What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-05-08 · 272 added, 140 removed, 472 unchanged (47% 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 is a financial holding company headquartered in Fishers, Indiana that conducts its primary business activities through its wholly-owned subsidiary, First Internet Bank of Indiana, an Indiana chartered bank.

First Internet Bancorp is a bank holding company headquartered in Fishers, Indiana that conducts its primary business activities through its wholly-owned subsidiary, First Internet Bank of Indiana (the “Bank”), an Indiana chartered 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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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 offer construction, investor commercial real estate loans, as well as single tenant lease financing on a nationwide basis.

We offer construction and investor commercial real estate loans, as well as 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.

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

We are one of the fastest-growing lenders in the Small Business Administration (“SBA”) 7(a) program, closing more than $98.3 million in SBA 7(a) loans during the three months ended March 31, 2024, and currently rank as one of the top 10 largest SBA 7(a) lenders for the SBA’s year-to-date 2024 fiscal year.

We are one of the fastest-growing lenders in the Small Business Administration (“SBA”) 7(a) program, closing $223.8 million in SBA 7(a) loans during the six months ended June 30, 2024, and currently rank as the 6th largest SBA 7(a) lenders for the SBA’s year-to-date 2024 fiscal year.

We also offer a top-ranked small business checking account product to our country’s entrepreneurs.

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We also offer payment, deposit, card and lending products and services through partnerships with financial technology companies and platforms (“fintechs”).

With the rapid evolution of technology that enables consumers and small businesses to manage their finances digitally, fintechs are addressing a significantly growing marketplace.

With the rapid evolution of technology that enables small businesses to manage their finances digitally, fintechs are addressing a significantly growing marketplace.

Fintechs have created robust digital offerings, unburdened by legacy technology architecture, to address growing customer expectations.

Through partnerships with selected fintechs, we believe our ability to win and retain consumer and small business relationships will be significantly enhanced.

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.

As of March 31, 2024, the Company had consolidated assets of $5.3 billion, consolidated deposits of $4.3 billion and stockholders’ equity of $366.7 million.

Through partnerships with selected fintechs, we believe our ability to win and retain small business relationships will be significantly enhanced.

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

As of June 30, 2024, the Company had consolidated assets of $5.3 billion, consolidated deposits of $4.3 billion and stockholders’ equity of $372.0 million.

Results of Operations

During the first quarter 2024, net income was $5.2 million, or $0.59 diluted earnings per share, compared to a net loss of $3.0 million, or $0.33 diluted loss per share, during the first quarter 2023, representing an increase in net income of $8.2 million and an increase in diluted earnings per share of $0.92.

The $8.2 million increase in net income for the first quarter 2024 compared to the first quarter 2023 was due primarily to a $7.0 million, or 74.0%, decrease in the provision for credit losses, an increase of $2.9 million, or 53.3%, in noninterest income and a $1.2 million, or 5.9%, increase in net interest income, partially offset by a $2.8 million increase in income tax expense.

During the first quarter 2024, return on average assets (“ROAA”), return on average shareholders’ equity (“ROAE”), and return on average tangible common equity (“ROATCE”) were 0.40%, 5.64%, and 5.71%, respectively, compared to (0.26%), (3.37%), and (3.41%), respectively, for the first quarter 2023.

During the first quarter 2023, the Company had a partial charge-off of a C&I participation loan of $6.9 million, $3.1 million of mortgage operations and exit costs and $0.1 million of mortgage revenue.

Excluding these items, adjusted net income for the first quarter 2023 was $4.8 million and adjusted diluted earnings per share was $0.53.

Additionally, for the first quarter 2023, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 0.43%, 5.36% and 5.44%, respectively.

During the second quarter 2024, net income was $5.8 million, or $0.67 diluted earnings per share, compared to a net income of $3.9 million, or $0.44 diluted earnings per share, during the second quarter 2023, representing an increase in net income of $1.9 million and an increase in diluted earnings per share of $0.23.

During the six months ended June 30, 2024, net income was $11.0 million, or $1.25 diluted earnings per share, compared to the six months ended June 30, 2023 net income of $0.9 million, or $0.10 per diluted share, resulting in an increase in net income of $10.1 million and an increase in diluted earnings per share of $1.15.

The $1.9 million increase in net income for the second quarter 2024 compared to the second quarter 2023 was due primarily to a $5.2 million, or 87.9%, increase in noninterest income and a $3.2 million, or 17.5%, increase in net interest income, partially offset by increases of $3.7 million, or 19.6%, in noninterest expense, $2.3 million, or 137.4%, in the provision for credit losses and $0.5 million in income tax expense.

The $10.1 million increase in net income for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was due primarily to an $8.1 million, or 71.2%, increase in noninterest income, a $4.3 million, or 11.5%, increase in net interest income and a $4.6 million, or 41.7%, decrease in provision for credit losses, partially offset by increases of $3.7 million, or 9.4%, in noninterest expense and $3.2 million in income tax expense.

During the second quarter 2024, return on average assets (“ROAA”), return on average shareholders’ equity (“ROAE”), and return on average tangible common equity (“ROATCE”) were 0.44%, 6.28%, and 6.36%, respectively, compared to 0.32%, 4.35%, and 4.40%, respectively, for the second quarter 2023.

During the six months ended June 30, 2024, ROAA, ROAE and ROATCE were 0.42%, 5.96%, and 6.04%, respectively, compared to 0.04%, 0.48%, and 0.49%, respectively, for the six months ended June 30, 2023.

During the second quarter 2024, the Company recognized $0.5 million in IT termination fees and $0.1 million in anniversary expenses.

Excluding these items, adjusted net income for the second quarter 2024 was $6.2 million and adjusted diluted earnings per share was $0.72.

Additionally, for the second quarter 2024, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 0.48%, 6.77% and 6.85%, respectively.

During the six months ended June 30, 2024, the Company recognized $0.5 million in IT termination fees and $0.1 million in anniversary expenses.

Excluding these items, adjusted net income for the six months ended June 30, 2024 was $11.4 million and adjusted diluted earnings per share was $1.30.

Additionally, for the six months ended June 30, 2024, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 0.43%, 6.20% and 6.29%, respectively.

Due to the steep decline in consumer mortgage volumes and the negative outlook for consumer mortgage lending, the Company decided to exit its consumer mortgage business during the first quarter 2023.

This included its nationwide digital direct-to-consumer mortgage platform that originated residential loans for sale in the secondary market, as well as its local traditional consumer mortgage and construction-to-permanent business.

In connection with this decision, the Company recognized $3.1 million of mortgage operations and exit costs during the six months ended June 30, 2023.

The Company also recognized $0.1 million of mortgage banking revenue during the six months ended June 30, 2023.

Additionally, during the six months ended June 30, 2023, the Company recognized a partial charge-off of $6.9 million related to a commercial and industrial participation loan with a balance of $9.8 million, prior to the partial charge-off, that was moved to nonaccrual status late in the first quarter 2023.

The Company received payment for the remaining balance of the participation loan during the second quarter 2023.

Excluding the impact of exiting consumer mortgage and the partial charge-off, adjusted net income for the six months ended June 30, 2023 was $8.7 million and adjusted diluted earnings per share was $0.97.

Additionally, for the six months ended June 30, 2023, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 0.37%, 4.85% and 4.92%, 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, 2024 December 31, 2023 March 31, 2023

June 30, 2024 March 31, 2024 June 30, 2023

(dollars 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, 2024 June 30, 2023

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

Interest-earning assets

Loans, including

loans held-for-sale $ 3,914,656 $ 112,529 5.78 % $ 3,619,883 $ 90,749 5.06 %

Securities - taxable 648,860 12,170 3.77 % 521,533 7,441 2.88 %

Securities - non-taxable 75,163 1,939 5.19 % 73,244 1,658 4.56 %

Other earning assets 451,582 12,488 5.56 % 421,793 10,307 4.93 %

Total interest-earning assets 5,090,261 139,126 5.50 % 4,636,453 110,155 4.79 %

Allowance for credit losses - loans (39,986) (35,877)

Noninterest-earning assets 220,081 187,633

Total assets $ 5,270,356 $ 4,788,209

Interest-bearing liabilities

Interest-bearing demand deposits $ 444,615 $ 4,658 2.11 % $ 346,878 $ 2,409 1.40 %

Savings accounts 22,754 96 0.85 % 34,175 145 0.86 %

Money market accounts 1,230,488 25,746 4.21 % 1,325,741 24,614 3.74 %

BaaS - brokered deposits 102,514 2,230 4.37 % 18,852 368 3.94 %

Certificates and brokered deposits 2,279,621 53,894 4.75 % 1,837,713 34,410 3.78 %

Total interest-bearing deposits 4,079,992 86,624 4.27 % 3,563,359 61,946 3.51 %

Other borrowed funds 684,456 10,441 3.07 % 719,538 10,490 2.94 %

Total interest-bearing liabilities 4,764,448 97,065 4.10 % 4,282,897 72,436 3.41 %

Noninterest-bearing deposits 115,140 126,194

Other noninterest-bearing liabilities 21,170 18,339

Total liabilities 4,900,758 4,427,430

Shareholders’ equity 369,598 360,779

Total liabilities and shareholders’ equity $ 5,270,356 $ 4,788,209

Net interest income $ 42,061 $ 37,719

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, 2024 vs.

December 31, 2023 Due to Changes in Three Months Ended March 31, 2024 vs.

March 31, 2023 Due to Changes in

(in thousands) Volume Rate Net Volume Rate Net

Three Months Ended June 30, 2024 vs.

March 31, 2024 Due to Changes in Three Months Ended June 30, 2024 vs.

June 30, 2023 Due to Changes in Six Months Ended June 30, 2024 vs.

June 30, 2023 Due to Changes in

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

Interest income

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Total 279 1,924 2,203 2,687 6,970 9,657 8,891 15,738 24,629

Increase (decrease) in net interest income $ 61 $ 866 $ 927 $ 1,372 $ (212) $ 1,160

Net interest income for the first quarter 2024 was $20.7 million, an increase of $1.2 million, or 5.9%, compared to $19.6 million for the first quarter 2023.

The increase in net interest income was the result of a $16.1 million, or 31.0%, increase in total interest income to $68.2 million for the first quarter 2024 from $52.0 million for the first quarter 2023, partially offset by a $15.0 million, or 46.1%, increase in total interest expense to $47.4 million for the first quarter 2024 from $32.5 million for the first quarter 2023.

The increase in total interest income for the first quarter 2024 compared to first quarter 2023 was due primarily to an increase in interest earned on loans, resulting from an increase of 77 bps in the yield on loans, including loans held-for-sale, as well as an increase of $309.4 million, or 8.6%, in the average balance of loans, including loans held-for-sale.

The yield earned on other earning assets also increased 99 bps and the average balance of other earning assets increased $102.8 million, or 31.0%.

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

The average balance of securities increased $118.2 million, or 20.2%, while the yield earned on the securities portfolio increased 76 bps for the first quarter 2024 compared to the first quarter 2023.

The increase in the yields earned on loans, other earning assets and securities was due to the impact of the continued elevated interest rate environment on both existing and newly-originated interest-earnings assets.

As a result of the higher interest rate environment, the yield on funded portfolio originations was 8.84% in the first quarter 2024, an increase of 108 bps compared to the first quarter 2023.

The increase in total interest expense for the first quarter 2024 compared to the first quarter 2023 was due primarily to increases of $12.5 million, or 90.5%, in interest expense associated with certificates and brokered deposits.

Increase in net interest income $ 1,718 $ (1,125) $ 593 $ 96 $ 3,086 $ 3,182 $ 1,946 $ 2,396 $ 4,342

Net interest income for the second quarter 2024 was $21.3 million, an increase of $3.2 million, or 17.5%, compared to $18.1 million for the second quarter 2023.

The increase in net interest income was the result of a $12.8 million, or 22.1%, increase in total interest income to $71.0 million for the second quarter 2024 from $58.1 million for the second quarter 2023, partially offset by a $9.7 million, or 24.2%, increase in total interest expense to $49.6 million for the second quarter 2024 from $40.0 million for the second quarter 2023.

Net interest income for the six months ended June 30, 2024 was $42.1 million, an increase of $4.3 million, or 11.5%, compared to $37.7 million for the six months ended June 30, 2023.

The increase in net interest income was the result of a $29.0 million, or 26.3%, increase in total interest income to $139.1 million for the six months ended June 30, 2024 from $110.2 million for the six months ended June 30, 2023.

The increase in total interest income was partially offset by a $24.6 million, or 34.0%, increase in total interest expense to $97.1 million for the six months ended June 30, 2024 from $72.4 million for the six months ended June 30, 2023.

The increase in total interest income for the second quarter 2024 compared to second quarter 2023 was due primarily to an increase in interest earned on loans, resulting from an increase of 68 bps in the yield on loans, including loans held-for-sale, as well as an increase of $280.6 million, or 7.7%, in the average balance of loans, including loans held-for-sale.

Additionally, the average balance of securities increased $140.4 million, or 23.2%, and the yield earned on the securities portfolio increased 90 bps for the second quarter 2024 compared to the second quarter 2023.

The increase in the yields earned on loans and securities was due to the impact of the continued elevated interest rate environment on both existing and newly-originated interest-earning assets.

As a result of the higher interest rate environment, the yield on funded portfolio loan originations was 8.88% for the second quarter 2024, an increase of 46 bps compared to the second quarter 2023.

The increase in total interest income for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was due primarily to an increase in interest earned on loans resulting from an increase of 72 bps in the yield on loans, including loans held-for-sale, as well as an increase of $294.8 million, or 8.1%, in the average balance of loans, including loans held-for-sale.

Additionally, the average balance of securities increased $129.2 million, or 21.7%, and the yield earned on the securities portfolio increased 152 bps for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Furthermore, the yield on other earning assets increased 63 bps and the average balance of other earning assets increased $30.0 million, or 7.1%.

The increase in the yield earned on loans, securities and other earning assets was due to the impact of the continued elevated interest rate environment on both existing and newly-originated interest-earning assets.

The yield on funded portfolio loan originations was 8.76% for the six months ended June 30, 2024, an increase of 76 bps compared to the six months ended June 30, 2023.

The increase in total interest expense for the second quarter 2024 compared to the second quarter 2023 was due primarily to increases of $6.9 million, or 33.8%, in interest expense associated with certificates and brokered deposits, $1.1 million, or 464.8%, in interest expense associated with BaaS - brokered deposits and $1.1 million, or 70.1%, in interest expense associated with interest-bearing demand deposits.

The increase in interest expense related to certificates and brokered deposits was driven by an increase of 71 bps in the cost of these deposits, as well as an increase of $287.4 million, or 14.2%, in the average balance of these deposits.

The increase in the average balance of these deposits was driven by strong consumer and small business demand for certificates of deposits, partially offset by lower brokered deposit balances as the Company used on-balance sheet liquidity to pay down balances throughout 2023 and the first quarter 2024.

Overall, the cost of total interest-bearing liabilities for the first quarter 2024 increased 87 bps to 4.06% from 3.19% for the first quarter 2023.

The increase in the cost of funds for the three months ended March 31, 2024 reflects the impact of the continued elevated interest rate environment throughout 2023 and into 2024.

Net interest margin (“NIM”) was 1.66% for the first quarter 2024 compared to 1.76% for the first quarter 2023, a decrease of 10 bps.

On a fully-taxable equivalent (“FTE”) basis, NIM was 1.75% for the first quarter 2023 compared to 1.89% for the first quarter 2023, a decrease of 14 bps.

The decrease in the first quarter 2024 NIM and FTE NIM compared to the first quarter 2023 reflects the increase in the cost of interest-bearing liabilities of 87 bps, partially offset by the increase in earning asset yields noted above.

The increase in interest expense related to BaaS - brokered deposits was driven by an increase of 34 bps in the cost of these deposits, as well as an increase of $96.7 million, or 422.1%, in the average balance of these deposits.

The increase in interest expense related to interest-bearing demand deposits was driven by an increase of 50 bps in the cost of these deposits, as well as an increase of $114.2 million, or 31.7%, in the average balance of these deposits.

The increase in the cost of funds reflects the impact of the continued elevated interest rate environment throughout 2023 and 2024.

The increase in total interest expense for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was due primarily to increases of $19.5 million, or 56.6%, in interest expense associated with certificates and brokered deposits, $2.2 million, or 93.4%, in interest expense associated with interest-bearing demand deposits, $1.9 million, or 506.0%, in interest expense associated with BaaS - brokered deposits, and $1.1 million, or 4.6%, in interest expense associated with money market accounts.

The increase in interest expense related to certificates and brokered deposits was driven by an increase of 97 bps in the cost of these deposits, as well as an increase of $441.9 million, or 24.1%, in the average balance of these deposits.

The increase in the average balance of these deposits was driven by strong consumer and small business demand for certificates of deposits in 2024.

The increase in interest expense related to interest-bearing demand deposits was due primarily to a 71 bp increase in the cost of these deposits, as well as an increase of $97.7 million, or 28.2%, in the average balance of these deposits.

The increase in interest expense related to BaaS - brokered deposits was driven primarily by an increase of 43 bps in the cost of these deposits, as well as an increase of $83.7 million, or 443.8%, in the average balance of these deposits.

The increase in interest expense related to money market accounts was driven primarily by an increase of 47 bps in the cost of these deposits, partially offset by a decrease of $95.3 million, or 7.2%, in the average balance of these deposits.

The increase in the cost of funds reflects the impact of the continued elevated interest rate environment throughout 2023 and 2024.

Overall, the cost of total interest-bearing liabilities for the second quarter 2024 increased 52 bps to 4.14% from 3.62% for the second quarter 2023.

The cost of total interest-bearing liabilities for the six months ended June 30, 2024 increased 69 bps to 4.10% from 3.41% for the six months ended June 30, 2023.

The increase in the cost of funds for the three and six months ended June 30, 2024 reflects the impact of the continued elevated interest rate environment throughout 2023 and 2024.

Net interest margin (“NIM”) was 1.67% for the second quarter 2024 compared to 1.53% for the second quarter 2023, an increase of 14 bps.

On a fully-taxable equivalent (“FTE”) basis, NIM was 1.76% for the second quarter 2024 compared to 1.64% for the second quarter 2023, an increase of 12 bps.

NIM was 1.67% for the six months ended June 30, 2024 compared to

1.64% for the six months ended June 30, 2023, an increase of 3 bps.

FTE NIM was 1.76% for both the six months ended June 30, 2024 and 2023.

The increase in the second quarter 2024 NIM and FTE NIM compared to the second quarter 2023 reflects the increase in earning asset yields noted above outpacing the increase in the cost of interest-bearing liabilities.

The increase in NIM and stability in FTE NIM for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 reflects the decelerating pace of increase in the cost of interest-bearing deposits and the Company’s focus on shifting the loan composition towards variable rate and higher-yielding products.

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, 2024 and 2023.

Three Months Ended Six Months Ended

(in thousands) June 30,

2024 March 31,

2024 December 31,

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2023 June 30,

2023 March 31,

2023 June 30,

2024 June 30,

Service charges and fees $ 246 $ 220 $ 216 $ 208 $ 218 $ 466 $ 427

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Total noninterest income $ 11,033 $ 8,347 $ 7,401 $ 7,407 $ 5,871 $ 19,380 $ 11,317

During the first quarter 2024, noninterest income was $8.3 million, representing an increase of $2.9 million, or 53.3%, compared to $5.4 million for the first quarter 2023.

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

The increase of $2.5 million, or 60.9%, in gain on sale of loans was due to an increase in U.S.

Small Business Administration (“SBA”) 7(a) guaranteed loan sales, as well as an increase in gain on sale margins.

The increase of $0.3 million, or 89.7%, in other income is due primarily to income from fund investments.

During the second quarter 2024, noninterest income was $11.0 million, representing an increase of $5.2 million, or 87.9%, compared to $5.9 million for the second quarter 2023.

The increase in noninterest income was due primarily to increases in gain on sale of loans and other income.

The increase of $3.4 million, or 70.3%, in gain on sale of loans was due primarily to an increase in U.S.

Small Business Administration (“SBA”) 7(a) guaranteed loan sales.

The increase of $1.6 million, or 532.8%, in other income is due primarily to distributions from fund investments.

During the six months ended June 30, 2024, noninterest income was $19.4 million, an increase of $8.1 million, or 71.2%, compared to $11.3 million for the six month ended June 30, 2023.

The increase in noninterest income was due primarily to increases in gain on sale of loans, other income and net loan servicing revenue.

The increase of $5.9 million, or 66.1%, in gain on sale of loans was due primarily to an increase in SBA 7(a) guaranteed loan sales.

The increase of $1.9 million, or 285.5%, in other income is due primarily to distributions from fund investments.

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

The decrease in mortgage banking revenue was due to the Company’s exit from the mortgage business in the first quarter 2023.

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, 2024 and 2023.

Three Months Ended Six Months Ended

(in thousands) June 30,

2024 March 31,

2024 December 31,

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2023 June 30,

2023 March 31,

2023 June 30,

2024 June 30,

Salaries and employee benefits $ 12,462 $ 11,796 $ 11,055 $ 11,767 $ 10,706 $ 24,258 $ 22,500

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Total noninterest expense $ 22,336 $ 21,023 $ 20,056 $ 19,756 $ 18,670 $ 43,359 $ 39,624

Noninterest expense for the first quarter 2024 and 2023 was $21.0 million, comparable to the first quarter 2023.

The increase of less than $0.1 million, or 0.3%, was due primarily to a $0.6 million increase in deposit insurance premium and a $0.2 million increase in other, partially offset by a $0.5 million decrease in loan expenses, $0.1 million decrease in marketing, advertising and promotion expense and a $0.1 million decrease in data processing.

The increase in deposit insurance premium was due primarily to year-over-year asset growth and changes in the composition of the loans and deposit portfolios.

The increase in other expense was due to various expenses, none of which were individually significant.

The decrease in loan expenses was due primarily to expenses incurred in the first quarter 2023 as a result of the Company’s exit from the mortgage business, partially offset by higher third-party loan servicing fees and other miscellaneous lending costs.

The decrease in marketing, advertising and promotion expense was due primarily to cost savings from the Company’s exit from the mortgage business in the first quarter 2023.

The decrease in data processing was due primarily to variable deposit activity-based expenses.

Noninterest expense for the second quarter 2024 was $22.3 million, compared to $18.7 million for the second quarter 2023.

The increase of $3.7 million, or 19.6%, was due primarily to increases of $1.8 million in salaries and employee benefits, $0.5 million in loan expenses, $0.5 million in premises and equipment, $0.4 million in other expenses and $0.3 million in consulting and professional fees.

The increase in salaries and employee benefits was due primarily to continued staffing growth and higher incentive compensation in small business lending, as well as non-recurring anniversary expenses.

The increase in loan expenses was due primarily to higher third-party loan servicing fees and other miscellaneous lending costs.

The increase in premises and equipment was due primarily to non-recurring IT termination fees.

The increase in other expenses was due to various expenses, none of which were individually significant.

The increase in consulting and professional fees was due primarily to increased consulting and audit fees.

Noninterest expense for the six months ended June 30, 2024 was $43.4 million, compared to $39.6 million for the six months ended June 30, 2023.

The increase of $3.7 million, or 9.4%, was due primarily to increases of $1.8 million in salaries and employee benefits, $0.8 million in deposit insurance premiums, $0.6 million in other expenses and $0.5 million in premises and equipment.

In the first quarter 2023, the Company incurred $2.2 million in severance costs as a result of its decision to exit the mortgage business.

Excluding these costs, salaries and employee benefits increased $2.2 million, or 22.4%, in the first quarter 2024, compared to the first quarter 2023.

The increase was due primarily to continued staffing growth and higher incentive compensation in small business lending, as well as higher incentive compensation accruals based on the increase in net income in the first quarter 2024 compared to first quarter 2023.

The Company recorded an income provision tax provision of $0.4 million and an effective tax rate of 7.6% for the first quarter 2024, compared to an income tax benefit of $2.3 million for the first quarter 2023.

In the second quarter 2024, the Company incurred $0.1 million in non-recurring anniversary expenses.

Excluding these costs, salaries and employee benefits increased $3.8 million, or 18.7%.

The increase in salaries and employee benefits was due primarily to continued staffing growth and higher incentive compensation in small business lending, as well as higher incentive compensation accruals based on the increase in net income for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

The increase in deposit insurance premium was due primarily to year-over-year asset growth and changes in the composition of the loan and deposit portfolios.

The increase in other expenses is primarily due to various expenses, none of which were individually significant.

The increase in premises and equipment was due primarily to non-recurring IT termination fees.

The Company recorded an income provision tax provision of $0.2 million and an effective tax rate of 3.6% for the second quarter 2024, compared to an income tax benefit of $0.2 million for the second quarter 2023.

The Company recorded an income tax provision of $0.6 million and an effective tax rate of 5.6% for the six months ended June 30, 2024, compared to an income tax benefit of $2.6 million for the six months ended June 30, 2023.

The income tax benefits recognized during 2023 reflect the benefit of tax exempt income relative to stated pre-tax income, as well as the impact on pre-tax income from mortgage exit costs and the partial charge-off of a commercial and industrial participation loan during the six months ended June 30, 2023.

Financial Condition

2 unchanged sentences

Balance Sheet Data:

2024 March 31,

2024 December 31,

1 unchanged sentence

2023 June 30,

2023 March 31,

Total assets $ 5,343,302 $ 5,340,667 $ 5,167,572 $ 5,169,023 $ 4,947,049

7 unchanged sentences

Total shareholders’ equity 371,953 366,739 362,795 347,744 354,332

Total assets increased $173.1 million, or 3.3%, to $5.3 billion at March 31, 2024 compared to $5.2 billion at December 31, 2023.

The increase was due primarily to increases in cash balances and loans, driven by growth in deposit balances of $206.8 million, or 5.1%.

As of March 31, 2024, total shareholders’ equity was $366.7 million, an increase of $3.9 million, or 1.1%, compared to December 31, 2023.

The increase in shareholders’ equity was due primarily to the net income earned during the quarter, partially offset by an increase in accumulated other comprehensive loss.

Tangible common equity totaled $362.1 million as of March 31, 2024, representing an increase of $3.9 million, or 1.1%, compared to December 31, 2023.

The ratio of total shareholders’ equity to total assets decreased to 6.87% as of March 31, 2024 from 7.02% as of December 31, 2023, and the ratio of tangible common equity to tangible assets decreased to 6.79% as of March 31, 2024 from 6.94% as of December 31, 2023.

Book value per common share increased 1.0% to $42.37 as of March 31, 2024 from $41.97 as of December 31, 2023.

Tangible book value per share increased 1.0% to $41.83 as of March 31, 2024 from $41.43 as of December 31, 2023.

The increase in both book value per common share and tangible book value per share was driven primarily by the increase in total shareholders’ equity and tangible common equity.

Total assets increased $175.7 million, or 3.4%, to $5.3 billion at June 30, 2024 compared to $5.2 billion at December 31, 2023.

The increase was due primarily to increases in loans and securities, driven by growth in deposit balances of $206.9 million, or 5.1%.

As of June 30, 2024, total shareholders’ equity was $372.0 million, an increase of $9.2 million, or 2.5%, compared to December 31, 2023.

The increase in shareholders’ equity was due primarily to the net income earned during the six months ended June 30, 2024, partially offset by a modest increase in accumulated other comprehensive loss.

Tangible common equity totaled $367.3 million as of June 30, 2024, representing an increase of $9.2 million, or 2.6%, compared to December 31, 2023.

The ratio of total shareholders’ equity to total assets decreased to 6.96% as of June 30, 2024 from 7.02% as of December 31, 2023, and the ratio of tangible common equity to tangible assets decreased to 6.88% as of June 30, 2024 from 6.94% as of December 31, 2023.

Book value per common share increased 2.2% to $42.91 as of June 30, 2024 from $41.97 as of December 31, 2023.

Tangible book value per share increased 2.3% to $42.37 as of June 30, 2024 from $41.43 as of December 31, 2023.

The increase in both book value per common share and tangible book value per share was driven primarily by the increases 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,

2024 March 31,

2024 December 31,

1 unchanged sentence

2023 June 30,

2023 March 31,

Commercial loans

19 unchanged sentences

Net loans $ 3,917,741 $ 3,868,913 $ 3,801,446 $ 3,698,616 $ 3,610,774

1 Includes carrying value adjustments of $26.9 million, $27.8 million, $29.0 million, $30.5 million and $31.5 million related to terminated interest rate swaps associated with public finance loans as of March 31, 2024, December 31, 2023, September 30, 2023, June 30, 2023 and March 31, 2023, respectively.

Total loans were $3.9 billion as of March 31, 2024, an increase of $69.6 million, or 1.8%, compared to December 31, 2023.

Total commercial loan balances were $3.1 billion as of March 31, 2024, up $75.2 million, or 2.5%, from December 31, 2023.

Total consumer loan balances were $793.4 million as of March 31, 2024, a decrease of $3.5 million, or 0.4%, compared to December 31, 2023.

Compared to December 31, 2023, the increase in commercial loan balances was driven by growth in the construction, small business lending and franchise finance portfolios.

These increases were partially offset by a decrease in the fixed-rate public finance portfolio, as well as continued runoff in the healthcare finance portfolio.

The slight decrease in consumer loan balances was due primarily to a decrease in the residential mortgage portfolio, partially offset by an increase in the trailers portfolio.

1 Includes carrying value adjustments of $25.6 million, $26.9 million, $27.8 million, $29.0 million and $30.5 million related to terminated interest rate swaps associated with public finance loans as of June 30, 2024, March 31, 2024, December 31, 2023, September 30, 2023 and June 30, 2023, respectively.

Total loans were $4.0 billion as of June 30, 2024, an increase of $120.9 million, or 3.2%, compared to December 31, 2023.

Total commercial loan balances were $3.1 billion as of June 30, 2024, up $122.1 million, or 4.1%, from December 31, 2023.

Total consumer loan balances were $800.5 million as of June 30, 2024, an increase of $3.6 million, or 0.5%, compared to December 31, 2023.

Compared to December 31, 2023, in connection with the Company’s focus on variable rate and higher-yielding products, the increase in commercial loan balances was driven by growth in the construction, investor commercial real estate, small business lending and franchise finance portfolios.

These increases were partially offset by decreases in the public finance and single tenant lease financing portfolios, as well as continued runoff in the healthcare finance portfolio.

Additionally, commercial and industrial balances declined due primarily to early payoffs.

The slight increase in consumer loan balances was due primarily to new origination activity in the other consumer loans portfolios, partially offset by a decrease in the residential mortgage portfolio.

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,

2024 March 31,

2024 December 31,

1 unchanged sentence

2023 June 30,

2023 March 31,

Nonaccrual loans

Commercial loans:

Commercial and industrial $ — $ — $ — $ — $ 2,836

Owner-occupied commercial real estate $ — $ — $ — $ — $ 1,405

14 unchanged sentences

Residential mortgage — 555 838 — —

Other consumer 5 — — — —

Total consumer loans 5 555 838 — —

11 unchanged sentences

0.24 % 0.25 % 0.20 % 0.12 % 0.13 %

Allowance for credit losses to total loans 1.05 % 1.01 % 0.98 % 0.99 % 1.02 %

Allowance for credit losses - loans to total loans 1.10 % 1.05 % 1.01 % 0.98 % 0.99 %

Nonaccrual loans to total loans 0.31 % 0.31 % 0.24 % 0.16 % 0.17 %

Allowance for credit losses to nonperforming loans 2

Allowance for credit losses - loans to nonaccrual loans 2

349.6 % 333.4 % 425.0 % 619.4 % 579.1 %

Allowance for credit losses - loans to nonperforming loans 2

334.5 % 313.3 % 389.2 % 619.4 % 579.1 %

1 Balance of loans are partially guaranteed by the U.S.

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

Total nonperforming loans increased $3.1 million, or 31.0%, to $13.1 million as of March 31, 2024 compared to $10.0 million as of December 31, 2023 due primarily to an increase in nonperforming loans in small business lending and residential mortgage loans during the quarter.

Total nonperforming assets increased $3.1 million, or 30.0%, to $13.4 million as of March 31, 2024, compared to $10.4 million as of December 31, 2023, due primarily to the increases in nonperforming small business lending and residential mortgage loans mentioned above.

The Company had two residential mortgage properties in OREO with a carrying value of $0.4 million at both March 31, 2024 and December 31, 2023.

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

Total nonperforming loans increased $3.0 million, or 30.3%, to $13.0 million as of June 30, 2024 compared to $10.0 million as of December 31, 2023 due primarily to an increase in nonperforming loans in small business lending during the quarter.

Total nonperforming assets increased $2.7 million, or 26.0%, to $13.1 million as of June 30, 2024, compared to $10.4 million as of December 31, 2023, due primarily to the increase in nonperforming loans in small business lending mentioned

As of June 30, 2024, the Company did not own any OREO.

As of December 31, 2023, the Company had two residential mortgage properties in OREO with a carrying value of $0.4 million.

Allowance for Credit Losses - Loans

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

Three Months Ended

(dollars in thousands) March 31,

The following table provides a rollforward of the allowance for credit losses for the last five completed fiscal quarters and the six months ended June 30, 2024 and 2023.

Three Months Ended Six Months Ended

(dollars in thousands) June 30,

2024 March 31,

2024 December 31,

1 unchanged sentence

2023 June 30,

2023 March 31,

2023 June 30,

2024 June 30,

Balance, beginning of period $ 40,891 $ 38,774 $ 36,452 $ 36,058 $ 36,879 $ 38,774 $ 31,737

5 unchanged sentences

Investor commercial real estate — — — 591 — — —

Single tenant lease financing 195 — — — — 195 —

Healthcare finance — — 580 — 25 — 25

15 unchanged sentences

Investor commercial real estate 0.00 % 0.00 % 0.00 % 0.59 % 0.00 % 0.00 % 0.00 %

Single tenant lease financing 0.04 % 0.00 % 0.00 % 0.00 % 0.00 % 0.04 % 0.00 %

Healthcare finance 0.00 % 0.00 % 0.25 % 0.00 % 0.02 % 0.00 % 0.02 %

7 unchanged sentences

Total net charge-offs to average loans 0.14 % 0.05 % 0.12 % 0.16 % 0.17 % 0.10 % 0.49 %

The allowance for credit losses - loans (“ACL”) was $40.9 million as of March 31, 2024, compared to $38.8 million as of December 31, 2023.

The increase in the ACL reflects the addition of specific reserves on nonperforming small business lending loans, as well as loan growth, partially offset by the positive impact of economic data on forecasted loss rates and qualitative factors on other portfolios.

The ACL as a percentage of total loans was 1.05% at March 31, 2024, compared to 1.01% at December 31, 2023.

The ACL as a percentage of nonperforming loans decreased to 333.4% as of March 31, 2024, compared to 425.0% as of December 31, 2023, due primarily to the increase in the nonperforming loans.

Net charge-offs of $0.5 million were recognized during the first quarter 2024, resulting in net charge-offs to average loans of 0.05%, compared to net charge-offs of $7.2 million, or 0.82% of average loans, for the first quarter 2023.

in net charge-offs was due primarily to a $6.9 million partial charge-off of a C&I participation loan that was placed on nonaccrual status during the first quarter 2023, partially offset by an increase in charge-offs in small business lending.

The provision for credit losses - loans in the first quarter 2024 was $2.6 million, compared to $9.4 million for the first quarter 2023.

The decrease in the provision for credit losses - loans for the first quarter 2024 was driven primarily by the partial charge-off of the C&I participation loan mentioned above that occurred in the first quarter 2023, partially offset by the specific reserves related to small business lending and growth in certain loan portfolios.

The allowance for credit losses - loans (“ACL”) was $43.4 million as of June 30, 2024, compared to $38.8 million as of December 31, 2023.

The increase in the ACL reflects growth and higher coverage ratios in certain portfolios, as well as additional reserves for nonperforming small business lending loans, partially offset by the positive impact of economic data on forecasted loss rates and qualitative factors for other portfolios.

The ACL as a percentage of total loans was 1.10% at June 30, 2024, compared to 1.01% at December 31, 2023.

The ACL as a percentage of nonperforming loans decreased to 334.5% as of June 30, 2024, compared to 389.2% as of December 31, 2023, due primarily to the increase in nonperforming loans.

Net charge-offs of $1.4 million were recognized during the second quarter 2024, resulting in net charge-offs to average loans of 0.14%, compared to net charge-offs of $1.6 million, or 0.17% of average loans, for the second quarter 2023.

The decrease in net charge-offs was due primarily to a decrease in charge-offs for small business lending, partially offset by an increase in charge-offs for franchise finance loans.

During the six months ended June 30, 2024, the Company recorded net charge-offs of $1.9 million, compared to net charge-offs of $8.8 million during the six months ended June 30, 2023.

The decrease in net charge-offs for the six months ended June 30, 2024 was driven primarily by a $6.9 million partial charge-off of a C&I participation loan that was placed on nonaccrual status and subsequently charged off during the first quarter 2023, as well as a decrease in net charge-offs in small business lending, partially offset by increases in net charge-offs in franchise finance and single tenant lease financing.

The provision for credit losses - loans in the second quarter 2024 was $3.9 million, compared to $0.8 million for the second quarter 2023.

The increase in the provision for credit losses - loans for the second quarter 2024 was driven primarily by growth and higher coverage ratios in certain loan portfolios as well as additional reserves related to small business lending, partially offset by the positive impact of economic data on forecasted loss rates and qualitative factors on other portfolios.

Investment Securities Portfolio

1 unchanged sentence

(in thousands)

Amortized Cost March 31,

Amortized Cost June 30,

2024 March 31,

2024 December 31,

1 unchanged sentence

2023 June 30,

2023 March 31,

Securities available-for-sale

15 unchanged sentences

(in thousands)

Approximate Fair Value March 31,

Approximate Fair Value June 30,

2024 March 31,

2024 December 31,

1 unchanged sentence

2023 June 30,

2023 March 31,

Securities available-for-sale

14 unchanged sentences

Total securities $ 736,002 $ 696,651 $ 682,427 $ 652,477 $ 588,037

The approximate fair value of available-for-sale investment securities increased $7.6 million, or 1.6%, to $482.4 million as of March 31, 2024, compared to $474.9 million as of December 31, 2023.

The approximate fair value of available-for-sale investment securities increased $13.7 million, or 2.9%, to $488.6 million as of June 30, 2024, compared to $474.9 million as of December 31, 2023.

The increase was due primarily to increases of $23.4 million in agency mortgage-backed securities - residential, $4.9 million in private label mortgage-backed securities - residential, partially offset by decreases of $7.4 million in U.S.

Government-sponsored agencies, $2.2 million in corporate securities, and $1.0 million in municipal securities.

This increase was caused primarily by new purchase activity within certain available-for-sale portfolios, partially offset by a decline in fair value resulting from an increase in market interest rates, as well as net paydown activity.

As of March 31, 2024, the Company had securities with a net carrying value of $235.7 million designated as held-to-maturity compared to $227.2 million as of December 31, 2023.

Government-sponsored agencies, $4.0 million in municipal securities, $2.0 million in agency mortgage-backed securities - commercial and $1.4 million in corporate securities.

This increase was caused primarily by new purchase activity within certain available-for-sale portfolios, partially offset by net paydown activity.

As of June 30, 2024, the Company had securities with a net carrying value of $270.3 million designated as held-to-maturity compared to $227.2 million as of December 31, 2023.

The increase was due primarily to purchases of CRA-eligible agency mortgage-backed securities - residential.

Accrued Income and Other Assets

Accrued income and other assets increased $12.3 million, or 24.0%, to $63.4 million at March 31, 2024 compared to $51.1 million at December 31, 2023.

The increase was due primarily to a $6.6 million increase in equity investments and a $1.2 million increase in prepaid assets.

Accrued income and other assets increased $11.9 million, or 23.2%, to $63.0 million at June 30, 2024 compared to $51.1 million at December 31, 2023.

The increase was due primarily to increases of $9.6 million in equity investments and $2.5 million in prepaid assets, partially offset by a decrease of $0.6 million in derivative assets.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities increased $2.7 million, or 19.3%, to $16.9 million at March 31, 2024, compared to $14.2 million at December 31, 2023.

The increase was due primarily to an increase of $4.4 million in accrued expenses related to a security that was purchased in the first quarter 2024, but settled in the subsequent quarter, partially offset by decreases of $1.2 million in accrued salary and benefits and $0.5 million in derivative liability due to changes in fair value.

Accrued expenses and other liabilities decreased $0.2 million, or 1.2%, to $14.0 million at June 30, 2024, compared to $14.2 million at December 31, 2023.

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,

2024 March 31,

2024 December 31,

1 unchanged sentence

2023 June 30,

2023 March 31,

Noninterest-bearing deposits $ 126,438 3.0 % $ 130,760 3.1 % $ 123,464 3.0 % $ 125,265 3.1 % $ 119,291 3.1 %

6 unchanged sentences

Total deposits $ 4,273,922 100.0 % $ 4,273,768 100.0 % $ 4,066,973 100.0 % $ 4,083,545 100.0 % $ 3,854,308 100.0 %

Total deposits increased $206.8 million, or 5.1%, to $4.3 billion as of March 31, 2024, compared to $4.1 billion as of December 31, 2023.

This increase was due primarily to increases of $133.8 million, or 8.3%, in certificates of deposits, $33.5 million, or 45.0%, in BaaS - brokered deposits and $20.6 million, or 5.1%, in interest-bearing demand deposits.

The increase in certificates of deposits and brokered deposits was due primarily to strong consumer and small business demand for certificates of deposits in 2024.

Total deposits increased $206.9 million, or 5.1%, to $4.3 billion as of June 30, 2024, compared to $4.1 billion as of December 31, 2023.

The increase was due primarily to increases of $224.5 million, or 14.0%, in certificates of deposits, $77.2 million, or 19.2%, in interest-bearing demand deposits and $65.8 million, or 88.4%, in BaaS - brokered deposits, partially offset by decreases of $138.6 million, or 23.4%, in brokered deposits and $26.1 million, or 2.1%, in money market accounts.

The increase in certificates of deposits was due primarily to strong consumer and small business demand throughout 2024.

The increase in interest-bearing demand deposits was due primarily to growth in fintech partnership deposits.

The increase in BaaS - brokered deposits was driven by higher payments volumes.

Uninsured deposit balances represented 26% of total deposits at March 31, 2024, up from 25% at December 31, 2023.

The increase in BaaS - brokered deposits was driven by higher payments volumes from our fintech partners.

Using liquidity created by the growth in these deposit channels, the Company was able to pay down higher-cost brokered deposits during 2024.

Uninsured deposit balances represented 26% of total deposits at June 30, 2024, up from 25% at December 31, 2023.

These balances include Indiana-based municipal deposits, which are insured by the Indiana Board for Depositories, as well as larger balance accounts under contractual agreements that only allow withdrawal under certain conditions.

After subtracting these types of deposits, the adjusted uninsured deposit balance drops to 20%, compared to 19% as of December 31, 2023.

After subtracting these types of deposits, the adjusted uninsured deposit balance drops to 20% as of June 30, 2024, compared to 19% as of December 31, 2023.

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, 2024 and December 31, 2023 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, 2024 and December 31, 2023, which are based on the Basel III Capital Rules.

The following tables present actual and required capital ratios as of June 30, 2024 and December 31, 2023 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, 2024 and December 31, 2023, 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.

3 unchanged sentences

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

As of March 31, 2024:

As of June 30, 2024:

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 15, 2024 to shareholders of record as of March 28, 2024.

The Company’s Board of Directors declared a cash dividend of $0.06 per share of common stock payable July 15, 2024 to shareholders of record as of June 28, 2024.

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 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 March 31, 2024, the Company had $107.0 million principal amount of subordinated debt outstanding evidenced by the 2029 Notes, 2030 Note and 2031 Notes.

As of June 30, 2024, 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.

7 unchanged sentences

The stock repurchase authorization is scheduled to expire on December 31, 2024.

Under this program, the Company repurchased 559,522 shares of common stock through March 31, 2024, at an average price of $19.06, for a total investment of $10.7 million.

Under this program, the Company repurchased 559,522 shares of common stock through June 30, 2024, at an average price of $19.06, for a total investment of $10.7 million.

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.

6 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.

At March 31, 2024, on a consolidated basis, the Company had $963.7 million in cash and cash equivalents and investment securities available-for-sale and $22.6 million in loans held-for-sale that were generally available for its cash needs.

At June 30, 2024, on a consolidated basis, the Company had $885.4 million in cash and cash equivalents and investment securities available-for-sale and $19.4 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, 2024, the Bank had the ability to borrow an additional $1.3 billion from the FHLB, the Federal Reserve and correspondent bank Fed Funds lines of credit, which when combined with cash balances, totaled $1.7 billion and represented 203% of adjusted uninsured deposit balances.

At June 30, 2024, the Bank had the ability to borrow an additional $1.3 billion from the FHLB, the Federal Reserve and correspondent bank Fed Funds lines of credit, which when combined with cash balances, totaled $1.7 billion and represented 197% of adjusted uninsured deposit balances.

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, 2024, the Company, on an unconsolidated basis, had $7.0 million in cash for debt servicing and operating expenses.

At June 30, 2024, the Company, on an unconsolidated basis, had $8.2 million in cash for debt servicing 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, 2024, approved outstanding loan commitments, including unused lines of credit and standby letters of credit, amounted to $726.5 million.

Certificates of deposits and brokered deposits scheduled to mature in one year or less at March 31, 2024 totaled $1.3 billion.

At June 30, 2024, approved outstanding loan commitments, including unused lines of credit and standby letters of credit, amounted to $715.0 million.

Certificates of deposits and brokered deposits scheduled to mature in one year or less at June 30, 2024 totaled $1.3 billion.

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.

5 unchanged sentences

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

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

2024 March 31,

2024 December 31,

1 unchanged sentence

2023 June 30,

2023 March 31,

2023 June 30,

2024 June 30,

Total equity - GAAP $ 371,953 $ 366,739 $ 362,795 $ 347,744 $ 354,332 $ 371,953 $ 354,332

17 unchanged sentences

Return on average tangible common equity 6.36 % 5.71 % 4.72 % 3.84 % 4.40 % 6.04 % 0.49 %

(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

2024 March 31,

2024 December 31,

1 unchanged sentence

2023 June 30,

2023 March 31,

2023 June 30,

2024 June 30,

Total interest income $ 70,961 $ 68,165 $ 66,272 $ 63,015 $ 58,122 $ 139,126 $ 110,155

11 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

2024 March 31,

2024 December 31,

1 unchanged sentence

2023 June 30,

2023 March 31,

2023 June 30,

2024 June 30,

Total Revenue- GAAP $ 32,360 $ 29,081 $ 27,208 $ 24,785 $ 24,016 $ 61,441 $ 49,036

6 unchanged sentences

Mortgage-related costs — — — — — — (3,052)

IT Termination fees (452) — — — — (452) —

Anniversary expenses (120) — — — — (120) —

Adjusted noninterest expense $ 21,764 $ 21,023 $ 20,056 $ 19,756 $ 18,670 $ 42,787 $ 36,572

3 unchanged sentences

Partial charge-off of C&I participation loan — — — — — — 6,914

IT Termination fees 452 — — — — 452 —

Anniversary expenses 120 — — — — 120 —

Adjusted income before income taxes $ 6,565 $ 5,610 $ 3,558 $ 3,083 $ 3,648 $ 12,175 $ 8,200

3 unchanged sentences

Partial charge-off of C&I participation loan — — — — — — 1,452

IT Termination fees 95 — — — — 95 —

Anniversary expenses 25 — — — — 25 —

Adjusted income tax provision (benefit) $ 338 $ 429 $ (585) $ (326) $ (234) $ 767 $ (487)

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

2024 March 31,

2024 December 31,

1 unchanged sentence

2023 June 30,

2023 March 31,

Net income (loss) - GAAP $ 5,181 $ 4,143 $ 3,409 $ 3,882 $ (3,017)

2023 June 30,

2024 June 30,

Net income - GAAP $ 5,775 $ 5,181 $ 4,143 $ 3,409 $ 3,882 $ 10,956 $ 865

Mortgage-related revenue — — — — — — (51)

1 unchanged sentence

Partial charge-off of C&I participation loan — — — — — — 5,462

IT Termination fees 357 — — — — 357 —

Anniversary expenses 95 — — — — 95 —

Adjusted net income $ 6,227 $ 5,181 $ 4,143 $ 3,409 $ 3,882 $ 11,408 $ 8,687

Diluted average common shares outstanding 8,656,215 8,750,297 8,720,078 8,767,217 8,908,180 8,750,017 8,980,262

Diluted earnings (loss) per share - GAAP $ 0.59 $ 0.48 $ 0.39 $ 0.44 $ (0.33)

Diluted earnings per share - GAAP $ 0.67 $ 0.59 $ 0.48 $ 0.39 $ 0.44 $ 1.25 $ 0.10

Mortgage-related revenue — — — — — — (0.01)

1 unchanged sentence

Effect of partial charge-off of C&I participation loan — — — — — — 0.61

Effect of IT termination fees 0.04 — — — — 0.04 —

Effect of anniversary expenses 0.01 — — — — 0.01 —

Adjusted diluted earnings per share $ 0.72 $ 0.59 $ 0.48 $ 0.39 $ 0.44 $ 1.30 $ 0.97

Return on average assets 0.44 % 0.40 % 0.32 % 0.26 % 0.32 % 0.42 % 0.04 %

Effect of mortgage-related revenue — — — — — — —

Effect of mortgage-related costs — — — — — — 0.10 %

Effect of partial charge-off of C&I participation loan — — — — — — 0.23 %

Effect of IT termination fees 0.03 % — — — — 0.01 % 0.00 %

Effect of anniversary expenses 0.01 % — — — — 0.00 % —

Adjusted return on average assets 0.48 % 0.40 % 0.32 % 0.26 % 0.32 % 0.43 % 0.37 %

3 unchanged sentences

Effect of partial charge-off of C&I participation loan — — — — — — 3.05 %

Effect of IT termination fees 0.39 % — — — — 0.19 % —

Effect of anniversary expenses 0.10 % — — — — 0.05 % —

Adjusted return on average shareholders' equity 6.77 % 5.64 % 4.66 % 3.79 % 4.35 % 6.20 % 4.85 %

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

2024 March 31,

2024 December 31,

2023 September 30,

2023 June 30,

2024 June 30,

Return on average tangible common equity 6.36 % 5.71 % 4.72 % 3.84 % 4.40 % 6.04 % 0.49 %

2 unchanged sentences

Effect of partial charge-off of C&I participation loan — — — — — — 3.09 %

Effect of IT termination fees 0.39 % — — — — 0.20 % 0.00 %

Effect of anniversary expenses 0.10 % — — — — 0.05 % 0.00 %

Adjusted return on average tangible common equity 6.85 % 5.71 % 4.72 % 3.84 % 4.40 % 6.29 % 4.92 %

8 unchanged sentences

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

At both March 31, 2024 and December 31, 2023, the Company had interest rate swaps with notional amounts of $200.0 million.

The Company had interest rate swaps with notional amounts of $180.0 million at June 30, 2024, and $200.0 million at December 31, 2023.

Refer to Note 13 to the condensed consolidated financial statements for additional information about derivative financial instruments.

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