Southern States Bancshares(SSBK) - 2023 Q4 - Annual Report

Acquisition and Expansion - Southern States Bank is set to acquire Century Bank of Georgia, with the merger expected to close in Q3 2024, subject to regulatory and shareholder approvals[31] - Southern States announced an agreement to acquire Century Bank, focusing on organic growth and acquisitions of financial institutions[143] - Southern States may consider expansion into adjacent markets, but such efforts carry significant risks and costs[142] - The integration of acquired companies may be more difficult, costly, or time-consuming than expected, potentially disrupting business operations[143] - Regulatory approvals are necessary for any new activities and expansion plans, and failure to obtain them may restrict growth[224] - The company may pursue strategic acquisitions, but regulatory approval is required, which could be denied or come with conditions that limit benefits[224] Employee and Ownership Structure - As of December 31, 2023, Southern States Bank had 185 total employees, with 181 classified as full-time[43] - Approximately 25% of employees own stock in the company, reflecting a commitment to employee engagement and ownership[47] Financial Performance and Risks - Southern States' profitability is vulnerable to interest rate fluctuations, which can adversely affect net interest income and margin[124] - Changes in interest rates could materially and adversely affect Southern States' financial condition and results of operations[130] - The allowance for estimated credit losses may not be adequate to cover actual loan losses, potentially impacting Southern States' financial condition and results of operations[139] - Southern States' operations are concentrated in Alabama and the Atlanta and Columbus, Georgia MSAs, making it susceptible to local economic conditions[131] - The company faces risks associated with real estate-based lending, as collateral value may deteriorate during the credit extension period[136] - Liquidity needs may adversely affect Southern States' financial condition, with primary sources being customer deposits, loan repayments, and investment securities[149] - If market interest rates rise, funding costs may increase, potentially reducing net interest margin and income[149] - Southern States' profitability is affected by interest rates, with a steeper yield curve providing better opportunities for net interest income[221] - Increased interest rates may lead to higher funding costs and reduced demand for loans, impacting net interest income[222] Regulatory Compliance and Capital Requirements - The bank maintains a capital surplus equal to at least 20% of its capital, complying with Alabama state regulations[62] - Southern States must maintain adequate capital above regulatory guidelines to avoid restrictions on dividend payments[63] - The minimum capital requirements include a common equity tier 1 capital ratio of 7%, a tier 1 capital ratio of 8.5%, and a total capital ratio of 10.5% when including a 2.5% capital conservation buffer[74] - The Federal Deposit Insurance Act prohibits capital distributions if the depository institution would become undercapitalized[80] - Institutions classified as "well capitalized" must have a total risk-based capital ratio of 10% or greater and a Tier 1 risk-based capital ratio of 8% or greater[78] - The parent bank holding company must guarantee capital restoration plans for undercapitalized bank subsidiaries, up to 5% of the bank's assets[71] - The federal banking agencies require Southern States Bank to maintain a minimum common equity tier 1 capital ratio of 7%, tier 1 capital ratio of 8.5%, and total capital ratio of 10.5% to avoid limits on capital distributions[167] - Southern States may need to raise additional capital in the future due to potential increased minimum capital thresholds established by regulators, which could be dilutive to stockholders[164] Market and Competitive Environment - Southern States operates in a highly competitive environment with significant competition from community banks, large commercial banks, and non-bank financial institutions, which may impact growth and profitability[169] - The financial services industry is experiencing increased competition due to legislative, regulatory, and technological changes, as well as continued consolidation among financial institutions[171] - Southern States may face challenges in investing in technological improvements compared to competitors with greater resources, which could affect its ability to compete effectively[173] Consumer Protection and Compliance - The company must comply with various federal and state consumer protection laws, which can result in significant liability if violated[105] - The USA Patriot Act requires financial institutions to establish anti-money laundering compliance programs, impacting the company's operational requirements[93] - The Bank Merger Act requires regulatory approval for bank mergers and acquisitions, considering factors such as CRA performance and anti-money laundering efforts[97] - Southern States is subject to the Bank Secrecy Act and other anti-money laundering regulations, which could result in significant liability if deficiencies are found[228] - The federal Financial Crimes Enforcement Network (FinCEN) can impose substantial civil money penalties for violations of anti-money laundering requirements[228] - Increased scrutiny from the Office of Foreign Assets Control (OFAC) regarding transactions with certain persons and organizations poses additional compliance risks[228] - Deficiencies in policies and procedures could lead to fines, regulatory actions, and restrictions on dividend payments[228] - Failure to maintain adequate anti-money laundering programs could have serious reputational consequences for Southern States[228] - Regulatory approvals may be necessary for Southern States to proceed with acquisition and business plans if compliance issues arise[228] Financial Reporting and Taxation - The company is classified as an "emerging growth company" and may take advantage of reduced reporting requirements until it ceases to be classified as such, which could occur upon reaching $1.24 billion in annual gross revenues[186] - The company’s financial reporting is subject to FDIC rules, requiring annual management reports on financial statements and internal controls[190] - The company may face increased operating expenses and auditor fees due to the implementation of internal control requirements following its classification change[191] - The Biden Administration's proposed increase of the federal corporate income tax rate from 21% to 28% could adversely affect Southern States' net income[219] Stock and Market Volatility - The market price of Southern States' common stock may be highly volatile, influenced by various factors including operating results, economic conditions, and market perceptions[175] - Future sales of substantial amounts of common stock could adversely affect the market price and impair the ability to raise capital through equity securities[177] - The company has a stock repurchase program authorized for up to $10.0 million through December 31, 2023, which has been extended for another $10.0 million until December 31, 2024[195] - The company’s stock price may be affected by its stock repurchase program, which could increase volatility and diminish cash reserves[196] - The company is subject to regulatory limitations on changes of control, which may discourage significant investments in its common stock[184] - The company’s stock may be less attractive to investors due to its reliance on exemptions provided by the JOBS Act, potentially leading to a less active trading market[189] Operational Risks - The company relies on third-party vendors for data processing services, which poses risks related to cybersecurity and data security[201] - The company’s ability to attract and retain customers may be adversely affected by unauthorized access to confidential information due to cyber threats[201] - Southern States' financial performance is significantly influenced by fiscal and monetary policies, with inflation likely leading to increased operating costs[206] - The company relies on accurate customer information for credit decisions, and any misleading information could adversely affect its financial condition and reputation[208] - Changes in accounting standards could materially impact Southern States' financial statements, potentially requiring revisions or restatements of prior financial results[214]