WILSON BANK HOLDING CO
For the period ended Dec 31, 2024. Filed Feb 28, 2025.
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A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Feb 28, 2025
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What changed in Risk Factors?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-02-28.
0000950170-24-021709
Item 1A. Risk FactorsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-02-28.
0000950170-25-029576
ITEM 1A. RISK FACTORSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 120 previous paragraphs and 200 current paragraphs.
102 unchanged; 18 reworded; 60 added; 0 removed; 0 previous and 20 current paragraphs rearranged.
Tables are not compared: 0 previous and 0 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (60)
Current report
Results of Operations. There is no assurance that existing branches or future branches will maintain or achieve deposit levels, loan balances or other operating results necessary to avoid losses or produce profits. If the Company is unable to grow its revenues in amounts necessary to support the higher expense base associated with increased locations, its results of operations will be negatively impacted. Execution on a growth strategy could lead to increases in overhead expenses if the Company were to add new offices and staff. The Company’s historical results may not be indicative of future results or results that may be achieved if it were to increase the number and concentration of its branch offices in its existing or new markets.
Current report
Development of Offices. There are considerable costs involved in opening branches, and new branches generally do not generate sufficient revenues to offset their costs until they have been in operation for at least a year or more. Accordingly, any new branches the Company organically establishes can be expected to negatively impact the Company’s earnings for some period of time until they reach certain economies of scale. The same is true for the Company’s efforts to expand in these markets with the hiring of additional seasoned professionals with significant experience in that market. The Company’s expenses could be further increased if it encounters delays in opening any of its new branches, including as a result of supply-chain disruption and labor challenges like those affecting the construction industry over the last few years, or regulatory actions or delays. The Company may be unable to accomplish future branch expansion plans due to a lack of available satisfactory sites, difficulties in acquiring such sites, failure to receive any required regulatory approvals, on a timely basis or at all, increased expenses or loss of potential sites due to complexities associated with zoning and permitting processes, higher than anticipated construction costs or other factors. Finally, any branch may not meet the Company’s long-term profitability expectations or otherwise be successful even after it has been established or acquired, as the case may be.
Current report
Regulatory and Economic Factors. The growth of the Bank may be adversely affected by a number of regulatory and economic developments or other events. Failure to obtain required regulatory approvals, changes in laws and regulations or other regulatory developments and changes in prevailing economic conditions or other unanticipated events may prevent or adversely affect the Company’s growth and expansion. Such factors may cause the Company to alter its growth and expansion plans or slow or halt the growth and expansion process, which may prevent the Company from entering into or expanding in its targeted markets or allow competitors to gain or retain market share in the Company’s existing markets.
Current report
Failure to successfully address these and other issues related to the Company’s expansion could have a material adverse effect on its financial condition and results of operations, and could adversely affect its ability to successfully implement its business strategy.
Current report
The Company is dependent upon information technologies, computer systems and networks, including those the Company maintains and those maintained and provided to the Company by third parties, to conduct operations and is reliant on technology to help increase efficiency in its business. These systems could become unavailable or impaired due to a variety of causes, including storms and other natural disasters, terrorist attacks, fires, phishing schemes, social engineering, utility outages, internal or external theft or fraud, design defects, human error, misconduct or complications or failures encountered as existing systems are maintained, replaced or upgraded. For example, the Company’s financial, accounting, data processing, or other operating or security systems or infrastructure or those of third parties upon which it relies may fail to operate properly or become compromised, disabled or damaged, which could adversely affect the Company’s ability to process transactions or provide services. In the event that backup systems are utilized, they may not process data as quickly as the Company’s primary systems and the Company may experience data losses in the course of such recovery. The Company continuously updates the systems on which it relies to support its operations and growth and to remain compliant with all applicable laws, rules and regulations. This updating entails significant costs and creates risks associated with implementing new systems and integrating them with existing ones, including business interruptions that may occur in the course of such implementation challenges. The Company maintains a system of internal controls and security to mitigate the risks of many of these occurrences and maintains insurance coverage for certain risks; however, should an event, including a cyberattack (including a ransomware attack), occur that is not prevented or detected by the Company’s internal controls, causes an interruption, degradation or outage in service, causes the Company to pay a ransom fee or is uninsured against or in excess of applicable insurance limits, such occurrence could have an adverse effect on the Company’s business and its reputation, which, in turn, could have a material adverse effect on its financial condition, results of operations and liquidity.
Current report
The Company’s operations rely on the secure processing, storage and transmission of confidential, proprietary, personal and other information in its computer systems and networks. Although the Company takes protective measures and endeavors to modify these systems as circumstances warrant, the security of its computer systems, software and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses or other malicious code and other events that could have a security impact. The Company provides its customers the ability to bank remotely, including over the Internet or through their mobile device. The secure transmission of confidential information is a critical element of remote and mobile banking. The Company’s network, and the systems of parties with whom it contracts or on which it relies, as well as those of its customers and regulators, could be vulnerable to unauthorized access, computer viruses, phishing schemes, social engineering, spam attacks, ransomware attacks, human error, natural disasters, power loss and other security breaches. Sources of attacks vary and may include hackers, disgruntled employees or vendors, organized crime, terrorists, foreign governments, corporate espionage and activists. In recent periods, there continues to be a rise in electronic fraudulent activity (including wire fraud), security breaches and cyber-attacks within the financial services industry, especially in the commercial banking sector due to cyber criminals targeting commercial bank accounts or seeking to infiltrate legitimate transactions, including through the compromise of the Bank's clients' email systems. The Company believes these types of efforts will continue to increase in frequency and in their level of sophistication. The Company has established policies, processes, and procedures to identify, measure, monitor, mitigate, report, and analyze risks associated with fraud, and continues to invest in systems, resources, and controls to detect and prevent it. There are inherent limitations, however, to the Company’s risk management strategies, systems, and controls as they may exist, or develop in the future. The Company may not appropriately anticipate, monitor, or identify these risks. If the Company’s risk management framework proves ineffective in connection with any fraudulent activity, it could suffer unexpected losses, it may have to expend resources detecting and correcting the failure in its systems, and it may be subject to potential claims from third parties and government agencies. The Company may also suffer reputational damage. Any of these consequences could adversely affect the Company’s business, financial condition, or results of operations.
Current report
Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, and the use of the Internet and telecommunications technologies to conduct financial transactions. For example, cybersecurity risks may increase in the future as the Company continues to increase its mobile-payment and other Internet-based product offerings and expand its internal use of cloud-based products and applications. Even the most advanced internal control environment may be vulnerable to compromise. Targeted social engineering attacks are becoming more prevalent and sophisticated, and are extremely difficult to prevent. The rapid evolution and increased adoption of generative artificial intelligence is further increasing risks in this area, including by making fraud detection more difficult, particularly with detection devices that use voice recognition or authentication. The techniques used by bad actors change frequently, may not be recognized until launched and may not be recognized until well after a breach has occurred. Additionally, the existence of cyber-attacks or security breaches at third parties with access to the Company’s data, such as vendors, may not be disclosed to the Company in a timely manner. Consistent with industry trends, the Company remains at risk for attempted electronic fraudulent activity, as well as attempts at security breaches and cybersecurity-related incidents. The Company spends significant capital and other resources to protect against the threat of security breaches and computer viruses, and may be required to spend significant capital and other resources to alleviate problems caused by security breaches or viruses. To the extent that the Company’s activities or the activities of its vendors, regulators or customers involve the storage and transmission of confidential information, security breaches (including breaches of security of customer, vendor or regulatory systems and networks) and viruses could expose the Company to claims, litigation and other possible liabilities. Any inability to prevent or promptly detect security breaches or computer viruses could also cause existing customers to lose confidence in the Company’s systems and could adversely affect its reputation, results of operations and ability to attract and retain customers and businesses. In addition, a security breach could also subject the Company to additional regulatory scrutiny, expose it to civil litigation and possible financial liability and cause reputational damage.
Current report
The Company contracts with third-party vendors to provide software or services for many of its major systems, such as data processing, loan servicing and deposit processing system. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt the Company’s operations. Because the Company’s information technology and telecommunications systems interface with and depend on third-party systems, the Company could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions, including as a result of viruses or other attacks. If sustained or repeated, a system failure or service denial could result in a deterioration of the Company’s ability to process new and renewal loans, gather deposits and provide customer service, compromise its ability to operate effectively, damage its reputation, result in a loss of customer business and/or subject it to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on the Company’s financial condition, results of operations and liquidity.
Current report
The Company also faces the risk of operational disruption, failure, termination, or capacity constraints of any of the third parties that facilitate its business activities, including vendors, exchanges, and other financial intermediaries. Such parties could also be the source or cause of an attack on, or breach of, the Company’s operational systems, data or infrastructure, and could disclose such attack or breach to the Company in a delayed manner or not at all. In addition, the Company may be at risk of an operational failure with respect to its customers’ systems. The Company’s risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats and the continued uncertain global economic environment.
Current report
As cybersecurity threats continue to evolve, the Company will likely expend significant additional resources to continue to modify or enhance its protective measures, investigate and remediate any information security vulnerabilities, or respond to any changes to state or federal regulations, policy statements or laws concerning information systems or security. Any failure to maintain adequate security over its information systems, its technology-driven products and services or its customers’ personal and transactional information could negatively affect the Company’s business and its reputation and result in fines, penalties, or other costs, including litigation expense and/or additional compliance costs, all of which could have a material adverse effect on its financial condition, results of operations and liquidity. Furthermore, the public perception that a cyber-attack on the Company’s systems has been successful, whether or not this perception is correct, may damage the Company’s reputation with customers and third parties with whom it does business. A successful penetration or circumvention of system security could result in negative consequences for the Company, including loss of customers and business opportunities, disruption to the Company’s operations and business, misappropriation or destruction of the Company’s confidential information and/or that of its customers, or damage to its customers’ and/or third parties’ computers or systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in the Company’s security measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs, and could adversely impact the Company’s financial condition, results of operations and liquidity.
Current report
The banking business is highly competitive and the Company experiences competition in each of its markets from many other financial and non-financial institutions. The Company competes with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other mutual funds, mobile payment platforms, as well as other community banks and super-regional and national financial institutions that operate offices in the Company’s primary market areas and elsewhere. Many of the Company’s competitors are well-established, larger financial institutions that have greater resources and lending limits and a lower cost of funds than the Company.
Current report
Additionally, the Company faces competition from similarly sized and smaller community banks and credit unions, including those with senior management who were previously affiliated with other local or regional banks or credit unions or those controlled by investor groups with strong local business and community ties. These community banks may offer higher deposit rates or lower cost loans in an effort to attract the Company’s customers, and may attempt to hire the Company’s management and employees.
Current report
Some of the Company’s competitors, including credit unions, are not subject to certain regulatory constraints, such as the CRA, which requires the Company to, among other things, implement procedures to make and monitor loans throughout the communities it serves, and which is expected to become more expansive in 2025. Credit unions also have federal tax exemptions that may allow them to offer lower rates on loans and higher rates on deposits than taxpaying financial institutions such as commercial banks. In addition, non-depository institution competitors are generally not subject to the extensive regulation applicable to institutions, like the Bank, that offer federally insured deposits, which affords them the advantage of operating with greater flexibility and lower cost structures. Other institutions may have other competitive advantages in particular markets or may be willing to accept lower profit margins on certain products.
Current report
The Company competes with these other financial and non-financial institutions both in attracting deposits and in making loans. In addition, the Company has to attract its customer base from other existing financial institutions and from new residents. This competition at times has made it more difficult for the Company to make new loans and at times has forced the Company to offer higher deposit rates or utilize secondary sources of liquidity. Price competition for loans and deposits might result in the Company earning less interest on its loans and paying more interest on its deposits, which reduces the Company’s net interest income. The Company’s profitability depends upon its continued ability to successfully compete with an array of financial and non-financial institutions in its market areas.
Current report
The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as mobile payment and other automatic transfer and payment systems, and for banks that do not have a physical presence in the Company’s markets to compete for deposits. The absence of regulatory requirements may give non-bank financial companies a competitive advantage over the Company.
Current report
The Company’s future success depends to a significant extent on the continued service of its key management personnel, especially John McDearman, III, its president and chief executive officer, and John Foster, the president of the Bank. While the Company does not have employment agreements with any of its personnel and can provide no assurance that it will be able to retain any of its key officers and employees, particularly in times of intense competition for talent, as the Bank is currently experiencing, or attract and retain qualified personnel in the future, it has entered into non-competition agreements with such persons which would prevent them, in most circumstances, from competing with the Bank for one year following their termination. In addition, these persons are parties to certain deferred compensation, supplemental retirement and equity incentive plans, the benefits of which would cease to accrue upon the termination of the person’s employment with the Company or the Bank or the person competing with the Bank after the termination of their employment.
Current report
The Company has implemented a risk management framework in an effort to identify and manage its risk exposure. This framework is comprised of various processes, systems and strategies, and is designed to manage the types of risk to which it is subject, including, among others, credit, market, liquidity, fraud, operational, capital, cybersecurity, compliance, strategic and reputational risks. The Company’s framework also includes financial, analytical, forecasting, or other modeling methodologies, which involves management assumptions and judgment. However, there is no assurance that the Company’s risk management framework will be effective under all circumstances or that it will adequately identify, manage or mitigate any risk or loss to it. If the Company’s risk management framework is not effective, it could suffer unexpected losses and become subject to regulatory consequences, as a result of which its business, financial condition, results of operations or prospects could be materially adversely affected.
Current report
The Company’s accounting policies and methods are fundamental to how the Company records and reports its financial condition and results of operations. The Company’s management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with GAAP and reflect management’s judgment of the most appropriate manner to report its financial condition and results of operations. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, which may result in the Company reporting materially different results than would have been reported under a different alternative.
Current report
Certain accounting policies are critical to presenting the Company’s financial condition and results of operations. They require management to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. Because of the uncertainty of estimates involved in these matters, the Company may be required to do one or more of the following: significantly increase the allowance for credit losses or sustain loan losses that are significantly higher than the reserve provided; reduce the carrying value of an asset measured at fair value; recognize an other-than-temporary impairment of securities; or significantly increase the Company’s accrued tax liability. Any of these could have a material adverse effect on the Company’s business, financial condition or results of operations. For a discussion of the Company’s critical accounting policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” contained in this report.
Current report
The Company had approximately $61.9 million in general, hybrid and separate account BOLI contracts at December 31, 2024. BOLI is an illiquid long-term asset that provides tax savings because cash value growth and life insurance proceeds are not taxable, subject to certain exceptions. However, if the Company needed additional liquidity and converted the BOLI to cash, such transaction would be subject to ordinary income tax and applicable penalties. The Company is also exposed to the credit risk of the underlying securities in the investment portfolio and to the insurance carrier’s credit risk (in a general account contract). If BOLI was exchanged to another carrier, additional fees would be incurred and a tax-free exchange could only be done for insureds that were still actively employed by the Company at that time. There is interest rate risk relating to the market value of the underlying investment securities associated with the BOLI in that there is no assurance that the market value of these securities will not decline. Investing in BOLI exposes the Company to liquidity, credit and interest rate risk, which could adversely affect the Company’s results of operations, financial condition and liquidity.
Current report
The Company’s reputation is very important in sustaining its business and it relies on its relationships with its current, former and potential clients and shareholders and other actors in the industries that it serves. Any damage to the Company’s reputation, whether arising from regulatory, supervisory or enforcement actions, matters affecting the Company’s financial reporting or compliance with SEC requirements, negative publicity, the way in which the Company conducts its business or otherwise could strain its existing relationships and make it difficult for the Company to develop new relationships. Any such damage to the Company’s reputation and relationships could in turn lead to a material adverse effect on its business.
Current report
The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. The Company has made significant investments in data processing, management information systems and internet banking accessibility, but additional investments may be required or necessary. The Company’s future success will depend in part upon its ability to create additional efficiencies in its operations through the use of technology. Many of the Company’s competitors have substantially greater resources to invest in technological improvements. The Company cannot make assurances that its technological improvements will increase its operational efficiency or that it will be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers.
Current report
The Company is from time to time subject to certain litigation in the ordinary course of its business. The Company may also be subject to claims related to its loan servicing programs, particularly those involving servicing of commercial real estate loans, and the fees it charges deposit customers who overdraw their accounts or have insufficient funds in their accounts to cover items when items are presented for payment. These and other claims and legal actions, as well as supervisory and enforcement actions by the Company’s regulators, including those with oversight of its loan servicing programs, could involve large monetary claims, capital directives, agreements with federal regulators, cease and desist penalties and orders and significant defense costs. The outcome of any such cases or actions is uncertain. Substantial legal liability or significant regulatory action against the Company could have material adverse financial effects or cause significant reputational harm to the Company, which in turn could seriously harm its business prospects.
Current report
In accordance with GAAP, for matters where a loss is not probable or the amount of the loss cannot be estimated, no accrual is established. For matters where it is probable the Company will incur a loss and the amount can be reasonably estimated, the Company establishes an accrual for the loss. Once established, the accrual is adjusted periodically to reflect any relevant developments. The actual cost of any outstanding legal proceedings or threatened claims, however, may turn out to be substantially higher than the amount accrued. Further, the Company’s insurance may not cover all litigation, other proceedings or claims, or the costs of defense. Future developments could result in an unfavorable outcome for any existing or new lawsuits or investigations in which the Company is, or may become, involved, which may have a material adverse effect on its business and its results of operations.
Current report
The Company’s ability to engage in routine funding transactions could be adversely affected by the actions and financial stability of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. The Company has exposure to various counterparties, including brokers and dealers, commercial and correspondent banks, and others. As a result, defaults by, or rumors or questions about, one or more financial services institutions, or the financial services industry generally, may result in market-wide liquidity problems and could lead to losses or defaults by such other institutions. Such occurrences could expose the Company to credit risk in the event of default of one or more counterparties and could have a material adverse effect on the Company’s financial position, results of operations and liquidity.
Current report
The Company’s operations and customer base are located in markets where natural disasters, including tornadoes, severe storms, and floods often occur. Such natural disasters, like the tornado that struck the Company’s markets in March 2020, could significantly impact the local population and economies and the Company’s business, and could pose physical risks to its properties. Although the Company maintains insurance coverages for such events, a significant natural disaster in or near one or more of the Company’s markets could have a material adverse effect on its financial condition, results of operations or liquidity.
Current report
In addition to natural disasters, the impact of a changing climate, such as rising average global temperatures and rising sea levels, and any increasing frequency and severity of extreme weather events and natural disasters such as droughts, floods, wildfires and hurricanes could negatively impact the Company’s operations including its ability to provide financial products and services to its customers. A changing climate also has the potential to negatively affect the collateral the Company takes to secure loans that it makes, the valuations of home prices or commercial real estate or the Company’s customers’ (particularly those that are engaged in industries that could be negatively affected by a shift to a low-carbon economy) ability and/or willingness to pay fees, repay outstanding loans or afford new products. The impact of natural disasters occurring in our market areas, including those that may be a result of a changing climate could also cause insurability risk and/or increased insurance costs for the Company or its customers.
Current report
The Company uses estimates, assumptions, and judgments when financial assets and liabilities are measured and reported at fair value. Assets and liabilities carried at fair value inherently result in a higher degree of financial statement volatility. Fair values and the information used to record valuation adjustments for certain assets and liabilities are based on quoted market prices and/or other observable inputs provided by independent third-party sources, when available. When such third-party information is not available, fair value is estimated primarily by using cash flow and other financial modeling techniques utilizing assumptions such as credit quality, liquidity, interest rates and other relevant inputs. Changes in underlying factors, assumptions, or estimates in any of these areas could materially impact the Company’s future financial condition and results of operations.
Current report
During periods of market disruption, including periods of significantly rising or high interest rates, rapidly widening credit spreads or illiquidity, it may be difficult to value certain assets if trading becomes less frequent and/or market data becomes less observable. There may be certain asset classes that were in active markets with significant observable data that become illiquid due to the current financial environment. In such cases, certain asset valuations may require more subjectivity and management judgment. As such, valuations may include inputs and assumptions that are less observable or require greater estimation. Further, rapidly changing and unprecedented credit and equity market conditions could materially impact the valuation of assets as reported within the Company’s consolidated financial statements and the period-to-period changes in value could vary significantly. Decreases in value may have a material adverse effect on results of operations or financial condition.
Current report
Valuation methodologies which are particularly susceptible to the conditions mentioned above include those used to value certain securities in the Company’s available for sale investment portfolio such as non-agency mortgage and asset-backed securities, in addition to loans held for sale and intangible assets.
Current report
If the Company fails to maintain an effective system of internal control over financial reporting, it may not be able to accurately report its financial results. As a result, current and potential holders of the Company’s common stock could lose confidence in the Company’s financial reporting, which would harm the Company’s business and the trading price of its securities.
Current report
Maintaining and adapting the Company’s internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, is expensive and requires significant management attention. Moreover, as the Company continues to grow, its internal controls may become more complex and require additional resources to ensure they remain effective amid dynamic regulatory and other guidance. Failure to maintain effective controls or implement required new or improved controls or difficulties encountered in the process may harm the Company’s results of operations and financial condition or cause it to fail to meet its reporting obligations. If the Company or its independent registered public accounting firm identify material weaknesses in the Company’s internal control over financial reporting or the Company is required to restate the its financial statements, the Company could be required to implement expensive and time-consuming remedial measures and could lose investor confidence in the accuracy and completeness of its financial reports. The Company may also face regulatory enforcement or other actions. This could have an adverse effect on the Company’s business, financial condition or results of operations, as well as the trading price of the Company’s securities, and could potentially subject the Company to litigation.
Current report
Changes in financial accounting and reporting standards, or the interpretation of those standards could affect the way the Company accounts for its operations and these changes could have a material adverse effect on the Company’s financial condition and results of operations.
Current report
The Financial Accounting Standards Board and the SEC may change the financial accounting and reporting standards, or the interpretation of those standards, that govern the preparation of the Company’s external financial statements from time to time. The impact of these changes or the application thereof on the Company’s financial condition and operations can be difficult to predict.
Current report
Federal bank regulators continue to closely scrutinize financial institutions, and additional restrictions have been proposed or adopted by regulators and by Congress. Changes in tax law, federal legislation, regulation or policies, such as bankruptcy laws, deposit insurance, consumer protection laws, laws and regulations regarding fair lending and investments in communities (including the recently adopted changes to the CRA rules), and capital requirements, among others, can result in significant increases in the Company’s expenses and/or charge-offs, which may adversely affect its results of operations and financial condition. Changes in state or federal tax laws or regulations can have a similar impact. State and municipal governments, including the State of Tennessee, could seek to increase their tax revenues through increased tax levies which could have a meaningful impact on the Company’s results of operations. Furthermore, financial institution regulatory agencies may continue to be aggressive in responding to concerns and trends identified in examinations, including in the case of service charges banks impose on customers related to overdrafts and instances in which customers’ accounts do not have sufficient funds to cover items that are presented. Elevated regulatory scrutiny of our industry could include the issuance of additional formal or informal enforcement or supervisory actions and the imposition of monetary penalties, and whether formal or informal, could result in the Company’s or the Bank’s agreeing to limitations or monetary penalties or to take actions that limit its operational flexibility, restrict its growth, increase its operating expenses, lower the Company’s non-interest income or increase its capital or liquidity levels, any of which could materially and adversely affect the Company’s results of operations and financial condition. Failure to comply with any formal or informal regulatory actions or restrictions, including informal supervisory actions, could lead to further regulatory enforcement actions. Negative developments in the financial services industry and the impact of legislation (or interpretation of existing legislation) in response to those developments could negatively impact the Company’s operations by restricting its business operations, including its ability to originate or sell loans or by requiring it to hold move elevated levels of capital or deduct from its regulatory capital unrealized losses in its securities portfolio, and adversely impact its financial performance. In addition, industry, legislative or regulatory developments may cause the Company to materially change its existing strategic direction, business policies, capital strategies, compensation or operating plans.
Current report
Additionally, the Company is subject to laws regarding its handling, disclosure and processing of personal and confidential information of certain parties, such as its employees, customers, suppliers, counterparties and other third parties. The GLB Act requires the Company to periodically disclose its privacy policies and practices relating to sharing such information and enables retail customers to opt out of the Company’s ability to share information with unaffiliated third parties, under certain circumstances. Other laws and regulations impact the Company’s ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing offers. In addition to their obligations to safeguard customer information under GLB Act regulations, financial institutions, like the Bank, are subject to regulations that require the institutions when they become aware of an incident of unauthorized access to sensitive customer information, to conduct a reasonable investigation to promptly determine the likelihood that the information has been or will be misused. If the institution determines that misuse of the sensitive customer information has occurred or is reasonably possible, it should notify the affected customers as soon as possible. The Company is subject to laws that require it to implement a comprehensive information security program that includes administrative, technical and physical safeguards to protect the security and confidentiality of customer records and information. Additionally, other legislative and regulatory activity continue to lend uncertainty to privacy compliance requirements that impact the Company’s business. The Company also expects that there will continue to be new laws, regulations and industry standards concerning privacy, data protection and information security proposed and enacted in various jurisdictions. The potential effects of pending legislation are far-reaching and may require the Company to modify its data processing practices and policies and to incur substantial costs and expenses in an effort to comply.
Current report
The TDFI and the FRB supervise and examine the Bank and the Company, respectively. Because the Bank’s deposits are federally insured, the FDIC also regulates its activities. These and other regulatory agencies impose certain regulations and restrictions on the Bank, including:
Current report
explicit standards as to capital and financial condition;
Showing the first 40 of 60 passages. Open the source sections for the rest.
Reworded paragraphs (18)
Previous wording
The Company, as well as the Bank, operates in an increasingly highly regulated environment and each is supervised and examined by various federal and state regulatory agencies who may adversely affect their ability to conduct business.
Current wording
The Company, as well as the Bank, operates in a highly regulated environment and each is supervised and examined by various federal and state regulatory agencies who may adversely affect their ability to conduct business.
Previous wording
Short-term interest rates rose significantly in 2022 and continued to be at elevated levels throughout 2023. Short-term interest rates are expected to stabilize during the first half of 2024 at current elevated levels, and potentially start to decline in the second half of 2024. In an elevated rate environment the Bank’s ability to maintain or increase the rates it charges on loans while limiting any further increase in, or potentially reducing, the rates it pays on deposits will be critical to maintaining or expanding the Company’s net interest margin. Elevated levels of interest rates, like those experienced in 2022 and 2023, can have a negative impact on the Company's business by reducing the amount of money its clients borrow or by adversely affecting their ability to repay outstanding loan balances that may increase due to adjustments in their variable rates. In addition, during the recent rising rate environment, the rates the Bank paid on its deposits increased, which had an increasingly negative impact on the Company’s net interest margin over the year. The Company expects deposit costs to continue to remain elevated during the first half of 2024 due to the expected persistence of heightened levels of short-term interest rates, increased levels of brokered deposits, the expected repricing of a portion of the Bank's time deposits that have been below the current market rates and competition in the Bank’s markets. In addition, many of the Bank’s variable rate loans have loan floors that limit the Bank’s ability to capture the full benefit of initial increases in short-term rates, though substantially all of these floors have been exceeded at this point.
Current wording
Short-term interest rates rose significantly in 2022 and continued to be at elevated levels throughout 2023 and 2024. Short-term interest rates began to decline in the second half of 2024, but remain at elevated levels and may remain at elevated levels through 2025. In an elevated rate environment the Bank’s ability to maintain or increase the rates it charges on loans while limiting any further increase in, or potentially reducing, the rates it pays on deposits will be critical to maintaining or expanding the Company’s net interest margin. Elevated levels of interest rates, like those experienced in recent years, can also have a negative impact on the Company's business by reducing the amount of money its clients borrow or by adversely affecting their ability to repay outstanding loan balances that may increase due to adjustments in their variable rates. The Company expects deposit rates to remain at or near their current levels in 2025; however, this may not happen if short-term interest rates rise or if competitive pressures in the Company's markets re-intensify.
Previous wording
While short-term interest rates are expected to stabilize through the first half of 2024, the Company believes that these rates may begin to fall during the second half of 2024. Were that to happen, the Company’s ability to lower the rates it pays on deposits will be critical to the Company’s ability to maintain or slow any potential decline in its net interest margin, as the Company anticipates that loan pricing in a falling rate environment would be competitive and existing loans that the Company has made may be refinanced at lower interest rates, particularly in the case of fixed rate loans with no prepayment penalties. The Company may also be limited in its ability to lower, in a timely manner, the rates it pays on its brokered deposits and other time deposits with stated maturities, the balances of which increased during 2023.
Current wording
Short-term interest rates fell during 2024. If those rates continue to fall in 2025, the Company’s ability to lower the rates it pays on deposits will be critical to the Company’s ability to maintain or slow any potential decline in its net interest margin, as the Company anticipates that loan pricing in a falling rate environment would be competitive and existing loans that the Company has made may be refinanced at lower interest rates, particularly in the case of fixed rate loans with no prepayment penalties. The Company may also be limited in its ability to lower, in a timely manner, the rates it pays on its time deposits with stated maturities, the balances of which increased during 2024.
Previous wording
At times, the Company has entered into certain hedging transactions including interest rate swaps, which are designed to lessen elements of its interest rate exposure. During the second quarter of 2020, the Company entered into a hedge that converted the fixed interest rates on certain of the Bank’s outstanding loans to Secured Overnight Financing Rate (“SOFR”)-based variable interest rates (as a successor to LIBOR-based variable rates). The Company terminated this hedging transaction in 2023. In the event that short-term interest rates do not change in the manner that the Company anticipates at the times it institutes its hedging strategies or at the pace that the Company anticipated, including if interest rates were to increase further following the hedge termination in 2023, such transactions may materially and adversely affect its results of operations.
Current wording
At times, the Company has entered into certain hedging transactions including interest rate swaps, which are designed to lessen elements of its interest rate exposure. During the second quarter of 2020, the Company entered into a hedge that converted the fixed interest rates on certain of the Bank’s outstanding loans to Secured Overnight Financing Rate (“SOFR”)-based variable interest rates (as a successor to LIBOR-based variable rates). The Company terminated this hedging transaction in 2023. In the event that short-term interest rates do not change in the manner or at the pace that the Company anticipates at the times it institutes its hedging strategies such transactions may materially and adversely affect its results of operations.
Previous wording
Changes in interest rates can negatively affect the performance of most of the Company’s investment securities. Interest rate volatility can reduce unrealized gains or increase unrealized losses in the Company’s portfolio, as was the case in 2022 and 2023 with the rising rate environment. Interest rates are highly sensitive to many factors including monetary policies, domestic and international economic, social and political conditions and issues, including trade disputes and global health pandemics, and other factors beyond the Company’s control. Fluctuations in interest rates can materially affect both the returns on and market value of the Company’s investment securities. Additionally, actual investment income and cash flows from investment securities that carry prepayment risk, such as mortgage-backed securities and callable securities, may materially differ from those anticipated at the time of investment or subsequently as a result of changes in interest rates and market conditions.
Current wording
Changes in interest rates can negatively affect the performance of most of the Company’s investment securities. Interest rate volatility can reduce unrealized gains or increase unrealized losses in the Company’s portfolio, as was the case in 2022 and 2023 with the rising interest rate environment. Interest rates are highly sensitive to many factors including monetary policies, domestic and international economic, social and political conditions and issues, including trade disputes and global health pandemics, and other factors beyond the Company’s control. Fluctuations in interest rates can materially affect both the returns on and market value of the Company’s investment securities. Additionally, actual investment income and cash flows from investment securities that carry prepayment risk, such as mortgage-backed securities and callable securities, may materially differ from those anticipated at the time of investment or subsequently as a result of changes in interest rates and market conditions.
Previous wording
In addition, from time to time the Company may restructure portions of its investment securities portfolio as part of its asset liability management strategies or in response to liquidity needs, and it may incur losses, which may be material, in connection with any such restructuring. The Company currently has a significant amount of unrealized losses in its securities portfolio. These losses are largely the result of the rising interest rate environment the Company experienced in 2022 and 2023, and the continued elevated interest rate environment the Company is experiencing so far in 2024. If the Company were to sell any of these securities before their value recovers, including as a result of asset liability management strategies or in response to liquidity needs, the Company would be required to recognize these losses and the recognition of those losses could materially and adversely affect the Company’s results of operations, capital and financial condition.
Current wording
In addition, from time to time the Company may restructure portions of its investment securities portfolio as part of its asset liability management strategies or in response to liquidity needs, and it may incur losses, which may be material, in connection with any such restructuring. The Company currently has a significant amount of unrealized losses in its securities portfolio. These losses are largely the result of the rising interest rate environment the Company experienced in recent years, and the continued elevated interest rate environment the Company has experienced since 2024. If the Company were to sell any of these securities before their value recovers, including as a result of asset liability management strategies or in response to liquidity needs, the Company would be required to recognize these losses and the recognition of those losses could materially and adversely affect the Company’s results of operations, capital and financial condition.
Previous wording
As of December 31, 2023, approximately 94% of the Company’s loans held for investment were secured by real estate. Of this amount, approximately 39% were commercial and multi-family real estate loans, 34% were residential 1-4 family real estate loans and 1-4 family equity lines of credit and 27% were construction and development and farmland loans. In total these loans made up approximately 91% of the Company’s non-performing loans at December 31, 2023. Construction and development lending is generally considered to have relatively high credit risks because the principal is concentrated in a limited number of loans with repayment dependent on the successful completion and operation of the related real estate project. Real estate industry pricing dynamics in the geographical markets in which the Company operates can vary from year to year, and with respect to construction, can vary between project funding and project completion. Asset values to which the Company underwrites loans can fluctuate from year to year and impact collateral values and the ability of its borrowers to repay their loans.
Current wording
As of December 31, 2024, approximately 94% of the Company’s loans held for investment were secured by real estate. Of this amount, approximately 40% were commercial and multi-family real estate loans, 36% were residential 1-4 family real estate loans and 1-4 family equity lines of credit and 24% were construction and development and farmland loans. In total these loans made up approximately 97% of the Company’s non-performing loans at December 31, 2024. Construction and development lending is generally considered to have relatively high credit risks because the principal is concentrated in a limited number of loans with repayment dependent on the successful completion and operation of the related real estate project. Real estate industry pricing dynamics in the geographical markets in which the Company operates can vary from year to year, and with respect to construction, can vary between project funding and project completion. Asset values to which the Company underwrites loans can fluctuate from year to year and impact collateral values and the ability of its borrowers to repay their loans.
Previous wording
At December 31, 2023, the Company had significant credit exposures to borrowers in certain businesses, including new home builders and land subdividers. If the challenging economic conditions currently being experienced as a result of inflation and elevated short-term interest rates extend deep into 2024 or beyond, or worsen (including as a result of increased geopolitical tensions around the world), and negatively impact real estate conditions in the Company’s markets more than has been the case thus far, these industry or other concentrations could result in higher than normal deterioration in credit quality, past dues, loan charge-offs and collateral value declines, all of which would negatively impact the Company’s financial condition and results of operations. Furthermore, any of the Company’s large credit exposures that deteriorate unexpectedly could cause the Company to have to make significant additional loan loss provisions, negatively impacting the Company’s financial condition and results of operations.
Current wording
At December 31, 2024, the Company had significant credit exposures to borrowers in certain businesses, including new home builders and land subdividers. If the uneven economic conditions currently being experienced as a result of inflation and elevated short-term interest rates extend deep into 2025 or beyond, or worsen (including as a result of increased geopolitical tensions around the world or terrorist activity in the United States), and negatively impact real estate conditions in the Company’s markets more than has been the case thus far, these industry or other concentrations could result in higher than normal deterioration in credit quality, past dues, loan charge-offs and collateral value declines, all of which would negatively impact the Company’s financial condition and results of operations. Furthermore, any of the Company’s large credit exposures that deteriorate unexpectedly could cause the Company to have to make significant additional loan loss provisions, negatively impacting the Company’s financial condition and results of operations.
Previous wording
The processes the Company uses to estimate expected credit losses, calculate its allowance for credit losses and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other measures of the Company’s financial condition and results of operations, depend upon the use of analytical and forecasting models and tools. These models and tools reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are accurate, the models and tools may prove to be inadequate or inaccurate because of other flaws in their design or their implementation. Any such failure in the Company’s analytical or forecasting models and tools could have a material adverse effect on its business, financial condition and results of operations.
Current wording
The processes the Company uses to estimate expected credit losses, calculate its various allowances for credit losses and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other measures of the Company’s financial condition and results of operations, depend upon the use of analytical and forecasting models and tools. These models and tools reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are accurate, the models and tools may prove to be inadequate or inaccurate because of other flaws in their design or their implementation. Any such failure in the Company’s analytical or forecasting models and tools could have a material adverse effect on its business, financial condition and results of operations.
Previous wording
In the course of business, the Bank may acquire, through foreclosure, properties securing loans it has originated or purchased which are in default. Particularly in commercial real estate lending, there is a risk that hazardous substances could be discovered on these properties. In this event, the Company, or the Bank, might be required to remove these substances from the affected properties at the Company’s sole cost and expense. The cost of this removal could substantially exceed the value of affected properties. The Company and the Bank may not have adequate remedies against the prior owner or other responsible parties, or those persons may not have sufficient resources to compensate the Company for its damages, and the Company could find it difficult or impossible to sell the affected properties. These events could have a material adverse effect on the Company’s business, results of operations and financial condition.
Current wording
In the course of business, the Bank may acquire, through foreclosure, properties securing loans it has originated or purchased which are in default. Particularly in commercial real estate lending, there is a risk that hazardous substances could be discovered on these properties. In this event, the Company, or the Bank, might be required to remove these substances from the affected properties at the Company’s or the Bank's sole cost and expense. The cost of this removal could substantially exceed the value of affected properties. The Company and the Bank may not have adequate remedies against the prior owner or other responsible parties, or those persons may not have sufficient resources to compensate the Company for its damages, and the Company could find it difficult or impossible to sell the affected properties. These events could have a material adverse effect on the Company’s business, results of operations and financial condition.
Previous wording
The Company’s ability to grow its loan portfolio is dependent on its ability to fund loan grow, which the Company primarily seeks to do through growth in deposits. Deposit levels may be affected by a number of factors, including demands by customers, rates paid by competitors, general interest rate levels, returns available to customers on alternative investments, general economic and market conditions and other factors, including a loss of confidence in the Company by its customers. Loan repayments are a relatively stable source of funds but are subject to the borrowers’ ability to repay loans, which can be adversely affected by a number of factors including changes in general economic and geopolitical conditions, adverse trends or events affecting business industry groups or specific businesses, declines in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters, prolonged government shutdowns and other factors. Furthermore, loans generally are not readily convertible to cash. Accordingly, the Company may be required from time to time to rely on secondary sources of liquidity to meet growth in loans, deposit withdrawal demands or otherwise fund operations. Such secondary sources include advances from the FHLB Cincinnati, brokered deposits, secured and unsecured federal funds lines of credit from correspondent banks, FRB borrowings, liquidating securities that the company owns in its investment securities portfolio and/or accessing the equity or debt capital markets. The Company increased its level of brokered deposits during 2023 to provide additional liquidity. These deposits can require the Company to pay higher rates of interest than the Company pays on deposits from its customers. The competition for deposits the Company is currently experiencing may limit its ability to grow deposits, which may result in the Company seeking alternative sources of funding, as it did in 2023, that are more expensive or limiting its loan growth, either of which could have a material adverse effect on its financial condition or results of operations.
Current wording
The Company’s ability to grow its loan portfolio is dependent on its ability to fund loan growth, which the Company primarily seeks to do through growth in deposits. Deposit levels may be affected by a number of factors, including demands by customers, rates paid by competitors, general interest rate levels, returns available to customers on alternative investments, general economic and market conditions and other factors, including a loss of confidence in the Company by its customers. Loan repayments are a relatively stable source of funds but are subject to the borrowers’ ability to repay loans, which can be adversely affected by a number of factors including changes in general economic and geopolitical conditions, rising interest rates, adverse trends or events affecting business industry groups or specific businesses, declines in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters, prolonged government shutdowns and other factors. Furthermore, loans generally are not readily convertible to cash. Accordingly, the Company may be required from time to time to rely on secondary sources of liquidity to meet growth in loans, deposit withdrawal demands or otherwise fund operations. Such secondary sources include advances from the FHLB Cincinnati, brokered deposits, secured and unsecured federal funds lines of credit from correspondent banks, FRB borrowings, liquidating securities that the Company owns in its investment securities portfolio and/or accessing the equity or debt capital markets. The Company was able to decrease its level of brokered deposits during 2024 as a result of its ability to grow lower cost core deposits; however, the Company may be required to once again increase its levels of brokered deposits, which may require the Company to pay higher rates of interest than the Company pays on deposits from customers if competition once again limits its ability to grow core deposits.
Previous wording
Federal and state bank regulators require the Company and the Bank to maintain adequate levels of capital to support operations. At December 31, 2023, the Company’s and the Bank’s regulatory capital ratios were at “well-capitalized” levels under regulatory guidelines. Growth in assets (either organically or as a result of acquisitions) at rates in excess of the rate at which the Bank’s capital is increased through retained earnings, or significant losses, including as a result of selling investment securities that are in a loss position at the time of sale, will reduce its capital ratios unless it continues to increase capital. Failure by the Bank to meet applicable capital guidelines or to satisfy certain other regulatory requirements could subject the Bank and the Company to a variety of enforcement remedies available to the federal regulatory authorities and would negatively impact the Company’s ability to pursue expansion opportunities, including through the opening of new branch locations.
Current wording
Federal and state bank regulators require the Company and the Bank to maintain adequate levels of capital to support operations. At December 31, 2024, the Company’s and the Bank’s regulatory capital ratios were at “well-capitalized” levels under regulatory guidelines. Growth in assets (either organically or as a result of acquisitions), like the Bank's proposed acquisition of certain assets in connection with its pending acquisition of a branch office of another bank located in Cookeville, Tennessee, at rates in excess of the rate at which the Bank’s capital is increased through retained earnings, or significant losses, including as a result of selling investment securities that are in a loss position at the time of sale, will reduce its capital ratios unless it continues to increase capital. Failure by the Company or the Bank to meet applicable capital guidelines or to satisfy certain other regulatory requirements could subject the Bank and the Company to a variety of enforcement remedies available to the federal regulatory authorities and would negatively impact the Company’s ability to pursue expansion opportunities, including through the opening of new branch locations.
Previous wording
The Company may need to raise additional capital (including through the issuance of common stock or additional Tier 2 capital instruments) in the future to provide the Company and the Bank with sufficient capital resources and liquidity to meet their commitments and business needs or in connection with growth or as a result of deterioration in asset quality. The Company’s and the Bank’s ability to maintain capital levels, sources of funding and liquidity could be impacted by negative perceptions of their businesses or prospects, changes in the capital markets and deteriorating economic and market conditions. The Bank is required to obtain regulatory approval in order to pay dividends to the Company unless the amount of such dividends does not exceed its net income for that calendar year plus retained net income for the preceding two years. Any restriction on the ability of the Bank to pay dividends to the Company could impact the Company’s ability to continue to pay dividends on its common stock or its ability to pay interest on its indebtedness.
Current wording
The Company may need to raise additional capital (including through the issuance of common stock or additional Tier 2 capital instruments) in the future to provide the Company and the Bank with sufficient capital resources and liquidity to meet their commitments and business needs or in connection with growth or as a result of deterioration in asset quality. The Company’s and the Bank’s ability to maintain capital levels, sources of funding and liquidity could be impacted by negative perceptions of their businesses or prospects, changes in the capital markets and deteriorating economic and market conditions. The Bank is required to obtain regulatory approval in order to pay dividends to the Company unless the amount of such dividends does not exceed its net income for that calendar year plus retained net income for the preceding two years. Any restriction on the ability of the Bank to pay dividends to the Company could impact the Company’s ability to continue to pay dividends on its common stock or its ability to pay interest on its any then outstanding indebtedness.
Previous wording
In addition, the Company receives additional capital from the issuance of common stock under its dividend reinvestment plan. Any unexpected termination or suspension of the Company’s dividend reinvestment plan, or the related payment of its historical biannual cash dividend, could materially and adversely affect the Company’s capital levels.
Current wording
In addition, the Company receives additional capital from the issuance of common stock under its dividend reinvestment plan. Any unexpected termination or suspension of the Company’s dividend reinvestment plan, or the related payment of its historical cash dividend, could materially and adversely affect the Company’s capital levels.
Previous wording
The Company’s financial performance is highly dependent on the business environment in the markets where it operates and in the U.S. as a whole. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity, investor or business confidence, consumer sentiment, limitations on the availability or increases in the cost of credit and capital, increases in inflation or interest rates, natural disasters, international trade disputes and retaliatory tariffs, supply-chain disruptions, labor shortages, terrorist attacks, global pandemics, acts of war, or a combination of these or other factors. Inflation rose sharply at the end of 2021 and continued at heightened levels throughout 2023, and, while inflation started to ease at the end of 2023, prices are currently expected to remain elevated for many goods and services in the near term. The Company and its customers experienced an uncertain and volatile economic environment during 2023, and economic growth and activity began to show signs of decline in the second half of 2023 due to issues of national security, inflation, and the pressure of sustained high levels of short-term interest rates. The Company believes that it is possible it and its customers will continue to experience an uneven or declining economic environment in 2024 for many of the same reasons. A worsening of business and economic conditions (including as a result of escalating geopolitical tensions around the world, including hostilities in the Middle East), or persistent inflationary pressures, and actions taken by the Federal Reserve in response thereto, or supply chain disruptions or labor shortages, generally or specifically in the principal markets in which the Company conducts business could have adverse effects, including the following:
Current wording
The Company’s financial performance is highly dependent on the business environment in the markets where it operates and in the U.S. as a whole. Unfavorable or uncertain economic, political and market conditions can be caused by declines in economic growth, business activity, investor or business confidence, consumer sentiment, limitations on the availability or increases in the cost of credit and capital, increases in inflation or interest rates, natural disasters, international trade disputes and retaliatory tariffs, supply-chain disruptions, labor shortages (including as a result of deportations), terrorist attacks, global pandemics, acts of war, or a combination of these or other factors. Inflation rose sharply at the end of 2021 and continued at heightened levels throughout 2023 and into 2024, and, while inflation started to ease through 2024, prices are currently expected to remain elevated for many goods and services in the near term. The Company and its customers experienced an uncertain and volatile economic environment during 2023 and 2024 due to issues of national security, inflation, and the pressure of sustained high levels of short-term interest rates. The Company believes that it is possible it and its customers will continue to experience an uneven economic environment in 2025 for many of the same reasons. A worsening of business and economic conditions (including as a result of escalating geopolitical tensions around the world, including the ongoing conflicts in Ukraine and the Middle East or increased terrorist activity in the United States), or persistent inflationary pressures, and actions taken by the Federal Reserve in response thereto, intensifying trade disputes and tariffs, or supply chain disruptions or labor shortages, generally or specifically in the principal markets in which the Company conducts business could have adverse effects, including the following:
Previous wording
In addition, over the last several years, the federal government has shut down several times, in some cases for prolonged periods. It is possible that the federal government may shut down again in the future, particularly in light of the evenly divided United States Congress. If a prolonged government shutdown occurs, it could significantly impact business and economic conditions generally or specifically in the Company’s markets, which could have a material adverse effect on the Company’s results of operations and financial condition.
Current wording
In addition, over the last several years, the federal government has shut down several times, in some cases for prolonged periods, and it is possible that the federal government may shut down again in the future. If a prolonged government shutdown occurs, it could significantly impact business and economic conditions generally or specifically in the Company’s markets, which could have a material adverse effect on the Company’s results of operations and financial condition.
Previous wording
The Company operates primarily in Wilson, DeKalb, Trousdale, Smith, Rutherford, Putnam, Davidson, Williamson and Sumner counties in Tennessee and certain of the surrounding counties and substantially all of its loan customers and most of its deposit and other customers live or have operations in this same geographic area. Accordingly, the Company’s success significantly depends upon the growth in population, income levels, and deposits in these areas, along with the continued attraction of business ventures to the area and the area’s economic stability and strength of the housing market, and its profitability is impacted by the changes in general economic conditions in these markets. The Company cannot assure investors that economic conditions in its markets will not remain challenged during 2024 or thereafter, and continued volatile economic conditions in the Company’s markets could cause the Company to constrict its growth rate, affect the ability of its customers to repay their loans and negatively impact the Company’s financial condition and results of operations.
Current wording
The Company operates primarily in Wilson, DeKalb, Trousdale, Smith, Rutherford, Putnam, Davidson, Williamson and Sumner counties in Tennessee and certain of the surrounding counties and substantially all of its loan customers and most of its deposit and other customers live or have operations in this same geographic area. Accordingly, the Company’s success significantly depends upon the growth in population, income levels, and deposits in these areas, along with the continued attraction of business ventures to the area and the area’s economic stability and strength of the housing market, and its profitability is impacted by the changes in general economic conditions in these markets. The Company cannot assure investors that economic conditions in its markets will not remain uneven during 2025 or thereafter, and continued volatile economic conditions in the Company’s markets could cause the Company to constrict its growth rate, affect the ability of its customers to repay their loans and negatively impact the Company’s financial condition and results of operations.
Previous wording
Since 2014, the Company has opened branch locations in Putnam County, Rutherford County, Sumner County, Davidson County and Williamson County as it sought to expand its footprint beyond its historical markets. Expansion, whether by opening new branches or acquiring existing branches or whole banks, involves various risks, including:
Current wording
Since 2014, the Company has opened branch locations in Putnam County, Rutherford County, Sumner County, Davidson County and Williamson County as it sought to expand its footprint beyond its historical markets. Expansion, whether by opening new branches or acquiring existing branches (like the branch office it is currently seeking to acquire in Cookeville, Tennessee) or whole banks, involves various risks, including:
Rearranged current paragraphs (20)
Current report — wording carried from elsewhere
The Company is dependent on its information technology and telecommunications systems and third-party servicers, and systems failures, interruptions or breaches of security could have an adverse effect on its financial condition and results of operations, as well as cause legal or reputational harm.
Current report — wording carried from elsewhere
Competition from financial institutions and other financial service providers may adversely affect the Company’s profitability.
Current report — wording carried from elsewhere
The Company’s key management personnel may leave at any time.
Current report — wording carried from elsewhere
An ineffective risk management framework could have a material adverse effect on the Company’s strategic planning and its ability to mitigate risks and/or losses and could have adverse regulatory consequences.
Current report — wording carried from elsewhere
The Company’s selection of accounting policies and methods may affect its reported financial results.
Current report — wording carried from elsewhere
The Company currently invests in bank owned life insurance (“BOLI”) and may continue to do so in the future.
Current report — wording carried from elsewhere
The Company’s business reputation and relationships are important and any damage to them could have a material adverse effect on its business.
Current report — wording carried from elsewhere
The Company’s business is dependent on technology, and an inability to invest in technological improvements may adversely affect the Company’s results of operations and financial condition.
Current report — wording carried from elsewhere
The Company is subject to regulatory oversight and certain litigation, and its expenses related to this regulatory oversight and litigation may adversely affect its results.
Current report — wording carried from elsewhere
The soundness of other financial institutions, including those with whom the Company has engaged in transactions, could adversely affect the Company.
Current report — wording carried from elsewhere
Natural disasters and the effects of a changing climate may adversely affect the Company and its customers.
Current report — wording carried from elsewhere
The Company’s asset valuation may include methodologies, estimations and assumptions which are subject to differing interpretations and could result in changes to asset valuations that may materially adversely affect its results of operations or financial condition.
Current report — wording carried from elsewhere
Federal or state legislation or regulation may increase the Company’s expenses and reduce earnings.
Current report — wording carried from elsewhere
The Company, as well as the Bank, operate in an increasingly highly regulated environment and are supervised and examined by various federal and state regulatory agencies who may adversely affect the Company’s ability to conduct business.
Current report — wording carried from elsewhere
The Company and the Bank must maintain adequate regulatory capital to support the Company’s business objectives.
Current report — wording carried from elsewhere
The Company is required to act as a source of financial and managerial strength for the Bank in times of stress.
Current report — wording carried from elsewhere
Non-compliance with the Patriot Act, the BSA or other laws and regulations, like those issued by OFAC, could result in fines or sanctions against the Company.
Current report — wording carried from elsewhere
Risks Relating to the Company’s Securities
Current report — wording carried from elsewhere
The Company’s common stock is thinly traded, and recent prices may not reflect the prices at which the stock would trade in an active trading market.
Current report — wording carried from elsewhere
The Company’s ability to declare and pay dividends is limited.