What changed in this filing

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Item 1. Financial Statements

2024-10-25 compared with 2024-07-26 · 208 added, 115 removed, 929 unchanged (26% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

September 30,

(In Thousands, Except Share Data)

22 unchanged sentences

non-cumulative perpetual preferred stock, Series A, outstanding at

June 30, 2024 and December 31, 2023

September 30, 2024 and December 31, 2023

Common stock, $ 0.01 par value, 25,000,000 shares authorized, 9,434,444 and 9,418,463

shares issued, 8,294,589 and 8,314,778 shares outstanding at June 30, 2024

shares issued, 8,295,017 and 8,314,778 shares outstanding at September 30, 2024

and December 31, 2023, respectively

2 unchanged sentences

Accumulated other comprehensive loss

Treasury stock, 1,139,170 and 1,103,685 shares at June 30, 2024

Treasury stock, 1,139,427 and 1,103,685 shares at September 30, 2024

and December 31, 2023, respectively, at cost

4 unchanged sentences

Consolidated Statements of Income (Unaudited)

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

(In Thousands, Except Per Share Data)

33 unchanged sentences

Consolidated Statements of Comp rehensive Income (Unaudited)

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

(In Thousands)

1 unchanged sentence

Securities available-for-sale:

Unrealized securities losses arising during the period

Unrealized securities gains (losses) arising during the period

Reclassification adjustment for net loss realized in net income

2 unchanged sentences

Interest rate swaps:

Unrealized gains on interest rate swaps arising during the period

Income tax (expense) benefit

Unrealized (losses) gains on interest rate swaps arising during the period

Income tax benefit (expense)

Total other comprehensive (loss) income

31 unchanged sentences

Balance at June 30, 2023

Other comprehensive loss

Share-based compensation -

restricted shares and employee

stock purchase plan

Issuance of common stock

under the employee stock

purchase plan

Preferred stock dividends

Cash dividends ($ 0.2275

Treasury stock purchased

Balance at September 30, 2023

Comprehensive

23 unchanged sentences

Balance at June 30, 2024

Other comprehensive loss

Share-based compensation -

restricted shares and employee

stock purchase plan

Issuance of common stock

under the employee stock

purchase plan

Preferred stock dividends

Cash dividends ($ 0.25

Treasury stock purchased

Balance at September 30, 2024

See accompanying Notes to Unaudited Consolidated Financial Statements.

1 unchanged sentence

Consolidated Statements of Cash Flows (Unaudited)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

(In Thousands)

16 unchanged sentences

Net payments on operating lease liabilities

Net increase (decrease) in accrued interest receivable and other assets

Net (decrease) increase in accrued interest payable and other liabilities

Net decrease in accrued interest receivable and other assets

Net increase in accrued interest payable and other liabilities

Net cash provided by operating activities

20 unchanged sentences

Proceeds from Federal Home Loan Bank advances

Repayment of subordinated notes and debentures

Proceeds from issuance of subordinated notes and debentures

Net increase (decrease) in long-term borrowed funds

24 unchanged sentences

The Bank is subject to competition from other financial institutions and service providers and is also subject to state and federal regulations.

As of June 30, 2024, FBB had the following wholly-owned subsidiaries:

As of September 30, 2024, FBB had the following wholly-owned subsidiaries:

First Business Specialty Finance, LLC (“FBSF”), First Madison Investment Corp.

8 unchanged sentences

Material estimates that could significantly change in the near-term include the value of securities and interest rate swaps, level of the allowance for credit losses, lease residuals, property under operating leases, goodwill, and income taxes .

The results of operations for the three and six months ended June 30, 2024, are not necessarily indicative of results that may be expected for any other interim period or the entire fiscal year ending December 31, 2024 .

The results of operations for the three and nine months ended September 30, 2024, are not necessarily indicative of results that may be expected for any other interim period or the entire fiscal year ending December 31, 2024 .

Certain amounts in prior periods may have been reclassified to conform to the current presentation.

8 unchanged sentences

The Corporation is one operating segment;

therefore, we do not anticipate any impact to the financial statements.

therefore, we do not anticipate any material impact to the financial statements.

In December 2023, the FASB issued ASU No.

9 unchanged sentences

Diluted earnings per share are computed by dividing net income allocated to common shares adjusted for reallocation of undistributed earnings of unvested restricted shares by the weighted average number of shares determined for the basic earnings per common share computation plus the dilutive effect of common stock equivalents using the treasury stock method.

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

(Dollars in Thousands, Except

12 unchanged sentences

The Plan is administered by the Compensation Committee of the Board of Directors (the “Board”) of the Corporation and provides for the grant of equity ownership opportunities through incentive stock options and nonqualified stock options, restricted stock, restricted stock units, dividend equivalent units, and any other type of award permitted by the Plan.

As of June 30, 2024, 267,882 shares were available for future grants under the Plan, as amended.

As of September 30, 2024, 267,439 shares were available for future grants under the Plan, as amended.

Shares covered by awards that expire, terminate, or lapse will again be available for the grant of awards under the Plan.

Restricted Stock

Under the Plan, the Corporation may grant restricted stock awards (“RSA”), restricted stock units (“RSU”), and other stock-based awards to plan participants, subject to forfeiture upon the occurrence of certain events until the dates specified in the participant’s award agreement.

While restricted stock is subject to forfeiture, RSA participants may exercise full voting rights and will receive all

dividends and other distributions paid with respect to the restricted shares.

award agreement.

While restricted stock is subject to forfeiture, RSA participants may exercise full voting rights and will receive all dividends and other distributions paid with respect to the restricted shares.

RSUs do not have voting rights.

10 unchanged sentences

The compensation expense for the awards expected to vest for the percentage of PRSU subject to the TSR metric are never adjusted and are amortized utilizing the accounting fair value provided using a Monte Carlo pricing model.

Restricted stock activity for the year ended December 31, 2023 and the six months ended June 30, 2024 was as follows:

Restricted stock activity for the year ended December 31, 2023 and the nine months ended September 30, 2024 was as follows:

Weighted Average

4 unchanged sentences

Nonvested balance as of December 31, 2023

Nonvested balance as of June 30, 2024

Nonvested balance as of September 30, 2024

Unrecognized compensation cost (in thousands)

2 unchanged sentences

The number of shares actually issued may vary.

During the six months ended June 30, 2024, an additional 10,589 were issued related to actual performance results of previously granted awards.

During the nine months ended September 30, 2024, an additional 10,589 were issued related to actual performance results of previously granted awards.

Employee Stock Purchase Plan

4 unchanged sentences

The ESPP is treated as a compensatory item for purposes of share-based compensation expense.

During the six months ended June 30, 2024 , the Corporation issued 1,862 shares of common stock under the ESPP.

As of June 30, 2024, 228,776 shares remained available for issuance under the ESPP.

During the nine months ended September 30, 2024, the Corporation issued 2,692 shares of common stock under the ESPP.

As of September 30, 2024, 227,946 shares remained available for issuance under the ESPP.

Share-based compensation expense related to restricted stock and ESPP included in the unaudited Consolidated Statements of Income was as follows:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

(In Thousands)

2 unchanged sentences

The amortized cost and fair value of securities available-for-sale and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:

As of June 30, 2024

As of September 30, 2024

Amortized Cost

22 unchanged sentences

The amortized cost and fair value of securities held-to-maturity and the corresponding amounts of gross unrecognized gains and losses were as follows:

As of June 30, 2024

As of September 30, 2024

Amortized Cost

22 unchanged sentences

Residential and commercial mortgage-backed securities - government-sponsored enterprises include securities guaranteed by the Federal Home Loan Mortgage Corporation, FNMA, and the FHLB.

The Corporation sold no available-for-sale securities during the three months ended June 30, 2024 and 5 available-for-sale securities during the six months ended June 30, 2024.

The Corporation sold 16 available-for-sale securities during the three and six months ended June 30, 2023.

At June 30, 2024 and December 31, 2023, securities with a fair value of $ 31.6 million and $ 45.4 million , respectively, were pledged to secure various obligations, including interest rate swap contracts and municipal deposits.

The amortized cost and fair value of securities by contractual maturity at June 30, 2024 are shown below.

The Corporation sold no available-for-sale securities during the three months ended September 30, 2024 and 5 available-for-sale securities during the nine months ended September 30, 2024 .

The Corporation sold no available-for-sale securities during the three months ended September 30, 2023 and 16 available-for-sale securities during the nine months ended September 30, 2023.

At September 30, 2024 and December 31, 2023, securities with a fair value of $ 39.3 million and $ 45.4 million , respectively, were pledged to secure various obligations, including interest rate swap contracts and municipal deposits.

The amortized cost and fair value of securities by contractual maturity at September 30, 2024 are shown below.

Actual maturities may differ from contractual maturities because issuers have the right to call or prepay certain obligations with or without call or prepayment penalties.

10 unchanged sentences

Commercial mortgage-backed securities

The tables below show the Corporation’s gross unrealized losses and fair value of available-for-sale investments aggregated by investment category and length of time that individual investments were in a continuous loss position at June 30, 2024 and December 31, 2023.

At June 30, 2024, the Corporation held 184 available-for-sale securities that were in an unrealized loss position, 164 of which have been in a continuous unrealized loss position for twelve months or greater.

At September 30, 2024, the Corporation held 160 available-for-sale securities that were in an unrealized loss position, 155 of which have been in a continuous unrealized loss position for twelve months or greater.

The Corporation has not specifically identified available-for-sale securities in a loss position that it intends to sell in the near term and does not believe that it will be required to sell any such securities.

1 unchanged sentence

Consideration is given to such factors as the credit rating of the borrower, market conditions such as current interest rates, any adverse conditions specific to the security, and delinquency status on contractual payments.

For the three and six months ended June 30, 2024 and 2023, management concluded that in all instances securities with fair value less than carrying value was due to market factors;

For the three and nine months ended September 30, 2024 and 2023, management concluded that in all instances securities with fair value less than carrying value was due to market factors;

thus, no credit loss provision was required.

A summary of unrealized loss information for securities available-for-sale, categorized by security type and length of time for which the security has been in a continuous unrealized loss position, follows:

As of June 30, 2024

As of September 30, 2024

Less than 12 Months

29 unchanged sentences

government-sponsored enterprises

The tables below show the Corporation’s gross unrealized losses and fair value of held-to-maturity investments, aggregated by investment category and length of time that individual investments were in a continuous loss position at June 30, 2024 and December 31, 2023.

At June 30, 2024, the Corporation held 23 held-to-maturity securities that were in an unrealized loss position, 22 of which have been in a continuous loss position for twelve months or greater.

At September 30, 2024, the Corporation held 21 held-to-maturity securities that were in an unrealized loss position, 21 of which have been in a continuous loss position for twelve months or greater.

Management assesses held-to-maturity securities for credit losses on a quarterly basis.

1 unchanged sentence

Based on this analysis, management concludes the decline in fair value is due to market factors, specifically changes in interest rates.

Accordingly, no credit loss provision was recorded in the unaudited Consolidated Statements of Income for the three and six months ended June 30, 2024 and 2023.

Accordingly, no credit loss provision was recorded in the unaudited Consolidated Statements of Income for the three and nine months ended September 30, 2024 and 2023.

A summary of unrecognized loss information for securities held-to-maturity, categorized by security type and length of time for which the security has been in a continuous unrealized loss position, follows:

As of June 30, 2024

As of September 30, 2024

Less than 12 Months

23 unchanged sentences

Loan and lease receivables consist of the following:

September 30,

(In Thousands)

10 unchanged sentences

Loans transferred to third parties consist of the guaranteed portions of SBA loans which the Corporation sold in the secondary market and participation interests in other, non-SBA originated loans.

The total principal amount of the guaranteed portions of SBA loans sold during the three months ended June 30, 2024 and 2023, was $ 3.5 million and $ 4.9 million , respectively.

The total principal amount of the guaranteed portions of SBA loans sold during the six months ended June 30, 2024 and 2023, was $ 5.7 million and $ 9.8 million , respectively.

Each of the transfers of these financial assets met the qualifications for sale accounting, and therefore all of the loans transferred during the three and six months ended June 30, 2024 and 2023, have been derecognized in the unaudited Consolidated Financial Statements.

The total principal amount of the guaranteed portions of SBA loans sold during the three months ended September 30, 2024 and 2023, was $ 4.6 million and $ 10.7 million , respectively.

The total principal amount of the guaranteed portions of SBA loans sold during the nine months ended September 30, 2024 and 2023, was $ 10.3 million and $ 20.5 million , respectively.

Each of the transfers of these financial assets met the qualifications for sale accounting, and therefore all of the loans transferred during the three and nine months ended September 30, 2024 and 2023, have been derecognized in the unaudited Consolidated Financial Statements.

The guaranteed portions of SBA loans were transferred at their fair value and the related gain was recognized upon the transfer as non-interest income in the unaudited Consolidated Financial Statements.

The total outstanding balance of sold SBA loans serviced by the Corporation at June 30, 2024, and December 31, 2023, was $ 74.1 million and $ 84.2 million , respectively.

The total principal amount of transferred participation interests in other, non-SBA originated loans during the three months ended June 30, 2024 and 2023, was $ 23.8 million and $ 32.0 million , respectively, all of which were treated as sales and derecognized under the applicable accounting guidance at the time of transfer.

The total principal amount of transferred participation interests in other, non-SBA originated loans during the six months ended June 30, 2024 and 2023, was $ 58.6 million and $ 54.7 million , respectively, all of which were treated as sales and derecognized under the applicable accounting guidance at the time of transfer.

The total outstanding balance of sold SBA loans serviced by the Corporation at September 30, 2024, and December 31, 2023, was $ 74.6 million and $ 84.2 million , respectively.

The total principal amount of transferred participation interests in other, non-SBA originated loans during the three months ended September 30, 2024 and 2023, was $ 31.4 million and $ 39.2 million , respectively, all of which were treated as sales and derecognized under the applicable accounting guidance at the time of transfer.

The total principal amount of transferred participation interests in other, non-SBA originated loans during the nine months ended September 30, 2024 and 2023, was $ 90.0 million and $ 93.9 million , respectively, all of which were treated as sales and derecognized under the applicable accounting guidance at the time of transfer.

No gain or loss was recognized on participation interests in other, non-SBA originated loans as they were transferred at or near the date of loan origination and the payments received for servicing the portion of the loans participated represents adequate compensation.

The total outstanding balance of these transferred loans serviced by the Corporation at June 30, 2024, and December 31, 2023, was $ 312.4 million and $ 279.5 million , respectively.

As of June 30, 2024, and December 31, 2023, the total amount of the Corporation’s retained ownership of these transferred loans was $ 375.2 million and $ 367.4 million , respectively.

As of June 30, 2024 and December 31, 2023 , the non-SBA originated participation portfolio contained no non-accrual loans.

The total amount of loan participation purchased on the Corporation's Consolidated Balance Sheet as of September 30, 2024 was $ 2.2 million .

There were no loan participation purchased on the Corporation's Consolidated Balance Sheet as of December 31, 2023.

total outstanding balance of these transferred loans serviced by the Corporation at September 30, 2024, and December 31, 2023, was $ 332.0 million and $ 279.5 million , respectively.

As of September 30, 2024, and December 31, 2023, the total amount of the Corporation’s retained ownership of these transferred loans was $ 390.1 million and $ 367.4 million , respectively.

As of September 30, 2024 and December 31, 2023 , the non-SBA originated participation portfolio contained no non-accrual loans.

The Corporation does not share in the participant’s portion of any potential charge-offs.

The following table illustrates ending balances of the Corporation’s loan and lease portfolio, including non-accrual loans by class of receivable, and considering certain credit quality indicators:

June 30, 2024

September 30, 2024

Term Loans Amortized Cost Basis by Origination Year

38 unchanged sentences

The delinquency aging of the loan and lease portfolio by class of receivable was as follows:

June 30, 2024

September 30, 2024

(Dollars in Thousands)

15 unchanged sentences

Percent of portfolio

The following tables present the amortized cost basis of loans on non-accrual status and loans past due over 89 days still accruing as of:

June 30, 2024

The following tables provide additional detail on loans on non-accrual status and loans past due over 89 days still accruing as of:

September 30, 2024

Allowance for

25 unchanged sentences

Total non-accrual loans and leases

September 30,

Total non-accrual loans and leases to gross loans and leases

2 unchanged sentences

The following table presents the amortized cost basis of the non-accrual, collateral-dependent commercial and industrial loans as of:

September 30,

(In Thousands)

Accounts Receivable

Occasionally, the Corporation modifies loans to borrowers in financial distress.

There were seven commercial and industrial loans for a total of $ 1.6 million and two commercial real estate non-owner occupied loans for a total of $ 5.9 million modified during the six months ended June 30, 2024 .

The modifications consisted of payment deferrals and modified loan repayment schedules.

Of these modified loans, four are included in total non-performing loans and are currently between zero and 117 days past due as of June 30, 2024.

There was one commercial and industrial loan for a total of $ 382,000 modified during the six months ended June 30, 2023.

This modification consisted of a payment deferral.

There was one commercial and industrial loan to borrowers experiencing financial distress in the amount of $ 238,000 that was modified during the 12 months ended June 30, 2024 which subsequently defaulted .

There were no loans to borrowers experiencing financial distress that were modified during the 12 months ended June 30, 2023 which subsequently defaulted .

There were no unfunded commitments associated with loans modified for borrowers experiencing financial distress as of June 30, 2024.

Occasionally, the Corporation modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction.

When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

The following table presents the amortized cost basis of loans at September 30, 2024 that were both experiencing financial difficulty and modified during the nine months ended September 30, 2024 and 2023, by class and by type of modification.

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

For the Nine Months Ended September 30, 2024

Principal Forgiveness

Payment Delay

Term Extension

Interest Rate Reduction

Total Class of Financing Receivable

(In Thousands)

Commercial real estate

Commercial and industrial

For the Nine Months Ended September 30, 2023

Principal Forgiveness

Payment Delay

Term Extension

Interest Rate Reduction

Total Class of Financing Receivable

(In Thousands)

Commercial real estate

Commercial and industrial

The Corporation closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

The following table presents the performance of such loans that have been modified in the last 12 months:

For the Nine Months Ended September 30, 2024

(Dollars in Thousands)

Commercial real estate

Commercial and industrial

For the Nine Months Ended September 30, 2023

(Dollars in Thousands)

Commercial real estate

Commercial and industrial

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the nine months ended September 30, 2024 and 2023:

For the Nine Months Ended September 30, 2024

(Dollars in Thousands)

Principal Forgiveness

Weighted Average Interest Rate Reduction

Weighted Average Term Extension (years)

Weighted Average Payment Delay (years)

Commercial real estate

Commercial and industrial

For the Nine Months Ended September 30, 2023

(Dollars in Thousands)

Principal Forgiveness

Weighted Average Interest Rate Reduction

Weighted Average Term Extension (years)

Weighted Average Payment Delay (years)

Commercial real estate

Commercial and industrial

The following table presents the amortized cost basis of loans that had a payment default during the nine months ended September 30, 2024 and 2023 and were modified in the 12 months prior to that default to borrowers experience financial difficulty:

For the Nine Months Ended September 30, 2024

Principal Forgiveness

Payment Delay

Term Extension

Interest Rate Reduction

(In Thousands)

Commercial real estate

Commercial and industrial

For the Nine Months Ended September 30, 2023

Principal Forgiveness

Payment Delay

Term Extension

Interest Rate Reduction

(In Thousands)

Commercial real estate

Commercial and industrial

Allowance for Credit Losses

5 unchanged sentences

• Forecast model - For each portfolio segment, a Loss Driver Analysis (“LDA”) was performed in order to identify appropriate loss drivers and create a regression model for use in forecasting cash flows.

The LDA analysis utilized peer FFIEC Call Report data for all pools.

The LDA analysis utilized peer FFIEC Call Report data for all DCF pools.

The Corporation plans to update the LDA annually.

9 unchanged sentences

As of December 31, 2023, the Corporation selected a forecast which estimates unemployment between 3.89% and 4.04% and GDP growth change between 1.29% and 2.32% over the next four quarters.

As of June 30, 2024, the Corporation selected a forecast which estimates unemployment between 4.06% and 4.08% and GDP growth change between 1.76% and 2.21% over the next four quarters.

As of September 30, 2024, the Corporation selected a forecast which estimates unemployment between 4.12% and 4.20% and GDP growth change between 1.83% and 2.34% over the next four quarters.

Following the forecast period, the model reverts to long-term averages over four quarters.

12 unchanged sentences

A summary of the activity in the allowance for credit losses by portfolio segment is as follows:

As of and for the Three Months Ended June 30, 2024

As of and for the Three Months Ended September 30, 2024

(In Thousands)

6 unchanged sentences

unfunded credit commitments

As of and for the Three Months Ended June 30, 2023

As of and for the Three Months Ended September 30, 2023

(In Thousands)

6 unchanged sentences

unfunded credit commitments

As of and for the Six Months Ended June 30, 2024

As of and for the Nine Months Ended September 30, 2024

(In Thousands)

6 unchanged sentences

unfunded credit commitments

As of and for the Six Months Ended June 30, 2023

As of and for the Nine Months Ended September 30, 2023

(In Thousands)

7 unchanged sentences

unfunded credit commitments

Loans collectively evaluated for credit losses in the following tables include all performing loans at June 30, 2024 and December 31, 2023.

Loans collectively evaluated for credit losses in the following tables include all performing loans at September 30, 2024 and December 31, 2023.

Loans individually evaluated for credit losses include all non-accrual loans.

The following tables provide information regarding the allowance for credit losses and balances by type of allowance methodology.

As of June 30, 2024

As of September 30, 2024

(In Thousands)

20 unchanged sentences

The components of total lease expense were as follows:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

(In Thousands)

5 unchanged sentences

Quantitative information regarding the Corporation’s operating leases was as follows:

June 30, 2024

September 30, 2024

December 31, 2023

8 unchanged sentences

A summary of accrued interest receivable and other assets was as follows:

June 30, 2024

September 30, 2024

December 31, 2023

7 unchanged sentences

Total accrued interest receivable and other assets

For the six months ended June 30, 2024 and 2023, the Corporation amortized tax credit investments of $ 2.6 million and $ 870,000 respectively, and recognized tax credits and other benefits for the six months ended June 30, 2024 and 2023 of $ 3.3 million and $ 1.2 million , respectively, within the income tax expense line on the unaudited Consolidated Statements of Income.

For the nine months ended September 30, 2024 and 2023, the Corporation amortized tax credit investments of $ 3.9 million and $ 2.9 million respectively, and recognized tax credits and other benefits for the nine months ended September 30, 2024 and 2023 of $ 5.0 million and $ 4.0 million , respectively, within the income tax expense line on the unaudited Consolidated Statements of Income.

Note 8 — Deposits

1 unchanged sentence

Average balances represent year-to-date averages.

June 30, 2024

September 30, 2024

December 31, 2023

6 unchanged sentences

Total deposits

A summary of annual maturities of core and wholesale certificates of deposit at June 30, 2024 is as follows:

A summary of annual maturities of core and wholesale certificates of deposit at September 30, 2024 is as follows:

(In Thousands)

Maturities during the year ended December 31,

Wholesale deposits include $ 420.5 million and $ 155.0 million of wholesale certificates of deposit and non-reciprocal interest-bearing transaction accounts, respectively, at June 30, 2024, compared to $ 407.7 million and $ 50.0 million of wholesale certificates of deposit and non-reciprocal interest-bearing transaction accounts, respectively, at December 31, 2023.

Wholesale deposits include $ 467.2 million and $ 120.0 million of wholesale certificates of deposit and non-reciprocal interest-bearing transaction accounts, respectively, at September 30, 2024, compared to $ 407.7 million and $ 50.0 million of wholesale certificates of deposit and non-reciprocal interest-bearing transaction accounts, respectively, at December 31, 2023.

The Corporation has entered into derivative contracts hedging a portion of the certificates of deposit included in the 2024 maturities above.

As of June 30, 2024, the notional amount of derivatives designated as cash flow hedges totaled $ 359.3 million with a weighted average remaining maturity of 3.83 years and a weighted average rate of 3.97 % .

Certificates of deposit and wholesale deposits denominated in amounts greater than $250,000 were $ 87.0 million at June 30, 2024 and $ 120.2 million at December 31, 2023 .

As of September 30, 2024, the notional amount of derivatives designated as cash flow hedges totaled $ 431.3 million with a weighted average remaining maturity of 3.77 years and a weighted average rate of 3.83 % .

Certificates of deposit and wholesale deposits denominated in amounts greater than $250,000 were $ 85.9 million at September 30, 2024 and $ 120.2 million at December 31, 2023 .

Note 9 — FHLB Advances, Other Borrowings and Subordinated Notes and Debentures

1 unchanged sentence

Average balances represent year-to-date averages.

June 30, 2024

September 30, 2024

December 31, 2023

5 unchanged sentences

Subordinated notes and debentures

A summary of annual maturities of borrowings at June 30, 2024 is as follows:

A summary of annual maturities of borrowings at September 30, 2024 is as follows:

(In Thousands)

Maturities during the year ended December 31,

As of June 30, 2024 and December 31, 2023, the Corporation had other borrowings of $ 10,000 and $ 20,000 , respectively, which consisted of sold tax credit investments accounted for as secured borrowings because they did not qualify for true sale accounting.

As of September 30, 2024 , the Corporation has no other borrowings.

As of December 31, 2023, the Corporation had other borrowings of $ 20,000 , which consisted of sold tax credit investments accounted for as secured borrowings because they did not qualify for true sale accounting.

The Corporation has entered into derivative contracts hedging a portion of the borrowings included in the 2024 maturities above.

As of June 30, 2024, the notional amount of derivatives designated as cash flow hedges totaled $ 78.4 million with a weighted average remaining maturity of 2.50 years and a weighted average rate of 1.80 % .

As of June 30, 2024 and December 31, 2023 , the Corporation was in compliance with its debt covenants under its third-party secured senior line of credit.

As of September 30, 2024, the notional amount of derivatives designated as cash flow hedges totaled $ 68.4 million with a weighted average remaining maturity of 2.55 years and a weighted average rate of 1.98 % .

As of September 30, 2024 and December 31, 2023 , the Corporation was in compliance with its debt covenants under its third-party secured senior line of credit.

On February 20, 2024, the credit line was renewed for one additional year with pricing terms of 1-month term SOFR + 2.36% and a maturity date of February 19, 2025 .

During the third quarter 2024, the Corporation intends to redeem $ 15.0 million of 5.50 % fixed to floating rate subordinated notes payable originally issued August 15th, 2019 and reissue up to $ 20.0 million in subordinated notes payable.

The Corporation issued new subordinated notes payable as of September 13, 2024.

The aggregate principal amount of the newly issued subordinated notes payable was $ 20.0 million which qualified as Tier 2 capital.

The subordinated notes payable bear a fixed interest rate of 7.5 % with a maturity date of September 13, 2034 .

The Corporation may, at its option, redeem the notes payable, in whole or part, at anytime after the fifth anniversary of the issuance.

As of August 15, 2024, the $ 15.0 million subordinated notes payable that bore a fixed interest rate of 5.5 % were redeemed, and the remaining unamortized debt issuance cost was accelerated due to the early redemption.

As of September 30, 2024 , $ 341,000 of debt issuance costs remain in the subordinated note and debentures payable balance, of which $ 56,000 is related to the recently issued subordinated debentures.

Note 10 — Preferred Stock

3 unchanged sentences

For each dividend period from and including March 15, 2027, dividends will be paid at a floating rate of Three-Month Term SOFR plus a spread of 539 basis points per annum.

During the three and six months ended June 30, 2024, the Board of Directors declared an aggregate preferred stock dividend of $ 219,000 and $ 438,000 , respectively.

During the three and nine months ended September 30, 2024, the Board of Directors declared an aggregate preferred stock dividend of $ 218,000 and $ 656,000 , respectively.

The Series A Preferred Stock is perpetual and has no stated maturity.

9 unchanged sentences

In addition, the Corporation retains the option to repurchase the sold guaranteed portion of an SBA loan if the loan defaults.

Management has assessed estimated losses inherent in the outstanding guaranteed portions of SBA loans sold in accordance with ASC 450, Contingencies , and determined a recourse reserve based on the probability of future losses for these loans to be $ 906,000 at June 30, 2024, which is reported in accrued interest payable and other liabilities on the unaudited Consolidated Balance Sheets.

Management has assessed estimated losses inherent in the outstanding guaranteed portions of SBA loans sold in accordance with ASC 450, Contingencies , and determined a recourse reserve based on the probability of future losses for these loans to be $ 1.3 million at September 30, 2024, which is reported in accrued interest payable and other liabilities on the unaudited Consolidated Balance Sheets.

The summary of the activity in the SBA recourse reserve is as follows:

As of and for the Three Months

Ended June 30,

As of and for the Six Months Ended June 30,

Ended September 30,

As of and for the Nine Months Ended September 30,

(In Thousands)

Balance at the beginning of the period

SBA (benefit) recourse

Charge-offs, net

13 unchanged sentences

Assets and liabilities measured at fair value on a recurring basis, segregated by fair value hierarchy level, are summarized below:

June 30, 2024

September 30, 2024

Fair Value Measurements Using

25 unchanged sentences

Interest rate swaps

For assets and liabilities measured at fair value on a recurring basis, there were no transfers between the levels during the three and six months ended June 30, 2024 or the year ended December 31, 2023 related to the above measurements.

For assets and liabilities measured at fair value on a recurring basis, there were no transfers between the levels during the three and nine months ended September 30, 2024 or the year ended December 31, 2023 related to the above measurements.

Assets and liabilities measured at fair value on a no n-recurring basis, segregated by fair value hierarchy are summarized below:

June 30, 2024

September 30, 2024

Fair Value Measurements Using

9 unchanged sentences

Loan servicing rights

Collateral-dependent loans were written down to the fair value of their underlying collateral less costs to sell of $ 5.1 million and $ 4.9 million at June 30, 2024 and December 31, 2023 , respectively, through the establishment of specific reserves or by recording charge-offs when the carrying value exceeded the fair value of the underlying collateral of individually evaluated loans.

Collateral-dependent loans were written down to the fair value of their underlying collateral less costs to sell of $ 6.2 million and $ 4.9 million at September 30, 2024 and December 31, 2023 , respectively, through the establishment of specific reserves or by recording charge-offs when the carrying value exceeded the fair value of the underlying collateral of individually evaluated loans.

Valuation techniques consistent with the market approach, income approach, or cost approach were used to measure fair value.

These techniques included observable inputs for the collateral dependent loans being evaluated, such as current appraisals, recent sales of similar assets, or other observable market data, and u no bservable inputs, typically when discounts are applied to appraisal values to adjust such values to current market conditions or to reflect net realizable values.

The quantification of unobservable inputs for Level 3 individually evaluated loan values range from 10 % - 100 % as of the measurement date of June 30, 2024.

The quantification of unobservable inputs for Level 3 individually evaluated loan values range from 10 % - 100 % as of the measurement date of September 30, 2024.

The weighted average of those unobservable inputs was 42 % .

16 unchanged sentences

Fair value estimates, methods, and assumptions, consistent with exit price concepts for fair value measurements, are set forth below:

June 30, 2024

September 30, 2024

(In Thousands)

54 unchanged sentences

Fair value estimates are made at a discrete point in time, based on relevant market information and information about the financial instrument.

These estimates do not reflect any premium or discount that could result from offering for sale at one time the Corporation’s entire holding of a particular financial instrument.

These estimates do not reflect any premium or discount that could result from offering for sale at one time the

Corporation’s entire holding of a particular financial instrument.

Because no market exists for a significant portion of the Corporation’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.

11 unchanged sentences

When evaluating the fair value of its derivative contracts for the effects of non-performance and credit risk, the Corporation considered the impact of netting and any applicable credit enhancements such as collateral postings, thresholds, and guarantees.

As of June 30, 2024 and December 31, 2023, the credit valuation allowance was $ 38,000 and $ 117,000 , respectively.

As of September 30, 2024 and December 31, 2023, the credit valuation allowance was $ 38,000 and $ 117,000 , respectively.

The Corporation receives fixed rates and pays floating rates based upon designated benchmark interest rates used on the swaps with commercial borrowers.

2 unchanged sentences

Dealer counterparty swaps are subject to master netting agreements among the contracts within our Bank and are reported on the unaudited Consolidated Balance Sheet.

The gross amount of dealer counterparty swaps, without regard to the enforceable master netting agreement, was a gross derivative asset of $ 61.8 million and gross derivative liability of $ 2.1 million as of June 30, 2024.

The gross amount of dealer counterparty swaps, without regard to the enforceable master netting agreement, was a gross derivative asset of $ 39.8 million and gross derivative liability of $ 11.4 million as of September 30, 2024.

All changes in fair value of these instruments are recorded in other non-interest income.

Given the mirror-image terms of the outstanding derivative portfolio, the change in fair value for the three and six months ended June 30, 2024 and 2023 had an insignificant impact on the unaudited Consolidated Statements of Income.

Given the mirror-image terms of the outstanding derivative portfolio, the change in fair value for the three and nine months ended September 30, 2024 and 2023 had an insignificant impact on the unaudited Consolidated Statements of Income.

The Corporation also enters into interest rate swaps to manage interest rate risk and reduce the cost of match-funding certain long-term fixed rate loans.

2 unchanged sentences

The change in the fair value of these hedging instruments is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged transactions affect earnings.

A pre-tax unrealized gain of $ 300,000 and $ 5.1 million was recognized in other comprehensive income for the three and six months ended June 30, 2024 , respectively, and there were no ineffective portions of the hedges.

A pre-tax unrealized gain of $ 3.6 million and $ 2.2 million was recognized in other comprehensive income for the three and six months ended June 30, 2023 , respectively, and there were no ineffective portions of the hedges.

A pre-tax unrealized loss of $ 11.6 million and $ 6.5 million was recognized in other comprehensive income for the three and nine months ended September 30, 2024 , respectively, and there were no ineffective portions of the hedges.

A pre-tax unrealized gain of $ 5.3 million and $ 7.5 million was recognized in other comprehensive income for the three and nine months ended September 30, 2023 , respectively, and there were no ineffective portions of the hedges.

The Corporation also enters into interest rate swaps to mitigate market value volatility on certain long-term fixed securities.

2 unchanged sentences

These derivative contracts involve the receipt of floating rate interest from a counterparty in exchange for the Corporation making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional value.

A pre-tax unrealized gain of $ 82,000 and $ 223,000 was recognized in other comprehensive income for the three and six months ended June 30, 2024 , respectively, and there was no ineffective portion of these hedges.

A pre-tax unrealized gain of $ 107,000 and a pre-tax unrealized loss of $ 68,000 was recognized in other comprehensive income for the three and six months ended June 30, 2023 , respectively, and there was no ineffective portion of these hedges.

As of June 30, 2024

The change in the fair value of these

hedging instruments is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged transactions affect earnings.

A pre-tax unrealized loss of $ 246,000 and $ 24,000 was recognized in other comprehensive income for the three and nine months ended September 30, 2024 , respectively, and there was no ineffective portion of these hedges.

A pre-tax unrealized gain of $ 421,000 and $ 353,000 was recognized in other comprehensive income for the three and nine months ended September 30, 2023 , respectively, and there was no ineffective portion of these hedges.

As of September 30, 2024

(Dollars in Thousands)

32 unchanged sentences

The Corporation regularly reviews and updates, when appropriate, its capital and liquidity action plans, which is designed to help ensure appropriate capital adequacy, to plan for future capital needs, and to ensure that the Corporation serves as a source of financial strength to the Bank.

The Corporation’s and the Bank’s Board and management teams adhere to the appropriate regulatory guidelines on decisions which affect their respective capital positions, including but not limited to, decisions relating to the payment of dividends and increasing indebtedness.

Corporation’s and the Bank’s Board and management teams adhere to the appropriate regulatory guidelines on decisions which affect their respective capital positions, including but not limited to, decisions relating to the payment of dividends and increasing indebtedness.

As a bank holding company, the Corporation’s ability to pay dividends is affected by the policies and enforcement powers of the Board of Governors of the Federal Reserve system (the “Federal Reserve”).

9 unchanged sentences

Future dividend decisions by the Bank and the Corporation will continue to be subject to compliance with various legal, regulatory, and other restrictions as defined from time to time.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios of Total Common Equity Tier 1 and Tier 1 capital to risk-weighted assets and of Tier 1 capital to

adjusted total assets.

These risk-based capital requirements presently address credit risk related to both recorded and off-balance sheet commitments and obligations.

As of June 30, 2024 , the Corporation’s capital levels exceeded the regulatory minimums and the Bank’s capital levels remained characterized as well capitalized under the regulatory framework.

As of September 30, 2024 , the Corporation’s capital levels exceeded the regulatory minimums and the Bank’s capital levels remained characterized as well capitalized under the regulatory framework.

The following tables summarize both the Corporation’s and the Bank’s capital ratios and the ratios required by their federal regulators:

As of June 30, 2024

As of September 30, 2024

Minimum Required

44 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements