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| PART I |
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| Item 1. | Business | 5 |
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| Item 1A. | Risk Factors | 22 |
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| Item 1B. | Unresolved Staff Comments | 39 |
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| Item 1C. | Cybersecurity | 39 |
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| Item 2. | Properties | 41 |
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| Item 3. | Legal Proceedings | 41 |
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| Item 4. | Mine Safety Disclosures | 41 |
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| PART II |
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| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 41 |
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| Item 6. | [Reserved] | 43 |
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| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 44 |
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| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk | 69 |
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| Item 8. | Financial Statements and Supplementary Data | 69 |
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| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 137 |
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| Item 9A. | Controls and Procedures | 137 |
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| Item 9B. | Other Information | 139 |
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| PART III |
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| Item 10. | Directors, Executive Officers and Corporate Governance | 139 |
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| Item 11. | Executive Compensation | 145 |
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| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 162 |
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| Item 13. | Certain Relationships and Related Transactions, and Director Independence | 164 |
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| Item 14. | Principal Accounting Fees and Services | 165 |
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| PART IV |
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| Item 15. | Exhibits and Financial Statement Schedules | 168 |
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CAUTIONARY NOTE
REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains statements about future expectations, activities and events that constitute forward-looking statements within the meaning of, and subject to the protection of, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act and are intended to be covered by the safe harbor provided by the same. Forward-looking statements are not historical facts and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. The words “believe,” “may,” “forecast,” “should,” “anticipate,” “contemplate,” “estimate,” “expect,” “project,” “predict,” “intend,” “continue,” “would,” “could,” “hope,” “might,” “assume,” “objective,” “seek,” “plan,” “strive” or similar words, or the negatives of these words, identify forward-looking statements.
Forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the expectations of future results we express or imply in any forward-looking statements. In addition to the other factors discussed in the “Risk Factors” section of this Annual Report on Form 10-K, factors that could contribute to those differences include, but are not limited to:
| ● | the effects of future economic, business and market conditions and disruptions in the credit and financial markets, domestic and foreign; |
| ● | potential increases in the provision for credit losses and other general competitive, economic, political, and market factors, including those affecting our business, operations, pricing, products, or services; |
| ● | fraudulent and negligent acts by loan applicants, mortgage brokers and our employees; |
| ● | our ability to recover certain losses related to fraudulent loans under the Company's insurance policies and to successfully complete the claims process and minimize the financial impact of these loans; |
| ● | our ability to implement our various strategic and growth initiatives, including our Panacea Financial Division, digital banking platform, V1BE fulfillment service and Primis Mortgage Company as well as our cost saving project to reduce administrative and branch expenses; |
| ● | adverse results from current or future litigation, regulatory examinations or other legal and/or regulatory actions; |
| ● | changes in the local economies in our market areas which adversely affect our customers and their ability to transact profitable business with us, including the ability of our borrowers to repay their loans according to their terms or a change in the value of the related collateral; |
| ● | changes in interest rates, inflation, stagflation, loan demand, real estate values, or competition, as well as labor shortages, supply chain disruptions, the threat of recession and volatile equity capital markets; |
| ● | changes in the availability of funds resulting in increased costs or reduced liquidity, as well as the adequacy of our cash flow from operations and borrowings to meet our short-term liquidity needs; |
| ● | a deterioration or downgrade in the credit quality and credit agency ratings of the investment securities in our investment securities portfolio; |
| ● | impairment concerns and risks related to our investment securities portfolio of collateralized mortgage obligations, agency mortgage-backed securities and obligations of states and political subdivisions; |
| ● | the incurrence and impairment of goodwill associated with current or future acquisitions and adverse short-term effects on our results of operations; |
| ● | increased credit risk in our assets and increased operating risk caused by a material change in commercial, consumer and/or real estate loans as a percentage of our total loan portfolio, including as a result of rising or elevated interest rates, inflation and recessionary concerns; |
| ● | the concentration of our loan portfolio in loans collateralized by real estate; |
| ● | our level of construction and land development and commercial real estate loans; |
| ● | risk related to a third-party’s ability to satisfy its contractual obligation to reimburse us for waived interest on loans with promotional features that pay off early; |
| ● | our ability to identify and address potential cybersecurity risks on our systems and/or third party vendors and service providers on which we rely, heightened by the developments in generative artificial intelligence and increased use of our virtual private network platform, including data security breaches, credential stuffing, malware, “denial-of-service” attacks, “hacking” and identity theft, a failure of which could disrupt our business and result in the disclosure of and/or misuse or misappropriation of confidential or proprietary information, disruption or damage to our systems, increased costs, losses, or adverse effects to our reputation; |
| ● | changes in the levels of loan prepayments and the resulting effects on the value of our loan portfolio; |
| ● | the failure of assumptions and estimates underlying the establishment of and provisions made for credit losses; |
| ● | our ability to expand and grow our business and operations, including the acquisition of additional banks, and our ability to realize the cost savings and revenue enhancements we expect from such activities; |
| ● | government intervention in the U.S. financial system, including the effects of legislative, tax, accounting and regulatory actions and reforms, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Jumpstart Our Business Startups Act, the Consumer Financial Protection Bureau, the capital ratios of Basel III as adopted by the federal banking authorities, the Tax Cuts and Jobs Act of 2017 and the CARES Act, as well as the possibility that the U.S. could default on its debt obligations and the risk of inflation and interest rate increases resulting from monetary and fiscal stimulus response, which may have unanticipated adverse effects on our customers, and our financial condition and results of operations; |
| ● | uncertainties surrounding geopolitical events, trade policy, taxation policy, and monetary policy which continue to impact the outlook for future economic growth, including U.S. imposition of tariffs against Mexico, Canada, and China and consideration of responsive actions by these nations or the expansion of import fees and tariffs among a larger group of nations, which is bringing greater ambiguity to the outlook for future economic growth; |
| ● | the potential implementation of a regulatory reform agenda under the new presidential administration that is significantly different than that of the prior administration, impacting rulemaking, supervision, examination and enforcement priorities of the federal banking agencies; |
| ● | increased competition for deposits and loans adversely affecting rates and terms; |
| ● | the continued service of key management personnel; |
| ● | the potential payment of interest on demand deposit accounts to effectively compete for customers; |
| ● | potential environmental liability risk associated with properties that we assume upon foreclosure; |
| ● | increased asset levels and changes in the composition of assets and the resulting impact on our capital levels and regulatory capital ratios; |
| ● | risks of current or future mergers and acquisitions, including the related time and cost of implementing transactions and the potential failure to achieve expected gains, revenue growth or expense savings; |
| ● | increases in regulatory capital requirements for banking organizations generally, which may adversely affect our ability to expand our business or could cause us to shrink our business; |
| ● | acts of God or of war or other conflicts, civil unrest, acts of terrorism, pandemics or other catastrophic events that may affect general economic conditions; |
| ● | changes in accounting policies, rules and practices and applications or determinations made thereunder; |
| ● | any inability or failure to implement and maintain effective internal control over financial reporting and/or disclosure control or inability to remediate our existing material weaknesses in our internal controls deemed ineffective; |
| ● | failure to maintain effective internal controls and procedures, including the ability to remediate identified material weaknesses in internal control over financial reporting expediently; |
| ● | the risk that our deferred tax assets could be reduced if future taxable income is less than currently estimated, if corporate tax rates in the future are less than current rates, or if sales of our capital stock trigger limitations on the amount of net operating loss carryforwards that we may utilize for income tax purposes; |
| ● | our ability to attract and retain qualified employees, including as a result of heightened labor shortages; |
| ● | risks related to diversity, equity and inclusion (“DEI”) and environmental, social and governance (“ESG”) strategies and initiatives, the scope and pace of which could alter our reputation and shareholder, associate, customer and third-party affiliations or result in litigation in connection with anti-DEI and anti-ESG laws, rules or activism; |
| ● | our ability to de-consolidate Panacea Financial Holdings, Inc. (“PFH”) and recognize gains on our investment in PFH common stock as a result of de-consolidation; |
| ● | negative publicity and the impact on our reputation; |
| ● | our ability to realize the value of derivative assets that are recorded at fair value due to changes in fair value driven by actual results being materially different than our assumptions; |
| ● | our ability to grow the mortgage warehouse business and achievement of certain margin results; and |
| ● | other factors and risks described under “Risk Factors” herein and in any of the reports that we file with the Securities and Exchange Commission (the “Commission” or “SEC”) under the Exchange Act. |
Forward-looking statements are not guarantees of performance or results and should not be relied upon as representing management’s views as of any subsequent date. A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe we have chosen these assumptions or bases in good faith and that they are reasonable. We caution you, however, that assumptions or bases almost always vary from actual results, and the differences between assumptions or bases and actual results can be material. When considering forward-looking statements, you should refer to the risk factors and other cautionary statements in this Annual Report on Form 10-K and in our periodic and current reports filed with the SEC for specific factors that could cause our actual results to be different from those expressed or implied by our forward-looking statements. These statements speak only as of the date of this Annual Report on Form 10-K (or an earlier date to the extent applicable). Except as required by applicable law, we undertake no obligation to update publicly these statements in light of new information or future events.
