrease in our allowance for credit losses in connection with our adoption of ASU 2016-13.

See Note 1 –

Summary of Significant Accounting Policies ”

in the notes to consolidated financial statements included in Item 8.

For more information, see Note 1 – “ Summary of Significant Accounting Policies ” in the Notes to Consolidated Financial Statements included in Item 8.

Financial Statements and Supplementary Data elsewhere in this report.

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Lending authorities are assigned to regional chief executive officers and their banking teams based on their experience.

Additionally, all loan relationships in excess of $5.0 million and every loan internally risk-graded as special mention or below are reviewed by our centralized credit administration department in Birmingham, Alabama.

Additionally, all loan relationships in excess of $5.0 million and every loan with an internal risk-grade of special mention or below is reviewed by our centralized credit administration department in Birmingham, Alabama.

Moreover, for decisions that fall outside of the assigned authorities, our regional chief executive officers are required to obtain approval from our senior management team.

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We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations.

To support our recent and ongoing growth, we have completed a series of capital transactions during the past five years, including:

the sale of $30,000,000 in 4.5% subordinated notes due November 8, 2027 to accredited investor purchasers in November 2017 and concurrent redemption of $20,000,000 in 5.5% subordinated notes due November 9, 2022;

the sale of $34,750,000 in 4% subordinated notes due October 21, 2030 to accredited investor purchasers in October 2020 and concurrent redemption of $34,750,000 in 5% subordinated notes due July 15, 2025.

After giving effect to these transactions, we believe that we will have sufficient capital to meet our needs for our immediate growth plans.

We believe that we presently have sufficient capital to meet our needs for our immediate growth plans.

However, we will continue to need capital to support our longer-term growth plans.

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Natural disasters could have a material adverse effect on our financial position and results of operations.

Natural disasters, such as hurricanes, tornados, earthquakes and similar unpredictable weather events, could affect us directly (by interrupting our systems, damaging our offices or otherwise preventing us from operating our business in the ordinary course) or indirectly (by damaging or destroying the businesses or properties of our customers or otherwise impairing our customers’

ability to make loan payments on a timely basis or destroying property pledged as collateral for loans).

Our entry into Pensacola and Tampa Bay, Florida, Mobile, Alabama and Charleston, South Carolina increased our exposure to potential losses associated with hurricanes and similar natural disasters that are more common in coastal areas than in our other markets.

Our entry into various markets in Florida and the Mobile, Alabama and Charleston, South Carolina markets increased our exposure to potential losses associated with hurricanes and similar natural disasters that are more common in coastal areas than in our other markets.

Climate change may result in new or increased regulatory burdens, which could materially affect our results of operations by requiring us to implement costly measures to comply with any new laws and regulations related to climate change.

Changes to regulations or market shifts in response to climate change may also impact the businesses of some of our customers, which may require us to adjust our lending portfolios and business strategies with respect to such customers.

In addition, the investing public is increasingly focused on the financial services industry’s ability to manage environmental impact.

We have adopted an Environmental, Social and Governance (“ESG”) Policy in an effort to refine and track our compliance efforts;

however, failure to appropriately manage our environmental impact could have a material adverse effect on our reputation and harm our ability to attract and retain customers and employees.

We encounter technological change continually and have fewer resources than many of our competitors to invest in technological improvements.

The banking and financial services industries are undergoing rapid technological changes, with frequent introductions of new technology-driven products and services.

In addition to serving customers better, the effective use of technology increases efficiency and enables financial institutions to reduce costs.

Our success will depend in part on our ability to address our customers’

needs by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations.

Our success will depend in part on our ability to address our customers’ needs by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations.

Many of our competitors have greater resources to invest in technological improvements, and we may not be able to implement new technology-driven products and services, which could reduce our ability to effectively compete or increase our overall expenses and have a material adverse effect on our net income.

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We use information technology in our operations and offer online banking services to our customers.

Any unauthorized access to our or our customers ’

confidential or proprietary information exposes us to reputational harm and litigation and could adversely affect our ability to attract and retain customers.

Any unauthorized access to our or our customers ’ confidential or proprietary information exposes us to reputational harm and litigation and could adversely affect our ability to attract and retain customers.

Information security risks for financial institutions have increased in recent years, in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, activists, and other external parties.

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In addition, our customers may use personal smartphones, tablet PCs, or other mobile devices that are beyond our control systems in order to access our products and services.

Our technologies, systems and networks, and our customers’

devices, have been and will continue to be the target of cyber-attacks, electronic fraud, or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss, or destruction of our or our customers’

confidential, proprietary, and other information, or otherwise disrupt our or our customers’

or other third parties’

business operations.

Our technologies, systems and networks, and our customers’ devices, have been and will continue to be the target of cyber-attacks, electronic fraud, or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss, or destruction of our or our customers’ confidential, proprietary, and other information, or otherwise disrupt our or our customers’ or other third parties’ business operations.

As cyber threats continue to evolve, we continue to spend significant capital and other resources to protect against these threats or to alleviate or investigate problems caused by such threats.

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A security breach related to use of third-party software or systems, or the loss or corruption of confidential customer information could adversely affect our ability to provide timely and accurate financial information in compliance with legal and regulatory requirements.

Any such failures could result in sanctions from regulatory authorities, significant reputational harm and a decrease in our customers’

confidence in us.

Any such failures could result in sanctions from regulatory authorities, significant reputational harm and a decrease in our customers’ confidence in us.

Additionally, security breaches or the loss, theft or corruption of customer information such as social security numbers, credit card numbers, or other information could result in customer losses, litigation, regulatory sanctions, losses in revenue, increased costs and reputational harm.

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We may not be able to sustain our historical rate of growth and may not be able to further expand our business.

Various factors, such as economic conditions including inflation rates, regulatory and legislative considerations and competition, may impede or prohibit our ability to expand our market presence.

Various factors, such as economic conditions, regulatory and legislative considerations and competition, may impede or prohibit our ability to expand our market presence.

We have different lending risks than larger banks.

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We have positioned our asset portfolio to perform adequately in both a higher or lower interest rate environment, but this may not remain true in the future.

Our interest sensitivity profile was somewhat asset sensitive as of December 31, 2022, generally meaning that our net interest income would increase more from rising interest rates than from falling interest rates.

Our interest sensitivity profile was somewhat liability sensitive as of December 31, 2023, generally meaning that our net interest income would decrease more from rising interest rates than from falling interest rates.

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

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Liquidity risk is the potential that we will be unable to meet our obligations as they come due because of an inability to liquidate assets or obtain adequate funding.

An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity.

In particular, approximately 80% of the bank’s liabilities as of December 31, 2022 were checking accounts and other liquid deposits, which are payable on demand or upon several days’

notice, while by comparison, 80% of the assets of the bank were loans, which cannot be called or sold in the same time frame.

As can be seen from events in 2023 regarding the operations and failures of other banks in the U.S., an inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity.

In particular, approximately 75% of the Bank’s liabilities as of December 31, 2023 were checking accounts and other liquid deposits, which are payable on demand or upon several days’ notice, while by comparison, 72% of the assets of the Bank were loans, which cannot be called or sold in the same time frame.

Our continued access to funding sources in amounts adequate to finance our activities or on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general.

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These factors include, but are not limited to, rating agency actions in respect of the securities, defaults by the issuer or with respect to the underlying securities, and changes in market interest rates or instability in the capital markets.

Any of these factors, among others, could cause a write down that is charged against the ACL and realized and/or unrealized losses in future periods and declines in other comprehensive income, which could materially and adversely affect our business, results of operations, financial condition and prospects.

The process for determining whether impairment of a security is related to credit losses or other factors  usually requires complex, subjective judgments about the future financial performance and liquidity of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security.

Any of these factors, among others, could cause other-than-temporary impairments and realized and/or unrealized losses in future periods and declines in other comprehensive income, which could materially and adversely affect our business, results of operations, financial condition and prospects.

The process for determining whether a security is impaired usually requires complex, subjective judgments about the future financial performance and liquidity of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security.

Our failure to assess any currency impairments or losses with respect to our securities could have a material adverse effect on our business, financial condition, results of operations and prospects.

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The long-term outlook for the fiscal position of the U.S.

federal government is uncertain, as illustrated by the 2011 downgrade by certain rating agencies of the credit rating of the U.S.

government and federal agencies and questions concerning the impact of the Tax Cuts and Jobs Act on the long-term fiscal position of the U.S.

federal government.

Certain credit rating agencies have highlighted that the U.S.

federal government had the highest debt of any AAA-rated sovereign nation, and there was no credible fiscal consolidation plan in light of the economic shock caused by the COVID-19 pandemic.

However, in addition to causing economic and financial market disruptions, any future downgrade, failure to continue to raise the U.S.

federal government is uncertain.

For example, in January 2023, the outstanding national debt of the U.S.

government reached its statutory limit.

Department of the Treasury has announced that, since then, it has been using extraordinary measures to prevent the U.S.

government’s default on its payment obligations, and to extend the time that the U.S.

government has to raise its statutory debt limit or otherwise resolve its funding situation.

The failure by Congress to raise the federal debt ceiling could have severe repercussions within the U.S.

and to global credit and financial markets.

If Congress does not raise the debt ceiling and if the U.S.

government defaults on its payment obligations or experiences delays in making payments when due, such payment default or delay by the U.S.

government, as well as continued uncertainty surrounding the U.S.

debt ceiling or the U.S.

Government’s ability to pay its debts, could result in a variety of adverse effects for financial markets, market participants and U.S.

and global economic conditions.

In addition, U.S.

debt ceiling and budget deficit concerns have increased the possibility of a downgrade in the credit rating of the U.S.

government and could result in economic slowdowns or a recession in the United States.

Although U.S.

lawmakers have passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States as a result of such disputes over the debt ceiling.

In addition to causing economic and financial market disruptions, any future downgrade, failure to continue to raise the U.S.

statutory debt limit as needed, or deterioration in the fiscal outlook of the U.S.

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We are subject to extensive regulation in the conduct of our business, which imposes additional costs on us and adversely affects our profitability.

As a bank holding company, we are subject to federal regulation under the BHC Act, as amended, and the examination and reporting requirements of various federal and state agencies, including the FDIC and the Alabama Banking Department.

Federal regulation of the banking industry, along with tax and accounting laws, regulations, rules, and standards, may limit our operations significantly and control the methods by which we conduct business, as they limit those of other banking organizations.

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In addition, the laws governing bankruptcy generally favor debtors, making it more expensive and more difficult to collect from customers who become subject to bankruptcy proceedings.

We also may be required to invest significant management attention and resources to evaluate and make any changes necessary to comply with applicable laws and regulations, particularly as a result of regulations adopted under the Dodd-Frank Act resulting from our recent growth in total assets to over $10.0 billion.

This allocation of resources, as well as any failure to comply with applicable requirements, may negatively impact our financial condition and results of operations.

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Additionally, failure by our bank to meet applicable capital requirements could subject us to a variety of regulatory sanctions, up to and including termination of deposit insurance by the FDIC.

Changes in laws, government regulation, monetary policy  

or accounting standards  

may have a material  

adverse  

effect on our results of operations.

Changes in laws, government regulation, monetary policy or accounting standards may have a material adverse effect on our results of operations.

Changes to statutes, regulations, accounting standards or regulatory policies, including changes in their interpretation or implementation by regulators, could affect us in substantial and unpredictable ways.

Such changes could, among other things, subject us to additional costs and lower revenues, limit the types of financial services and products that we may offer, ease restrictions on non-banks and thereby enhance their ability to offer competing financial services and products, increase compliance costs, and require a significant amount of management’s time and attention.

Changes in accounting standards could materially impact, potentially even retroactively, how we report our financial condition and results of our operations.

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Federal and state regulators periodically examine our business and we may be required to remediate adverse examination findings.

The Federal Reserve, the FDIC and the Alabama Banking Department periodically examine our business, including our compliance with laws and regulations.

The Federal Reserve, the FDIC, CFPB, and the Alabama Banking Department periodically examine our business, including our compliance with laws and regulations.

If, as a result of an examination, a federal or state banking agency were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity, compliance with various regulations or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate.

These actions include the power to enjoin “unsafe or unsound”

practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place us into receivership or conservatorship.

These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place us into receivership or conservatorship.

Any regulatory action against us could have a material adverse effect on our business, results of operations, financial condition and prospects.

FDIC deposit insurance assessments may materially increase in the future, which would have an adverse effect on earnings.

As an FDIC-insured institution, the bank is assessed a quarterly deposit insurance premium. 

The amount of the premium is affected by a number of factors, including the risk the bank poses to the Deposit Insurance Fund and the adequacy of the fund to cover the risk posed by all insured institutions. 

If either the bank or insured institutions as a whole present a greater risk to the Deposit Insurance Fund in the future than they do today, if the Deposit Insurance Fund becomes depleted in any material respect, or if other circumstances arise that lead the FDIC to determine that the Deposit Insurance Fund should be strengthened, the bank could be required to pay significantly higher deposit insurance premiums and/or additional special assessments to the FDIC. 

Those premiums and/or assessments could have a material adverse effect on the bank’s earnings, thereby reducing the availability of funds to pay dividends to us.

As an FDIC-insured institution, the Bank is assessed a quarterly deposit insurance premium.

If either the Bank or insured institutions as a whole present a greater risk to the Deposit Insurance Fund in the future than they do today, if the Deposit Insurance Fund becomes depleted in any material respect, or if other circumstances arise that lead the FDIC to determine that the Deposit Insurance Fund should be strengthened, the Bank could be required to pay significantly higher deposit insurance premiums and/or additional special assessments (such as the one imposed by the FDIC in 2023) to the FDIC.

Those premiums and/or assessments could have a material adverse effect on the Bank’s earnings, thereby reducing the availability of funds to pay dividends to us.

We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.

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Department of Justice and other federal agencies are responsible for enforcing these laws and regulations.

A successful regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines.

Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation.

Such actions could have a material adverse effect on our business, financial condition, results of operations and prospects.

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It is inherently difficult to assess the outcome of these matters, and there can be no assurance that we will prevail in any proceeding or litigation.

Any such matter could result in substantial cost and diversion of our management’s efforts, which could have a material adverse effect on our financial condition and operating results.

Further, adverse determinations in such matters could result in actions by our regulators that could materially adversely affect our business, financial condition or results of operations.

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We are also subject to increased scrutiny of compliance with the rules enforced by the OFAC.

If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans.

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

Any of these results could have a material adverse effect on our business, financial condition, results of operations and prospects.

The replacement of LIBOR as an interest rate index could adversely affect our business and results of operations.

As of December 31, 2022, approximately 3.6% of our loan portfolio was indexed to the London Interbank Offered Rate (LIBOR) to calculate interest on the loans.

On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, publicly announced that it intended to cease persuading or compelling banks to submit LIBOR rates by the end of 2021.

In subsequent announcements, the Financial Conduct Authority stated that the publication of one-week and two-month U.S.

Dollar LIBOR rates would cease after December 31, 2021, but that the publication of other durations of U.S.

Dollar LIBOR rates would continue until June 30, 2023.

Given consumer protection, litigation, and reputation risks, banking regulators have indicated that entering into new contracts that use LIBOR as a reference rate after December 31, 2021, would create safety and soundness risks and that they will examine bank practices accordingly.

These announcements and regulatory guidance indicate that the continuation of LIBOR on the current basis cannot be guaranteed after 2021 and may cause the LIBOR benchmark to perform differently than it has in the past.

Financial institutions, including our bank, have begun to transition credit and other arrangements which currently utilize LIBOR as a reference rate to new indices for interest rates.

Regulators, industry groups and certain committees have, among other things, published recommended fall-back language for LIBOR-referenced financial instruments, identified recommended alternatives for certain LIBOR rates (for example, Ameribor®

or the Secured Overnight Financing Rate), and proposed implementations of the recommended alternatives in floating rate instruments.

As of December 16, 2022 the Federal Reserve Board has identified SOFR (Secured Overnight Financing Rate) as the replacement of LIBOR in certain financial contracts after June 30, 2023.

The implementation of a substitute index or indices for the calculation of interest rates under our loan agreements with our customers may result in the incurrence of additional expense as part of the transition and may result in disputes with customers over the appropriate substitute index or indices, which could adversely affect our reputation.

Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business and results of operations.

Risks Related to Our Common Stock

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the effects of, and changes in, trade, monetary and fiscal policies, including the interest rate policies of the Federal Reserve;

publication of research reports about us, our competitors, or the financial services industry generally, or changes in, or failure to meet, securities analysts’ estimates of our financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage;

publication of research reports about us, our competitors, or the financial services industry generally, or changes in, or failure to meet, securities analysts’ estimates of our financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage;

operating and stock price performance of companies that investors deemed comparable to us;

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Because our decision to issue debt or equity securities or incur other borrowings in the future will depend on market conditions and other factors beyond our control, the amount, timing, nature or success of our future capital raising efforts is uncertain.

Because our ability to pay dividends on our common stock in the future will depend on our and our bank’s financial condition as well as factors outside of our control, our common stockholders bear the risk that no dividends will be paid on our common stock in future periods or that, if paid, such dividends will be reduced or eliminated, which may negatively impact the market price of our common stock.

We and our bank are subject to capital and other requirements which restrict our ability to pay dividends.

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In order to pay any dividends, we will need to receive dividends from our bank or have other sources of funds.

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 for its payment of dividends if the total of all dividends declared by our bank in any calendar year will exceed the total of (1) our bank’s net earnings (as defined by statute) for that year, plus (2) its retained net earnings for the preceding two years, less any required transfers to surplus.

In addition, the Bank must maintain certain capital levels, which may restrict the ability of the Bank to pay dividends to us and our ability to pay dividends to our stockholders.

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Limitations on our ability to receive dividends from our bank subsidiary could have a material adverse effect on our liquidity and ability to pay dividends on our common stock or interest and principal on our debt.

Alabama and Delaware law limit the ability of others to acquire the bank, which may restrict your ability to fully realize the value of your common stock.

In many cases, stockholders receive a premium for their shares when one company purchases another.

Alabama and Delaware law make it difficult for anyone to purchase the bank or us without approval of our board of directors.

Thus, your ability to realize the potential benefits of any sale by us may be limited, even if such sale would represent a greater value for stockholders than our continued independent operation.

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

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

Investment in our common stock is inherently risky for the reasons described in this “

Risk Factors ”

section and is subject to the same market forces that affect the price of common stock in any company.

Investment in our common stock is inherently risky for the reasons described in this “ Risk Factors ” section and is subject to the same market forces that affect the price of common stock in any company.

As a result, an investor may lose some or all of their investment in our common stock.

Our corporate governance documents, and certain corporate and banking laws applicable to us, could make a takeover more difficult.

Certain provisions of our certificate of incorporation, as amended (or our “charter”), and bylaws, as amended, and corporate and federal banking laws, could make it more difficult for a third party to acquire control of our organization, even if those events were perceived by many of our stockholders as beneficial to their interests.

In many cases, stockholders receive a premium for their shares when one company purchases another.

For example, Alabama and Delaware law make it difficult for anyone to purchase the bank or us without approval of our board of directors.

Thus, your ability to realize the potential benefits of any sale by us may be limited, even if such sale would represent a greater value for stockholders than our continued independent operation.

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

provide that special meetings of stockholders may be called at any time by the Chairman of our board of directors, by the President or by order of the board of directors;

enable our board of directors to issue preferred stock up to the authorized amount, with such preferences, limitations and relative rights, including voting rights, as may be determined from time to time by the board;

enable our board of directors to increase the number of persons serving as directors and to fill the vacancies created as a result of the increase by a majority vote of the directors present at the meeting;

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General Risk Factors

The ongoing COVID-19 pandemic and measures intended to prevent its spread may adversely affect our business, financial condition and operations, and such effects will depend on future developments, which are highly uncertain and are difficult to predict.

Global health and economic concerns relating to the COVID-19 outbreak and government actions taken to reduce the spread of the virus have had a material adverse impact on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty.

The pandemic has resulted in federal, state and local authorities, including those who govern the markets in which we operate, implementing numerous measures to try to contain the virus.

Such measures have included travel bans and restrictions, curfews, quarantines, shelter in place or total lock-down orders and business limitations and shutdowns.

Such measures have significantly contributed to rising unemployment and negatively impacted consumer and business spending.

The availability of vaccines and rates of vaccination have generally been effective in curtailing rates of infection in many parts of the United States.

However, a significant portion of the population remain unvaccinated and the efficacy of the vaccines in preventing infection and serious illness is believed to deteriorate over time and may be ineffective against new variants of the virus.

The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the virus, including the passage of the CARES Act in March of 2020 and, more recently, an Omnibus COVID Relief Deal in December 2020.

There can be no assurance that such steps taken by the United States government will be effective or achieve their desired results in the near future.

The outbreak has adversely impacted and is likely to continue to adversely impact our workforce and operations and the operations of our customers and business partners.

In particular, we may experience financial losses due to a number of operational factors impacting us or our customers or business partners, including but not limited to:

Credit losses resulting from financial stress experienced by our borrowers, especially those operating in industries most hard hit by government measures to contain the spread of the virus;

Possible business disruptions experienced by our vendors and business partners in carrying out work that supports our operations;

Heightened levels of cyber and payment fraud, as cyber criminals try to take advantage of the disruption and increased online activity brought about by the pandemic;

Operational failures due to changes in our normal business practices necessitated by our internal measures to protect our employees and government-mandated measures intended to slow the spread of the virus.

These factors may exist for an extended period of time and may continue to adversely affect our business, financial condition and operations even after the COVID-19 outbreak has subsided.

The extent to which the pandemic impacts our business, financial condition and operations will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, its duration and severity, the actions to contain it or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.

Even after the pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of its economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future.

Additionally, future outbreaks of COVID-19, or other viruses, may occur.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the pandemic is highly uncertain and subject to change.

We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole.

Therefore, the risk factors discussed in this Annual Report on Form 10-K could be heightened, changed or be added to in the future.

For other factors that may cause actual results to differ materially from those indicated in any forward-looking statement or projection contained in this report, see “Forward-Looking Statements”

under Part 1, Item 2 above.

Financial disruption or a prolonged economic downturn could materially and adversely affect our business.

Worldwide financial markets have recently experienced periods of extraordinary disruption and volatility, which has been exacerbated by the COVID-19 pandemic, resulting in heightened credit risk, reduced valuation of investments, high rates of inflation and decreased economic activity.

Worldwide financial markets have recently experienced periods of extraordinary disruption and volatility, which has been exacerbated by the COVID-19 pandemic, resulting in heightened credit risk, reduced valuation of investments, supply chain issues and labor constraints, high rates of inflation and decreased economic activity.

Moreover, many companies have experienced reduced liquidity and uncertainty as to their ability to raise capital during such periods of market disruption and volatility.

9 unchanged sentences

Weak economic conditions are characterized by deflation, fluctuations in debt and equity capital markets, a lack of liquidity and/or depressed prices in the secondary market for mortgage loans, increased delinquencies on mortgage, consumer and commercial loans, residential and commercial real estate price declines and lower home sales and commercial activity.

The current economic environment is characterized by rising interest rates and high rates of inflation, which may impact our ability to generate attractive earnings through our investment portfolio.

An increase in interest rates could increase competition for deposits, decrease customer demand for loans due to the higher cost of obtaining credit, result in an increased number of delinquent loans and defaults or reduce the value of securities held for investment.

As domestic inflation continues to increase, the Federal Reserve is increasingly likely to continue to raise interest rates.

The current economic environment is characterized by high interest rates, which may impact our ability to generate attractive earnings through our investment portfolio.

While certain factors point to improving economic conditions, including moderating inflation, uncertainty remains regarding the path of economic recovery and the mitigating impacts of government interventions.

Any increase in interest rates could further increase competition for deposits, decrease customer demand for loans due to the higher cost of obtaining credit, result in an increased number of delinquent loans and defaults or reduce the value of securities held for investment.

All of these factors can individually or in the aggregate be detrimental to our business, and the interplay between these factors can be complex and unpredictable.

3 unchanged sentences

Adverse economic conditions and government policy responses to such conditions could have a material adverse effect on our business, financial condition, results of operations and prospects.

UNRESOLVED STAFF COMMENTS.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors