What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-09 · 290 added, 216 removed, 523 unchanged (49% of the section changed)

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This discussion and analysis includes certain forward-looking statements that involve risks, uncertainties, and assumptions.

You should review the “Risk Factors” sections of this report and our Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by such forward-looking statements.

You should review the “Risk Factors” sections of this report and our Annual Report on Form 10-K for the year ended December 31,

2020 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by such forward-looking statements.

See also “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report.

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Our consumer lending products are primarily originated on a nationwide basis through relationships with dealerships and financing partners.

Our commercial banking products and services are delivered through a relationship banking model and include commercial real estate (“CRE”) banking, commercial and industrial (“C&I”) banking, public finance, healthcare finance, small business lending and commercial deposits and treasury management.

Through our CRE team, we offer single tenant lease financing on a nationwide basis in addition to traditional investor CRE and construction loans primarily within Central Indiana and adjacent markets.

Our C&I banking team provides credit solutions such as lines of credit, term loans, owner-occupied CRE loans and corporate credit cards to commercial borrowers located primarily in Central Indiana, Phoenix, Arizona and adjacent markets.

Through our CRE team, we offer single tenant lease financing on a nationwide basis in addition to traditional investor CRE and construction loans on a regional basis.

Our C&I banking team provides credit solutions such as lines of credit, term loans, owner-occupied CRE loans and corporate credit cards to commercial borrowers located primarily on a regional basis in the Midwest and Southwest regions of the United States.

Our public finance team provides a range of public and municipal lending and leasing products to government entities on a nationwide basis.

Our healthcare finance team was originally established in conjunction with our strategic partnership with Provide, Inc.

(formerly known as Lendeavor, Inc.), a San Francisco-based technology-enabled lender to healthcare practices, which provided lending on a nationwide basis for healthcare practice finance or acquisition, acquisition or refinancing of owner-occupied CRE and equipment purchases.

During the second quarter 2021, Provide announced that it had entered into an agreement to be acquired by a super-regional financial institution, which is expected to close in the third quarter 2021.

Subsequent to closing, we expect that the acquiring institution will retain most, if not all, of Provide’s loan origination activity and that our healthcare finance loan balances may to decline.

Our healthcare finance team was originally established in conjunction with our strategic business partnership with Provide, Inc.

(formerly known as Lendeavor, Inc.), a San Francisco-based technology-enabled lender to healthcare practices, which provided lending on a nationwide basis for healthcare practice acquisition or refinancing of owner-occupied CRE and equipment purchases.

During the second quarter 2021, Provide announced that it had entered into an agreement to be acquired by a super-regional financial institution, which closed in the third quarter 2021.

It is our expectation that the acquiring institution will retain most, if not all, of Provide’s loan origination activity and that our healthcare finance loan balances may decline.

Our franchise finance business was established in July 2021 in conjunction with our business relationship with ApplePie Capital, a leading provider of growth financing to franchisees in various industry segments across the country.

Our commercial deposits and treasury management team works with the other commercial teams to provide deposit products and treasury management services to our commercial and municipal lending customers as well as pursues commercial deposit opportunities in business segments where we have no credit relationships.

In 2018, we identified small business as an area for potential growth in revenue, loans and deposits.

We believe that we can differentiate ourselves from larger financial institutions by providing a full suite of services to emerging small businesses and entrepreneurs on a nationwide basis.

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government guaranteed lending programs.

As this business scales up, we expect it will drive increased earnings and profitability in future periods.

In connection with our commitment to small businesses, during the second quarter 2021 we entered into a relationship with a fintech-oriented specialty lender that provides financing to franchisees in various industry segments.

Through this relationship, we expect to begin funding portfolio loans in the third quarter 2021 and expect to fund up to $100.0 million of loans over the next twelve months.

We also expect this relationship to provide SBA 7(a) loan opportunities to supplement our own origination efforts.

We continue to scale up this business with the goal of driving increased earnings and profitability in future periods.

COVID-19 Pandemic

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As a digitally-focused institution without branch locations, we were able to continue serving clients when they needed us most, while minimizing operational disruptions caused by COVID-19.

Most of our employees who worked remotely during the earlier stages of the pandemic have returned to the office.

Management continues to assess the evolving health and safety situations at local and regional levels.

The vast majority of our employees who worked remotely during the earlier stages of the pandemic have returned to the office.

Management continues to assess the evolving health and safety situations at local, regional and national levels.

Our plans remain flexible to adapt as these situations evolve.

COVID-19 impacted our business during 2020 as the low interest rate environment following Federal Reserve rate cuts in the first quarter 2020 reduced the yield on interest-earning assets but also allowed us to reprice our interest-bearing deposits significantly lower, which provided an increase to net interest income.

deposits significantly lower, which provided an increase to net interest income.

Additionally, the low interest rate environment has driven residential mortgage rates to historically low levels, which continued to benefit our mortgage business.

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however, there is still significant uncertainty concerning the ongoing trajectory of the pandemic and the speed at which the national and local economies will recover.

extent to which COVID-19 will continue to impact our business will depend on numerous evolving factors and future developments that we are not able to predict, including the new Delta variant of COVID-19 (which appears to be the most transmissible variant to date), the effectiveness of continuing containment measures, including the speed of the ongoing vaccine distribution effort, the efficacy of the various vaccines, and how quickly and to what extent normal economic and operating conditions can resume.

The extent to which COVID-19 will continue to impact our business will depend on numerous evolving factors and future developments that we are not able to predict, including potential new variants of COVID-19, the effectiveness of continuing containment measures, including the speed of the ongoing vaccine distribution effort, the efficacy of the various vaccines, and how quickly and to what extent normal economic and operating conditions can resume.

Should economic conditions worsen to levels experienced in 2020, our business and credit quality could be adversely affected.

Pending Merger Transaction

As previously reported, on November 1, 2021, we entered into a definitive agreement to acquire all of the outstanding shares of common stock of First Century Bancorp.

(“First Century”), the parent company of First Century Bank, N.A., for $80 million cash.

With current headquarters in Roswell, GA, First Century is a technology-driven, financial solutions company with lines of business focused on payments, tax product lending, sponsored card programs and homeowners association services.

First Century also provides a wide range of products and services, including business banking, specialty lending and deposit products, to community-based businesses and individuals across its two branches located in Commerce, GA and Hilton Head Island, SC.

We expect to fund our payment obligations upon closing with available on-balance sheet cash.

The transaction is anticipated to close in the first quarter 2022, subject to satisfaction of customary closing conditions, including required approvals from the FDIC, Indiana Department of Financial Institutions and the Federal Reserve as well as First Century shareholder approval.

As of September 30, 2021, First Century had total assets of $408 million, total deposits of $330 million, and total loans of $32 million.

The acquisition, when completed, is expected to be accretive to 2023 earnings per share and initially dilutive to tangible book value per share.

Results of Operations

During the second quarter 2021, net income was $13.1 million, or $1.31 per diluted share, compared to the second quarter 2020 net income of $3.9 million, or $0.40 per diluted share, representing an increase in net income of $9.2 million, or 233.1%.

During the six months ended June 30, 2021, net income was $23.5 million, or $2.36 per diluted share, compared to the six months ended June 30, 2020 net income of $10.0 million, or $1.02 per diluted share, representing an increase in net income of $13.6 million, or 136.6%.

The $9.2 million increase in net income for the second quarter 2021 compared to the second quarter 2020 was due primarily to an increase of $7.2 million, or 49.8%, in net interest income, an increase of $4.0 million, or 80.2%, in noninterest income and a decrease of $2.5 million, or 99.2%, in provision for loan losses, partially offset by increases of $2.6 million in income tax expense and $1.8 million, or 13.8%, in noninterest expense.

The $13.6 million increase in net income for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was due primarily to an increase of $12.7 million, or 43.1%, in net interest income, an increase of $6.2 million, or 55.0%, in noninterest income and a decrease of $2.7 million, or 67.2%, in provision for loan losses, partially offset by a $4.2 million increase in income tax expense and a $3.7 million, or 13.7%, increase in noninterest expense.

During the second quarter 2021, return on average assets (“ROAA”), return on average shareholders’ equity (“ROAE”), and return on average tangible common equity (“ROATCE”) were 1.25%, 14.88%, and 15.09%, respectively, compared to 0.37%, 5.15%, and 5.23%, respectively, for the second quarter 2020.

During the six months ended June 30, 2021, ROAA, ROAE, and ROATCE were 1.13%, 13.78%, and 13.97%, respectively, compared to 0.47%, 6.48%, and 6.58%, respectively, for the six months ended June 30, 2020.

During the second quarter of 2021, the Company recognized a $2.5 million pre-tax gain of sale of its corporate headquarters.

Excluding this item, adjusted net income for the second quarter of 2021 was $11.1 million, or $1.11 per diluted share, and adjusted net income for the six months ended June 30, 2021 was $21.6 million, or $2.16 per diluted share.

Additionally, for the second quarter of 2021, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 1.06%, 12.62% and 12.79, respectively, while for the six months ended June 30, 2021 adjusted ROAA, adjusted ROAE and adjusted ROATCE were 1.04%, 12.62% and 12.79, respectively.

These profitability ratios improved in the 2021 periods compared to the 2020 periods, as increases in net income and adjusted net income outpaced asset growth, which was relatively flat.

During the third quarter 2021, net income was $12.1 million, or $1.21 per diluted share, compared to the third quarter 2020 net income of $8.4 million, or $0.86 per diluted share, representing an increase in net income of $3.7 million, or 43.7%.

During the nine months ended September 30, 2021, net income was $35.6 million, or $3.57 per diluted share, compared to the nine months ended September 30, 2020 net income of $18.4 million, or $1.87 per diluted share, representing an increase in net income of $17.3 million, or 94.1%.

The $3.7 million increase in net income for the third quarter 2021 compared to the third quarter 2020 was due primarily to an increase of $4.7 million, or 28.9%, in net interest income, a decrease of $2.5 million, or 101.2%, in (benefit) provision for loan losses and a $2.0 million, or 11.9%, decrease in noninterest expense, partially offset by a decrease of $4.7 million, or 37.5%, in noninterest income and an increase of $0.8 million, or 59.1%, in income tax expense.

The $17.3 million increase in net income for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was due primarily to an increase of $17.4 million, or 38.0%, in net interest income, a decrease of $5.2 million, or 80.4%, in provision for loan losses and an increase of $1.5 million, or 6.2%, in noninterest income, partially offset by a $5.1 million, or 364.3%, increase in income tax expense and a $1.7 million, or 3.9%, increase in noninterest expense.

During the third quarter 2021, return on average assets (“ROAA”), return on average shareholders’ equity (“ROAE”), and return on average tangible common equity (“ROATCE”) were 1.12%, 13.10%, and 13.27%, respectively, compared to 0.78%, 10.67%, and 10.83%, respectively, for the third quarter 2020.

During the nine months ended September 30, 2021, ROAA, ROAE, and ROATCE were 1.13%, 13.54%, and 13.73%, respectively, compared to 0.58%, 7.90%, and 8.02%, respectively, for the nine months ended September 30, 2020.

During the third quarter 2021, the Company fully redeemed its $25.0 million aggregate principal amount of 6.0% fixed-to-floating rate subordinated notes due in 2026 and recognized $0.8 million of pre-tax costs related to this redemption.

Excluding this item, adjusted net income for the third quarter 2021 was $12.7 million and adjusted diluted earnings per share was $1.27.

During the second quarter 2021, the Company recognized a $2.5 million pre-tax gain on sale of its corporate headquarters.

Excluding both the redemption costs associated with the subordinated notes due in 2026 and the gain on sale of the Company’s corporate headquarters, adjusted net income for the nine months ended September 30, 2021 was $34.3 million and adjusted diluted earnings per share was $3.44.

Additionally, for the third quarter 2021, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 1.18%, 13.79% and 13.97%, respectively, and for the nine months ended September 30, 2021, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 1.09%, 13.03% and 13.21%, respectively.

These profitability ratios improved in the 2021 periods compared to the 2020 periods, as increases in net income and adjusted net income outpaced average asset growth, which was down slightly from the 2020 periods.

Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Part I, Item 2 of this report, Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information.

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(dollars in thousands) Three Months Ended

June 30, 2021 March 31, 2021 June 30, 2020

September 30, 2021 June 30, 2021 September 30, 2020

Average Balance Interest /Dividends Yield /Cost Average Balance Interest /Dividends Yield /Cost Average Balance Interest /Dividends Yield /Cost

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See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of this measure to its most directly comparable GAAP measure.

(dollars in thousands) Six Months Ended

June 30, 2021 June 30, 2020

(dollars in thousands) Nine Months Ended

September 30, 2021 September 30, 2020

Average Balance Interest /Dividends Yield /Cost Average Balance Interest /Dividends Yield /Cost

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The change in interest not due solely to volume or rate has been allocated in proportion to the absolute dollar amounts of the change in each.

(dollars in thousands) Three Months Ended June 30, 2021 vs.

March 31, 2021 Due to Changes in Three Months Ended June 30, 2021 vs.

June 30, 2020 Due to Changes in Six Months Ended June 30, 2021 vs.

June 30, 2020 Due to Changes in

(dollars in thousands) Three Months Ended September 30, 2021 vs.

June 30, 2021 Due to Changes in Three Months Ended September 30, 2021 vs.

September 30, 2020 Due to Changes in Nine Months Ended September 30, 2021 vs.

September 30, 2020 Due to Changes in

Volume Rate Net Volume Rate Net Volume Rate Net

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Total 666 (321) 345 (317) (4,086) (4,403) (1,081) (19,819) (20,900)

(Decrease) increase in net interest income $ (1,166) $ 2,248 $ 1,082 $ 506 $ 6,675 $ 7,181 $ 825 $ 11,863 $ 12,688

Net interest income for the second quarter 2021 was $21.6 million, an increase of $7.2 million, or 49.8%, compared to $14.4 million for the second quarter 2020.

The increase in net interest income was the result of an $8.0 million, or 40.5%, decrease in total interest expense to $11.8 million for the second quarter 2021 from $19.8 million for the second quarter 2020.

The decrease in total interest expense was partially offset by a $0.8 million, or 2.5%, decrease in total interest income to $33.4 million for the second quarter 2021 from $34.2 million for the second quarter 2020.

Net interest income for the six months ended June 30, 2021 was $42.1 million, an increase of $12.7 million, or 43.1%, compared to $29.4 million for the six months ended June 30, 2020.

The increase in net interest income was the result of a $16.5 million, or 40.2%, decrease in total interest expense to $24.5 million for the six months ended June 30, 2021 from $41.0 million for the six months ended June 30, 2020, partially offset by a $3.8 million, or 5.4%, decrease in total interest income to $66.7 million for the six months ended June 30, 2021 from $70.5 million for the six months ended June 30, 2020.

The decrease in total interest income for the second quarter 2021 compared to the second quarter 2020 was due to decreases in interest earned on securities and other earning assets, partially offset by an increase in interest earned on loans.

Interest income earned on securities decreased $1.6 million, or 41.6%, due to a decline of 76 basis points (“bps”) in the yield earned on securities, as well as a decrease of $82.9 million, or 12.6%, in the average balance of securities.

The decrease in the average balance of securities was driven primarily by prepayments and maturities in private label mortgage-backed securities and agency mortgage-backed securities and early redemptions and maturities in municipal securities.

Increase (decrease) in net interest income $ 45 $ (733) $ (688) $ (1,925) $ 6,612 $ 4,687 $ 909 $ 16,466 $ 17,375

Net interest income for the third quarter 2021 was $20.9 million, an increase of $4.7 million, or 28.9%, compared to $16.2 million for the third quarter 2020.

The increase in net interest income was the result of a $4.4 million, or 26.7%, decrease in total interest expense to $12.1 million for the third quarter 2021 from $16.5 million for the third quarter 2020, as well as a $0.3 million, or 0.9% increase in total interest income to $33.0 million for the third quarter 2021 from $32.8 million for the third quarter 2020.

Net interest income for the nine months ended September 30, 2021 was $63.1 million, an increase of $17.4 million, or 38.0%, compared to $45.7 million for the nine months ended September 30, 2020.

The increase in net interest income was the result of a $20.9 million, or 36.3%, decrease in total interest expense to $36.6 million for the nine months ended September 30, 2021 from $57.5 million for the nine months ended September 30, 2020, partially offset by a $3.5 million, or 3.4%, decrease in total interest income to $99.7 million for the nine months ended September 30, 2021 from $103.2 million for the nine months ended September 30, 2020.

The increase in total interest income for the third quarter 2021 compared to the third quarter 2020 was due primarily to an increase in interest earned on loans, partially offset by decreases in interest earned on other earning assets and securities.

Interest income earned on loans increased $0.6 million, or 1.9%, due primarily to an increase of 16 basis points (“bps”) in the yield earned on average loan balances, partially offset by a decrease of $74.7 million, or 2.5%, in average loan balances.

The decrease in average loan balances was due primarily to decreases in the average balance of single tenant lease financing, residential mortgage, public finance, consumer lending and small business lending portfolios, which included loans originated through the Paycheck Protection Program (“PPP”) that have since been forgiven, partially offset by increases in the average balance of commercial and industrial, construction and healthcare finance loan balances.

Interest income earned on other earning assets declined $0.2 million, or 35.0%, due mainly to a 10 bp decline in the yield earned on these assets, as well as a decrease of $73.0 million, or 13.2%, in the average balance of other earning assets.

The decrease in the average balance of other earning assets was due primarily to lower cash balances.

Interest income earned on loans increased $1.1 million, or 3.7%, due primarily to an increase of 10 bps in the yield earned on average loan balances, as well as an increase of $26.6 million, or 0.9%, in average loan balances.

The increase in average loan balances was due primarily to growth in the healthcare finance, construction and small business lending portfolios, which included loans originated through the Paycheck Protection Program (“PPP”), partially offset by a decrease in the average balance of residential mortgage, single tenant lease financing, public finance and commercial, and industrial loan balances.

The decrease in total interest income for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was due primarily to a decrease of $82.6 million, or 12.8%, in the average balance of securities and the yield earned on the securities portfolio decreased 95 bps for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The average balance in other earning assets also decreased $27.0 million, or 5.4%, due primarily to lower cash balances.

These decreases were partially offset by an increase of $63.7 million, or 2.1%, in the average balance of loans, as well as an increase of 3 bps in the yield on loans.

Overall, the yield on interest-earning assets for the second quarter 2021 increased 2 bps to 3.26% from 3.24% for the second quarter 2020.

The yield on interest-earning assets for the six months ended June 30, 2021 declined 14 bps to 3.29% from 3.43% for the six months ended June 30, 2020.

The increase in the yield earned on interest-earning assets for the second quarter 2021 compared to the second quarter 2020 was due to a 10 bp increase in the yield earned on loans, partially offset by decreases of 76 bps in the yield earned on securities and 23 bps in other earning assets.

The decrease in the yield earned on interest-earning assets for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was due to decreases of 95 bps in the yield earned on securities and 67 bps in other earning assets, partially offset by a 3 bp increase in the yield earned on loans.

Interest rates began declining in 2020 following Federal Reserve interest rate cuts in March 2020 in response to the economic effects of COVID-19.

The decline in market interest rates negatively impacted the yields earned on securities and cash balances during both the quarter and the six months ended June 30, 2021, in comparison to the same time periods in 2020.

The decrease in total interest expense for the second quarter 2021 compared to the second quarter 2020 was due to a decrease in interest expense related to interest-bearing deposits.

Interest earned on securities decreased $0.1 million, or 3.2%, due to a decline of 23 bps in the yield earned on securities, partially offset by an increase of $79.8 million, or 12.6%, in the average balance of securities.

The increase in loan yield was due mainly to an increase in prepayment fee income.

The decrease in the yield earned on other earning assets was due primarily to lower market interest rates.

The decrease in the yield earned on securities was driven primarily by lower yields earned on corporate securities as well as early redemptions and maturities in corporate securities.

The decrease in total interest income for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was due primarily to a $3.8 million, or 35.7%, decrease in interest earned on securities and a $1.9 million, or 64.1%, decrease in interest earned on other earning assets, partially offset by a $2.1 million, or 2.4%, increase in income from loans.

The decrease in income from securities and other earning assets was primarily due to decreases of 72 bps and 46 bps, respectively, in the yield earned on these assets as well as a modest decrease in the average balance of these assets.

The decrease in the yield earned on securities was driven primarily by lower market interest rates following Federal Reserve interest rate cuts in March 2020 in response to the economic effects of COVID-19, which contributed to increased prepayment activity and lower yields earned on private label and agency mortgage-backed securities and U.S.

Government agency securities as well as early redemptions and maturities in corporate and municipal securities.

The decrease in the yield earned on other earning assets was primarily due to lower market interest rates, as described above.

The increase in income from loans was driven primarily by an 8 bp increase in the yield on loans and a modest increase in average loan balances.

The increase in loan yield was mostly due to an increase in prepayment fee income as well as a shift in the loan mix towards higher yielding commercial products.

Overall, the yield on interest-earning assets for the third quarter 2021 increased 7 bps to 3.16% from 3.09% for the third quarter 2020.

The yield on interest-earning assets for the nine months ended September 30, 2021 declined 7 bps to 3.24% from 3.31% for the nine months ended September 30, 2020.

The increase in the yield earned on interest-earning assets for the third quarter 2021 compared to the third quarter 2020 was due to a 16 bp increase in the yield earned on loans, partially offset by decreases of 23 bps in the yield earned on securities and 10 bps in other earning assets.

The decrease in the yield earned on interest-earning assets for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was due to decreases of 72 bps in the yield earned on securities and 46 bps in other earning assets, partially offset by an 8 bp increase in the yield earned on loans.

The decline in market interest rates negatively impacted the yields earned on securities and cash balances during both the quarter and the nine months ended September 30, 2021, in comparison to the same time periods in 2020.

The decrease in total interest expense for the third quarter 2021 compared to the third quarter 2020 was due to a decrease in interest expense related to interest-bearing deposits, partially offset by an increase in interest expense associated with other borrowed funds.

Interest expense on certificates and brokered deposits decreased $4.3 million, or 44.7%, due to a decline of 62 bps in the cost of these deposits, as well as a $406.0 million, or 22.8%, decrease in the average balance of these deposits.

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The decrease in interest expense related to interest-bearing demand deposits and savings accounts was due primarily to decreases of 29 bps and 33 bps, respectively, partially offset by increases of $44.4 million, or 28.8%, and $16.7 million, or 36.8%, respectively, in the average balance of these deposits.

The decrease in total interest expense for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, was driven primarily by a 103 bp decline in the cost of funds related to interest-bearing deposits and a decrease of $67.3 million, or 2.1%, in the average balance of interest-bearing deposits.

The decrease in the cost of interest-bearing deposits was due primarily to a $556.4 million, or 27.3%, decrease in average certificates and brokered deposits balances and a 69 bp decrease in the related cost of these deposits.

The increase in interest expense associated with other borrowed funds was due primarily to the recognition of $0.8 million of costs related to the Company redeeming the 2026 Notes on September 30, 2021.

The decrease in total interest expense for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was due to a decrease in interest expense related to interest-bearing deposits, partially offset by an increase in interest expense associated with other borrowed funds.

The decrease in deposit interest expense was driven primarily by an 89 bp decline in the cost of funds related to interest-bearing deposits and a decrease of $92.3 million, or 2.9%, in the average balance of interest-bearing deposits.

The average balance of certificates and brokered deposits decreased $506.0 million, or 25.9%, while the cost of these deposits decreased 67 bps.

The decrease in certificates and brokered deposit balances was driven by the Company’s pricing strategy to reduce the level of these higher cost deposits.

The decrease in interest expense related to money market accounts of $5.3 million, or 54.9%, was driven by a decline of 79 bps in the cost of these deposits, partially offset by an increase of $344.1 million, or 31.7%, in the average balance of these deposits.

Overall, the cost of total interest-bearing liabilities for the second quarter 2021 declined 79 bps to 1.28% from 2.07% for the second quarter 2020.

Additionally, the cost of total interest-bearing liabilities for the six months ended June 30, 2021 declined 85 bps to 1.34% from 2.19% for the six months ended June 30, 2020.

Similar to asset yields, declines in the cost of funds were due to the continued decrease in market interest rates from the prior year periods.

The sharp declines in both short- and long-term interest rates due to COVID-19 have allowed the Company to reprice all of its deposit products at lower rates.

Average money market balances increased from the prior year period due primarily to targeted digital marketing efforts to grow small business accounts, as well as consumers, small businesses and commercial clients increasing their cash balances due in part to the economic uncertainty resulting from COVID-19.

The increase in interest expense associated with other borrowed funds was due primarily to to the recognition of $0.8 million of costs related to the Company redeeming the 2026 Notes on September 30, 2021.

Overall, the cost of total interest-bearing liabilities for the third quarter 2021 declined 42 bps to 1.28% from 1.70% for the third quarter 2020.

Additionally, the cost of total interest-bearing liabilities for the nine months ended September 30, 2021 declined 70 bps to 1.32% from 2.02% for the nine months ended September 30, 2020.

Declines in the cost of funds were due to

the continued decrease in market interest rates from the prior year periods.

The sharp declines in both short- and long-term interest rates in response to the economic effects of COVID-19 allowed the Company to reprice all of its deposit products at lower rates.

Furthermore, a shift in the deposit composition from higher cost certificates and brokered deposits to lower cost non-maturity deposit accounts also contributed to the decline in the cost of deposit funding.

Net interest margin (“NIM”) was 2.11% for the second quarter 2021 compared to 1.37% for the second quarter 2020;

an increase of 74 bps.

On a fully-taxable equivalent (“FTE”) basis, NIM was 2.25% for the second quarter 2021 compared to 1.50% for the second quarter 2020;

an increase of 75 bps.

NIM was 2.08% for the six months ended June 30, 2021 compared to 1.43% for the six months ended June 30, 2020;

Net interest margin (“NIM”) was 2.00% for the third quarter 2021 compared to 1.53% for the third quarter 2020, an increase of 47 bps.

On a fully-taxable equivalent (“FTE”) basis, NIM was 2.13% for the third quarter 2021 compared to 1.67% for the third quarter 2020, an increase of 46 bps.

NIM was 2.05% for the nine months ended September 30, 2021 compared to 1.47% for the nine months ended September 30, 2020;

an increase of 58 bps.

FTE NIM was 2.21% for the six months ended June 30, 2021 compared to 1.58% for the six months ended June 30, 2020;

FTE NIM was 2.19% for the nine months ended September 30, 2021 compared to 1.61% for the nine months ended September 30, 2020;

an increase of 58 bps.

The increase in second quarter 2021 NIM and FTE NIM compared to the second quarter 2020 reflects a decrease in the cost of funds while asset yields were up modestly.

The reductions in the cost of interest-bearing liabilities was due primarily to the continued decrease in market interest rates from the prior year period.

Interest rates declined significantly in 2020 following Federal Reserve interest rate cuts in March 2020 in response to the economic effects of COVID-19.

The increase in year-to-date June 2021 NIM and FTE NIM compared to year-to-date June 2020 reflects a decrease in the cost of funds, partially offset by a moderate decrease in interest-earning asset yields.

The increase in third quarter 2021 NIM and FTE NIM compared to the third quarter 2020 reflects a decrease in the cost of funds while asset yields were up modestly.

The reduction in the cost of interest-bearing liabilities was due primarily to the continued decrease in market interest rates from the prior year period.

The increase in year-to-date September 2021 NIM and FTE NIM compared to year-to-date September 2020 reflects a decrease in the cost of funds, partially offset by a moderate decrease in interest-earning asset yields.

The decline in the cost of interest-bearing liabilities and the yield on interest-earning assets was due primarily to the continued decrease in market interest rates from the prior year period.

As the pace of the decline in short-term market interest rates has slowed, the Company believes that yields on interest-earning assets have largely stabilized.

Furthermore, the Company has approximately $779.0 million of certificates and brokered deposits with a weighted average cost of 1.35% that mature over the next twelve months.

As the weighted average of cost of these deposits is significantly higher than current new production costs, the Company expects the cost of deposit funding to continue to decline during the second half of 2021.

Looking ahead to the fourth quarter 2021 and into 2022, the Company believes that yields on interest-earning assets will revert closer to what they were in the second quarter 2021 and then increase from there as the Company anticipates growing its commercial loan portfolio.

The Company also continues to see opportunities for further downward repricing of deposits in future periods.

Over the next twelve months, the Company has approximately $787.0 million of certificates and brokered deposits with a weighted average cost of 1.22% that are scheduled to mature.

Noninterest Income

The following table presents noninterest income for the last five completed fiscal quarters and the six months ended June 30, 2021 and 2020.

(in thousands) Three Months Ended Six Months Ended

The following table presents noninterest income for the last five completed fiscal quarters and the nine months ended September 30, 2021 and 2020.

(in thousands) Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 March 31,

1 unchanged sentence

2020 September 30,

2020 June 30,

2021 June 30,

2020 September 30,

2021 September 30,

Service charges and fees $ 276 $ 280 $ 266 $ 206 $ 224 $ 822 $ 618

7 unchanged sentences

Total noninterest income $ 7,813 $ 8.962 $ 8,375 $ 12,657 $ 12,495 $ 25,150 $ 23,679

During the second quarter 2021, noninterest income was $9.0 million, representing an increase of $4.0 million, or 80.2%, compared to $5.0 million for the second quarter 2020.

The increase in noninterest income was due primarily to increases in revenue from gain on sale of premises and equipment and gain on sale of loans, partially offset by decreases in mortgage banking activities and other noninterest income.

The increase in gain on sale of premises and equipment was due to the Company completing the sale of its current headquarters.

The increase in gain on sale of loans was due an increase in the volume of U.S.

Small Business Administration 7(a) guaranteed loan sales and an increase in secondary market premiums during the second quarter 2021.

The decline in mortgage banking revenue in the second quarter of 2021 versus the second quarter of 2020 was due primarily to decreases in interest rate locks, sold loan volume and gain-on-sale margins.

The decrease in other noninterest income was due to various items, none of which were individually deemed significant.

During the six months ended June 30, 2021, noninterest income was $17.3 million, an increase of $6.2 million, or 55.0%, compared to $11.2 million for the six months ended June 30, 2020.

The increase in noninterest income was due primarily to increases in revenue from gain on sale of premises and equipment, gain on sale of loans, mortgage banking activities, and loan servicing revenue, which was partially offset by a decrease in other income.

The increase in gain on sale of premises and equipment was due to the Company completing the sale of its current headquarters.

The increase in gain on sale of loans was due to an increase in the volume of SBA 7(a) guaranteed loan sales and an increase in secondary market premiums during the six months ended June 30, 2021.

The increase in mortgage banking revenue was due mainly to higher gain-on-sale margins.

The increase in loan servicing revenue was due to growth in the balance of the Company’s SBA 7(a) servicing

portfolio due to origination activity over the last twelve months.

The decrease in other noninterest income was due to various items, none of which were individually deemed significant.

During the third quarter 2021, noninterest income was $7.8 million, representing a decrease of $4.7 million, or 37.5%, compared to $12.5 million for the third quarter 2020.

The decrease in noninterest income was due primarily to a decrease in revenue from mortgage banking activities, partially offset by increases in gain on sale of loans and other noninterest income.

The decline in mortgage banking revenue in the third quarter of 2021 versus the third quarter of 2020 was due primarily to decreases in interest rate locks, sold loan volume and gain-on-sale margins.

The increase in gain on sale of loans was due an increase in the volume of SBA 7(a) guaranteed loan sales and an increase in secondary market premiums during the third quarter 2021.

The increase in other noninterest income was due primarily to a distribution from the Company’s investment in a Small Business Investment Company fund.

During the nine months ended September 30, 2021, noninterest income was $25.2 million, an increase of $1.5 million, or 6.2%, compared to $23.7 million for the nine months ended September 30, 2020.

The increase in noninterest income was due primarily to increases in revenue from gain on sale of loans, gain on sale of premises and equipment, and loan servicing revenue, which was partially offset by a decrease in mortgage banking activities.

The increase in gain on sale of loans was due to an increase in the volume of SBA 7(a) guaranteed loan sales and an increase in secondary market premiums during the nine months ended September 30, 2021.

The increase in gain on sale of premises and equipment was due to the Company completing the sale of its headquarters.

The increase in loan servicing revenue was due to growth in the balance of the Company’s SBA 7(a) servicing portfolio due to continued origination activity.

The decrease in mortgage banking income was due primarily to decreases in interest rate locks, sold loan volume and gain-on-sale margins.

Noninterest Expense

The following table presents noninterest expense for the last five completed fiscal quarters and the six months ended June 30, 2021 and 2020.

(in thousands) Three Months Ended Six Months Ended

The following table presents noninterest expense for the last five completed fiscal quarters and the nine months ended September 30, 2021 and 2020.

(in thousands) Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 March 31,

1 unchanged sentence

2020 September 30,

2020 June 30,

2021 June 30,

2020 September 30,

2021 September 30,

Salaries and employee benefits $ 9,316 $ 9,232 $ 9,492 $ 9,135 $ 9,533 $ 28,040 $ 25,096

8 unchanged sentences

Total noninterest expense $ 14,451 $ 15,075 $ 15,317 $ 14,513 $ 16,412 $ 44,843 $ 43,142

Noninterest expense for the second quarter 2021 was $15.1 million, compared to $13.2 million for the second quarter 2020.

The increase of $1.8 million, or 13.8%, compared to the second quarter 2020 was due primarily to increases of $1.4 million in salaries and employee benefits and $0.5 million in marketing, advertising and promotion, partially offset by decreases of $0.2 million and $0.2 million in deposit insurance premium and other noninterest expense, respectively.

The increase in salaries and employee benefits was due mainly to an increase in headcount, which includes the impact of personnel growth associated with the Company’s small business lending platform, as well as increased small business lending incentive compensation for the second quarter 2021.

The increase in marketing, advertising and promotion was due primarily to higher mortgage lead generation costs and sponsorship initiatives.

The decrease in other expenses was due primarily to a $0.3 million charitable contribution the Company made in the second quarter 2020 to assist small businesses and nonprofits in addressing the economic challenges of the COVID-19 pandemic.

The decrease in deposit insurance premium is due primarily to a decrease in the balance of brokered deposits and a decrease in the overall size of the balance sheet, both of which positively impact the formula used to calculate deposit insurance expense.

Noninterest expense for the six months ended June 30, 2021 was $30.4 million, compared to $26.7 million for the six months ended June 30, 2020.

The increase of $3.7 million, or 13.7%, compared to the six months ended June 30, 2020 was due primarily to increases of $3.2 million in salaries and employee benefits and $0.8 million in marketing, advertising and promotion, partially offset by decreases of $0.2 million and $0.2 million in deposit insurance premium and other noninterest expense, respectively.

Noninterest expense for the third quarter 2021 was $14.5 million, compared to $16.4 million for the third quarter 2020.

The decrease of $2.0 million, or 11.9%, was due primarily to a $2.1 million write-down of a commercial other real estate owned (“OREO”) property during the third quarter 2020 as well as decreases of $0.2 million, or 2.3%, in salaries and employee benefits and $0.2 million, or 47.7%, in deposit insurance premium during the third quarter 2021 compared to the third quarter 2020, partially offset by an increase of $0.4 million, or 90.8%, in marketing, advertising and promotion.

The decrease in salaries and employee benefits was due primarily to a decrease in medical claims expense.

The decrease in deposit insurance premium was due primarily to a decrease in asset growth and an increase in the Bank’s regulatory capital ratios, both of which positively impact the formula used to calculate deposit insurance expense.

The increase in marketing, advertising and promotion was due mainly to higher mortgage lead generation costs and digital marketing initiatives.

Noninterest expense for the nine months ended September 30, 2021 was $44.8 million, compared to $43.1 million for the nine months ended September 30, 2020.

The increase of $1.7 million, or 3.9%, was due primarily to increases of $2.9 million in salaries and employee benefits and $1.2 million in marketing, advertising and promotion, partially offset by a decrease of $2.1 million in write-down of OREO, a $0.4 million decrease in deposit insurance premium and a $0.2 million decrease in other noninterest expense.

The increase in marketing, advertising and promotion was due primarily to higher mortgage lead generation costs and digital marketing initiatives.

The decrease in deposit insurance premium was due primarily to a decrease in the balance of brokered deposits and a decrease in the overall size of the balance sheet, both of which positively impact the formula used to calculate deposit insurance expense.

Income tax provision was $2.4 million for the second quarter 2021, resulting in an effective tax rate of 15.4%, compared to a tax benefit of $0.3 million for the second quarter 2020.

Income tax provision was $4.2 million for the six months ended June 30, 2021, resulting in an effective tax rate of 15.2%, compared to an income tax benefit of less than $0.1 million for the six months ended June 30, 2020.

The increase in income tax provision for both the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020, was due primarily to the increase in pre-tax earnings driven by increased net interest income and noninterest income, partially offset by higher noninterest expenses.

Additionally, the lower income tax provision and effective tax rate during the six months ended June 30, 2020, was impacted by the passage of the

CARES Act, which was signed into law on March 27, 2020, and provided the Company the ability to carryback certain federal net operating losses.

The decrease in write-down of OREO is due to a $2.1 million write-down of a commercial OREO property that occurred in 2020.

The decrease in other noninterest expense was due primarily to a $0.3 million charitable contribution the Company made in 2020 to assist small businesses and nonprofits in addressing the economic challenges of the COVID-19 pandemic.

Income tax provision was $2.2 million for the third quarter 2021, resulting in an effective tax rate of 15.5%, compared to a tax provision of $1.4 million for the third quarter 2020 and an effective tax rate of 14.2%.

Income tax provision was $6.5

million for the nine months ended September 30, 2021, resulting in an effective tax rate of 15.3%, compared to an income tax provision of $1.4 million and an effective tax rate of 7.0% for the nine months ended September 30, 2020.

The increase in income tax provision for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 was due primarily to the increase in pre-tax earnings driven primarily by the $2.1 million write-down of OREO that occurred in the third quarter 2020.

The increase in income tax provision for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, was due primarily to the increase in pre-tax earnings driven primarily by an increase in revenue and a decrease in the provision for loan losses, partially offset by an increase in noninterest expenses.

Additionally, the lower income tax provision and effective tax rate during the nine months ended September 30, 2020, was impacted by the passage of the CARES Act, which was signed into law on March 27, 2020, and provided the Company the ability to carryback certain federal net operating losses.

Financial Condition

2 unchanged sentences

Balance Sheet Data:

September 30,

2021 June 30,

2021 March 31,

1 unchanged sentence

2020 September 30,

2020 June 30,

Total assets $ 4,252,292 $ 4,204,642 $ 4,188,570 $ 4,246,156 $ 4,333,624

7 unchanged sentences

Total shareholders’ equity 370,442 358,641 344,566 330,944 318,102

Total assets decreased $41.5 million, or 1.0%, to $4.2 billion at June 30, 2021 compared to $4.2 billion at December 31, 2020.

This decrease was driven by a $64.7 million, or 2.0%, decrease in deposit balances, which includes a $202.0 million, or 15.7%, decrease in certificates of deposits and an $81.8 million, or 6.1%, increase in money market account balances.

As of June 30, 2021, total shareholders’ equity was $358.6 million, an increase of $27.7 million, or 8.4%, compared to December 31, 2020, due primarily to the net income earned during the period, as well as a decrease in accumulated other comprehensive loss.

Tangible common equity totaled $354.0 million as of June 30, 2021, representing an increase of $27.7 million, or 8.5%, compared to December 31, 2020.

As both total shareholders’ equity and tangible common equity increased, while both total assets and tangible assets decreased 1.0%, respectively, the ratio of total shareholders’ equity to total assets increased to 8.53% as of June 30, 2021 from 7.79% as of December 31, 2020, and the ratio of tangible common equity to tangible assets increased to 8.43% as of June 30, 2021 from 7.69% as of December 31, 2020.

Book value per common share increased 7.8% to $36.39 as of June 30, 2021 from $33.77 as of December 31, 2020.

Tangible book value per share increased 7.9% to $35.92 as of June 31, 2021 from $33.29 as of December 31, 2020.

Total assets increased $6.1 million, or 0.1%, to $4.3 billion at September 30, 2021 compared to $4.2 billion at December 31, 2020.

As of September 30, 2021, total shareholders’ equity was $370.4 million, an increase of $39.5 million, or 11.9%, compared to December 31, 2020, due primarily to the net income earned during the period, as well as a decrease in accumulated other comprehensive loss.

Tangible common equity totaled $365.8 million as of September 30, 2021, representing an increase of $39.5 million, or 12.1%, compared to December 31, 2020.

As both total shareholders’ equity and tangible common equity outpaced the growth in both total assets and tangible assets, the ratio of total shareholders’ equity to total assets increased to 8.71% as of September 30, 2021 from 7.79% as of December 31, 2020, and the ratio of tangible common equity to tangible assets increased to 8.61% as of September 30, 2021 from 7.69% as of December 31, 2020.

Book value per common share increased 11.3% to $37.59 as of September 30, 2021 from $33.77 as of December 31, 2020.

Tangible book value per share increased 11.5% to $37.12 as of September 30, 2021 from $33.29 as of December 31, 2020.

The growth in both book value per common share and tangible book value per share reflects the growth in total shareholders’ equity and tangible common equity while total common shares outstanding increased slightly from December 31, 2020.

2 unchanged sentences

The following table presents a summary of the Company’s loan portfolio for the last five completed fiscal quarters.

(dollars in thousands) June 30,

(dollars in thousands) September 30,

2021 June 30,

2021 March 31,

1 unchanged sentence

2020 September 30,

2020 June 30,

Commercial loans

7 unchanged sentences

Small business lending 102,889 3.5 % 123,293 4.2 % 132,490 4.3 % 125,589 4.1 % 123,168 4.1 %

Franchise finance 25,598 0.9 % — — % — — % — — % — — %

Total commercial loans 2,405,491 82.0 % 2,434,616 82.3 % 2,519,729 82.4 % 2,515,631 82.3 % 2,442,500 81.2 %

9 unchanged sentences

Net loans $ 2,908,148 $ 2,929,542 $ 3,028,052 $ 3,029,747 $ 2,985,997

(1) Includes carrying value adjustments of $40.4 million, $41.6 million, $42.7 million, $44.3 million and $46.0 million related to terminated interest rate swaps associated with public finance loans as of June 30, 2021, March 31, 2021, December 31, 2020, September 30, 2020 and June 30, 2020, respectively.

Total loans were $3.0 billion as of June 30, 2021, a decrease of $101.6 million, or 3.3%, compared to December 31, 2020.

Total commercial loan balances were $2.4 billion as of June 30, 2021, down $81.0 million, or 3.2%, from December 31, 2020.

Compared to December 31, 2020, the decline in commercial loan balances was driven largely by net payoffs in healthcare finance, single tenant lease financing and public finance loans, which were partially offset by increases in commercial and industrial, construction and investor commercial real estate loan balances.

The net payoffs in the healthcare finance portfolio were driven primarily by elevated prepayment activity combined with a lower level of new originations, as heightened competition and the low interest rate environment has driven loan pricing to unattractively low levels.

Going forward, we expect the balance of healthcare finance loans may decline as a result of Provide’s acquisition by a super-regional financial institution, as well as potential prepayment activity.

Total consumer loan balances were $466.5 million as of June 30, 2021, a decrease of $15.9 million, or 3.3%, compared to December 31, 2020.

The decline in consumer loan balances from December 31, 2020 was due primarily to increased prepayment activity across the consumer portfolio.

(1) Includes carrying value adjustments of $38.9 million, $40.4 million, $41.6 million, $42.7 million and $44.3 million related to terminated interest rate swaps associated with public finance loans as of September 30, 2021, June 30, 2021, March 31, 2021, December 31, 2020, and September 30, 2020, respectively.

Total loans were $2.9 billion as of September 30, 2021, a decrease of $123.1 million, or 4.0%, compared to December 31, 2020.

Total commercial loan balances were $2.4 billion as of September 30, 2021, down $110.1 million, or 4.4%, from December 31, 2020.

Total consumer loan balances were $475.1 million as of September 30, 2021, a decrease of $7.2 million, or 1.5%, compared to December 31, 2020.

Compared to December 31, 2020, the decline in commercial loan balances was driven largely by net payoffs in healthcare finance, single tenant lease financing, small business lending and public finance loans, which were partially offset by increases in commercial and industrial, franchise finance and investor commercial real estate loan balances.

The net payoffs in the healthcare finance portfolio were driven primarily by elevated prepayment activity and minimal origination activity.

Going forward, we expect the balance of healthcare finance loans may continue to decline as a result of Provide’s acquisition by a super-regional financial institution, as well as potential prepayment activity.

The net payoffs in small business lending were predominantly related to PPP loan forgiveness, partially offset by new originations.

Franchise finance was established in July 2021 in conjunction with the Copmany’s business relationship with ApplePie Capital, a leading provider of growth financing to franchisees in various industry segments across the country.

Through this relationship, we began funding portfolio loans in the third quarter 2021 and expect to fund a total of up to $100.0 million of loans by the end of 2021 and up to an additional $150.0 million of loans during 2022.

Asset Quality

2 unchanged sentences

The following table provides a summary of the Company’s nonperforming assets for the last five completed fiscal quarters.

(dollars in thousands) June 30,

(dollars in thousands) September 30,

2021 June 30,

2021 March 31,

1 unchanged sentence

2020 September 30,

2020 June 30,

Nonaccrual loans

40 unchanged sentences

The following table provides a summary of troubled debt restructurings for the last five completed fiscal quarters.

(in thousands) June 30,

(in thousands) September 30,

2021 June 30,

2021 March 31,

1 unchanged sentence

2020 September 30,

2020 June 30,

Troubled debt restructurings – nonaccrual $ 2,550 $ 2,581 $ 2,606 $ 2,637 $ 811

1 unchanged sentence

Total troubled debt restructurings $ 3,393 $ 3,760 $ 3,793 $ 3,004 $ 1,176

The decline in nonperforming loans of $1.2 million, or 9.0%, to $9.0 million as of June 30, 2021 compared to $10.2 million as of December 31, 2020 was due primarily to a decrease in nonaccrual single tenant lease financing balances, which was partially offset by an increase in nonperforming small business lending, owner-occupied commercial real estate and commercial and industrial loans.

The decrease in nonaccrual single tenant lease financing balances was due to positive developments related to a relationship which included two loans, one of which was paid off at net book value (unpaid principal balance less specific reserves) and the other was transferred to OREO.

Total nonperforming assets increased $0.1 million, or 1.2%, as of June 30, 2021 compared to December 31, 2020, due primarily to a $1.3 million increase in OREO, partially offset by the $1.2 million decrease in nonperforming loans discussed above.

The ratio of nonperforming loans to total loans decreased to 0.31% as of June 30, 2021 compared to 0.33% as of December 31, 2020 and the ratio of nonperforming assets to total assets increased to 0.25% as of June 30, 2021 compared to 0.24% as of December 31, 2020, also due primarily to the loans and OREO mentioned above.

Total TDRs as of June 30, 2021 were $3.8 million, up $0.8 million from December 31, 2020.

The decline in nonperforming loans of $2.3 million, or 22.9%, to $7.9 million as of September 30, 2021 compared to $10.2 million as of December 31, 2020 was due primarily to a decrease in nonaccrual single tenant lease financing balances, which was partially offset by an increase in nonperforming small business lending, owner-occupied commercial real estate and commercial and industrial loans.

The decrease in nonaccrual single tenant lease financing balances was due to a payoff of a loan that was previously on nonaccrual, as well as positive developments related to a relationship which included two loans, one of which was paid off at net book value (unpaid principal balance less specific reserves) and the other was transferred to OREO.

Total nonperforming assets decreased $1.2 million, or 11.5%, as of September 30, 2021 compared to December 31, 2020, due primarily to a $2.3 million decrease in nonperforming loans discussed above, partially offset by a $1.2 million increase in OREO.

The ratio of nonperforming loans to total loans decreased to 0.27% as of September 30, 2021 compared to 0.33% as of December 31, 2020 and the ratio of nonperforming assets to total assets decreased to 0.21% as of September 30, 2021 compared to 0.24% as of December 31, 2020, also due primarily to the loans and OREO mentioned above.

Total TDRs as of September 30, 2021 were $3.4 million, up $0.4 million from December 31, 2020.

The increase was driven by one residential mortgage loan that became a TDR during the first quarter 2021.

As of June 30, 2021, the Company had two properties in OREO, one commercial property with a carrying value of $1.2 million and one residential mortgage with a carrying value of $0.1 million.

As of September 30, 2021, the Company had one commercial property in OREO, with a carrying value of $1.2 million.

The Company did not have any OREO as of December 31, 2020.

As of June 30, 2021, our financial results have reflected little impact on asset quality as a result of COVID-19.

As of September 30, 2021, our financial results have reflected little impact on asset quality as a result of COVID-19.

We are optimistic that the combination of vaccinations, government stimulus programs and relief programs we have provided to our clients will continue to mitigate the impact of the pandemic on the Company’s business.

6 unchanged sentences

In accordance with this guidance, the Company has offered modifications to borrowers who were both impacted by COVID-19 and current on all principal and interest payments.

As of June 30, 2021, the Company had eight loans totaling $7.9 million in non-TDR loan modifications due to COVID-19.

As of September 30, 2021, the Company had thirteen loans totaling $3.0 million in non-TDR loan modifications due to COVID-19.

Small Business Administration Paycheck Protection Program

3 unchanged sentences

These loans may be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA.

In 2020, as a preferred SBA lender, we assisted our clients in participating in the PPP to help them maintain their workforces in an uncertain

and challenging environment.

The loans originated in 2020 bear an interest rate of 1.00%, and we received gross origination fees of approximately $2.3 million.

In 2020, as a preferred SBA lender, we assisted our clients in participating in the PPP to help them maintain their workforces in an uncertain and challenging environment.

The loans originated in 2020 bear an interest rate of 1.00%, and we received gross origination

fees of approximately $2.3 million.

The Company received this fee revenue from the SBA in late June 2020, and it was deferred over the life of the PPP loans and recognized as interest income.

The Company began processing applications for forgiveness from this round beginning in December 2020 and 99.5% of loan balances have been forgiven as of September 30, 2021.

On December 27, 2020, $285 billion in additional funding was allocated to the PPP through the passage of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act.

The additional funding was used to fund PPP loans for small businesses, as well as certain small businesses who were eligible to receive a second PPP loan.

The Company began offering PPP loans again in 2021 and continued until the program’s funds were depleted.

1 unchanged sentence

The loans originated during 2021 bear an interest rate of 1.00% and the Company received gross origination fees of approximately $1.3 million.

The Company received this fee revenue from the SBA during the six month period ended June 30, 2021, and it is being deferred over the life of the PPP loans and recognized as interest income.

The Company began processing applications for forgiveness from this round beginning in May 2021.

The Company received this fee revenue from the SBA during 2021, and it is being deferred over the life of the PPP loans and recognized as interest income.

The Company began processing applications for forgiveness from this round beginning in May 2021 and 51.9% of loan balances have been forgiven as of September 30, 2021.

The Company anticipates that the majority of the PPP loans will ultimately be forgiven, in whole or in part, by the SBA in accordance with the terms of the program.

Management anticipates that loan forgiveness applications will continue throughout 2021.

The following table provides a rollforward of the activity of PPP loans through June 30, 2021.

The following table provides a rollforward of the activity of PPP loans through September 30, 2021.

(dollars in thousands)

7 unchanged sentences

Net deferred fees recognized (1,242)

Balance, June 30, 2021 306 39,682 948

Balance, September 30, 2021 108 14,981 481

Allowance for Loan Losses

The following table provides a rollforward of the allowance for loan losses for the last five completed fiscal quarters and the six months ended June 30, 2021 and 2020.

(dollars in thousands) Three Months Ended Six Months Ended

The following table provides a rollforward of the allowance for loan losses for the last five completed fiscal quarters and the nine months ended September 30, 2021 and 2020.

(dollars in thousands) Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 March 31,

1 unchanged sentence

2020 September 30,

2020 June 30,

2021 June 30,

2020 September 30,

2021 September 30,

Balance, beginning of period $ 28,066 $ 30,642 $ 29,484 $ 26,917 $ 24,465 $ 29,484 $ 21,840

4 unchanged sentences

Net charge-offs to average loans 0.01 % 0.35 % 0.02 % 0.04 % 0.01 % 0.12 % 0.06 %

The allowance for loan losses was $28.1 million as of June 30, 2021, compared to $29.5 million as of December 31, 2020.

The decrease in the allowance for loan losses compared to December 31, 2020 was due primarily to the elimination of $2.9 million of specific reserves related to a single tenant lease financing relationship and a commercial and industrial relationship, both of which had been classified as nonaccrual.

The single tenant lease financing relationship included two loans, one of which was paid off at net book value (unpaid principal balance less specific reserves) and the other was transferred to OREO.

The allowance for loan losses was $28.0 million as of September 30, 2021, compared to $29.5 million as of December 31, 2020.

The decrease in the allowance for loan losses compared to December 31, 2020 was due primarily to the elimination of $2.9 million of specific reserves related to single tenant lease financing loans and a commercial and industrial relationship, all of which had been classified as nonaccrual.

The single tenant lease financing loans included a nonaccrual loan that was paid off during the quarter and a single tenant lease financing relationship consisting of two loans, one of which was paid off at net book value (unpaid principal balance less specific reserves) and the other was transferred to OREO.

The commercial and industrial relationship included four loans, two of which were paid off during the quarter.

The decrease in the allowance for loan losses was partially offset by additional adjustments to the qualitative factors in the Company’s allowance model.

The allowance for loan losses as a percentage of total loans was 0.95% at June 30, 2021, or 0.96%, when excluding PPP loans, compared to 0.96%, or 0.98%, when excluding PPP loans, at December 31, 2020.

The allowance for loan losses as a percentage of nonperforming loans increased to 310.5% as of June 30, 2021, compared to 289.5% as of December 31, 2020, due to a decrease in nonperforming loans related to the single tenant lease financing relationship and commercial and industrial relationship discussed above.

The provision for loan losses in the second quarter 2021 was $21 thousand, compared to $2.5 million for the second quarter 2020.

The decrease in the specific reserves

was partially offset by additional adjustments to the qualitative factors in the Company’s allowance model that increased the allowance for loan losses to total loans.

The allowance for loan losses as a percentage of total loans was 0.95% at September 30, 2021, or 0.96%, when excluding PPP loans, compared to 0.96%, or 0.98%, when excluding PPP loans, at December 31, 2020.

The allowance for loan losses as a percentage of nonperforming loans increased to 356.6% as of September 30, 2021, compared to 289.5% as of December 31, 2020, due to the decrease in nonperforming loans related to single tenant lease financing loans and the commercial and industrial relationship discussed above.

The provision for loan losses in the third quarter 2021 was less than $0.1 million, compared to $2.5 million for the third quarter 2020.

The decrease in the provision for loan losses was due primarily to the decline in loan balances.

During the second quarter 2021, the Company recorded net charge-offs of $2.6 million, compared to net charge-offs of $0.9 million for the second quarter 2020.

The increase in net charge-offs was due primarily to a charge-off of $2.4 million related to the single tenant lease financing relationship discussed above, as the loan payoff and the transfer to the OREO were recorded at net book value.

During the third quarter 2021, the Company recorded net charge-offs of less than $0.1 million, compared to net charge-offs of $0.1 million for the third quarter 2020.

Investment Securities Portfolio

1 unchanged sentence

(in thousands)

Amortized Cost June 30,

Amortized Cost September 30,

2021 June 30,

2021 March 31,

1 unchanged sentence

2020 September 30,

2020 June 30,

Securities available-for-sale

12 unchanged sentences

(in thousands)

Approximate Fair Value June 30,

Approximate Fair Value September 30,

2021 June 30,

2021 March 31,

1 unchanged sentence

2020 September 30,

2020 June 30,

Securities available-for-sale

11 unchanged sentences

Total securities $ 698,344 $ 731,577 $ 531,759 $ 567,080 $ 597,487

The approximate fair value of available-for-sale investment securities increased $165.9 million, or 33.3%, to $663.5 million as of June 30, 2021, compared to $497.6 million as of December 31, 2020.

The increase was due primarily to an increase of $200.6 million in agency mortgage-backed securities, partially offset by a $28.8 million decrease in private label mortgage-backed securities and a $4.1 million decrease in municipal securities.

The increase in agency mortgage-backed securities was driven primarily by increased purchases during the six months ended June 30, 2021, partially offset by

prepayments and maturities in agency and private label mortgage-backed securities, as well as early redemptions and maturities in municipal securities.

The approximate fair value of available-for-sale investment securities increased $136.4 million, or 27.4%, to $634.0 million as of September 30, 2021, compared to $497.6 million as of December 31, 2020.

The increase was due primarily to an increase of $186.0 million in agency mortgage-backed securities, partially offset by a $38.1 million decrease in private label mortgage-backed securities and a $8.1 million decrease in U.S.

Government-sponsored agencies.

The increase in agency mortgage-backed securities was driven primarily by purchases during the nine months ended September 30, 2021, partially

offset by prepayments and maturities in agency and private label mortgage-backed securities, as well as early redemptions and maturities in municipal securities.

Accrued Income and Other Assets

Accrued income and other assets decreased $9.5 million, or 14.8%, to $54.8 million at June 30, 2021 compared to $64.3 million at December 31, 2020.

The decrease primarily related to decreases of $9.5 million in cash pledged as collateral, $3.5 million in deferred tax assets and $2.5 million in derivative assets.

Accrued income and other assets decreased $9.9 million, or 15.4%, to $54.4 million at September 30, 2021 compared to $64.3 million at December 31, 2020.

The decrease was primarily related to a decrease of $11.3 million in cash pledged as collateral.

As of these dates, the Company pledged $19.3 million and $30.6 million, respectively, of cash collateral to counterparties on interest rate swap agreements as security for its obligations related to these agreements.

1 unchanged sentence

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities were $53.9 million at June 30, 2021 compared to $48.4 million at December 31, 2020.

Accrued expenses and other liabilities were $36.6 million at September 30, 2021 compared to $48.4 million at December 31, 2020.

The decrease in accrued expenses and other liabilities was due primarily to an $11.8 million, or 38.7%, decrease in derivative liabilities due to changes in fair value.

The following table presents the composition of the Company’s deposit base for the last five completed fiscal quarters.

(dollars in thousands) June 30,

(dollars in thousands) September 30,

2021 June 30,

2021 March 31,

1 unchanged sentence

2020 September 30,

2020 June 30,

Noninterest-bearing deposits $ 110,117 3.4 % $ 113,996 3.6 % $ 100,700 3.1 % $ 96,753 3.0 % $ 86,088 2.6 %

5 unchanged sentences

Total deposits $ 3,224,595 100.0 % $ 3,206,147 100.0 % $ 3,217,603 100.0 % $ 3,270,885 100.0 % $ 3,372,391 100.0 %

Total deposits decreased $64.7 million, or 2.0%, to $3.2 billion as of June 30, 2021, compared to $3.3 billion as of December 31, 2020.

This decrease was due primarily to a decline of $202.0 million, or 15.7%, in certificates of deposits, partially offset by increases of $81.8 million, or 6.1%, in money market accounts, $17.2 million, or 17.8%, in noninterest-bearing deposits, $16.9 million, or 5.6%, in brokered deposits, $13.1 million, or 30.3%, in savings accounts, and $8.2 million, or 4.3%, in interest-bearing demand deposits.

Total deposits decreased $46.3 million, or 1.4%, to $3.2 billion as of September 30, 2021, compared to $3.3 billion as of December 31, 2020.

This decrease was due primarily to a decline of $245.4 million, or 19.0%, in certificates of deposits, partially offset by increases of $128.8 million, or 9.6%, in money market accounts, $23.6 million, or 54.5%, in savings accounts, $20.5 million, or 6.8%, in brokered deposits, $13.4 million, or 13.8%, in noninterest-bearing deposits, and $12.9 million, or 6.8%, in interest-bearing demand deposits.

The Company experienced strong growth in money market deposit accounts due to targeted digital marketing efforts to grow small business accounts as well as consumers, small business and commercial clients increasing their cash balances in part due to the economic uncertainty resulting from the COVID-19 pandemic.

The decrease in certificates of deposits were due to the maturity of higher cost balances and reduced pricing strategies designed to limit the volume of new production.

The decrease in certificates of deposits was due to the maturity of higher cost balances and reduced pricing strategies designed to limit the volume of new production.

Recent Debt Offerings

1 unchanged sentence

The Notes were offered and sold by the Company in a private placement and are scheduled to mature on November 1, 2030.

The 2030 Notes bear interest at a fixed rate of 6.0% per annum from and including October 26, 2020, to, but excluding, November 1, 2025, and thereafter at a floating interest rate initially equal to the three-month term SOFR plus 5.795%.

The 2030 Notes bear interest at a fixed rate of 6.0% per year from and including October 26, 2020, to, but excluding, November 1, 2025, and thereafter at a floating interest rate initially equal to the three-month term SOFR plus 5.795%.

The 2030 Notes are unsecured subordinated obligations of the Company and may be repaid, without penalty, on any interest payment date on or after November 1, 2025.

1 unchanged sentence

The net proceeds were used to redeem the 2025 Note in January 2021.

In August 2021, the Company issued $60.0 million aggregate principal amount of 3.75% Fixed-to-Floating Rate Subordinated Notes due 2031 (the “2031 Notes”) in a private placement.

The 2031 Notes initially bear a fixed interest rate of 3.75% per year to, but excluding, September 1, 2026, and thereafter a floating rate equal to the then current three-month SOFR, plus 311 basis points.

The 2031 Notes are scheduled to mature on September 1, 2031.

The 2031 Notes are unsecured subordinated obligations of the Company and may be repaid, without penalty, on any interest payment date on or after September 1, 2026.

The 2031 Notes are intended to qualify as Tier 2 capital under regulatory guidelines.

The Company used a portion of the net proceeds from the issuance of the 2031 Notes to redeem the 2026 Notes.

Under the terms of a Registration Rights Agreement between the Company and the initial purchasers of the 2031 Notes, the Company has agreed to take certain actions to provide for the exchange of the 2031 Notes for subordinated notes that are registered under the Securities Act of 1933, as amended, and have substantially the same terms as the 2031 Notes.

Regulatory Capital Requirements

11 unchanged sentences

Failure to maintain the minimum Common Equity Tier 1 capital ratio plus the capital conservation buffer will result in potential restrictions on a banking institution’s ability to pay dividends, repurchase stock and/or pay discretionary compensation to its employees.

The following tables present actual and required capital ratios as of June 30, 2021 and December 31, 2020 for the Company and the Bank under the Basel III Capital Rules.

The minimum required capital amounts presented include the minimum required capital levels as of June 30, 2021 and December 31, 2020 based on the Basel III Capital Rules.

The following tables present actual and required capital ratios as of September 30, 2021 and December 31, 2020 for the Company and the Bank under the Basel III Capital Rules.

The minimum required capital amounts presented include the minimum required capital levels as of September 30, 2021 and December 31, 2020, which are based on the Basel III Capital Rules.

Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.

1 unchanged sentence

(dollars in thousands) Capital Amount Ratio Capital Amount Ratio Capital Amount Ratio

As of June 30, 2021:

As of September 30, 2021:

Common equity tier 1 capital to risk-weighted assets

26 unchanged sentences

Shareholders’ Dividends

The Company’s Board of Directors declared a cash dividend of $0.06 per share of common stock payable July 15, 2021 to shareholders of record as of July 1, 2021.

The Company’s Board of Directors declared a cash dividend of $0.06 per share of common stock payable October 15, 2021 to shareholders of record as of September 30, 2021.

The Company expects to continue to pay cash dividends on a quarterly basis;

however, the declaration and amount of any future cash dividends will be subject to the sole discretion of the Board of Directors and will depend upon many factors, including its results of operations, financial condition, capital requirements, regulatory and contractual restrictions (including with respect to the Company’s outstanding subordinated debt), business strategy and other factors deemed relevant by the Board of Directors, including any potential impact resulting from COVID-19.

As of June 30, 2021, the Company had $72.0 million principal amount of subordinated debt outstanding evidenced by its 6.0% Fixed-to-Floating Rate Subordinated Notes due 2026, the 2029 Notes and the 2030 Notes.

As of September 30, 2021, the Company had $107.0 million principal amount of subordinated debt outstanding evidenced by its 6.0% Fixed-to-Floating Rate Subordinated Notes due 2026, the 2029 Notes, the 2030 Notes, as well as its 3.75% Fixed-to-Floating Rate Subordinated Notes due 2031.

The agreements that govern our outstanding subordinated debt prohibit the Company from paying any dividends on its common stock or making any other distributions to shareholders at any time when there shall have occurred, and be continuing to occur, an event of default under the applicable agreement.

10 unchanged sentences

The Company holds cash and investment securities that qualify as liquid assets to maintain adequate liquidity to ensure safe and sound operations and meet its financial commitments.

Given the uncertainty regarding the duration and ultimate economic effect of COVID-19, we believe it will be prudent to maintain higher levels of cash on the balance sheet than we have historically maintained until the crisis passes.

We believe we have sufficient on-balance sheet liquidity, supplemented by access to additional funding sources, to manage the potential economic impact of COVID-19.

At June 30, 2021, on a consolidated basis, the Company had $992.3 million in cash and cash equivalents and investment securities available-for-sale and $27.6 million in loans held-for-sale that were generally available for its cash needs.

At September 30, 2021, on a consolidated basis, the Company had $1.0 billion in cash and cash equivalents and investment securities available-for-sale and $44.0 million in loans held-for-sale that were generally available for its cash needs.

The Company can also generate funds from wholesale funding sources and collateralized borrowings.

At June 30, 2021, the Bank had the ability to borrow an additional $636.9 million from the FHLB, the Federal Reserve and correspondent bank Fed Funds lines of credit.

At September 30, 2021, the Bank had the ability to borrow an additional $597.9 million from the FHLB, the Federal Reserve and correspondent bank Fed Funds lines of credit.

The Company is a separate legal entity from the Bank and must provide for its own liquidity.

1 unchanged sentence

The Company’s primary sources of funds are cash maintained at the holding company level and dividends from the Bank, the payment of which is subject to regulatory limits.

At June 30, 2021, the Company, on an unconsolidated basis, had $27.7 million in cash generally available for its cash needs, which is in excess of its current annual regular shareholder dividend and operating expenses.

At September 30, 2021, the Company, on an unconsolidated basis, had $58.8 million in cash generally available for its cash needs, which is in excess of its current annual regular shareholder dividend and operating expenses.

The Company uses its sources of funds primarily to meet ongoing financial commitments, including withdrawals by depositors, credit commitments to borrowers, operating expenses and capital expenditures.

At June 30, 2021, approved outstanding loan commitments, including unused lines of credit and standby letters of credit, amounted to $293.1 million.

Certificates of deposits and brokered deposits scheduled to mature in one year or less at June 30, 2021 totaled $779.0 million.

At September 30, 2021, approved outstanding loan commitments, including unused lines of credit and standby letters of credit, amounted to $278.3 million.

Certificates of deposits and brokered deposits scheduled to mature in one year or less at September 30, 2021 totaled $787.0 million.

Management is not aware of any other events or regulatory requirements that, if implemented, are likely to have a material effect on either the Company’s or the Bank’s liquidity.

4 unchanged sentences

Although the Company believes these non-GAAP financial measures provide a greater understanding of its business, they should not be considered a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP financial measures that may be presented by other companies.

Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the following table for the last five completed fiscal quarters and the six months ended June 30, 2021 and 2020.

(dollars in thousands, except share and per share data) Three Months Ended Six Months Ended

(dollars in thousands, except share and per share data) Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 March 31,

1 unchanged sentence

2020 September 30,

2020 June 30,

2021 June 30,

2020 September 30,

2021 September 30,

Total equity - GAAP $ 370,442 $ 358,641 $ 344,566 $ 330,944 $ 318,102 $ 370,442 $ 318,102

4 unchanged sentences

Tangible assets $ 4,247,605 $ 4,199,955 $ 4,183,883 $ 4,241,469 $ 4,328,937 $ 4,247,605 $ 4,328,937

Total common shares outstanding 9,854,153 9,823,831 9,800,569 9,800,569 9,799,047 9,854,153 9,799,047

Common shares outstanding 9,854,153 9,854,153 9,823,831 9,800,569 9,800,569 9,854,153 9,800,569

Book value per common share $ 37.59 $ 36.39 $ 35.07 $ 33.77 $ 32.46 $ 37.59 $ 32.46

3 unchanged sentences

Effect of goodwill (0.10) % (0.10) % (0.11) % (0.10) % (0.10) % (0.10) % (0.10) %

Tangible common equity to tangible assets ratio 8.43 % 8.12 % 7.69 % 7.24 % 7.01 % 8.43 % 7.01 %

Tangible common equity to tangible assets 8.61 % 8.43 % 8.12 % 7.69 % 7.24 % 8.61 % 7.24 %

Total average equity - GAAP $ 366,187 $ 352,894 $ 335,968 $ 323,464 $ 313,611 $ 351,794 $ 310,506

4 unchanged sentences

Return on average tangible common equity 13.27 % 15.09 % 12.79 % 13.84 % 10.83 % 13.73 % 8.02 %

(dollars in thousands, except share and per share data) Three Months Ended Six Months Ended

(dollars in thousands, except share and per share data) Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 March 31,

1 unchanged sentence

2020 September 30,

2020 June 30,

2021 June 30,

2020 September 30,

2021 September 30,

Total interest income $ 33,034 $ 33,377 $ 33,280 $ 33,643 $ 32,750 $ 99,691 $ 103,216

6 unchanged sentences

Net interest income - FTE $ 22,275 $ 23,001 $ 21,881 $ 20,289 $ 17,656 $ 67,156 $ 50,072

Net interest income $ 20,919 $ 21,607 $ 20,525 $ 18,865 $ 16,232 $ 63,051 $ 45,676

Subordinated debt redemption cost 810 — — — — 810 —

Adjusted net interest income $ 21,729 $ 21,607 $ 20,525 $ 18,865 $ 16,232 $ 63,861 $ 45,676

Net interest income $ 20,919 $ 21,607 $ 20,525 $ 18,865 $ 16,232 $ 63,051 $ 45,676

Fully-taxable equivalent adjustments 1

1,356 1,394 1,356 1,400 1,424 4,105 4,396

Subordinated debt redemption cost 810 — — — — 810 —

Adjusted net interest income - FTE $ 23,085 $ 23,001 $ 21,881 $ 20,265 $ 17,656 $ 67,966 $ 50,072

Net interest margin 2.00 % 2.11 % 2.04 % 1.78 % 1.53 % 2.05 % 1.47 %

2 unchanged sentences

Net interest margin - FTE 2.13 % 2.25 % 2.18 % 1.91 % 1.67 % 2.19 % 1.61 %

Net interest margin 2.00 % 2.11 % 2.04 % 1.78 % 1.53 % 2.05 % 1.47 %

Effect of subordinated debt redemption cost 0.08 % — % — % — % — % 0.02 % — %

Adjusted net interest margin 2.08 % 2.11 % 2.04 % 1.78 % 1.53 % 2.07 % 1.47 %

Net interest margin 2.00 % 2.11 % 2.04 % 1.78 % 1.53 % 2.05 % 1.47 %

Effect of fully-taxable equivalent adjustments 0.13 % 0.14 % 0.14 % 0.13 % 0.14 % 0.14 % 0.14 %

Effect of subordinated debt redemption cost 0.08 % — % — % — % — % 0.02 % — %

Adjusted net interest margin - FTE 2.21 % 2.25 % 2.18 % 1.91 % 1.67 % 2.21 % 1.61 %

Allowance for loan losses $ 28,000 $ 28,066 $ 30,642 $ 29,484 $ 26,917 $ 28,000 $ 26,917

6 unchanged sentences

1 Assuming a 21% tax rate

(dollars in thousands, except share and per share data) Three Months Ended Six Months Ended

(dollars in thousands, except share and per share data) Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 March 31,

1 unchanged sentence

2020 September 30,

2020 June 30,

2020 June 30, 2021 June 30,

2020 September 30,

2021 September 30,

Total Revenue- GAAP $ 28,732 $ 30,569 $ 28,900 $ 31,522 $ 28,727 $ 88,201 $ 69,355

Gain on sale of premises and equipment — (2,523) — — — (2,523) —

Adjusted revenue $ 28,046 $ 28,900 $ 31,522 $ 28,727 $ 19,399 $ 56,946 $ 40,628

Subordinated debt redemption cost 810 — — — — 810 —

Adjusted total revenue $ 27,922 $ 28,046 $ 28,900 $ 31,522 $ 28,727 $ 86,488 $ 69,355

Non-interest income - GAAP $ 7,813 $ 8,962 $ 8,375 $ 12,657 $ 12,495 $ 25,150 $ 23,679

Gain on sale of premises and equipment — (2,523) — — — (2,523) —

Adjusted non-interest income $ 7,813 $ 6,439 $ 8,375 $ 12,657 $ 12,495 $ 22,627 $ 23,679

Income before income taxes - GAAP $ 14,310 $ 15,473 $ 12,307 $ 14,145 $ 9,806 $ 42,090 $ 19,752

Write-down of other real estate owned — — — — 2,065 — 2,065

Gain on sale of premises and equipment — (2,523) — — — (2,523) —

Subordinated debt redemption cost 810 — — — — 810 —

Adjusted income before income taxes $ 15,120 $ 12,950 $ 12,307 $ 14,145 $ 11,871 $ 40.377 $ 21,817

Income tax provision (benefit) - GAAP $ 2,377 $ 1,857 $ 3,055 $ 1,395 $ (268) $ 4,234 $ (5)

Income tax provision - GAAP $ 2,220 $ 2,377 $ 1,857 $ 3,055 $ 1,395 $ 6,454 $ 1,390

Write-down of other real estate owned — — — — 434 — 434

Gain on sale of premises and equipment — (530) — — — (530) —

Adjusted income tax provision (benefit) $ 1,847 $ 1,857 $ 3,055 $ 1,395 $ (268) $ 3,704 $ (5)

Subordinated debt redemption cost 170 — — — — 170 —

Adjusted income tax provision $ 2,390 $ 1,847 $ 1,857 $ 3,055 $ 1,829 $ 6,094 $ 1,824

Net income - GAAP $ 12,090 $ 13,096 $ 10,450 $ 11,090 $ 8,411 $ 35,636 $ 18,362

Write-down of other real estate owned — — — — 1,631 — 1,631

Gain on sale of premises and equipment — (1,993) — — — (1,993) —

Subordinated debt redemption cost 640 — — — — 640 —

Adjusted net income $ 12,730 $ 11,103 $ 10,450 $ 11,090 $ 10,042 $ 34,283 $ 19,993

1 unchanged sentence

Diluted earnings per share - GAAP $ 1.21 $ 1.31 $ 1.05 $ 1.12 $ 0.86 $ 3.57 $ 1.87

Effect of write-down of other real estate owned — — — — 0.17 — 0.16

Effect of gain on sale of premises and equipment — (0.20) — — — (0.19) —

Effect of subordinated debt redemption cost 0.06 — — — — 0.06 —

Adjusted diluted earnings per share $ 1.27 $ 1.11 $ 1.05 $ 1.12 $ 1.03 $ 3.44 $ 2.03

(dollars in thousands, except share and per share data) Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 March 31,

2021 December 31,

2020 September 30,

2021 September 30,

Return on average assets 1.12 % 1.25 % 1.02 % 1.02 % 0.78 % 1.13 % 0.58 %

Effect of write-down of other real estate owned 0.00 % 0.00 % 0.00 % 0.00 % 0.15 % 0.00 % 0.05 %

Effect of gain on sale of premises and equipment 0.00 % (0.19) % 0.00 % 0.00 % 0.00 % (0.06) % 0.00 %

Effect of subordinated debt redemption cost 0.06 % 0.00 % 0.00 % 0.00 % 0.00 % 0.02 % 0.00 %

Adjusted return on average assets 1.18 % 1.06 % 1.02 % 1.02 % 0.93 % 1.09 % 0.63 %

Return on average shareholders' equity 13.10 % 14.88 % 12.61 % 13.64 % 10.67 % 13.54 % 7.90 %

Effect of write-down of other real estate owned 0.00 % 0.00 % 0.00 % 0.00 % 2.07 % 0.00 % 0.70 %

Effect of gain on sale of premises and equipment 0.00 % (2.26) % 0.00 % 0.00 % 0.00 % (0.75) % 0.00 %

Effect of subordinated debt redemption cost 0.69 % 0.00 % 0.00 % 0.00 % 0.00 % 0.24 % 0.00 %

Adjusted return on average shareholders' equity 13.79 % 12.62 % 12.61 % 13.64 % 12.74 % 13.03 % 8.60 %

Return on average tangible common equity 13.27 % 15.09 % 12.79 % 13.84 % 10.83 % 13.73 % 8.02 %

Effect of write-down of other real estate owned 0.00 % 0.00 % 0.00 % 0.00 % 2.10 % 0.00 % 0.71 %

Effect of gain on sale of premises and equipment 0.00 % (2.30) % 0.00 % 0.00 % 0.00 % (0.77) % 0.00 %

Effect of subordinated debt redemption cost 0.70 % 0.00 % 0.00 % 0.00 % 0.00 % 0.25 % 0.00 %

Adjusted return on average tangible common equity 13.97 % 12.79 % 12.79 % 13.84 % 12.93 % 13.21 % 8.73 %

Effective income tax rate 15.5 % 15.4 % 15.1 % 21.6 % 14.2 % 15.3 % 7.0 %

Effect of write-down of other real estate owned 0.0 % 0.0 % 0.0 % 0.0 % 1.2 % 0.0 % 1.4 %

Effect of gain on sale of premises and equipment 0.0 % (1.1) % 0.0 % 0.0 % 0.0 % (0.6) % 0.0 %

Effect of subordinated debt redemption cost 0.3 % 0.0 % 0.0 % 0.0 % 0.0 % 0.4 % 0.0 %

Adjusted effective income tax rate 15.8 % 14.3 % 15.1 % 21.6 % 15.4 % 15.1 % 8.4 %

9 unchanged sentences

In June 2020, the Company terminated all fair value hedging instruments associated with loans.

At June 30, 2021 and December 31, 2020, the Company had interest rate swaps with notional amounts of $260.0 million and $298.2 million, respectively.

At September 30, 2021 and December 31, 2020, the Company had interest rate swaps with notional amounts of $260.0 million and $298.2 million, respectively.

Additionally, we enter into forward contracts related to our mortgage banking business to hedge the exposures we have from commitments to extend new residential mortgage loans to our customers and from our mortgage loans held-for-sale.

At June 30, 2021 and December 31, 2020, the Company had commitments to sell residential real estate loans of $46.8 million and $107.5 million, respectively.

At September 30, 2021 and December 31, 2020, the Company had commitments to sell residential real estate loans of $78.6 million and $107.5 million, respectively.

These contracts mature in less than one year.

1 unchanged sentence

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