2020 Annual Report

Goodwill and Other Intangible Assets

Goodwill was $2.6 million at December 31, 2020 and 2019. Goodwill represents the excess of the consideration paid over the fair value of the net assets acquired, which originated from the acquisition of First National Bank of the Lakes in May of 2016. Goodwill is not amortized but is subject to, at a minimum, an annual test for impairment. Other intangible assets consist of core deposit relationships and favorable lease term intangibles. Total other intangible assets at December 31, 2020 and 2019 were $670,000 and $861,000, respectively. Other intangible assets are amortized over their estimated useful life. Deposits The principal sources of funds for the Company are deposits, consisting of demand deposits, money market accounts, savings accounts, and certificates of deposit. The following table presents the dollar and percentage composition of the deposit portfolio, by category, at the dates indicated: 2016 (dollars in thousands) Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Noninterest Bearing Transaction Deposits . $ 671,903 26.9 % $ 447,509 24.5 % $ 369,203 23.6 % $ 292,539 21.9 % $ 238,062 23.3 % Interest Bearing Transaction Deposits . 366,290 14.6 264,627 14.5 179,567 11.5 177,292 13.2 132,800 13.0 Savings and Money Market Deposits . . . . 657,617 26.3 516,785 28.3 402,639 25.8 369,942 27.6 239,084 23.4 Time Deposits. . . . . . . . 353,543 14.1 360,027 19.8 318,356 20.4 292,096 21.8 273,229 26.6 Brokered Deposits. . . . . 452,283 18.1 234,362 12.9 291,169 18.7 207,481 15.5 140,333 13.7 Total Deposits . . . . . $ 2,501,636 100.0 % $ 1,823,310 100.0 % $ 1,560,934 100.0 % $ 1,339,350 100.0 % $ 1,023,508 100.0 % Total deposits at December 31, 2020 were $2.50 billion, an increase of $678.3 million, or 37.2%, compared to total deposits of $1.82 billion at December 31, 2019. Noninterest bearing deposits were $671.9 million at December 31, 2020, an increase of $224.4 million, or 50.1%, compared to $447.5 million at December 31, 2019. Noninterest bearing deposits comprised 26.9% of total deposits at December 31, 2020, compared to 24.5% at December 31, 2019. The growth in noninterest bearing transaction deposits was a result of both successful new client acquisition initiatives and pandemic-related accumulation of liquidity in existing client accounts. The Company believes that deposit levels could fluctuate in future periods as a result of the uncertain economic conditions relating to the COVID-19 pandemic. The Company relies on increasing the deposit base to fund loan and other asset growth. The Company is in a highly competitive market and competes for local deposits by offering attractive products with competitive rates. The Company expects to have a higher average cost of funds for local deposits compared to competitor banks due to the lack of an extensive branch network. The Company’s strategy is to offset the higher cost of funding with a lower level of operating expense. When appropriate, the Company utilizes alternative funding sources such as brokered deposits. At December 31, 2020, total brokered deposits were $452.3 million or 18.1% of total deposits, compared to total brokered deposits of $234.4 million, or 12.9% of total deposits at December 31, 2019. Brokered deposits increased as a result of a change in mix of wholesale funding sources due to favorable funding costs offered compared to other wholesale funding alternatives. Furthermore, the brokered deposit market provides flexibility in structure, optionality and efficiency not afforded in traditional retail deposit channels. December 31, December 31, December 31, December 31, December 31, 2020 2019 2018 2017

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