What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-03-07 compared with 2024-03-15 · 283 added, 326 removed, 793 unchanged (43% of the section changed)

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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, Montana, and California.

Our profit centers, which are comprised of private bankers, lenders, wealth planners and portfolio managers, under the leadership of 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, 2023, we have expanded our footprint into fourteen full service profit centers, three loan production offices, and one trust office located across five states.

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, 2024, we have expanded our footprint into fourteen full service profit centers, five loan production offices, and one trust office located across five states.

As of and for the year ended December 31, 2024, we had $2.92 billion in total assets, $90.1 million in total revenues, and provided fiduciary and advisory services on $7.32 billion of assets under management ("AUM").

Recent Industry Developments

During March and April of 2023, the banking industry experienced significant disruption and volatility with the failure of multiple banks creating industry wide concerns related to liquidity, deposit outflows, unrealized securities losses, and eroding consumer confidence in the banking industry.

Despite the market wide impact to bank stock prices, we believe the Bank remains stable with strong fundamentals including uninsured deposits lower than our peer average, at $852.8 million, or 33.7% of total deposits as of December 31, 2023.

The Company has a low amount of held-to-maturity securities, which represent 2.5% of Total assets, and carries unrecognized losses amounting to 3.1% of Total shareholders’ equity as of December 31, 2023.

We have limited exposure to commercial real estate (“CRE”) non-owner occupied office space which has been impacted by the shift to hybrid work environments.

During 2024, the banking industry largely rebounded from the disruption and volatility seen in 2023 stemming from the failure of multiple banks, which created industry wide concerns related to liquidity, deposit outflows, and unrealized securities losses.

Valuations for bank stocks improved during the year, although there are still headwinds across the industry.

The Bank remains stable with strong fundamentals including uninsured deposits at $902.6 million, or 35.9% of total deposits as of December 31, 2024.

The Company has a low amount of held-to-maturity debt securities, which represent 2.6% of Total assets and carries unrecognized losses amounting to 3.0% of Total shareholders’ equity as of December 31, 2024.

We have a conservative credit appetite as evidenced by our limited exposure to non-owner occupied office space commercial real estate (“CRE”), which has been negatively impacted by the shift to hybrid work environments.

Our client base is well diversified with no single industry concentration.

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The primary factors we use to evaluate our results of operations include net interest income, non-interest income and non-interest expense.

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Net Interest Income

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Interest income is primarily impacted by loan growth and loan repayments, along with changes in interest rates on the loans.

Interest expense is primarily impacted by changes in deposit balances, changes in interest rates on deposits, along with the volume and type of interest-bearing liabilities.

Interest expense is primarily impacted by changes in deposit balances, changes in interest rates on deposits, and the volume and type of interest-bearing liabilities.

Net interest income is primarily impacted by changes in market interest rates, the slope of the yield curve, and interest we earn on interest-earning assets or pay on interest-bearing liabilities.

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Salaries and employee benefit costs are primarily impacted by changes in headcount and fluctuations in benefits costs.

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• Occupancy and equipment —costs related to building and land maintenance, leasing our office space, depreciation charges for the buildings, building improvements, furniture, fixtures and equipment, amortization of leasehold improvements, utilities, and other occupancy-related expenses.

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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.

• 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 —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, changes in OREO valuations subsequent to the initial acquisition when updated fair values are lower than the cost basis, 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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the diversification and quality of loan and investment portfolios;

the extent of counterparty risks, credit risk concentrations, and other factors.

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and the extent of counterparty risks, credit risk concentrations, and other factors.

We manage our liquidity based upon factors that include the level and quality of capital and our overall financial condition, the trend and volume of problem assets, our balance sheet risk exposure, the level of deposits as a percentage of total loans, the amount of non-deposit funding used to fund assets, the availability of unused funding sources and off-balance sheet obligations, the availability of assets to be readily converted into cash without undue loss, the amount of cash and liquid securities we hold, and other factors.

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The year ended December 31, 2024 compared with the year ended December 31, 2023 .

For the year ended December 31, 2023, we reported net income available to common shareholders of $5.2 million, compared to net income available to common shareholders for December 31, 2022 of $21.7 million, a $16.5 million, or 75.9% decrease.

For the year ended December 31, 2023, our income before income tax was $7.1 million a $21.8 million, or 75.5%, decrease from December 31, 2022.

The decrease was primarily driven b y a $19.5 million decrease in net interest income, after provision for credit losses and a $5.7 million decrease in non-interest income, partially offset by a $3.5 million decrease in non-interest expense.

The decrea se in net interest income, after provision for credit losses, was primarily due to higher rates on deposits and borrowings resulting from increased market rates, an increase in the provision of credit losses due to $8.8 million of charge-offs, offset partially by an increase in interest and fees on loans resulting from loan growth and higher loan yields.

The decrease in non-interest income was due to a $1.8 million decrease in net gain on mortgage loans driven by a slowdown in new lock volume associated with the rising interest rate environment, $1.2 million of impairment to the carrying value of a contingent consideration asset, and a $1.1 million increase in losses on loans accounted for under the fair value option recorded during the year ended December 31, 2023.

The decrease in non-interest expense was primarily driven by lower salaries and benefits related to staffing reductions to better align with current revenue.

We reported Net income available to common shareholders of $8.5 million for the year ended December 31, 2024, compared to $5.2 million of Net income available to common shareholders for the year ended December 31, 2023, a $3.2 million, or 63.5% increase.

For the year ended December 31, 2024, our Income before income taxes was $11.6 million, a $4.5 million, or 63.4%, increase from the year ended December 31, 2023.

The increase was primarily driven b y a $1.6 million increase in Net interest income, after provision for credit losses and a $5.8 million increase in Non-interest income, partially offset by a $2.9 million increase in Non-interest expense.

• The increase in Net interest income, after provision for credit losses was primarily driven by an increase in Total interest and dividend income due to an increase in total average interest-earning assets and average yield and a decrease in the Provision for credit losses predominately due to decreases in individually analyzed and pooled loan reserves, offset partially by an increase in Total interest expense due to an increase in total average interest-bearing liabilities and average rate.

• The increase in Non-interest income was due to an increase in Net gain on mortgage loans driven by higher average gain on sale margins and origination volumes, increase in Risk management and insurance fees due to an increase in insurance client agreements, decrease in impairment to the carrying value of a contingent consideration asset, and decrease in Net loss on loans accounted for under the fair value option recorded.

• The increase in Non-interest expense was primarily driven by increases in Other operational costs attributed to higher costs on non-performing asset workouts, fraud losses, and an OREO write-down, Technology and information system costs related to enhancements of our information technology infrastructure, and Occupancy and equipment costs related to additional rent expense on the extension of a lease in 2024.

Net Interest Income

The year ended December 31, 2024 compared with the year ended December 31, 2023 .

For the year ended December 31, 2023, compared to the year ended December 31, 2022, net interest income, before the provision for credit losses, decreased $12.8 million, or 15.3%, to $71.1 million.

This decrease was driven by a $300.3 million increase in average interest bearing deposit balances and a 269 bps increase in average rates paid on interest bearing deposits partially offset by a $340.5 million increase in average loans outstanding and a 102 bps increase in the average yield on loans.

For the year ended December 31, 2024, Net interest income, before Provision for credit losses, was $64.3 million, a decrease of $6.8 million, or 9.6%, compared to the year ended December 31, 2023.

This decrease was driven by a $174.2 million increase in average interest-bearing deposit balances and a 54 basis point increase in average rates paid on Interest-bearing deposits, offset partially by a 27 basis point increase in the average yield on loans and a $53.7 million increase in Interest-bearing deposits in other financial institutions.

For the year ended December 31, 2024, our net interest margin was 2.37% and our net interest spread was 1.50%.

For the year ended December 31, 2023, our net interest margin was 2.62% and our net interest spread was 1.71%.

The increase in average loans outstanding for the year ended December 31, 2023 compared to the same periods in 2022 was due to an increase in construction and development, non-owner occupied CRE, and residential mortgage offset by a decrease in cash, securities, and other, consumer and other, commercial and industrial, and owner occupied CRE.

The growth in our construction and development portfolio was driven primarily by draws on existing commitments, partially offset by payoffs.

The decrease in average loans outstanding for the year ended December 31, 2024 compared to the same periods in 2023 was primarily due to net declines in the Cash, Securities and Other, Construction and Development, and Commercial and Industrial portfolios, offset by net growth in the 1-4 Family Residential and Non-Owner Occupied Commercial Real Estate portfolios.

Contributing factors to the decline in the Commercial and Industrial portfolio was the resolution of a problem credit relationship, which decreased non-performing loans by $42.2 million and increased Other real estate owned ("OREO") by $35.9 million, as well as net pay downs.

Average loan yield was 5.70% for the year ended December 31, 2024, compared to 5.43% for the year ended December 31, 2023.

The increase in loan yield during the period was primarily driven by an increase in yields on the variable rate portfolio and an increase in yields on new loan production due to the rising interest rate environment.

Interest income on our investment securities portfolio increased as a result of higher average investment balances and higher average yield for the year ended December 31, 2023 compared to the same period in 2022.

Our average investment securities balance during the year ended December 31, 2023 was $79.2 million, an increase of $5.0 million from the year ended December 31, 2022.

Interest expense on deposits increased during the year ended December 31, 2023 compared to the same period in 2022.

Average rates on interest bearing deposits increased 269 basis points, consistent with the higher interest rate environment, while the growth in interest-bearing deposits was primarily driven by new and expanded deposit relationships and a shift in clients moving out of non-interest bearing products into higher yielding products.

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The increase in loan yield during the period was primarily driven by an increase in yields on new loan production due to the continued elevated interest rate environment.

Interest income on our Debt securities portfolio increased as a result of an increase in average yield of 3.47% for the year ended December 31, 2024, compared to 3.11% for the year ended December 31, 2023.

Our average Debt securities balance during the year ended December 31, 2024 was $76.7 million, a decrease of $2.5 million from the year ended December 31, 2023.

Interest expense on Deposits increased during the year ended December 31, 2024.

Average interest-bearing deposit rates were 4.07% and 3.53% for the years ended December 31, 2024 and 2023.

The increase in Interest-bearing deposit rates was primarily attributable to the continued elevated interest rate environment and highly competitive deposit market.

The following table 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:

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Interest-bearing deposits in other financial institutions $ 171,290 $ 8,840 5.16 % $ 117,562 $ 5,711 4.86 %

Federal funds sold — — — 652 10 1.53

Investment securities (2)

Debt securities (2)

76,650 2,658 3.47 79,150 2,463 3.11

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Loans held at fair value 10,560 636 6.02 18,478 1,335 7.22

Interest-earning assets (5)

Total interest-earning assets (5)

2,719,257 152,651 5.61 2,714,149 145,558 5.36

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(2) Represents monthly averages.

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

Income, if any, on such loans is recognized on a cash basis.

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

Income, if any, is not recognized until all principal has been repaid.

(4) Mortgage loans held for sale are included in the interest-earning assets above, with interest income recognized in the Interest and dividend income on loans, including fees line in the Consolidated Statements of Income.

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(8) Net interest margin is equal to net interest income divided by average interest-earning assets.

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The following table 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, and distinguishes between changes attributable to volume and interest rates.

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Year Ended December 31, 2024

Compared to 2022

Compared to Year Ended December 31, 2023

(Decrease) Due

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Interest-bearing deposits in other financial institutions $ 2,773 $ 356 $ 3,129

Federal funds sold (10) — (10)

Investment securities 157 253 410

Debt securities (87) 282 195

Correspondent bank stock (258) 101 (157)

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Loans held at fair value (477) (222) (699)

Total increase in interest income $ 12,476 $ 31,886 $ 44,362

Total (decrease) increase in interest income $ (20) $ 7,113 $ 7,093

Interest-bearing liabilities:

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Total increase in interest expense $ 4,490 $ 9,384 $ 13,874

Increase in net interest income $ (773) $ (12,048) $ (12,821)

Decrease in net interest income $ (4,510) $ (2,271) $ (6,781)

Provision for Credit Losses

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We work to identify potential losses in a timely manner and proactively manage the problem credits to minimize losses.

For the years ended December 31, 2023 and 2022, we recorded $10.4 million and $3.7 million, respectively, of provision for credit losses.

The provision recorded for the year ended December 31, 2023 includes $8.8 million of charge-offs, a $3.8 million allowance recorded on non-performing loans, as well as general provisioning consistent with our net growth of the originated loan portfolio, partially offset by a $1.7 million provision release related to off-balance sheet commitments, as well as changes in our portfolio mix and reduced model loss rates used in our quantitative model, largely driven by the economic outlook scenario assuming a soft landing as compared to a more severe and deep recession previously forecasted.

The Company has increased loan level reviews and portfolio monitoring to address the changing environment.

For the years ended December 31, 2024 and 2023, we recorded $1.9 million and $10.4 million Provision for credit losses, respectively.

The provision recorded for the year ended December 31, 2024 was due to related provisioning on $9.0 million of net charge-offs, $3.5 million decrease in provisions on individually analyzed loans, $2.1 million release of provisions on pooled loans, and $1.5 million provision releases related to off-balance sheet commitments.

The release of provision related to individually analyzed loans was predominately due to the migration of one loan relationship out of non-performing loans and into OREO, pay downs on non-performing loans, and charge-offs.

The release of provision related to pooled loans was predominately due to net pay downs, changes in our portfolio mix, as well as modest macroeconomic forecast improvements.

The release of provision related to off-balance sheet commitments for the year ended December 31, 2024 was predominately due to decreases in non-cancellable commitments..

The Company maintains a credit management program which includes internal and external loan review along with recurring portfolio monitoring activities to address the changing environment.

Management believes the financial strength of the Bank’s clientele and the diversity of the portfolio continues to mitigate the credit risk within the portfolio.

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The year ended December 31, 2024 compared with the year ended December 31, 2023 .

For the year ended December 31, 2023 compared to the year ended December 31, 2022, non-interest income decreased $5.7 million, or 20.7%, to $21.9 million.

The decrease in non-interest income was primarily due as a result of a $1.8 million decrease in Net gain on mortgage loans driven by a slowdown in new lock volume on held for sale loans associated with the rising interest rate environment, $1.2 million of impairment to the carrying value of a contingent consideration asset recorded during the second quarter of 2023, and a $1.1 million increase in net losses on loans accounted for under the fair value option.

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For the year ended December 31, 2024 compared to the year ended December 31, 2023, Non-interest income increased $5.7 million, or 26.1%, to $27.7 million.

The increase in non-interest income was primarily due to a $2.1 million increase in Net gain on mortgage loans driven by higher average gain on sale margins and origination volumes, $0.7 million increase in Risk management and insurance fees due to an increase in insurance client agreements, $0.9 million decrease in impairment to the carrying value of a contingent consideration asset, and $1.0 million decrease in Net losses on loans accounted for under the fair value option.

The following table presents the significant categories of our non-interest income during the periods presented:

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Income on company-owned life insurance 431 378 53 14.0

Net gain on equity interests — 7 (7) (100.0)

Net loss on loans accounted for under the fair value option (999) (2,010) 1,011 50.3

Unrealized (loss)/gain recognized on equity securities (22) 342 (364) *

Unrealized loss recognized on equity securities (33) (22) (11) (50.0)

Other 581 (775) 1,356 175.0

Total non-interest income $ 27,680 $ 21,948 $ 5,732 26.1

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* Represents percentages that are not meaningful due to being insignificant or exceeding 100%

Trust and investment management fees — For the year ended December 31, 2023 compared to the same period in 2022, our trust and investment management fees decreased by $0.2 million, or 0.8%, to $18.8 million.

The decrease was primarily attributable to account attrition within one profit center, partially offset by an increase in our fee structure.

Net gain on mortgage loans — For the year ended December 31, 2023 compared to the same period in 2022, our net gain on mortgage loans decreased by $1.8 million, or 38.4%, to $2.8 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 the rising interest rate environment.

Net loss on loans held for sale — During the year ended December 31, 2023, the Company transferred $39.2 million of non-relationship loans held for investment to loans held for sale.

Upon transfer of the loans, the Company recorded a net loss on loans held for sale of $0.2 million, primarily attributable to the slight decline in fair value as a result of the rising interest rates on comparable loans in the market.

Bank fees — For the year ended December 31, 2023 compared to the same period in 2022, our bank fees decreased by $0.6 million or 24.0%.

The decrease was primarily driven by decreased treasury management fees as a result of rising interest rates driving higher earnings credit on commercial operating balances, partially offset by higher loan fees as a result of prepayment and swap derivative activity.

Risk management and insurance fees — For the year ended December 31, 2023 compared to the same period in 2022, our risk management and insurance fees decreased by $0.3 million, or 25.3%, to $0.9 million.

Trust and investment management fees —For the year ended December 31, 2024 compared to the same period in 2023, our Trust and investment management fees increased by $0.4 million, or 2.2%, to $19.2 million.

The increase was primarily attributable to an increase in assets under management due to an increase in market values.

Net gain on mortgage loans —For the year ended December 31, 2024 compared to the same period in 2023, our Net gain on mortgage loans increased by $2.1 million, or 73.8%, to $4.9 million.

The increase in Net gain on mortgage loans was driven by higher average gain on sale margins and origination volumes.

Net loss on loans held for sale —During the year ended December 31, 2024, the Company reclassified $5.8 million of loans held for investment to loans held for sale.

The transfers occurred at the point in time the Company decided to sell the loans.

During the year ended December 31, 2024, a total of $5.4 million reclassified loans held for investment were sold resulting in a gain of $0.1 million and a $0.2 million write-down on Loans held for sale still held by the Company at year-end was recognized, resulting in a Net loss on loans held for sale of $0.1 million.

Risk management and insurance fees —The increase in Risk management and insurance fees of $0.7 million, or 81.1%, to $1.7 million was primarily driven by an increase in insurance client agreements.

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

For the year ended December 31, 2023 compared to the same period in 2022, loans accounted for under the fair value option had an additional $1.1 million in net losses recorded.

The increase was primarily attributable to net charge-offs during the period and, partially offset by improvement in fair value.

Unrealized (loss)/gain on Equity Securities — For the year ended December 31, 2023 compared to the same period in 2022, our unrealized gains on equity securities decreased by $0.4 million to an immaterial unrealized loss position as of December 31, 2023.

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

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Other — For the year ended December 31, 2023 compared to the same period in 2022, our other income decreased by $1.3 million.

The decrease was primarily attributable to $1.2 million of impairment to the carrying value of a contingent consideration asset recorded during the second quarter of 2023, related to the sale of First Western Capital Management in 2020.

The value was established using asset growth assumptions provided by the buyer, which had not materialized.

The decrease in Net loss on loans accounted for under the fair value option of $1.0 million, or 50.3% was primarily attributable to overall improved performance of the portfolio.

Other —The increase in Other income of $1.4 million, or 175.0% was primarily attributable to a $0.9 million year-over-year decrease in impairment recorded to the carrying value of a contingent consideration asset recorded related to the sale of First Western Capital Management in 2020.

The initial contingent asset value was established using asset growth assumptions provided by the buyer, which have not materialized.

Non-Interest Expense

The year ended December 31, 2024 compared with the year ended December 31, 2023 .

The decrease in non-interest expense of 4.4% to $75.6 million for the year ended December 31, 2023, was primarily driven by lower Salaries and employee benefits related to staffing reductions to better align with current revenue and lower Technology and information system costs.

The increase in Non-interest expense of 3.8% to $78.5 million was driven by Other operational costs attributed to an OREO write-down driven by updated appraisals, higher costs on non-performing asset workouts, and fraud losses.

Technology and information system costs related to enhancements of our information technology infrastructure, and Occupancy and equipment costs related to additional rent expense on the extension of a lease in 2024.

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

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Amortization of other intangible assets 226 250 (24) (9.6)

Net gain on assets held for sale — (4) 4 (100.0)

Net gain on sale of other real estate owned — (44) 44 (100.0)

Other 7,436 5,374 2,062 38.4

Total non-interest expense $ 78,492 $ 75,637 $ 2,855 3.8

Salaries and employee benefits— The decrease in salaries and employee benefits of $3.0 million, or 6.3%, was primarily related to lower wages and employee benefits related to staffing reductions to better align with current revenue, partially offset by lower deferred compensation due to fewer loan originations.

Occupancy and equipment— The increase in occupancy and equipment of $0.1 million, or 1.0%, was primarily driven by an increase in leasehold improvement depreciation, partially offset by decreases in lease expense and variable lease costs.

Professional Services— The decrease in professional services of $0.3 million, or 3.3%, was driven by lower consulting and other professional fees, as the same period a year ago had additional expenses related to the acquisition of Teton and corporate activity to support the growth of the Company.

The decrease was partially offset by higher FDIC insurance costs due to the increase in the assessment rate and growth in the balance sheet.

Technology and information systems— The decrease in technology and information systems of $1.0 million, or 21.6%, was primarily driven by reduced software costs related to the trust and investment management system enhancement completed in 2022 and lower infrastructure costs due to the Company bringing certain outsourced information technology support in-house.

Marketing— The decrease in marketing of $0.3 million, or 18.4%, was primarily driven by lower advertising costs as well as reduced client onboarding costs related to the Teton acquisition compared to the same period last year.

Other— The increase in other of $0.8 million, or 18.2%, was driven by increased subscription costs related to system and process improvements, and increased fees related to reciprocal deposit balance growth.

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During the year ended December 31, 2023, the Company recorded an income tax provision of $1.8 million, reflecting an effective tax rate 26.0% During the year ended December 31, 2022, the Company recorded an income tax provision of $7.1 million, reflecting an effective tax rate of 24.7%.

Occupancy and equipment— The increase in Occupancy and equipment of $0.7 million, or 9.0%, was driven by additional rent expense related to the extension of a lease in 2024.

Professional services— The increase in Professional services of $0.3 million, or 4.1%, was driven by increased legal fees, audit fees, and FDIC insurance costs due to an increase in our assessment rate.

Technology and information systems— The increase in Technology and information systems of $0.7 million, or 19.2%, was primarily driven by increased costs related to enhancements of our information technology infrastructure.

Data processing —The decrease in Data processing of $0.4 million, or 7.9% was driven by lower system costs related to our trust and investment management system.

Marketing— The decrease in Marketing of $0.3 million, or 21.6%, was driven by lower advertising costs and decreased events and sponsorships.

Other— The increase in Other of $2.1 million, or 38.4%, was primarily driven by a $1.1 million OREO write-down driven by updated appraisals, increased costs related to non-performing asset workouts, and fraud losses.

The Company recorded an income tax provision of $3.1 million and $1.8 million for the years ended December 31, 2024 and 2023, respectively, reflecting an effective tax rate 26.8% and 26.0%, respectively.

Segment Reporting

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

Parent company activity primarily consists of subordinated debt interest expense and is included within Wealth Management as management evaluates and makes business decisions for Wealth Management, including the parent company, collectively as one segment.

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

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$ 79,151 $ 3,547 $ 82,698

Income before taxes 31,268 (2,440) 28,828

Income (loss) before taxes

9,660 (2,599) 7,061

Profit margin 12.2 % (73.3) % 8.5 %

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

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

The following presents selected financial metrics of each segment as of and for the periods presented:

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Net interest income, after provision for credit losses 61,259 60,029 1,230 2.0

Total non-interest income (1)

22,768 19,122 3,646 19.1

Non-interest income 19,053 22,760 (3,707) (16.3)

Total income before non-interest expense 84,027 79,151 4,876 6.2

Salaries and employee benefits expense 41,442 40,656 786 1.9

Depreciation and amortization expense 2,535 2,344 191 8.1

All other non-interest expense (2)

29,421 26,491 2,930 11.1

Income before income taxes $ 10,629 $ 9,660 $ 969 10.0

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Total assets 2,891,615 2,966,612 (74,997) (2.5)

(1) Provision for credit loss amounts for periods prior to the ASC 326 adoption date of January 1, 2023 are reported in accordance with previously applicable GAAP.

(*) Represents percentages that are not meaningful due to being insignificant or exceeding 100%.

The Wealth Management segment reported income before income tax of $9.6 million for the year ended December 31, 2023, compared to $31.3 million, for the same period in 2022.

The majority of our assets and liabilities are on the Wealth Management segment balance sheet and the decrease in income before taxes is primarily attributable to a decrease in net interest income, after provision for credit losses.

The decrease in net interest income, after provision for credit loss was primarily driven by an increase in average interest-bearing deposits and rates, partially offset by an increase in interest income.

The provision for credit losses for the year ended December 31, 2023 increased $6.7 million to $10.4 million compared to $3.7 million for the same period in 2022, primarily due an increase in an allowance on individually analyzed loans.

As of December 31, 2023, the Company had an allowance of $3.8 million on non-performing loans.

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(1) All other non-interest income primarily includes Trust and investment management fees, Bank fees, Risk management and insurance fees, Net loss on loans accounted for under the fair value option, and Other.

(2) All other non-interest expense primarily includes Occupancy and equipment, Professional services, Technology and information systems, Data processing, Marketing, and Other.

The Wealth Management segment reported Income before income taxes of $10.6 million for the year ended December 31, 2024, compared to $9.7 million for the same period in 2023.

The majority of our assets and liabilities are on the Wealth Management segment balance sheet and the increase in Income before taxes is primarily attributable to an increases in Net interest income, after provision for credit losses and Non-interest income, partially offset by increases in Non-interest expense.

The increase in Net interest income, after provision for credit losses was driven by a decrease in Provision for credit losses primarily due to a decrease in provisions related to individually analyzed loans and an increase in Total interest and dividend income due to an increase in total average interest-earning assets and average yield, offset partially by an increase in Total interest expense due to an increase in total average interest-bearing liabilities and average rate.

The increase in Non-interest income was primarily driven by increases in Risk management and insurance fees and a decrease in Net loss on loans accounted for under the fair value option recorded.

The increase in Non-interest expense was driven by increases in Technology and information systems expenses, Occupancy and equipment costs, and Other expenses.

As of and for the Year Ended December 31,

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Net interest income, after provision for credit losses 1,132 721 411 57.0

721 722 (1) (0.1)

Non-interest income 2,895 4,930 (2,035) (41.3)

Net gain on mortgage loans 4,912 2,826 2,086 73.8

Total income before non-interest expense 6,044 3,547 2,497 70.4

Salaries and employee benefits expense 3,598 4,546 (948) (20.9)

Depreciation and amortization expense 30 33 (3) (9.1)

All other non-interest expense (1)

Loss before income tax $ (2,530) $ (2,440) $ (90) 3.7

1,466 1,567 (101) (6.4)

Income (loss) before income taxes $ 950 $ (2,599) $ 3,549 136.6

Total assets $ 27,422 $ 8,850 $ 18,572 209.9 %

(1) Provision for credit loss amounts for periods prior to the ASC 326 adoption date of January 1, 2023 are reported in accordance with previously applicable GAAP.

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The Mortgage segment reported a loss before income tax of $2.5 million for the year ended December 31, 2023, compared to a loss before income tax of $2.4 million for the same period in 2022.

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, which continue to impact loan demand.

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

_____________________________

(1) All other non-interest expense primarily includes Occupancy and equipment, Data processing, and Other.

The Mortgage segment reported Income before income tax of $1.0 million for the year ended December 31, 2024, compared to a loss before income tax of $2.6 million for the same period in 2023.

The increase in Income before taxes was primarily driven by an increase in Non-interest income and a decrease in Non-interest expense.

The increase in Non-interest income was primarily driven by higher average gain on sale margins and origination volume.

The decrease in Non-interest expense was primarily due to lower Salaries and employee benefits.

Financial Condition

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Cash and cash equivalents $ 236,041 $ 254,442 $ (18,401) (7.2) %

Held-to-maturity securities, at amortized cost, net of allowance for credit losses of $71 and $0 (fair value of $66,617 and $74,718), respectively

Held-to-maturity debt securities, at amortized cost, net of allowance for credit losses of $71 and $71 (fair value of $68,161 and $66,617), respectively

75,724 74,102 1,622 2.2

Loans (includes $7,283 and $13,726 measured at fair value, respectively)

Allowance for credit losses (1)

2,425,565 2,530,915 (105,350) (4.2)

Allowance for credit losses (18,330) (23,931) 5,601 23.4

Loans, net of allowance 2,407,235 2,506,984 (99,749) (4.0)

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Mortgage loans held for sale, at fair value 25,455 7,254 18,201 250.9

Other real estate owned, net 35,929 — 35,929 *

Goodwill and other intangible assets, net 31,627 31,854 (227) (0.7)

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(1) Provision for credit loss amounts for periods prior to the ASC 326 adoption date of January 1, 2023 are reported in accordance with previously applicable GAAP.

Cash and cash equivalents increased by $57.9 million, or 29.5%, to $254.4 million as of December 31, 2023 compared to December 31, 2022.

The increase in liquidity was driven primarily by deposit growth, offset partially by loan growth.

Investments decreased by $7.0 million, or 8.6%, to $74.1 million as of December 31, 2023 compared to December 31, 2022.

The decrease is due to held-to-maturity securities payments received throughout 2023.

Loans, net of allowance increased by $54.8 million, or 2.2%, to $2.51 billion as of December 31, 2023 compared to December 31, 2022.

The increase was driven by net portfolio growth, primarily in the construction and development, non-owner occupied commercial real estate, and residential mortgage portfolios.

The growth in our construction and development portfolio was driven primarily by draws on existing commitments, partially offset by payoffs.

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Mortgage loans held for sale decreased $1.6 million, or 17.9%, to $7.3 million as of December 31, 2023 compared to December 31, 2022.

The decrease was driven by a reduction in loan origination volume primarily driven by a slowdown in new lock volume associated with the rising interest rate environment.

(*) Represents percentages that are not meaningful..

Cash and cash equivalents decreased by $18.4 million, or 7.2%, to $236.0 million as of December 31, 2024 compared to December 31, 2023.

The decrease was a result of decreases in Borrowings and Deposits, offset partially by the decrease in Loans.

Held-to-maturity debt securities increased by $1.6 million, or 2.2%, to $75.7 million as of December 31, 2024 compared to December 31, 2023.

The increase was primarily due to Held-to-maturity debt security purchases throughout the year.

Loans, net of allowance decreased by $99.7 million, or 4.0%, to $2.41 billion as of December 31, 2024 compared to December 31, 2023.

The decrease was due to payoffs outpacing new production as well as the migration of a large relationship out of loans and into OREO.

Mortgage loans held for sale increased by $18.2 million, or 250.9%, to $25.5 million as of December 31, 2024 compared to December 31, 2023.

The increase was driven driven by higher funded loan volume and the timing of loan sale settlements.

Goodwill and other intangible assets, net decreased by $0.2 million, or 0.7%, to $31.6 million as of December 31, 2024 compared to December 31, 2023.

The decrease was driven by amortization on intangible assets.

Other real estate owned, net increased by $35.9 million as of December 31, 2024 compared to December 31, 2023.

The increase was due to the migration of a large relationship out of loans and into OREO.

Other assets increased by $5.5 million, or 6.5%, to $89.8 million as of December 31, 2024 compared to December 31, 2023.

The increase was primarily driven by an increase in tax receivable of $3.7 million related to estimated tax payments made during the year, the addition of hedge swap collateral of $0.8 million and swap derivative assets of $0.8 million, and contributions to the Company's low-income housing tax credit ("LIHTC) investments of $1.1 million and bank technology fund investments of $0.8 million, partially offset by a decrease of $1.5 million of a contingent consideration asset, primarily driven by the $1.2 million impairment to the carrying value of the contingent consideration asset recorded during the second quarter of 2023.

Deposits increased $123.8 million, or 5.1%, to $2.53 billion as of December 31, 2023 compared to December 31, 2022.

The increase was primarily attributable to new and expanded deposit relationships.

The increase was driven by a $10.2 million increase in our lease assets primarily due to an extension of a lease, offset partially by a $3.3 million decrease in Deferred tax assets, net.

Deposits decreased $14.8 million, or 0.6%, to $2.51 billion as of December 31, 2024 compared to December 31, 2023.

The decrease was driven primarily by operating account fluctuations and clients using liquidity for strategic investments.

Noninterest-bearing deposit accounts decreased $107.0 million, or 22.2%, to $375.6 million as of December 31, 2024.

Money market deposit accounts increased $127.5 million, or 9.2%, to $1.51 billion as of December 31, 2024 compared to December 31, 2023.

Time deposit accounts increased $272.4 million, or 121.5%, to $496.5 million as of December 31, 2023.

Negotiable order of withdrawal ("NOW") accounts decreased $87.3 million, or 37.2%, to $147.5 million compared to December 31, 2022.

The decrease in NOW accounts was primarily attributable to a mix shift from lower yielding deposit products into higher yielding products as clients seek higher rates for excess liquidity.

Time deposit accounts decreased $25.0 million, or 5.0%, to $471.4 million as of December 31, 2024.

Interest checking accounts decreased $8.1 million, or 5.5%, to $139.4 million compared to December 31, 2023.

The decrease in noninterest-bearing deposit accounts and net increases in interest-bearing deposit accounts was primarily attributable to operating account fluctuations and a shift from noninterest-bearing deposit products into higher yielding products as clients seek higher rates for excess liquidity.

Borrowings decreased $68.4 million, or 38.4%, to $109.6 million as of December 31, 2024 compared to December 31, 2023.

The decrease is primarily driven by a decline in FHLB borrowing reliance as a result of increased deposits.

The decrease was primarily driven by a by a lower reliance on FHLB and FRB borrowings due to the decrease in loans.

Other liabilities increased $17.3 million, or 67.4%, to $42.9 million as of December 31, 2024 compared to December 31, 2023.

The increase was primarily due to a $9.6 million increase in payables related to participated non-performing assets and a $10.1 million increase in our lease liability due to an extension of a lease, offset partially by a $1.5 million decrease in the unfunded commitment liability due to decreases in noncancellable commitments.

Total shareholders’ equity increased $9.6 million, or 3.9%, to $252.3 million as of December 31, 2024.

The increase is primarily due to Net income for the year and a $2.4 million increase in Additional paid-in capital driven by stock-based compensation expense, partially offset by a $5.3 million net reduction to Retained earnings as a result of the adoption of ASU 2016-13 for Current Expected Credit Losses ("CECL").

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The increase was primarily due to Net income for the year and a $0.7 million increase in Additional paid-in capital driven by stock-based compensation expense.

Assets Under Management

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

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

Assets under management increased $646.0 million, or 10.6%, to $6.75 billion for the year ended December 31, 2023.

The increase was primarily attributable to improving market conditions year-over-year resulting in an increase in the value of assets under management balances.

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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.

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.

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.

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 over the remaining term of the securities.

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

As of December 31, 2023, all of our investment securities were classified as held-to-maturity.

The following tables present the amortized cost and estimated fair value of our investment securities as of the dates noted:

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

AUM increased $568.0 million, or 8.4%, to $7.32 billion for the year ended December 31, 2024.

The increase was attributable to contributions and improving market conditions year-over-year resulting in an increase in the value of assets under management balances, offset partially by net withdrawals.

Debt securities

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

Debt 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, 2024 and 2023, all our investments in debt securities were classified as held-to-maturity.

The following tables present the amortized cost and estimated fair value of our debt securities as of the dates noted:

December 31, 2024

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Value Allowance for Credit Losses

Investment securities held-to-maturity:

Debt securities held-to-maturity:

Treasury debt $ 246 $ — $ (4) $ 242 $ —

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5,075 5 (483) 4,597 —

Corporate collateralized mortgage obligations ("CMO") and mortgage-backed securities ("MBS") 3,783 — (238) 3,545 —

Total securities held-to-maturity $ 74,173 $ 9 $ (7,565) $ 66,617 $ (71)

Corporate collateralized mortgage obligations ("CMO") and MBS

3,524 — (279) 3,245 —

(1) Refer to Note 1 – Organization and Summary of Significant Accounting Policies for further information on our credit loss methodology.

Total debt securities held-to-maturity

$ 75,795 $ 5 $ (7,639) $ 68,161 $ (71)

December 31, 2023

(dollars in thousands) Amortized

Investment securities held-to-maturity:

Value Allowance for Credit Losses

Debt securities held-to-maturity:

Treasury debt $ 253 $ — $ (11) $ 242 $ —

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GNMA mortgage-backed securities – residential 34,579 — (3,410) 31,169 —

39,426 — (2,800) 36,626

FNMA mortgage-backed securities – residential 6,035 — (509) 5,526 —

6,708 — (506) 6,202

GMO and MBS – commercial

Government GMO and MBS – commercial 5,836 9 (377) 5,468 —

Corporate CMO and MBS 3,783 — (238) 3,545 —

Total debt securities held-to-maturity

$ 74,173 $ 9 $ (7,565) $ 66,617 $ (71)

CMO and MBS 4,074 — (180) 3,894

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

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The following presents 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 debt 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.

Our investments are taxable securities.

Our debt securities are taxable securities.

The weighted average yield for each range of maturities was calculated using the yield on each security within that range weighted by the amortized cost of each security as of December 31, 2024.

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Cost Weighted

Held-to-maturity:

Debt securities held-to-maturity:

Treasury debt $ — — % $ 246 0.01 % $ — — % $ — — %

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FNMA mortgage-backed securities – residential — — 3,137 0.21 812 0.02 8,060 0.37

Government CMO and MBS – commercial — — 178 0.01 1,579 0.07 4,079 0.13

Government GMO and MBS – commercial — — 112 0.01 1,391 0.06 3,573 0.10

Corporate CMO and MBS — — 15 * 357 0.03 3,153 0.16

Total held-to-maturity $ 253 — % $ 4,322 0.31 % $ 22,505 1.35 % $ 47,093 1.59 %

Total debt securities held-to-maturity $ — — % $ 7,540 0.57 % $ 21,997 1.31 % $ 46,258 1.70 %

Maturity as of December 31, 2023

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Cost Weighted

Held-to-maturity

Debt securities held-to-maturity:

Treasury Debt $ 253 * % $ — — % $ — — % $ — — %

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GNMA mortgage-backed securities – residential — — 66 * — — 34,513 1.14

— — 103 * — — 39,323 1.22

FNMA mortgage-backed securities – residential — — — — 1,116 0.02 4,919 0.13

— — — — 1,334 0.02 5,374 0.12

Government CMO and MBS – commercial

— — 47 * 1,200 0.04 5,539 0.14

Government GMO and MBS – commercial — — 178 0.01 1,579 0.07 4,079 0.13

Corporate CMO and MBS — — — — 415 0.03 3,368 0.18

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

Total debt securities held-to-maturity $ 253 — % $ 4,322 0.31 % $ 22,505 1.35 % $ 47,093 1.59 %

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* Represents percentages that are not meaningful due to being insignificant or exceeding 100%

As of December 31, 2023 and December 31, 2022, there were no holdings of s ecurities of any one issuer, other than the U.S.

Government and its agencies, in an amount greater than 10% of shareholders’ equity.

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Allowance for Credit Losses for HTM Securities

On January 1, 2023, the Company adopted the new CECL standard, ASU 2016-13, using the modified retrospective method for all financial assets measured at amortized cost.

(*) Represents percentages that are insignificant

As of December 31, 2024 and 2023, there were no holdings of debt s ecurities of any one issuer, other than the U.S.

Government sponsored entities and its agencies, in an amount greater than 10% of shareholders’ equity.

Allowance for Credit Losses for HTM Debt Securities

Management measures expected credit losses on Held-to-maturity debt securities on a collective basis by major security type.

The majority of our held-to-maturity investment portfolio consists of securities issues by U.S.

The majority of our held-to-maturity investment portfolio consists of debt securities issued by U.S.

government entities and agencies and we consider the risk of credit loss to be zero and, therefore, we do not record an ACL.

The Company's non-government backed securities include private label CMO and MBS as well as bank subordinated debt.

Accrued interest receivable on held-to-maturity debt securities totaled $0.4 million at December 31, 2023 and is excluded from the estimate of credit losses.

The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity by major security type for the year ended December 31, 2023:

December 31, 2023 Corporate Bonds Corporate CMO (1)

The Company's non-government backed debt securities include private label CMO and MBS as well as corporate bonds.

Accrued interest receivable on Held-to-maturity debt securities totaled $0.3 million and $0.4 million as of December 31, 2024 and 2023, respectively, and was excluded from the estimate of credit losses.

The following table presents the activity in the allowance for credit losses for Held-to-maturity debt securities by major security type for the years noted:

Year Ended December 31,

(dollars in thousands) Corporate Bonds Corporate CMO Corporate Bonds Corporate CMO

Allowance for credit losses:

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Total ending allowance balance $ 71 $ — $ 71 $ —

(1) Management reviewed the collectability of corporate CMO and MBS securities taking into consideration such factors as the asset quality of the corporate bond issuers and credit support and delinquencies associated with the corporate CMO and MBS.

(2) Refer to Note 1 – Organization and Summary of Significant Accounting Policies for further information on our credit loss methodology.

Loan Portfolio

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Underwriting policies and decisions are managed centrally and the approval process is tiered based on loan size, making the process consistent, efficient, and effective.

The management team and credit culture demands prudent, practical, and conservative approaches to all credit requests in compliance with the loan policy guidelines to ensure strong credit underwriting practices.

The management team and credit culture demands prudent, practical, and conservative approaches to all credit requests in compliance with the credit policy guidelines to ensure strong credit underwriting practices.

In addition to originating loans for our own portfolio, we conduct mortgage banking activities in which we originate and sell, servicing-released, whole loans in the secondary market.

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The amount of gain or loss on the sale of loans is primarily driven by market conditions and changes in interest rates, as well as our pricing and asset liability management strategies.

As of December 31, 2023 and December 31, 2022, we had mortgage loans held for sale of $7.3 million and $8.8 million, respectively, in residential mortgage loans we originated.

As of December 31, 2024 and 2023, we had Mortgage loans held for sale of $25.5 million and $7.3 million , respectively, in residential mortgage loans we originated.

As of December 31, 2024 and 2023, we had Loans held for sale of $0.3 million and $0.0 million , respectively.

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.

1 unchanged sentence

As of December 31, 2023, the Company had $13.7 million in loans accounted for under the fair value option with an unpaid principal balance $14.1 million.

See Note 16 – Fair Value in the Notes to Consolidated Financial Statements.

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As of December 31, 2023 , the Company has $4.2 million in PPP loans outstanding with $0.1 million in remaining fees to be recognized.

See Note 16 – Fair Value in the Notes to the Consolidated Financial Statements.

As of December 31, 2024 , the Company has $2.0 million in PPP loans outstanding with $40 thousand in remaining fees to be recognized.

As of December 31, 2023 , the Company had $4.2 million in PPP loans outstanding with $0.1 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.

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Loans accounted for under the fair value option (2)

13,726 23,321

Total loans held for investment $ 2,425,565 $ 2,530,915

4 unchanged sentences

(1) Includes PPP loans of $2.0 million an d $4.2 million as of December 31, 2024 and 2023, respectively.

(2) Includes $14.1 million and $23.4 million of unpaid principal balance of loans held for investment accounted for under the fair value option loans as o f December 31, 2023 and 2022, respectively.

(3) Includes $7.1 million and $8.8 million of unpaid principal balance of mortgage loans held for sale as of December 31, 2023 and 2022, respectively.

(2) Includes $7.5 million and $14.1 million of unpaid principal balance of loans held for investment accounted for under the fair value option as o f December 31, 2024 and 2023, respectively.

(3) Include s $25.2 million and $7.1 million of u npaid principal balance of mortgage loans held for sale as of December 31, 2024 and 2023, respectively.

(4) Includes $0.6 million of pr incipal balance of loans held for sale as of December 31, 2024.

• 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.

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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.

Loans held for investment accounted for under the fair value option are also classified within this line item and had an unpaid principal balance of $14.1 million and $23.4 million as of December 31, 2023 and December 31, 2022, respectively.

Loans held for investment accounted for under the fair value option are also classified within this line item and had an unpaid principal balance of $7.5 million and $14.1 million as of December 31, 2024 and 2023, respectively.

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

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These loans are dependent on the strength of the industries of the related borrowers and the success of their businesses.

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• Commercial and Industrial —consists of commercial and industrial loans, including working capital lines of credit, permanent working capital term loans, business asset loans, acquisition, expansion and development loans, and other loan products, primarily in our target markets.

1 unchanged sentence

MSLP loans of $1.7 million and $5.1 million as of December 31, 2024 and 2023, 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 fees, and unamortized premiums/(unaccreted discounts), as of the dates noted, are summarized in the following tables:

The largest category of the Company’s loan portfolio is Commercial Real Estate (“CRE”).

An additional breakdown of the Company’s CRE portfolio follows.

As of December 31, 2024

(dollars in thousands) Owner Occupied Non-Owner Occupied Total Percent of Total CRE

Multi-family $ — $ 203,690 $ 203,690 26.0 %

Industrial and warehouse 49,086 142,873 191,959 24.5

Office 57,889 120,563 178,452 22.8

Retail 30,050 61,515 91,565 11.7

Hotel 5,382 50,503 55,885 7.1

Restaurant and entertainment 16,179 14,888 31,067 4.0

Land 2,241 — 2,241 0.3

Other commercial real estate 11,192 17,207 28,399 3.6

Total CRE loan portfolio

$ 172,019 $ 611,239 $ 783,258 100.0 %

The following table summarizes the Company’s CRE portfolio by geographic location as of the dates indicated:

As of December 31, 2024

(dollars in thousands) Amount Percent of Total CRE

Colorado $ 579,892 74.1 %

Arizona 53,517 6.8

Wyoming 51,864 6.6

Montana 24,291 3.1

California 19,943 2.5

Other 53,751 6.9

Total CRE loan portfolio

$ 783,258 100.0 %

The CRE portfolio is comprised of loans made to purchase, construct and finance commercial real estate properties.

On average, the balances are small and geographically disbursed across our footprint.

Specifically, our CRE portfolio has an average loan balance of $2.47 million with a weighted average loan-to-value ratio (“LTV”) of 52.9% as of December 31, 2024.

Due to the recent trends in the banking industry, there has been increased risk associated with commercial real estate loans, including with respect to the higher vulnerability of these credits to pressure as interest rates remain elevated and market conditions in many large metropolitan areas continue to show signs of stress.

The Company has limited exposure to the office building sector in central business districts as the office portfolio is generally diversified in suburban markets with strong occupancy levels.

The Company maintains a practice of regular and ongoing loan reviews, stress tests, and sensitivity analyses to assess the level of risk in the loan portfolio.

Loan reviews include monitoring past due rates, non-performing trends, concentrations, LTV’s, among other qualitative factors.

Credit policies are robust and are updated as needed to meet the strategic and risk mitigation goals of the company.

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, at amortized cost as of the dates noted, are summarized in the following tables:

As of December 31, 2024

(dollars in thousands) One Year

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Loans accounted for under the fair value option (2)

257 6,895 131 — 7,283

Total loans $ 497,417 $ 1,002,706 $ 200,583 $ 724,859 $ 2,425,565

2 unchanged sentences

Total loans $ 497,417 $ 1,002,706 $ 200,583 $ 724,859 $ 2,425,565

_____________________________

(1) Includes PPP loans.

As of December 31, 2023

6 unchanged sentences

$ 1,611 $ 677 $ 139,947

$ 1,565 $ 685 $ 165,559

Consumer and Other 18,425 6,175 1,206 1,222 27,028

6 unchanged sentences

Loans accounted for under the fair value option (2)

105 13,163 458 — 13,726

Total loans $ 407,236 $ 1,054,598 $ 359,739 $ 709,342 $ 2,530,915

4 unchanged sentences

(1) Includes PPP loans.

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(2) Loans accounted for under the fair value option are disclosed at fair value rather than amortized cost

Loan Modifications

On January 1, 2023 the Company adopted ASU 2022-02, which introduces new reporting requirements for modifications of loans to borrowers experiencing financial difficulty.

GAAP requires that certain types of modifications of loans in response to a borrower’s financial difficulty be reported and include the following;

(i) principal forgiveness, (ii) interest rate reduction, (iii) other than insignificant payment delay, (iv) term extension, or (v) any combination of the foregoing.

ASU 2022-02 eliminates the recognition measurement guidance for troubled debt restructured ("TDR") loans, and instead requires an entity to evaluate whether a modification represents a new loan or a continuation of an existing loan in accordance with ASC Topic 310-20, Receivables - Nonrefundable Fees and Other Costs.

If a modification results in a new loan under the guidance, the Company will recognize any unearned deferred net revenue and measure the ACL on the loan on a collective basis rather than individually analyzed.

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 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.

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

As of December 31, 2023, the Company's loan portfolio included 41 non-acquired loans which were previously modified under the loan modification program, totaling $71.3 million.

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

As of December 31, 2023, there were 14 of these loans, totaling $2.9 million.

All loans modified in response to COVID-19 are classified as performing and pass rated as of December 31, 2023.

Non-acquired COVID modified loans are included in the allowance for credit losses.

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

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

Interest accrued during the modification term on modified loans is deferred to the end of the loan term.

Interest receivable is excluded from the estimate of credit losses.

The following table presents the amortized cost basis as of December 31, 2023 of the loans modified to borrowers experiencing financial difficulty during the year ended December 31, 2023, disaggregated by class of financing receivable and type of concession granted during the period.

The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below.

(Dollars in thousands) Principal forgiveness Interest rate reduction Term extension Combination:

term extension and principal forgiveness Combination:

term extension and interest rate reduction Total class of financing receivable

Commercial and Industrial $ — $ — $ 2,123 $ 183 $ — 0.7 %

Total $ — $ — $ 2,123 $ 183 $ —

Table of Content s

The following table presents the financial effect by type of modification made to borrowers experiencing financial difficulty for the period ended December 31, 2023:

(Dollars in thousands) Principal forgiveness Interest rate reduction Term extension

Commercial and Industrial Reduced the amortized cost basis of the loan by $185 thousand — Added a weighted-average 2.8 years to the life of the loan, which reduced monthly payment amounts for the borrower

Commercial and Industrial — — Six months of interest payments were deferred to the maturity of the loan.

Principal payment of $988 thousand was deferred 0.6 years

Commercial and Industrial — — Added a weighted-average 0.5 years to the life of the loan

Each modified loan is separately negotiated with the borrower and includes terms and conditions that reflect the borrower’s prospective ability to service their obligations as modified.

The Company had loan modifications of $1.1 million at December 31, 2024.

For additional information on loan modifications, see Note 4 – Loans and the Allowance For Credit Losses.

Non-Performing Assets

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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, 2022, we recorded $0.4 million of OREO as a result of obtaining physical possession of a foreclosed property as partial consideration for amounts owed on a collateral dependent loan.

We sold the property during the year ended December 31, 2022, resulting in an immaterial gain.

As of December 31, 2023 and December 31, 2022, we did not own any OREO properties.

The amount of lost interest for non-accrual loans was $6.4 million and $0.2 million for each of the years ended December 31, 2023 and 2022, respectively.

The Company recorded $8.8 million and $0.2 million of charge-offs, net of recoveries, during the year ended December 31, 2023 and December 31, 2022, respectively.

We had amortized cost of $50.8 million and $12.1 million in non-performing assets as of December 31, 2023 and December 31, 2022, respectively.

The increase in non-performing assets is primarily related to the addition o f $42.2 million in loans, under one relationship, during the third quarter of 2023.

Table of Content s

In the second quarter of 2024, the Company recorded $11.4 million of OREO as a result of obtaining physical possession of two foreclosed properties as partial consideration for amounts owed on non-performing loans related to an isolated loan relationship.

During the third quarter of 2024, the Company recorded an additional $25.6 million of OREO related to a third foreclosed property within the same loan relationship.

During the year ended December 31, 2024, the Company recorded a provision for Other real estate owned of $1.1 million.

As of December 31, 2024, the Company owned OREO properties totaling $35.9 million.

As of December 31, 2023, the Company did not own OREO properties.

The Company had $0.7 million and $1.7 million of interest reversed on non-accrual loans during the years ended December 31, 2024 and 2023, respectively.

The amount of interest income that would have been recognized on loans accounted for on a non-accrual basis pursuant to contractual terms was $6.8 million and $4.0 million for the years ended December 31, 2024 and 2023, respectively.

We had amortized cost of $48.7 million and $50.8 million in non-performing assets as of December 31, 2024 and 2023, respectively.

Although consistent balances of non-performing assets when comparing December 31, 2024 and December 31, 2023, there was significant activity during the ended December 31, 2024.

Non-performing loans decreased $38.1 million and OREO increased $35.9 million.

These changes were predominately due to the migration of one loan relationship out of non-performing loans and into OREO, as well as pay downs, charge-offs, and write-downs, offset by additions to non-performing loans.

The following presents the amortized cost basis of non-performing loans as of the dates indicated:

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Commercial and Industrial 11,048 31,893

Total non-accrual loans 50,816 12,137

Total non-performing loans 12,752 50,816

Total non-performing assets $ 48,681 $ 50,816

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Allowance for credit losses to non-accrual loans 143.74 % 47.09 %

47.09 % 139.14 %

Accruing loans 90 or more days past due $ — $ 285

_____________________________

(1) Held at the lower of cost or market as described in Note 16.

(2) Excludes mortgage loans held for sale of $25.5 million and $7.3 million as of December 31, 2024 and 2023, respectively.

Excludes $14.1 million and $23.4 million of unpaid principal balance of loans held for investment accounted for under the fair value option as of December 31, 2023 and 2022, respectively.

(2) Provision for credit loss amounts for periods prior to the ASC 326 adoption date of January 1, 2023 are reported in accordance with previously applicable GAAP.

Excludes $7.3 million and $13.7 million of loans held for investment accounted for under fair value option as of December 31, 2024 and 2023, respectively.

Credit Quality Indicators

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

Table of Content s

As of December 31, 2023 and December 31, 2022, non-performing loans of $50.8 million and $12.1 million, respectively, were included in the substandard category in the table below.

As of December 31, 2024 and 2023, non-performing loans of $12.8 million and $50.8 million, respectively, were included in the substandard category in the table below.

The following presents the amortized cost basis of loans by credit quality indicator, by class of financing receivable, as of the dates noted:

As of December 31, 2023

(Dollars in thousands) Pass Special

December 31, 2024 Pass Special

Mention Substandard Doubtful Not Rated Total

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Total $ 2,382,005 $ 9,120 $ 27,157 $ — $ 7,283 $ 2,425,565

As of December 31, 2022

(Dollars in thousands) Pass Special

December 31, 2023 Pass Special

Mention Substandard Doubtful Not Rated Total

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(1) Includes PPP loans of $2.0 million an d $4.2 million as of December 31, 2024 and 2023, respectively.

(2) Includes $13.7 million and $23.3 million of loans held for investment accounted for under fair value option as of December 31, 2023 and 2022, respectively.

Table of Content s

(2) Includes $7.3 million and $13.7 million of loans held for investment accounted for under the fair value option as of December 31, 2024 and 2023, respectively.

Allowance for Credit Losses on Loans

On January 1, 2023, the Company adopted the new CECL standard, ASU 2016-13, using the modified retrospective method for all financial assets measured at amortized cost.

Reporting periods beginning after January 1, 2023 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

Beginning January 1, 2023, the allowance for credit losses for loans is measured on the loan’s amortized cost basis, excluding interest receivable.

Interest receivable excluded at December 31, 2023 and December 31, 2022 was $10.8 million and $9.8 million, respectively.

Interest receivable excluded at December 31, 2024 and 2023 was $9.8 million and $10.8 million, respectively.

The Allowance for credit losses (“ACL”) is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

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The Company elected to not measure an ACL for accrued interest receivables, as we write off applicable accrued interest receivable balances in a timely manner when a loan is placed on non-accrual status, in which any accrued but uncollected interest is reversed from current income.

Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed.

Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

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CECL requires an allowance for credit losses on all portfolio loans including purchased loans without credit deterioration.

As of December 31, 2023, the Company held $208.2 million in acquired loans with $2.0 million in allowance for credit losses as well as $3.9 million in unamortized discounts.

As of December 31, 2024, the Company held $164.3 million in acquired loans with $1.4 million in allowance for credit losses as well as $4.0 million in unamortized net discounts.

As of December 31, 2023 , the Company held $208.2 million in acquired loans with $2.0 million in Allowance for credit losses as well as $3.9 million in unamortized net discounts.

ACL for pooled loans are estimated using a discounted cash flow (“DCF”) methodology using the amortized cost basis (excluding interest) for all loans modeled within a performing pool of loans.

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When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

ACL - held-to-maturity securities:

Held-to maturity securities are carried at amortized cost when management has the positive intent and ability to hold them to maturity.

ACL - held-to-maturity debt securities:

Held-to-maturity debt securities are carried at amortized cost when management has the positive intent and ability to hold them to maturity.

The majority of our held-to-maturity investment portfolio consists of securities issues by U.S.

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Private label refers to private institutions such as brokerage firms, banks, and home builders, that also securitize mortgages.

Table of Content s

Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type.

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The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

Management classifies the held-to-maturity portfolio into the following major security types:

Corporate bonds and Corporate CMO.

Management reviewed the collectability of CMO and MBS debt securities and corporate bonds taking into consideration factors such as the asset quality and delinquencies of the issuers.

ACL - off-balance sheet credit exposures:

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The loss rates used are calculated using the same assumptions as the associated funded balance.

The ACL represents Management’s best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectibility over the loans’ contractual terms, adjusted for expected prepayments when appropriate.

Our quantitative discounted cash flow models use economic forecasts including;

The Allowance for credit losses for loans represents Management’s best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectability over the loans’ contractual terms, adjusted for expected prepayments when appropriate.

Our quantitative discounted cash flow models use twelve-month economic forecasts including;

housing price index (“HPI”), gross domestic product (“GDP”), and national unemployment.

The HPI, GDP, and unemployment twelve month forecasts used in our model as of December 31, 2023 is based on a slightly improved macro-economic forecast assuming a soft landing as compared to assumptions previously used as of January 1, 2023 projecting the likelihood of a deeper recession.

As a result, we forecasted decreased probability of default rates and loss given default rates which in turn reduced our model loss rates, partially offset by loan growth and changes in our segment mix, resulting in a $0.5 million release of provision on pooled loans for the year ended December 31, 2023.

The allowance on credit losses on non-performing loans was $3.8 million as of December 31, 2023.

Table of Content s

The $2.1 million release of provision on pooled loans for the year ended December 31, 2024 was predominately due to net pay downs in the loan portfolio as well as modest HPI, GDP, and unemployment forecast improvements.

The allowance for credit losses on non-performing loans was $0.3 million and $3.8 million as of December 31, 2024 and 2023, respectively.

This $3.5 million decrease in provision on individually analyzed loans for the year ended December 31, 2024 was primarily due to the migration of one loan relationship out of non-performing loans and into OREO, pay downs, and charge-offs.

The following presents summary information regarding our allowance for credit losses for the periods presented:

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Provision for credit losses 3,439 12,077

Cash, Securities, and Other — (1)

Consumer and Other (50) (101)

Construction and Development — —

1-4 Family Residential — —

Non-Owner Occupied CRE — —

Owner Occupied CRE — —

Commercial and Industrial (9,352) (8,737)

Total charge-offs (9,402) (8,838)

Cash, Securities, and Other — —

Consumer and Other 29 22

Construction and Development — —

1-4 Family Residential 6 13

Non-Owner Occupied CRE — —

Owner Occupied CRE — —

Commercial and Industrial 327 4

Total recoveries 362 39

Net (charge-offs) recoveries (8,799) (231)

Net charge-offs (9,040) (8,799)

Allowance for credit losses at end of period $ 18,330 $ 23,931

Allowance for credit losses to total loans 0.76 % 0.95 %

0.95 % 0.70 %

Net charge-offs to average loans 0.37 0.35

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(2) Excludes average outstanding balances of mortgage loans held for sale of $18.0 million and $11.5 million for the years ended December 31, 2024 and 2023, respectively.

Excludes average outstanding balances of loans held for investment accounted for under the fair value option of $18.5 million and $15.5 million for the years ended December 31, 2023 and 2022, respectively.

Excludes average outstanding balances of loans held for investment under the fair value option of $10.6 million and $18.5 million for the years ended December 31, 2024 and 2023, respectively.

(3) Excludes Mortgage loans held for sale of $25.5 million and $7.3 million as of December 31, 2024 and 2023, respectively.

Includes $4.0 million and $7.1 million in bank originated PPP loans as of December 31, 2023 and 2022, respectively, and $0.3 million and $0.7 million of acquired PPP loans as of December 31, 2023 and 2022, respectively.

Excludes $14.1 million and $23.4 million of unpaid principal balance of loans held for investment accounted for under the fair value option as of December 31, 2023 and 2022, respectively.

(4) Allowance for credit loss amounts for periods prior to the ASU 2016-13 adoption date of January 1, 2023 are reported in accordance with previously applicable GAAP.

Table of Content s

Excludes Loans held for sale of $0.3 million and $0.0 million as of December 31, 2024 and 2023, respectively.

Excludes $7.3 million and $13.7 million of loans held for investment accounted for under the fair value option as of December 31, 2024 and 2023, respectively.

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

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_____________________________

(1) Allowance for credit loss amounts for periods prior to the ASU 2016-13 adoption date of January 1, 2023 are reported in accordance with previously applicable GAAP.

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

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Refer above for changes in the factors that influenced the current estimate of ACL and reasons for the changes.

In addition to changes in loss rates, another reason for the decrease in the ACL on unfunded loan commitments was a significant decrease in non-cancellable commitments throughout 2024.

The following table presents the changes in the ACL on unfunded loan commitments:

(dollars in thousands) 2024 2023

Beginning balance $ 2,178 $ 419

Impact of adopting ASU 2016-13 — 3,481

(Release) provision for credit losses (1,722) (79.1)

Release of credit losses (1,506) (1,722)

Ending balance $ 672 $ 2,178

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Our deferred tax assets, net, are valued based on the amounts that are expected to be recovered in the future utilizing the tax rates in effect at the time recognized.

Our deferred tax assets, net for the year ended December 31, 2023, increased $0.5 million from December 31, 2022.

Table of Content s

Our deposit products include money market accounts, demand deposit accounts, time-deposit accounts (typically certificates of deposit), NOW accounts (interest checking accounts), and saving accounts.

Our deferred tax assets, net for the year ended December 31, 2024, decreased $3.3 million, or 51.9%, from December 31, 2023.

The decrease was primarily due to changes in temporary differences, most notably the decrease in Allowance for credit losses and stock compensation as of and during the year ended December 31, 2024.

Our deposit products include money market accounts, demand deposit accounts, time-deposit accounts (typically certificates of deposit), interest checking accounts, and saving accounts.

Our accounts are federally insured by the FDIC up to the legal maximum amount.

Total deposits increased by $123.8 million, or 5.1%, to $2.53 billion as of December 31, 2023 from December 31, 2022.

The increase was driven primarily by new and expanded relationships.

Total average deposits for the year ended December 31, 2023 were $2.36 billion, an increase of $140.5 million, or 6.3%, compared to $2.22 billion as of December 31, 2022.

Total deposits decreased by $14.8 million, or 0.6%, to $2.51 billion as of December 31, 2024 from December 31, 2023.

The decrease was driven primarily by operating account fluctuations and clients using liquidity for strategic investments.

Total average deposits for the year ended December 31, 2024 were $2.44 billion, an increase of $78.2 million, or 3.3%, compared to $2.36 billion for the year ended December 31, 2023.

The increase in average deposits for the year ended December 31, 2024, compared to the same period in 2023, was driven primarily by Interest-bearing deposits due to new and expanded deposit relationships offset partially by a decline in Noninterest-bearing deposits.

The following table presents the average balances and average rates paid on deposits during the periods presented:

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Money market deposit accounts $ 1,384,589 4.18 % $ 1,296,139 3.86 %

NOW accounts 177,522 0.38 297,134 0.18

Interest checking accounts 136,960 0.33 177,522 0.38

Uninsured time deposits 62,573 4.49 63,813 3.68

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Our average cost of funds was 3.44% and 2.92% during the years ended December 31, 2024 and 2023, respectively.

The increase in cost of funds was primarily driven by increased rates on interest-bearing deposit accounts and borrowings due to the rising rate environment, a highly competitive deposit market, and an increase in short-term borrowings which provided additional liquidity for funding the growth in the balance sheet.

The increase in cost was primarily driven by an unfavorable mix shift in the deposit portfolio and increased rates on Interest-bearing deposit accounts due to the competitive deposit market and an unfavorable mix shift in deposit balances.

Total money market accounts as of December 31, 2024 were $1.51 billion, an increase of $127.5 million, or 9.2%, compared to $1.39 billion as of December 31, 2023.

NOW accounts decreased $87.3 million, or 37.2%, to $147.5 million compared to December 31, 2022.

Total time deposits as of December 31, 2023 were $496.5 million, an increase of $272.4 million, or 121.5%, compared to December 31, 2022.

Interest checking accounts decreased $8.1 million, or 5.5%, to $139.4 million compared to December 31, 2023.

Total time deposits as of December 31, 2024 were $471.4 million, a decrease of $25.0 million, or 5.0%, compared to December 31, 2023.

The following table presents the amount of certificates of deposit by time remaining until maturity as of December 31, 2024:

3 unchanged sentences

Total $ 179,004 $ 152,461 $ 97,543 $ 42,407 $ 471,415

Table of Content s

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

As of December 31, 2023 and December 31, 2022, borrowings totaled $178.1 million and $199.0 million, respectively.

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.

On March 12, 2023 the Federal Reserve Board announced it would make additional funding available to eligible depository institutions to help assure banks have the ability to meet the needs of depositors made available through the creation of a new Bank Term Funding Program (“BTFP”).

The BTFP is meant to be an additional resource of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.

As of December 31, 2023, the Company has pledged a par value of $44.3 million in securities under the BTFP and borrowed $31.0 million w ith a maturity date of March 27, 2024.

The rate for the borrowings is based on the one year overnight swap rate plus 10 b asis points but no lower than the interest rate on reserve balances in effect on the day the loan is made and is fixed over the term of the advance based on the date of the advance.

The decrease in other borrowings is primarily attributed to a decline in FHLB borrowing reliance as a result of increased deposits.

Additionally, attributable to the paydown of loans in the Paycheck Protection Program Loan Facility ("PPPLF") from the Federal Reserve with a year end balance of $3.5 million .

As of December 31, 2024 and 2023, borrowings totaled $109.6 million and $178.1 million, respectively.

On March 12, 2023, the FRB announced it would make additional funding available to eligible depository institutions to help assure banks have the ability to meet the needs of depositors made available through the creation of a new Bank Term Funding Program ("BTFP").

The BTFP was meant to be an additional resource of liquidity against high-quality securities, eliminating an institutions need to quickly sell those securities in times of stress.

As of December 31, 2023 , the Company had pledged a par value of $44.3 million in securities under the BTFP and borrowed $31.0 million with a maturity date of March 27, 2024 .

In 2024 , an additional $10.0 million was borrowed and $41.0 million was repaid, resulting in no outstanding balance as of December 31, 2024 .

The rate for the borrowings was based on the one year overnight swap rate plus 10 basis points and was fixed over the term of the advance based on the date of the advance.

The decrease in borrowings as of December 31, 2024, compared to December 31, 2023, was driven by a lower reliance on FHLB and FRB borrowings due to the decrease in loans.

Additionally, borrowings from the Paycheck Protection Program Loan Facility ("PPPLF") from the Federal Reserve decreased from $3.5 million as of December 31, 2023 to $2.0 million as of December 31, 2024 due to the pay down of PPP loans .

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

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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, 2023 and December 31, 2022 amounted to $1.31 billion and $1.26 billion, respectively.

The collateral pledged as of December 31, 2024 and 2023 amounted to $1.30 billion and $1.31 billion, respectively.

Based on this collateral and the Company’s holdings of FHLB stock, the Company was eligible to borrow an additional $582.0 million as of December 31, 2024.

As of and for the

(Dollars in thousands) 2023

(dollars in thousands) As of and for the

December 31, 2024

Short-term borrowings

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As of December 31, 2024 and 2023, there were no amounts outstanding on any of the federal funds lines.

Table of Content s

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, 2023 and December 31, 2022, the Company was in compliance with the covenant requirements.

As of December 31, 2024 and 2023, the Company was in compliance with the covenant requirements.

Cash Flow Hedges :

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The swap hedges the benchmark index (SOFR) with a receive float/pay fixed swap for the period March 21, 2023 through April 1, 2026.

The notional amount of the interest rate swap as of December 31, 2023 was $50.0 million .

The notional amount of the interest rate swap as of December 31, 2024 and 2023 was $50.0 million .

As of December 31, 2024 and 2023, this hedge was determined to be effective, and the Company expects the hedge to remain effective during the remaining terms of the swap.

Derivatives Not Designated as Hedges :

During the year ended December 31, 2023, the Company entered into interest rate swaps to offset interest rate exposure with its commercial and residential variable rate loan clients.

The Company periodically enters into interest rate swaps to offset interest rate exposure with its commercial variable rate loan clients.

Clients with variable rate loans may choose to enter into an interest rate swap to hedge the interest rate risk on the loan and effectively pay a fixed rate payment.

The Company will simultaneously enter into an interest rate swap on the same underlying loan and notional amount to hedge risk on the fixed rate loan.

The notional amount of interest rate swaps with its loan customers as of December 31, 2023 was $30.3 million .

The notional amount of interest rate swaps with its loan customers as of December 31, 2024 and 2023 was $70.4 million and $30.3 million, respectively .

While these derivatives represent economic hedges, they do not qualify as hedges for accounting purposes.

During the years ended December 31, 2024 and 2023, the Company recognized $0.3 million and $0.4 million , respectively, of fees related to new interest rate swaps, which are included in the Bank fees line of the Condensed Consolidated Statements of Income

Liquidity and Capital Resources

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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.

Table of Content s

The following table presents, during the periods shown, 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 periods presented:

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Interest-bearing deposits in other financial institutions 6.01 4.17

Federal funds sold — 0.03

Noninterest-earning assets 5.36 4.45

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Total shareholders’ equity increased $9.6 million , or 3.9%, to $252.3 million as of December 31, 2024 compared to December 31, 2023.

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.

The increase was primarily due to Net income and a $0.7 million increase in Additional paid-in capital driven by stock-based compensation expense.

On June 13, 2024, the Company announced that its Board of Directors authorized the repurchase of up to 200,000 shares of the Company’s common stock, no par value, from time to time, within one year (the “2024 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 2024 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 2024 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.

During the year ended December 31, 2024, the Company repurchased 5,501 shares under the authorization of the 2024 Repurchase Plan.

As of December 31, 2024, there were 194,499 shares available for repurchase under the plan.

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

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Under capital adequacy guidelines and, additionally for banks, the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

Table of Content s

Capital levels are viewed as important indicators of an institution’s financial soundness by banking regulators.

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, 2023 and December 31, 2022, 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, 2024 and 2023, 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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_____________________________

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

Table of Content s

(1) Reflects contractual maturity dates of March 31, 2030, December 1, 2030, September 1, 2031, and December 15, 2032, although the Company can call the notes prior to their contractual maturity.

The following presents financial instruments whose contract amounts represent credit risk, as of the periods presented:

December 31, December 31,

(dollars in thousands) Fixed Rate Variable Rate Fixed Rate Variable Rate

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Actual results may differ from these estimates under different assumptions or conditions.

We have identified our Allowance for Credit Losses ("ACL"), Goodwill, and Fair Value Measurement as being critical because our policies require management to use significant judgement and use subjective and complex measurements about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions.

We have identified our Allowance for Credit Losses ("ACL") and Goodwill as being critical because our policies require management to use significant judgement and use subjective and complex measurements about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions.

Our accounting policies and procedures, including those identified as being critical, are described in further detail in Note 1 – Organization and Summary of Significant Accounting Policies in the accompanying Notes to the Consolidated Financial Statements.

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The level of the ACL on loans reflects our estimate of the losses expected in the loan portfolio over the assets’ contractual term.

As of December 31, 2023, the ACL had an ending balance of $23.9 million compared to the prior year ending balance of $17.2 million, which is prior to the adoption of ASU 2016-13.

As of December 31, 2024, the ACL had an ending balance of $18.3 million compared to the prior year ending balance of $23.9 million.

The ACL is an estimate that is subject to uncertainty due to the various assumptions and judgments used in the estimation process.

2 unchanged sentences

Potential changes in any one economic variable may or may not affect the overall allowance because a variety of economic variables and inputs are considered in estimating the allowance, and changes in those variables and inputs may not occur at the same rate, may not be consistent across product types and may have offsetting impacts to other changing variables and inputs.

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Changes in management’s assessment of the assumptions and key inputs used to determine the ACL could lead to changes in the ACL through increased or decreased provisions for credit losses.

If actual losses and conditions differ materially from the assumptions used to determine the ACL, our actual credit losses could differ materially from our ACL estimate.

A sensitivity analysis of our ACL was performed as of September 30, 2024 to estimate credit losses by increasing and decreasing model inputs such as economic forecasts including HPI, GDP, and national unemployment, the forecast period, the forecast reversion period, and prepayment rates, among others.

Incorporating key model input changes in our calculation of the ACL resulted in both increases and decreases to the ACL.

Management reviews the sensitivity analysis results to understand the impact that changes to model inputs and assumptions have on the model output.

While management believes that it has established adequate allowances for lifetime credit losses on loans, actual results may prove different, and the differences could be material.

Additionally, our ACL model adjusts for qualitative factors in addition to historical information and our economic forecast.

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Events that may trigger goodwill impairment include deterioration in economic conditions, increased competitive environment, negative trends in overall financial performance, legal or regulatory proceedings, loss of key personnel, and change in strategy or sustained decreases in share value.

We performed a quantitative goodwill impairment test as of October 31, 2023 with the assistance of an independent third-party firm specializing in goodwill impairment valuations for financial institutions.

The quantitative impairment testing involves management judgment, using widely accepted valuation techniques, such as the market approach (earnings multiples and/or transaction multiples) and the income approach (discounted cash flow ("DCF") method).

In applying these methodologies, the Company utilizes several factors, including actual operating results, future business plans, economic projections and market data.

The Company provided a five year forecast for the analysis based on the historical growth we have experienced, in addition, we provided a stressed scenario which forecasted growth using assumptions similar to the economic environment in 2023.

Both scenarios produced an estimated fair value that exceeded the carrying value of goodwill.

After the company recorded the impact of a loan related subsequent event, Management updated the Goodwill impairment analysis as of December 31, 2023.

We performed a qualitative goodwill assessment as of October 31, 2024.

The qualitative assessment was performed to determine whether it is more likely than not that the fair value of the Wealth Management reporting unit is less than its carrying value, including goodwill.

In performing the assessment, the Company considered several factors, including macroeconomic conditions, actual operating results, forecasts, economic projections, and market data.

Based on the results of the qualitative assessment, we believe that the fair value of our Wealth Management reporting unit continues to exceed the carrying value, including goodwill, as of the most recent assessment date.

Significant negative industry or economic trends, including declines in the market price of our stock, reduced estimates of future cash flows or business disruptions, could result in impairments to goodwill in the future, which would result in recording an impairment loss.

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See Note 6 – Goodwill and Other Intangible Assets for further information on Goodwill.

Fair Value Measurements :

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The amount of management judgement and uncertainty involved when determining the fair value of a financial instrument is dependent on the availability of quoted market prices or other observable inputs.

Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items.

Changes in assumptions or in market conditions could significantly affect these estimates.

Items measured at fair value are classified as Level 1, Level 2, or Level 3 of the fair value hierarchy dependent on the amount of information available.

Financial assets and liabilities that we record at fair value on a reoccurring basis include equity securities, equity warrants, financial guarantee asset and liability, derivatives, mortgage related derivatives, loans held for investment accounted for under fair value, mortgage loans held for sale, and loans held for sale.

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As of December 31, 2023, $23.8 million or 0.80% of our total assets and $1.1 million or 0.04%, of our total liabilities were recorded at fair value on a recurring basis.

As of December 31, 2022, $36.1 million or 1.26% of our total assets and none of our total liabilities were recorded at fair value on a recurring basis.

Additionally, other assets and liabilities may be recorded at fair value on a nonrecurring basis including Other Real Estate Owned ("OREO") or Collateral Dependent Loans.

These typically result in Level 3 classification of the inputs for determining fair value.

See Note 16 – Fair Value for further details on the estimates and assumptions used and assets and liabilities valued at fair measurements.

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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