What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-09 compared with 2022-05-09 · 314 added, 203 removed, 564 unchanged (48% of the section changed)

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

First Internet Bancorp (“we,” “our,” “us,” or the “Company”) is a bank holding company with $4.2 billion in total assets as of March 31, 2022, that conducts its primary business activities through its wholly owned subsidiary, First Internet Bank of Indiana, an Indiana chartered bank (the “Bank”).

First Internet Bancorp (“we,” “our,” “us,” or the “Company”) is a bank holding company with $4.1 billion in total assets as of June 30, 2022, that conducts its primary business activities through its wholly owned subsidiary, First Internet Bank of Indiana, an Indiana chartered bank (the “Bank”).

The Bank was the first state-chartered, Federal Deposit Insurance Corporation (“FDIC”) insured Internet bank and commenced banking operations in 1999.

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On March 21, 2006, we consummated a plan of exchange by which we acquired all of the outstanding shares of the Bank.

The Company has two wholly-owned subsidiaries:

the Bank and FC Subsidiary, Inc., a Georgia corporation, formed in connection with our potential acquisition of First Century Bancorp.

The Bank has three wholly-owned subsidiaries:

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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, franchise finance and commercial deposits and treasury management.

Within CRE banking, we offer single tenant lease financing on a nationwide basis in addition to traditional investor CRE and construction loans primarily within Central Indiana or 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 on a regional basis to commercial borrowers primarily in the Midwest and Southwest regions of the United States.

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

Our C&I team provides credit solutions such as lines of credit, term loans, owner-occupied commercial real estate loans and corporate credit cards on a regional basis to commercial borrowers primarily in the Midwest and Southwest regions of the United States.We primarily offer construction and investor commercial real estate loans within Central Indiana or on a regional basis and single tenant lease financing on a nationwide basis.

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 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.

In the third quarter 2021, Provide Inc.

was acquired by a super-regional financial institution.

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 will decline.

In the third quarter 2021, Provide was acquired by a super-regional financial institution.

Subsequent to Provide being acquired, the acquiring institution has retained most, if not all, of Provide’s loan origination activity and our healthcare finance loan balances have declined.

Our franchise finance business was established in July 2021 in conjunction with our business relationship with ApplePie Capital, a financial technology (“fintech”) company that specializes in providing financing to franchisees in various industry segments.

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We have hired and continue to recruit experienced small business sales, credit and operations personnel to expand our capabilities in small business lending and U.S.

guaranteed lending programs.

government guaranteed lending programs.

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

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Furthermore, we believe partnering with select fintechs will allow us to further diversify our revenue sources, acquire lower-cost deposits and pursue additional asset generation capabilities.

Merger Transaction

On May 1, 2022, First Century Bancorp.

(“First Century”) terminated the previously announced Agreement and Plan of Merger dated November 1, 2021 (the “Merger Agreement”), by and among the Company, FC Subsidiary, Inc.

and First Century.

Under the Merger Agreement, the consummation of the merger was to have occurred on or before April 30, 2022.

The Board of Governors of the Federal Reserve approved the merger on April 29, 2022, but the parties were precluded from closing immediately thereafter due to statutory waiting periods.

The parties were unable to agree on extension terms, and First Century exercised its option to terminate the Merger Agreement.

Results of Operations

During the first quarter 2022, net income was $11.2 million, or $1.14 per diluted share, compared to first quarter 2021 net income of $10.5 million, or $1.05 per diluted share, representing an increase in net income of $0.8 million, or 7.3%, and an increase in diluted earnings per share of $0.09, or 8.6%.

The $0.8 million increase in net income for the first quarter 2022 compared to the first quarter 2021 was due primarily to an increase of $5.2 million, or 25.5%, in net interest income, a decrease of $0.5 million, or 38.0%, in provision for loan losses and a decrease of $0.1 million, or 3.6%, in income tax expense, partially offset by a $3.5 million, or 22.6%, increase in noninterest expense and a decrease of $1.6 million, or 18.6%, in noninterest income.

During the first quarter 2022, return on average assets (“ROAA”), return on average shareholders’ equity (“ROAE”), and return on average tangible common equity (“ROATCE”) were 1.08%, 11.94%, and 12.09%, respectively, compared to 1.02%, 12.61%, and 12.79%, respectively, for the first quarter 2021.

During the first quarter 2022, the Company had a nonrecurring consulting fee associated with a special project of $0.9 million, as well as acquisition-related expenses of $0.2 million.

Excluding these items, adjusted net income for the first quarter 2022 was $12.0 million and adjusted diluted earnings per share was $1.22.

Additionally, for the first quarter 2022, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 1.16%, 12.82% and 12.98%, respectively.

These adjusted profitability ratios improved in the 2022 period compared to the 2021 period, as increases in net income and adjusted net income outpaced average asset growth.

During the second quarter 2022, net income was $9.5 million, or $0.99 per diluted share, compared to second quarter 2021 net income of $13.1 million, or $1.31 per diluted share, representing a decrease in net income of $3.6 million, or 27.1%, and a decrease in diluted earnings per share of $0.32, or 24.4%.

During the six months ended June 30, 2022, net income was $20.8 million, or $2.13 per diluted share, compared to the six months ended June 30, 2021 net income of $23.5 million, or $2.36 per diluted share, resulting in a decrease in net income of $2.8 million, or 11.9%, and a decrease in diluted earnings per share of $0.23, or 9.7%.

The $3.6 million decrease in net income for the second quarter 2022 compared to the second quarter 2021 was due primarily to a decrease of $4.6 million, or 51.9%, in noninterest income, an increase of $2.9 million, or 19.3%, in noninterest expense and an increase of $1.2 million, in provision for loan losses, partially offset by an increase of $4.1 million, or 18.9%, in net interest income, and a decrease of $1.1 million, or 46.2%, in income tax expense.

The $2.8 million decrease in net income for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was due primarily to an increase of $6.4 million, or 21.0% in noninterest expense, a decrease of $6.2 million, or 35.8%, in noninterest income and an increase of $0.7 million, or 52.4%, in provision for loan losses, partially offset by an increase of $9.3 million, or 22.1%, in net interest income and a decrease of $1.2 million, or 27.5%, in income tax expense.

During the second quarter 2022, return on average assets (“ROAA”), return on average shareholders’ equity (“ROAE”), and return on average tangible common equity (“ROATCE”) were 0.93%, 10.23%, and 10.36%, respectively, compared to 1.25%, 14.88%, and 15.09%, respectively, for the second quarter 2021.

During the six months ended June 30, 2022, ROAA, ROAE and ROATCE were 1.01%, 11.09%, and 11.23%, respectively, compared to 1.13%, 13.78%, and 13.97%, respectively, for the six months ended June 30, 2021.

During the second quarter 2022, the Company paid a $0.5 million discretionary inflation bonus to certain employees, recognized accelerated equity compensation expense of $0.3 million related to several retirements and incurred $0.1 million of acquisition-related expenses.

Excluding these items, adjusted net income for the second quarter 2022 was $10.3 million and adjusted diluted earnings per share was $1.06.

Additionally, for the second quarter 2022, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 1.00%, 11.01% and 11.15%, respectively.

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

Excluding this item, adjusted net income for the second quarter 2021 was $11.1 million, or $1.11 per diluted share.

Additionally, for the second quarter 2021, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 1.06%, 12.62% and 12.79%, respectively.

During the six months ended June 30, 2022, the Company recognized a nonrecurring consulting fee associated with a special project of $0.9 million, paid a $0.5 million discretionary inflation bonus to certain employees, recognized accelerated equity compensation expense of $0.3 million related to several retirements and incurred acquisition-related expenses of $0.3 million.

Excluding these items, adjusted net income for the six months ended June 30, 2022 was $22.3 million and adjusted diluted earnings per share was $2.28.

Additionally, for the six months ended June 30, 2022, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 1.08%, 11.92% and 12.07%, respectively.

During the six months ended June 30, 2021, the Company recognized a $2.5 million pre-tax gain on sale of its corporate headquarters.

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

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

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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Three Months Ended

March 31, 2022 December 31, 2021 March 31, 2021

June 30, 2022 March 31, 2022 June 30, 2021

(in thousands) 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.

Six Months Ended

June 30, 2022 June 30, 2021

(in thousands) Average Balance Interest /Dividends Yield /Cost Average Balance Interest /Dividends Yield /Cost

Interest-earning assets

Loans, including

loans held-for-sale $ 2,998,085 $ 65,603 4.41 % $ 3,047,560 $ 61,720 4.08 %

Securities - taxable 555,533 4,788 1.74 % 476,049 3,700 1.57 %

Securities - non-taxable 78,952 577 1.47 % 85,581 540 1.27 %

Other earning assets 388,760 1,172 0.61 % 478,065 697 0.29 %

Total interest-earning assets 4,021,330 72,140 3.62 % 4,087,255 66,657 3.29 %

Allowance for loan losses (28,288) (30,117)

Noninterest-earning assets 163,026 133,074

Total assets $ 4,156,068 $ 4,190,212

Interest-bearing liabilities

Interest-bearing demand deposits $ 333,361 $ 878 0.53 % $ 186,795 $ 276 0.30 %

Savings accounts 63,653 121 0.38 % $ 50,950 89 0.35 %

Money market accounts 1,440,976 3,425 0.48 % 1,393,145 2,853 0.41 %

BaaS - brokered deposits 41,836 160 0.77 % — — 0.00 %

Certificates and brokered deposits 1,164,949 7,921 1.37 % 1,481,667 13,115 1.78 %

Total interest-bearing deposits 3,044,775 12,505 0.83 % 3,112,557 16,333 1.06 %

Other borrowed funds 601,274 8,205 2.75 % 584,268 8,192 2.83 %

Total interest-bearing liabilities 3,646,049 20,710 1.15 % 3,696,825 24,525 1.34 %

Noninterest-bearing deposits 110,605 94,506

Other noninterest-bearing liabilities 21,910 54,403

Total liabilities 3,778,564 3,845,734

Shareholders’ equity

Total liabilities and shareholders’ equity 377,504 344,478

$ 4,156,068 $ 4,190,212

Net interest income

$ 51,430 $ 42,132

Interest rate spread 1

Net interest margin 2

Net interest margin - FTE 3

1 Yield on total interest-earning assets minus cost of total interest-bearing liabilities.

2 Net interest income divided by total average interest-earning assets (annualized).

3 On an FTE basis assuming a 21% tax rate.

Net interest income is adjusted to reflect income from assets such as municipal loans and securities that are exempt from Federal income taxes.

This is to recognize the income tax savings that facilitates a comparison between taxable and tax-exempt assets.

The Company believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully-taxable equivalent basis, as these measures provide useful information to make peer comparisons.

Net interest margin - FTE represents a non-GAAP financial measure.

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

Rate/Volume Analysis

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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.

Three Months Ended March 31, 2022 vs.

December 31, 2021 Due to Changes in Three Months Ended March 31, 2022 vs.

March 31, 2021 Due to Changes in

(in thousands) Volume Rate Net Volume Rate Net

Three Months Ended June 30, 2022 vs.

March 31, 2022 Due to Changes in Three Months Ended June 30, 2022 vs.

June 30, 2021 Due to Changes in Six Months Ended June 30, 2022 vs.

June 30, 2021 Due to Changes in

(in thousands) Volume Rate Net Volume Rate Net Volume Rate Net

Interest income

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(Decrease) increase in net interest income $ 2,387 $ (2,457) $ (70) $ (505) $ 4,578 $ 4,073 $ (2,659) $ 11,957 $ 9,298

Net interest income for the first quarter 2022 was $25.8 million, an increase of $5.2 million, or 25.5%, compared to $20.5 million for the first quarter 2021.

The increase in net interest income was the result of a $2.8 million, or 8.3% increase in total interest income to $36.0 million for the first quarter 2022 from $33.3 million for the first quarter 2021, as well as a $2.5 million, or 19.4%, decrease in total interest expense to $10.3 million for the first quarter 2022 from $12.8 million for the first quarter 2021.

The increase in total interest income for the first quarter 2022 compared to the first quarter 2021 was due to an increase in interest earned on loans, securities and other earning assets.

Interest income earned on loans increased $2.3 million, or 7.5%, due primarily to an increase of 45 basis points (“bps”) in the yield earned on average loan balances, partially offset by a decrease of $103.1 million, or 3.3%, in average loan balances.

The increase in interest income was driven primarily by the recognition of $2.9 million of income from tax refund advance loans, partially offset by lower loan fees.

The decrease in average loan balances was due primarily to decreases in the average balance of healthcare finance, single tenant lease financing, public finance, owner-occupied CRE and small business lending portfolios, driven in part by prepayment activity, partially offset by increases in the average balance of tax refund advance loans, construction, commercial and industrial, and investor CRE loan portfolios.

The increase in loan yield was due to the income received from tax refund advance loans discussed above, as well as a shift in the loan mix towards higher-yielding commercial loans, partially offset by lower average loan balances.

Interest earned on securities increased due primarily to an increase of $100.3 million, or 18.3%, in the average balance of securities and an increase of 2 bps in the yield earned on securities.

Interest income earned on other earning assets increased by less than $0.1 million, or 12.2%, due mainly to a 3 bp increase in the yield earned on these assets, as well as an increase of $9.9 million, or 2.2%, in the average balance of other earning assets.

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

The decrease in total interest expense for the first quarter 2022 compared to the first quarter 2021 was due primarily to a decrease in interest expense related to certificates and brokered deposits, partially offset by increases in interest expense associated with interest-bearing demand deposits, money market accounts and other borrowed funds.

Interest expense on certificates and brokered deposits decreased $2.9 million, or 41.6%, due to a decline of 53 bps in the cost of these deposits, as well as a $293.6 million, or 19.3%, decrease in the average balance of these deposits.

Net interest income for the second quarter 2022 was $25.7 million, an increase of $4.1 million, or 18.9%, compared to $21.6 million for the second quarter 2021.

The increase in net interest income was the result of a $2.7 million, or 8.2% increase in total interest income to $36.1 million for the second quarter 2022 from $33.4 million for the second quarter 2021, as well as a $1.3 million, or 11.4%, decrease in total interest expense to $10.4 million for the second quarter 2022 from $11.8 million for the second quarter 2021.

Net interest income for the six months ended June 30, 2022 was $51.4 million, an increase of $9.3 million, or 22.1%, compared to $42.1 million for the six months ended June 30, 2021.

The increase in net interest income was the result of a $5.5 million, or 8.2%, increase in total interest income to $72.1 million for the six months ended June 30, 2022 from $66.7 million for the six months ended June 30, 2021, as well as a $3.8 million, or 15.6%, decrease in total interest expense to $20.7 million for the six months ended June 30, 2022 from $24.5 million for the six months ended June 30, 2021.

The increase in total interest income for the second quarter 2022 compared to second quarter 2021 was due primarily to a $1.6 million, or 5.1%, increase in interest earned on loans, a $0.7 million, or 32.8%, increase in interest earned on securities and a $0.4 million, or 119.9%, increase in income from other earning assets.

The increase in income from loans was primarily due to a 21 bp increase in the yield earned on loans as the average balance of loans was relatively flat compared to the second quarter 2021.

The average balance of securities increased $45.7 million, or 8.0%, and the yield earned on the securities portfolio increased 35 bps for the second quarter 2022 compared to the second quarter 2021.

In addition, the yield earned on other earning assets increased 71 bps, partially offset by a decrease in the average balance of other earning assets of $187.4 million, or 36.8%.

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

The increase in total interest income from the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was due primarily to a $3.9 million, or 6.3%, increase in interest earned on loans, a $1.1 million, or 26.5%, increase in interest earned on securities and a $0.5 million, or 68.1%, increase in income from other earning assets.

The increase in income from loans was due primarily to a 33 bp increase in the yield earned on loans, partially offset by a $49.5 million, or 1.6%, decrease in the average balance of loans.

The average balance of securities increased $72.9 million, or 13.0%, and the yield earned on the securities portfolio increased 19 bps for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

In addition, the yield earned on other earning assets increased 32 bps, partially offset by a decrease in the average balance of other earning assets of $89.3 million, or 18.7%.

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

The decrease in total interest expense for the second quarter 2022 compared to the second quarter 2021 was due primarily to a $2.3 million, or 37.2%, decrease in interest expense related to certificates and brokered deposits, partially offset by an increase of $0.5 million, or 31.4%, in interest expense associated with money market accounts and a $0.3 million, or 225.9%, increase in interest expense associated with interest-bearing demand deposits.

Additionally, the Company added Banking-as-a-service deposits in 2022, which increased interest expense by $0.2 million.

Interest expense on certificates and brokered deposits decreased due to a decline of 30 bps in the cost of these deposits, as well as a $339.6 million, or 23.5%, decrease in the average balance of these deposits.

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 increase in interest expense related to interest-bearing demand deposits was due primarily to approximately $100.0 million in deposits with a contractual term of five years and a fixed rate of 1.15% pursuant to a new customer relationship.

The $0.1 million, or 8.1%, increase in interest expense related to money market accounts was driven primarily by an increase of $84.8 million, or 6.2%, in the average balance of these deposits.

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 an increase of $34.2 million, or 48.8%, in the average balance of subordinated debt, partially offset by a 213 bp decrease in the cost of subordinated debt resulting from the issuance of the 2031 Notes and the redemption of the 2026 Notes.

Overall, the cost of total interest-bearing liabilities for the first quarter 2022 declined 27 bps to 1.13% from 1.40% for the first quarter 2021.

Declines in the cost of funds were due mainly to higher cost certificates and brokered deposits maturing without renewal or being renewed at lower rates.

Furthermore, a shift in the deposit composition from 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 2.56% for the first quarter 2022 compared to 2.04% for the first quarter 2021, an increase of 52 bps.

On a fully-taxable equivalent (“FTE”) basis, NIM was 2.69% for the first quarter 2022 compared to 2.18% for the first quarter 2021, an increase of 51 bps.

The increase in first quarter 2022 NIM and FTE NIM compared to the first quarter 2021 reflects the decrease in the cost of funds and increase in earning asset yields noted above.

The Company expects deposit costs to remain relatively stable for most of 2022.

Given the significant on-balance sheet liquidity across the industry, we don’t believe increases in market interest rates will have a significant impact on our deposit pricing in the near term.

The increase in interest expense related to money market accounts was driven primarily by an increase of 13 bps in the cost of these deposits, as well as an increase in the average balance of these deposits of $11.3 million, or 0.8%.

The decrease in total interest expense for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was driven primarily by a $5.2 million, or 39.6%, decrease in interest expense related to certificates and brokered deposits, partially offset by a $0.6 million, or 218.1%, increase in interest expense associated with interest-bearing demand deposits and a $0.6 million, or 20.1%, increase in interest expense associated with money market accounts.

Additionally, the Company added Banking-as-a-service deposits in 2022, which increased interest expense by $0.2 million.

Interest expense on certificates and brokered deposits decreased due to a decline of 41 bps in the cost of these deposits, as well as a $316.7 million, or 21.4%, decrease in average balance of these deposits.

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 increase in interest expense related to money market accounts was driven primarily by an increase of 7 bps in the cost of these deposits, as well as an increase in the average balance of these deposits of $47.8 million, or 3.4%.

Overall, the cost of total interest-bearing liabilities for the second quarter 2022 declined 12 bps to 1.16% from 1.28% for the second quarter 2021.

Additionally, the cost of total interest-bearing liabilities for the six months ended June 30, 2022 declined 23 bps to 1.15% from 1.34% for the six months ended June 30, 2021.

The decline in the cost of funds for both the second quarter 2022 and the six months ended June 30, 2022 reflects the net maturities of higher cost certificates and brokered deposits and the continued shift in the deposit composition from certificates and brokered deposits to lower cost non-maturity deposit accounts.

Net interest margin (“NIM”) was 2.60% for the second quarter 2022 compared to 2.11% for the second quarter 2021, an increase of 49 bps.

On a fully-taxable equivalent (“FTE”) basis, NIM was 2.74% for the second quarter 2022 compared to 2.25% for the second quarter 2021, an increase of 49 bps.

The increase in second quarter 2022 NIM and FTE NIM compared to the second quarter 2021 reflects the decrease in the cost of funds and increase in earning asset yields noted above.

NIM was 2.58% for the six months ended June 30, 2022 compared to 2.08% for the six months ended June 30, 2021, and increase of 50 bps.

On a fully-taxable equivalent basis, NIM was 2.71% for the six months ended June 30, 2022, compared to 2.21% for the six months ended June 30, 2021, an increase of 50 bps.

The increase in NIM for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 reflects the decrease in the cost of funds and increase in earning asset yields noted above.

Noninterest Income

The following table presents noninterest income for the last five completed fiscal quarters.

Three Months Ended

(in thousands) March 31,

The following table presents noninterest income for the last five completed fiscal quarters and the six months ended June 30, 2022 and 2021.

Three Months Ended Six Months Ended

(in thousands) June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

2021 June 30,

2022 June 30,

Service charges and fees $ 281 $ 316 $ 292 $ 276 $ 280 $ 597 $ 546

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Total noninterest income $ 4,314 $ 6,820 $ 7,694 $ 7,813 $ 8,962 $ 11,134 $ 17,337

During the first quarter 2022, noninterest income was $6.8 million, representing a decrease of $1.6 million, or 18.6%, compared to $8.4 million for the first quarter 2021.

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

The decline in mortgage banking revenue in the first quarter 2022 compared to the first quarter 2021 was due primarily to decreases in interest rate locks, sold loan volumes and gain on sale margins.

During the second quarter 2022, noninterest income was $4.3 million, representing a decrease of $4.6 million, or 51.9%, compared to $9.0 million for the second quarter 2021.

The decrease in noninterest income was due to a $2.5 million gain on sale of premises and equipment resulting from the sale of the Company’s former headquarters in the second quarter 2021, as well as a decrease of $1.1 million, or 35.3%, in gain on sale of loans and a decrease of $1.0 million, or 36.1%, in revenue from mortgage banking activities during the second quarter 2022 compared to the second quarter 2021.

The decrease in gain on sale on loans was due to a decrease in the volume of U.S.

SBA 7(a) guaranteed loan sales, as well as lower net gain on sale premiums.

The decline in mortgage banking revenue was due primarily to decreases in interest rate locks, sold loan volumes and gain-on-sale margins.

During the six months ended June 30, 2022, noninterest income was $11.1 million, a decrease of $6.2 million, or 35.8%, compared to $17.3 million for the six months ended June 30, 2021.

The decrease in noninterest income was due primarily to a decrease in mortgage banking revenue of $4.8 million, or 57.5%, and a $2.5 million gain on sale of premises and equipment resulting from the sale of the Company’s former headquarters in the second quarter 2021, partially offset by a $1.1 million, or 22.2%, increase in gain on sale of loans.

The decrease in mortgage banking activities was due mainly to a decrease in interest rate locks, sold loan volume and gain-on-sale margins.

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

SBA 7(a) guaranteed loan sales, as well as a $0.4 million gain on sale on the sale of $14.4 million of single tenant lease financing loans.

SBA 7(a) guaranteed loan sales, as well as a $0.4 million gain on the sale of $14.4 million of single tenant lease financing loans in 2022.

Noninterest Expense

The following table presents noninterest expense for the last five completed fiscal quarters.

Three Months Ended

(in thousands) March 31,

The following table presents noninterest expense for the last five completed fiscal quarters and the six months ended June 30, 2022 and 2021.

Three Months Ended Six Months Ended

(in thousands) June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

2021 June 30,

2022 June 30,

Salaries and employee benefits $ 10,832 $ 9,878 $ 10,183 $ 9,316 $ 9,232 $ 20,710 $ 18,724

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Total noninterest expense $ 17,985 $ 18,780 $ 16,955 $ 14,451 $ 15,075 $ 36,765 $ 30,392

Noninterest expense for the first quarter 2022 was $18.8 million, compared to $15.3 million for the first quarter 2021.

The increase of $3.5 million, or 22.6%, was due primarily to increases of $1.0 million in loan expenses, $0.9 million in premises and equipment, $0.9 million in consulting and professional services, $0.4 million in salaries and employee benefits and $0.2 million in other expense.

The increase in loan expenses was driven primarily by servicing fees related to tax refund advance loans.

The increase in premises and equipment was primarily related to costs associated with the Company’s new corporate headquarters.

The increase in consulting and professional services was due primarily to a nonrecurring consulting fee and acquisition-related expenses.

The increase in salaries and employee benefits was due mainly to increased headcount and small business lending incentive compensation, partially offset by a decrease in mortgage banking incentive compensation and lower employee benefits costs.

Income tax provision was $1.8 million for the first quarter 2022, resulting in an effective tax rate of 13.8%, compared to a tax provision of $1.9 million for the first quarter 2021 and an effective tax rate of 15.1%.

Noninterest expense for the second quarter 2022 was $18.0 million, compared to $15.1 million for the second quarter 2021.

The increase of $2.9 million, or 19.3%, was due primarily to increases of $1.6 million in salaries and employee benefits, $0.8 million in premises and equipment and $0.2 million in loan expenses.

The higher salaries and employee benefits expense was due mainly to a $0.5 million discretionary inflation bonus paid to certain employees, $0.3 million of accelerated equity compensation related to employees who retired during the quarter and an increase in headcount, partially offset by lower incentive compensation due to decreased mortgage origination volume.

The increase in premises and equipment was primarily related to costs associated with the Company’s new corporate headquarters, as well as investments in technology and software maintenance expense.

The increase in loan expenses was due mainly to servicing fees related to franchise finance loans.

Noninterest expense for the six months ended June 30, 2022 was $36.8 million, compared to $30.4 million for the six months ended June 30, 2021.

The increase of $6.4 million, or 21.0%, was due primarily to increases of $2.0 million in salaries and employee benefits, $1.8 million in premises and equipment, $1.2 million in loan expenses, $1.1 million in consulting and professional fees and $0.3 million in other expense.

The higher salaries and employee benefits expense was due primarily to an increase in headcount, as well as the discretionary inflation bonus and accelerated equity compensation mentioned above, partially offset by lower incentive compensation due to decreased mortgage origination volume.

The increase in premises and equipment was due mainly to costs associated with the Company’s new corporate headquarters, as well as investments in technology and software maintenance expense.

The increase in loan expenses was due primarily to servicing fees related to tax refund advance loans and franchise finance loans.

The increase in consulting and professional fees was due primarily to a $0.9 million consulting fee associated with a special project.

Income tax provision was $1.3 million for the second quarter 2022, resulting in an effective tax rate of 11.8%, compared to a tax provision of $2.4 million for the second quarter 2021 and an effective tax rate of 15.4%.

Income tax provision was $3.1 million for the six months ended June 30, 2022, resulting in an effective tax rate of 12.9%, compared to an income tax provision of $4.2 million, or an effective tax rate of 15.2%, for the six months ended June 30, 2021.

The lower income tax provision and effective tax rate during the three and six months ended June 30, 2022 is the result of the decline in noninterest income, resulting in a higher proportion of tax exempt income to total pre-tax income.

Financial Condition

2 unchanged sentences

Balance Sheet Data:

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

Total assets $ 4,099,806 $ 4,225,397 $ 4,210,994 $ 4,252,292 $ 4,204,642

7 unchanged sentences

Total shareholders’ equity 365,332 374,655 380,338 370,442 358,641

Total assets increased $14.4 million, or 0.3%, to $4.2 billion at March 31, 2022 compared to $4.2 billion at December 31, 2021.

As of March 31, 2022, total shareholders’ equity was $374.7 million, a decrease of $5.7 million, or 1.5%, compared to December 31, 2021, due primarily to an increase in accumulated other comprehensive loss resulting from a decline in the value of the available-for-sale securities portfolio following the rapid rise in interest rates during the quarter, as well as stock repurchase activity during the quarter.

This was partially offset by the net income earned during the quarter and an increase in the value of interest rate swaps classified as cash flow hedges.

Tangible common equity totaled $370.0 million as of March 31, 2022, representing a decrease of $5.7 million, or 1.5%, compared to December 31, 2021.

The ratio of total shareholders’ equity to total assets decreased to 8.87% as of March 31, 2022 from 9.03% as of December 31, 2021, and the ratio of tangible common equity to tangible assets decreased to 8.77% as of March 31, 2022 from 8.93% as of December 31, 2021.

Book value per common share decreased 0.8% to $38.69 as of March 31, 2022 from $38.99 as of December 31, 2021.

Tangible book value per share decreased 0.8% to $38.21 as of March 31, 2022 from $38.51 as of December 31, 2021.

The decline in both book value per common share and tangible book value per share reflects the decline in total shareholders’ equity and tangible common equity.

Total assets decreased $111.2 million, or 2.6%, to $4.1 billion at June 30, 2022 compared to $4.2 billion at December 31, 2021.

The decrease is due primarily to decreases in cash balances and the fair value of total securities balances, partially offset by an increase in loan balances.

As of June 30, 2022, total shareholders’ equity was $365.3 million, a decrease of $15.0 million, or 3.9%, compared to December 31, 2021, due primarily to stock repurchase activity and an increase in accumulated other comprehensive loss resulting from a decline in the value of the available-for-sale securities portfolio caused by the continued rise in interest rates during the year.

This was partially offset by the net income earned during the year and an increase in the value of interest rate swaps classified as cash flow hedges.

Tangible common equity totaled $360.6 million as of June 30, 2022, representing a decrease of $15.0 million, or 4.0%, compared to December 31, 2021.

The ratio of total shareholders’ equity to total assets decreased to 8.91% as of June 30, 2022 from 9.03% as of December 31, 2021, and the ratio of tangible common equity to tangible assets decreased to 8.81% as of June 30, 2022 from 8.93% as of December 31, 2021.

Book value per common share decreased 0.4% to $38.85 as of June 30, 2022 from $38.99 as of December 31, 2021.

Tangible book value per share decreased 0.4% to $38.35 as of June 30, 2022 from $38.51 as of December 31, 2021.

decline in both book value per common share and tangible book value per share reflects the declines in total shareholders’ equity and tangible common equity.

1 unchanged sentence

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

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

Commercial loans

20 unchanged sentences

Net loans $ 3,052,974 $ 2,852,529 $ 2,859,821 $ 2,908,148 $ 2,929,542

(1) Includes carrying value adjustments of $36.4 million, $37.5 million, $38.9 million, $40.4 million and $41.6 million related to terminated interest rate swaps associated with public finance loans as of March 31, 2022, December 31, 2021, September 30, 2021, June 30, 2021, and March 31, 2021, respectively.

Total loans were $2.9 billion as of March 31, 2022, a decrease of $6.9 million, or 0.2%, compared to December 31, 2021.

Total commercial loan balances were $2.3 billion as of March 31, 2022, down $23.8 million, or 1.0%, from December 31, 2021.

Total consumer loan balances were $488.8 million as of March 31, 2022, an increase of $18.8 million, or 4.0%, compared to December 31, 2021.

Compared to December 31, 2021, the decline in commercial loan balances was driven largely by net payoffs in healthcare finance, small business lending, which included PPP repayment as well as some prepayments and sales of seasoned loans, owner-occupied commercial real estate and public finance loans, as well as the sale of $14.4 million of single tenant lease financing loans.

This decline was partially offset by growth in franchise finance, construction, investor commercial real estate and commercial and industrial loan balances.

The increase in consumer loans was due to higher balances in the residential mortgage, recreational vehicles and trailers loan portfolios, as well as the remaining outstanding balance of tax refund advance loans originated during the first quarter 2022.

(1) Includes carrying value adjustments of $35.4 million, $36.4 million, $37.5 million, $38.9 million and $40.4 million related to terminated interest rate swaps associated with public finance loans as of June 30, 2022, March 31, 2022, December 31, 2021, September 30, 2021, and June 30, 2021, respectively.

Total loans were $3.1 billion as of June 30, 2022, an increase of $194.5 million, or 6.7%, compared to December 31, 2021.

Total commercial loan balances were $2.4 billion as of June 30, 2022, up $73.9 million, or 3.1%, from December 31, 2021.

Total consumer loan balances were $594.0 million as of June 30, 2022, an increase of $124.1 million, or 26.4%, compared to December 31, 2021.

Compared to December 31, 2021, the increase in commercial loan balances was driven by growth in franchise finance, investor commercial real estate, public finance, commercial and industrial and construction loan balances.

The increase was partially offset by payoffs in healthcare finance, small business lending, and owner-occupied commercial real estate loans.

The increase in consumer loans was due to higher balances in the residential mortgage, recreational vehicles and trailers loan portfolios.

Franchise finance was established in July 2021 in partnership 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 2021 and as of March 31, 2022, we have funded a total of $107.4 million in loans.

Also, the Company funded $184.2 million of tax refund advance loans during the first quarter of 2022 and received repayments of $173.6 million.

At quarter end, $9.2 million of balances remained outstanding on the tax refund advance loans.

Through this relationship, we have funded $173.8 million in total originations through June 30, 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) March 31,

(dollars in thousands) June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

Nonaccrual loans

13 unchanged sentences

Past Due 90 days and accruing loans

Commercial loans:

Commercial and industrial — — — — 278

Total commercial loans — — — — 278

Total past due 90 days and accruing loans — — — — —

17 unchanged sentences

2 Includes the impact of nonperforming small business lending loans, which are guaranteed by the U.S.

Total nonperforming loans declined $2.9 million, or 38.8%, to $4.5 million as of June 30, 2022 compared to $7.4 million as of December 31, 2021 due primarily to upgrades and payoffs in the owner-occupied commercial real estate and commercial and industrial loan portfolios.

Total nonperforming assets declined $4.1 million, or 47.2%, as of June 30, 2022, compared to December 31, 2021, due primarily to the upgrades and payoffs discussed above as well as the decline in other real estate owned (“OREO”) discussed below.

Troubled Debt Restructurings

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

(in thousands) March 31,

(in thousands) June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

Troubled debt restructurings – nonaccrual $ 2,389 $ 2,440 $ 2,492 $ 2,550 $ 2,581

1 unchanged sentence

Total troubled debt restructurings $ 4,814 $ 4,858 $ 4,185 $ 3,393 $ 3,760

The decline in nonperforming loans of $0.3 million, or 4.3%, to $7.1 million as of March 31, 2022 compared to $7.4 million as of December 31, 2021 was due primarily to repayment activity in the small business lending, owner-occupied commercial real estate and commercial and industrial loan portfolios.

Total nonperforming assets decreased $1.5 million, or 17.8%, as of March 31, 2022 compared to December 31, 2021, due primarily to the $0.3 million decrease in nonperforming loans discussed above, as well as the decline in other real estate owned (“OREO”) discussed below.

The ratio of nonperforming loans to total loans decreased to 0.25% as of March 31, 2022 compared to 0.26% as of December 31, 2021, and the ratio of nonperforming assets to total assets decreased to 0.17% as of March 31, 2022 compared to 0.20% as of December 31, 2021.

Total TDRs as of March 31, 2022 were $4.9 million, up $0.7 million from December 31, 2021.

The increase was driven by one residential mortgage loan that became a TDR during the first quarter 2022.

Total TDRs as of June 30, 2022 were $4.8 million, up $0.6 million from December 31, 2021.

The increase was driven by one residential mortgage loan that became a TDR in 2022.

As of June 30, 2022, the Company did not own any OREO.

As of December 31, 2021, the Company had one single tenant lease financing property in OREO with a carrying value of $1.2 million.

During the first quarter 2022, the Company reached a settlement agreement with the guarantor, which resulted in the Company recovering $1.2 million in excess of the carrying value of OREO.

As of March 31, 2022, the Company did not own any OREO.

Non-TDR Loan Modifications due to COVID-19

4 unchanged sentences

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

As of March 31, 2022, the Company had seven loans totaling $9.8 million in non-TDR loan modifications due to COVID-19.

As of June 30, 2022, the Company had one loan totaling $8.0 million in non-TDR loan modifications due to COVID-19.

Small Business Administration Paycheck Protection Program

Section 1102 of the CARES Act created the PPP, which is jointly administered by the U.S.

Small Business Administration (“SBA”) and the Department of the Treasury.

Section 1102 of the CARES Act created the PPP, which is jointly administered by the SBA and the Department of the Treasury.

The PPP is designed to provide a direct incentive to small businesses to retain employees on their payroll during COVID-19 as well as to help cover certain utility costs and rent payments.

6 unchanged sentences

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

These loans may be forgiven if certain conditions are satisfied and

are fully guaranteed by the SBA.

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

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 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 99% of loan balances have been forgiven as of March 31, 2022.

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 2022.

The following table provides a rollforward of the activity of PPP loans through March 31, 2022.

(in thousands) Number of Loans Principal Balance Net Deferred Fees

The Company began processing applications for forgiveness from this round beginning in May 2021 and 99% of loan balances have been forgiven as of June 30, 2022.

The following table provides a rollforward of the activity of PPP loans through June 30, 2022.

(in thousands, except Number of Loans) Number of Loans Principal Balance Net Deferred Fees

Originated 447 $ 58,336 $ 1,851

10 unchanged sentences

Balance, March 31, 2022 5 $ 1,003 $ 24

Originated — — —

Principal repaid (3) (809)

Net deferred fees recognized (19)

Balance, June 30, 2022 2 $ 194 $ 5

Allowance for Loan Losses

The following table provides a rollforward of the allowance for loan losses for the last five completed fiscal quarters.

Three Months Ended

(in thousands) March 31,

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, 2022 and 2021.

Three Months Ended Six Months Ended

(in thousands) June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

2021 June 30,

2022 June 30,

Balance, beginning of period $ 28,251 $ 27,841 $ 28,000 $ 28,066 $ 30,642 $ 27,841 $ 29,484

28 unchanged sentences

Total consumer net charge-offs (recoveries) 0.11 % 1.18 % (0.02 %) 0.05 % 0.04 % 0.71 % 0.07 %

Total net charge-offs (recoveries), excluding tax refund advance loans (0.16 %) (0.01 %) 0.01 % 0.35 % 0.02 %

The allowance for loan losses was $28.3 million as of March 31, 2022, compared to $27.8 million as of December 31, 2021.

The allowance for loan losses as a percentage of total loans, including and excluding PPP loans, was 0.98% at March 31, 2022, compared to 0.96%, or 0.97% when excluding PPP loans, at December 31, 2021.

The allowance for loan losses as a percentage of nonperforming loans increased to 398.8% as of March 31, 2022, compared to 376.2% as of December 31, 2021.

Net charge-offs of $0.4 million were recognized during the first quarter 2022, resulting in net charge-offs to average loans of 0.05%, compared to net charge-offs to average loans of 0.02% for the first quarter 2021.

Excluding $1.5 million of net charge-offs related to tax refund advance loans, net recoveries of $1.1 million were recognized during the first quarter 2022, resulting in net recoveries to average loans of 0.16%.

The provision for loan losses in the first quarter 2022 was $0.8 million, compared to $1.3 million for the first quarter 2021.

The provision for the first quarter 2022 was driven by the provision related to tax refund advance loans, which totaled $1.8 million, and, to a lesser extent, adjustments to qualitative factors that increased the overall allowance as a percentage of

This was partially offset by a $1.2 million recovery on a single tenant lease financing relationship that previously had been partially charged-off with the remaining balance transferred to other real estate owned.

Total net charge-offs (recoveries) to average loans 0.04 % 0.05 % (0.01 %) 0.01 % 0.35 % 0.05 % 0.18 %

Total net (recoveries) charge-offs, excluding tax refund advance loans (0.01 %) (0.16 %) (0.01 %) 0.01 % 0.35 % (0.08) % 0.18 %

The allowance for loan losses was $29.2 million as of June 30, 2022, compared to $27.8 million as of December 31, 2021.

The allowance for loan losses as a percentage of total loans, including and excluding PPP loans, was 0.95% at June 30,

2022, compared to 0.96%, or 0.97% when excluding PPP loans, at December 31, 2021.

The allowance for loan losses as a percentage of nonperforming loans increased to 644.0% as of June 30, 2022, compared to 376.2% as of December 31, 2021.

Net charge-offs of $0.3 million were recognized during the second quarter 2022, resulting in net charge-offs to average loans of 0.04%, compared to net charge-offs to average loans of 0.35% for the second quarter 2021.

Excluding net charge-offs related to tax refund advance loans, net recoveries of $0.1 million were recognized during the second quarter 2022, resulting in net recoveries to average loans of 0.01%.

The provision for loan losses in the second quarter 2022 was $1.2 million, compared to $21 thousand for the second quarter 2021.

The provision for the second quarter 2022 was driven primarily by growth in the loan portfolio.

Investment Securities Portfolio

1 unchanged sentence

(in thousands)

Amortized Cost March 31,

Amortized Cost June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

Securities available-for-sale

15 unchanged sentences

(in thousands)

Approximate Fair Value March 31,

Approximate Fair Value June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

Securities available-for-sale

14 unchanged sentences

Total securities $ 599,508 $ 625,259 $ 664,512 $ 698,344 $ 731,577

The approximate fair value of available-for-sale investment securities decreased $137.8 million, or 22.8%, to $465.3 million as of March 31, 2022, compared to $603.0 million as of December 31, 2021.

The decrease was due primarily to a decrease of $115.6 million in agency mortgage-backed securities - residential, a decrease of $12.2 million in agency mortgage-

backed securities - commercial and a decrease of $5.2 million in U.S.

The approximate fair value of available-for-sale investment securities decreased $177.6 million, or 29.4%, to $425.5 million as of June 30, 2022, compared to $603.0 million as of December 31, 2021.

The decrease was due primarily to decreases of $135.7 million in agency mortgage-backed securities - residential, $14.1 million in agency mortgage-backed securities - commercial, $9.1 million in municipal securities and $9.0 million in U.S.

Government-sponsored agencies.

The decrease in agency mortgage-backed securities - residential and agency mortgage-backed securities - commercial was due primarily to the transfer of $96.2 million of these securities from available-for-sale to held-to-maturity in the first quarter 2022, as well as a decline in fair value resulting from the rapid rise in interest rates during the quarter.

The decreases in other securities types were also driven by a decline in value resulting from the rapid rise in interest rates.

The decreases in other securities types were also driven by a decline in value resulting from the continued rise in interest rates.

Accrued Income and Other Assets

Accrued income and other assets decreased $12.4 million, or 26.4%, to $34.5 million at March 31, 2022 compared to $46.9 million at December 31, 2021.

The decrease was primarily related to a decrease of $12.9 million in cash pledged as collateral.

As of these dates, the Company pledged $2.7 million and $15.7 million, respectively, of cash collateral to counterparties on interest rate swap agreements as security for its obligations related to these agreements.

Accrued income and other assets decreased $12.5 million, or 26.7%, to $34.3 million at June 30, 2022 compared to $46.9 million at December 31, 2021.

The decrease was primarily related to a decrease of $15.7 million in cash pledged as collateral, partially offset by an increase of $3.9 million in income tax receivable.

As of June 30, 2022 the Company had no pledged cash collateral compared to $15.7 million, as of December 31, 2021.

Cash collateral is pledged to counterparties on interest rate swap agreements as security for its obligations related to these agreements.

Collateral posted and received is dependent on the fair value of the underlying agreements as of the respective date.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities were $12.0 million at March 31, 2022 compared to $30.5 million at December 31, 2021.

The decrease in accrued expenses and other liabilities was due primarily to decreases of $11.4 million, or 79.6%, in derivative liabilities, a $3.8 million decrease in accrued taxes payable and a $2.3 million decrease in accrued bonuses.

Accrued expenses and other liabilities decreased $19.5 million, or 63.8%, to $11.1 million at June 30, 2022, compared to $30.5 million at December 31, 2021.

The decrease in accrued expenses and other liabilities was due primarily to decreases of $14.3 million, or 100.0%, in derivative liabilities, $1.9 million, or 0.4%, in accrued salary and benefits and $3.9 million in accrued taxes, partially offset by an increase in other liabilities.

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

(dollars in thousands) March 31,

(dollars in thousands) June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

Noninterest-bearing deposits $ 126,153 4.0 % $ 119,197 3.7 % $ 117,531 3.7 % $ 110,117 3.4 % $ 113,996 3.6 %

6 unchanged sentences

Total deposits $ 3,152,101 100.0 % $ 3,217,979 100.0 % $ 3,178,959 100.0 % $ 3,224,595 100.0 % $ 3,206,147 100.0 %

Total deposits increased $39.0 million, or 1.2%, to $3.2 billion as of March 31, 2022, compared to $3.2 billion as of December 31, 2021.

This increase was due primarily to an increase of $86.8 million, or 35.0%, in interest-bearing demand deposits, $50.0 million in BaaS brokered deposits, and $6.3 million, or 10.5%, in savings accounts, partially offset by decreases of $80.3 million, or 8.3%, in certificates of deposits, $17.3 million, or 5.8%, in brokered deposits, and $8.1 million, or 0.5%, in money market accounts.

The increase in the balance of interest-bearing demand deposits was due primarily to approximately $100 million in deposits with a contractual term of five years and a fixed rate of 1.15% pursuant to a new customer relationship.

Additionally, the Company generated $50.0 million of new BaaS deposits during the quarter at a cost of 0.20%.

Aside from these two new deposit relationships, the balance and cost of non-maturity deposits remained relatively stable from the end of 2021.

Total deposits decreased $26.9 million, or 0.8%, to $3.2 billion as of June 30, 2022, compared to $3.2 billion as of December 31, 2021.

This decrease was due primarily to decreases of $169.5 million, or 17.5%, in certificates of deposits, $120.5 million, or 8.1%, in money market accounts and $47.5 million, or 15.9%, in brokered deposits, partially offset by increases of $194.1 million, in BaaS - brokered deposits, $102.6 million, or 41.4%, in interest-bearing demand deposits, and $8.6 million, or 7.3%, in noninterest-bearing deposits.

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

The decrease in money market accounts was due primarily to certain customer activity that can be periodically volatile.

The decrease in brokered deposits was due to the maturity of higher-cost balances.

The increase in BaaS deposits was due to a relationship established in the first quarter 2022 that grew during the second quarter 2022.

The increase in the balance of interest-bearing demand deposits was due primarily to a new customer relationship with approximately $100.0 million in deposits with a contractual term of five years and a fixed rate of 1.15%.

Recent Debt Offerings

4 unchanged sentences

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.

Pursuant to the terms of a Registration Rights Agreement between the Company and the initial purchasers of the 2031 Notes, the Company offered to exchange 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.

The offering period to exchange the unregistered 2031 Notes for registered 2031 Notes expired on December 30, 2021.

On December 30, 2021, the Company completed an exchange of $59.3 million principal amount of the unregistered 2031 Notes for registered 2031 Notes in satisfaction of its obligations under the registration rights agreement.

Holders of $0.7 million of unregistered 2031 Notes did not participate in the exchange.

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 March 31, 2022 and December 31, 2021 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 March 31, 2022 and December 31, 2021, which are based on the Basel III Capital Rules.

The following tables present actual and required capital ratios as of June 30, 2022 and December 31, 2021 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, 2022 and December 31, 2021, 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 March 31, 2022:

As of June 30, 2022:

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 April 18, 2022 to shareholders of record as of March 31, 2022.

The Company’s Board of Directors declared a cash dividend of $0.06 per share of common stock payable July 15, 2022 to shareholders of record as of July 1, 2022.

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.

As of March 31, 2022, the Company had $107.0 million principal amount of subordinated debt outstanding evidenced by its 2029 Notes, 2030 Note and 2031 Notes.

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 the Company’s 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.

As of June 30, 2022, the Company had $107.0 million principal amount of subordinated debt outstanding evidenced by the 2029 Notes, 2030 Note and 2031 Notes.

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.

1 unchanged sentence

Capital Resources

The Company believes it has sufficient liquidity and capital resources to meet its cash and capital expenditure requirements for at least the next twelve months.

The Company believes it has sufficient liquidity and capital resources to meet its cash and capital expenditure requirements for the next twelve months and longer.

The Company may explore strategic alternatives, including additional asset, deposit or revenue generation channels that complement our commercial and consumer banking platforms, which may require additional capital.

1 unchanged sentence

On October 20, 2021, the Company’s Board of Directors approved a stock repurchase program authorizing the repurchase of up to $30 million of the Company’s outstanding common stock from time to time on the open market or in privately negotiated transactions.

The Company repurchased 100,000 shares under this program during 2021 and 103,703 shares under this program during the first quarter 2022.

Under this program, the Company repurchased 100,000 shares at a total cost of $4.4 million during 2021, 103,703 shares at a total cost of $5.1 million during the first quarter 2022 and 294,464 shares at a total cost of $11.1 million during the second quarter 2022.

The stock repurchase authorization is scheduled to expire on December 31, 2022.

Various factors determine the amount and timing of our share repurchases, including our capital requirements, the number of shares we expect to issue in the future, economic and market conditions (including the trading price of our stock), and regulatory and legal considerations.

Various factors determine the amount and timing of our share repurchases, including our capital requirements, organic growth and other strategic opportunities, economic and market conditions (including the trading price of our stock), and regulatory and legal considerations.

See Part II, Item 2, of this report for information regarding recent repurchase activity and our remaining authority under the program.

3 unchanged sentences

While scheduled payments and maturities of loans and investment securities are relatively predictable sources of funds, deposit flows are greatly influenced by interest rates, general economic conditions and competition.

Therefore, the Company supplements deposit growth and enhances interest rate risk management through borrowings and wholesale funding, which are generally advances from the FHLB and brokered deposits.

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.

At March 31, 2022, on a consolidated basis, the Company had $982.8 million in cash and cash equivalents and investment securities available-for-sale and $34.0 million in loans held-for-sale that were generally available for its cash needs.

At June 30, 2022, on a consolidated basis, the Company had $633.4 million in cash and cash equivalents and investment securities available-for-sale and $31.6 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 March 31, 2022, the Bank had the ability to borrow an additional $526.5 million from the FHLB, the Federal Reserve and correspondent bank Fed Funds lines of credit.

At June 30, 2022, the Bank had the ability to borrow an additional $552.2 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 March 31, 2022, the Company, on an unconsolidated basis, had $44.3 million in cash generally available for its cash needs, which is in excess of its current annual regular shareholder dividend and operating expenses.

At June 30, 2022, the Company, on an unconsolidated basis, had $44.3 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 March 31, 2022, approved outstanding loan commitments, including unused lines of credit and standby letters of credit, amounted to $304.8 million.

Certificates of deposits and brokered deposits scheduled to mature in one year or less at March 31, 2022 totaled $623.9 million.

At June 30, 2022, approved outstanding loan commitments, including unused lines of credit and standby letters of credit, amounted to $349.2 million.

Certificates of deposits and brokered deposits scheduled to mature in one year or less at June 30, 2022 totaled $594.1 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.

1 unchanged sentence

This Management’s Discussion and Analysis contains financial information determined by methods other than in accordance with GAAP.

Non-GAAP financial measures, specifically tangible common equity, tangible assets, tangible book value per common share, tangible common equity to tangible assets, average tangible common equity, return on average tangible common equity, total interest income - FTE, adjusted total interest income - FTE, net interest income - FTE, adjusted net interest income, adjusted net interest income - FTE, net interest margin - FTE, adjusted net interest margin, adjusted net interest margin - FTE, (benefit) provision for loan losses, excluding tax refund advance loans, average loans, excluding tax refund advance loans, net (recoveries) charge-offs to average loans, excluding tax refund advance loans, loans, excluding PPP loans, allowance for loan losses to loans, excluding PPP loans, adjusted noninterest expense, adjusted income before income taxes, adjusted income tax provision, adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average shareholders’ equity, adjusted return on average tangible common equity, adjusted effective income tax rate, income before income taxes, excluding tax refund advance loans, income tax provision, excluding tax refund advance loans, and net income, excluding tax refund advance loans are used by the Company’s management to measure the strength of its capital and analyze profitability, including its ability to generate earnings on tangible capital invested by its shareholders.

Non-GAAP financial measures, specifically tangible common equity, tangible assets, tangible book value per common share, tangible common equity to tangible assets, average tangible common equity, return on average tangible common equity, total interest income - FTE, adjusted total interest income - FTE, net interest income - FTE, adjusted net interest income, adjusted net interest income - FTE, net interest margin - FTE, adjusted net interest margin, adjusted net interest margin - FTE, provision (benefit) for loan losses, excluding tax refund advance loans, average loans, excluding tax refund advance loans, net (recoveries) charge-offs to average loans, excluding tax refund advance loans, loans, excluding PPP loans, allowance for loan losses to loans, excluding PPP loans, adjusted noninterest expense, adjusted income before income taxes, adjusted income tax provision, adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average shareholders’ equity, adjusted return on average tangible common equity, adjusted effective income tax rate, income before income taxes, excluding tax refund advance loans, income tax provision, excluding tax refund advance loans, and net income, excluding tax refund advance loans are used by the Company’s management to measure the strength of its capital and analyze profitability, including its ability to generate earnings on tangible capital invested by its shareholders.

The Company also believes that it is a standard practice in the banking industry to present total interest income, net interest income and net interest margin on a fully-taxable equivalent basis, as those measures provide useful information for peer comparisons.

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.

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

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, 2022 and 2021.

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

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

2021 June 30,

2022 June 30,

Total equity - GAAP $ 365,332 $ 374,655 $ 380,338 $ 370,442 $ 358,641 $ 365,332 $ 358,641

17 unchanged sentences

Return on average tangible common equity 10.36 % 12.09 % 13.30 % 13.27 % 15.09 % 11.23 % 13.97 %

(dollars in thousands) Three Months Ended

(dollars in thousands) Three Months Ended Six Months Ended

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

2021 June 30,

2022 June 30,

Total interest income $ 36,106 $ 36,034 $ 34,192 $ 33,034 $ 33,377 $ 72,140 $ 66,657

20 unchanged sentences

1 Assuming a 21% tax rate

(dollars in thousands) Three Months Ended

(dollars in thousands) Three Months Ended Six Months Ended

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

2021 June 30,

2022 June 30,

Net interest margin 2.60 % 2.56 % 2.30 % 2.00 % 2.11 % 2.58 % 2.08 %

13 unchanged sentences

Provision for tax refund advance loans losses (18) (1,842) — — — (1,860) —

(Benefit) provision for loan losses, excluding tax refund advance loans $ (1,051) $ (238) $ (29) $ 21 $ 1,276

Provision (benefit) for loan losses, excluding tax refund advance loans $ 1,167 $ (1,051) $ (238) $ (29) $ 21 $ 116 $ 1,297

Average loans $ 2,998,144 $ 2,947,924 $ 2,914,858 $ 2,933,654 $ 2,994,356 $ 2,973,173 $ 3,020,987

12 unchanged sentences

1 Assuming a 21% tax rate

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

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

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

2021 June 30,

2022 June 30,

Noninterest expense - GAAP $ 17,985 $ 18,780 $ 16,955 $ 14,451 $ 15,075 $ 36,765 $ 30,392

Acquisition-related expenses (103) (170) (163) — — (273) —

IT termination fee — (475) — — —

Nonrecurring consulting fee — (875) — — — (875) —

IT termination fee — — (475) — — — —

Discretionary inflation bonus (531) — — — — (531) —

Accelerated equity compensation (289) — — — — (289) —

Adjusted noninterest expense $ 17,062 $ 17,735 $ 16,317 $ 14,451 $ 15,075 $ 34,797 $ 30,392

Income before income taxes - GAAP $ 10,824 $ 12,999 $ 14,482 $ 14,310 $ 15,473 $ 23,823 $ 27,780

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

Acquisition-related expenses 103 170 163 — — 273 —

Nonrecurring consulting fee — 875 — — — 875 —

IT termination fee — — 475 — — — —

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

Subordinated debt redemption cost — — — 810 — — —

Nonrecurring consulting fee 875 — — — —

Discretionary inflation bonus 531 — — — — 531 —

Accelerated equity compensation 289 — — — — 289 —

Adjusted income before income taxes $ 11,747 $ 14,044 $ 15,120 $ 15,120 $ 12,950 $ 25,791 $ 25,257

Income tax provision - GAAP $ 1,279 $ 1,790 $ 2,004 $ 2,220 $ 2,377 $ 3,069 $ 4,234

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

Acquisition-related expenses 21 36 34 — — 57 —

Nonrecurring consulting fee — 184 — — — 184 —

IT termination fee — — 100 — — — —

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

Subordinated debt redemption cost — — — 170 — — —

Nonrecurring consulting fee 184 — — — —

Discretionary inflation bonus 112 — — — — 112 —

Accelerated equity compensation 61 — — — — 61 —

Adjusted income tax provision $ 1,473 $ 2,010 $ 2,138 $ 2,390 $ 1,847 $ 3,483 $ 3,704

Net income - GAAP $ 9,545 $ 11,209 $ 12,478 $ 12,090 $ 13,096 $ 20,754 $ 23,546

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

Acquisition-related expenses 82 134 129 — — 216 —

Nonrecurring consulting fee — 691 — — — 691 —

IT termination fee — — 375 — — — —

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

Subordinated debt redemption cost — — — 640 — — —

Nonrecurring consulting fee 691 — — — —

Discretionary inflation bonus 419 — — — — 419 —

Accelerated equity compensation 228 — — — — 228 —

Adjusted net income $ 10,274 $ 12,034 $ 12,982 $ 12,730 $ 11,103 $ 22,308 $ 21,553

1 Assuming a 21% tax rate

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

2022 March 31,

2022 December 31,

2021 September 30,

2021 June 30,

2022 June 30,

Diluted average common shares outstanding 9,658,689 9,870,394 9,989,951 9,988,102 9,981,422 9,764,232 9,970,147

Diluted earnings per share - GAAP $ 0.99 $ 1.14 $ 1.25 $ 1.21 $ 1.31 $ 2.13 $ 2.36

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

Effect of acquisition-related expenses 0.01 0.01 0.01 — — 0.02 —

Effect of nonrecurring consulting fee — 0.07 — — — 0.07 —

Effect of IT termination fee — — 0.04 — — — —

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

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

Effect of nonrecurring consulting fee 0.07 — — — —

Effect of discretionary inflation bonus 0.04 — — — — 0.04 —

Effect of accelerated equity compensation 0.02 — — — — 0.02 —

Adjusted diluted earnings per share $ 1.06 $ 1.22 $ 1.30 $ 1.27 $ 1.11 $ 2.28 $ 2.16

Return on average assets 0.93 % 1.08 % 1.19 % 1.12 % 1.25 % 1.01 % 1.13 %

Effect of gain on sale of premises and equipment 0.00 % 0.00 % 0.00 % 0.00 % (0.19 %) 0.00 % (0.09 %)

Effect of acquisition-related expenses 0.01 % 0.01 % 0.01 % 0.00 % 0.00 % 0.01 % 0.00 %

Effect of nonrecurring consulting fee 0.00 % 0.07 % 0.00 % 0.00 % 0.00 % 0.03 % 0.00 %

Effect of IT termination fee 0.00 % 0.00 % 0.04 % 0.00 % 0.00 % 0.00 % 0.00 %

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

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

Effect of nonrecurring consulting fee 0.07 % 0.00 % 0.00 % 0.00 % 0.00 %

Effect of discretionary inflation bonus 0.04 % 0.00 % 0.00 % 0.00 % 0.00 % 0.02 % 0.00 %

Effect of accelerated equity compensation 0.02 % 0.00 % 0.00 % 0.00 % 0.00 % 0.01 % 0.00 %

Adjusted return on average assets 1.00 % 1.16 % 1.24 % 1.18 % 1.06 % 1.08 % 1.04 %

(dollars in thousands) Three Months Ended

2022 December 31,

2021 September 30,

2021 June 30,

2021 March 31,

Return on average shareholders' equity 10.23 % 11.94 % 13.14 % 13.10 % 14.88 % 11.09 % 13.78 %

Effect of gain on sale of premises and equipment 0.00 % 0.00 % 0.00 % 0.00 % (2.26 %) 0.00 % (1.16 %)

Effect of acquisition-related expenses 0.09 % 0.14 % 0.14 % 0.00 % 0.00 % 0.12 % 0.00 %

Effect of nonrecurring consulting fee 0.00 % 0.74 % 0.00 % 0.00 % 0.00 % 0.37 % 0.00 %

Effect of IT termination fee 0.00 % 0.00 % 0.39 % 0.00 % 0.00 % 0.00 % 0.00 %

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

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

Effect of nonrecurring consulting fee 0.74 % 0.00 % 0.00 % 0.00 % 0.00 %

Effect of discretionary inflation bonus 0.45 % 0.00 % 0.00 % 0.00 % 0.00 % 0.22 % 0.00 %

Effect of accelerated equity compensation 0.24 % 0.00 % 0.00 % 0.00 % 0.00 % 0.12 % 0.00 %

Adjusted return on average shareholders' equity 11.01 % 12.82 % 13.67 % 13.79 % 12.62 % 11.92 % 12.62 %

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

2022 March 31,

2022 December 31,

2021 September 30,

2021 June 30,

2022 June 30,

Return on average tangible common equity 10.36 % 12.09 % 13.30 % 13.27 % 15.09 % 11.23 % 13.97 %

Effect of gain on sale of premises and equipment 0.00 % 0.00 % 0.00 % 0.00 % (2.30 %) 0.00 % (1.18 %)

Effect of acquisition-related expenses 0.09 % 0.14 % 0.14 % 0.00 % 0.00 % 0.12 % 0.00 %

Effect of nonrecurring consulting fee 0.00 % 0.75 % 0.00 % 0.00 % 0.00 % 0.37 % 0.00 %

Effect of IT termination fee 0.00 % 0.00 % 0.40 % 0.00 % 0.00 % 0.00 % 0.00 %

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

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

Effect of nonrecurring consulting fee 0.75 % 0.00 % 0.00 % 0.00 % 0.00 %

Effect of discretionary inflation bonus 0.45 % 0.00 % 0.00 % 0.00 % 0.00 % 0.23 % 0.00 %

Effect of accelerated equity compensation 0.25 % 0.00 % 0.00 % 0.00 % 0.00 % 0.12 % 0.00 %

Adjusted return on average tangible common equity 11.15 % 12.98 % 13.84 % 13.97 % 12.79 % 12.07 % 12.79 %

Effective income tax rate 11.8 % 13.8 % 13.8 % 15.5 % 15.4 % 12.9 % 15.2 %

Effect of gain on sale of premises and equipment 0.0 % 0.0 % 0.0 % 0.0 % (1.1 %) 0.0 % (0.5 %)

Effect of acquisition-related expenses 0.2 % 0.3 % 0.1 % 0.0 % 0.0 % 0.2 % 0.0 %

Effect of nonrecurring consulting fee 0.0 % 1.3 % 0.0 % 0.0 % 0.0 % 0.7 % 0.0 %

Effect of IT termination fee 0.0 % 0.0 % 0.2 % 0.0 % 0.0 % 0.0 % 0.0 %

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

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

Effect of nonrecurring consulting fee 1.3 % 0.0 % 0.0 % 0.0 % 0.0 %

Effect of discretionary inflation bonus 1.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.5 % 0.0 %

Effect of accelerated equity compensation 0.6 % 0.0 % 0.0 % 0.0 % 0.0 % 0.3 % 0.0 %

Adjusted effective income tax rate 13.6 % 15.4 % 14.1 % 15.8 % 14.3 % 14.6 % 14.7 %

9 unchanged sentences

Income tax provision, excluding tax refund advance loans $ 1,254 $ 1,769 $ 2,004 $ 2,220 $ 2,377 $ 3,022 $ 4,234

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

2022 March 31,

2022 December 31,

2021 September 30,

2021 June 30,

2022 June 30,

Net income - GAAP $ 9,545 $ 11,209 $ 12,478 $ 12,090 $ 13,096 $ 20,754 $ 23,546

3 unchanged sentences

Net income, excluding tax refund advance loans $ 9,448 $ 11,129 $ 12,478 $ 12,090 $ 13,096 $ 20,578 $ 23,546

1 Assuming a 21% tax rate

Critical Accounting Policies and Estimates

7 unchanged sentences

Cash flow hedges are used to convert certain variable rate liabilities into fixed rate liabilities.

At both March 31, 2022 and December 31, 2021, the Company had interest rate swaps with notional amounts of $260.0 million.

At both June 30, 2022 and December 31, 2021, the Company had interest rate swaps with notional amounts of $260.0 million.

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 March 31, 2022 and December 31, 2021, the Company had commitments to sell residential real estate loans of $56.8 million and $72.8 million, respectively.

At June 30, 2022 and December 31, 2021, the Company had commitments to sell residential real estate loans of $37.5 million and $72.8 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