What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-10-27 compared with 2023-07-28 · 218 added, 201 removed, 576 unchanged (42% of the section changed)

41 unchanged sentences

Financial Performance Summary

Results as of and for the three and six months ended June 30, 2023 include:

• Net income available to common shareholders totaled $8.1 million, or diluted earnings per share of $0.98, for the three months ended June 30, 2023, compared to $11.0 million, or diluted earnings per share of $1.29, for the same period in 2022.

Net income available to common shareholders totaled $16.9 million, or diluted earnings per share of $2.02, for the six months ended June 30, 2023, compared to $19.6 million, or diluted earnings per share of $2.31, for the same period in 2022.

• Annualized return on average assets (“ROAA”) for the three months ended June 30, 2023 measured 1.04% compared to 1.61% for the same period in 2022.

Annualized ROAA for the six months ended June 30, 2023 measured 1.10% compared to 1.46% for the same period in 2022.

Results as of and for the three and nine months ended September 30, 2023 include:

• Net income available to common shareholders totaled $9.7 million, or diluted earnings per share of $1.17, for the three months ended September 30, 2023, compared to $10.6 million, or diluted earnings per share of $1.25, for the same period in 2022.

Net income available to common shareholders totaled $26.6 million, or diluted earnings per share of $3.19, for the nine months ended September 30, 2023, compared to $30.2 million, or diluted earnings per share of $3.57, for the same period in 2022.

• Annualized return on average assets (“ROAA”) for the three months ended September 30, 2023 measured 1.19% compared to 1.54% for the same period in 2022.

Annualized ROAA for the nine months ended September 30, 2023 measured 1.13% compared to 1.49% for the same period in 2022.

• Return on average common equity (“ROACE”) is defined as net income available to common shareholders divided by average equity less average preferred stock, if any.

ROACE was 12.58% for the three months ended June 30, 2023, compared to 18.79% for the same period in 2022.

ROACE was 13.26% for the six months ended June 30, 2023, compared to 16.74% for the same period in 2022.

• Pre-tax, pre-provision (“PTPP”) adjusted earnings, which excludes certain one-time and discrete items, and PTPP ROAA were $13.5 million and 1.72%, respectively, for the three months ended June 30, 2023, increasing $2.6 million and 12 basis points from the same period in 2022.

PTPP and PTPP ROAA were $26.8 million and 1.75%, respectively, for the six months ended June 30, 2023, increasing $6.0 million and 21 basis points from the same period in 2022.

• Fees in lieu of interest, defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization, totaled $936,000 for the three months ended June 30, 2023, compared to $1.9 million for the same period in 2022.

Fees in lieu of interest totaled $1.6 million for the six months ended June 30, 2023, compared to $3.2 million for the same period in 2022.

• Net interest margin was 3.81% for the three months ended June 30, 2023 compared to 3.71% for the same period in 2022.

Adjusted net interest margin, which excludes certain one-time and volatile items including fees in lieu of interest, was 3.63% for the three months ended June 30, 2023, up from 3.44% for the same period in 2022.

Net interest margin was 3.83% for the six months ended June 30, 2023 compared to 3.55% for the same period in 2022.

Adjusted net interest margin, which excludes certain one-time and volatile items, was 3.69% for the six months ended June 30, 2023, up from 3.33% for the same period in 2022.

• Top line revenue, defined as net interest income plus non-interest income, totaled $35.1 million for the three months ended June 30, 2023, up $4.6 million, or 15.0% from the same period in 2022.

Top line revenue totaled $70.2 million for the six months ended June 30, 2023, up $10.9 million, or 18.4% from the same period in 2022.

• Effective tax rate was 24.3% for the six months ended June 30, 2023 compared to 23.7% for the same period in 2022.

• Provision for credit losses was an expense of $2.2 million for the three months ended June 30, 2023 compared to a benefit of $3.7 million for the same period in 2022.

Provision for credit losses was an expense of $3.8 million for the six months ended June 30, 2023 compared to a benefit of $4.6 million for the same period in 2022.

• Total assets at June 30, 2023 increased $289.1 million, or 19.4% annualized, to $3.266 billion from $2.977 billion at December 31, 2022.

• Period-end gross loans and leases receivable increased $231.2 million, or 18.9% annualized, to $2.674 billion as of June 30, 2023 compared to $2.443 billion as of December 31, 2022.

Average gross loans and leases of $2.533

billion increased $273.6 million, or 12.1%, for the six months ended June 30, 2023, compared to $2.259 billion for the same period in 2022.

• Non-performing assets were $15.8 million and 0.48% of total assets as of June 30, 2023, compared to $3.8 million and 0.13% of total assets as of December 31, 2022.

ROACE was 14.62% for the three months ended September 30, 2023, compared to 17.44% for the same period in 2022.

ROACE was 13.72% for the nine months ended September 30, 2023, compared to 16.97% for the same period in 2022.

• Pre-tax, pre-provision (“PTPP”) adjusted earnings, which excludes certain one-time and discrete items, and PTPP ROAA for the three months ended September 30, 2023 were $14.1 million and 1.72%, respectively, compared to $14.2 million and 2.05% in the same period in 2022.

PTPP and PTPP ROAA were $40.9 million and 1.74%, respectively, for the nine months ended September 30, 2023, compared to $34.9 million and 1.72% in the same period in 2022.

• Fees in lieu of interest, defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization, totaled $582,000 for the three months ended September 30, 2023, compared to $807,000 for the same period in 2022.

Fees in lieu of interest totaled $2.2 million for the nine months ended September 30, 2023, compared to $4.0 million for the same period in 2022.

• Net interest margin was 3.76% for the three months ended September 30, 2023 compared to 4.01% for the same period in 2022.

Adjusted net interest margin, which excludes certain one-time and volatile items including fees in lieu of interest, was 3.66% for the three months ended September 30, 2023, compared to 3.89% for the same period in 2022.

Net interest margin was 3.81% for the nine months ended September 30, 2023 compared to 3.71% for the same period in 2022.

Adjusted net interest margin, which excludes certain one-time and volatile items, was 3.68% for the nine months ended September 30, 2023, compared to 3.53% for the same period in 2022.

• Top line revenue, defined as net interest income plus non-interest income, totaled $37.0 million for the three months ended September 30, 2023, compared to $34.1 million in the same period in 2022.

Top line revenue totaled $107.3 million for the nine months ended September 30, 2023, compared to $93.4 million in the same period in 2022.

• Effective tax rate, including the benefit from Low-Income Housing Tax Credits, was 17.3% for the three months ended September 30, 2023 compared to 22.9% for the same period in 2022.

Effective tax rate, including the benefit from Low-Income Housing Tax Credits, was 21.0% for the nine months ended September 30, 2023 compared to 22.6% for the same period in 2022.

• Provision for credit losses was an expense of $1.8 million for the three months ended September 30, 2023 compared to $12,000 for the same period in 2022.

Provision for credit losses was an expense of $5.6 million for the nine months ended September 30, 2023 compared to a benefit of $4.6 million for the same period in 2022.

• Total assets at September 30, 2023 increased $442.2 million, or 19.8% annualized, to $3.419 billion from $2.977 billion at December 31, 2022.

• Period-end gross loans and leases receivable increased $320.6 million, or 17.5% annualized, to $2.764 billion as of September 30, 2023 compared to $2.443 billion as of December 31, 2022.

Average gross loans and leases of $2.593 billion increased $314.6 million, or 13.8%, for the nine months ended September 30, 2023, compared to $2.278 billion for the same period in 2022.

• Non-performing assets were $17.7 million and 0.52% of total assets as of September 30, 2023, compared to $3.8 million and 0.13% of total assets as of December 31, 2022.

• The allowance for credit losses, including reserve for unfunded credit commitments, increased $6.8 million compared to December 31, 2022.

The allowance for credit losses increased to 1.12% of total loans, compared to 0.99% at December 31, 2022.

• Period-end in-market deposits at June 30, 2023 increased $107.8 million, or 11.0% annualized, to $2.074 billion from $1.966 billion as of December 31, 2022.

Average in-market deposits of $2.018 billion increased $101.7 million, or 5.3%, for the six months ended June 30, 2023, compared to $1.917 billion for the same period in 2022.

• Private wealth and trust assets under management and administration increased by $247.1 million, or 18.6% annualized, to $2.907 billion at June 30, 2023, compared to $2.660 billion at December 31, 2022.

Assets under management and administration increased $353.4 million, or 13.8%, compared to the same period in 2022.

• Period-end in-market deposits at September 30, 2023 increased $223.3 million, or 15.1% annualized, to $2.189 billion from $1.966 billion as of December 31, 2022.

Average in-market deposits of $2.048 billion increased $126.3 million, or 6.6%, for the nine months ended September 30, 2023, compared to $1.921 billion for the same period in 2022.

• Private wealth and trust assets u nder management and administration increased by $254.6 million, or 12.8% annualized, to $2.915 billion at September 30, 2023, compared to $2.660 billion at December 31, 2022.

Private wealth trust assets under management and administration increased $422.0 million, or 16.9%, compared to the same period in 2022.

Results of Operations

Top Line Revenue

Top line revenue, comprised of net interest income and non-interest income, increased $4.6 million, or 15.0%, for the three months ended June 30, 2023, compared to the same period in 2022, due to a 17.3% and 7.3% increase in net interest income and non-interest income, respectively.

The increase in net interest income was driven by an increase in net interest margin and average loans and leases outstanding.

The increase in non-interest income was due to an increase in trust fee income, commercial loan swap fee income, loan fee income, and income from investments in mezzanine funds, partially offset by a reduction in gains on the sale of SBA loans and service charges on deposits.

Top line revenue increased $10.9 million, or 18.4%, for the six months ended June 30, 2023, compared to the same period in 2022, due to a 20.8% and 10.7% increase in net interest income and non-interest income, respectively.

Top line revenue, comprised of net interest income and non-interest income, increased $2.9 million, or 8.6%, for the three months ended September 30, 2023, compared to the same period in 2022, due to a 10.5% and 2.8% increase in net interest income and non-interest income, respectively.

The increase in net interest income was driven by an increase in average loans and leases outstanding.

The increase in non-interest income was due to an increase in trust fee income, gains on the sale of SBA loans, and commercial loan swap fee income, partially offset by a reduction in income from investments in mezzanine funds and service charges on deposits.

Top line revenue increased $13.8 million, or 14.8%, for the nine months ended September 30, 2023, compared to the same period in 2022, due to a 17.0% and 7.8% increase in net interest income and non-interest income, respectively.

The increase in net interest income was driven by an increase in net interest margin and average loans and leases outstanding.

The increase in non-interest income was due to an increase in commercial loan swap fee income, loan fee income, and income from investments in mezzanine funds, partially offset by a reduction in gains on the sale of SBA loans, service charges on deposits, and trust fee income.

The increase in non-interest income was due to an increase trust fee income, commercial loan swap fee income, loan fee income, and income from investments in mezzanine funds, partially offset by a reduction in gains on the sale of SBA loans and service charges on deposits.

The components of top line revenue 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,

2023 2022 $ Change % Change 2023 2022 $ Change % Change

4 unchanged sentences

Annualized Return on Average Assets (“ROAA”) and Annualized Return on Average Common Equity (“ROACE”)

ROAA for the three and six months ended June 30, 2023 decreased to 1.04% and 1.10%, respectively, compared to 1.61% and 1.46% for the three and six months ended June 30, 2022, respectively.

ROAA for the three and nine months ended September 30, 2023 decreased to 1.19% and 1.13%, respectively, compared to 1.54% and 1.49% for the three and nine months ended September 30, 2022, respectively.

The decrease in ROAA was due to an increase in credit loss provision and operating expenses, partially offset by an increase in top line revenue.

1 unchanged sentence

ROAA also allows us to better benchmark our profitability to our peers without the need to consider different degrees of leverage which can ultimately influence return on equity measures.

ROACE for the three and six months ended June 30, 2023 was 12.58% and 13.26%, respectively, compared to 18.79% and 16.74% for the three and six months ended June 30, 2022, respectively.

The primary reason for the change in ROACE is consistent with the net income variance explanation as discussed under Return on Average Assets above.

We view ROACE as an important measurement for monitoring profitability and continue to focus on improving our return to our shareholders by enhancing the overall profitability of our client relationships, controlling our expenses, and minimizing our costs of credit.

ROAA and ROACE for the three and six month ended June 30, 2022 were both favorably impacted by net recoveries of $4.2 million and $4.4 million, respectively.

ROACE for the three and nine months ended September 30, 2023 was 14.62% and 13.72%, respectively, compared to 17.44% and 16.97% for the three and nine months ended September 30, 2022, respectively.

The reasons for the change in ROACE are consistent with the net income variance explanation as discussed under ROAA above.

We view ROACE as an

important measurement for monitoring profitability and continue to focus on improving our return to our shareholders by enhancing the overall profitability of our client relationships, controlling our expenses, and minimizing our costs of credit.

ROAA and ROACE for the nine months ended September 30, 2022 were both favorably impacted by net recoveries of $4.4 million.

Efficiency Ratio and Pre-Tax, Pre-Provision Adjusted Earnings

Efficiency ratio measured 61.68% and 61.85% for the three and six months ended June 30, 2023, respectively, compared to 64.47% and 65.00% for the three and six ended June 30, 2022, respectively, as the percentage increase in top line revenue exceeded the percentage increase in operating expense resulting in positive operating leverage in both periods of comparison.

Efficiency ratio measured 61.96% and 61.89% for the three and nine months ended September 30, 2023, respectively, compared to 58.46% and 62.61% for the three and nine ended September 30, 2022, respectively, as the percentage increase in top line revenue exceeded the percentage increase in operating expense resulting in positive operating leverage in the year-to-date period of comparison.

Efficiency ratio is a non-GAAP measure representing operating expense, which is non-interest expense excluding the effects of the SBA recourse benefit or provision, impairment of tax credit investments, net gains or losses on repossessed assets, amortization of other intangible assets, and other discrete items, if any, divided by operating revenue, which is equal to net interest income plus non-interest income less realized net gains or losses on securities, if any.

PTPP adjusted earnings for three and six months ended June 30, 2023 was $13.5 million and $26.8 million, respectively, compared to $10.8 million and $20.8 million for the three and six months ended June 30, 2022, respectively.

PTPP adjusted earnings for three and nine months ended September 30, 2023 was $14.1 million and $40.9 million, respectively, compared to $14.2 million and $34.9 million for the three and nine months ended September 30, 2022, respectively.

PTPP adjusted earnings is defined as operating revenue less operating expense.

The increase in PTPP for both periods of comparison was primarily driven by an increase in average loans and leases outstanding and net interest margin expansion, partially offset by an increase in operating expenses as the Corporation continued to invest to achieve its strategic growth objectives.

The decrease in PTPP for the three months ended was primarily driven by an increase in operating expenses, partially offset by an increase in average loans and leases outstanding.

The increase in PTPP for the nine months ended was primarily driven by an increase in average loans and leases outstanding and net interest margin expansion, partially offset by an increase in operating expenses as the Corporation continued to invest to achieve its strategic growth objectives.

In the judgment of the Corporation’s management, the adjustments made to non-interest expense and non-interest income allow investors and analysts to better assess the Corporation’s operating expenses in relation to its core operating revenue by removing the volatility associated with certain one-time items and other discrete items.

2 unchanged sentences

Please refer to the Non-Interest Income and Non-Interest Expense sections below for discussion on additional drivers of the year-over-year change in the efficiency ratio and PTPP adjusted earnings.

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,

2023 2022 $ Change % Change 2023 2022 $ Change % Change

19 unchanged sentences

Net interest income is sensitive to changes in market rates of interest and the asset/liability management processes to prepare for and respond to such changes.

The following table provides information with respect to (1) the change in net interest income attributable to changes in rate (changes in rate multiplied by prior volume) and (2) the change in net interest income attributable to changes in volume (changes in volume multiplied by prior rate) for the three and six months ended June 30, 2023 compared to the same period in 2022.

The following table provides information with respect to (1) the change in net interest income attributable to changes in rate (changes in rate multiplied by prior volume) and (2) the change in net interest income attributable to changes in volume (changes in volume multiplied by prior rate) for the three and nine months ended September 30, 2023 compared to the same period in 2022.

The change in net interest income attributable to changes in rate and volume (changes in rate multiplied by changes in volume) has been allocated to the rate and volume changes in proportion to the relationship of the absolute dollar amounts of the change in each.

Increase (Decrease) for the Three Months Ended June 30, Increase (Decrease) for the Six Months Ended June 30,

Increase (Decrease) for the Three Months Ended September 30, Increase (Decrease) for the Nine Months Ended September 30,

2023 Compared to 2022 2023 Compared to 2022

29 unchanged sentences

(1) The average balances of loans and leases include non-performing loans and leases and loans held for sale.

(2) The rate column for the six months ended June 30, 2022 included $248,000 in accelerated amortization of debt issuance costs.

The tables below show our average balances, interest, average yields/rates, net interest margin, and the spread between the combined average yields earned on interest-earning assets and average rates on interest-bearing liabilities for the three and six months ended June 30, 2023 and 2022.

(2) The rate column for the nine months ended September 30, 2022 included $236,000 in accelerated amortization of debt issuance costs.

The average balances are derived from average daily balances.

For the Three Months Ended June 30,

For the Three Months Ended September 30,

Balance Interest Average

53 unchanged sentences

(4) Represents annualized yields/rates.

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Balance Interest Average

55 unchanged sentences

(4) Represents annualized yields/rates.

(5) The rate column for the six months ended June 30, 2022 included $248,000 in accelerated amortization of debt issuance costs.

(5) The rate column for the nine months ended September 30, 2022 included $236,000 in accelerated amortization of debt issuance costs.

The change in yield of the respective interest-earning asset or the rate paid on interest-bearing liability compared to the change in short-term market rates is commonly referred to as a beta.

The table below displays the beta calculations for loans and leases, total interest earning assets, in-market deposits, interest-bearing deposits and total interest-bearing liabilities for the three and six months ended June 30, 2023 and 2022.

Additionally, adjusted total loans and leases and total interest-earning assets excludes the volatile impact of fees in lieu of interest.

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,

2023 2022 2023 2022

39 unchanged sentences

(2) Total bank funding represents total deposits plus FHLB advances.

(3) Board of Governors of the Federal Reserve System (US), Effective Federal Funds Rates [DFF].

retrieved from FRED, Federal Reserve Bank of St.

(3) Board of Governors of the Federal Reserve System (US), Effective Federal Funds Rates [DFF] retrieved from FRED, Federal Reserve Bank of St.

(4) Represents annualized yields/rates.

Comparison of Net Interest Income for the Three and Six Months Ended June 30, 2023 and 2022

Net interest income increased $4.1 million, or 17.3%, and $9.4 million, or 20.8%, during the three and six months ended June 30, 2023, respectively, compared to the three and six months ended June 30, 2022.

The increase in net interest income reflected an increase in net interest margin and increase in average gross loans and leases, partially offset by a reduction in fees in lieu of interest.

Fees in lieu of interest, which vary from quarter to quarter, totaled $936,000 and $1.6 million for the three and six months ended June 30, 2023, respectively, compared to $1.9 million and $3.2 million for the same period in 2022.

Excluding fees in lieu of interest, net interest income for the three and six months ended June 30, 2023 increased $5.0 million, or 23.0%, and $10.9 million, or 26.1%, respectively.

Average gross loans and leases for the three and six months ended June 30, 2023 increased $310.3 million, or 13.7%, and $273.6 million, or 12.1%, respectively, compared to the three and six months ended June 30, 2022.

The yield on average loans and leases for the three and six months ended June 30, 2023 was 6.86% and 6.64%, respectively, compared to 4.52% and 4.32% for the three and six months ended June 30, 2022.

Excluding the impact of loan fees in lieu of interest, the yield on average loans and leases for the three and six months ended June 30, 2023 was 6.71% and 6.52%, respectively, compared to 4.19% and 4.04% for the three and six months ended June 30, 2022.

The yield on average interest-earning assets for the three and six months ended June 30, 2023 measured 6.47% and 6.28%, respectively, compared to 4.24% and 4.04% for the three and six months ended June 30, 2022.

Excluding loan fees in lieu of interest, the yield on average interest-earning assets for the three and six months ended June 30, 2023 was 6.35% and 6.17%, respectively, compared to 3.95% and 3.79% for the three and six months ended June 30, 2022.

Comparison of Net Interest Income for the Three and Nine Months Ended September 30, 2023 and 2022

Net interest income increased $2.7 million, or 10.5%, and $12.1 million, or 17.0%, during the three and nine months ended September 30, 2023, respectively, compared to the three and nine months ended September 30, 2022.

The increase in net interest income reflected an increase in average gross loans and leases, partially offset by a reduction in fees in lieu of interest.

Fees in lieu of interest, which vary from quarter to quarter, totaled $582,000 and $2.2 million for the three and nine months ended September 30, 2023, respectively, compared to $807,000 and $4.0 million for the same period in 2022.

Excluding fees in lieu of interest, net interest income for the three and nine months ended September 30, 2023 increased $2.9 million, or 11.7%, and $13.9 million, or 20.7%, respectively.

Average gross loans and leases for the three and nine months ended September 30, 2023 increased $395.2 million, or 17.1%, and $314.6 million, or 13.8%, respectively, compared to the three and nine months ended September 30, 2022.

The yield on average loans and leases for the three and nine months ended September 30, 2023 was 7.06% and 6.79%, respectively, compared to 5.21% and 4.62% for the three and nine months ended September 30, 2022.

Excluding the impact of loan fees in lieu of interest, the yield on average loans and leases for the three and nine months ended September 30, 2023 was 6.97% and 6.67%, respectively, compared to 5.07% and 4.39% for the three and nine months ended September 30, 2022.

The yield on average interest-earning assets for the three and nine months ended September 30, 2023 measured 6.71% and 6.43%, respectively, compared to 4.92% and 4.34% for the three and nine months ended September 30, 2022.

Excluding loan fees in lieu of interest, the yield on average interest-earning assets for the three and nine months ended September 30, 2023 was 6.63% and 6.33%, respectively, compared to 4.80% and 4.13% for the three and nine months ended September 30, 2022.

The increase in yields was primarily due to rising rates on variable-rate loans, following the Federal Open Market Committee’s (“FOMC”) decision to raise the target Fed Funds rate 225 basis points over the period of comparison, as well as the reinvestment of cash flows from the securities and fixed-rate loan portfolios in a rising rate environment.

The daily average effective federal funds rate for the three and six months ended June 30, 2023 increased 422 and 430 basis points, compared to the same period in 2022.

This equates to an interest-earning asset beta of 56.87% and 55.39%, respectively, for the three and six months ended June 30, 2023.

The rate paid on average interest-bearing in-market deposits for the three and six months ended June 30, 2023 increased to 3.25% and 3.03%, respectively, from 0.29% and 0.24% for the three and six months ended June 30, 2022.

The average rate paid on total interest-bearing liabilities for the three and six months ended June 30, 2023 increased to 3.33% and 3.12%, respectively, from 0.73% and 0.67% for the three and six months ended June 30, 2022.

Total interest-bearing liabilities include interest-bearing deposits, federal funds purchased, FHLB advances, subordinated and junior subordinated notes payable, and other borrowings.

The daily average effective federal funds rate for the three and nine months ended September 30, 2023 increased 308 and 389 basis points, compared to the same period in 2022.

This equates to an interest-earning asset beta of 59.46% and 56.53%, respectively, for the three and nine months ended September 30, 2023.

The rate paid on average interest-bearing in-market deposits for the three and nine months ended September 30, 2023 increased to 3.74% and 3.27%, respectively, from 0.88% and 0.45% for the three and nine months ended September 30, 2022.

The average rate paid on total interest-bearing liabilities for the three and nine months ended September 30, 2023 increased to 3.64% and 3.30%, respectively, from 1.27% and 0.87% for the three and nine months ended September 30, 2022.

Total interest-bearing liabilities include interest-bearing deposits, federal funds purchased, FHLB advances, subordinated and junior subordinated notes and debentures payable, and other borrowings.

The average rates paid increased due to the increase in short-term market rates and the replacement of maturing wholesale funds at higher fixed rates.

This equates to an interest-bearing liability beta of 61.62% and 56.88%, respectively, for the three and six months ended June 30, 2023.

Net interest margin increased to 3.81% and 3.83%, respectively, for the three and six months ended June 30, 2023, compared to 3.71% and 3.55% for the three and six months ended June 30, 2022.

The primary driver of improved net interest margin was the aforementioned increase in earning asset yields, partially offset by corresponding increase in funding costs.

Adjusted net interest margin measured 3.63% and 3.69%, respectively, for the three and six months ended June 30, 2023, compared to 3.44% and 3.33% for the three and six months ended June 30, 2022.

This equates to an interest-bearing liability beta of 76.78% and 62.39%, respectively, for the three and nine months ended September 30, 2023.

Net interest margin decreased to 3.76% and increased to 3.81%, respectively, for the three and nine months ended September 30, 2023, compared to 4.01% and 3.71% for the three and nine months ended September 30, 2022.

The primary driver of the reduction for the three months ended in net interest margin was mainly due to a decrease in fees in lieu of interest and an increase in funding costs, partially offset by an increase in earning asset yields.

The primary driver of improved net interest margin for the nine months ended was the aforementioned increase in earning asset yields, partially offset by corresponding increase in funding costs.

Adjusted net interest margin measured 3.66% and 3.68%, respectively, for the three and nine months ended September 30, 2023, compared to 3.89% and 3.53% for the three and nine months ended September 30, 2022.

Adjusted net interest margin is a non-GAAP measure representing net interest income excluding the impact of fees in lieu of interest, and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less other recurring, but volatile, components of average interest-earning assets.

3 unchanged sentences

Management anticipates deposit betas may continue to rise and net interest margin may continue to decline at a gradual pace in coming quarters as the Federal Open Market Committee approaches a terminal federal funds rate.

Based on current trends, we believe our net interest margin should stabilize meaningfully above our strategic plan goal of 3.50%.

Based on current trends, we believe our net interest margin should stabilize above our current strategic plan goal of 3.50%.

Provision for Credit Losses

2 unchanged sentences

Refer to Allowance for Credit Losses , below, for further information regarding our allowance for credit loss methodology.

The Corporation recognized a $2.2 million and $3.8 million provision expense for the three and six months ended June 30, 2023, respectively, compared to a benefit of $3.7 million and $4.6 million for the three and six months ended June 30, 2022.

The provision expense for the three months ended June 30, 2023 was primarily due to an increase of $1.2 million related to loan growth and a $1.1 million increase in specific reserves.

The following table shows the components of the provision for credit losses for the three and six months ended June 30, 2023 compared to the same periods in 2022.

For the Three Months Ended June 30, For the Six Months Ended June 30,

The Corporation recognized $1.8 million and $5.6 million of provision expense for the three and nine months ended September 30, 2023, respectively, compared to expense of $12,000 and benefit of $4.6 million for the three and nine months ended September 30, 2022.

The provision expense for the three months ended September 30, 2023 was primarily due to a $1.3 million increase in specific reserves, an increase of $817,000 related to loan growth, and a $506,000 increase due to qualitative factors, partially offset by a $1.4 million benefit due to the improved economic outlook in our model forecast.

Similar to the second quarter, the increase in specific reserves, charge-offs, and qualitative factors was primarily related to the Equipment Finance and SBA Lending loan pools, which management believes is consistent with the cyclical nature of these commercial lending niches.

The provision expense for the nine months ended September 30, 2023 was primarily due to a $2.3 million increase in specific reserves, an increase of $3.0 million related to loan growth, and a $465,000 increase due to qualitative factors, partially offset by $1.2 million benefit due to the improved economic outlook in our model forecast.

The provision benefit for the nine months ended September 30, 2022 was primarily due to a net recovery of $4.4 million.

The following table shows the components of the provision for credit losses for the three and nine months ended September 30, 2023 compared to the same periods in 2022.

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2023 2022 2023 2022

13 unchanged sentences

Refer to Asset Quality , below, for further information regarding the overall credit quality of our loan and lease portfolio.

Comparison of Non-Interest Income for the Three and Six Months Ended June 30, 2023 and 2022

Comparison of Non-Interest Income for the Three and Nine Months Ended September 30, 2023 and 2022

Non-Interest Income

Non-interest income increased $502,000, or 7.3%, to $7.4 million for the three months ended June 30, 2023 compared to $6.9 million for the same period in 2022.

The increase in total non-interest income for the three months ended June 30, 2023 was due to increases in other non-interest income, driven by mezzanine fund investment income, loan fee income, commercial loan swap fee income, and private wealth fee income.

These favorable variances were partially offset by a decrease in services charges on deposits and gains on sale of SBA loans.

Non-interest income for the six months ended June 30, 2023 increased $1.5 million, or 10.7%, to $15.8 million compared to $14.3 million for the same period in 2022.

The increase in total non-interest income for the six months ended June 30, 2023 was driven by an increase in other non-interest income, led by mezzanine fund investment income, and an increase in commercial loan swap fee income and loan fee income.

These favorable variances were partially offset by a decrease in gains on the sale of SBA loans, service charges on deposits, and private wealth fee income.

Non-interest income increased $233,000, or 2.8%, to $8.4 million for the three months ended September 30, 2023 compared to $8.2 million for the same period in 2022.

The increase in total non-interest income for the three months ended September 30, 2023 was due to increases in private wealth fee income, commercial loan swap fee income, and gains on sale of SBA loans.

These favorable variances were partially offset by a decrease in other non-interest income, driven by a decrease in mezzanine fund investment income, and a decrease in services charges on deposits.

Non-interest income for the nine months ended September 30, 2023 increased $1.8 million, or 7.8%, to $24.2 million compared to $22.5 million for the same period in 2022.

The increase in total non-interest income for the nine months ended September 30, 2023 was driven by an increase in other non-interest income, led by mezzanine fund investment income, and an increase in commercial loan swap fee income, private wealth fee income, and loan fee income.

These favorable variances were partially offset by a decrease in gains on the sale of SBA loans and service charges on deposits.

Management continues to focus on revenue growth from multiple non-interest income sources in order to maintain a diversified revenue stream through greater contributions from fee-based revenues.

Total non-interest income accounted for 21.0% and 22.5% of total revenues for the three and six months ended June 30, 2023, respectively, compared to 22.5% and 24.0% for the three and six months ended June 30, 2022, respectively.

Total non-interest income accounted for 22.8% and 22.6% of total revenues for the three and nine months ended September 30, 2023, respectively, compared to 24.1% and 24.0% for the three and nine months ended September 30, 2022, respectively.

The components of non-interest income 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,

2023 2022 $ Change % Change 2023 2022 $ Change % Change

14 unchanged sentences

(1) Fee income ratio is fee income, per the above table, divided by top line revenue (defined as net interest income plus non-interest income).

Private wealth management service fees increased $41,000, or 1.4%, and decreased $146,000, or 2.6%, for the three and six months ended June 30, 2023, compared to the same period in 2022.

Private wealth management service fees increased $327,000, or 12.5%, and $181,000, or 2.2%, for the three and nine months ended September 30, 2023, compared to the same period in 2022.

Private wealth management fee income is primarily driven by the amount of assets under management and administration, as well as the mix of business at different fee structures, and can be positively or negatively influenced by the timing and magnitude of volatility within the capital markets.

As of June 30, 2023, private wealth and trust assets under management and administration totaled $2.907 billion, increasing $353.4 million, or 13.8%, compared to $2.554 billion as of June 30, 2022, as an increase in market values was bolstered by new client relationships and new money from existing clients.

Other non-interest income increased $561,000, or 110.0%, and $1.7 million, or 75.7%, for the three and six months ended June 30, 2023, respectively, compared to the same period in 2022.

The increase for the three and six months ended June 30, 2023 was primarily due to strong returns from the Corporation’s investments in mezzanine funds.

Commercial loan interest rate swap fee income increased $506,000, or 107.4%, and $837,000, or 120.1%, for the three and six months ended June 30, 2023, respectively, compared to the same period in 2022.

As of September 30, 2023, private wealth and trust assets under m anagement and administration totaled $2.915 billion, increasing $422.0 million , or 16.9%, compared to $2.493 billion as of September 30, 2022, as an increase in market values was bolstered by new client relationships and new money from existing clients.

Commercial loan interest rate swap fee income increased $651,000, or 190.9%, and $1.5 million, or 143.4%, for the three and nine months ended September 30, 2023, respectively, compared to the same period in 2022.

We originate commercial real estate loans in which we offer clients a floating rate and an interest rate swap.

1 unchanged sentence

The execution of these transactions generates swap fee income.

The aggregate amortizing notional value of interest rate swaps with various borrowers was $838.5 million as of June 30, 2023, compared to $744.2 million and $646.1 million as of December 31, 2022 and June 30, 2022, respectively.

The aggregate amortizing notional value of interest rate swaps with various borrowers was $908.6 million as of September 30, 2023, compared to $744.2 million and $666.2 million as of December 31, 2022 and September 30, 2022, respectively.

Interest rate swaps can be an attractive product for our commercial borrowers, although associated fee income can be variable from period to period based on loan activity and the interest rate environment in any given quarter.

Service charges on deposits decreased $275,000, or 26.4%, and $592,000, or 29.0%, respectively, for the three and six months ended June 30, 2023, compared to the same period in 2022.

Other non-interest income decreased $670,000, or 28.9%, and increased $1.0 million, or 22.5%, for the three and nine months ended September 30, 2023, respectively, compared to the same period in 2022.

The decrease and increase for the three and nine months ended September 30, 2023, respectively, was primarily due to the timing of returns from the Corporation’s investments in mezzanine funds.

Service charges on deposits decreased $183,000, or 18.0%, and $775,000, or 25.3%, respectively, for the three and nine months ended September 30, 2023, compared to the same period in 2022.

The decrease was driven by an increase in the earnings credit rate which was adjusted with the rising rate environment.

Treasury management business development efforts remain robust as gross treasury management service charges, net of waived fees, increased $184,000, or 14.9%, and $395,000, or 16.3%, for the three and six months ended June 30, 2023, compared to the same period in 2022.

Treasury management business development efforts remain robust as gross treasury management service charges, net of waived fees, increased $183,000, or 13.6%, and $557,000, or 14.3%, for the three and nine months ended September 30, 2023, compared to the same period in 2022.

Management believes growth in gross analyzed service charges is a strong indicator of success for the Corporation given the direct correlation to adding and expanding core business relationships.

Loan fees increased by $208,000, or 29.8%, and $359,000, or 26.6%, for the three and six months ended June 30, 2023, respectively, compared to the same period in 2022.

The increase was due to an increase in equipment financing and floorplan financing activity generating additional service fee income.

Gain on sale of SBA loans decreased $507,000, or 53.3%, and $617,000, or 40.1%, for the three and six months ended June 30, 2023, respectively, compared to the same period in 2022.

The decrease was driven by lower premiums and a decrease in loan originations compared to prior year quarter.

In addition, the Corporation elected to hold a higher number of SBA loans on its balance sheet in the current interest rate environment.

Comparison of Non-Interest Expense for the Three and Six Months Ended June 30, 2023 and 2022

Gain on sale of SBA loans increased $119,000, or 16.3%, and decreased $498,000, or 21.9%, for the three and nine months ended September 30, 2023, respectively, compared to the same period in 2022.

The increase over the prior year quarter was due to an increase in loan sales volume .

The decrease for the year-to-date period was driven by lower sales volume .

Loan fees decreased by $28,000, or 3.4%, and increased $332,000, or 15.3%, for the three and nine months ended September 30, 2023, respectively, compared to the same period in 2022.

The decrease for the three months ended was primarily

due to a decrease in Asset-Based Lending audit fee income.

The increase for the nine months ended was due to an increase in equipment financing and floorplan financing activity generating additional service fee income.

Comparison of Non-Interest Expense for the Three and Nine Months Ended September 30, 2023 and 2022

Non-Interest Expense

Non-interest expense for the three and six months ended June 30, 2023 increased by $2.6 million, or 13.2%, and $5.5 million, or 14.4%, respectively compared to the same period in 2022.

Operating expense, which excludes certain one-time and discrete items as defined in the Efficiency Ratio table above, increased $2.0 million, or 10.2%, and $4.9 million, or 12.7%, respectively, for the three and six months ended June 30, 2023, compared to the same period in 2022.

The increase in operating expense was primarily due to an increase in compensation, FDIC insurance, other non-interest expense, data processing, and marketing expenses.

Non-interest expense for the three and nine months ended September 30, 2023 increased by $3.2 million, or 15.8%, and $8.7 million, or 14.9%, respectively compared to the same period in 2022.

Operating expense, which excludes certain one-time and discrete items as defined in the Efficiency Ratio table above, increased $3.0 million, or 15.1%, and $7.9 million, or 13.5%, respectively, for the three and nine months ended September 30, 2023, compared to the same period in 2022.

The increase in operating expense was primarily due to an increase in all major categories led by compensation, FDIC insurance, and other non-interest expense.

The components of non-interest 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,

2023 2022 $ Change % Change 2023 2022 $ Change % Change

17 unchanged sentences

(1) Total operating expense represents total non-interest expense, adjusted to exclude the impact of discrete items as previously defined in the non-GAAP efficiency ratio calculation, above.

Compensation expense for the three and six months ended June 30, 2023 increased $1.1 million, or 7.9%, and $3.4 million, or 12.2%, respectively, compared to the three and six months ended June 30, 2022.

The increase for the three months ended June 30, 2023 reflects annual merit and market increases, to remain competitive in a wage inflation environment, an expanded workforce, and an increase in incentive compensation due to outstanding production.

In addition, the increase for the six months ended June 30, 2023 was also driven by payment of, and payroll taxes paid on, a record annual cash bonus earned in 2022 but paid in 2023.

Successful hiring efforts to secure talent resulted in average full-time equivalent employees for the three months ended June 30, 2023 increasing to 341, up 6.2%, compared to 321 for the three months ended June 30, 2022.

Other non-interest expense for the three and six months ended June 30, 2023 increased $727,000, or 201.9%, and $698,000, or 77.6%, respectively, compared to the three and six months ended June 30, 2022.

The increase was primarily due to an increase in SBA recourse provision and a tax credit investment impairment recovery in the second quarter of 2022.

FDIC insurance for the three and six months ended June 30, 2023 increased $284,000, or 95.9%, and $364,000, or 59.7%, respectively, compared to the three and six months ended June 30, 2022.

The increase was primarily due to an increase in the assessment rate and the assessable base.

Marketing expense increased $109,000, or 16.3%, and $237,000, or 20.3%, for the three and six months ended June 30, 2023, respectively, compared to the three and six months ended June 30, 2022.

The increase during the three and six months ended June 30, 2023 was primarily due to an increase in business development efforts and advertising projects related to our expanded sales force and national footprint.

Income tax expense totaled $5.3 million for the six months ended June 30, 2023 compared to $5.8 million for the six months ended June 30, 2022.

Income tax expense included a $300,000 net benefit from a tax credit investment, no tax credits were recognized in the prior year.

The effective tax rate for the six months ended June 30, 2023 was 24.3% compared to 23.7% for the same period in 2022.

For 2023, the Corporation expects to report an effective tax rate between 21% and 22%, as the Bank continues to receive the benefit from its tax credit investments.

Compensation expense for the three and nine months ended September 30, 2023 increased $756,000, or 5.1%, and $4.1 million, or 9.7%, respectively, compared to the three and nine months ended September 30, 2022.

The increase for the three months ended September 30, 2023 reflects annual merit and market increases, to remain competitive in a wage inflation environment, an expanded workforce, an increase in incentive compensation due to outstanding production, partially offset by lower projected annual cash bonus program accrual.

In addition, the increase for the nine months ended September 30, 2023 was also driven by payment of, and payroll taxes paid on, a record annual cash bonus earned in 2022 but paid in 2023.

Successful hiring efforts to secure talent resulted in average full-time equivalent employees for the three months ended September 30, 2023 increasing to 349, up 4.8%, compared to 333 for the three months ended September 30, 2022.

Other non-interest expense for the three and nine months ended September 30, 2023 increased $1.0 million, or 178.2%, and $1.7 million, or 116.5%, respectively, compared to the three and nine months ended September 30, 2022.

The increase for both periods was primarily due to an increase in liquidation expenses related to an Asset-Based Lending relationship, an increase in SBA recourse provision, and an increase in travel expenses.

FDIC insurance for the three and nine months ended September 30, 2023 increased $450,000, or 195.7%, and $813,000, or 96.8%, respectively, compared to the three and nine months ended September 30, 2022.

The increase was primarily due to asset growth, an increase in the assessment rate due to a broad 2 basis point increase by the agency, and an increase in the usage of brokered deposits, in lieu of FHLB advances, commensurate with our funding strategy to match-fund fixed-rate loans.

Marketing expense increased $215,000, or 39.6%, and $452,000, or 26.4%, for the three and nine months ended September 30, 2023, respectively, compared to the three and nine months ended September 30, 2022.

The increase during the three and nine months ended September 30, 2023 was primarily due to an increase in business development efforts and advertising projects related to our expanded sales force and national footprint.

Data processing increased $234,000, or 32.5%, and $498,000, or 20.8%, for the three and nine months ended September 30, 2023, respectively, compared to the three and nine months ended September 30, 2022, primarily due to an increase in core processing costs commensurate with loan and deposit account growth, as well as various project implementations..

Professional fees increased $226,000, or 18.8%, and $341,000, or 9.3%, for the three and nine months ended September 30, 2023, respectively, compared to the three and nine months ended September 30, 2022.

The increase was primarily due to an increase in recruiting expense, audit expenses, legal expense, and a general increase in other professional consulting services for various projects.

Income tax expense totaled $7.4 million for the nine months ended September 30, 2023 compared to $9.0 million for the nine months ended September 30, 2022.

Income tax expense included a $1.1 million net benefit from tax credit investments, compared to a $155,000 benefit in the prior year period.

The effective tax rate, including the benefit from Low-Income Housing Tax Credits, for the nine months ended September 30, 2023 was 21.0% compared to 22.6% for the same period in 2022.

The Corporation expects to report an effective tax rate between 21% and 22% for 2023 and between 20% and 21% for 2024.

Generally, the provision for income taxes is determined by applying an estimated annual effective income tax rate to income before taxes and adjusting for discrete items.

4 unchanged sentences

Financial Condition

Total assets increased by $289.1 million, or 9.7%, to $3.266 billion as of June 30, 2023 compared to $2.977 billion at December 31, 2022.

Total assets increased by $442.2 million, or 14.9%, to $3.419 billion as of September 30, 2023 compared to $2.977 billion at December 31, 2022.

The increase in total assets was primarily driven by an increase in cash, loans and leases receivable, and available-for-sale securities.

Total liabilities increased by $277.1 million, or 10.2%, to $2.993 billion at June 30, 2023 compared to $2.716 billion at December 31, 2022.

Total liabilities increased by $422.1 million, or 15.5%, to $3.138 billion at September 30, 2023 compared to $2.716 billion at December 31, 2022.

The increase in total liabilities was principally due to an increase in deposits.

Total stockholders’ equity increased by $12.0 million, or 4.6%, to $272.6 million at June 30, 2023 compared to $260.6 million at December 31, 2022.

The increase in total stockholders’ equity was due to retention of earnings and unrealized gains on available-for-sale securities, partially offset by dividends paid to common stockholders, stock repurchased, and cumulative change in accounting principal for ASC 326.

Total stockholders’ equity increased by $20.1 million, or 7.7%, to $280.8 million at September 30, 2023 compared to $260.6 million at December 31, 2022.

The increase in total stockholders’ equity was due to retention of earnings partially offset by dividends paid to common stockholders, stock repurchased, and cumulative change in accounting principal for ASC 326.

Cash and Cash Equivalents

Cash and cash equivalents include short-term investments and cash and due from banks.

Cash and due from banks increased $6.5 million to $32.3 million at June 30, 2023.

Short-term investments increased by $3.6 million to $80.5 million at June 30, 2023 from $76.9 million at December 31, 2022.

Cash and due from banks decreased $2.5 million to $23.3 million at September 30, 2023 from $25.8 million at December 31, 2022.

Short-term investments increased by $32.7 million to $109.6 million at September 30, 2023 from $76.9 million at December 31, 2022.

Our short-term investments primarily consist of interest-bearing deposits held at the FRB.

We value the safety and soundness provided by the FRB, and therefore, we incorporate short-term investments in our readily accessible liquidity program.

As of June 30, 2023 and December 31, 2022, interest-bearing deposits held at the FRB were $80.2 million and $76.5 million, respectively.

Total securities, including available-for-sale and held-to-maturity, increased by $38.8 million, or 17.3%, to $263.5 million, or 8.1% of total assets at June 30, 2023 compared to $224.7 million, or 7.5% of total assets at December 31, 2022.

During the six months ended June 30, 2023 the Corporation recognized unrealized losses of $252,000 before income taxes through other comprehensive income, compared to unrealized losses of $19.7 million for the same period in 2022.

As of September 30, 2023 and December 31, 2022, interest-bearing deposits held at the FRB were $109.2 million and $76.5 million, respectively.

Total securities, including available-for-sale and held-to-maturity, increased by $56.2 million, or 25.0%, to $280.9 million, or 8.2% of total assets at September 30, 2023 compared to $224.7 million, or 7.5% of total assets at December 31, 2022.

During the nine months ended September 30, 2023 the Corporation recognized unrealized losses of $6.4 million before income taxes through other comprehensive income, compared to unrealized losses of $29.8 million for the same period in 2022.

The unrealized losses in the prior year period were solely driven by the increase in interest rates.

As of June 30, 2023 and December 31, 2022, our overall securities portfolio, including available-for-sale securities and held-to-maturity securities, had an estimated weighted-average expected maturity of 5.5 years and 6.3 years, respectively.

As of September 30, 2023 and December 31, 2022, our overall securities portfolio, including available-for-sale securities and held-to-maturity securities, had an estimated weighted-average expected maturity of 5.3 years and 6.3 years, respectively.

Our investment philosophy remains as stated in our most recent Annual Report on Form 10-K.

1 unchanged sentence

On a quarterly basis, we validate the reasonableness of prices received from this source through independent verification, data integrity validation primarily through comparison of current price to an expectation-based analysis of movement in prices based upon the changes in the related yield curves, and other market factors.

We did not recognize any credit losses in the securities portfolio as of June 30, 2023.

We did not recognize any credit losses in the securities portfolio as of September 30, 2023.

Loans and Leases Receivable

Period-end loans and leases receivable, net of allowance for credit losses, increased by $227.6 million, or 18.8% annualized to $2.646 billion at June 30, 2023 from $2.419 billion at December 31, 2022 driven by commercial loan growth.

Due to the adoption of ASC 326, the current year included a change to our portfolio segmentation.

The balances as of June 30, 2023 reflect reclassifications of $43 million to commercial and industrial from commercial real estate and $7 million from consumer and other to commercial real estate.

Period-end loans and leases receivable, net of allowance for credit losses, increased by $315.8 million, or 17.4% annualized to $2.735 billion at September 30, 2023 from $2.419 billion at December 31, 2022 driven by commercial loan growth.

Management does not believe this level of loan growth is sustainable and expects growth to moderate in subsequent quarters.

Additionally, management expects to evaluate loan sale strategies as a means of adding to and further diversifying fee income.

Due to the adoption of ASC 326, the current year included a change to our portfolio segmentation.

The balances as of September 30, 2023 reflect reclassifications of $43 million to commercial and industrial from commercial real estate and $7 million from consumer and other to commercial real estate.

Including the reclassification impact of adopting ASC 326 in the prior period of comparison, C&I loans increased $186.5 million, or 27.7% annualized, to $1.084 billion.

2 unchanged sentences

Including the reclassification impact of adopting ASC 326 in the prior period of comparison, total commercial real estate (“CRE”) loans increased $128.7 million, or 11.4% annualized, to $1.635 billion.

The increase was due to growth across the majority of the Bank’s CRE products and geographies.

Including the reclassification impact of adopting ASC 326 in the prior period of comparison, CRE loans represented 59.5% and 61.7% of our total loans as of June 30, 2023 and December 31, 2022, respectively.

The increase was primarily due to an increase in non-owner occupied CRE and multi-family loans..

Including the reclassification impact of adopting ASC 326 in the prior period of comparison, CRE loans represented 59.2% and 61.7% of our total loans as of September 30, 2023 and December 31, 2022, respectively.

The decline in CRE concentration in the period of comparison is the result of management’s success in expanding the Bank’s various C&I products across both its local and national footprints.

As of June 30, 2023, 15.3% of the CRE loans were owner-occupied CRE, compared to 15.2% as of December 31, 2022.

As of September 30, 2023, 14.4% of the CRE loans were owner-occupied CRE, compared to 15.2% as of December 31, 2022.

We consider owner-occupied CRE more characteristic of the Corporation’s C&I portfolio as, in general, the client’s primary source of repayment is the cash flow from the operating entity occupying the commercial real estate property.

8 unchanged sentences

Deposit composition

(in thousands) June 30,

(in thousands) September 30,

2023 June 30,

2023 March 31,

1 unchanged sentence

2022 September 30,

2022 June 30,

Non-interest-bearing transaction accounts

10 unchanged sentences

% of total deposits 33.4 % 32.8 % 38.0 % 44.0 % 46.6 %

As of June 30, 2023, total period-end deposits increased by $360.6 million to $2.529 billion from $2.168 billion at December 31, 2022, primarily due to a $252.9 million, $142.6 million, and $139.5 million increase in wholesale deposits, interest bearing transaction accounts, and certificate of deposit accounts, partially offset by a decrease in non-interest-bearing transaction accounts and money market accounts of $117.8 million and $56.5 million.

As of September 30, 2023, total period-end deposits increased by $488.8 million to $2.657 billion from $2.168 billion at December 31, 2022, primarily due to a $265.5 million, $203.2 million, and $131.5 million increase in wholesale deposits, interest bearing transaction accounts, and certificate of deposit accounts, partially offset by a decrease in non-interest-bearing transaction accounts and money market accounts of $107.1 million and $4.3 million, respectively.

The large increase in wholesale deposits is primarily driven by a shift from FHLB advances to wholesale deposits to manage interest rate risk and increase excess liquidity.

As of June 30, 2023, total period-end in-market deposits increased $107.8 million, or 11.0% annualized, to $2.074 billion, compared to $1.966 billion at December 31, 2022.

As of September 30, 2023, total period-end in-market deposits increased $223.3 million, or 15.1% annualized, to $2.189 billion, compared to $1.966 billion at December 31, 2022.

Growth in interest-bearing transaction accounts and certificates of deposits, driven by client movement into extended insurance products, was partially offset by a decrease in non-interest-bearing transaction accounts and money market accounts.

Management believes the Bank’s deposit-centric sales strategy, led by treasury management sales, will contribute to a net increase in deposits annually;

Management believes the Bank’s deposit-centric sales strategy, led by treasury management sales, will contribute to a net increase in deposits;

however, period-end deposit balances associated with in-market relationships will fluctuate based upon maturity of time deposits, client demands for the use of their cash, and our ability to maintain existing and new client relationships.

1 unchanged sentence

We measure the success of in-market deposit gathering efforts based on the number and average balances of our deposit accounts as compared to ending balances due to the variability of some of our larger relationships.

The Bank’s average in-market deposits, consisting of all transaction accounts, money market accounts, and certificates of deposit, increased $101.7 million, or 5.3%, to $2.018 billion for the six months ended June 30, 2023 compared to $1.917 billion for the six months ended June 30, 2022.

The Bank’s average in-market deposits, consisting of all transaction accounts, money market accounts, and certificates of deposit, increased $126.3 million, or 6.6%, to $2.048 billion for the nine months ended September 30, 2023 compared to $1.921 billion for the nine months ended September 30, 2022.

FHLB Advances and Other Borrowings

As of June 30, 2023, FHLB advances and other borrowings decreased by $86.7 million, or 19.0%, to $370.1 million from $456.8 million at December 31, 2022.

As of September 30, 2023, FHLB advances and other borrowings decreased by $92.9 million, or 20.3%, to $363.9 million from $456.8 million at December 31, 2022.

As deposit balances have increased, we have been able to reduce our usage of FHLB advances.

We have strategically reduced our usage of FHLB advances in favor of wholesale deposits to increase the Bank’s readily available liquidity.

In addition, we have strategically reduced our usage of FHLB advances in favor of wholesale deposits to increase the Bank’s readily available liquidity.

We will continue to utilize FHLB advances and wholesale deposits to manage interest rate risk, liquidity, and contingency funding.

As of June 30, 2023, the Corporation had no other borrowings.

As of September 30, 2023, the Corporation had no other borrowings.

As of December 31, 2022, the Corporation had other borrowings of $6.1 million which consisted of sold loans which were accounted for as a secured borrowing because they did not qualify for true sale accounting.

On September 29, 2023, the Corporation completed the private placement of $15.0 million in new subordinated debentures which qualify as Tier 2 capital.

The proceeds of the issuance will support the Bank’s growth strategy and general corporate purposes.

The subordinated debentures bear a fixed interest rate of 8.0% with a maturity date of September 29, 2033.

The Corporation may, at its option, redeem the debentures, in whole or part, at any time after the fifth anniversary of issuance.

Consistent with our funding philosophy to manage interest rate risk, we will use the most efficient and cost effective source of wholesale funds.

3 unchanged sentences

Preferred Stock

The Corporation has 12,500 shares, or $12.5 million in aggregate liquidation preference, of 7.0% Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share, with a liquidation preference of $1,000 per share (the “Series A Preferred Stock”) outstanding as of June 30, 2023 and December 31, 2022.

The Corporation expects to pay dividends on the Series A Preferred Stock when and if declared by its Board, at a fixed rate of 7.0% per annum, payable quarterly, in arrears, on March 15, June 15, September 15 and December 15 of each year up to, but excluding, March 15, 2027.

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, 2023, the Corporation paid $219,000 and $438,000, respectively, in preferred cash dividends with respect to the Series A Preferred Stock.

During the three and nine months ended September 30, 2023, the Corporation paid $218,000 and $656,000, respectively, in preferred cash dividends with respect to the Series A Preferred Stock.

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

3 unchanged sentences

The Corporation’s derivative financial instruments, under which the Corporation is required to either receive cash from or pay cash to counterparties depending on changes in interest rates applied to notional amounts, are carried at fair value on the consolidated balance sheets.

As of June 30, 2023, the aggregate amortizing notional value of interest rate swaps with various commercial borrowers was approximately $838.5 million, compared to $744.2 million as of December 31, 2022.

As of September 30, 2023, the aggregate amortizing notional value of interest rate swaps with various commercial borrowers was approximately $908.6 million, compared to $744.2 million as of December 31, 2022.

We receive fixed rates and pay floating rates based upon designated benchmark interest rates on the swaps with commercial borrowers.

1 unchanged sentence

Commercial borrower swaps are completed independently with each borrower and are not subject to master netting arrangements.

As of June 30, 2023, the commercial borrower swaps were reported on the Consolidated Balance Sheet as a derivative asset of $1.8 million and liability of $61.1 million compared to a derivative asset of $1.0 million and liability of $61.4 million as of December 31, 2022.

As of September 30, 2023, the commercial borrower swaps were reported on the Consolidated Balance Sheet as a derivative asset of $291,000 and liability of $78.7 million compared to a derivative asset of $1.0 million and liability of $61.4 million as of December 31, 2022.

On the offsetting swap contracts with dealer counterparties, we pay fixed rates and receive floating rates based upon designated benchmark interest rates.

These interest rate swaps also have maturity dates between May 2024 and March 2040.

Dealer counterparty swaps are subject to master netting agreements among the contracts within our Bank and were reported on the Consolidated Balance Sheet as a net derivative asset of $59.4 million as of June 30, 2023, compared to a net derivative liability of $60.4 million as of December 31, 2022.

The gross amount of dealer counterparty swaps as of June 30, 2023, without regard to the enforceable master netting agreement, was a gross derivative asset of $61.1 million, compared to a gross derivative liability of $1.0 million and gross derivative asset of $61.4 million as of December 31, 2022.

Dealer counterparty swaps are subject to master netting agreements among the contracts within our Bank and were reported on the Consolidated Balance Sheet as a net derivative asset of $78.4 million as of September 30, 2023, compared to a net derivative liability of $60.4 million as of December 31, 2022.

The gross amount of dealer counterparty swaps as of September 30, 2023, without regard to the enforceable master netting agreement, was a gross derivative asset of $78.7 million, compared to a gross derivative liability of $1.0 million and gross derivative asset of $61.4 million as of December 31, 2022.

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.

As of June 30, 2023, the aggregate notional value of interest rate swaps designated as cash flow hedges was $312.7 million.

As of September 30, 2023, the aggregate notional value of interest rate swaps designated as cash flow hedges was $352.7 million.

These interest rate swaps mature between December 2023 and March 2034.

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 was no ineffective portion of these 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 was no ineffective portion of these hedges.

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

3 unchanged sentences

As of June 30, 2023, the aggregate notional value of interest rate swaps designated as fair value hedges was $12.5 million.

As of September 30, 2023, the aggregate notional value of interest rate swaps designated as fair value hedges was $12.5 million.

These interest rate swaps mature between February 2031 and October 2034.

A pre-tax unrealized gain of $107,000 and 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.

A pre-tax unrealized gain of $421,000 and loss of $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.

For further information and discussion of our derivatives, see Note 13 — Derivative Financial Instruments of the Consolidated Financial Statements.

1 unchanged sentence

Non-performing Assets

Total non-performing assets consisted of the following at June 30, 2023 and December 31, 2022, respectively:

Total non-performing assets consisted of the following at September 30, 2023 and December 31, 2022, respectively:

September 30,

2023 December 31,

18 unchanged sentences

Allowance for credit losses to non-performing loans and leases 176.06 662.20

Non-performing loans increased $12.1 million, or 329.7%, to $15.7 million at June 30, 2023, compared to $3.7 million at December 31, 2022.

The Corporation’s non-performing loans as a percentage of total gross loans and leases measured 0.59% and 0.15% at June 30, 2023 and December 31, 2022, respectively.

The increase in non-performing loans was the result of one $10.9 million default that occurred in the Corporation’s Asset-Based Lending (“ABL”) portfolio.

The loan is fully collateralized and management does not believe it to be reflective of further portfolio or industry stress.

Excluding this credit, non-performing loans totaled $4.8 million, or 0.18% of total gross loans and leases.

The Corporation’s ABL loans are rigorously underwritten and fully collateralized, historically resulting in no losses in the event of a default.

Non-performing loans increased $14.0 million, to $17.6 million at September 30, 2023, compared to $3.7 million at December 31, 2022.

The Corporation’s non-performing loans as a percentage of total gross loans and leases measured 0.64% and 0.15% at September 30, 2023 and December 31, 2022, respectively.

The recent elevation in non-performing assets was driven by Equipment Finance and Asset-Based Lending (ABL) pools within the C&I portfolio segment.

We continue to expect full repayment related to the second quarter $10.9 million ABL loan in default.

Excluding this credit, non-performing assets totaled $8.1 million, or 0.24% of total assets in the current quarter and $4.9 million, or 0.15% of total assets in the prior quarter.

The increase in the Equipment Finance pool, for which defaults and liquidations are not atypical, was due to a cyclical increase in past-due balances.

We use a wide variety of available metrics to assess the overall asset quality of the portfolio and no one metric is used independently to make a final conclusion as to the asset quality of the portfolio.

Non-performing assets as a percentage of total assets was 0.48% and 0.13% at June 30, 2023 and December 31, 2022, respectively.

As of June 30, 2023 and December 31, 2022, the payment performance of our loans and leases did not point to any new areas of concern, as approximately 99.41% and 99.85%, respectively, of the total portfolio at the end of each period was in a current payment status.

Non-performing assets as a percentage of total assets was 0.52% and 0.13% at September 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023 and December 31, 2022, the payment performance of our loans and leases did not point to any new areas of concern, as approximately 99.36% and 99.85%, respectively, of the total portfolio at the end of each period was in a current payment status.

We also monitor asset quality through our established categories as defined in Note 5 – Loans and Allowance for Credit Losses of the Consolidated Financial Statements.

As we continue to actively monitor the credit quality of our loan and lease portfolios, we may identify additional loans and leases for which the borrowers or lessees are having difficulties making the required principal and interest payments based upon factors including, but not limited to, the inability to sell the underlying collateral, inadequate cash flow from the operations of the underlying businesses, liquidation events, or bankruptcy filings.

We are proactively working with our loan borrowers experiencing financial difficulty to find meaningful solutions to difficult situations that are in the best interests of the Bank.

As of June 30, 2023, as well as in all previous reporting periods, there were no loans over 90 days past due and still accruing interest.

We proactively work with our loan borrowers experiencing financial difficulty to find meaningful solutions to difficult situations that are in the best interests of the Bank.

As of September 30, 2023, as well as in all previous reporting periods, there were no loans over 90 days past due and still accruing interest.

Loans and leases greater than 90 days past due are placed on non-accrual status and individually evaluated for reserve requirement.

Cash received while a loan or a lease is on non-accrual status is generally applied solely against the outstanding principal.

Cash received while a loan or a lease is on non-accrual status is generally applied solely

against the outstanding principal.

If collectability of the contractual principal and interest is not in doubt, payments received may be applied to both interest due on a cash basis and principal.

The following represents additional information regarding our non-performing loans and leases:

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

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

Year Ended December 31,

11 unchanged sentences

Allowance for Credit Losses

The allowance for credit losses, including unfunded commitment reserves, increased $5.5 million, or 22.6%, to $29.7 million as of June 30, 2023 from $24.2 million as of December 31, 2022.

The allowance for credit losses as a percentage of gross loans and leases increased to 1.11% as of June 30, 2023 from 0.99% as of December 31, 2022 under the incurred loss model.

The allowance for credit losses, including unfunded commitment reserves, increased $6.8 million, or 28.1%, to $31.0 million as of September 30, 2023 from $24.2 million as of December 31, 2022.

The allowance for credit losses as a percentage of gross loans and leases increased to 1.12% as of September 30, 2023 from 0.99% as of December 31, 2022 under the incurred loss model.

During the first quarter of 2023, the Corporation adopted ASU 2016-13, including the CECL methodology for estimating the ACL.

This standard was adopted using a modified retrospective approach on January 1, 2023, resulting in a $484,000 increase to the ACL and a $1.3 million increase to the unfunded credit commitments reserve.

In addition to the adoption of ASU 2016-13, the increase in allowance for credit losses as a percent of gross loans and leases was principally due to a $1.1 million increase in specific reserves on individually evaluated loans related to the equipment finance and SBA loan portfolios.

During the six months ended June 30, 2023, we recorded net charge-offs on individually evaluated loans and leases of $144,000, comprised of $495,000 of charge-offs and $351,000 of recoveries.

In addition to the adoption of ASU 2016-13, the increase in allowance for credit losses as a percent of gross loans and leases was principally due to loan growth, increase in specific reserves, and changes to quantitative and qualitative model factors.

During the nine months ended September 30, 2023, we recorded net charge-offs on individually evaluated loans and leases of $622,000, comprised of $1,057,000 of charge-offs and $435,000 of recoveries.

We will continue to experience some level of periodic charge-offs in the future as exit strategies are considered and executed.

Loans and leases with previously established specific reserves, may ultimately result in a charge-off under a variety of scenarios.

As of June 30, 2023 and December 31, 2022, our ratio of allowance for credit losses to total non-performing loans and leases was 188.90% and 662.20%, respectively.

This ratio decreased because the $10.9 million ABL loan downgraded to non-performing as of June 30, 2023 was fully collateralized and required no specific reserve.

As of September 30, 2023 and December 31, 2022, our ratio of allowance for credit losses to total non-performing loans and leases was 176.06% and 662.20%, respectively.

This ratio decreased because of the $10.9 million ABL loan downgraded to non-performing as of June 30, 2023.

This loan is fully collateralized and required no specific reserve.

Non-performing loans and leases exhibit weaknesses that inhibit repayment in compliance with the original terms of the note or lease;

6 unchanged sentences

Conversely, if we identify further impaired loans, this ratio could fall if the impaired loans are adequately collateralized and therefore require no specific or general reserve.

Given our business practices and evaluation of our existing loan and lease portfolio, we believe this coverage ratio is appropriate for the probable losses inherent in our loan and lease portfolio as of June 30, 2023.

To determine the level and composition of the allowance for credit losses, we break out the portfolio by segments with similar risk characteristics.

First, we evaluate loans and leases for non-performing classification.

We analyze each loan and lease identified as non-performing on an individual basis to determine a specific reserve based upon the estimated value of the

underlying collateral for collateral-dependent loans, or alternatively, the present value of expected cash flows.

We analyze each loan and lease identified as non-performing on an individual basis to determine a specific reserve based upon the estimated value of the underlying collateral for collateral-dependent loans, or alternatively, the present value of expected cash flows.

For efficiency, smaller dollar value loans within the Equipment Finance pool are reserved based on a past-due criteria.

All loans not evaluated individually are evaluated collectively as part of a portfolio segment or portfolio segment and class.

5 unchanged sentences

When it is determined that we will not receive our entire contractual principal or the loss is confirmed, we record a charge against the allowance for credit loss reserve to bring the loan or lease to its net realizable value.

Many of the impaired loans as of June 30, 2023 are collateral dependent.

It is typically part of our process to obtain appraisals on impaired loans and leases that are primarily secured by real estate or equipment at least annually, or more frequently as circumstances warrant.

As we have completed new appraisals and/or market evaluations, in specific situations current fair values collateralizing certain impaired loans were inadequate to support the entire amount of the outstanding debt.

Foreclosure actions may have been initiated on certain of these commercial real estate and other mortgage loans.

As a result of our review process, we have concluded an appropriate allowance for credit losses for the existing loan and lease portfolio was $29.7 million, or 1.11% of gross loans and leases, at June 30, 2023.

Many of the impaired loans are collateral dependent.

It is typically part of our process to obtain appraisals on impaired loans and leases that are primarily secured by real estate.

As we complete new appraisals and/or market evaluations, in specific situations current fair values collateralizing certain impaired loans are inadequate to support the entire amount of the outstanding debt.

As a result of our review process, we have concluded an appropriate allowance for credit losses for the existing loan and lease portfolio was $31.0 million, or 1.12% of gross loans and leases, at September 30, 2023.

However, given ongoing complexities with current workout situations and the uncertainty surrounding future economic conditions, further charge-offs, and increased provisions for credit losses may be recorded if additional facts and circumstances lead us to a different conclusion.

2 unchanged sentences

A summary of the activity in the allowance for credit losses follows:

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

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

2023 2022 2023 2022

26 unchanged sentences

Total ACL $ 31,036 $ 24,143 $ 31,036 $ 24,143

Annualized net recoveries as a percent of average gross loans and leases 0.01 % (0.73) % 0.01 % (0.39) %

Annualized net charge offs (recoveries) as a percent of average gross loans and leases 0.07 % — % 0.03 % (0.26) %

Liquidity and Capital Resources

1 unchanged sentence

While the Bank is subject to certain generally applicable regulatory limitations regarding its ability to pay dividends to the Corporation, we do not believe that the Corporation will be adversely affected by these dividend limitations.

The Corporation’s principal liquidity requirements at June 30, 2023 were the interest payments due on subordinated notes and cash dividends payable to both common and preferred stockholders.

The capital ratios of the Bank met all applicable regulatory capital adequacy requirements in effect on June 30, 2023, and continue to meet the heightened requirements imposed by Basel III, including the capital conservation buffer.

The Corporation’s principal liquidity requirements at September 30, 2023 were the interest payments due on subordinated notes and debentures and cash dividends payable to both common and preferred stockholders.

The capital ratios of the Bank met all applicable regulatory capital adequacy requirements in effect on September 30, 2023, and continue to meet the heightened requirements imposed by Basel III, including the capital conservation buffer.

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

4 unchanged sentences

Sources of liquidity

(in thousands) June 30,

(in thousands) September 30,

2023 June 30,

2023 March 31,

1 unchanged sentence

2022 September 30,

2022 June 30,

Short-term investments $ 109,612 $ 80,510 $ 159,859 $ 76,871 $ 86,707

11 unchanged sentences

Our readily accessible liquidity increased quarter over quarter.

At June 30, 2023 and December 31, 2022, the Bank had $80.2 million and $76.5 million on deposit with the FRB recorded in short-term investments, respectively.

At September 30, 2023 and December 31, 2022, the Bank had $109.2 million and $76.5 million on deposit with the FRB recorded in short-term investments, respectively.

Any excess funds not used for loan funding or satisfying other cash obligations were maintained as part of our readily accessible liquidity in our interest-bearing accounts with the FRB, as we value the safety and soundness provided by the FRB.

We plan to utilize excess liquidity to fund loan and lease portfolio growth, pay down maturing debt, allow run off of maturing wholesale certificates of deposit or invest in securities to maintain adequate liquidity at an improved margin.

We had $790.8 million of outstanding wholesale funds at June 30, 2023, compared to $618.6 million of wholesale funds as of December 31, 2022, which represented 27.6% and 23.9%, respectively, of ending balance total bank funding.

We had $782.2 million of outstanding wholesale funds at September 30, 2023, compared to $618.6 million of wholesale funds as of December 31, 2022, which represented 26.3% and 23.9%, respectively, of ending balance total bank funding.

Wholesale funds include FHLB advances, brokered certificates of deposit, and deposits gathered from internet listing services.

7 unchanged sentences

The short-term FHLB advances will typically have terms of one week to one month to cover the overall expected funding demands.

Period-end in-market deposits increased as of June 30, 2023, compared to December 31, 2022.

There was a shift of in-market deposit mix to term deposits at higher interest rates, which was partially offset by deposit movement from transaction accounts to alternative investment options and clients funding their normal course of business activities.

The decline in transaction and money market accounts was not the result of the loss of any significant client relationships, and we expect to continue to establish new client relationships and increase transaction account balances with existing clients’ accounts.

Period-end in-market deposits increased $223.3 million as of September 30, 2023, compared to December 31, 2022.

The increase in in-market deposits was principally due to a $203.2 million and $131.5 million increase in interest bearing transaction accounts and certificates of deposits, respectively.

This increase was partially offset by a $107.1 million and $4.3 million decrease in non-interest bearing deposit accounts and money market accounts, respectively.

While non-interest transaction accounts declined $107.1 million from December 31, 2022 to June 30, 2023, we observed a $10.7 million increase during third quarter which may indicate a bottom to the trend.

Nonetheless, we will continue to use wholesale funds in specific maturity periods, typically three to five years, needed to effectively mitigate the interest rate risk measured through our asset/liability management process or in shorter time periods if in-market deposit balances decline.

1 unchanged sentence

The Bank limits the percentage of wholesale funds to total bank funds in accordance with liquidity policies approved by its Board.

The Bank was in compliance with its policy limits as of June 30, 2023.

The Bank was able to access the wholesale funding market as needed at rates and terms comparable to market standards during the quarter ended June 30, 2023.

The Bank was in compliance with its policy limits as of September 30, 2023.

The Bank was able to access the wholesale funding market as needed at rates and terms comparable to market standards during the quarter ended September 30, 2023.

In the event that there is a disruption in the availability of wholesale funds at maturity, the Bank has managed the maturity structure, in compliance with our approved liquidity policy, so at least one year of maturities could be funded through readily accessible liquidity.

These potential funding sources include deposits maintained at the FRB or Federal Reserve Discount Window utilizing currently unencumbered securities and acceptable loans as collateral.

As of June 30, 2023, the available liquidity was in excess of the stated policy minimum.

As of September 30, 2023, the available liquidity was in excess of the stated policy minimum.

We believe the Bank will also have access to the unused federal funds lines, cash flows from borrower repayments, and cash flows from security maturities.

1 unchanged sentence

The Corporation has a shelf registration statement on file with the Securities and Exchange Commission that would allow the Corporation to offer and sell, from time to time and in one or more offerings, up to $75.0 million in aggregate initial offering price of common and preferred stock, debt securities, warrants, subscription rights, units, or depository shares, or any combination thereof.

During the six months ended June 30, 2023, operating activities resulted in a net cash inflow of $22.5 million, which included net income of $17.3 million.

Net cash used by investing activities for the six months ended June 30, 2023 was $279.2 million primarily due to net loan disbursements, investments made in securities available for sale, and additional investments in federal home loan bank stock and federal reserve bank stock.

Net cash provided by financing activities was $266.8 million for the six months ended June 30, 2023 primarily due to a net increase in deposits, partially offset by the repayment of FHLB advances.

During the nine months ended September 30, 2023, operating activities resulted in a net cash inflow of $39.0 million, which included net income of $27.3 million.

Net cash used by investing activities for the nine months ended September 30, 2023 was $395.4 million primarily due to net loan disbursements, investments made in securities available for sale, and additional investments in federal home loan bank stock.

Net cash provided by financing activities was $386.7 million for the nine months ended September 30, 2023 primarily due to a net increase in deposits, partially offset by the repayment of FHLB advances.

Please refer to the Consolidated Statements of Cash Flows included in PART I., Item 1 for further details regarding significant sources of cash flow for the Corporation.

Contractual Obligations and Off-Balance Sheet Arrangements

As of June 30, 2023, there were no material changes to our contractual obligations and off-balance sheet arrangements disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

As of September 30, 2023, there were no material changes to our contractual obligations and off-balance sheet arrangements disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

We continue to believe that we have adequate capital and liquidity available from various sources to fund projected contractual obligations and commitments.

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 2. Management’s Discussion and Analysis