What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-03-12 compared with 2024-03-25 · 231 added, 201 removed, 447 unchanged (49% of the section changed)

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deposits held by our subsidiary, Bank7.

We measure our performance by our return on average assets, return on average equity, earnings per share, capital ratios, and efficiency ratio, which is calculated by dividing noninterest expense by the sum

of net interest income on a tax equivalent basis and noninterest income.

sum of net interest income on a tax equivalent basis and noninterest income.

As of December 31, 2024, we had total assets of $1.74 billion, total loans of $1.40 billion, total deposits of $1.52 billion and total shareholders’ equity of $213.2 million.

economy experienced widespread volatility throughout 2020 and 2021 as a result of the COVID-19 pandemic and government responses to the pandemic.

Economic condition declined rapidly and

significantly following the initial widespread U.S.

condition declined rapidly and significantly following the initial widespread U.S.

outbreak in March and April of 2020.

Federal stimulus was quickly passed in the form of the CARES Act and the economy rebounded significantly in the second half of

In an emergency measure

aimed at dampening the economic impact of COVID-19, the Federal Reserve lowered the target for the federal funds rate to a range of between zero to 0.25% effective on March 16, 2020 where it remained through the end of 2020.

This action by the

Federal Reserve followed a prior reduction of the targeted federal funds rates to a range of 1.0% to 1.25% effective March 4, 2020.

As the pandemic eased through 2021 and inflation increased, the Federal Reserve aggressively raised the federal

funds target rate to 4.25-4.50% by the end of 2022 and to 5.25%-5.50% by the end of 2023.

These actions positively impacted growth in net interest income in for 2023 and 2022, but the higher rates could negatively impact loan customers in a

slowing economy.

In an emergency measure aimed at dampening the economic impact of COVID-19, the Federal Reserve lowered the target for the federal funds rate to a range of between zero to 0.25% effective on March 16, 2020 where it remained through the end

This action by the Federal Reserve followed a prior reduction of the targeted federal funds rates to a range of 1.0% to 1.25% effective March 4, 2020.

As the pandemic eased through 2021 and inflation increased, the Federal Reserve

aggressively raised the federal funds target rate to 4.25-4.50% by the end of 2022 and to 5.25%-5.50% by the end of 2023.

In 2024, the Federal Reserve began to adjust monetary policy, ultimately lowering the federal funds rate three times,

ending the year with a target range of 4.25% to 4.5%.

These monetary policy actions, along with the impact of the elevated interest rate environment experienced earlier in 2024, influenced our net interest income and credit quality throughout the

2024 Overview

We reported total loans of $1.40 billion as of December 31, 2024, an increase of $36.5 million, or 2.7%, from December 31, 2023.

Total deposits were $1.59 billion as of December 31, 2023, an increase

Total deposits were $1.52 billion as of December 31, 2024, a decrease

of $75.9 million, or 4.8%, from December 31, 2023.

Pre-tax net income was $37.2 million, a decrease of $2.0 million, or 5.2%, for the year ended December 31, 2023 as compared to pre-tax net income of $39.3 million for the same period in 2022.

Pre-tax net income was $60.4 million, an increase of $23.1 million, or 62.1%, for the year ended December 31, 2024 as compared to pre-tax net income of $37.2 million for the same period in 2023.

Pre-tax return on average assets and return on average equity was 3.50% and 31.41%, respectively, for the year ended December 31, 2024, as compared to 2.21% and 23.47%, respectively, for the same

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Tax-adjusted return on average assets and return on average equity was 2.65% and 23.78%, respectively, for the year ended December 31, 2024, as compared to 1.68% and 17.83%, respectively, for the same period in 2023.

Our efficiency

ratio for the year ended December 31, 2023 was 36.07% as compared to 39.29% for the same period in 2022.

The provision for credit losses for the year ended December 31, 2023 increased $16.7 million, or 373.5%, from $4.5 million compared to the same period in 2022.

During the year ended December 31, 2023, we had a single loan customer file for bankruptcy, and as a result, we recorded a charge-off of $16.5 million, increased nonaccrual loans by $18.4 million, and

recorded an additional specific reserve to the allowance for credit losses and provision for loan losses of $2.0 million.

See Note (6) of the financial statements for further disclosure and discussion.

efficiency ratio for the year ended December 31, 2024 was 37.90% as compared to 36.07% for the same period in 2023.

The provision for credit losses for the year ended December 31, 2024 decreased $21.1 million, or 100%, from $21.1 million compared to the same period in 2023.

provision expense for the year ended December 31, 2023 was related to loan growth in the first quarter of 2023, the impact of updated economic assumptions, and we had a single loan customer that filed for bankruptcy, and as a result, we recorded

a charge-off of $16.5 million, increased nonaccrual loans by $18.4 million, and recorded an additional specific reserve to the allowance for credit losses and provision for loan losses of $2.0 million.

See Note (6) of the financial statements

for further disclosure and discussion.

Results of Operations

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Average loan balances include monthly average nonaccrual loans of $12.4 million, $18.8 million and $8.8 million for the years ended December 31, 2024, 2023 and 2022, respectively.

We continued to experience strong asset growth for the year ended December 31, 2023 compared to the year ended December 31, 2022:

For the year ended December 31, 2024 compared to the year ended December 31, 2023:

Total interest income on loans increased $9.6 million, or 8.7%, to $119.4 million, which was attributable to a $76.0 million increase in the average balance of loans to $1.39 billion during the year ended

2024 as compared with the average balance of loans of $1.32 billion for the year ended 2023, and increased loan yields as discussed below;

Yields on our interest-earning assets totaled 7.31%, an increase of 185 basis points which was attributable to higher loan rates of 184 basis points, an increase in yield on short term investments of 362

basis points, and an increase in yield on taxable debt securities of 25 basis points;

Yields on our interest-earning assets totaled 7.79%, an increase of 48 basis points which was attributable to higher loan rates of 21 basis points, an increase in yield on short term investments of 13 basis

points, and an increase in yield on taxable debt securities of 96 basis points;

Net interest margin for the years ended 2024 and 2023 was 5.11% and 4.97%, respectively.

We experienced strong asset growth for the year ended December 31, 2023 compared to the year ended December 31, 2022:

Total interest income on loans increased $18.6 million, or 33.4%, to $74.4 million, which was attributable to a $237.6 million increase in the average balance of loans to $1.14 billion during the year ended

2022 as compared with the average balance of $905.8 million for the year ended 2021;

Yields on our interest-earning assets totaled 5.46%, an increase of 4 basis points which was attributable to higher loan rates of 35 basis points, an increase in yield on short term investments of 104 basis

points, and a decrease in yield on taxable debt securities of 225 basis points;

Total interest income on loans increased $35.4 million, or 47.6%, to $109.8 million, which was attributable to a $172.2 million increase in the average balance of loans to $1.32 billion during the year

ended 2023 as compared with the average balance of $1.14 billion for the year ended 2022, and increased loan yields as discussed below;

basis points, and an increase in yield on taxable debt securities of 25 basis points;

Net interest margin for the years ended 2023 and 2022 was 4.97% and 4.82%, respectively.

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For the three-year period between January 1, 2022 and December 31, 2024, the prime rate fluctuated between a high of 8.50%, and a low of 3.25%.

Interest income on short-term investments increased $740,000, or 8.6%, to $9.3 million for year ended December 31, 2024 compared to 2023, due to an increase in the average balances of $9.7 million,

or 5.6% and a yield increase of 13 basis points.

Interest income on short-term investments increased $6.9 million, or 412.9%, to $8.6 million for year ended December 31, 2023 compared to 2022, due to an increase in the average balances of $45.0

million, or 34.7% and a yield increase of 362 basis points.

Interest income on short-term investments increased $1.5 million, or 839.9%, to $1.7 million for year ended December 31, 2022 compared to 2021, due to yield increase of 104 basis points.

Interest expense on interest-bearing deposits totaled $45.3 million for the year ended December 31, 2024, compared to $39.0 million for 2023, an increase of $6.3 million, or 16.3%.

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December 31, 2023, compared to $9.3 million for 2022, an increase of $29.7 million, or 318.3%.

The increase was related to the cost of interest-bearing deposits increasing to 1.05% for the year ended December 31, 2022 from 0.48% for the year ended

December 31, 2021.

The increase was related to the cost of interest-bearing deposits increasing to 3.60% for the year ended December 31, 2023 from 1.05% for the year

ended December 31, 2022.

Net interest margin for the years ended December 31, 2024, 2023 and 2022 was 5.11%, 4.97% and 4.82%, respectively.

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For the Year Ended

December 31, 2023 vs 2022

For the Year Ended

December 31, 2024 vs 2023

December 31, 2023 vs 2022

Change due to:

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Increase (Decrease) in net interest income

Variances attributable to both volume and rate are allocated on a consistent basis between rate and volume based on the absolute value of the variances in each category.

(1) Variances attributable to both volume and rate are allocated on a consistent basis between rate and volume based on the absolute value of the variances

in each category.

Weighted Average Yield of Debt Securities

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securities at their expected maturities, which may differ from contractual maturities.

The Company manages its debt securities portfolio for liquidity, as a tool to execute its asset/liability management strategy, and for pledging requirements for

public funds:

The Company manages its debt securities portfolio for liquidity, as a tool to execute its asset/liability management strategy, and for pledging requirements

for public funds:

As of December 31, 2024

Within One Year

After One Year But

Within Five Years

After Five Years But

Within One Year

Within Five Years

Within Ten Years

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For the year ended December 31, 2024 compared to the year ended December 31, 2023:

The provision for credit losses increased from $4.5 million to $21.1 million;

The allowance as a percentage of loans increased by 29 basis points to 1.44%.

Increases are related to the single loan customer discussed in the 2023 Overview.

The provision for credit losses decreased from $21.1 million to $0;

The allowance as a percentage of loans decreased by 16 basis points to 1.28%.

Decreases are related to the single loan customer discussed in the 2024 Overview.

For the year ended December 31, 2023 compared to the year ended December 31, 2022:

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The allowance as a percentage of loans increased by 29 basis points to 1.44%.

Increases are related to the single loan customer discussed in the 2024 Overview.

Noninterest Income

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Mortgage lending income

Gain (Loss) on sales, prepayments, and calls

of available-for-sale debt securities

Gain (Loss) on sales, prepayments, and calls of available-for-sale debt securities

Service charges on deposit accounts

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acquired during the fourth quarter of 2023, see Note 2 of the financial statements.

For the year ended December 31, 2023 compared to the year ended December 31, 2022:

Other noninterest income was $8.1 million compared to $1.7 million, an increase of $6.4 million, or 380%.

The increase was primarily attributable to income related to the operation of oil and gas assets

acquired during the fourth quarter of 2023, see Note 2 of the financial statements.

Noninterest Expense

Noninterest expense for the year ended December 31, 2024 was $37.1 million compared to $33.4 million for the year ended December 31, 2023, an increase of $3.7 million or 11.0%.

Noninterest expense for

the year ended December 31, 2022 was $28.6 million compared to $20.4 million for the year ended December 31, 2021, an increase of $8.2 million or 40.4%.

The following table sets forth the major components of our noninterest expense for the years

ended December 31, 2023, 2022 and 2021:

Noninterest expense

for the year ended December 31, 2023 was $33.4 million compared to $28.6 million for the year ended December 31, 2022, an increase of $4.8 million or 16.7%.

The following table sets forth the major components of our noninterest expense for the

years ended December 31, 2024, 2023 and 2022:

For the Years Ended

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For the year ended December 31, 2024 compared to the year ended December 31, 2023:

Salaries and employee benefits expense was $20.8 million compared to $17.4 million, an increase of $3.4 million, or 19.6%.

The increase was primarily attributable to overall increases in compensation due to

the performance of the Company and to remain competitive.

For the year ended December 31, 2023 compared to the year ended December 31, 2022:

Other expense was $7.7 million compared to $2.6 million, an increase of $5.2 million, or 200%.

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during the fourth quarter of 2023, see Note 2 of the financial statements.

For the year ended December 31, 2022 compared to the year ended December 31, 2021:

Salaries and employee benefits expense was $17.0 million compared to $12.0 million, an increase of $5.1 million, or 42.2%.

The increase was attributable to overall increases in compensation to remain

competitive, and due to our acquisition of Cornerstone Bank in late 2021, which increased employee headcount.

Financial Condition

The following discussion of our financial condition compares December 31, 2024, 2023, and 2022.

Total assets increased $187.5 million, or 11.8%, to $1.77 billion as of December 31, 2023, as compared to $1.58 billion as of December 31, 2022 and $1.35 billion as of December 31, 2021.

Total assets decreased $31.9 million, or 1.8%, to $1.74 billion as of December 31, 2024, as compared to $1.77 billion as of December 31, 2023 and $1.58 billion as of December 31, 2022.

Loan Portfolio

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We have established internal concentration limits in the loan portfolio for CRE loans, hospitality loans, energy loans, and construction loans, among others.

All loan types are within our established

All loan types are within our

established limits.

We use underwriting guidelines to assess each borrower’s historical cash flow to determine debt service, and we further stress test the debt service under higher interest rate scenarios.

Financial and performance covenants are used in

commercial lending to allow us to react to a borrower’s deteriorating financial condition, should that occur.

Financial and performance covenants are

used in commercial lending to allow us to react to a borrower’s deteriorating financial condition, should that occur.

Discussion of credit risk as it relates to commercial lending, which is primarily comprised of hospitality and energy loans, is

discussed under Item 1A.

Risk Factors.

The following tables show the contractual maturities of our gross loans as of the periods below:

As of December 31, 2024

Due in One Year or Less

Due after One Year

Through Five Years

Due after Five Years

Due in One Year or Less

Through Five Years

Through Fifteen Years

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As of December 31, 2023

Due in One Year or Less

Due after One Year

Through Five Years

Due after Five Years

Due in One Year or Less

Through Five Years

Through Fifteen Years

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As of December 31, 2022

Due in One Year or Less

Due after One Year

Through Five Years

Due after Five Years

Due in One Year or Less

Through Five Years

Through Fifteen Years

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Allowance for Credit Losses

The allowance is based on management’s estimate of probable losses inherent in the loan portfolio.

In the opinion of management, the allowance is adequate to absorb estimated losses in the portfolio

as of each balance sheet date.

The allowance is based on management’s estimate of probable losses in the loan portfolio.

In the opinion of management, the allowance is adequate to absorb estimated losses in the portfolio as of

each balance sheet date.

While management uses available information to analyze losses on loans, future additions to the allowance may be necessary based on changes in economic conditions.

In addition, various regulatory agencies, as an

integral part of their examination process, periodically review the Company’s allowance.

In analyzing the adequacy of the allowance, a comprehensive loan grading system to determine risk potential in loans is utilized together with the results of

internal credit reviews.

In addition, various regulatory agencies, as an integral

part of their examination process, periodically review the Company’s allowance.

In analyzing the adequacy of the allowance, a comprehensive loan grading system to determine risk potential in loans is utilized together with the results of internal

credit reviews.

To determine the adequacy of the allowance, the loan portfolio is broken into segments based on loan type.

Historical loss experience factors by segment, adjusted for changes in trends and conditions,

are used to determine an indicated allowance for each portfolio segment.

Historical loss experience factors by segment, adjusted for changes in trends and

conditions, are used to determine an indicated allowance for each portfolio segment.

These factors are evaluated and updated based on the composition of the specific loan segment.

Other considerations include volumes and trends of delinquencies, nonaccrual

loans, levels of bankruptcies, criticized and classified loan trends, expected losses on real estate secured loans, new credit products and policies, economic conditions, concentrations of credit risk and the experience and abilities of our lending

In addition to the segment evaluations, impaired loans with a balance of $250,000 or more are individually evaluated based on facts and circumstances of the loan to determine if a specific allowance amount may be necessary.

allowances may also be established for loans whose outstanding balances are below the $250,000 threshold when it is determined that the risk associated with the loan differs significantly from the risk factor amounts established for its loan

Other considerations include volumes and trends of delinquencies,

nonaccrual loans, levels of bankruptcies, criticized and classified loan trends, expected losses on real estate secured loans, new credit products and policies, economic conditions, concentrations of credit risk and the experience and abilities

of our lending personnel.

Specific allowances may also be established for loans whose outstanding balances are below the $250,000 threshold when it is determined that the risk associated with the loan differs significantly from the risk factor amounts

established for its loan segment.

The allowance was $17.9 million at December 31, 2024, $19.7 million at December 31, 2023 and $14.7 million at December 31, 2022.

The increasing trend was related to loan growth and the single loan

customer discussed in the 2023 Overview.

See the 2024 Overview for the

discussion of the decrease in allowance in 2024.

The following table provides an analysis of the activity in our allowance for the periods indicated:

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Net recoveries (charge-offs) to average loans

While the entire allowance is available to absorb losses from any and all loans, the following table represents management’s allocation of the allowance by loan category, and the percentage of

allowance in each category, for the periods indicated:

While the entire allowance is available to absorb losses from any and all loans, the following table represents management’s allocation of the allowance by loan category, and the percentage

of allowance in each category, for the periods indicated:

As of December 31,

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Delinquent loans may remain on accrual status between 30 days and 90 days past due.

Loans on which the

accrual of interest has been discontinued are designated as nonaccrual loans.

Typically, the accrual of interest on loans is discontinued when principal or interest payments are past due 90 days or when, in the opinion of management, there is a

reasonable doubt as to collectability of the obligation.

which the accrual of interest has been discontinued are designated as nonaccrual loans.

Typically, the accrual of interest on loans is discontinued when principal or interest payments are past due 90 days or when, in the opinion of management,

there is a reasonable doubt as to collectability of the obligation.

When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income.

Income on a nonaccrual loan is subsequently

recognized only to the extent that cash is received and the loan’s principal balance is deemed collectible.

Loans are restored to accrual status when loans become well-secured and management believes full collectability of principal and interest is

A loan is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement.

Impaired loans include loans on nonaccrual

status and loans modified in a troubled debt restructuring, or TDR.

Income from a loan on nonaccrual status is recognized to the extent cash is received and when the loan’s principal balance is deemed collectible.

Depending on a particular loan’s

circumstances, we measure impairment of a loan based upon either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral less

estimated costs to sell if the loan is collateral dependent.

A loan is considered collateral dependent when repayment of the loan is based solely on the liquidation of the collateral.

Fair value, where possible, is determined by independent

appraisals, typically on an annual basis.

Between appraisal periods, the fair value may be adjusted based on specific events, such as if deterioration of quality of the collateral comes to our attention as part of our problem loan monitoring

process, or if discussions with the borrower lead us to believe the last appraised value no longer reflects the actual market for the collateral.

The impairment amount on a collateral dependent loan is charged off to the allowance if deemed not

collectible and the impairment amount on a loan that is not collateral dependent is set up as a specific reserve.

Real estate we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned, or OREO, until sold, and is initially recorded at fair value less costs to

sell when acquired, establishing a new cost basis.

Income on a nonaccrual loan is

subsequently recognized only to the extent that cash is received and the loan’s principal balance is deemed collectible.

Loans are restored to accrual status when loans become well-secured and management believes full collectability of

principal and interest is probable.

Loans are evaluated for expected credit losses over their contractual term, reflecting management’s current estimate.

Loans placed on nonaccrual status and loan modifications granted to

borrowers experiencing financial difficulty are considered to have elevated credit risk and are carefully considered within our current expected credit loss methodology.

Income from loans placed on nonaccrual status continues to be recognized

to the extent cash is received and when the collectability of the loan’s principal balance is reasonably assured.

Depending on a particular loan’s risk characteristics, we estimate expected credit losses using methods such as present value of

expected future cash flows discounted at the loan’s effective interest rate, observable market prices for similar assets if available, or the fair value of collateral less estimated costs to sell for collateral-dependent loans.

considered collateral-dependent when the expected source of repayment is primarily the liquidation of the collateral.

Fair value, where utilized, is determined by independent appraisals, typically on an annual basis.

Between appraisal periods,

the estimated fair value may be adjusted based on specific events, such as identified deterioration of collateral quality through our credit risk monitoring, or discussions with the borrower indicating the appraised value may no longer reflect

current market conditions.

The estimated credit losses are recognized as an allowance for credit losses, which is a valuation account.

Changes in the allowance for credit losses, whether increases or decreases, are recorded in current period

earnings as provision for credit losses.

Real estate we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned, or OREO, until sold, and is initially recorded at fair value less

costs to sell when acquired, establishing a new cost basis.

Nonperforming loans include nonaccrual loans and loans past due 90 days or more and still accruing interest.

Nonperforming assets consist of nonperforming loans plus OREO.

Loans accounted for on a

nonaccrual basis were $21.2 million as of December 31, 2023, $8.0 million as of December 31, 2022 and $9.9 million as of December 31, 2021.

OREO was $0 as of December 31, 2023, December 31, 2022 and December 31, 2021.

Loans accounted for

on a nonaccrual basis were $7.2 million as of December 31, 2024, $18.9 million as of December 31, 2023 and $8.0 million as of December 31, 2022.

OREO was $321,000, $0, and $0 as of December 31, 2024, December 31, 2023, and December 31, 2022,

respectively.

The following table presents information regarding nonperforming assets as of the dates indicated.

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Ratio of nonperforming assets to total assets

(1) Includes $10.12 million of loans modified to borrowers experiencing financial difficulty, see Note 6 of the financial statements.

(1) Included in the nonaccrual loans balance are $0 and $10.12 million of loans modified to borrowers experiencing financial difficulty as of December 31,

2024 and December 31, 2023, respectively.

See Note 6 of the financial statements.

The following tables present an aging analysis of loans as of the dates indicated.

As of December 31, 2024

Total past due

(Dollars in thousands)

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1-4 family real estate

Commercial real estate

Commercial real estate - other

Commercial & industrial

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1-4 family real estate

Commercial real estate

Commercial real estate - other

Commercial & industrial

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In addition to the past due and nonaccrual criteria, the Company also evaluates loans according to its internal risk grading system.

Loans are segregated between pass, watch, special mention, and

substandard categories.

Loans are segregated between pass, watch, special mention,

and substandard categories.

The definitions of those categories are as follows:

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These loans have observable weaknesses or evidence imprudent handling or structural issues.

The weaknesses require close attention, and the

remediation of those weaknesses is necessary.

The weaknesses require close attention, and

the remediation of those weaknesses is necessary.

No risk of probable loss exists.

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defined weaknesses relative to cash flow, collateral, financial condition or other factors that might jeopardize repayment of all of the principal and interest on a timely basis.

There is the possibility that a future loss will occur if weaknesses

are not remediated.

Substandard loans totaled $31.1 million as of December 31, 2023, an increase of $10.1 million compared to December 31, 2022.

Substandard loans totaled $21.0 million as of December 31, 2022, a decrease

of $3.7 million compared to December 31, 2021.

The total net increase in 2023 as compared to 2022, is comprised of a net increase in commercial and industrial substandard loans primarily related to an increase in one relationship comprised of three

notes totaling $18.4 million with a $2.0 million specific reserve and a decrease in one relationship comprised of one note totaling $6.6 million with no specific reserve, and a net decrease in commercial real estate substandard loans primarily

related to one relationship comprised of one note totaling $1.2 million with no specific reserves.

There is the possibility that a future loss will occur if

weaknesses are not remediated.

Substandard loans totaled $15.2 million as of December 31, 2024, a decrease of $15.9 million compared to December 31, 2023.

Substandard loans totaled $31.1 million as of December 31, 2023, an

increase of $10.1 million compared to December 31, 2022.

The total net decrease in substandard loans in 2024 as compared to 2023, is comprised of a net decrease in commercial and industrial substandard loans primarily related to a decrease in

one relationship comprised of three notes totaling $18.4 million with a $2.0 million specific reserve, and a net increase in commercial real estate primarily related to two relationships comprised of one note totaling $3.0 million with a $0.2

million specific reserve, and one note totaling $1.45 million with no specific reserve.

Outstanding loan balances categorized by internal risk grades as of the periods indicated are summarized as follows:

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We gather deposits primarily through our twelve branch locations and online though our website.

We offer a variety of deposit products including demand deposit accounts and interest-bearing products,

such as savings accounts and certificates of deposit.

We put continued effort into gathering noninterest-bearing demand deposit accounts through loan production cross-selling, customer referrals, marketing efforts and various involvement with

community networks.

We offer a variety of deposit products including demand deposit accounts and interest-bearing

products, such as savings accounts and certificates of deposit.

We put continued effort into gathering noninterest-bearing demand deposit accounts through loan production cross-selling, customer referrals, marketing efforts and various

involvement with community networks.

Some of our interest-bearing deposits were obtained through brokered transactions.

We participate in the CDARS program, where customer funds are placed into multiple certificates of deposit, each in an amount under the standard

FDIC insurance maximum of $250,000, and placed at a network of banks across the United States.

We also participate in the One-Way Buy Insured Cash Sweep service and similar services, which provide for one-way buy transactions among banks for the

purpose of purchasing cost-effective floating-rate funding without collateralization or stock purchase requirements.

We participate in the CDARS program, where customer funds are placed into multiple certificates of deposit, each in an

amount under the standard FDIC insurance maximum of $250,000, and placed at a network of banks across the United States.

We also participate in the One-Way Buy Insured Cash Sweep service and similar services, which provide for one-way buy

transactions among banks for the purpose of purchasing cost-effective floating-rate funding without collateralization or stock purchase requirements.

As of December 31, 2024, 2023, and 2022 brokered deposits were $336.7 million, $273.5 million, and $249.9 million, respectively.

Uninsured deposits are defined as the portion of deposit accounts in U.S.

offices that exceed the FDIC insurance limit and amounts in any other uninsured investment or deposit account that are

classified as deposits and are not subject to any federal or state deposit insurance regimes.

Total uninsured deposits were $354.2 million and $448.7 million at December 31, 2024 and December 31, 2023, respectively, as calculated per regulatory

This was approximately 23.4% and 28.2% of deposits at December 31, 2024 and December 31, 2023, respectively.

Total deposits as of December 31, 2024, 2023, and 2022 were $1.52 billion, $1.59 billion and $1.43 billion, respectively.

The increase was primarily due to acquired deposits and organic deposit

The following table sets forth deposit balances by certain categories as of the dates indicated and the percentage of each deposit category to total deposits.

For the Year Ended December 31,

The following table sets forth deposit balances by certain categories as

of the dates indicated and the percentage of each deposit category to total deposits.

As of December 31,

Percentage of

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For the Year Ended December 31,

Average Balance

(Dollars in thousands)

Non interest-bearing demand

Noninterest-bearing demand

Interest-bearing transaction deposits

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Total time deposits

Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all

at a reasonable cost.

Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs,

all at a reasonable cost.

We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements.

We manage our liquidity position to meet the daily

cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.

We manage our liquidity position to meet the

daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.

Our liquidity position is supported by management of liquid assets and access to alternative sources of funds.

Our liquid assets include cash, interest-bearing deposits in correspondent banks and fed

Our liquid assets include cash, interest-bearing deposits in correspondent banks and

fed funds sold.

Other available sources of liquidity include wholesale deposits and borrowings from correspondent banks and FHLB advances.

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As of December 31, 2024, we had no unsecured fed funds lines with correspondent depository institutions with no amounts advanced.

In addition, based on the values of loans pledged as collateral, we

had borrowing availability with the FHLB of $159.2 million as of December 31, 2023 and $129.2 million as of December 31, 2022.

In addition, based on the values of loans pledged as collateral,

we had borrowing availability with the FHLB of $190.9 million as of December 31, 2024 and $159.2 million as of December 31, 2023, and we had access to approximately $336.1 million in liquidity with the Federal Reserve Bank as of December 31,

2024 and $0 as of December 31, 2023.

Capital Requirements

The Bank is subject to various regulatory capital requirements administered by the federal and state banking regulators.

Failure to meet regulatory capital requirements may result in certain mandatory

and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements.

Under capital adequacy guidelines and the regulatory framework for “prompt corrective action”

(described below), the Bank must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies.

The capital amounts and

classifications are subject to qualitative judgments by the federal banking regulators about components, risk weightings and other factors.

Qualitative measures established by regulation to ensure capital adequacy required the Bank to maintain

minimum amounts and ratios of Common Equity Tier 1, or CET1, capital, Tier 1 capital and total capital to risk-weighted assets and of Tier 1 capital to average consolidated assets, referred to as the “leverage ratio.” For further information, see

“Supervision and Regulation – Regulatory Capital Requirements” and “Supervision and Regulation – Prompt Corrective Action Framework.”

In the wake of the global financial crisis of 2008 and 2009, the role of capital has become fundamentally more important, as banking regulators have concluded that the amount and quality of capital

held by banking organizations was insufficient to absorb losses during periods of severely distressed economic conditions.

Failure to meet regulatory capital requirements may result in certain

mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements.

Under capital adequacy guidelines and the regulatory framework for “prompt corrective

action” (described below), the Bank must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies.

The capital amounts

and classifications are subject to qualitative judgments by the federal banking regulators about components, risk weightings and other factors.

Qualitative measures established by regulation to ensure capital adequacy required the Bank to

maintain minimum amounts and ratios of Common Equity Tier 1, or CET1, capital, Tier 1 capital and total capital to risk-weighted assets and of Tier 1 capital to average consolidated assets, referred to as the “leverage ratio.” For further

information, see “Supervision and Regulation – Regulatory Capital Requirements” and “Supervision and Regulation – Prompt Corrective Action Framework.”

In the wake of the global financial crisis of 2008 and 2009, the role of capital has become fundamentally more important, as banking regulators have concluded that the amount and quality of

capital held by banking organizations was insufficient to absorb losses during periods of severely distressed economic conditions.

The Dodd-Frank Act and banking regulations promulgated by the U.S.

federal banking regulators to implement Basel III have

established strengthened capital standards for banks and bank holding companies and require more capital to be held in the form of common stock.

In addition, the Basel III regulations implement a concept known as the “capital conservation buffer.”

In general, banks, bank holding companies with more than $3.0 billion in assets and bank holding companies with publicly-traded equity are required to hold a buffer of CET1 capital equal to 2.5% of risk-weighted assets over each minimum capital

ratio in order to avoid being subject to limits on capital distributions (e.g., dividends, stock buybacks, etc.) and certain discretionary bonus payments to executive officers.

federal banking regulators to implement Basel

III have established strengthened capital standards for banks and bank holding companies and require more capital to be held in the form of common stock.

In addition, the Basel III regulations implement a concept known as the “capital

conservation buffer.” In general, banks, bank holding companies with more than $3.0 billion in assets and bank holding companies with publicly-traded equity are required to hold a buffer of CET1 capital equal to 2.5% of risk-weighted assets

over each minimum capital ratio in order to avoid being subject to limits on capital distributions (e.g., dividends, stock buybacks, etc.) and certain discretionary bonus payments to executive officers.

As of December 31, 2024, the FDIC categorized the Bank as “well-capitalized” under the prompt corrective action framework.

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management believes would change this classification.

The table below also summarizes the capital requirements applicable to the Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as the Bank’s capital ratios as of

December 31, 2023, 2022, and 2021.

of December 31, 2024, 2023, and 2022.

The Bank exceeded all regulatory capital requirements under Basel III and the Bank was considered to be “well-capitalized” as of the dates reflected in the tables below.

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Contractual Obligations

The following tables contain supplemental information regarding our total contractual obligations as of December 31, 2023:

The following tables contain supplemental information regarding our total contractual obligations as of December 31, 2024 and December 31, 2023:

Payments Due as of December 31, 2024

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Total contractual obligations

Payments Due as of December 31, 2023

Three to Five

(Dollars in thousands)

Deposits without a stated maturity

Time deposits

Operating lease commitments

Total contractual obligations

We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate cash levels.

We expect to maintain adequate cash levels through profitability,

loan repayment and maturity activity and continued deposit gathering activities.

We expect to maintain adequate cash levels through

profitability, loan repayment and maturity activity and continued deposit gathering activities.

We have in place various borrowing mechanisms for both short-term and long-term liquidity needs.

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We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers.

These financial instruments include commitments to

extend credit and standby letters of credit.

These financial instruments include commitments

to extend credit and standby letters of credit.

Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet.

The contractual or notional amounts of those

instruments reflect the extent of involvement we have in particular classes of financial instruments.

The contractual or notional amounts

of those instruments reflect the extent of involvement we have in particular classes of financial instruments.

To control this credit risk, the Company uses the same underwriting standards as it uses for loans recorded on the balance sheet.

Loan commitments are agreements to lend to a customer, as long as there is no violation of any condition established in the contract.

Standby letters of credit are conditional commitments issued by

the Bank to guarantee the performance of the customer to a third party.

Standby letters of credit are conditional commitments issued

by the Bank to guarantee the performance of the customer to a third party.

They are intended to be disbursed, subject to certain conditions, upon request of the borrower.

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based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statement.

In particular, management

has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.

In particular,

management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.

The following is a discussion of the critical accounting policies and significant estimates that we believe require us to make the most complex or subjective decisions or assessments.

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The allowance is based on management’s estimate of probable losses inherent in the loan portfolio.

In the opinion of management, the allowance is adequate to absorb estimated losses in the portfolio

as of each balance sheet date.

While management uses available information to analyze losses on loans, future additions to the allowance may be necessary based on changes in economic conditions and changes in the composition of the loan portfolio.

In the opinion of management, the allowance is adequate to absorb estimated losses in the

portfolio as of each balance sheet date.

loan portfolio.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance.

In analyzing the adequacy of the allowance, a comprehensive loan grading system to determine risk potential in

loans is utilized together with the results of internal credit reviews.

To determine the adequacy of the allowance, the loan portfolio is broken into segments based on loan type.

Historical loss experience factors by segment, adjusted for changes in trends and conditions,

are used to determine an indicated allowance for each portfolio segment.

These factors are evaluated and updated based on the composition of the specific loan segment.

Other considerations include volumes and trends of delinquencies, nonaccrual

In analyzing the adequacy of the allowance, a comprehensive loan grading system to determine

risk potential in loans is utilized together with the results of internal credit reviews.

To estimate the allowance for credit losses, the loan portfolio is segmented based on shared risk characteristics, primarily by loan type.

Historical credit loss experience for each segment,

adjusted for relevant current conditions and reasonable and supportable forecasts, is a significant input in determining the expected credit losses for each portfolio segment under the current expected credit loss methodology.

These historical

loss factors and adjustments are regularly evaluated and updated based on the evolving composition of each loan segment.

Other considerations in our current expected credit loss estimation process include current volumes and trends of

delinquencies, nonaccrual loans, levels of bankruptcies, trends in criticized and classified loans, expected losses on real estate secured loans, impact of new credit products and policies, current and forecasted economic conditions,

concentrations of credit risk, and the experience and abilities of our lending personnel in the current environment.

In addition to these segment-level estimations, loans with larger balances or unique risk profiles may be further analyzed

based on specific facts and circumstances to refine the overall expected credit loss estimate.

This individual analysis helps ensure the allowance for credit losses appropriately reflects the expected losses inherent in the portfolio.

Adjustments to the segment-level or portfolio-level expected credit loss estimates may be necessary when specific loan characteristics warrant a different loss expectation than indicated by the segment risk factors.

Goodwill and Intangibles

Intangible assets totaled $1.0 million and goodwill, net of accumulated amortization totaled $8.5 million for the year ended December 31, 2023, compared to intangible assets of $1.3 million and goodwill, net of

Intangible assets totaled $878,000 and goodwill, net of accumulated amortization totaled $8.5 million for the year ended December 31, 2024, compared to intangible assets of $1.0 million and goodwill, net of

accumulated amortization of $8.5 million for the year ended December 31, 2023.

Goodwill resulting from a business combination represents the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.

Goodwill is tested annually for impairment or more frequently if other impairment indicators are present.

If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to

its implied fair value.

If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written

down to its implied fair value.

Subsequent increases in goodwill value are not recognized in the accompanying consolidated financial statements.

Other intangible assets consist of core deposit intangible assets and are amortized on a straight-line basis based on an estimated useful life of 10 years.

Such assets are periodically evaluated as to the recoverability

of their carrying values.

Such assets are periodically evaluated as to the

recoverability of their carrying values.

The Company files a consolidated income tax return.

Deferred taxes are recognized under the balance sheet method based upon the future tax consequences of temporary differences between the carrying

amounts and tax basis of assets and liabilities, using the tax rates expected to apply to taxable income in the periods when the related temporary differences are expected to be realized.

Deferred taxes are recognized under the balance sheet method based upon the future tax consequences of temporary differences between the

carrying amounts and tax basis of assets and liabilities, using the tax rates expected to apply to taxable income in the periods when the related temporary differences are expected to be realized.

The amount of accrued current and deferred income taxes is based on estimates of taxes due or receivable from taxing authorities either currently or in the future.

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reported as tax expense, and involve estimates of the various components included in determining taxable income, tax credits, other taxes and temporary differences.

Changes periodically occur in the estimates due to changes in tax rates, tax laws

and regulations and implementation of new tax planning strategies.

Changes periodically occur in the estimates due to changes in tax rates, tax

laws and regulations and implementation of new tax planning strategies.

The process of determining the accruals for income taxes necessarily involves the exercise of considerable judgment and consideration of numerous subjective factors.

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Debt securities that are being held for indefinite periods of time and are not intended to sell, are classified as available for sale and are stated at estimated fair value.

Unrealized gains or losses

on debt securities available for sale are reported as a component of stockholders’ equity and comprehensive income, net of income tax.

Unrealized gains or

losses on debt securities available for sale are reported as a component of stockholders’ equity and comprehensive income, net of income tax.

The Company reviews its portfolio of debt securities in an unrealized loss position at least quarterly.

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If either of these criteria is met, the securities amortized cost basis is written down to fair value as a current period expense.

If either of the above criteria

is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors.

In making this assessment, the Company considers, among other things, the period of time the security has been in an unrealized

loss position, and performance of any underlying collateral and adverse conditions specifically related to the security.

If either of the above

criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors.

In making this assessment, the Company considers, among other things, the period of time the security has been in an

unrealized loss position, and performance of any underlying collateral and adverse conditions specifically related to the security.

The estimates of fair values of debt securities and other financial instruments are based on a variety of factors.

In some cases, fair values represent quoted market prices for identical or comparable

In some cases, fair values represent quoted market prices for identical or

comparable instruments.

In other cases, fair values have been estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of risk.

Accordingly, the fair values may not

represent actual values of the financial instruments that could have been realized as of year-end or that will be realized in the future.

Accordingly, the fair

values may not represent actual values of the financial instruments that could have been realized as of year-end or that will be realized in the future.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis