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Pending Merger

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On November 8, 2021, Allegiance Bancshares, Inc., or Allegiance,We rely heavily on the holding company of Allegiance Bank,continued business our bankers generate and the Company jointly announcedefforts of our officers and directors to solicit and refer potential customers, and we expect this reliance to continue for the foreseeable future. We believe that they entered intoour recent market share gains in our geographic areas of operation are a definitive merger agreement pursuantreflection of our ability to effectively compete with the larger banks in our markets most of which are based out of state.

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capital. The Basel III Capital Rules also changed the methods of calculating certain risk-weighted assets, which in turn affected the calculation of risk-based ratios. Under the Basel III Capital Rules, higher or more sensitive risk weights are assigned to various categories of assets, including certain credit facilities that finance the acquisition, development or construction of real property, certain exposures or credits that are 90 days past due or on nonaccrual status, foreign exposures and certain corporate exposures. In addition, these rules include greater recognition of collateral and guarantees, and revised capital treatment for derivatives and repo-style transactions.

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The Basel III Capital Rules permit the Federal Reserve and the OCC to set higher capital requirements for individual institutions whose circumstances warrant it. For example, institutions experiencing internal growth or making acquisitions are expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. At this time, the bank regulatory agencies are more inclined to impose higher capital requirements to meet “well capitalized” standards and future regulatory change could impose higher capital standards as a routine matter. The Company’s regulatory capital ratios and those of the Bank are in excess of the levels established for “well capitalized” institutions under the rules.

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The federal banking regulators have modified certain aspects of the Basel III Capital Rules since the rules were initially published, and additional modifications may be made in the future. In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (commonly referred to as Basel IV). Among other things, these standards revise the Basel Committee’s standardized approach for credit risk (including by recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provides a new standardized approach for operational risk capital. Under the Basel framework, these standards will generally be effective on January 1, 2023, with an aggregate output floor phasing in through January 1, 2027. Under the current U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Company or the Bank. The impact of Basel IV on the Company will depend on the manner in which it is implemented by the federal banking regulators.

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Imposition of Liability for Undercapitalized Subsidiaries. Bank regulators are required to take prompt corrective action to resolve problems associated with insured depository institutions whose capital declines below certain levels as further described below. In the event an institution becomes undercapitalized, it must submit a capital restoration plan. The capital restoration plan will not be accepted by the regulators unless each company having control of the undercapitalized institution guarantees the subsidiary’s compliance with the capital restoration plan up to a certain specified amount. Any such guarantee from a depository institution’s holding company is entitled to a priority of payment in bankruptcy.

The aggregate liability of the holding company of an undercapitalized bank is limited to the lesser of 5.0% of the institution’s assets at the time it became undercapitalized and the amount necessary to cause the institution to become adequately capitalized. The bank regulators have greater power in situations where an institution becomes significantly or critically undercapitalized or fails to submit a capital restoration plan. For example, a bank holding company controlling such an institution can be required to obtain prior Federal Reserve approval of proposed dividends or might be required to consent to a consolidation or to divest the troubled institution or other affiliates.

Volcker Rule. As mandated by the Dodd-Frank Act, in December 2013, the OCC, Federal Reserve, FDIC, SEC and Commodity Futures Trading Commission issued a final rule implementing certain prohibitions and restrictions on the ability of a banking entity and nonbank financial company supervised by the Federal Reserve to engageengaging in proprietary trading and haveinvesting in and sponsoring certain ownership interests in, or relationships with, a “covered fund”, or the Volcker Rule. The Regulatory Relief Act discussed above included a provision exempting banking entities with $10.0 billion or less in total consolidated assets,hedge funds and total trading assets and trading liabilities that are 5.0% or less of total consolidated assets, from the Volcker Rule. Thus,private equity funds. Since neither the Company andnor the Bank are not currently subject to the Volcker Rule.

CBTX, Inc.

As a bank holding company, the Company is subject to regulation under the Bank Holding Company Act of 1956, as amended, or BHC Act, and to supervision, examination and enforcement by the Federal Reserve. The BHC Act and other federal laws subject bank holding companies to particular restrictions onengages in the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations. The Federal Reserve’s jurisdiction also extends to any company thattrading or investing covered by the Company directly or indirectly controls, such as any nonbank subsidiaries and other companies in which it owns a controlling investment.

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Acquisitions by Bank Holding Companies. The BHC Act requires every bank holding company to obtainVolcker Rule, the prior approval of the Federal Reserve before it acquires all or substantially all of the assets of any bank, or ownership or control of any voting shares of any bank or bank holding company if after such acquisition it would own or control, directly or indirectly, more than 5.0% of the voting shares of such bank or bank holding company. In approving bank holding company acquisitions by bank holding companies, the Federal Reserve is required to consider, among other things, the effect of the acquisition on competition, the financial condition, managerial resources and future prospects of the bank holding company and the banks concerned, the convenience and needs of the communities to be served, including the record of performance under the Community Reinvestment Act of 1977, or CRA, the effectiveness of the applicant in combating money laundering activities and the extent to which the proposed acquisition would result in greater or more concentrated risks to the stability of the U.S. banking or financial system. The Company’s ability to make future acquisitions will depend on its ability to obtain approval for such acquisitions from the Federal Reserve. The Federal Reserve could deny the Company’s application based on the above criteria or other considerations. For example, the Company could be required to sell banking centers as a condition to receiving regulatory approval, which condition may not be acceptable to the Company or, if acceptable, may reduce the benefit of a proposed acquisition.

Under the Riegle-Neal Interstate Banking and Branching Efficiency Act, or the Riegle-Neal Act, a bank holding company may acquire banks in states other than its home state, subject to any state requirement that the bank has been organized and operating for a minimum period of time, not to exceed five years, and to certain deposit market-share limitations. Bank holding companies must be well capitalized and well managed, not merely adequately capitalized and adequately managed, in order to acquire a bank located outside of the bank holding company’s home state.

Control Acquisitions. Under the BHC Act, a company may not acquire “control” of a bank holding company or a bank without the prior approval of the Federal Reserve. The statute defines control as ownership or control of 25.0% or more of any class of voting securities, control of the election of a majority of the board of directors, or any other circumstances in which the Federal Reserve determines that a company directly or indirectly exercises a controlling influence over the management or policies of the bank holding company or bank. The BHC Act includes a presumption that controlVolcker Rule does not exist when a company owns or controls less than 5.0% ofcurrently have any class of voting securities. Companies that propose to acquire between 5.0% and 24.99% of any class of voting securities usually consult with the Federal Reserve in advance and often must make written commitments not to exercise control. As a matter of policy, the Federal Reserve has in a number of cases required a company to take certain actions to avoid control if the company proposes to acquire 25.0% or more but less than 33.3% of the total equity of a bank or bank holding company through the acquisition of both voting and non-voting shares, even if the voting shares are less than 25.0% of a class. The Federal Reserve generally deems the acquisition of 33.3% or more of the total equity of a bank or bank holding company to represent control. In March of 2020, the Federal Reserve published a final rule to revise its regulations related to determinations of whether a company has the ability to exercise a controlling influence over another company. The final rule expands the number of presumptions for use in such determinations and provides additional transparency on the types of relationships that the Federal Reserve generally views as supporting a determination of control.

The BHC Act does not apply to acquisitions by individuals or certain trusts, but if an individual, trust, or company proposes to acquire control of a bank or bank holding company, the Change in Bank Control Act, or CIBC Act, requires prior notice to the bank’s primary federal regulator or to the Federal Reserve in the case of a bank holding company. The CIBC Act uses a similar definition of control as the BHC Act, and agency regulations under the CIBC Act presume in many cases that a change in control occurs when an individual, trust, or company acquires 10.0% or more of any class of voting securities. The notice is not required for a company required to file an application under the BHC Act for the same transaction.

The requirements of the BHC Act and the CIBC Act could limit the Company’s access to capital and could limit parties who could acquire shares of the Company’s common stock.

Regulatory Restrictions on Payment of Dividends, Stock Redemptions, and Stock Repurchases. The Federal Reserve regulates the payment of dividends, stock redemptions, and stock repurchases by bank holding companies, including the Company. With respect to dividends, the Federal Reserve has issued a policy statement that provides that a bank holding company should not pay dividends unless: (i) its net income over the last four quarters (net of dividends paid) has been sufficient to fully fund the dividends; (ii) the prospective rate of earnings retention appears to be consistent with the capital needs, asset quality and overall financial condition of the bank holding company and its subsidiaries; and (iii) the bank holding company will continue to meet minimum required capital adequacy ratios. Accordingly, the

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Company should not pay cash dividends that exceed its net income in any year or that can only be funded in ways that weaken its financial strength, including by borrowing money to pay dividends.

The Company is also subject to significant restrictions with respect to redemptions and repurchases of its securities. The Federal Reserve has issued guidance indicating that a bank holding company should not repurchase its common stock, preferred stock, trust preferred securities, or other regulatory capital instruments in the market if such action would be inconsistent with the bank holding company’s prospective capital needs and continued safe and sound operation. In certain circumstances, a bank holding company is also required to notify the Federal Reserve in advance of a proposed redemption of repurchase. For example, a bank holding company is generally required to notify the Federal Reserve of actions that would reduce the company’s consolidated net worth by 10.0% or more; most instruments included in Tier 1 capital with features permitting redemption at the option of the issuing bank holding company (e.g., perpetual preferred stock and trust preferred securities) may qualify as regulatory capital only if redemption is subject to prior Federal Reserve approval; and bank holding companies are generally required to consult with the Federal Reserve before redeeming any equity or other capital instrument included in Tier 1 or Tier 2 capital prior to stated maturity, if such redemption could have a material effect on the level or composition of the organization’s capital base. The Federal Reserve has also indicated that bank holding companies experiencing financial weaknesses (or at significant risk of developing financial weaknesses) or considering expansion (either through acquisitions or new activities) should consult with the Federal Reserve before redeeming or repurchasing common stock or other regulatory capital instruments for cash or other valuable consideration. In evaluating the appropriateness of a bank holding company’s proposed redemption or repurchase, the Federal Reserve will generally consider: (i) the potential losses that the company may suffer from the prospective need to increase reserves and write down assets from continued asset deterioration; (ii) the company’s ability to raise additional common stock and other Tier 1 capital to replace capital instruments that are redeemed or repurchased; and (iii) the potential negative effects on the company’s capital resulting from the replacement of common stock with lower-quality forms of regulatory capital or from the redemption or repurchase of capital instruments from investors with cash or other value that could be better used to strengthen the company’s regulatory capital base or its overall financial condition.

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The Gramm-Leach-Bliley Financial Modernization Act effective March 11, 2000, or the GLB Act,of 1999 (the “GLB Act”) expanded the scope of permissible activities available tofor a bank holding company that qualifies as a financial holding company. The amendments allowUnder the regulations implementing the GLB Act, a qualifying bank holding company to elect “financial holding company” status. A financial holding company may affiliate with securities firms and insurance companies and engage in other activities that are “financial in nature.” Such activities include, among other things, securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the Federal Reserve has determined to be closely related to banking. No regulatory approval is required for a financial holding company to acquire a company, other than a bank or savings association, engaged inadditional activities that are financial in nature or incidental or complementary to a financial activity. Those activities that are financial in nature, as determined by the Federal Reserve. The Company qualifiesinclude, among other activities, certain insurance and securities activities. Qualifications for becoming a financial holding company status, but it has not made such an election. The Company will make such an election in the future if it plans to engage in any lines of business that are impermissible for bank holding companies but permissible for financial holding companies.

Safety and Soundness. Bank holding companies are not permitted to engage in unsafe or unsound practices. The Federal Deposit Insurance Act, or FDIA, requires the federal bank regulatory agencies to prescribe standards, by regulations or guidelines, relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, stock valuation and compensation, fees and benefits, and such other operational and managerial standards as the agencies deem appropriate. Guidelines adopted by the federal bank regulatory agencies establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. In general, the guidelines require,include, among other things, appropriate systemsmeeting certain specified capital standards and practices to identify and manageachieving certain management ratings in examinations. Under the risk and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. In addition, the agencies adopted regulations that authorize, but do not require, an agency to order an institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of the FDIA. See “Prompt Corrective Action” above. If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties.  

The Federal Reserve has broad authority to prohibit activities ofDodd-Frank Act, bank holding companies and their nonbanking subsidiaries which represent unsafemust be well-capitalized and unsound practices, resultwell-managed in breachesorder for the bank holding company and its nonbank affiliates to engage in the expanded financial activities permissible only for a financial holding company. The Company has not elected to pursue financial holding company status.

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Corrective Measures for Capital Deficiencies.The federal banking regulatorsagencies’ risk-based and leverage ratios are required byminimum supervisory ratios generally applicable to banking organizations that meet certain specified criteria. The federal bank regulatory agencies may set capital requirements for a particular banking organization that are higher than the minimum ratios when circumstances warrant. Federal Reserve guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets.

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are defined by statute to include a loan or extension of credit to an affiliate, as well as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the Federal Reserve) from the affiliate, the acceptance of securities issued by the affiliate as collateral for a loan and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate. In addition, in connection with covered transactions that are extensions of credit, the Bank may be required to hold collateral to provide added security to the Bank, and the types of permissible collateral may be limited. The Dodd-Frank Act generally enhances the restrictions on transactions with affiliates, including an expansion of what types of transactions are covered transactions to include credit exposures related to derivatives, repurchase agreement and securities lending arrangements and an increase in the amount of time for which collateral requirements regarding covered transactions must be satisfied. Affiliate transactions are also subject to Section 23B of the Federal Reserve Act which generally requires that certain transactions between the Bank and its affiliates be on terms substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions with or involving other nonaffiliated persons.

The restrictions on loans to directors, executive officers, principal shareholders and their related interests (collectively referred to herein as “insiders”) contained in Section 22(h) of the Federal Reserve Act and in Regulation O promulgated by the Federal Reserve apply to all insured institutions and their subsidiaries and bank holding companies. These restrictions include limits on loans to one borrower and conditions that must be met before such a loan can be made. There is also an aggregate limitation on all loans to insiders and their related interests. Generally, the aggregate of these loans cannot exceed the institution’s total unimpaired capital and surplus, although a bank’s regulators may determine that a more stringent limit is appropriate. Loans to senior executive officers of a bank are even further restricted. Insiders are subject to monetary penalties for knowingly accepting loans in violation of applicable restrictions.

Restrictions on Distribution of Bank Dividends and Assets. Dividends paid by the Bank have provided a substantial part of the Company’s operating funds and for the foreseeable future it is anticipated that dividends paid by the Bank to the Company will continue to be the Company’s principal source of operating funds. Earnings and capitalCapital adequacy requirements serve to limit the amount of dividends that may be paid by the Bank. In general terms, federal law provides thatUnder the Bank’s board of directors may, from time to time andFDIA, an insured depository institution such as it deems expedient, declare a dividend out of its net profits. Generally, the total of all dividends declared in a year shall not, unless approved by the OCC, exceed the net profits of that year combined with its net profits of the past two years.

In addition, under the Federal Deposit Insurance Corporation Improvement Act of 1991, or FDICIA, the Bank may not pay any dividend if it is undercapitalized orprohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the dividendinstitution would cause it to become undercapitalized.“undercapitalized.” The OCCFDIC may further restrict the payment of dividends by requiring that the Bank to maintain a higher level of capital than would otherwise be required for itin order to be adequately capitalized for regulatory purposes. Moreover, if, inPayment of dividends by the opinionBank also may be restricted at any time at the discretion of the OCC,appropriate regulator if it deems the Bank is engaged inpayment to constitute an unsafe and unsound practice (whichbanking practice. As noted above, the capital conservation buffer created under the Basel III Capital Rules could includealso have the effect of limiting the payment of dividends), itcapital distributions from the Bank.

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enforcement action if the organization’s incentive compensation arrangements pose a riskfavorable to the safety and soundness of the organization. Further, a provision of the Basel III capital standards described above would limit discretionary bonus payments to bank executives if the institution’s regulatory capital ratios fail to exceed certain thresholds. A number of federal regulatory agencies proposed rules that would require enhanced disclosure of incentive-based compensation arrangements initially in April 2011 and again in April and May 2016. The scope and content of the U.S. banking regulators’ policies on executive compensation are continuing to develop and are likely to continue evolving in the near future.

Audits. For insured institutions with total assets of $500 million or more, financial statements prepared in accordance with accounting principles generally accepted in the U.S., or GAAP, as well as management’s certifications signed by the Company’s and the Bank’s chief executive officer and chief accounting or financial officer concerning management’s responsibility for the financial statements, must be submitted to the FDIC. If the insured institution has consolidated total assets of more than $1.0 billion, it must additionally submit an attestation by the auditors regarding the institution’s internal controls. Insured institutions with total assets of $500 million or more must also have an audit committee consisting exclusively of outside directors (the majority of whom must be independent of management), and insured institutions with total assets of $1.0 billion or more must have an audit committee that is entirely independent. The committees of institutions with total assets of more than $3.0 billion must include members with experience in banking or financial management, must have access to outside counsel and must not include representatives of large customers. The Bank’s audit committee consists entirely of independent directors and includes members with experience in banking or related financial management.

Deposit Insurance Assessments. The FDIC insures the deposits of federally insured banks up to prescribed statutory limits for each depositor through the Deposit Insurance Fund and safeguards the safety and soundness of the banking and thrift industries. The maximum amount of deposit insurance for banks and savings institutions is $250,000 per depositor, per ownership category. The amount of FDIC assessments paid by each insured depository institution is basedas if the transaction were conducted with an unaffiliated third party.

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bank’s commercial real estate loan portfolio has increased by 50.0%50% or more during the prior 36 months. Owner-occupied commercial real estate loans are excluded from this second category. If a concentration is present, management is expected tomust employ heightened risk management practices that address among other things,the following key elements: board and management oversight and strategic planning, portfolio management, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing and maintenance of increased capital levels as needed to support the level of commercial real estate lending.

Community Reinvestment Act.

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Obstruct Terrorism Act of 2001, or the USA PATRIOT Act,practices. These and other federal laws, impose significant obligations on certain financial institutions, including the Bank, to detect and deter money laundering and terrorist financing. The principal obligations of an insured depository institution include, among other things, require disclosures of the need to: (i) establish an anti-money laundering, or AML, program that includes trainingcost of credit and audit components; (ii) designate a BSA officer; (iii) establish a “know your customer” program involving due diligenceterms of deposit accounts, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information, provide financial privacy protections, prohibit unfair, deceptive and abusive practices, restrict our ability to confirmraise interest rates and subject us to substantial regulatory oversight. Violations of applicable consumer protection laws can result in significant potential liability from litigation brought by customers, including actual damages, restitution and attorneys’ fees. Federal bank regulators, state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other remedies, including regulatory sanctions, customer rescission rights, action by the identity of persons seeking to open accountsstate and to deny accounts to those persons unable to demonstrate their identities; (iv) identifylocal attorneys general in each jurisdiction in which we operate and verify the identity of beneficial owners of legal entity customers, subject to certain exclusions and exemptions; (v) take additional precautions with respect to customers that pose heightened risk; (vi) monitor, investigate and report suspicious transactions or activity; (vii) file currency transaction reports for deposits and withdrawals of large amounts of cash; (viii) verify and certify money laundering risk with respect to private banking and foreign correspondent banking relationships; (ix) maintain records for certain minimum periods of time; and (x) respond to requests for information by law enforcement. The Financial Crimes Enforcement Network, or FinCEN, and the federal banking regulators have imposed significant civil money penalties against banks foundpenalties. Failure to be violating these obligations.

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The Office of Foreign Assets Control,comply with consumer protection requirements may also result in our failure to obtain any required bank regulatory approval for merger or OFAC, administers laws and Executive Orders that prohibit U.S. entitiesacquisition transactions we may wish to pursue or our prohibition from engaging in such transactions even if approval is not required.

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Home Loan Bank. Such advances are primarily collateralized by residential mortgage loans, as well as government and agency securities, and are priced at a small spread over comparable U.S. Department of the Treasury obligations.

As a membermonetary policy of the Federal Home Loan BankReserve, have a significant effect on the operating results of Dallas, or the FHLB Dallas, the Bank is entitled to borrow from the FHLB Dallas, provided it posts acceptable collateral. The Bank is also required to own a certain amount of capital stock in the FHLB Dallas. The Bank is in compliance with the stock ownership rules with respect to such advances, commitments and letters of credit and collateral requirements with respect to home mortgage loans and similar obligations. All loans, advances and other extensions of credit made by the FHLB Dallas to the Bank are secured by a portion of the respective mortgage loan portfolio, certain other investments and the capital stock of the FHLB Dallas held by the Bank.

Enforcement Powers. The federal banking agencies, including the Bank’s primary federal regulator, the OCC, have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties and appoint a conservator or receiver. Failure to comply with applicable laws, regulations and supervisory agreements, breaches of fiduciary duty or the maintenance of unsafe and unsound conditions or practices could subject the Company or the Bankbank holding companies and their subsidiaries, as well as their respective officers, directors and other institution-affiliated parties, to administrative sanctions and potentially substantial civil money penalties. For example,subsidiaries. Among the regulatory authorities may appoint the FDIC as conservator or receiver for a banking institution (or the FDIC may appoint itself, under certain circumstances) if any one or more of a number of circumstances exist, including, without limitation, the fact that the banking institution is undercapitalized and has no reasonable prospect of becoming adequately capitalized, fails to become adequately capitalized when required to do so, fails to submit a timely and acceptable capital restoration plan or materially fails to implement an accepted capital restoration plan.

Effect of Governmental Monetary Policies

The commercial banking business is affected not only by general economic conditions but also by U.S. fiscal policy and the monetary policies of the Federal Reserve. Some of the instruments of monetary policymeans available to the Federal Reserve includeto affect the money supply are open market operations in U.S. government securities, changes in the discount rate on member bank borrowings the fluctuating availability of borrowings at the “discount window,” open market operations, the imposition of and changes in reserve requirements against member banks’ depositswith respect to deposits. These means are used in varying combinations to influence overall growth and certain borrowings by banks and their affiliates and assets of foreign branches. These policies influence, to a significant extent, the overall growthdistribution of bank loans, investments and deposits, and thetheir use may affect interest rates charged on loans or paid onfor deposits. The Company cannot predict the nature of future fiscal andFederal Reserve monetary policies orhave materially affected the effect of these policies on the Company’s operations and activities, financial condition,operating results of operations, growth plans or future prospects.

Impact of Current Laws and Regulations

The cumulative effect of these laws and regulations, while providing certain benefits, adds significantly to the cost of the Company’s operations and thus may have a negative impact on its profitability. There has also been a notable expansion in recent years of financial service providers that are not subject to the examination, oversight and other rules and regulations to which the Company is subject. Those providers, because they are not so highly regulated, may have a competitive advantage over the Company and may continue to draw large amounts of funds away from traditional banking institutions, with a continuing adverse effect on the banking industry in general.

Implications of Being an Emerging Growth Company

As a company with less than $1.07 billion in total annual gross revenues during its last fiscal year and satisfying other applicable standards, the Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of reduced reporting and other requirements that are otherwise generally applicable to public companies. Emerging growth company are:

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The Company has elected to take advantage of the scaled disclosures and other relief described above in this Annual Report on Form 10-K, and may take advantage of these exemptions until December 31, 2022 or such earlier time that it is are no longer an “emerging growth company.” In general, the Company would cease to be an “emerging growth company” if it had $1.07 billion or more in annual revenues, more than $700 million in market value of its common stock held by non-affiliates on any June 30 more than one year after its initial public offering, or issued more than $1.0 billion of non-convertible debt over a three-year period. As a result, the Company could cease to be an “emerging growth company” as soon as the end of the 2022 year. For so long as the Company may choose to take advantage of some or all of these reduced burdens, the level of information that it provides shareholders may be different than what shareholders might get from other public companies in which they hold stock. In addition, when these exemptions cease to apply, the Company expects to incur additional expenses and devote increased management effort toward ensuring compliance with them, which the Company may not be able to predict or estimate.

Future Legislation and Regulatory Reform

In recent years, regulators have increased their focus on the regulation of financial institutions. From time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures. New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations and competitive relationships of financial institutions operating in the U.S. The Company cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which its business may be affected by any new regulation or statute. Future legislation, regulation and policies and the effects of such legislation, regulation and policies, may have a significant influence on the Company’s operations and activities, financial condition, results of operations, growth plans or future prospects and the overall growth and distribution of loans, investments and deposits. Such legislation, regulation and policies have had a significant effect on the operations and activities, financial condition, results of operations, growth plans and future prospects of commercial banks in the past and are expected to continue to do so.

Itemso in the future. The Company cannot predict the nature of future monetary policies and the effect of such policies on its business and earnings.

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Risks Related to the Company’s Business and Operations

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The future impact of the COVID-19 pandemic is uncertain but could materially affect the Company’s future financial and operational results.

Risks Related to the Proposed Merger

Because the market price of the Company’s common stock may fluctuate, holders of Allegiance common stock cannot be certain of the market value of the merger consideration they will receive.

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In the merger, each share of Allegiance common stock issued and outstanding immediately prior to the effective time (other than certain shares held by the Company or Allegiance) will be converted into 1.4184 shares of the Company’s common stock. This exchange ratio is fixed and will not be adjusted for changes in the market price of either the Company’s common stock or Allegiance common stock. Changes in the price of the Company’s common stock prior to the merger will affect the value that holders of Allegiance common stock will receive in the merger. Neither the Company nor Allegiance is permitted to terminate the merger agreement as a result, in and of itself, of any increase or decrease in the market price of the Company’s common stock or Allegiance common stock.

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Stock price changes may result from a variety of factors, including general market and economic conditions, changes in the Company’s or Allegiance’s businesses, operations and prospects and regulatory considerations, many of which factors are beyond the Company’s or Allegiance’s control. Therefore, at the time of the Company’s special meeting and the Allegiance special meeting, holders of the Company’s common stock and holders of Allegiance common stock will not know the market value of the consideration to be received by holders of Allegiance common stock at the effective time. Investors should obtain current market quotations for shares of the Company’s common stock and for shares of Allegiance common stock.

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The market price of the Company’s common stock after the merger may be affected by factors different from those affecting shares of Allegiance common stock or the Company’s common stock currently.

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In the merger, holders of Allegiance common stock will become holders of the Company’s common stock. The Company’s business differs from that of Allegiance. Accordingly, the results of operations of the combined company and the market price of the Company’s common stock after the completion of the merger may be affected by factors different from those currently affecting the independent results of operations of each of the Company and Allegiance.

The Company and Allegiance are expectedcontinue to incur substantial costs related to the merger and integration.

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The Company and AllegianceMerger.

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The combined company is expected to incur substantial costs in connection with the related integration. There are a large numberMerger and subsequent integration of the processes, policies, procedures, operations, and technologies and systems, that may need to be integrated, including core processing,purchasing, accounting and finance, payroll, compliance, treasury management, branch operations, vendor management, risk management, lines of business, pricing and benefits. While Allegiancewe have

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Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the merger.

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Before the merger and the bank merger may be completed, various approvals, consents and non-objections must be obtained from the Federal Reserve Board, the FDIC, the Texas Department of Banking and other authorities in the United States. These approvals could be delayed or not obtained at all, including due to an adverse development in either party’s regulatory standing, or any other factors considered by regulators in granting such approvals; governmental, political or community group inquiries, investigations or opposition; or changes in legislation or the political environment.

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The approvals that are granted may impose terms and conditions, limitations, obligations or costs, or place restrictions on the conduct of the combined company’s business or require changes to the terms of the transactions contemplated by the merger agreement. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions and that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the merger agreement, imposing additional material costs on or materially limiting the revenues of the combined company following the merger or otherwise reduce the anticipated benefits of the merger if the merger were consummated successfully within the expected timeframe. In addition, there can be no assurance that any such conditions, limitations, obligations or restrictions will not result in the delay or abandonment of the merger. Additionally, the completion of the merger is conditioned on the absence of certain orders, injunctions or decrees by any court or regulatory agency of competent jurisdiction that would prohibit or make illegal the completion of any of the transactions contemplated by the merger agreement.

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Despite the parties’ commitments to use their reasonable best efforts to respond to any request for information and resolve any objection that may be asserted by any governmental entity with respect to the merger agreement, under the terms of the merger agreement, neither the Company nor Allegiance is required to take any action or agree to any condition or restriction in connection with obtaining these approvals that would reasonably be expected to have a material adverse effect on the combined companyour business: (1) loan delinquencies may rise, (2) nonperforming assets and its subsidiaries, taken as a whole, after giving effect to the merger.

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Terminationforeclosures may increase, (3) demand for our products and services may decline and (4) collateral securing our loans, especially real estate, may decline in value, which could reduce customers’ borrowing power and repayment ability.

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have agreed to operate their respective businessesour customers. Further, in the ordinary course prior to closing, which could cause the Company to be unable to pursue other beneficial opportunities that may arise prior to the completionevent of the merger.

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The shares of the Company’s common stock to be received by holders of Allegiance common stock as a result of the merger will have different rights from shares of Allegiance common stock.

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In the merger, holders of Allegiance common stock will become holders of the Company’s common stock and their rights as shareholders will be governed by Texas law and the governing documents of the combined company. The rights associated with the Company’s common stock are different in some respects from the rights associated with Allegiance common stock.

In connection with the merger, the Company will assume certain of Allegiance’s outstanding debt obligations, and the combined company’s level of indebtedness following the completion of the merger could adversely affect the combined company’s ability to raise additional capital and to meet its obligations under its existing indebtedness.

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In connection with the merger, the Company will assume certain of Allegiance’s outstanding indebtedness, including trust preferred securities, which consist of junior subordinated debentures with an aggregate original principal amount of $11.3 million and a current carrying value of $9.7 million at September 30, 2021, and $60.0 million aggregate principal amount of fixed-to-floating rate subordinated notes due October 1, 2029. Allegiance Bank also has outstanding $40.0 million aggregate principal amount of fixed-to-floating rate subordinated notes due December 15, 2027 that will be obligations of the combined bank. The Company’s existing debt, together with any future incurrence of additional indebtedness, and the assumption of Allegiance’s outstanding indebtedness, could have important consequences for the combined company’s shareholders. For example, it could:

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Holders of theCompany’s common stock and holders of Allegiance common stock will have a reduced ownership and voting interest in the combined company after the merger and will exercise less influence over management.

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Holders of the Company’s common stock and holders of Allegiance common stock currently have the right to vote in the election of the board of directors and on other matters affecting the Company and Allegiance, respectively. When the merger is completed, each holder of Allegiance common stock who receives shares of the Company’s common stock will become a holder of common stock of the Company, with a percentage ownership of the combined company that is smaller than the holder’s percentage ownership of Allegiance. Based on the number of shares of the Company and Allegiance common stock outstanding as of the close of business on the respective record dates, and based on the number of shares of the Company’s common stock expected to be issued in the merger, the former holders of Allegiance common stock, as a group, are estimated to own approximately 54% of the fully diluted shares of the combined company immediately after the merger and current holders of the Company’s common stock as a group are estimated to own approximately 46% of the fully diluted shares of the combined company immediately after the merger. Because of this, holders of Allegiance common stock may have less influence on the managementdelinquencies, regulatory changes and policies of the combined company than they now have on the management and policies of Allegiance, and holders of the Company’s common stockdesigned to protect borrowers may have less influence on the management and policies of the combined company than they now have on the management and policies of the Company.

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The issuance of shares of the Company’s common stock in connection with the merger may adversely affect the market price of the Company’s common stock.

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In connection with the payment of the merger consideration, the Company expects to issue more than one million shares of the Company’s common stock to Allegiance shareholders. The issuance of these new shares of the Company’s common stockslow or prevent us from making our business decisions or may result in fluctuationsa delay in the market price of the Company’s common stock, including a stock price decrease.

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Holders of the Company’s common stock will not have appraisal rights or dissenters’ rights in the merger.

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Appraisal rights (also known as dissenters’ rights) are statutory rights that, if applicable under law, enable shareholders to dissent from an extraordinary transaction,our taking certain remediation actions, such as a merger,foreclosure. In addition, we have unfunded commitments to extend credit to customers. During challenging economic environments, our customers are more dependent on our credit commitment, and to demand that theincreased borrowings under these commitments could adversely impact our liquidity.

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letter of intent, commitment, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other agreement in connection with or relating to any acquisition proposal.

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The merger agreement further provides that, during the 12-month period following the termination of the merger agreement under specified circumstances, including the entry into a definitive agreement or consummation of a transaction with respect to an alternative acquisition proposal, the Company or Allegiance may be required to pay to the other party a cash termination fee equal to $32.5 million.

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These provisions could discourage a potential third-party acquirer that might have an interest in acquiring all or a significant portion of the Company from considering or proposing that acquisition.

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The merger agreement subjects the Company to certain restrictions on its business activities prior to the effective time.

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The merger agreement subjects the Company and Allegiance to certain restrictions on their respective business activities prior to the effective time. The merger agreement obligates each of the Company and Allegiance to, and to cause each of its subsidiaries to, subject to certain specified exceptions, conduct its business in the ordinary course in all material respects and use reasonable best efforts to maintain and preserve intact its business organization, employees and advantageous business relationships. These restrictions could prevent the Company from pursuing certain business opportunities that arise prior to the effective time and are outside the ordinary course of business.

Risks Related to Business and Operations

The Company’ss business is concentrated in and largely dependent upon the continued growth and welfare of its markets and on the banking industry in general.markets.

The Company’s business is concentrated

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requires significant estimates of and assumptions regarding current credit risks, future trends and forecasts, all of which may undergo material changes. Inaccurate management assumptions, deterioration of economic conditions affecting borrowers, new information regarding existing loans, identificationand competition, may impede or deterioration of additional problem loans, acquisition of problem loans, significant changes in forecasted periods and other factors, both within and outsideprohibit the growth of the Company’s control, may require an increaseoperations, the opening of its ACL.

In addition, regulators, as an integral part of their periodic examinations, review the Company’s methodology for calculatingnew branches and the adequacyconsummation of its ACL and may directadditional acquisitions. Further, the Company to make additions to the allowance based on their judgments about information available to them at the time of their examination. Further, if actual charge-offs in future periods exceed the amounts allocated to the ACL, the Company may need additional provisions for credit losses to restore the adequacy of its ACL.

The amount of nonperforming and classified assets may increase significantly, resulting in additional losses and costs and expenses.

The Company’s nonperforming assets include nonaccrual loans and assets acquired through foreclosure. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations when they become due.attract and retain experienced bankers, which could adversely affect its growth. The resolutionsuccess of nonperforming assets requires significant commitments of time from management, which may materially and adversely impact theirthe Company’s growth strategy also depends on its ability to perform their other responsibilities. Whileeffectively manage growth, which is dependent upon a number of factors, including the Company’s ability to adapt its existing credit, operational, technology and governance infrastructure to accommodate expanded operations. If the Company seeksfails to reduce problem assets through loan workouts, restructurings and otherwise, decreases in the valueimplement one or more aspects of the underlying collateral, or in these borrowers’ performance or financial condition and any increase in the amount of nonperforming or classified assets could have a material impact on the Company’s business, financial condition and results of operations, including through increased capital requirements from regulators.

The small to medium-sized businesses thatits growth strategy, the Company lends to may have fewer resources to endure adverse business developments, which may impair its borrowers’ ability to repay loans.

The Company focuses its business development and marketing strategy primarily on small to medium-sized businesses. Small to medium-sized businesses frequently have smaller market shares than their competition, may be more vulnerableunable to economic downturns, often need substantial additional capital and may experience substantial volatility in operating results, any ofmaintain its historical earnings trends, which may impair a borrower’s ability to repay a loan. In addition, the collateral securing such loans generally includes real property and general business assets, which may decline in value more rapidly than anticipated, exposing the Company to increased credit risk.

The Company’s primary markets in Houston, Beaumont and Dallas experienced limitations on commercial activity since the outbreak of COVID-19. Many businesses, particularly those in the Company’s primary markets, were subject to shutdowns at the onset of the pandemic and may become subject to additional shutdowns and restrictions if  COVID-19 cases increase. These challenging market conditions in which borrowers operate could cause declines in loan collectability and the values associated with general business assets, resulting in inadequate collateral coverage that may expose the Company to credit losses and could adversely affect its business, financial condition and results of operations. Moreover,

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The Company is subject to risks arising from loans in its loan portfolio with real estate as a primary or secondary component of collateral.

operations. As of December 31, 2021, $2.12022, our goodwill totaled $497.3 million, compared to $223.6 million as of December 31, 2021.

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The Company’s largest loan In addition, a portion of our customer base, including customers in the energy and deposit relationships currently make up significant percentagesreal estate business, may be in industries which are particularly sensitive to commodity prices or market fluctuations, such as energy and real estate prices. Accordingly, negative changes in commodity prices and real estate values and liquidity could impair the value of the collateral securing these loans. Significant adverse changes in the economy or local market conditions in which our commercial lending customers operate could cause rapid declines in loan portfoliocollectability and deposits.

As of December 31, 2021, the Company’s 15 largest loan relationships, including related entities, totaled $346.8 million, or 12.1%, of its gross loans. The concentration riskvalues associated with havinggeneral business assets resulting in inadequate collateral coverage that may expose the Company to credit losses.

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The Company is subject to liquidity risk.

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The Company’s accounting estimates rely on analytical and forecasting models.

The processes the Company uses to estimate its ACL, assess the value of financial instruments, goodwillloans, securities and other intangibles for potential credit losses or impairment depend upon the use of analytical and forecasting models, judgments, assumptions and estimates that impact the amounts reported in the Company’s consolidated financial statements and accompanying notes. The accounting policies the Company considers to be the most significant accounting policies and methods requiring judgments, assumptions and estimates are discussed further in “Part II.—Item 7.—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies.”  

assets.

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Potential repurchases and indemnity requests for loans sold to correspondent banks.

The Company originates residential mortgage loans for sale to correspondent banks who may resell such mortgages to government-sponsored enterprises, such as Federal National Mortgage Loan Association, or Fannie Mae, Federal Home Loan Mortgage Corporate, or Freddie Mac, and other investors. As a part of this process, the Company makes various representations and warranties to the purchasers that are tied to the underwriting standards under which the investors agreed to purchase the loan. If a representation or warranty proves to be untrue, the Company could be required to repurchase one or more of the mortgage loans or indemnify the investor. Repurchase and indemnity obligations tend to increase during weak economic times, as investors seek to pass on the risks associated with mortgage loan delinquencies to the originator of the mortgage. Although the Company did not repurchase any residential mortgage loans sold to correspondent banks in 2021, if it is forced to repurchase mortgage loans in the future that it previously sold to investors, or indemnify those investors, the Company’s business, financial condition and results of operations could be adversely impacted.

The Company’s growth strategy, which includes acquisitions and de novo branching, includes a number of risks.

The Company intends to pursue acquisition opportunities that it believes complement its activities and may enhance profitability and provide attractive risk-adjusted returns. The Company’s acquisition activities could be material to its business and involve a number of risks, including, but not limited to, the following:

The Company’s business strategy includes evaluating strategic opportunities to grow through de novo branching which carries with it certain potential risks, including: significant startup costs and anticipated initial operating losses; an inability to gain regulatory approval; an inability to secure the services of qualified senior management to operate the de novo banking locations; and difficulties successfully integrating and promoting the Company’s corporate culture among other challenges. Failure to adequately manage the risks associated with the Company’s growth through de novo branching could have a material adverse impact on its business, financial condition and results of operations.

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Risks Related to the Economy and the Company’s Industry

The Company could be adversely impacted by natural disasters, pandemics and other catastrophes.

The Company operates banking locations throughout the Houston and Beaumont areas, which are susceptible to hurricanes, tropical storms, other adverse weather conditions, pandemics and other catastrophes. In addition, man-made events such as acts of terror, governmental responses to acts of terror, malfunctions of the electronic grid and other infrastructure breakdowns (such as the grid failures in February 2021 resulting from unusually cold weather for the region) could adversely affect economic conditions in its markets. These adverse weather and catastrophic events can disrupt operations, cause widespread and extensive property damage, force the relocation of residents and significantly disrupt economic activity in the region, significantly depress the local economies in which the Company operates and adversely affect its customers. If the economies in the Company’s markets experience an overall decline because of a catastrophic event, demand for loans and its other products and services could decline. In addition, the rates of delinquencies, foreclosures, bankruptcies and losses on the Company’s loan portfolios may increase substantially after events such as hurricanes, as uninsured property losses, interruptions of its customers’ operations or sustained job interruption or loss may materially impair the ability of borrowers to repay their loans. Moreover, the value of real estate or other collateral that secures the Company’s loans could be materially and adversely affected by a catastrophic event.

The Company be adversely impacted by sustained volatility in oil prices and downturns in the energy industry.

The economy in Texas is dependent on the energy industry. Volatile oil prices, instability in the industry and the resulting downturns or lack of growth in the energy industry and energy-related business could have a negative impact on the Texas economy and adversely impact the Company’s results of operations and financial condition. The oil and gas industry experienced a sustained downturn due to low oil and gas prices. Although oil prices increased in 2022, the oil and gas industry has remained unstable and prolonged instability may cause further worsening conditions of energy companies, oilfield services companies, related businesses and overall economic activities in the Company’s primary markets and could lead to increased credit stress in its loan portfolio, increased losses and weaker demand for lending. More significantly for the Company, low oil prices or general uncertainty resulting from energy price volatility could have other adverse impacts such as significant job losses in industries tied to energy, lower spending habits, lower borrowing needs, negative impact on construction and real estate related to energy and a number of other potential impacts that are difficult to isolate or quantify. The oil and gas industry may not recover meaningfully in the near term.

The Company operates in a highly competitive industry and market area.

The Company operates in the highly competitive financial services industry and face significant competition for customers from financial institutions located both within and beyond the Company’s principal markets. The Company competes with commercial banks, savings banks, credit unions, nonbank financial services companies and other financial institutions operating within or near the areas it serves. Certain large banks headquartered outside of the Company’s markets and large community banking institutions target the same customers it does. Technology has lowered barriers to entry and made it possible for banks to expand their geographic reach by providing services over the internet and mobile devices and for nonbanks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. The banking industry has experienced rapid changes in technology and, as a result, the Company’s future success may depend in part on its ability to address customer needs by using technology. Customer loyalty can be influenced by a competitor’s new products, especially offerings that could provide cost savings or a higher return to the customer. Increased lending activity of competing banks can also lead to increased competitive pressures on loan rates and terms for high-quality credits. The Company may not be able to compete successfully with other financial institutions in its markets and it may have to pay higher interest rates to attract deposits, accept lower yields to attract loans and pay higher wages for new employees, resulting in lower net interest margins and reduced profitability.

Many of the Company’s nonbank competitors are not subject to the same extensive regulations that govern its activities and may have greater flexibility in competing for business. The financial services industry could become even more competitive because of legislative, regulatory and technological changes and continued consolidation. In addition, some of the Company’s current commercial banking customers may seek alternative banking sources as they develop needs for credit facilities larger than the Company may be able to accommodate.

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The Company could be adversely impacted by the soundness of other financial institutions.

Financial services institutions are interrelated because of trading, clearing, counterparty or other relationships. The Company has exposure to many different industries and counterparties and routinely executes transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks and other institutional clients. Many of these transactions expose the Company to credit risk in the event of a default by a counterparty or client. In addition, credit risk may be exacerbated when collateral cannot be foreclosed upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due.

Risks Related to Cybersecurity, Third-Parties and Technology

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confidential information belonging to the Company or its clients and customers; manipulate or destroy data; disrupt, sabotage or degrade service on a financial institution’s systems; or steal money.

Unfortunately, it is not always possible to anticipate, detect or recognize these threats to the Company’s systems, or to implement effective preventative measures against all breaches, whether those breaches are malicious or accidental. Cybersecurity risks for banking organizations have significantly increased in recent years and have been difficult to detect before they occur because of the following, among other reasons:

While the Company investswe invest in systems and processes that are designed to detect and prevent security breaches and cyber-attacks and it conductswe conduct periodic tests of itsour security systems and processes, the Companywe may not succeed in anticipating or adequately protecting against or preventing all security breaches and cyber-attacks from occurring.Even the most advanced internal control environment may be vulnerable to compromise. Targeted social engineering attacks are becoming more sophisticated and are extremely difficult to prevent. Additionally, the existence of cyber-attacks or security breaches at third-parties with access to our data, such as vendors, may not be disclosed to us in a timely manner. As cyber-threats continue to evolve, the Companywe may be required to expend significant additional resources to continue to modify or enhance itsour protective measures or to investigate and remediate any information security vulnerabilities or incidents.

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litigation, cause reputational harm arising out of such claims or litigation may cause its customers to lose confidence in the Company’s ability to safeguard their information.

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associated with these misrepresentations. The Company’s controls and processes may not detect misrepresented information. Any such misrepresented information could adversely impact the Company’s business, financial condition and results of operations.

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Risks Related to the Regulation of the Company’sCompany’s Industry

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The Company is subject to numerous laws designed to protect consumers and failure to comply with these laws could lead to a wide variety of sanctions.

The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The CFPB, the U.S. Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. The CFPB was created under the Dodd-Frank Act to centralize responsibility for consumer financial protection with broad rulemaking authority to administer and carry out the purposes and objectives of federal consumer financial laws with respect to all financial institutions that offer financial products and services to consumers. The CFPB is also authorized to prescribe rules applicable to any covered person or service provider, identifying and prohibiting acts or practices that are “unfair, deceptive, or abusive” in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. The ongoing broad rulemaking powers of the CFPB have potential to have a significant impact on the operations of financial institutions offering consumer financial products or services. The CFPB has indicated that it may propose new rules on overdrafts and other consumer financial products or services, which could have a material adverse impact on the Company’s business, financial condition and results of operations if any such rules limit the Company’s ability to provide such financial products or services.

A successful regulatory challenge to the Company’s performance under the CRA, fair lending laws or regulations, or consumer lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion and restrictions on entering new business lines. Private parties can also challenge the Bank’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse impact on the Company’s business, financial condition and results of operations.

Failure to comply with economic and trade sanctions or with applicable anti-corruptionanti‑corruption laws could have a material adverse impact on the Company’sour business, financial condition and results of operations.

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and restrictions on those activities. The volume of new or modified laws and regulations has increased in recent years and, in addition, some individual municipalities have begun to enact laws that restrict loan servicing activities, including delaying or temporarily preventing foreclosures or forcing the modification of certain mortgages. If regulators impose new or more restrictive requirements, the Company may incur additional significant costs to comply with such requirements, which may further adversely affect it. In addition, if the Company were subject to regulatory investigation or regulatory action regarding its loan modification and foreclosure practices, the Company’s financial condition and results of operations could be adversely impacted.

In addition, the Company sells loans to third-parties and as part of these sales, the Company makes various representations and warranties. Breaches of these representations and warranties may result in a requirement that the Company repurchases the loans, or otherwise make whole or provide other remedies to counterparties. These aspects of the Company’s business or its failure to comply with applicablethese laws could lead to material sanctions and penalties.

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the holding company in order to make athe required capital injection to a subsidiary bank often becomes more difficult and expensive relativeand will adversely impact the holding company’s business, financial condition and results of operations.

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The stock market and especially the market for financial institution stocks havehas experienced substantial fluctuations, in recent years, which in many cases have been unrelated to the operating performance and prospects of particular companies. In addition, significantThese types of broad market fluctuations inmay adversely affect investor confidence and could affect the trading volume of the Company’s common stock may cause significant price variations to occur. Increased market volatility may materially and adversely affect the market price of the Company’s common stock and could make it difficult to sell shares atover the volume, prices and times desired.

Future sales and issuancesshort, medium or long term, regardless of the Company’s capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of its shareholders.

The Company may issue additional securities in the future and from time to time, including as consideration in future acquisitions or under compensation or incentive plan. Future sales and issuances of the Company’s common stock or rights to purchase its common stock could result in substantial dilution to the Company’s existing shareholders. New investors in such subsequent transactions could gain rights, preferences and privileges senior to those of holders of the Company’s common stock. The Company may grant registration rights covering shares of its common stock or other securities in connection with acquisitions and investments.

The obligations associated with being a public company require significant resources and management attention.

As a public company, the Company’s legal, accounting, administrative and other costs and expenses are substantial. The Company is subject to the reporting requirements of the Exchange Act and the rules and regulations implemented by the SEC, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act, the Public Company Accounting Oversight Board, or PCAOB and the Nasdaq, each of which imposes additional reporting and other obligations on public companies.As a public company, compliance with these reporting requirements and other SEC and Nasdaq rules has made certain operating activities more time-consuming. Further, the Company’s reporting burden will increase when it no longer qualifies for the scaled disclosure allowed as an “emerging growth company” under the JOBS Act. When these exemptions cease to apply, the Company will likely incur additional expenses and devote increased management effort toward compliance.

The Company’s management and Board of Directors have significant control over its business.

The Company’s directors and named executive officers beneficially owned approximately 26.0% of its outstanding common stock as a group at December 31, 2021. Consequently, the Company’s management and board of directors may be able to significantly affect its affairs and policies, including the outcome of the election of directors and the potential outcome of other matters submitted to a vote of the Company’s shareholders, such as mergers, the sale of substantially all the Company’s assets and other extraordinary corporate matters. This influence may also have the effect of delaying or preventing changes of control or changes in management or limiting the ability of the Company’s other

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shareholders to approve transactions that they may deem to be in the best interests of the Company. The interests of these insiders could conflict with the interests of the Company’s other shareholders.

The holders of the Company’s debt obligations have priority over its common stock with respect to payment in the event of liquidation, dissolution or winding up and with respect to the payment of interest.