
Operations and Strategy - Bancshares operates 15 full-service banking offices across Alabama, Tennessee, and Virginia, and conducts indirect lending in 17 states[17]. - The strategy focuses on loan and deposit growth, leveraging branch networks and digital capabilities, with plans for limited branching and potential acquisitions[18]. - The Bank's operations are limited by federal and state statutes, including requirements to maintain reserves against deposits and restrictions on loan types[32]. - The Bank's commercial real estate lending is subject to regulatory guidance to manage concentration risks, especially in challenging economic environments[40]. - The Company’s growth has been driven by strong demand in indirect lending and commercial real estate markets, but economic downturns and competition could limit future profitability[147]. Regulatory Environment - Bancshares is subject to extensive regulation by the Federal Reserve, ASBD, and FDIC, impacting its operations and profitability[26]. - The Dodd-Frank Act imposes restrictions on incentive compensation arrangements to mitigate inappropriate risk-taking by financial institutions[36]. - The CFPB has taken an aggressive regulatory approach, impacting consumer financial products and services, with potential changes under different administrations[35]. - The federal banking regulators proposed revisions to the Basel III Capital Rules in July 2023, which would not apply to the Company or the Bank due to their asset size being below $100 billion[55]. - The Growth Act allows community banks with total assets of less than $10 billion to access a simpler capital regime focused on Tier 1 leverage capital levels[52]. - The final rule to strengthen and modernize CRA regulations will be applicable starting January 1, 2026, with additional requirements on January 1, 2027[60]. - The Corporate Transparency Act requires entities to report beneficial ownership information, effective January 1, 2024, which may increase the Bank's anti-money laundering diligence activities and costs[67]. - Federal bank regulators have updated guidance on overdrafts, requiring banks to limit overdraft fees and monitor accounts to reduce reliance on high-cost credit[70]. - The Sarbanes-Oxley Act established new responsibilities for audit committees and expanded disclosure requirements for corporate insiders to enhance corporate governance[78]. - The GLBA requires financial institutions to maintain a comprehensive written information security program to protect customer information[80]. - The Company is required to notify the Federal Reserve or FDIC within 36 hours of significant computer security incidents that materially disrupt services[89]. - The Cyber Incident Reporting for Critical Infrastructure Act mandates reporting of covered cyber incidents to CISA within 72 hours[90]. - The SEC's amendments require public companies to disclose material cybersecurity incidents and management's role in cybersecurity risk management[91]. - The CFPB proposed a rule to promote "open banking," requiring financial institutions to provide consumers with access to certain transaction and account information[92]. - The Company is facing increased compliance costs and risks due to new climate-related regulations and supervisory expectations from federal banking agencies, particularly affecting institutions with over $100 billion in assets[141]. Financial Performance - Interest income for 2024 was $58,260,000, an increase of 10.3% from $52,806,000 in 2023[183]. - Net interest income decreased slightly to $36,149,000 in 2024 from $37,350,000 in 2023, reflecting a decline of 3.2%[183]. - Net income for 2024 was $8,170,000, down 3.7% from $8,485,000 in 2023[183]. - Total loans increased to $823,039,000 in 2024, compared to $821,791,000 in 2023, a growth of 0.2%[183]. - Total deposits rose to $972,557,000 in 2024, up from $950,191,000 in 2023, representing a 2.3% increase[183]. - The net interest margin for 2024 was 3.59%, down from 3.87% in 2023[183]. - The return on average assets for 2024 was 0.76%, a decrease from 0.82% in 2023[183]. - The common equity tier 1 risk-based capital ratio improved to 11.31% in 2024 from 10.88% in 2023[183]. - The allowance for credit losses on loans was $10,184,000 in 2024, slightly down from $10,507,000 in 2023[183]. - Non-interest income totaled $3.6 million in 2024, an increase from $3.4 million in 2023, driven by increases in lease income and other revenue sources[215]. Dividend and Shareholder Information - Bancshares declared total dividends of $0.22 per common share for the year ended December 31, 2024, compared to $0.20 per common share for 2023[175]. - The ability to pay dividends is subject to the Bank's operational results and regulatory restrictions, with no assurance of future dividend payments[148]. - The company expects to continue paying comparable cash dividends in the future, subject to operational results and regulatory requirements[175]. - A total of 40,691 shares were repurchased during the fourth quarter of 2024 at an average price of $12.66 per share[177]. - As of December 31, 2024, Bancshares was authorized to repurchase up to 912,813 shares of common stock under its share repurchase program[178]. - The Board of Directors authorized an additional 600,000 shares for repurchase in November 2024, extending the program expiration to December 31, 2025[178]. Risk Factors - The company faces liquidity risk, which could disrupt its ability to meet financial obligations, including demand for loans and deposit withdrawals[107]. - Economic conditions in the U.S. and local markets are sensitive to inflation and interest rates, which could constrain growth and profitability[110]. - The banking industry is highly competitive, with many competitors having greater resources and fewer regulatory constraints, which could affect market share[113][114]. - Rapid changes in market interest rates may adversely affect profitability, particularly net interest income[115]. - The Federal Reserve's interest rate increases have reached a 22-year high, creating challenges in balancing loan and deposit portfolios[116]. - A potential government shutdown could adversely affect the economy and the company's liquidity and earnings[119]. - The reliance on third-party vendors for data processing exposes the company to risks of operational interruptions and cybersecurity breaches, which could adversely affect financial results[125]. - The development and use of Artificial Intelligence (AI) present legal and regulatory challenges that could increase compliance costs and expose the company to liability[127]. - Changes in the regulatory landscape due to new administration could impact the company's performance and operational results[130]. - The company must comply with privacy and data protection laws, and any violations could lead to significant liabilities and reputational damage[131]. - Noncompliance with anti-money laundering regulations could result in significant penalties and restrictions on business operations[134]. - The company faces risks related to consumer protection laws, and failure to comply could lead to sanctions and adversely affect financial condition[135]. Cybersecurity - Cybersecurity is a critical focus area, with established processes for risk management and incident response, although no material incidents have occurred to date[164]. - The cybersecurity risk management process is overseen by senior management with over 90 years of collective experience in information security[167]. - The Company has a total of $293.3 million in commercial real estate (CRE) loans, representing 35.6% of its total loan portfolio as of December 31, 2024[105]. - The federal banking agencies have increased scrutiny on institutions with fast-growing CRE loan portfolios due to concerns about market weaknesses[105]. - The Company is implementing enhanced risk management policies for its growing CRE loan portfolio[105].