What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-07 compared with 2024-11-07 · 179 added, 351 removed, 401 unchanged (57% 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 $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 are one of the fastest-growing lenders in the Small Business Administration (“SBA”) 7(a) program, closing $113.8 million in SBA 7(a) loans during the three months ended March 31, 2025, and currently rank as the 8th largest SBA 7(a) lender for the SBA’s year-to-date 2025 fiscal year.

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

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

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

3 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 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.

As of March 31, 2025, the Company had consolidated assets of $5.9 billion, consolidated deposits of $4.9 billion and stockholders’ equity of $387.7 million.

Results of Operations

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 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 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

During the first quarter 2025, net income was $0.9 million, or $0.11 diluted earnings per share, compared to net income of $5.2 million, or $0.59 diluted earnings per share, during the first quarter 2024, representing a decrease in net income of $4.2 million, or 81.8%, and a decrease in diluted earnings per share of $0.48, or 81.4%.

The $4.2 million decrease in net income for the first quarter 2025 compared to the first quarter 2024 was due primarily to increases of $9.5 million, or 387.5%, in the provision for credit losses and $2.5 million, or 12.0%, in noninterest expense, partially offset by increases of $4.4 million, or 21.0%, in net interest income and $2.1 million, or 24.9%, in noninterest income as well as a $1.3 million income tax benefit.

During the first quarter 2025, return on average assets (“ROAA”), return on average shareholders’ equity (“ROAE”), and return on average tangible common equity (“ROATCE”) were 0.07%, 0.98%, and 0.99%, respectively, compared to 0.40%, 5.64%, and 5.71%, respectively, for the first quarter 2024.

Pre-tax, pre-provision income (“PTPP”) was $12.0 million, an increase of 48.5%, from PTPP of $8.1 million for the first quarter 2024.

The $3.9 million increase was due to increases of $8.7 million, or 12.7%, in interest income and $2.1 million, or 24.9%, in noninterest income, partially offset by increases of $4.3 million, or 9.1%, in interest expense and $2.5 million, or 12.0%, in noninterest expense.

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

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

March 31, 2025 December 31, 2024 March 31, 2024

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

38 unchanged sentences

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

Nine Months Ended

September 30, 2024 September 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 $ 3,953,170 $ 172,321 5.82 % $ 3,647,243 $ 139,647 5.12 %

Securities - taxable 670,728 19,123 3.81 % 531,197 11,742 2.96 %

Securities - non-taxable 76,257 2,981 5.22 % 72,829 2,570 4.72 %

Other earning assets 476,697 19,691 5.52 % 499,835 19,211 5.14 %

Total interest-earning assets 5,176,852 214,116 5.52 % 4,751,104 173,170 4.87 %

Allowance for credit losses - loans (41,526) (35,784)

Noninterest-earning assets 220,165 190,590

Total assets $ 5,355,491 $ 4,905,910

Interest-bearing liabilities

Interest-bearing demand deposits $ 467,054 $ 7,538 2.16 % $ 360,573 $ 4,540 1.68 %

Savings accounts 22,760 144 0.85 % 31,494 202 0.86 %

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

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 %

Total interest-bearing deposits 4,182,094 134,039 4.28 % 3,680,746 102,285 3.72 %

Other borrowed funds 662,824 16,251 3.28 % 719,577 15,788 2.93 %

Total interest-bearing liabilities 4,844,918 150,290 4.14 % 4,400,323 118,073 3.59 %

Noninterest-bearing deposits 114,425 126,647

Other noninterest-bearing liabilities 23,037 19,535

Total liabilities 4,982,380 4,546,505

Shareholders’ equity 373,111 359,405

Total liabilities and shareholders’ equity $ 5,355,491 $ 4,905,910

Net interest income $ 63,826 $ 55,097

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

1 unchanged sentence

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 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

Three Months Ended March 31, 2025 vs.

December 31, 2024 Due to Changes in Three Months Ended March 31, 2025 vs.

March 31, 2024 Due to Changes in

(amounts in thousands) Volume Rate Net Volume Rate Net

Interest income

8 unchanged sentences

Total 684 (3,171) (2,487) 9,877 (5,575) 4,302

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 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 8.85% 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 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 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, 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 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 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.

(Decrease) increase in net interest income $ (1,629) $ 3,174 $ 1,545 $ (1,804) $ 6,166 $ 4,362

Net interest income for the first quarter 2025 was $25.1 million, an increase of $4.4 million, or 21.0%, compared to $20.7 million for the first quarter 2024.

The increase in net interest income was the result of an $8.7 million, or 12.7%, increase in total interest income to $76.8 million for the first quarter 2025 from $68.2 million for the first quarter 2024, partially offset by a $4.3 million, or 9.1%, increase in total interest expense to $51.7 million for the first quarter 2025 from $47.4 million for the first quarter 2024.

The increase in total interest income for the first quarter 2025 compared to first quarter 2024 was due primarily to an increase in interest earned on loans, resulting from an increase of 26 bps in the yield earned on loans, including loans held-for-sale, as well as an increase of $350.3 million, or 9.0%, in the average balance of loans, including loans held-for-sale.

Additionally, the average balance of securities increased $198.4 million, or 28.2%, and the yield earned on the securities portfolio increased 29 bps for the first quarter 2025 compared to the first quarter 2024.

The yield on funded portfolio loan originations was 7.78% for the first quarter 2025, a decrease of 107 bps compared to the first quarter 2024, reflective of 100 bps of Fed rate cuts in the second half of 2024.

However, new origination yields remained well above the overall loan portfolio yield, helping to drive both total interest income and the loan portfolio yield higher.

The increase in total interest expense for the first quarter 2025 compared to the first quarter 2024 was due primarily to increases of $4.9 million, or 233.5%, in interest expense associated with interest-bearing demand deposits and $2.9 million, or 10.8%, in interest expense associated with certificates and brokered deposits, partially offset by decreases of $1.3 million, or 10.3%, in interest expense associated with money market accounts and $1.2 million, or 22.5%, in interest expense associated with other borrowed funds.

When combined with deposits formerly classified as fintech – brokered deposits, the increase in interest expense related to interest-bearing demand deposits was driven by an increase in the average balance of $173.2 million, or 22.1%, compared to the the fourth quarter of 2024 due to continued growth in fintech deposits, while the cost of fund increased 41 bps due to the change in deposit mix.

The increase in interest expense related to certificates and brokered deposits was driven by an increase in the average deposit balance of $371.2 million, or 16.5%, partially offset by a decrease of 20 bps in the cost of these deposits.

The decrease in interest expense related to money market accounts was driven by a 41 bp decrease in cost of these deposits.

The decrease in interest expense related to other borrowed funds was driven by a decrease in the average balance of $127.5 million, or 24.1%, partially offset by an increase of 31bps in the cost of funds.

Overall, the cost of total interest-bearing liabilities for the first quarter 2025 decreased 4 bps to 4.02% from 4.06% for the first quarter 2024.

Net interest margin (“NIM”) was 1.82% for the first quarter 2025 compared to 1.66% for the first quarter 2024, an increase of 16 bps.

On a fully-taxable equivalent (“FTE”) basis, NIM was 1.91% for the first quarter 2025 compared to 1.75% for the first quarter 2024, an increase of 16 bps.

The increase in the first quarter 2025 NIM and FTE NIM compared to the first quarter 2024 reflects the combination of deploying cash balances into higher yielding loans and securities and continued improvement in the cost of funds related to deposits.

Noninterest Income

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,

The following table shows noninterest income for each of the periods presented.

Three Months Ended

(amounts in thousands) March 31,

2025 December 31,

2023 September 30,

2024 September 30,

2024 March 31,

Service charges and fees $ 265 $ 248 $ 220

5 unchanged sentences

Total noninterest income $ 10,427 $ 15,936 $ 8,347

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 $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 $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.

During the first quarter 2025, noninterest income was $10.4 million, representing an increase of $2.1 million, or 24.9%, compared to $8.3 million for the first quarter 2024.

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

The increase of $2.1 million, or 32.3%, in gain on sale of loans was due primarily to an increase of 36.2% in the volume of U.S.

Small Business Administration (“SBA”) 7(a) guaranteed loan sales, partially offset by a decrease of 36 bps in the net premium earned on loan sales.

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

Noninterest Expense

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,

The following table shows noninterest expense for each of the periods presented.

Three Months Ended

(amounts in thousands) March 31,

2025 December 31,

2023 September 30,

2024 September 30,

2024 March 31,

Salaries and employee benefits $ 13,107 $ 14,042 $ 11,796

7 unchanged sentences

Total noninterest expense $ 23,556 $ 23,957 $ 21,023

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.

Noninterest expense for the first quarter 2025 was $23.6 million, compared to $21.0 million for the first quarter 2024.

The increase of $2.5 million, or 12.0%, was due primarily to increases of $1.3 million in salaries and employee benefits, $0.4 million in consulting and professional fees, $0.3 million in premises and equipment, $0.3 million in deposit insurance premium, $0.2 million in other expenses.

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 consulting and professional fees is due primarily to increased legal and audit fees.

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.

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.

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

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 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 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.

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 nine months ended September 30, 2023.

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

The increase in other expenses is due primarily to increases in service fees.

The Company recorded an income tax benefit of $0.9 million for the first quarter 2025, compared to an income tax provision of $0.4 million and an effective tax rate of 7.6% for the first quarter 2024.

Financial Condition

The following table presents summary balance sheet data for the last five completed fiscal quarters.

(in thousands)

The following table shows summary balance sheet data for each of the periods presented.

(amounts in thousands)

Balance Sheet Data:

September 30,

2024 June 30,

2024 March 31,

2025 December 31,

2023 September 30,

2024 March 31,

Total assets $ 5,851,608 $ 5,737,859 $ 5,340,667

7 unchanged sentences

Total shareholders’ equity 387,747 384,063 366,739

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.

Total assets increased $113.7 million, or 2.0%, to $5.9 billion at March 31, 2025 compared to $5.7 billion at December 31, 2024.

The increase was due primarily to an increase in deposits driven by growth in fintech partnerships which was used in conjunction with on-balance sheet liquidity to fund loan growth, purchase securities and pay down higher cost CD maturities and brokered deposits.

As of March 31, 2025, total shareholders’ equity was $387.7 million, an increase of $3.7 million, or 1.0%, compared to December 31, 2024.

The increase in shareholders’ equity was due primarily to the net income earned during the quarter and a decrease in accumulated other comprehensive loss as unrealized losses on securities decreased during the quarter.

Tangible common equity totaled $383.1 million as of March 31, 2025, representing an increase of $3.7 million, or 1.0%, compared to December 31, 2024.

The ratio of total shareholders’ equity to total assets decreased to 6.63% as of March 31, 2025 from 6.69% as of December 31, 2024, and the ratio of tangible common equity to tangible assets decreased to 6.55% as of March 31, 2025 from 6.62% as of December 31, 2024.

Book value per common share increased 0.6% to $44.58 as of March 31, 2025 from $44.31 as of December 31, 2024.

Tangible book value per share increased 0.6% to $44.04 as of March 31, 2025 from $43.77 as of December 31, 2024.

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.

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Loan Portfolio Analysis

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

(dollars in thousands) September 30,

2024 June 30,

2024 March 31,

The following table shows a summary of the Company’s loan portfolio for each of the periods presented.

(dollars in thousands) March 31,

2025 December 31,

2023 September 30,

2024 March 31,

Commercial loans

14 unchanged sentences

Total consumer loans 797,696 18.7 % 801,381 19.2 % 793,437 20.3 %

Net deferred loan origination costs, premiums and discounts on purchased loans and other 1

Net deferred loan origination costs, premiums and discounts

on purchased loans and other 1

24,657 0.6 % 26,680 0.6 % 35,234 0.9 %

2 unchanged sentences

Net loans $ 4,207,174 $ 4,125,877 $ 3,868,913

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.

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.

1 Includes carrying value adjustments of $22.1 million, $22.9 million and $26.9 million related to terminated interest rate swaps associated with public finance loans as of March 31, 2025, December 31, 2024 and March 31, 2024, respectively.

Total loans were $4.3 billion as of March 31, 2025, an increase of $83.8 million, or 2.0%, compared to December 31, 2024.

Total commercial loan balances were $3.4 billion as of March 31, 2025, up $89.5 million, or 2.7%, from December 31, 2024.

Total consumer loan balances were $797.7 million as of March 31, 2025, a decrease of $3.7 million, or 0.5%, compared to December 31, 2024.

Compared to December 31, 2024, 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 commercial and industrial portfolios.

These increases were partially offset by a decrease in the franchise finance portfolio and continued runoff in the healthcare finance portfolio, as well as decreases in the owner-occupied commercial real estate and public finance portfolios.

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

Asset Quality

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Nonperforming assets include nonperforming loans, other real estate owned and other nonperforming assets, which consist of repossessed assets.

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

(dollars in thousands) September 30,

2024 June 30,

2024 March 31,

The following table provides a summary of the Company’s nonperforming assets for each of the periods presented.

(dollars in thousands) March 31,

2025 December 31,

2023 September 30,

2024 March 31,

Nonaccrual loans

Commercial loans:

Owner-occupied commercial real estate $ — $ — $ — $ — $ —

Small business lending $ 12,658 $ 11,429 $ 9,532

11,364 10,246 9,532 6,824 4,443

Franchise finance 15,684 10,382 295

18 unchanged sentences

Other real estate owned

Small business lending 1,518 — —

Residential mortgage — 272 375

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Total nonperforming loans to total loans 0.80 % 0.68 % 0.33 %

0.56 % 0.33 % 0.33 % 0.26 % 0.16 %

Total nonperforming assets to total assets 0.61 % 0.50 % 0.25 %

0.57 % 0.24 % 0.25 % 0.20 % 0.12 %

Allowance for credit losses - loans to total loans 1.11 % 1.07 % 1.05 %

1 unchanged sentence

Allowance for credit losses - loans to nonaccrual loans 142.2 % 172.5 % 333.4 %

217.1 % 349.6 % 333.4 % 425.0 % 619.4 %

Allowance for credit losses - loans to nonperforming loans 138.0 % 157.5 % 313.3 %

203.4 % 334.5 % 313.3 % 389.2 % 619.4 %

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

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

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

Total nonperforming loans increased $5.8 million, or 20.5%, to $34.2 million as of March 31, 2025 compared to $28.4 million as of December 31, 2024 due primarily to an increase in nonperforming loans in franchise finance and small business lending during the year.

Total nonperforming assets increased $7.0 million, or 24.3%, to $35.9 million as of March 31, 2025, compared to $28.9 million as of December 31, 2024, due primarily to the increase in nonperforming loans in franchise finance and small business lending mentioned above, and an increase in OREO related to small business lending.

As of March 31, 2025, the Company had two small business lending properties in OREO with a carrying value of $1.5 million.

As of December 31, 2024, the Company had one residential mortgage property in OREO with a carrying value of $0.3 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 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,

The following table provides a rollforward of the allowance for credit losses for each of the periods presented;

however, allocation of a portion of the allowance to one segment does not preclude its availability to absorb losses in other segments.

Three Months Ended

(dollars in thousands) March 31,

2025 December 31,

2023 September 30,

2024 September 30,

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

Adoption of ASU 2016-13 (CECL) — — — — — — 2,962

2024 March 31,

Balance, beginning of period $ 44,769 $ 45,721 $ 38,774

1 unchanged sentence

Losses charged off

Commercial and industrial — — — — — — 6,965

Investor commercial real estate — — — — 591 — 591

Single tenant lease financing — 195 — — — 195 —

Healthcare finance — — — 580 — — 25

Small business lending 3,668 8,270 289

13 unchanged sentences

Commercial and industrial (0.01 %) 0.00 % (0.01 %)

Investor commercial real estate 0.00 % 0.00 % 0.00 % 0.00 % 0.59 % 0.00 % 0.63 %

Single tenant lease financing 0.00 % 0.04 % 0.00 % 0.00 % 0.00 % 0.03 % 0.00 %

Healthcare finance 0.00 % 0.00 % 0.00 % 0.25 % 0.00 % 0.00 % 0.01 %

Small business lending 3.79 % 2.38 % 0.40 %

6 unchanged sentences

Total net charge-offs to average loans 0.92 % 0.91 % 0.05 %

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.

The allowance for credit losses - loans (“ACL”) was $47.2 million as of March 31, 2025, compared to $44.8 million as of December 31, 2024.

The increase in the ACL reflects the addition of specific reserves related to franchise finance and small business lending loans that were placed on nonaccrual during the quarter and growth in the overall loan portfolio, partially offset by the impact of economic metrics on qualitative factors in certain portfolios.

The net increase to specific reserves totaled $3.3 million, of which, $2.5 million related to franchise finance and $0.8 million related to small business lending.

The ACL as a percentage of total loans was 1.11% at March 31, 2025, compared to 1.07% at December 31, 2024.

The ACL as a percentage of nonperforming loans decreased to 138.0% as of March 31, 2025, compared to 157.5% as of December 31, 2024 as the percentage increase in nonperforming loans outpaced the increase in the overall loan portfolio.

Net charge-offs of $9.7 million were recognized during the first quarter 2025, resulting in net charge-offs to average loans of 0.92%, compared to net charge-offs of $0.5 million, or 0.05% of average loans, for the first quarter 2024.

Net charge-offs in the first quarter of 2025 were elevated as the Company continued to take action to resolve problem loans in the small business lending and franchise finance portfolios.

The increase in net charge-offs included $3.5 million in small business lending and $0.3 million in consumer loan portfolios.

Approximately $5.8 million of net charge-offs recognized during the quarter were related to franchise finance loans with $2.6 million of existing specific reserves.

The provision for credit losses - loans in the first quarter 2025 was $12.1 million, compared to $2.6 million for the first quarter 2024.

The increase in the provision for credit losses - loans for the first quarter 2025 was driven primarily by the

elevated net charge-offs, the additional specific reserves discussed above and overall growth in the loan portfolio, partially offset by the impact of economic metrics on qualitative factors in certain portfolios.

Investment Securities Portfolio

The following tables present the amortized cost and approximate fair value of our investment securities portfolio by security type for the last five completed fiscal quarters.

(in thousands)

Amortized Cost September 30,

2024 June 30,

2024 March 31,

The following tables show the amortized cost and approximate fair value of our investment securities portfolio by security type for each of the periods presented.

(amounts in thousands)

Amortized Cost March 31,

2025 December 31,

2023 September 30,

2024 March 31,

Securities available-for-sale

14 unchanged sentences

Total securities $ 993,402 $ 876,650 $ 758,703

(in thousands)

Approximate Fair Value September 30,

2024 June 30,

2024 March 31,

(amounts in thousands)

Approximate Fair Value March 31,

2025 December 31,

2023 September 30,

2024 March 31,

Securities available-for-sale

14 unchanged sentences

Total securities $ 940,901 $ 816,206 $ 696,651

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 approximate fair value of available-for-sale investment securities increased $94.4 million, or 16.1%, to $681.8 million as of March 31, 2025, compared to $587.4 million as of December 31, 2024.

The increase was due primarily to increases of $101.4 million in agency mortgage-backed securities - residential and $4.3 million in corporate securities, partially offset by decreases of $4.5 million in U.S.

Government-sponsored agencies, $2.7 million in municipal securities and $2.5 million in private label mortgage-backed securities - residential.

The Company deployed liquidity during the first quarter of 2025 into new purchases of variable-rate agency mortgage-backed security-residential, which was within certain available-for-sale portfolios, partially offset by net pay down activity.

As of March 31, 2025, the Company had securities with a net carrying value of $276.5 million designated as held-to-maturity, compared to $249.8 million as of December 31, 2024.

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 $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 income and other assets increased $3.8 million, or 6.0%, to $66.8 million at March 31, 2025, compared to $63.0 million at December 31, 2024.

The increase was due primarily to increases of $4.1 million in equity fund investments, $0.8 million in prepaid assets and $0.1 million in both deferred tax assets and derivative assets, partially offset by a decrease in receivables related to a bond that was called in the fourth quarter 2024.

Accrued Expenses and Other Liabilities

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) September 30,

2024 June 30,

2024 March 31,

Accrued expenses and other liabilities decreased $1.6 million, or 8.8%, to $16.4 million at March 31, 2025, compared to $17.9 million at December 31, 2024.

The decrease was due primarily to decreases of $3.1 million in accrued salary and benefits, partially offset by $1.4 million in other various expenses and liabilities, none of which were individually significant.

The following table shows the composition of the Company’s deposit base for each of the periods presented.

(dollars in thousands) March 31,

2025 December 31,

2023 September 30,

2024 March 31,

Noninterest-bearing deposits $ 151,815 3.1 % $ 136,451 2.8 % $ 130,760 3.1 %

Interest-bearing demand deposits 1

1,103,540 22.3 % 896,661 18.2 % 423,529 9.9 %

Savings accounts 21,632 0.4 % 19,823 0.4 % 23,554 0.6 %

1 unchanged sentence

Fintech - brokered deposits 1

— — % — — % 107,911 2.5 %

Certificates of deposits 2,029,801 41.0 % 2,133,455 43.2 % 1,738,996 40.7 %

1 unchanged sentence

Total deposits $ 4,945,625 100.0 % $ 4,933,206 100.0 % $ 4,273,768 100.0 %

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.

1 Fintech - brokered deposits that had been previously classified as brokered deposits were reclassified to interest-bearing demand deposits as of December 31, 2024.

Total deposits increased $12.4 million, or 0.3%, to $4.9 billion as of March 31, 2025, compared to $4.9 billion as of December 31, 2024.

The increase was due primarily to increases of $206.9 million, or 23.1%, in interest-bearing demand deposits, $108.4 million, or 9.2%, in money market accounts and $15.4 million, or 11.3%, in noninterest-bearing deposits, partially offset by decreases of $216.4 million, or 38.4%, in brokered deposits and $103.7 million, or 4.9%, in certificates of deposits.

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

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 24% of total deposits at September 30, 2024, down from 25% at December 31, 2023.

When combined with the liquidity provided by growth in money market accounts, the Company paid down a significant amount of higher-cost brokered deposits and maturing certificates of deposits.

Uninsured deposit balances represented 27% of total deposits at March 31, 2025, up from 25% at December 31, 2024.

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 19% at both September 30, 2024 and December 31, 2023.

After subtracting these types of deposits, the adjusted uninsured deposit balance drops to 22% as of March 31, 2025, compared to 20% as of December 31, 2024.

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 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.

The following tables present actual and required capital ratios as of March 31, 2025 and December 31, 2024 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, 2025 and December 31, 2024, 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 September 30, 2024:

As of March 31, 2025:

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 October 15, 2024 to shareholders of record as of September 30, 2024.

The Company’s Board of Directors declared a cash dividend of $0.06 per share of common stock payable April 15, 2025 to shareholders of record as of March 31, 2025.

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 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.

As of March 31, 2025, 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.

6 unchanged sentences

The new program authorized the repurchase of up to $25.0 million of our outstanding common stock from time to time on the open market or in privately negotiated transactions.

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 September 30, 2024, at an average price of $19.06, for a total investment of $10.7 million.

The stock repurchase authorization expired on December 31, 2024.

Under this program, the Company repurchased 559,522 shares of common stock 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.

4 unchanged sentences

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

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

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

At 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.

At March 31, 2025, on a consolidated basis, the Company had $1.1 billion in cash and cash equivalents and investment securities available-for-sale and $31.7 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 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.

At March 31, 2025, the Bank had the ability to borrow an additional $1.7 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 194% 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 September 30, 2024, the Company, on an unconsolidated basis, had $9.7 million in cash for debt servicing and operating expenses.

At March 31, 2025, the Company, on an unconsolidated basis, had $12.7 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 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.

At March 31, 2025, approved outstanding loan commitments, including unused lines of credit and standby letters of credit, amounted to $626.2 million.

Certificates of deposits and brokered deposits scheduled to mature in one year or less at March 31, 2025 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.

1 unchanged sentence

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

Non-GAAP financial measures, specifically tangible common equity, tangible assets, tangible book value per common share, tangible common equity to tangible assets, average tangible common equity, return on average tangible common equity, total interest income - FTE, net interest income - FTE, net interest margin - FTE, adjusted total revenue, adjusted noninterest income, adjusted noninterest expense, adjusted income before income taxes, adjusted income tax provision (benefit), adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average shareholders’ equity and adjusted return on average tangible common equity are used by the Company’s management to measure the strength of its capital and analyze profitability, including its ability to generate earnings on tangible capital invested by its shareholders.

Non-GAAP financial measures, specifically tangible common equity, tangible assets, tangible book value per common share, tangible common equity to tangible assets, average tangible common equity, return on average tangible common equity, total interest income - FTE, net interest income - FTE, net interest margin - FTE, adjusted total revenue, pre-tax, pre-provision income, adjusted pre-tax, pre-provision income, adjusted noninterest income, adjusted income before income taxes, adjusted income tax (benefit) provision, adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average shareholders’ equity and adjusted return on average tangible common equity are used by the Company’s management to measure the strength of its capital and analyze profitability, including its ability to generate earnings on tangible capital invested by its shareholders.

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

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

Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the following table for the last five completed fiscal quarters.

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

September 30,

2024 June 30,

2024 March 31,

Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the following table for each of the periods presented.

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

2025 December 31,

2023 September 30,

2024 September 30,

2024 March 31,

Total equity - GAAP $ 387,747 $ 384,063 $ 366,739

17 unchanged sentences

Return on average tangible common equity 0.99 % 7.58 % 5.71 %

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

September 30,

2024 June 30,

2024 March 31,

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

2025 December 31,

2023 September 30,

2024 September 30,

2024 March 31,

Total interest income $ 76,829 $ 77,771 $ 68,165

11 unchanged sentences

1 Assuming a 21% tax rate

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

September 30,

2024 June 30,

2024 March 31,

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

2025 December 31,

2023 September 30,

2024 September 30,

2024 March 31,

Total revenue- GAAP $ 35,523 $ 39,487 $ 29,081

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

Gain on prepayment of FHLB advances — (1,829) —

Gain on termination of swaps — (2,904) —

Adjusted total revenue $ 35,523 $ 34,754 $ 29,081

Net income-GAAP $ 943 $ 7,330 $ 5,181

Provision for credit losses 11,933 7,201 2,448

Income tax (benefit) provision (909) 999 429

Pre-tax, pre-provision income $ 11,967 $ 15,530 $ 8,058

Gain on prepayment of FHLB advances — (1,829) —

Gain on termination of swaps — (2,904) —

Adjusted pre-tax, pre-provision income $ 11,967 $ 10,797 $ 8,058

Noninterest income - GAAP $ 10,427 $ 15,936 $ 8,347

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

Gain on prepayment of FHLB advances — (1,829) —

Gain on termination of swaps — (2,904) —

Adjusted noninterest income $ 10,427 $ 11,203 $ 8,347

Noninterest expense - GAAP $ 22,794 $ 22,336 $ 21,023 $ 20,056 $ 19,756 $ 66,153 $ 59,380

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

IT termination fees — (452) — — — (452) —

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

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

Income before income taxes - GAAP $ 34 $ 8,329 $ 5,610

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

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

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

IT termination fees — 452 — — — 452 —

Anniversary expenses — 120 — — — 120 —

Gain on prepayment of FHLB advances — (1,829) —

Gain on termination of swaps — (2,904) —

Adjusted income before income taxes $ 34 $ 3,596 $ 5,610

Income tax provision (benefit) - GAAP $ 620 $ 218 $ 429 $ (585) $ (326) $ 1,267 $ (2,892)

Mortgage-related revenue — — — — — — (14)

Mortgage-related costs — — — — — — 641

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

IT termination fees — 95 — — — 95 —

Anniversary expenses — 25 — — — 25 —

Adjusted income tax provision (benefit) $ 620 $ 338 $ 429 $ (585) $ (326) $ 1,387 $ (813)

1 Assuming a 21% tax rate

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

September 30,

2024 June 30,

2024 March 31,

2024 December 31,

2023 September 30,

2024 September 30,

Income tax (benefit) provision - GAAP $ (909) $ 999 $ 429

Gain on prepayment of FHLB advances — (384) —

Gain on termination of swaps — (610) —

Adjusted income tax (benefit) provision $ (909) $ 5 $ 429

Net income - GAAP $ 943 $ 7,330 $ 5,181

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

Mortgage-related costs — — — — — — 2,411

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

IT termination fees — 357 — — — 357 —

Anniversary expenses — 95 — — — 95 —

Gain on prepayment of FHLB advances — (1,445) —

Gain on termination of swaps — (2,294) —

Adjusted net income $ 943 $ 3,591 $ 5,181

1 Assuming a 21% tax rate

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

2025 December 31,

2024 March 31,

Diluted average common shares outstanding 8,784,970 8,788,793 8,750,297

Diluted earnings per share - GAAP $ 0.11 $ 0.83 $ 0.59

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

Mortgage-related costs — — — — — — 0.27

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 —

Effect of gain on prepayment of FHLB advances — (0.16) —

Effect of gain on termination of swaps — (0.26) —

Adjusted diluted earnings per share $ 0.11 $ 0.41 $ 0.59

Return on average assets 0.07 % 0.50 % 0.40 %

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

Effect of mortgage-related costs — — — — — — 0.07 %

Effect of partial charge-off of C&I participation loan — — — — — — 0.15 %

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

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

Effect of gain on prepayment of FHLB advances — (0.10 %) —

Effect of gain on termination of swaps — (0.16 %) —

Adjusted return on average assets 0.07 % 0.24 % 0.40 %

Return on average shareholders' equity 0.98 % 7.49 % 5.64 %

Effect of mortgage-related revenue — — — — — — (0.02 %)

Effect of mortgage-related costs — — — — — — 0.90 %

Effect of partial charge-off of C&I participation loan — — — — — — 2.03 %

Effect of IT termination fees — 0.39 % — — — 0.13 % —

Effect of anniversary expenses — 0.10 % — — — 0.03 % —

Effect of gain on prepayment of FHLB advances — (1.48 %) —

Effect of gain on termination of swaps — (2.34 %) —

Adjusted return on average shareholders' equity 0.98 % 3.67 % 5.64 %

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

September 30,

2024 June 30,

2024 March 31,

2024 December 31,

2023 September 30,

2024 September 30,

Return on average tangible common equity 0.99 % 7.58 % 5.71 %

Effect of mortgage-related revenue — — — — — — (0.02 %)

Effect of mortgage-related costs — — — — — — 0.91 %

Effect of partial charge-off of C&I participation loan — — — — — — 2.06 %

Effect of IT termination fees — 0.39 % — — — 0.13 % —

Effect of anniversary expenses — 0.10 % — — — 0.03 % —

Effect of gain on prepayment of FHLB advances — (1.49 %) —

Effect of gain on termination of swaps — (2.37 %) —

Adjusted return on average tangible common equity 0.99 % 3.72 % 5.71 %

8 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 $160.0 million at September 30, 2024, and $200.0 million at December 31, 2023.

In November 2024, the Company’s interest rate swap derivative designated as fair value hedges matured.

In December 2024, the Company terminated interest rate swaps utilized as cash flow hedges against Federal Home Loan Bank advances.

As a result, the Company had no interest rate swaps that were classified as either fair value or cash flow hedges either at March 31, 2025 or at December 31, 2024.

Refer to Note 12 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