What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-15 compared with 2022-03-15 · 388 added, 272 removed, 559 unchanged (54% of the section changed)

1 unchanged sentence

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K.

The following discussion contains "forward-looking statements"

that reflect our future plans, estimates, beliefs and expected performance.

The following discussion contains "forward-looking statements" that reflect our future plans, estimates, beliefs and expected performance.

We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material.

See "Cautionary Statement Regarding Forward-Looking Statements."

Also, see the risk factors and other cautionary statements described under the heading "Item 1A – Risk Factors"

included in Item 1A of this Annual Report on Form 10-K.

See "Cautionary Statement Regarding Forward-Looking Statements." Also, see the risk factors and other cautionary statements described under the heading "Item 1A – Risk Factors" included in Item 1A of this Annual Report on Form 10-K.

We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

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Our mission is to be the best private bank for the Western wealth management client.

We target entrepreneurs, professionals and high-net worth individuals, typically with $1.0 million-plus in liquid net worth, and their related philanthropic and business organizations, which we refer to as the "

Western wealth management client.

We believe that the Western wealth management client shares our entrepreneurial spirit and values our sophisticated, high-touch wealth management services that are tailored to meet their specific needs.

We target entrepreneurs, professionals, and high-net worth individuals, typically with $1.0 million-plus in liquid net worth, and their related philanthropic and business organizations, which we refer to as the "Western wealth management client." We believe that the Western wealth management client shares our entrepreneurial spirit and values our sophisticated, high-touch wealth management services that are tailored to meet their specific needs.

We partner with our clients to solve their unique financial needs through our expert integrated services provided in a team approach.

We offer our services through a branded network of boutique private trust bank offices, which we believe are strategically located in affluent and high-growth markets in locations across Colorado, Arizona, Wyoming and California.

Our profit centers, which are comprised of private bankers, lenders, wealth planners and portfolio managers, under the leadership of a local chairman and/or president, are also supported centrally by teams providing management services such as operations, risk management, credit administration, marketing, technology support, human capital, and accounting/finance services, which we refer to as support centers.

From 2004, when we opened our first profit center, until December 31, 2021, we have expanded our footprint into fifteen full service profit centers, two loan production offices, and two trust offices located across four states.

From 2004, when we opened our first profit center, until December 31, 2022, we have expanded our footprint into thirteen full service profit centers, three loan production offices, and two trust offices located across five states.

Following the completion of the Teton Financial Services, Inc.

(“Teton”) acquisition in the fourth quarter of 2021, we added three full service profit centers in Jackson Hole, Pinedale, and Rock Springs, Wyoming.

As of and for the year ended December 31, 2021, we had $2.53 billion in total assets, $95.4 million in total revenues and provided fiduciary and advisory services on $7.35 billion of assets under management ( "

As of and for the year ended December 31, 2022, we had $2.87 billion in total assets, $107.9 million in total revenues and provided fiduciary and advisory services on $6.11 billion of assets under management ("AUM").

Response to COVID-19

The spread of COVID-19 has caused significant disruptions in the U.S.

The spread of COVID-19 caused significant disruptions in the U.S.

economy since it was declared a pandemic in March 2020 by the World Health Organization.

Disruptions include temporary closures of many businesses that have led to a loss of revenues and a rapid increase in unemployment, disrupted global supply chains, market downturns and volatility, changes in consumer behavior related to pandemic fears, related emergency response legislation and an expectation that Federal Reserve policy will maintain a low interest rate environment for the foreseeable future.

The changes have impacted our clients and their industries, as well as the financial services industry.

The Company activated its Business Continuity Plan in early 2020 in response to the emergence of COVID-19 and has continued to adjust as the crisis continues to impact our markets, clients and business.

A majority of our associates have been working remotely since early 2020.

All of our offices are open, functioning, and continue to operate as usual.

We are taking additional precautions within our profit centers, including enhanced cleaning procedures and physical distancing measures, to ensure the safety of our clients and our associates.

A provision in the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") created the Paycheck Protection Program ("PPP"), which is administered by the Small Business Administration ("SBA").

The PPP is intended to provide loans to small businesses to pay their employees, rent, mortgage interest and utilities.

The loans may be forgiven conditioned upon the client providing payroll documentation evidencing their compliant use of funds and otherwise complying with the terms of the program.

The Bank is an approved SBA PPP lender and participated in all rounds of the program.

A provision in the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") created the Paycheck Protection Program ("PPP"), which is administered by the Small Business Administration ("SBA").

The PPP was intended to provide loans to small businesses to pay their employees, rent, mortgage interest, and utilities.

The loans could be forgiven conditioned upon the client providing payroll documentation evidencing their compliant use of funds and otherwise complying with the terms of the program.

The Bank was an approved SBA PPP lender and participated in all rounds of the program.

The last round of program funds were depleted in early May 2021.

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The Company has offered loan extensions, temporary payment moratoriums, and financial covenant waivers for commercial and consumer borrowers impacted by the pandemic who have a pass risk rating and have not been delinquent over 30 days on payments in the last two years.

The Company had sixty-nine loans across multiple industries in the amount of $130.4 million of loans that took part in the Company’s COVID loan modification program.

As of December 31, 2021, the modification periods have ended for all loans in the loan modification program and all loans were performing according to Bank policy.

The Company also participated in the Federal Reserve’s Main Street Lending Program ("MSLP") to support lending to small and medium-sized for profit businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic.

In 2021, the deferral period ended for all non-acquired loans previously modified and payments resumed under the original terms.

As of December 31, 2022, the Company's loan portfolio included 49 non-acquired loans which were previously modified under the loan modification program, totaling $78.4 million.

Through the Teton Acquisition, the Company acquired loans which were previously modified and are still in their deferral period.

As of December 31, 2022, there were 14 of these loans, totaling $3.3 million.

As of December 31, 2022, the Company had five loans with a balance held by the Bank of $6.6 million.

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Net interest income represents interest income less interest expense.

We generate interest income on interest-earning assets, primarily loans and available-for-sale securities.

We generate interest income on interest-earning assets, primarily loans and investment securities.

We incur interest expense on interest-bearing liabilities, primarily interest-bearing deposits and borrowings.

To evaluate net interest income, we measure and monitor:

(i) yields on loans, available-for-sale securities and other interest-earning assets;

(i) yields on loans, investment securities, and other interest-earning assets;

(ii) the costs of deposits and other funding sources;

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AUM is primarily impacted by opening and closing of client advisory and trust accounts, contributions and withdrawals, and the fluctuation in market values.

● Net gain on mortgage loans —gain on originating and selling mortgages, origination fees, less commissions to loan originators, document review and other costs specific to originating and selling the loan.

The market adjustments for interest rate lock commitments ("IRLC") and gains and losses incurred on the mandatory trading of loans are also included in this line item.

• Net gain on mortgage loans —gain on originating and selling mortgages and origination fees, less commissions to loan originators, document review, and other costs specific to originating and selling the loan.

The market adjustments for interest rate lock commitments ("IRLC"), mortgage derivatives, and gains and losses incurred on the mandatory trading of loans are also included in this line item.

Net gain on mortgage loans is primarily impacted by the amount of loans sold, the type of loans sold, and market conditions.

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Banking fees are primarily impacted by the level of business activities and cash movement activities of our clients.

● Risk management and insurance fees —commissions earned on insurance policies we have placed for clients through our client risk management team who incorporate insurance services, primarily life insurance, to support our clients’ wealth planning needs.

• Risk management and insurance fees —commissions earned on insurance policies we have placed for clients through our client risk management team who incorporate insurance services, primarily life insurance, to

support our clients’ wealth planning needs.

Our insurance revenues are primarily impacted by the type and volume of policies placed for our clients.

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The income on the increase in the cash surrender value is non-taxable income.

● Net gain on equity interests —gain on sale of equity securities and other assets sold.

Net gain on sale of securities/assets are primarily impacted by the amount of securities/assets sold, the type of securities/assets sold and market conditions.

● Other —non-operating income generated through a transition services agreement with the buyer of the Los Angeles (“LA”) fixed income team.

Non-Interest Expense

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• Amortization of other intangible assets —primarily represents the amortization of intangible assets including client lists, core deposit intangibles, and other similar items recognized in connection with acquisitions.

● Net loss on assets held for sale —represents the fair value adjustment on assets being sold or business lines being divested.

● Provision for other real estate owned —represents the fair value adjustment for other real estate owned ( "

● Other —includes costs related to operational expenses associated with office supplies, postage, travel expenses, meals and entertainment, dues and memberships, costs to maintain or prepare OREO for sale, director compensation and travel, and other general corporate expenses that do not fit within one of the specific non-interest expense lines described above.

• Other —includes costs related to operational expenses associated with office supplies, postage, travel expenses, meals and entertainment, dues and memberships, costs to maintain or prepare other real estate owned ("OREO") for sale, director compensation and travel, and other general corporate expenses that do not fit within one of the specific non-interest expense lines described above.

Other operational expenses are generally impacted by our business activities and needs.

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As of December 31, 2022, the Bank’s capital ratios exceeded the current well capitalized regulatory requirements established under Basel III.

Acquisitions and Divestitures

On July 22, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement” or “Teton Acquisition”) with Teton, parent company of Rocky Mountain Bank, a Wyoming-chartered bank headquartered in Jackson, Wyoming.

The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, Teton would merge into the Company, with the Company continuing as the surviving corporation.

The Merger Agreement also provides that following the merger, Rocky Mountain Bank would merge with and into the Bank, with the Bank surviving the bank merger.

The transaction successfully closed on December 31, 2021.

On December 31, 2021, the Company closed on our Agreement and Plan of Merger (the “Merger Agreement” or “Teton Acquisition”) with Teton, parent company of Rocky Mountain Bank, a Wyoming-chartered bank headquartered in Jackson, Wyoming.

The Merger Agreement provided that, subject to the terms and conditions set forth in the Merger Agreement, Teton would merge into the Company, with the Company continuing as the surviving corporation.

The Merger Agreement also provided that following the merger, Rocky Mountain Bank would merge with and into the Bank, with the Bank surviving the bank merger.

See Note 2 – Acquisitions of the accompanying Notes to the Consolidated Financial Statements for additional information.

On September 18, 2020, the Company entered into an agreement to sell its LA fixed income team and certain related advisory and sub-advisory arrangements to Lido Advisors, LLC and Oakhurst Advisors, LLC.

On November 13, 2020, the Company completed the sale.

On an ongoing basis, the sale of the LA fixed income team is expected to be earnings neutral to the Company, as the revenue decrease will be approximately in-line with the expected expense reduction.

The sale is not expected to have an impact on Bank clients but reduced the Company’s assets under management by $330.6 million during 2020.

As a result of the sale, the Company evaluated its reportable segments and determined the remaining assets following the sale in the Capital Management segment no longer meet the thresholds of income before income tax to be a reportable segment.

The residual assets that remained in the Capital Management segment are now included in the Wealth Management segment.

On February 10, 2020, the Company entered into a branch purchase and assumption agreement (“Branch Acquisition”) with Simmons Bank, pursuant to which the Company agreed to acquire all of Simmons’ Colorado locations, including three branches and one loan production office located in metro Denver, as well as certain deposits and loans and other assets.

On May 15, 2020, the Branch Acquisition was successfully completed.

See Note 2 - Acquisitions of the accompanying Notes to Consolidated Financial Statements for additional information.

Results of Operations

The year ended December 31, 2022 compared with the year ended December 31, 2021 .

For the year ended December 31, 2021, we reported net income available to common shareholders of $20.6 million, compared to net income available to common shareholders for December 31, 2020 of $24.5 million, a $3.9 million, or 16.0% decrease.

For the year ended December 31, 2021, our income before income tax was $27.3 million, a $5.8 million, or 17.5%, decrease from December 31, 2020.

The decrease was primarily driven by a $13.2 million decrease in net gain on mortgage loans and an $8.6 million increase in non-interest expense, partially offset by a $13.9 million increase in net interest income, after provision for loan losses.

For the year ended December 31, 2022, we reported net income available to common shareholders of $21.7 million, compared to net income available to common shareholders for December 31, 2021 of $20.6 million, a $1.1 million, or 5.3% increase.

For the year ended December 31, 2022, our income before income tax was $28.8 million, a $1.5 million, or 5.7%, increase from December 31, 2021.

The increase was primarily driven by a $24.2 million increase in net interest income, after provision for loan losses, partially offset by a $10.8 million decrease in net gain on mortgage loans and an $11.0 million increase in non-interest expense.

The increase in net interest income was due to an increase in average loan balances and an increase in average loan yields.

The decrease in net gain on mortgage loans was primarily driven by a slowdown in new lock volume associated with the decrease in refinance activity.

The increase in non-interest expense was primarily driven by acquisition related costs from the Teton Acquisition and an increase in personnel expense to support the growth in the balance sheet.

The increase in net interest income was due to an increase in average loan balances and a reduction in our average cost of funds.

The increase in non-interest expense was primarily driven by an increase in personnel expense to support the growth in the balance sheet, and an increase in occupancy and equipment expense driven by building depreciation on the locations acquired with the Teton acquisition and an increase in office lease space related to new Bank locations.

Net Interest Income

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For the year ended December 31, 2022, compared to the year ended December 31, 2021, net interest income, before the provision for loan losses, increased $26.6 million, or 47.0%, to $83.2 million.

This increase was driven by a $275.4 million increase in average loans outstanding and a 19 bps decrease in the average cost of funds, partially offset by a decrease in our average yield on loans to 3.81% for the year ended December 31, 2021 from 3.94% for the year ended December 31, 2020.

This increase was driven by a $560.2 million increase in average loans outstanding and a 64 bps increase in the average yield on loans, partially offset by a $365.8 million increase

in average interest bearing deposit balances and a 54 bps increase in average rates paid on interest bearing deposits.

For the year ended December 31, 2022, our net interest margin was 3.35% and our net interest spread was 3.02%.

For the year ended December 31, 2021, our net interest margin was 2.99% and our net interest spread was 2.88%.

The increase in average loans outstanding for the year ended December 31, 2021 compared to the same periods in 2020 was primarily due to organic growth.

Net interest income is also impacted by changes in the amount and type of interest-earning assets and interest-bearing liabilities.

To evaluate net interest income, we measure and monitor the yields on our loans and other interest-earning assets and the costs of our deposits and other funding sources.

Interest income on our available-for-sale securities portfolio decreased as a result of lower average investment balances for the year ended December 31, 2021 compared to the same period in 2020.

Our average available-for-sale securities balance during the year ended December 31, 2021 was $30.9 million, a decrease of $14.6 million from the year ended December 31, 2020.

The impact of the reduction in average balances was partially offset by a higher average yield on the securities portfolio.

Interest expense on deposits decreased during the year ended December 31, 2021 compared to the same period in 2020.

Average rates on interest bearing deposits decreased 30 basis points, consistent with the lower interest rate environment.

The reduction in cost of deposits was partially offset by an increase in average interest-bearing deposit accounts of $211.8 million compared to the prior year.

The increase in average loans outstanding for the year ended December 31, 2022 compared to the same periods in 2021 was primarily due to organic growth and the Teton acquisition at the end of 2021.

Average loan yield was 4.45% for the year ended December 31, 2022, compared to 3.81% for the year ended December 31, 2021.

The increase in loan yield during the period was primarily driven by the addition of higher yielding loans from the Teton acquisition, a beneficial mix shift in the loan portfolio due to PPP loan forgiveness, and the rising interest rate environment.

Interest income on our investment securities portfolio increased as a result of higher average investment balances for the year ended December 31, 2022 compared to the same period in 2021.

Our average investment securities balance during the year ended December 31, 2022 was $74.1 million, an increase of $43.2 million from the year ended December 31, 2021.

Interest expense on deposits increased during the year ended December 31, 2022 compared to the same period in 2021.

Average rates on interest bearing deposits increased 54 basis points, consistent with the higher interest rate environment, while the growth in interest-bearing deposits was primarily attributable to organic growth through expanded client relationships.

The following presents an analysis of net interest income and net interest margin for the periods presented, using daily average balances for each major category of interest-earning assets and interest-bearing liabilities, the interest earned or paid, and the average rate earned or paid on those assets or liabilities.

As of and For the Year Ended December 31,

(Dollars in thousands)

(Dollars in thousands) Average

Yield / Rate Average

Interest-earning assets:

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Federal funds sold 652 10 1.53 1,491 — —

Available-for-sale securities (2)

Investment securities (2)

74,104 2,053 2.77 30,885 770 2.49

Correspondent bank stock 5,033 381 7.57 2,120 86 4.06

2,154,253 95,795 4.45 1,594,084 60,758 3.81

Interest-earning assets (4)

2,482,619 100,474 4.05 1,890,332 62,011 3.28

Mortgage loans held for sale (5)

15,639 722 4.62 88,651 2,490 2.81

Total interest-earning assets, plus mortgage loans held for sale 2,498,258 101,196 4.05 1,978,983 64,501 3.26

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Noninterest-earning assets 122,663 93,688

Total assets $ 2,606,243 $ 2,059,908

Liabilities and Shareholders’ Equity

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Total noninterest-bearing liabilities 691,418 569,334

Shareholders’ equity

Total shareholders’ equity 230,000 169,476

Total liabilities and shareholders’ equity $ 2,606,243 $ 2,059,908

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Net interest income (7)

$ 83,204 $ 56,595

Net interest margin (8)

_____________________________

(1) Average balance represents daily averages, unless otherwise noted.

(2) Available-for-sale securities represents monthly averages.

(2) Represents monthly averages.

(3) Non-performing loans are included in the respective average loan balances.

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(6) Net interest spread is the average yield on interest-earning assets (excluding mortgage loans held for sale) minus the average rate on interest-bearing liabilities.

(7) Net interest income is the difference between income earned on interest-earning assets, which does not include interest earned on mortgage loans held for sale, and expense paid on interest-bearing liabilities.

(7) Net interest income is the difference between income earned on interest-earning assets (excluding interest on mortgage loans held for sale), and expense paid on interest-bearing liabilities.

(8) Net interest margin is equal to net interest income divided by average interest-earning assets (excluding mortgage loans held for sale).

The following presents the dollar amount of changes in interest income and interest expense for the periods presented, for each component of interest-earning assets and interest-bearing liabilities (excluding mortgage loans held for sale), and distinguishes between changes attributable to volume and interest rates.

Changes attributable to both rate and volume that cannot be separated have been allocated to volume.

Changes attributable to both rate and volume that cannot be separated have been allocated to volume (dollars in thousands):

Year Ended December 31, 2022

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to Change in:

(Dollars in thousands)

(Dollars in thousands) Volume Rate

Interest-earning assets:

Interest-bearing deposits in other financial institutions $ (118) $ 1,956 $ 1,838

Available-for-sale securities

Total increase (decrease) in interest income

Federal funds sold (13) 23 10

Investment securities 1,197 86 1,283

Correspondent bank stock 221 74 295

Loans 24,910 10,127 35,037

Total increase in interest income $ 26,197 $ 12,266 $ 38,463

Interest-bearing liabilities:

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Subordinated notes 230 (170) 60

Total increase (decrease) in interest expense

Total increase in interest expense $ 3,104 $ 8,750 $ 11,854

Increase in net interest income $ 23,093 $ 3,516 $ 26,609

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For the year ended December 31, 2022 compared to the year ended December 31, 2021, non-interest income decreased $11.6 million, or 29.0%, to $28.4 million.

The decrease in non-interest income was primarily a result of a $13.2 million decrease in net gain on mortgage loans, compared to the same period in 2020.

The following presents the significant categories of our non-interest income for the year ended December 31, 2021 and 2020.

The decrease in non-interest income was primarily a result of a slowdown in new lock volume on held for sale loans associated with rising interest rates, reduced housing inventory, and origination volume more heavily weighted to portfolio loans held for investment.

The following presents the significant categories of our non-interest income during the periods presented (dollars in thousands):

December 31, Change

(Dollars in thousands) 2022 2021 $ %

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Net gain on mortgage loans 5,306 16,060 (10,754) (67.0)

Bank fees 2,660 1,780 880 49.4

Risk management and insurance fees 1,231 1,120 111 9.9

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Net gain on equity interests 7 — 7 *

Net loss on loans accounted for under the fair value option (891) — (891) *

Unrealized gain recognized on equity securities 342 469 (127) (27.1)

Other 465 60 405 *

Total non-interest income $ 28,412 $ 40,043 $ (11,631) (29.0)

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* Not meaningful

Trust and investment management fees — For the year ended December 31, 2021 compared to the same period in 2020, our trust and investment management fees increased by $1.2 million, or 6.3%, to $20.2 million.

The increase is driven by asset growth, partially offset by a reduction in trust and investment management fees generated by the LA Fixed Income team that was sold in November 2020.

Net gain on mortgage loans — For the year ended December 31, 2021 compared to the year ended December 31, 2020, our net gain on mortgage loans decreased by $13.2 million, or 45.1%, to $16.1 million.

The decrease in net gain on mortgage loans was primarily driven by a slowdown in new interest rate locks with clients associated with the decrease in refinance activity.

Trust and investment management fees — For the year ended December 31, 2022 compared to the same period in 2021, our trust and investment management fees decreased by $1.3 million, or 6.2%, to $18.9 million.

The decrease is due to client withdrawals and a decreased value of AUM balances caused by unfavorable market conditions during 2022.

Net gain on mortgage loans — For the year ended December 31, 2022 compared to the same period in 2021, our net gain on mortgage loans decreased by $10.8 million, or 67.0%, to $5.3 million.

The decrease in net gain on mortgage loans was primarily driven by a slowdown in new lock volume on held for sale loans associated with rising interest rates, reduced housing inventory, and origination volume more heavily weighted to portfolio loans held for investment.

Bank fees — For the year ended December 31, 2022 compared to the same period in 2021, our bank fees increased by $0.9 million or 49.4%.

The increase was driven by servicing fees related to participation in the MSLP as well as increased activity consistent with the growth of the loan portfolio.

Net gain on equity interests — For the year ended December 31, 2021, the Company recognized a net gain on equity interests of $0.5 million.

The increase was driven by increased debit card, loan prepayment, and treasury management fees consistent with the Company's larger client base.

Risk management and insurance fees — For the year ended December 31, 2022 compared to the same period in 2021, our risk management and insurance fees increased by $0.1 million, or 9.9%, to $1.2 million.

Net gain/(loss) on loans accounted for under the fair value option — The Company elected the fair value option on certain new loans purchased in 2022.

During the year ended December 31, 2022, the Company recorded a net loss on loans accounted for under the fair value option of $0.9 million.

The losses were attributable to the decline in fair value as a result of the rising interest rates on comparable loans in the market.

There were no loans held for investment accounted for under the fair value option in the same period in 2021.

Unrealized gain/(loss) on Equity Securities — For the year ended December 31, 2022 compared to the same period in 2021, our unrealized gains on equity securities decreased by $0.1 million, or 27.1% .

The decrease was primarily driven by fair value adjustments on equity warrants.

There were no equity warrants in equity securities during the same period in 2021.

Net gain on equity interests — For the year ended December 31, 2022, the Company recognized an immaterial net gain on equity interests.

No such net gain on equity interest was recognized in the year ended December 31, 2021.

Other — For the year ended December 31, 2022 compared to the same period in 2021, our other income increased by $0.4 million.

The increase was primarily driven by lease income from buildings acquired with the Teton acquisition.

Non-Interest Expense

The year ended December 31, 2022 compared with the year ended December 31, 2021 .

The increase in non-interest expense of 14.5% to $68.1 million for the year ended December 31, 2021, was primarily due to $4.1 million in acquisition related costs incurred as a result of the Teton Acquisition.

The remaining increase is primarily due to increased salaries and employee benefits commensurate with and to support the increased production and revenues in the Wealth Management segment.

The following presents the impact from mergers and acquisitions activity for the periods noted:

Year Ended December 31,

(Dollars in thousands)

Mergers and acquisitions expense:

Salaries and employee benefits

Occupancy and equipment

Professional services

Technology and information systems

Data processing

Total mergers and acquisitions expense

The following presents the significant categories of our non-interest expense for the periods noted:

The increase in non-interest expense of 16.1% to $79.1 million for the year ended December 31, 2022, was primarily driven by the addition of Teton's operations and additional headcount to support the growth of the Company.

The following presents the significant categories of our non-interest expense for the periods presented (dollars in thousands):

December 31, Change

(Dollars in thousands) 2022 2021 $ %

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Data processing 4,285 6,327 (2,042) (32.3)

Marketing 1,888 1,613 275 17.0

Amortization of other intangible assets 308 17 291 *

Net loss on assets held for sale

Provision on other real estate owned

Net gain on assets held for sale (4) — (4) *

Net gain on sale of other real estate owned (44) — (44) *

Other 4,547 3,255 1,292 39.7

Total non-interest expense $ 79,106 $ 68,128 $ 10,978 16.1

_____________________________

* Not meaningful

Salaries and employee benefits— The increase in salaries and employee benefits of $6.0 million, or 17.1%, was primarily related to an increase in staffing and compensation and employee benefits commensurate with increased production and revenues in the Wealth Management segment.

Professional Services— The increase in professional services of $1.4 million, or 28.6%, was driven by acquisition related expenses of $1.1 million, additional expenses related to the PPP program, and additional FDIC insurance expense related to our balance sheet growth.

Data processing— The increase in data processing costs of $2.3 million, or 58.2%, was primarily driven by $2.4 million in acquisition related expenses as a result of the Teton Acquisition in the fourth quarter of 2021.

Net loss on assets held for sale— The net loss on assets held for sale of $0.6 million in 2020 was attributable to the completion of the sale of assets and related net loss taken on the sale of the LA fixed income team.

Salaries and employee benefits— The increase in salaries and employee benefits of $7.5 million, or 18.4%, was primarily related to the additional associates added through the Teton acquisition and additional headcount to support the growth of the Company.

Occupancy and equipment— The increase in occupancy and equipment of $1.5 million, or 25.5%, was primarily driven by the addition of depreciation expense relating to buildings acquired with the Teton acquisition and an increase in office lease space related to new Bank locations.

Professional Services— The increase in professional services of $1.4 million, or 22.0%, was driven by additional expenses related to the addition of Teton's operations, increased audit fees related to the implementation of CECL, and nonrecurring system conversion costs and internal process improvement costs.

Technology and information systems— The increase in technology and information systems of $0.8 million, or 20.4%, was primarily driven by increased expenses to support the balance sheet growth.

Data processing— The decrease in data processing costs of $2.0 million, or 32.3%, was primarily driven by $2.4 million in non-recurring system conversion and termination fees incurred during the fourth quarter of 2021 as a result of the Teton acquisition, which closed in the fourth quarter of 2021.

Marketing— The increase in marketing of $0.3 million, or 17.0%, was primarily driven by marketing expenses associated with the onboarding of clients from the Teton acquisition and event sponsorships to support client acquisition efforts.

Amortization of other intangible assets— The increase in amortization of other intangible assets of $0.3 million was driven by amortization of intangibles acquired through the Teton acquisition.

Other— The increase in other of $1.3 million, or 39.7%, was driven by increased subscription costs related to system and process improvements, increased travel for client meetings, and higher costs related to associate training and development programs in 2022 compared to 2021.

During the year ended December 31, 2022, the Company recorded an income tax provision of $7.1 million, reflecting an effective tax rate 24.7%.

4 unchanged sentences

Our Wealth Management segment consists of operations relating to the Company’s fully integrated wealth management products and services.

Services provided include deposit, loan, insurance, and trust and investment management advisory products and services.

Services provided include deposit, loan, insurance, and trust and investment management advisory products and services for which fee revenue is recognized.

Our Mortgage segment consists of operations relating to the Company’s residential mortgage service offerings.

Mortgage products and services are financial in nature for which premiums are recognized, net of expenses, upon the sale of mortgage loans to third parties.

Services provided by our mortgage segment include soliciting, originating, and selling mortgage loans into the secondary market.

Mortgage products are financial in nature for which origination fees are recognized net of origination expenses, upon the funding of the mortgage loans.

Mortgage loans held for sale are accounted for under the fair value option with changes in fair value reported through earnings at inception when loans are locked to the borrower and until the loan is sold to third parties, at which time additional gains or losses on the sale are recorded.

Mortgage loans originated and held for investment purposes are recorded in the Wealth Management segment, as this segment provides ongoing services to our clients.

The following presents key metrics related to our segments:

The following presents key metrics related to our segments during the periods presented (dollars in thousands):

Year Ended December 31, 2022

(Dollars in thousands)

(Dollars in thousands) Wealth

Management Mortgage Consolidated

$ 102,616 $ 5,318 $ 107,934

Income before taxes 31,139 (2,311) 28,828

1 unchanged sentence

Year Ended December 31, 2021

(Dollars in thousands)

(Dollars in thousands) Wealth

Management Mortgage Consolidated

$ 79,289 $ 16,119 $ 95,408

Income before taxes 21,378 5,902 27,280

Profit margin 27.0 % 36.6 % 28.6 %

_____________________________

(1) Net interest income after provision plus non-interest income.

2 unchanged sentences

As of and for the Year Ended December 31,

(Dollars in thousands)

Total interest income

(Dollars in thousands) 2022 2021 $ Change % Change

Total interest and dividend income $ 100,474 $ 62,011 $ 38,463 62.0 %

Total interest expense 17,270 5,416 11,854 218.9

2 unchanged sentences

Non-interest income 23,094 23,924 (830) (3.5)

Total income before non-interest expense 102,616 79,289 23,327 29.4

Depreciation and amortization expense 2,111 1,147 964 84.0

All other non-interest expense 69,366 56,764 12,602 22.2

Income before income tax

Income before income taxes $ 31,139 $ 21,378 $ 9,761 45.7

Goodwill $ 30,400 $ 30,588 $ (188) (0.6)

Total assets 2,856,653 2,494,207 362,446 14.5

The Wealth Management segment reported income before income tax of $31.1 million for the year ended December 31, 2022, compared to $21.4 million, for the same period in 2021.

The increase in net interest income, after provision for loan losses is primarily driven by an increase in average loans outstanding, a decrease in average cost of funds, and a decrease in provision for loan losses.

Non-interest income primarily increased due to increasing assets under management resulting in increased trust and investment management fees.

Non-interest expense increased due to $4.1 million in acquisition related expenses as well as increases in salaries and employee benefits with additional staffing and compensation to support the growth of the organization.

During the year ended December 31, 2021, average loans increased $275.4 million and the cost of funds decreased to 0.29% from 0.48% compared to the year ended December 31, 2020.

The increase in net interest income, after provision for loan losses is primarily driven by an increase in average loans outstanding and an increase in average loan yields.

Non-interest income primarily decreased due to decreasing assets under management due to client withdrawals, which were also negatively impacted by lower equity and fixed income market valuations, resulting in decreased trust and investment management fees.

Non-interest expense increased due to the addition of Teton's operations and additional headcount to support the growth of the Company, and due to increased occupancy and equipment costs primarily driven by building depreciation on the locations acquired with the Teton acquisition and an increase in office lease space related to new Bank locations.

As of and for the Year Ended December 31,

(Dollars in thousands)

Total interest income

(Dollars in thousands) 2022 2021 $ Change % Change

Total interest and dividend income $ — $ — $ — — %

Total interest expense — — — —

2 unchanged sentences

Non-interest income 5,318 16,119 (10,801) (67.0)

Total income before non-interest expense 5,318 16,119 (10,801) (67.0)

Depreciation and amortization expense 42 53 (11) (20.8)

All other non-interest expense 7,587 10,164 (2,577) (25.4)

Income before income tax

The Mortgage segment reported income before income tax of $5.9 million for the year ended December 31, 2021, compared to $21.0 million for the same period in 2020.

The overall decrease in non-interest income was primarily driven by a slowdown in new lock volume associated with the decrease in refinance activity.

(Loss)/income before income tax $ (2,311) $ 5,902 $ (8,213) (139.2)

Total assets $ 10,095 $ 33,282 $ (23,187) (69.7)

The Mortgage segment reported a loss before income tax of $2.3 million for the year ended December 31, 2022, compared to income before income tax of $5.9 million for the same period in 2021.

The overall decrease in non-interest income was primarily driven by a slowdown in new lock volume on held for sale loans associated with rising interest rates, reduced housing inventory, and origination volume more heavily weighted to portfolio loans held for investment.

The decrease in non-interest expense was driven by a reduction in headcount to better align the operations functions with the slowdown in volume.

Financial Condition

The following presents our condensed Consolidated Balance Sheets as of the dates presented:

(Dollars in thousands)

The following presents our condensed Consolidated Balance Sheets as of the dates noted (dollars in thousands):

December 31, December 31,

(Dollars in thousands) 2022 2021 $ Change % Change

Balance Sheet Data:

Cash and cash equivalents $ 196,512 $ 386,983 $ (190,471) (49.2) %

Investment securities 81,056 55,562 25,494 45.9

Loans (includes $23,321 and $0 measured at fair value, respectively) 2,469,413 1,949,137 520,276 26.7

Allowance for loan losses (17,183) (13,732) (3,451) 25.1

Loans, net of allowance 2,452,230 1,935,405 516,825 26.7

Mortgage loans held for sale

Loans held for sale at fair value 1,965 — 1,965 *

Mortgage loans held for sale, at fair value 8,839 30,620 (21,781) (71.1)

Goodwill and other intangible assets, net 32,104 31,902 202 0.6

Company-owned life insurance 16,152 15,803 349 2.2

Other assets 77,890 71,099 6,791 9.6

Assets held for sale — 115 (115) *

Total assets $ 2,866,748 $ 2,527,489 $ 339,259 13.4

Deposits $ 2,405,229 $ 2,205,703 $ 199,526 9.0

Borrowings 199,018 77,660 121,358 156.3

Other liabilities 21,637 25,085 (3,448) (13.7)

2 unchanged sentences

Total liabilities and shareholders’ equity $ 2,866,748 $ 2,527,489 $ 339,259 13.4

_____________________________

* Not meaningful

Cash and cash equivalents increased by $231.0 million, or 148.1%, to $387.0 million as of December 31, 2021 compared to December 31, 2020.

The increase in liquidity was driven by organic growth in deposits and a reduction in mortgage loans held for sale, along with cash and cash equivalents acquired through the Teton Acquisition.

Cash and cash equivalents decreased by $190.5 million, or 49.2%, to $196.5 million as of December 31, 2022 compared to December 31, 2021.

The decrease in liquidity was driven by record loan production in the second quarter of 2022 with continued strong production in the third and fourth quarters of 2022.

Investments increased by $25.5 million, or 45.9%, to $81.1 million as of December 31, 2022 compared to December 31, 2021.

The increase is due to available-for-sale securities acquired through the Teton Acquisition.

The increase is due to held-to-maturity securities purchased throughout 2022.

Loans, net of allowance increased by $516.8 million, or 26.7%, to $2.45 billion as of December 31, 2022 compared to December 31, 2021.

The increase was driven by organic growth and the Teton Acquisition.

We experienced growth in all categories excluding PPP loans which are included in the Cash, Securities and Other category.

The increase was driven by record loan production in the second quarter of 2022 with continued strong production in the third and fourth quarters of 2022.

The Company experienced loan growth in all loan categories except Cash, Securities, and Other.

Mortgage loans held for sale decreased $21.8 million, or 71.1%, to $8.8 million as of December 31, 2022 compared to December 31, 2021.

The decrease was driven by a decrease in loan origination volume primarily driven by a slowdown in new mortgage loan origination volume associated with the decrease in refinance activity.

The decrease was driven by a reduction in loan origination volume primarily driven by a slowdown in new mortgage loan origination volume associated with the decrease in refinance activity.

Goodwill and other intangible assets, net increased by $0.2 million, or 0.6%, to $32.1 million as of December 31, 2022 compared to December 31, 2021.

The increase was driven by the recording of $6.4 million in goodwill and $1.2 million of core deposit intangibles related to the Teton Acquisition.

The increase was driven by measurement period adjustments to the provisional estimates of fair values of assets acquired and liabilities assumed in the Teton acquisition.

During the first quarter of 2022, goodwill was reduced by $0.2 million as a result of a $0.1 million decrease in fair value adjustment to deferred tax liabilities, net and a $0.1 million increase in fair value adjustment to net assets acquired.

Other assets increased by $6.8 million, or 9.6%, to $77.9 million as of December 31, 2022 compared to December 31, 2021.

This was primarily related to the acquisition of buildings and land related to the Teton Acquisition of $17.8 million, partially offset by a $8.4 million decrease in unfunded mortgage IRLC.

This was primarily driven by the purchase of correspondent bank stock during the year, which increased, net of redemptions, by $4.5 million.

Deposits increased $199.5 million, or 9.0%, to $2.41 billion as of December 31, 2022 compared to December 31, 2021.

The increase was primarily attributable to the Teton Acquisition and an increase in non-interest bearing and money market deposits resulting from inflows from commercial depositors and higher deposit balances across the Company’s clientele due to the improving economic and business environment.

The increase was attributable to organic growth through expanded client relationships and increased brokered deposits.

Money market deposit accounts increased $279.4 million, or 26.4%, to $1.34 billion as of December 31, 2022 compared to December 31, 2021.

Time deposit accounts decreased $2.2 million, or 1.3%, to $170.5 million as of December 31, 2021.

Negotiable order of withdrawal ("NOW") accounts increased $196.9 million, or 174.2%, to $309.9 million compared to December 31, 2020.

Borrowings decreased $96.2 million, or 55.3%, to $77.7 million as of December 31, 2021 compared to December 31, 2020.

The decrease is primarily attributed to a reduction in outstanding advances on the Federal Reserve’s Paycheck Protection Program Loan Facility.

Borrowing from this facility is expected to trend in the same direction as the PPP loan balances.

Time deposit accounts increased $53.6 million, or 31.4%, to $224.1 million as of December 31, 2022.

Negotiable order of withdrawal ("NOW") accounts decreased $75.2 million, or 24.3%, to $234.8 million compared to December 31, 2021.

Borrowings increased $121.4 million, or 156.3%, to $199.0 million as of December 31, 2022 compared to December 31, 2021.

The increase is primarily attributed to additional FHLB borrowings to support the strong loan growth in 2022, partially offset by the redemption of subordinated notes on January 1, 2022 in the amount of $6.6 million and a reduction in outstanding advances on the Federal Reserve's Paycheck Protection Program Loan Facility.

Borrowings from this facility are expected to trend in the same direction as the PPP loan balances.

The increase is also attributed to the Company's issuance of subordinated notes on December 5, 2022 (the "December 2022 Sub Notes") totaling $20.0 million in aggregate principal amount.

Total shareholders’ equity increased $21.8 million, or 10.0%, to $240.9 million as of December 31, 2022.

The increase is primarily due to the Teton Acquisition and net income of $20.6 million for the year ended December 31, 2021.

The increase is primarily due to net income.

Assets Under Management

4 unchanged sentences

Contributions 12 62

Withdrawals (292) (192)

Acquisitions — 184

Market change, net (139) 235

Ending Balance $ 1,802 $ 2,204

Yield* 0.19 % 0.15 %

Directed Trust Balance at Beginning of Period 1,309 951

2 unchanged sentences

Contributions 122 52

Withdrawals (22) (26)

Acquisitions — 133

Market change, net (127) 75

Ending Balance $ 1,285 $ 1,309

Yield* 0.90 % 0.70 %

Investment Agency Balance at Beginning of Period 2,063 1,840

2 unchanged sentences

Contributions 120 269

Withdrawals (294) (216)

Market change, net (271) 172

Ending Balance $ 1,618 $ 2,063

Yield* 0.77 % 0.68 %

Custody Balance at Beginning of Period 633 518

2 unchanged sentences

Contributions 80 81

Withdrawals (192) (26)

Market change, net (43) 62

Ending Balance 493 633

Yield* 0.04 % 0.03 %

401(k)/Retirement Balance at Beginning of Period $ 1,143 $ 1,056

2 unchanged sentences

Contributions 112 110

Withdrawals (96) (110)

Market change, net (219) 201

Ending Balance (1)

$ 909 $ 1,143

Yield* 0.18 % 0.14 %

Total Assets Under Management at Beginning of Period $ 7,352 $ 6,255

2 unchanged sentences

Contributions 446 574

Withdrawals (896) (570)

Acquisitions — 317

Market change, net $ (799) 745

Total Assets Under Management 6,107 $ 7,352

Yield* 0.31 % 0.27 %

_____________________________

* Trust and investment management fees divided by period-end balance.

(1) AUM reported for the current period are one quarter in arrears.

(2) Sale of LA fixed income team resulted in closed accounts of $330.6 million in 2020.

Assets under management increased $1.10 billion, or 17.5%, to $7.35 billion for the year ended December 31, 2021.

The increase was primarily attributable to improving market conditions resulting in an increase in the value of assets under management balances and the Teton Acquisition.

Available-for-sale securities

Assets under management decreased $1.24 billion, or 16.9%, to $6.11 billion for the year ended December 31, 2022.

The decrease was primarily attributable to client withdrawals and unfavorable market conditions resulting in a decrease in the value of assets under management balances.

Investment securities

Investments we intend to hold for an indefinite period of time, but not necessarily to maturity, are classified as available-for-sale and are recorded at fair value using current market information from a pricing service, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, net of tax.

All our investments in securities were classified as available-for-sale for the periods presented below.

The carrying values of our investment securities classified as available-for-sale are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity.

The following presents the amortized cost and estimated fair value of our investment securities as of December 31, 2021:

Investments for which we have the intent and ability to hold to their maturity are classified as held-to-maturity securities and are recorded at amortized cost.

Securities held-to-maturity are carried at cost, adjusted for the amortization of premiums and the accretion of discounts using the level-yield method over the remaining period until maturity.

As of December 31, 2021, all our investments in securities were classified as available-for-sale.

The Company reassessed classification of investment securities and, effective April 1, 2022, elected to transfer all securities, fair valued at $58.7 million, from available-for-sale to held-to-maturity.

The related unrealized loss of $2.3 million included in other comprehensive income on April 1, 2022 remained in other comprehensive income and is being amortized out with an offsetting entry to interest income as a yield adjustment through earnings over the remaining term of the securities.

No gain or loss was recorded at the time of transfer.

As of December 31, 2022.

all of our investment securities were classified as held-to-maturity.

The following presents the amortized cost and estimated fair value of our investment securities as of the dates noted (dollars in thousands):

December 31, 2022

(Dollars in thousands)

Investment securities available-for-sale:

(Dollars in thousands) Amortized

Investment securities held-to-maturity:

Treasury debt $ 243 $ — $ (9) $ 234

U.S Government Agency

Corporate bonds 23,819 — (2,453) 21,366

Government National Mortgage Association ("GNMA") mortgage -backed securities—residential

Federal National Mortgage Association ("FNMA") mortgage-backed securities—residential

Government collateralized mortgage obligations ("GMO") and mortgage-backed securities ("MBS") - commercial

Corporate collateralized mortgage obligations ("CMO") and mortgage-backed securities ("MBS")

Total securities available-for-sale

The following presents the amortized cost and estimated fair value of our investment securities as of December 31, 2020:

Government National Mortgage Association ("GNMA") mortgage -backed securities—residential 39,426 — (2,800) 36,626

Federal National Mortgage Association ("FNMA") mortgage-backed securities—residential 6,708 — (506) 6,202

Government collateralized mortgage obligations ("GMO") and mortgage-backed securities ("MBS") - commercial 6,786 13 (403) 6,396

Corporate collateralized mortgage obligations ("CMO") and mortgage-backed securities ("MBS") 4,074 — (180) 3,894

Total securities held-to-maturity $ 81,056 $ 13 $ (6,351) $ 74,718

December 31, 2021

(Dollars in thousands)

(Dollars in thousands) Amortized

Investment securities available-for-sale:

Treasury debt $ 250 $ — $ (3) $ 247

Government Agency 3,522 — — 3,522

Corporate bonds 8,113 227 (15) 8,325

1 unchanged sentence

FNMA mortgage-backed securities—residential 14,400 43 — 14,443

Corporate CMO and MBS

GMO and MBS—commercial 878 — — 878

CMO and MBS 1,492 23 (18) 1,497

Total securities available-for-sale $ 55,266 $ 478 $ (182) $ 55,562

The following tables represent the book value of our contractual maturities and weighted average yield for our investment securities as of the dates presented.

The following presents the book value of our contractual maturities and weighted average yield for our investment securities as of the dates presented.

Contractual maturities may differ from expected maturities because issuers can have the right to call or prepay obligations without penalties.

3 unchanged sentences

Maturity as of December 31, 2022

One Year or Less

One to Five Years

Five to Ten Years

After Ten Years

(Dollars in thousands)

Available-for-sale:

One Year or Less One to Five Years Five to Ten Years After Ten Years

(Dollars in thousands) Amortized

Cost Weighted

Average Yield Amortized

Cost Weighted

Yield Amortized Cost Weighted

Yield Amortized

Cost Weighted

Held-to-maturity:

Treasury debt $ — — % $ 243 * % $ — — % $ — — %

5 unchanged sentences

Corporate CMO and MBS — — — — 26 * 4,048 0.19

Total available-for-sale

* Not meaningful

Total held-to-maturity $ — — % $ 2,384 0.11 % $ 24,108 1.26 % $ 54,564 1.68 %

Maturity as of December 31, 2021

One Year or Less

One to Five Years

Five to Ten Years

After Ten Years

(Dollars in thousands)

One Year or Less One to Five Years Five to Ten Years After Ten Years

(Dollars in thousands) Amortized

Cost Weighted

Average Yield Amortized

Cost Weighted

Yield Amortized Cost Weighted

Yield Amortized

Cost Weighted

Available-for-sale:

Treasury debt $ — — % $ 250 * $ — — % $ — — %

Government agency 506 0.02 164 * 1,190 0.04 1,662 0.07

Corporate bonds — — — — 8,113 0.71 — —

1 unchanged sentence

FNMA mortgage-backed securities - residential — — 176 0.01 2,183 0.10 12,041 0.36

Government CMO and MBS - commercial — — 202 0.01 — — 676 0.04

Corporate CMO and MBS — — — — 33 * 1,459 0.07

Total available-for-sale $ 506 0.02 % $ 792 0.02 % $ 11,519 0.85 % $ 42,449 1.46 %

_____________________________

* Not meaningful

11 unchanged sentences

As of December 31, 2022 and December 31, 2021, we had mortgage loans held for sale of $8.8 million and $30.6 million, respectively, in residential mortgage loans we originated.

Loan balances include the impacts of PPP and the Branch Acquisition.

See Note 2 - Acquisitions of the accompanying Notes to Consolidated Financial Statements for additional information.

Beginning in the first quarter of 2022, the Company entered into whole loan purchase agreements to acquire third party originated and serviced unsecured consumer loans to hold for investment and elected the fair value option to account for these loans.

As of December 31, 2022, the Company has $23.3 million in loans accounted for under the fair value option with an unpaid principal balance of $23.4 million.

See Note 17 - Fair Value in the Notes to Condensed Consolidated Financial Statements.

As of December 31, 2022 , the Company has $7.1 million in PPP loans outstanding with $0.2 million in remaining fees to be recognized.

The remaining fees represent the net amount of the fees from the SBA for participation in the PPP less the loan origination costs on these loans.

The current amortization of this income is being recognized over a two-year period, however if a loan receives full forgiveness from the SBA, the remaining income will be recognized upon receipt of the funds from the SBA.

For PPP balances not forgiven, the remaining net fee is extended and amortized over a 5-year payback period.

The following presents our loan portfolio by type of loan as of the dates indicated, in thousands:

The current amortization of this income is being recognized over a five-year period from the time of origination, however, if a loan receives full forgiveness from the SBA or if the borrower repays the loan, the remaining income will be recognized upon payoff.

The following presents our loan portfolio by type of loan as of the dates noted (dollars in thousands):

As of December 31,

(Dollars in thousands)

(Dollars in thousands) Amount % of Total Amount % of Total

Cash, Securities, and Other (1)

$ 165,670 6.6 % $ 261,190 13.4 %

Consumer and Other (2)

49,954 2.0 34,758 1.8

Construction and Development 288,497 11.7 178,716 9.1

4 unchanged sentences

Total loans held for investment (3)

Mortgage loans held for sale

(1) Loans held for investment exclude deferred costs/(fees) and unamortized premiums/(unaccreted discounts), net of ($5.0) million and ($1.4) million as of December 31, 2021 and 2020, respectively.

$ 2,476,135 100.0 % $ 1,954,168 100.0 %

Mortgage loans held for sale, at fair value $ 8,839 $ 30,620

Loans held for sale, at fair value 1,965 —

_____________________________

(1) Includes PPP loans of $7.1 million and $46.8 million as of December 31, 2022 and 2021, respectively.

(2) Includes loans held for investment accounted for under fair value option of $23.4 million as of December 31, 2022.

(3) Loans held for investment exclude deferred fees, unamortized premiums/(unaccreted discounts), net, and fair value adjustments on loans held for investment accounted for under fair value option, which collectively totaled ($6.7) million and ($5.0) million as of December 31, 2022 and 2021, respectively.

• Cash, Securities and Other— consists of consumer and commercial purpose loans that are primarily secured by securities managed and under custody with us, cash on deposit with us or life insurance policies.

In addition, loans in this portfolio are collateralized with other sources of consumer collateral and an immaterial amount of each loan may be unsecured.

In addition, loans in this portfolio are collateralized with other sources of collateral.

This segment of our portfolio is affected by a variety of local and national economic factors affecting borrowers’ employment prospects, income levels, and overall economic sentiment.

PPP loans that are fully guaranteed by the SBA are classified within this line item and had balances of $7.1 million and $46.8 million as of December 31, 2022 and 2021, respectively.

• Consumer and Other— consists of unsecured consumer loans.

Loans held for investment accounted for under the fair value option are also classified within this line item and had a balance of $23.4 million as of December 31, 2022.

There were no loans held for investment accounted for under the fair value option as of December 31, 2021.

• Construction and Development —consists of loans to finance the construction of residential and non-residential properties.

10 unchanged sentences

MSLP loans of $6.6 million and $6.8 million as of December 31, 2022 and 2021, respectively, are included in this category.

The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with fixed and floating interest rates in each maturity range, excluding deferred costs (fees), and unamortized premiums/(unaccreted discounts), as of the date indicated are summarized in the following tables:

The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with fixed and floating interest rates in each maturity range, excluding deferred fees, and unamortized premiums/(unaccreted discounts), as of the dates noted, are summarized in the following tables:

As of December 31, 2022

(Dollars in thousands)

Fifteen Years

(Dollars in thousands) One Year

or Less One Through

Five Years Five Through

Fifteen Years After

Fifteen Years Total

Cash, Securities, and Other $ 58,439 (1)

$ 104,844 (1)

$ 1,555 $ 832 $ 165,670

Consumer and Other (2)

17,552 29,127 2,241 1,034 49,954

Construction and Development 71,169 201,651 15,427 250 288,497

3 unchanged sentences

Commercial and Industrial 94,555 216,787 49,686 — 361,028

Total loans $ 308,415 $ 1,072,336 $ 404,929 $ 690,455 $ 2,476,135

Amounts with fixed rates $ 127,052 $ 505,674 $ 203,041 $ 87,573 $ 923,340

Amounts with floating rates 181,363 566,662 201,888 602,882 1,552,795

Total loans $ 308,415 $ 1,072,336 $ 404,929 $ 690,455 $ 2,476,135

_____________________________

(1) Includes PPP loans.

(2) Includes loans held for investment accounted for under fair value option

As of December 31, 2021

(Dollars in thousands)

Fifteen Years

(Dollars in thousands) One Year

or Less One Through

Five Years Five Through

Fifteen Years After

Fifteen Years Total

Cash, Securities, and Other $ 113,984 (1)

$ 137,675 (1)

$ 5,434 $ 4,097 $ 261,190

Consumer and Other 22,314 11,214 127 1,103 34,758

Construction and Development 74,111 96,817 7,788 — 178,716

3 unchanged sentences

Commercial and Industrial 46,742 107,596 49,246 — 203,584

Total loans $ 353,266 $ 821,696 $ 350,900 $ 428,306 $ 1,954,168

Amounts with fixed rates $ 120,549 $ 506,040 $ 253,223 $ 26,682 $ 906,494

Amounts with floating rates 232,717 315,656 97,677 401,624 1,047,674

Total loans $ 353,266 $ 821,696 $ 350,900 $ 428,306 $ 1,954,168

_____________________________

(1) Includes PPP loans.

1 unchanged sentence

As a result of the COVID-19 pandemic, a loan modification program was designed and implemented to assist our clients experiencing financial stress resulting from the economic impacts caused by the global pandemic.

The Company was offering loan extensions, temporary payment moratoriums, and financial covenant waivers for commercial and consumer borrowers impacted by the pandemic who have a pass risk rating and have not been delinquent over 30 days on payments in the last two years.

The Company offered loan extensions, temporary payment moratoriums, and financial covenant waivers for commercial and consumer borrowers impacted by the pandemic who had a pass risk rating and had not been delinquent over 30 days on payments in the last two years.

The CARES Act provides banks optional, temporary relief from accounting for certain loan modifications as a TDR.

2 unchanged sentences

We believe our loan modification program meets that definition.

In accordance with that guidance, the Company is recognizing interest income on all loans modified for temporary payment moratoriums, primarily for a period of 180 days or less.

The Company had sixty-nine loans across multiple industries in the amount of $130.4 million of loans that took part in the Company’s COVID loan modification program.

No loans in the loan modification program were delinquent according to Bank policy as of December 31, 2021.

No loans were still in the modification period as of December 31, 2021.

As of December 31, 2020, the Company’s loans included two modified loans, which were still in the modification period, across multiple industries in the amount of $2.1 million, representing 0.13% of total loans.

In accordance with

that guidance, the Company is recognizing interest income on all loans modified for temporary payment moratoriums, primarily for a period of 180 days or less.

In 2021, the deferral period ended for all non-acquired loans previously modified and payments resumed under the original terms.

As of December 31, 2022, the Company's loan portfolio included 49 non-acquired loans which were previously modified under the loan modification program, totaling $78.4 million.

Through the Teton acquisition, the Company acquired loans which were previously modified and are still in their deferral period.

As of December 31, 2022, there were 14 of these loans, totaling $3.3 million.

All loans modified in response to COVID-19 are classified as performing and pass rated as of December 31, 2022.

These loans are included in the allowance for loan loss general reserve in accordance with ASC 450-20.

Non-acquired COVID modified loans are included in the allowance for loan loss general reserve in accordance with ASC 450-20.

Management has increased our loan level reviews and portfolio monitoring to address the changing environment.

The Company continues to meet regularly with clients who could be more highly impacted by the recent COVID-19 pandemic.

These are borrowers in industries we believe may be more impacted by the pandemic, for instance those loans where there may be a greater than 50% probability of a downgrade, covenant violation or 20% reduction in collateral position.

Management believes the diversity of the loan portfolio is prudent and remains consistent with the credit culture and goals of the Bank.

2 unchanged sentences

Non-Performing Assets

Non-performing assets include non-accrual loans, TDRs, loans past due 90 days or more and still accruing interest, and OREO.

The accrual of interest on loans is discontinued at the time the loan becomes 90 or more days delinquent unless the loan is well secured and in the process of collection.

Non-performing assets include non-accrual loans, TDRs, and OREO.

The accrual of interest on loans is discontinued at the time the loan becomes 90 or more days delinquent unless the loan is well secured and in the process of collection or renewal due to maturity.

Past due status is based on the contractual terms of the loan.

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While disposition efforts with respect to our OREO are generally ongoing, if these properties are appraised at lower-than-expected values or if we are unable to sell the properties at the prices for which we expect to be able to sell them, we may incur additional losses.

During the year ended December 31, 2020, we incurred $0.2 million in losses as a result of sales contracts in place which were lower than the carrying value.

During the year ended December 31, 2022, we recognized an immaterial amount of gains on the sale of OREO.

The amount of lost interest for non-accrual loans was $0.2 million for each of the years ended December 31, 2022 and 2021.

We had $4.3 million in non-performing assets as of December 31, 2021 and December 31, 2020.

We had $12.3 million and $4.3 million in non-performing assets as of December 31, 2022 and December 31, 2021, respectively.

The increase in non-performing assets is related to the addition of $8.9 million for two related problem loan credits at the end of the fourth quarter.

The Company did not add a specific reserve to these new problem credits due to adequate collateral coverage as of December 31, 2022.

The following presents information regarding non-performing loans as of the dates indicated:

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Cash, Securities, and Other $ 4 $ 6

Consumer and Other 146 2

Construction and Development 201 —

1-4 Family Residential — 75

Non-Owner Occupied CRE

Owner Occupied CRE 1,165 1,241

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TDRs still accruing — 55

Accruing loans 90 or more days past due

Total non-performing loans 12,349 4,317

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Non-accrual loans to total loans (2)

0.50 % 0.22 %

Non-performing loans to total loans (2)

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Allowance for loan losses to non-performing loans 139.14 317.36

(1) As of December 31, 2021, all but one non-accrual loan, totaling an immaterial amount, were also classified as TDRs.

As of December 31, 2020, all but two non-accrual loans, totaling $0.5 million, were also classified as TDRs.

Accruing loans 90 or more days past due $ 25 $ 10

_____________________________

(1) As of December 31, 2022, all but three non-accrual loans, totaling $9.1 million, were also classified as TDRs.

As of December 31, 2021, all but one non-accrual loan, totaling an immaterial amount, was also classified as a TDR.

See Note 5 – Loans and the Allowance for Loan Losses to the Consolidated Financial Statements.

(2) Excludes mortgage loans held for sale of $8.8 million and $30.6 million as of December 31, 2022 and 2021, respectively.

Excludes loans held for sale, at fair value of $2.0 million as of December 31, 2022.

Potential Problem Loans

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Loans in this risk grade are not considered adversely classified.

Substandard— Substandard loans are considered "classified"

and are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any.

Substandard— Substandard loans are considered "classified" and are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any.

Loans so classified have a well-defined weakness or weaknesses that jeopardizes the liquidation of the debt.

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Loans in this category may be placed on non-accrual status and may individually be evaluated for impairment if indicators of impairment exist.

Doubtful —Loans graded doubtful are considered "classified"

and have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

Doubtful —Loans graded doubtful are considered "classified" and have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.

However, the amount or certainty of eventual loss is not known because of specific pending factors.

Loans accounted for under the fair value option are not rated.

Loans not meeting any of the three criteria above are considered to be pass-rated loans.

As of December 31, 2022 and December 31, 2021, non-performing loans of $12.2 million and $4.3 million, respectively, were included in the substandard category in the table below.

The following presents, by class and by credit quality indicator, the recorded investment in our loans as of the dates indicated:

The following presents, by class and by credit quality indicator, the recorded investment in our loans as of the dates noted (dollars in thousands):

As of December 31, 2022

(Dollars in thousands) Pass Special

Mention Substandard Not Rated Total

Cash, Securities and Other (1)

$ 165,666 $ — $ 4 $ — $ 165,670

Consumer and Other (2)

26,539 — — 23,415 49,954

Construction and Development 288,296 — 201 — 288,497

1-4 Family Residential 898,154 — — — 898,154

Non-Owner Occupied CRE 496,776 — — — 496,776

Owner Occupied CRE 214,891 — 1,165 — 216,056

Commercial and Industrial 347,803 2,392 10,833 — 361,028

Total $ 2,438,125 $ 2,392 $ 12,203 $ 23,415 $ 2,476,135

As of December 31, 2021

(Dollars in thousands)

(Dollars in thousands) Pass Special

Mention Substandard Not Rated Total

Cash, Securities and Other (1)

$ 261,184 $ — $ 6 $ — $ 261,190

Consumer and Other 34,756 — 2 — 34,758

Construction and Development 176,194 2,522 — — 178,716

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Commercial and Industrial 198,368 401 4,815 — 203,584

Total $ 1,938,462 $ 8,875 $ 6,831 $ — $ 1,954,168

_____________________________

(1) Includes PPP loans of $7.1 million and $46.8 million as of December 31, 2022 and 2021, respectively.

(2) Includes $23.4 million of unpaid principal balance of loans held for investment accounted for under fair value option as of December 31, 2022.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses, which is a noncash charge to earnings.

Loan losses are charged against the allowance when management believes that a loan balance is confirmed uncollectable.

Loan losses are charged against the allowance when management believes that a loan balance is confirmed uncollectible.

Subsequent recoveries, if any, are credited to the allowance for loan losses.

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Allocations of the allowance for loan losses may be made for specific loans, but the entire allowance for loan losses is available for any loan that, in management’s judgment, should be charged off.

We are closely monitoring the changing dynamics in the economy and the client impact driven by the COVID-19 pandemic.

We have intensified our portfolio management, focusing on higher impacted industries and commercial property types.

We are closely monitoring the changing dynamics in the economy and the related impacts to our clients.

Our clientele is generally comprised of high net-worth individuals and commercial borrowers with strong credit profiles and multiple sources of repayment.

Excluding loans acquired through the Teton Acquisition, the portion of our credit exposure to the highest risk industries impacted by COVID-19, such as accommodations, transportation and restaurants, is less than 4.3% of our loan portfolio.

We are actively reviewing our acquired loans for any exposure to high risk industries.

The Company has increased our loan level reviews and portfolio monitoring to address the changing environment and continues to engage in more frequent communication with these borrowers to better understand the impact on our borrower’s cash flows and respond proactively.

While the length of time some of these businesses are unable to operate or operate at full capacity is unknown, it could have a significant impact on many factors that impact our borrowers and our reserve requirement.

During the year ended December 31, 2022, the Company recorded a provision of $3.7 million.

Management will continue to closely monitor the loan portfolio and analyze the economic data to assess the impact on the allowance for loan loss.

We believe the allowance for loan losses is adequate as of December 31, 2022.

The following presents summary information regarding our allowance for loan losses for the periods indicated:

The following presents summary information regarding our allowance for loan losses for the periods presented (dollars in thousands):

Year Ended December 31,

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Average loans outstanding (1)(2)

$ 2,154,253 $ 1,594,084

Total loans outstanding at end of period (3)

$ 2,469,413 $ 1,949,137

Allowance for loan losses at beginning of period $ 13,732 $ 12,539

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Cash, Securities, and Other (1) —

Consumer and Other (262) (44)

Construction and Development — —

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Cash, Securities, and Other — 7

Consumer and Other 103 —

Construction and Development — —

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Allowance for loan losses to total loans (4)

0.70 % 0.70 %

Net charge-offs to average loans 0.01 *

_____________________________

(1) Average balances are average daily balances.

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(3) Excludes mortgage loans held for sale of $8.8 million and $30.6 million as of December 31, 2022 and 2021, respectively.

Excludes loans held for sale, at fair value of $2.0 million as of December 31, 2022.

(4) End of period loans as of December 31, 2022 includes $234.7 million in acquired loans and $7.1 million in PPP loans, of which $0.7 million are acquired PPP loans.

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Excluding these loans would result in an increase of the ratio for the year ended December 31, 2022.

(5) For percentages shown as a dash, the ratio of net charge-offs to average loans is negligible or immaterial.

The following table represents the allocation of the allowance for loan losses among loan categories and other summary information.

The allocation for loan losses by category should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in future periods will necessarily occur in these amounts or in the indicated proportions.

(*) Immaterial

The following represents the allocation of the allowance for loan losses among loan categories and other summary information.

The allocation of a portion of the allowance for loan losses to one category of loans does not preclude its availability to absorb losses in other categories.

The primary driver for the increase in the allowance from December 31, 2020 to December 31, 2021 was the loan portfolio growth.

Additionally, the Company adjusted certain macro-economic factors based on continued signs of growth and recovery in the economy due to the COVID-19 pandemic.

As of December 31,

(Dollars in thousands)

(Dollars in thousands) Amount % (1)

Cash, Securities and Other $ 1,198 6.6 % $ 1,598 13.4 %

Consumer and Other 191 2.0 266 1.8

Construction and Development 2,025 11.7 1,092 9.1

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Total allowance for loan losses $ 17,183 100.0 % $ 13,732 100.0 %

_____________________________

(1) Represents the percentage of loans to total loans in the respective category.

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Total deposits increased by $199.5 million, or 9.0%, to $2.41 billion as of December 31, 2022 from December 31, 2021.

The increase was attributable to the Teton Acquisition and continued organic growth with new client accounts, as well as increased deposit balances within the existing deposit accounts, offset partially by intentional runoff of higher rate non-relationship deposits.

The increase was driven primarily by organic growth through expanded client relationships.

Total average deposits for the year ended December 31, 2022 were $2.22 billion, an increase of $485.4 million, or 27.9%, compared to $1.74 billion as of December 31, 2021.

The following presents the average balances and average rates paid on deposits for the periods below:

The following presents the average balances and average rates paid on deposits during the periods presented (dollars in thousands):

As of and For the Year Ended December 31,

(Dollars in thousands)

(Dollars in thousands) Average

Balance Average

Money market deposit accounts $ 1,060,258 1.00 % $ 899,970 0.23 %

NOW accounts 297,134 0.18 134,039 0.17

Uninsured time deposits 52,457 1.26 43,199 1.28

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Our average cost of funds was 0.73% and 0.29% during the year ended December 31, 2022 and 2021, respectively.

The decrease was driven by a 30 basis point reduction in interest bearing deposit costs consistent with the lower interest rate environment.

Total money market accounts as of December 31, 2021 were $1.06 billion, an increase of $209.2 million, or 24.7%, compared to $847.4 million as of December 31, 2020.

NOW accounts increased $196.9 million, or 174.2%, to $309.9 million compared to December 31, 2020.

Total time deposits as of December 31, 2021 were $170.5 million, a decrease of $2.2 million, or 1.3%, compared to December 31, 2020.

The following presents the amount of certificates of deposit by time remaining until maturity as of December 31, 2021:

(Dollars in thousands)

Three Months or Less

Three to Six Months

Six to 12 Months

After 12 Months

The increase was driven by a 54 basis point increase in interest bearing deposit costs consistent with the higher interest rate environment.

Total money market accounts as of December 31, 2022 were $1.34 billion, an increase of $279.4 million, or 26.4%, compared to $1.06 billion as of December 31, 2021.

NOW accounts decreased $75.2 million, or 24.3%, to $234.8 million compared to December 31, 2021.

Total time deposits as of December 31, 2022 were $224.1 million, an increase of $53.6 million, or 31.4%, compared to December 31, 2021.

The following presents the amount of certificates of deposit by time remaining until maturity as of December 31, 2022 (dollars in thousands):

(Dollars in thousands) Three Months or Less Three to Six Months Six to 12 Months After 12 Months Total

Uninsured Time Deposits $ 4,608 $ 19,900 $ 33,139 $ 29,348 $ 86,995

Other 41,271 32,006 50,112 13,706 137,095

Total $ 45,879 $ 51,906 $ 83,251 $ 43,054 $ 224,090

We have short-term and long-term borrowing sources available to supplement deposits and meet our liquidity needs.

As of December 31, 2022 and December 31, 2021, borrowings totaled $199.0 million and $77.7 million, respectively.

On August 31, 2021, the Company completed the issuance and sale of subordinated notes totaling $15.0 million.

On December 22, 2021, the Company issued Notices of Redemption to debt holders totaling $6.6 million to be redeemed on January 2, 2022.

The decrease in other borrowings is primarily attributed to the paydown of loans in the Paycheck Protection Program Loan Facility from the Federal Reserve with a period end balance of $23.6 million.

Borrowing from this facility is expected to trend in the same direction as the PPP loan balances.

The following presents balances of each of the borrowing facilities as of the dates indicated:

On January 1, 2022, the Company redeemed subordinated notes due December 31, 2026 in the amount of $6.6 million, which were redeemable on or after January 1, 2022.

On December 5, 2022, the Company completed the issuance and sale of subordinated notes totaling $20.0 million in aggregate principal amount.

The issuance included $0.5 million of issuance costs resulting in a net balance of $19.5 million as of December 31, 2022.

The increase in other borrowings is primarily attributed to additional FHLB borrowings to support the strong loan growth in 2022, partially offset by the paydown of loans in the Paycheck Protection Program Loan Facility ("PPPLF") from the Federal Reserve with a period end balance of $5.4 million and the redemption of $6.6 million in subordinated notes .

Borrowing from the PPPLF facility is expected to trend in the same direction as the PPP loan balances.

The following presents balances of each of the borrowing facilities as of the dates noted (dollars in thousands):

December 31, December 31,

(Dollars in thousands) 2022 2021

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Subordinated notes 52,132 39,031

Total $ 199,018 $ 77,660

We have a blanket pledge and security agreement with FHLB that requires certain loans and securities to be pledged as collateral for any outstanding borrowings under the agreement.

The collateral pledged as of December 31, 2021 and December 31, 2020 amounted to $771.4 million and $668.6 million, respectively.

The collateral pledged as of December 31, 2022 and December 31, 2021 amounted to $1.26 billion and $771.4 million, respectively.

Based on this collateral and the Company’s holdings of FHLB stock, the Company was eligible to borrow an additional $751.2 million as of December 31, 2022.

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Average interest rate at the end of the period 2.11

The Bank has borrowing capacity associated with three unsecured federal funds lines of credit up to $10.0 million, $19.0 million, and $25.0 million.

The Bank has borrowing capacity associated with two unsecured federal funds lines of credit up to $10 million and $19 million.

As of December 31, 2022 and 2021, there were no amounts outstanding on any of the federal funds lines.

On October 28, 2020, the Company entered into a Business Loan Agreement and associated Promissory Note (the “Note”), dated June 30, 2020, with a corresponding lending partner.

The Note is secured by stock of the Bank and bears interest at the one month ICE Benchmark Administration (“IBA”) LIBOR plus 2.5%.

As of December 31, 2020, there were no amounts outstanding and the borrowing capacity associated with this facility was $5.0 million.

The Business Loan Agreement expired on June 30, 2021, in accordance with its terms, and was not renewed.

Our borrowing facilities include various financial and other covenants, including, but not limited to, a requirement that the Bank maintains regulatory capital that is deemed "well capitalized"

by federal banking agencies.

Our borrowing facilities include various financial and other covenants, including, but not limited to, a requirement that the Bank maintains regulatory capital that is deemed "well capitalized" by federal banking agencies.

As of December 31, 2022 and December 31, 2021, the Company was in compliance with the covenant requirements.

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Access to purchased funds primarily include the ability to borrow from FHLB, other correspondent banks and the use of brokered deposits.

The following presents, during the periods presented, the composition of our funding sources and the average assets in which those funds are invested as a percentage of average total assets for the period indicated.

Average Percentage for the Year Ended

December 31, Average Percentage for the Year Ended

Sources of Funds:

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Shareholders’ equity 8.82 8.23

Total 100.00 % 100.00 %

Uses of Funds:

Available-for-sale securities

Total loans 82.09 % 76.77 %

Investment securities 2.84 1.50

Correspondent bank stock 0.19 0.10

Mortgage loans held for sale 0.60 4.30

Interest-bearing deposits in other financial institutions 9.54 12.71

Federal funds sold 0.03 0.07

Noninterest-earning assets 4.71 4.55

Total 100.00 % 100.00 %

Average noninterest-bearing deposits to total average deposits 30.14 % 31.67 %

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Total shareholders’ equity increased $21.8 million, or 10.0%, to $240.9 million as of December 31, 2022 compared to December 31, 2021.

The increase is primarily due to $39.8 million in equity issued as consideration for the Teton Acquisition and net income of $20.6 million.

On November 3, 2020, the Company announced that its board of directors authorized the repurchase of up to 400,000 shares of the Company’s common stock, no par value, from time to time, within one year (the "2020 Repurchase Plan") and that the Board of Governors of the Federal Reserve System advised the Company that it has no objection to the Company’s 2020 Repurchase Plan.

The Company may repurchase shares in privately negotiated transactions, in the open market, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 promulgated by the Securities and Exchange Commission, or otherwise in a manner that complies with applicable federal securities laws.

The 2020 Repurchase Plan does not obligate the Company to acquire a specific dollar amount or number of shares and it may be extended, modified or discontinued at any time without notice.

The 2020 Repurchase Plan expired in November 2021.

During the year ended December 31, 2021, the Company did not repurchase any shares under the 2020 Repurchase plan.

The increase is primarily due to net income.

On January 6, 2022, the Company filed a Form S-3 Registration Statement with the SEC providing that the Company may offer and sell from time to time, separately or together, in multiple series or in one or more offerings, any combination of common stock, preferred stock, debt securities, warrants, depository shares and units, up to a maximum aggregate offer price of $100 million.

We are subject to various regulatory capital adequacy requirements at a consolidated level and the bank level.

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Generally, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital relative to the amount and types of assets they hold.

As of December 31, 2021 and December 31, 2020, respectively, our holding company and Bank were in compliance with all applicable regulatory capital requirements, and the Bank was classified as "well capitalized,"

for purposes of the prompt corrective action regulations.

As of December 31, 2022 and December 31, 2021, respectively, our

holding company and Bank were in compliance with all applicable regulatory capital requirements, and the Bank was classified as "well capitalized," for purposes of the prompt corrective action regulations.

As we continue to grow our operations and maintain capital requirements, our regulatory capital levels may decrease depending on our level of earnings.

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The following presents our regulatory capital ratios for the dates noted.

December 31, 2021

December 31, 2020

(Dollars in thousands)

December 31, 2022 December 31, 2021

(Dollars in thousands) Amount Ratio Amount Ratio

Tier 1 capital to risk-weighted assets

Consolidated Company

Common Equity Tier 1(CET1) to risk-weighted assets

Consolidated Company

Bank $ 234,738 0.10 $ 203,164 0.11

Consolidated 212,229 0.09 188,777 0.11

CET1 to risk-weighted assets

Bank 234,738 0.10 203,164 0.11

Consolidated 212,229 0.09 188,777 0.11

Total capital to risk-weighted assets

Consolidated Company

Bank 252,398 0.11 217,215 0.12

Consolidated 282,889 0.12 242,388 0.14

Tier 1 capital to average assets

Consolidated Company

Bank 234,738 0.09 203,164 0.10

Consolidated 212,229 0.08 188,777 0.09

Contractual Obligations and Off-Balance Sheet Arrangements

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We follow the same credit policies in making commitments as we do for on-balance sheet instruments.

The following presents future contractual obligations to make future payments for the periods indicated (amounts in thousands):

The following presents future contractual obligations to make future payments for the periods presented (dollars in thousands):

As of December 31, 2022

or Less More than

1 Year but Less

than 3 Years More than

3 Years but Less

than 5 Years 5 Years

or More Total

FHLB and Federal Reserve $ 141,498 $ — $ 5,388 $ — $ 146,886

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Minimum lease payments 3,228 5,224 1,544 1,752 11,748

(1) Reflects contractual maturity dates of December 31, 2026, March 31, 2030, December 1, 2030, and September 1, 2031.

Notice of early redemption has been provided for the subordinated notes due December 31, 2026.

The following presents financial instruments whose contract amounts represent credit risk, as of the dates indicated.

(Dollars in thousands)

Variable Rate

Total $ 325,762 $ 41,114 $ 14,096 $ 53,884 $ 434,856

_____________________________

(1) Reflects contractual maturity dates of March 31, 2030, December 1, 2030, September 1, 2031, and December 15, 2032.

The following presents financial instruments whose contract amounts represent credit risk, as of the periods presented (dollars in thousands):

December 31, December 31,

(Dollars in thousands) Fixed Rate Variable Rate Fixed Rate Variable Rate

Unused lines of credit $ 211,285 $ 601,202 $ 136,289 $ 442,035

8 unchanged sentences

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