What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-07 · 186 added, 178 removed, 566 unchanged (39% of the section changed)

26 unchanged sentences

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 $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 are one of the fastest-growing lenders in the Small Business Administration (“SBA”) 7(a) program, closing $371.0 million in SBA 7(a) loans during the nine months ended September 30, 2024, and ranked as the 8th largest SBA 7(a) lender for the SBA’s 2024 fiscal year.

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

5 unchanged sentences

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.

As of September 30, 2024, the Company had consolidated assets of $5.8 billion, consolidated deposits of $4.8 billion and stockholders’ equity of $385.1 million.

Results of Operations

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.

During the third quarter 2024, net income was $7.0 million, or $0.80 diluted earnings per share, compared to net income of $3.4 million, or $0.39 diluted earnings per share, during the third quarter 2023, representing an increase in net income of $3.6 million, or 105.0%, and an increase in diluted earnings per share of $0.41, or 105.1%.

During the nine months ended September 30, 2024, net income was $17.9 million, or $2.05 diluted earnings per share, compared to the nine months ended September 30, 2023 net income of $4.3 million, or $0.48 per diluted share, resulting in an increase in net income of $13.7 million, or 319.9%, and an increase in diluted earnings per share of $1.57, or 327.1%.

The $3.6 million increase in net income for the third quarter 2024 compared to the third quarter 2023 was due primarily to a $4.6 million, or 62.4%, increase in noninterest income and a $4.4 million, or 25.2%, increase in net interest income, partially offset by increases of $3.0 million, or 15.4%, in noninterest expense, $1.4 million, or 74.2%, in the provision for credit losses and $0.9 million in income tax expense.

The $13.7 million increase in net income for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was due primarily to a $12.7 million, or 67.7%, increase in noninterest income, an $8.7 million, or 15.8%, increase in net interest income and a $3.2 million, or 24.4%, decrease in provision for credit losses, partially offset by increases of $6.8 million, or 11.4%, in noninterest expense and $4.2 million in income tax expense.

During the third quarter 2024, return on average assets (“ROAA”), return on average shareholders’ equity (“ROAE”), and return on average tangible common equity (“ROATCE”) were 0.50%, 7.32%, and 7.41%, respectively, compared to 0.26%, 3.79%, and 3.84%, respectively, for the third quarter 2023.

During the nine months ended September 30, 2024, ROAA, ROAE and ROATCE were 0.45%, 6.42%, and 6.51%, respectively, compared to 0.12%, 1.59%, and 1.61%, respectively, for the nine months ended September 30, 2023.

During the nine months ended September 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 nine months ended September 30, 2024 was $18.4 million and adjusted diluted earnings per share was $2.10.

Additionally, for the nine months ended September 30, 2024, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 0.46%, 6.58% and 6.67%, 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.

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

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

Additionally, during the nine months ended September 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

Excluding the impact of exiting consumer mortgage and the partial charge-off, adjusted net income for the nine months ended September 30, 2023 was $12.1 million and adjusted diluted earnings per share was $1.35.

Additionally, for the nine months ended September 30, 2023, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 0.34%, 4.50% and 4.56%, 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.

5 unchanged sentences

Three Months Ended

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

September 30, 2024 June 30, 2024 September 30, 2023

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

13 unchanged sentences

Money market accounts 1,224,680 12,980 4.22 % 1,243,011 13,075 4.23 % 1,230,746 12,537 4.04 %

BaaS - brokered deposits 119,662 1,299 4.37 % 85,366 931 4.39 % 22,918 230 4.03 %

Fintech - brokered deposits 153,012 1,682 4.37 % 119,662 1,299 4.37 % 31,891 348 4.33 %

Certificates and brokered deposits 2,472,166 29,825 4.80 % 2,313,192 27,506 4.78 % 2,235,321 25,267 4.48 %

22 unchanged sentences

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

Nine Months Ended

September 30, 2024 September 30, 2023

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

13 unchanged sentences

Money market accounts 1,228,538 38,727 4.21 % 1,293,728 37,151 3.84 %

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

Fintech - brokered deposits 119,470 3,912 4.37 % 23,246 716 4.12 %

Certificates and brokered deposits 2,344,272 83,718 4.77 % 1,971,705 59,676 4.05 %

22 unchanged sentences

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 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

Three Months Ended September 30, 2024 vs.

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

September 30, 2023 Due to Changes in Nine Months Ended September 30, 2024 vs.

September 30, 2023 Due to Changes in

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

10 unchanged sentences

Increase in net interest income $ 2,401 $ (1,963) $ 438 $ 2,740 $ 1,647 $ 4,387 $ 1,533 $ 7,196 $ 8,729

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%.

Net interest income for the third quarter 2024 was $21.8 million, an increase of $4.4 million, or 25.2%, compared to $17.4 million for the third quarter 2023.

The increase in net interest income was the result of a $12.0 million, or 19.0%, increase in total interest income to $75.0 million for the third quarter 2024 from $63.0 million for the third quarter 2023, partially offset by a $7.6 million, or 16.6%, increase in total interest expense to $53.2 million for the third quarter 2024 from $45.6 million for the third quarter 2023.

Net interest income for the nine months ended September 30, 2024 was $63.8 million, an increase of $8.7 million, or 15.8%, compared to $55.1 million for the nine months ended September 30, 2023.

The increase in net interest income was the result of a $40.9 million, or 23.6%, increase in total interest income to $214.1 million for the nine months ended September 30, 2024 from $173.2 million for the nine months ended September 30, 2023.

The increase in total interest income was partially offset by a $32.2 million, or 27.3%, increase in total interest expense to $150.3 million for the nine months ended September 30, 2024 from $118.1 million for the nine months ended September 30, 2023.

The increase in total interest income for the third quarter 2024 compared to third quarter 2023 was due primarily to an increase in interest earned on loans, resulting from an increase of 66 bps in the yield earned on loans, including loans held-for-sale, as well as an increase of $328.3 million, or 8.9%, in the average balance of loans, including loans held-for-sale.

Additionally, the average balance of securities increased $170.2 million, or 27.4%, and the yield earned on the securities portfolio increased 69 bps for the third quarter 2024 compared to the third 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 existing interest-earning assets.

The yield on funded portfolio loan originations was 8.85% for the third quarter 2024, a decrease of 7 bps compared to the third quarter 2023.

The increase in total interest income for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was due primarily to an increase in interest earned on loans resulting from an increase of 70 bps in the yield earned on loans, including loans held-for-sale, as well as an increase of $305.9 million, or 8.4%, in the average balance of loans, including loans held-for-sale.

Additionally, the average balance of securities increased $143.0 million, or 23.7%, and the yield earned on the securities portfolio increased 78 bps for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Furthermore, the yield on other earning assets increased 38 bps, partially offset by a $23.1 million, or 4.6%, decrease in the average balance of other earning assets.

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 yield on funded portfolio loan originations was 8.85% for the nine months ended September 30, 2024, an increase of 56 bps compared to the nine months ended September 30, 2023.

The increase in total interest expense for the third quarter 2024 compared to the third quarter 2023 was due primarily to increases of $4.6 million, or 18.0%, in interest expense associated with certificates and brokered deposits, $1.3 million, or 383.3%, in interest expense associated with fintech - brokered deposits and $0.7 million, or 35.1%, 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 32 bps in the cost of these deposits, as well as an increase of $236.8 million, or 10.6%, 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 higher-cost balances throughout 2023 and 2024.

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 fintech - brokered deposits was driven by an increase of 4 bps in the cost of these deposits, as well as an increase of $121.1 million, or 379.8%, in the average balance of these deposits.

The increase in interest expense related to interest-bearing demand deposits was driven by an increase of 6 bps in the cost of these deposits, as well as an increase of $123.9 million, or 32.0%, 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 total interest expense for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was due primarily to increases of $24.0 million, or 40.3%, in interest expense associated with certificates and brokered deposits, $3.2 million, or 446.4%, in interest expense associated with fintech - brokered deposits, $3.0 million, or 66.0%, in interest expense associated with interest-bearing demand deposits, and $1.6 million, or 4.2%, 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 72 bps in the cost of these deposits, as well as an increase of $372.6 million, or 18.9%, 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 the average balance of these deposits was driven by strong consumer and small business demand for certificates of deposits in 2024, partially offset by lower brokered deposit balances as the Company used on-balance sheet liquidity to pay down higher-cost balances throughout 2023 and 2024.

The increase in interest expense related to interest-bearing demand deposits was due primarily to a 48 bp increase in the cost of these deposits, as well as an increase of $106.5 million, or 29.5%, 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 fintech - brokered deposits was driven primarily by an increase of 25 bps in the cost of these deposits, as well as an increase of $96.2 million, or 413.9%, in the average balance of these deposits.

The increase in interest expense related to money market accounts was driven primarily by an increase of 37 bps in the cost of these deposits, partially offset by a decrease of $65.2 million, or 5.0%, 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.

Overall, the cost of total interest-bearing liabilities for the third quarter 2024 increased 32 bps to 4.23% from 3.91% for the third quarter 2023.

The cost of total interest-bearing liabilities for the nine months ended September 30, 2024 increased 55 bps to 4.14% from 3.59% for the nine months ended September 30, 2023.

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

Net interest margin (“NIM”) was 1.62% for the third quarter 2024 compared to 1.39% for the third quarter 2023, an increase of 23 bps.

On a fully-taxable equivalent (“FTE”) basis, NIM was 1.70% for the third quarter 2024 compared to 1.49% for the third quarter 2023, an increase of 21 bps.

NIM was 1.65% for the nine months ended September 30, 2024 compared to 1.55% for the nine months ended September 30, 2023, an increase of 10 bps.

FTE NIM was 1.74% for the nine months ended September 30, 2024 compared to 1.66% for the nine months ended September 30, 2023, an increase of 8 bps.

The increase in the third quarter 2024 NIM and FTE NIM compared to the third 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 FTE NIM for the nine months ended September 30, 2024 compared to the nine months ended September 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 and the six months ended June 30, 2024 and 2023.

Three Months Ended Six Months Ended

(in thousands) June 30,

The following table presents noninterest income for the last five completed fiscal quarters and the nine months ended September 30, 2024 and 2023.

Three Months Ended Nine Months Ended

(in thousands) September 30,

2024 June 30,

2024 March 31,

1 unchanged sentence

2023 September 30,

2023 June 30,

2024 June 30,

2023 September 30,

2024 September 30,

Service charges and fees $ 245 $ 246 $ 220 $ 216 $ 208 $ 711 $ 635

5 unchanged sentences

Total noninterest income $ 12,029 $ 11,033 $ 8,347 $ 7,401 $ 7,407 $ 31,409 $ 18,724

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.

During the third quarter 2024, noninterest income was $12.0 million, representing an increase of $4.6 million, or 62.4%, compared to $7.4 million for the third quarter 2023.

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

The increase of $4.4 million, or 78.4%, 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 of $0.3 million, or 36.9%, in other income was due primarily to distributions from fund investments.

The decrease in net loan servicing was due to the fair value adjustment to the loan servicing asset.

During the nine months ended September 30, 2024, noninterest income was $31.4 million, an increase of $12.7 million, or 67.7%, compared to $18.7 million for the nine month ended September 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 $10.3 million, or 70.8%, 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 increase of $2.2 million, or 147.8%, in other income was due primarily to distributions from fund investments.

The increase in net loan servicing revenue was due to growth in the balance of the Company’s SBA 7 (a) servicing portfolio, partially offset by the fair value adjustment to the loan servicing asset.

Noninterest Expense

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,

The following table presents noninterest expense for the last five completed fiscal quarters and the nine months ended September 30, 2024 and 2023.

Three Months Ended Nine Months Ended

(in thousands) September 30,

2024 June 30,

2024 March 31,

1 unchanged sentence

2023 September 30,

2023 June 30,

2024 June 30,

2023 September 30,

2024 September 30,

Salaries and employee benefits $ 13,456 $ 12,462 $ 11,796 $ 11,055 $ 11,767 $ 37,714 $ 34,267

7 unchanged sentences

Total noninterest expense $ 22,794 $ 22,336 $ 21,023 $ 20,056 $ 19,756 19756000 $ 66,153 $ 59,380

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.

Noninterest expense for the third quarter 2024 was $22.8 million, compared to $19.8 million for the third quarter 2023.

The increase of $3.0 million, or 15.4%, was due primarily to increases of $1.7 million in salaries and employee benefits, $0.6 million in premises and equipment, $0.4 million in consulting and professional fees, $0.2 million in loan expenses, and $0.2 million in deposit insurance premium.

The increase in salaries and employee benefits was due primarily to higher small business lending incentive compensation, as well as staff additions in small business lending and risk management.

The increase in premises and equipment was due primarily to property taxes, as well as software maintenance expense.

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.

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

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

Noninterest expense for the nine months ended September 30, 2024 was $66.2 million, compared to $59.4 million for the nine months ended September 30, 2023.

The increase of $6.8 million, or 11.4%, was due primarily to increases of $3.4 million in salaries and employee benefits, $1.1 million in premises and equipment, $1.0 million in deposit insurance premium, $0.6 million in other expenses and $0.6 million in consulting and professional fees.

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.

1 unchanged sentence

Excluding these costs, salaries and employee benefits increased $6.4 million, or 20.4%.

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 salaries and employee benefits was due primarily to higher small business lending incentive compensation and staff additions in small business lending and risk management, as well as higher incentive compensation accruals based on the increase in net income for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

The increase in premises and equipment was due primarily to non-recurring IT termination fees, property taxes and software maintenance expense.

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.

The increase in other expenses was due primarily 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.

The Company recorded an income tax provision of $0.6 million and an effective tax rate of 8.1% for the third quarter 2024, compared to an income tax benefit of $0.3 million for the third quarter 2023.

The Company recorded an income tax provision of $1.3 million and an effective tax rate of 6.6% for the nine months ended September 30, 2024, compared to an income tax benefit of $2.9 million for the nine months ended September 30, 2023.

Financial Condition

2 unchanged sentences

Balance Sheet Data:

September 30,

2024 June 30,

2024 March 31,

1 unchanged sentence

2023 September 30,

2023 June 30,

Total assets $ 5,823,259 $ 5,343,302 $ 5,340,667 $ 5,167,572 $ 5,169,023

7 unchanged sentences

Total shareholders’ equity 385,129 371,953 366,739 362,795 347,744

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.

Total assets increased $655.7 million, or 12.7%, to $5.8 billion at September 30, 2024 compared to $5.2 billion at December 31, 2023.

The increase was due primarily to increases in cash balances, securities and loans.

As of September 30, 2024, total shareholders’ equity was $385.1 million, an increase of $22.3 million, or 6.2%, compared to December 31, 2023.

The increase in shareholders’ equity was due primarily to the net income earned during the nine months ended September 30, 2024 and a decrease in accumulated other comprehensive loss, as unrealized losses on securities decreased during 2024.

Tangible common equity totaled $380.4 million as of September 30, 2024, representing an

increase of $22.3 million, or 6.2%, compared to December 31, 2023.

The ratio of total shareholders’ equity to total assets decreased to 6.61% as of September 30, 2024 from 7.02% as of December 31, 2023, and the ratio of tangible common equity to tangible assets decreased to 6.54% as of September 30, 2024 from 6.94% as of December 31, 2023.

Book value per common share increased 5.9% to $44.43 as of September 30, 2024 from $41.97 as of December 31, 2023.

Tangible book value per share increased 5.9% to $43.89 as of September 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.

2 unchanged sentences

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

(dollars in thousands) June 30,

(dollars in thousands) September 30,

2024 June 30,

2024 March 31,

1 unchanged sentence

2023 September 30,

2023 June 30,

Commercial loans

19 unchanged sentences

Net loans $ 3,990,159 $ 3,917,741 $ 3,868,913 $ 3,801,446 $ 3,698,616

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.

1 Includes carrying value adjustments of $24.1 million, $25.6 million, $26.9 million, $27.8 million and $29.0 million related to terminated interest rate swaps associated with public finance loans as of September 30, 2024, June 30, 2024, March 31, 2024, December 31, 2023 and September 30, 2023, respectively.

Total loans were $4.0 billion as of September 30, 2024, an increase of $195.7 million, or 5.1%, compared to December 31, 2023.

Total commercial loan balances were $3.2 billion as of September 30, 2024, up $197.6 million, or 6.6%, from December 31, 2023.

Total consumer loan balances were $803.4 million as of September 30, 2024, an increase of $6.4 million, or 0.8%, 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 investor commercial real estate, small business lending, construction, 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.

5 unchanged sentences

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

(dollars in thousands) June 30,

(dollars in thousands) September 30,

2024 June 30,

2024 March 31,

1 unchanged sentence

2023 September 30,

2023 June 30,

Nonaccrual loans

12 unchanged sentences

Commercial loans:

Small business lending 61 — — — —

Franchise finance 785 556 230 — —

24 unchanged sentences

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.

Total nonperforming loans increased $12.5 million, or 125.6%, to $22.5 million as of September 30, 2024 compared to $10.0 million as of December 31, 2023 due primarily to an increase in nonperforming loans in franchise finance and small business lending during the year.

Total nonperforming assets increased $12.6 million, or 121.6%, to $22.9 million as of

September 30, 2024, compared to $10.4 million as of December 31, 2023, due primarily to the increase in nonperforming loans in franchise finance and small business lending mentioned above.

As of September 30, 2024, the Company had one residential mortgage property in OREO with a carrying value of $0.3 million.

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 and the six months ended June 30, 2024 and 2023.

Three Months Ended Six Months Ended

(dollars in thousands) June 30,

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

Three Months Ended Nine Months Ended

(dollars in thousands) September 30,

2024 June 30,

2024 March 31,

1 unchanged sentence

2023 September 30,

2023 June 30,

2024 June 30,

2023 September 30,

2024 September 30,

Balance, beginning of period $ 43,405 $ 40,891 $ 38,774 $ 36,452 $ 36,058 $ 38,774 $ 31,737

33 unchanged sentences

Total net charge-offs to average loans 0.15 % 0.14 % 0.05 % 0.12 % 0.16 % 0.12 % 0.38 %

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.

The allowance for credit losses - loans (“ACL”) was $45.7 million as of September 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 and franchise finance loans, partially offset by the impact of economic data on forecasted loss rates and qualitative factors for other portfolios.

The ACL as a percentage of total loans was 1.13% at September 30, 2024, compared to 1.01% at December 31, 2023.

The ACL as a percentage of nonperforming loans decreased to 203.4% as of September 30, 2024, compared to 389.2% as of December 31, 2023, due primarily to the increase in nonperforming loans in small business lending and franchise finance.

Net charge-offs of $1.5 million were recognized during the third quarter 2024, resulting in net charge-offs to average loans of 0.15%, compared to net charge-offs of $1.5 million, or 0.16% of average loans, for the third quarter 2023.

During the nine months ended September 30, 2024, the Company recorded net charge-offs of $3.4 million, compared to net charge-offs of $10.2 million during the nine months ended September 30, 2023.

The decrease in net charge-offs for the nine months ended September 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 charged off during the first quarter 2023.

The provision for credit losses - loans in the third quarter 2024 was $3.9 million, compared to $1.9 million for the third quarter 2023.

The increase in the provision for credit losses - loans for the third 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 and franchise finance loans, partially offset by the impact of economic data on forecasted loss rates and qualitative factors on other portfolios.

Investment Securities Portfolio

1 unchanged sentence

(in thousands)

Amortized Cost June 30,

Amortized Cost September 30,

2024 June 30,

2024 March 31,

1 unchanged sentence

2023 September 30,

2023 June 30,

Securities available-for-sale

15 unchanged sentences

(in thousands)

Approximate Fair Value June 30,

Approximate Fair Value September 30,

2024 June 30,

2024 March 31,

1 unchanged sentence

2023 September 30,

2023 June 30,

Securities available-for-sale

14 unchanged sentences

Total securities $ 824,875 $ 736,002 $ 696,651 $ 682,427 $ 652,477

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, $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 approximate fair value of available-for-sale investment securities increased $100.4 million, or 21.1%, to $575.3 million as of September 30, 2024, compared to $474.9 million as of December 31, 2023.

The increase was due primarily to increases of $59.2 million in agency mortgage-backed securities - residential, $26.0 million in agency mortgage-backed securities - commercial, $13.8 million in private label mortgage-backed securities - residential and $10.3 million in asset-backed securities, partially offset by a decrease of $6.9 million in U.S.

Government-sponsored agencies.

This increase was

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

As of September 30, 2024, the Company had securities with a net carrying value of $263.3 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 $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 income and other assets increased $9.0 million, or 17.6%, to $60.1 million at September 30, 2024, compared to $51.1 million at December 31, 2023.

The increase was due primarily to increases of $11.1 million in equity investments and $4.1 million in income tax receivable, partially offset by a decrease of $5.8 million in deferred tax assets.

Accrued Expenses and Other Liabilities

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.

Accrued expenses and other liabilities increased $3.4 million, or 23.7%, to $17.5 million at September 30, 2024, compared to $14.2 million at December 31, 2023.

The increase was due primarily to increases of $1.9 million in accrued salary and benefits, and $1.5 million in other various expenses and liabilities.

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

(dollars in thousands) June 30,

(dollars in thousands) September 30,

2024 June 30,

2024 March 31,

1 unchanged sentence

2023 September 30,

2023 June 30,

Noninterest-bearing deposits $ 111,591 2.3 % $ 126,438 3.0 % $ 130,760 3.1 % $ 123,464 3.0 % $ 125,265 3.1 %

2 unchanged sentences

Money market accounts 1,230,707 25.7 % 1,222,197 28.6 % 1,251,230 29.2 % 1,248,319 30.8 % 1,222,511 29.9 %

BaaS - brokered deposits 140,180 3.3 % 107,911 2.5 % 74,401 1.8 % 41,884 1.0 % 25,549 0.7 %

Fintech - brokered deposits 211,814 4.4 % 140,180 3.3 % 107,911 2.5 % 74,401 1.8 % 41,884 1.0 %

Certificates of deposits 2,110,618 44.0 % 1,829,644 42.8 % 1,738,996 40.7 % 1,605,156 39.5 % 1,624,447 39.8 %

1 unchanged sentence

Total deposits $ 4,797,710 100.0 % $ 4,273,922 100.0 % $ 4,273,768 100.0 % $ 4,066,973 100.0 % $ 4,083,545 100.0 %

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.

Total deposits increased $730.7 million, or 18.0%, to $4.8 billion as of September 30, 2024, compared to $4.1 billion as of December 31, 2023.

The increase was due primarily to increases of $505.5 million, or 31.5%, in certificates of deposits, $137.4 million, or 184.7%, in fintech - brokered deposits and $135.5 million, or 33.6% in interest-bearing demand deposits, partially offset by decreases of $18.5 million, or 3.1%, in brokered deposits, $17.6 million, or 1.4%, in money market accounts and $11.9 million, or 9.6%, in noninterest-bearing deposits.

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

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

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 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.

Uninsured deposit balances represented 24% of total deposits at September 30, 2024, down 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% as of June 30, 2024, compared to 19% as of December 31, 2023.

After subtracting these types of deposits, the adjusted uninsured deposit balance drops to 19% at both September 30, 2024 and 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 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.

The following tables present actual and required capital ratios as of September 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 September 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 June 30, 2024:

As of September 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 July 15, 2024 to shareholders of record as of June 28, 2024.

The Company’s Board of Directors declared a cash dividend of $0.06 per share of common stock payable October 15, 2024 to shareholders of record as of September 30, 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 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.

As of September 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 June 30, 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 September 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 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.

At September 30, 2024, on a consolidated basis, the Company had $1.3 billion in cash and cash equivalents and investment securities available-for-sale and $33.0 million in loans held-for-sale that were generally available for its cash needs.

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

At June 30, 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.

At September 30, 2024, the Bank had the ability to borrow an additional $1.4 billion from the FHLB, the Federal Reserve and correspondent bank Fed Funds lines of credit, which when combined with cash balances, totaled $2.1 billion and represented 230% 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 June 30, 2024, the Company, on an unconsolidated basis, had $8.2 million in cash for debt servicing and operating expenses.

At September 30, 2024, the Company, on an unconsolidated basis, had $9.7 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 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.

At September 30, 2024, approved outstanding loan commitments, including unused lines of credit and standby letters of credit, amounted to $708.3 million.

Certificates of deposits and brokered deposits scheduled to mature in one year or less at September 30, 2024 totaled $1.4 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 Six Months Ended

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

September 30,

2024 June 30,

2024 March 31,

1 unchanged sentence

2023 September 30,

2023 June 30,

2024 June 30,

2023 September 30,

2024 September 30,

Total equity - GAAP $ 385,129 $ 371,953 $ 366,739 $ 362,795 $ 347,744 $ 385,129 $ 347,744

17 unchanged sentences

Return on average tangible common equity 7.41 % 6.36 % 5.71 % 4.72 % 3.84 % 6.51 % 1.61 %

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

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

September 30,

2024 June 30,

2024 March 31,

1 unchanged sentence

2023 September 30,

2023 June 30,

2024 June 30,

2023 September 30,

2024 September 30,

Total interest income $ 74,990 $ 70,961 $ 68,165 $ 66,272 $ 63,015 $ 214,116 $ 173,170

11 unchanged sentences

1 Assuming a 21% tax rate

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

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

September 30,

2024 June 30,

2024 March 31,

1 unchanged sentence

2023 September 30,

2023 June 30,

2024 June 30,

2023 September 30,

2024 September 30,

Total revenue- GAAP $ 33,794 $ 32,360 $ 29,081 $ 27,208 $ 24,785 $ 95,235 $ 73,821

9 unchanged sentences

Adjusted noninterest expense $ 22,794 $ 21,764 $ 21,023 $ 20,056 $ 19,756 $ 65,581 $ 56,328

Income (loss) before income taxes - GAAP $ 5,993 $ 5,610 $ 3,558 $ 3,083 $ 3,648 $ 11,603 $ (1,701)

Income before income taxes - GAAP $ 7,610 $ 5,993 $ 5,610 $ 3,558 $ 3,083 $ 19,213 $ 1,382

Mortgage-related revenue — — — — — — (65)

12 unchanged sentences

1 Assuming a 21% tax rate

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

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

September 30,

2024 June 30,

2024 March 31,

1 unchanged sentence

2023 September 30,

2023 June 30,

2024 June 30,

2023 September 30,

2024 September 30,

Net income - GAAP $ 6,990 $ 5,775 $ 5,181 $ 4,143 $ 3,409 $ 17,946 $ 4,274

27 unchanged sentences

Adjusted return on average shareholders' equity 7.32 % 6.77 % 5.64 % 4.66 % 3.79 % 6.58 % 4.50 %

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

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

September 30,

2024 June 30,

2024 March 31,

1 unchanged sentence

2023 September 30,

2023 June 30,

2024 June 30,

2023 September 30,

2024 September 30,

Return on average tangible common equity 7.41 % 6.36 % 5.71 % 4.72 % 3.84 % 6.51 % 1.61 %

14 unchanged sentences

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

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.

The Company had interest rate swaps with notional amounts of $160.0 million at September 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