UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2023~~March 31, 2024

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ________

Commission File Number 001-38412

BRIDGEWATER BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


Minnesota (State or other jurisdiction of incorporation or organization)		26-0113412 (I.R.S. Employer Identification No.)

4450 Excelsior Boulevard, Suite 100 St. Louis Park, Minnesota (Address of principal executive offices)		55416 (Zip Code)

(952) 893-6868

(Registrant’s telephone number, including area code)

. Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common Stock, $0.01 Par Value	BWB	The Nasdaq Stock Market LLC
Depositary Shares, each representing a 1/100^th interest in a share of 5.875% Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share	BWBBP	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
	Emerging growth company ☒☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the Common Stock outstanding as of ~~October 31, 2023~~April 30, 2024 was ~~28,000,570~~27,373,972.

Table of Contents

Table of Contents


PART I FINANCIAL INFORMATION	3

Item 1. Consolidated Financial Statements (unaudited)	3
Consolidated Balance Sheets	3
Consolidated Statements of Income	4
Consolidated Statements of Comprehensive Income	5
Consolidated Statements of Shareholders’ Equity	6
Consolidated Statements of Cash Flows	87
Notes to Consolidated Financial Statements	98
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3934
Item 3. Quantitative and Qualitative Disclosures About Market Risk	6757
Item 4. Controls and Procedures	6959

PART II OTHER INFORMATION	7059

Item 1. Legal Proceedings	7059
Item 1A. Risk Factors	7060
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ~~and Issuer Purchases of Equity Securities~~	7060
Item 3. Defaults Upon Senior Securities	7161
Item 4. Mine Safety Disclosures	7161
Item 5. Other Information	7161
Item 6. Exhibits	7161

SIGNATURES	7262

Table of Contents

PART 1 – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(dollars in thousands, except share data)


	September 30,		December 31,		March 31,		December 31,
	2023		2022		2024		2023
	(Unaudited)				(Unaudited)
ASSETS
Cash and Cash Equivalents	$	124,358	$	87,043	$	143,355	$	128,562
Bank-Owned Certificates of Deposit		1,225		1,181
Securities Available for Sale, at Fair Value		553,076		548,613		633,282		604,104
Loans, Net of Allowance for Credit Losses of $50,585 at September 30, 2023 (unaudited) and $47,996 at December 31, 2022		3,664,464		3,512,157
Loans, Net of Allowance for Credit Losses of $51,347 at March 31, 2024 (unaudited) and $50,494 at December 31, 2023						3,726,502		3,667,215
Federal Home Loan Bank (FHLB) Stock, at Cost		17,056		19,606		17,195		17,097
Premises and Equipment, Net		49,331		48,445		48,299		48,886
Accrued Interest		15,182		13,479		16,696		16,697
Goodwill		2,626		2,626		2,626		2,626
Other Intangible Assets, Net		197		288		180		188
Bank-Owned Life Insurance		34,209		33,485		34,778		34,477
Other Assets		95,346		78,739		100,196		92,138
Total Assets	$	4,557,070	$	4,345,662	$	4,723,109	$	4,611,990

LIABILITIES AND EQUITY
LIABILITIES
Deposits:
Noninterest Bearing	$	754,297	$	884,272	$	698,432	$	756,964
Interest Bearing		2,921,212		2,532,271		3,108,793		2,952,984
Total Deposits		3,675,509		3,416,543		3,807,225		3,709,948
Federal Funds Purchased		—		287,000
Notes Payable		13,750		13,750		13,750		13,750
FHLB Advances		294,500		97,000		317,000		319,500
Subordinated Debentures, Net of Issuance Costs		79,192		78,905		79,383		79,288
Accrued Interest Payable		3,816		2,831		4,405		5,282
Other Liabilities		74,343		55,569		67,735		58,707
Total Liabilities		4,141,110		3,951,598		4,289,498		4,186,475

SHAREHOLDERS' EQUITY
Preferred Stock- $0.01 par value; Authorized 10,000,000
Preferred Stock - Issued and Outstanding 27,600 Series A shares ($2,500 liquidation preference) at September 30, 2023 (unaudited) and December 31, 2022		66,514		66,514
Preferred Stock - Issued and Outstanding 27,600 Series A shares ($2,500 liquidation preference) at March 31, 2024 (unaudited) and December 31, 2023						66,514		66,514
Common Stock- $0.01 par value; Authorized 75,000,000
Common Stock - Issued and Outstanding 28,015,505 at September 30, 2023 (unaudited) and 27,751,950 at December 31, 2022		280		278
Common Stock - Issued and Outstanding 27,589,827 at March 31, 2024 (unaudited) and 27,748,965 at December 31, 2023						276		277
Additional Paid-In Capital		100,120		96,529		95,069		96,320
Retained Earnings		272,812		248,685		287,468		280,650
Accumulated Other Comprehensive Loss		(23,766)		(17,942)		(15,716)		(18,246)
Total Shareholders' Equity		415,960		394,064		433,611		425,515
Total Liabilities and Equity	$	4,557,070	$	4,345,662	$	4,723,109	$	4,611,990

See accompanying notes to consolidated financial statements.

Table of Contents

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Income

(dollars in thousands, except per share data)

(Unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,		September 30,		September 30,		September 30,		March 31,		March 31,
	2023		2022		2023		2022		2024		2023
INTEREST INCOME
Loans, Including Fees	$	48,999	$	37,666	$	141,675	$	103,768	$	49,581	$	44,955
Investment Securities		6,507		4,372		18,962		10,567		7,916		6,218
Other		1,303		321		3,165		500		1,172		819
Total Interest Income		56,809		42,359		163,802		114,835		58,669		51,992

INTEREST EXPENSE
Deposits		27,225		5,984		66,597		12,598		30,190		16,374
Federal Funds Purchased										304		4,944
Notes Payable		296		—		844		—		295		263
FHLB Advances		2,316		329		5,269		646		2,258		861
Subordinated Debentures		1,003		1,242		2,979		3,658		991		983
Federal Funds Purchased		548		709		8,253		1,128
Total Interest Expense		31,388		8,264		83,942		18,030		34,038		23,425

NET INTEREST INCOME		25,421		34,095		79,860		96,805		24,631		28,567
Provision for (Recovery of) Credit Losses		(600)		1,500		75		6,200
Provision for Credit Losses										750		625

NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES		26,021		32,595		79,785		90,605		23,881		27,942

NONINTEREST INCOME
Customer Service Fees		379		313		1,096		892		342		349
Net Gain (Loss) on Sales of Available for Sale Securities		—		—		(6)		52		93		(56)
Letter of Credit Fees										316		634
Debit Card Interchange Fees										141		138
Bank-Owned Life Insurance										301		234
FHLB Prepayment Income										—		299
Other Income		1,347		1,074		3,994		3,650		357		345
Total Noninterest Income		1,726		1,387		5,084		4,594		1,550		1,943

NONINTEREST EXPENSE
Salaries and Employee Benefits		9,519		9,449		26,923		27,120		9,433		8,815
Occupancy and Equipment		1,101		1,086		3,385		3,213		1,057		1,209
FDIC Insurance Assessment										875		665
Data Processing										412		357
Professional and Consulting Fees										889		755
Derivative Collateral Fees										486		380
Information Technology and Telecommunications										796		683
Marketing and Advertising										322		262
Intangible Asset Amortization										9		48
Other Expense		4,730		3,622		13,613		11,084		910		895
Total Noninterest Expense		15,350		14,157		43,921		41,417		15,189		14,069

INCOME BEFORE INCOME TAXES		12,397		19,825		40,948		53,782		10,242		15,816
Provision for Income Taxes		2,768		5,312		9,861		14,125		2,411		4,174
NET INCOME		9,629		14,513		31,087		39,657		7,831		11,642
Preferred Stock Dividends		(1,013)		(1,013)		(3,040)		(3,040)		(1,013)		(1,013)
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	8,616	$	13,500	$	28,047	$	36,617	$	6,818	$	10,629

EARNINGS PER SHARE
Basic	$	0.31	$	0.49	$	1.01	$	1.32	$	0.25	$	0.38
Diluted		0.30		0.47		0.99		1.27		0.24		0.37

Table of Contents

See accompanying notes to consolidated financial statements.

~~Table of Contents~~

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(dollars in thousands)

(Unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2023		2022		2023		2022		2024		2023
Net Income	$	9,629	$	14,513	$	31,087	$	39,657	$	7,831	$	11,642
Other Comprehensive Loss:
Unrealized Losses on Available for Sale Securities		(10,151)		(18,073)		(14,338)		(56,487)
Unrealized Gains on Cash Flow Hedges		7,763		7,725		10,167		21,117
Reclassification Adjustment for (Gains) Losses Realized in Income		(1,623)		(119)		(4,004)		511
Other Comprehensive Income:
Unrealized Gains on Available for Sale Securities										235		5,243
Unrealized Gains (Losses) on Cash Flow Hedges										5,712		(4,169)
Reclassification Adjustment for Gains Realized in Income										(2,396)		(1,011)
Income Tax Impact		1,153		4,808		2,351		9,133		(1,021)		(17)
Total Other Comprehensive Loss, Net of Tax		(2,858)		(5,659)		(5,824)		(25,726)
Total Other Comprehensive Income, Net of Tax										2,530		46
Comprehensive Income	$	6,771	$	8,854	$	25,263	$	13,931	$	10,361	$	11,688

See accompanying notes to consolidated financial statements.

Table of Contents

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity

Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2024 and 2023 ~~and 2022~~

(dollars in thousands, except share data)

(Unaudited)

Accumulated

Additional

Other

Preferred

Common Stock

Paid-In

Retained

Comprehensive

Three Months Ended

Stock

Shares

Amount

Capital

Earnings

Loss

Total

BALANCE June 30, 2022

$
66,514

27,677,372

$
277

$
96,689

$
222,464

$
(11,061)

$
374,883
Stock-based Compensation

—

4,744

—

876

—

—

876
Comprehensive Income (Loss)

—

—

—

—

14,513

(5,659)

8,854
Stock Options Exercised

—

3,250

—

41

—

—

41
Stock Repurchases

—

(99,310)

(1)

(1,615)

—

—

(1,616)
Vested Restricted Stock Units

—

3,000

—

—

—

—

—
Restricted Shares Withheld for Taxes

—

(1,078)

—

(18)

—

—

(18)
Preferred Stock Dividend

—

—

—

—

(1,013)

—

(1,013)
BALANCE September 30, 2022

$
66,514

27,587,978

$
276

$
95,973

$
235,964

$
(16,720)

$
382,007

BALANCE June 30, 2023

$
66,514

27,973,995

$
280

$
99,044

$
264,196

$
(20,908)

$
409,126
Stock-based Compensation

—

12,588

—

997

—

—

997
Comprehensive Income (Loss)

—

—

—

—

9,629

(2,858)

6,771
Stock Options Exercised

—

27,000

—

90

—

—

90
Vested Restricted Stock Units

—

3,000

—

—

—

—

—
Restricted Shares Withheld for Taxes

—

(1,078)

—

(11)

—

—

(11)
Preferred Stock Dividend

—

—

—

—

(1,013)

—

(1,013)
BALANCE September 30, 2023

$
66,514

28,015,505

$
280

$
100,120

$
272,812

$
(23,766)

$
415,960


										Accumulated
						Additional				Other
	Preferred		Common Stock			Paid-In		Retained		Comprehensive
Three Months Ended	Stock		Shares	Amount		Capital		Earnings		Income (Loss)		Total

BALANCE December 31, 2022	$	66,514	27,751,950	$	278	$	96,529	$	248,685	$	(17,942)	$	394,064
Cumulative Effect of the Adoption of ASU 2016-13		—	—		—		—		(3,920)		—		(3,920)
Cumulative Effect of the Adoption of ASU 2023-02		—	—		—		—		(21)		—		(21)
Balance as of January 1, 2023, as Adjusted for Change in Accounting Principles		66,514	27,751,950		278		96,529		244,744		(17,942)		390,123
Stock-based Compensation		—	10,608		—		941		—		—		941
Comprehensive Income		—	—		—		—		11,642		46		11,688
Stock Options Exercised		—	82,000		—		261		—		—		261
Vested Restricted Stock Units		—	1,625		—		—		—		—		—
Restricted Shares Withheld for Taxes		—	(939)		—		(15)		—		—		(15)
Preferred Stock Dividend		—	—		—		—		(1,013)		—		(1,013)
BALANCE March 31, 2023	$	66,514	27,845,244	$	278	$	97,716	$	255,373	$	(17,896)	$	401,985

BALANCE December 31, 2023	$	66,514	27,748,965	$	277	$	96,320	$	280,650	$	(18,246)	$	425,515
Stock-based Compensation		—	10,452		—		1,031		—		—		1,031
Comprehensive Income		—	—		—		—		7,831		2,530		10,361
Stock Options Exercised		—	8,000		—		66		—		—		66
Stock Repurchases		—	(193,802)		(1)		(2,275)		—		—		(2,276)
Vested Restricted Stock Units		—	22,365		—		—		—		—		—
Restricted Shares Withheld for Taxes		—	(6,153)		—		(73)		—		—		(73)
Preferred Stock Dividend		—	—		—		—		(1,013)		—		(1,013)
BALANCE March 31, 2024	$	66,514	27,589,827	$	276	$	95,069	$	287,468	$	(15,716)	$	433,611

See accompanying notes to consolidated financial statements.

Table of Contents

Accumulated

Additional

Other

Preferred

Common Stock

Paid-In

Retained

Comprehensive

Nine Months Ended

Stock

Shares

Amount

Capital

Earnings

Income (Loss)

Total

BALANCE December 31, 2021

$
66,514

28,206,566

$
282

$
104,123

$
199,347

$
9,006

$
379,272
Stock-based Compensation

—

14,400

—

2,557

—

—

2,557
Comprehensive Income (Loss)

—

—

—

—

39,657

(25,726)

13,931
Stock Options Exercised

—

28,000

—

106

—

—

106
Stock Repurchases

—

(662,765)

(6)

(10,772)

—

—

(10,778)
Forfeiture of Restricted Stock Awards

—

(1,000)

—

(3)

—

—

(3)
Vested Restricted Stock Units

—

5,100

—

—

—

—

—
Restricted Shares Withheld for Taxes

—

(2,323)

—

(38)

—

—

(38)
Preferred Stock Dividend

—

—

—

—

(3,040)

—

(3,040)
BALANCE September 30, 2022

$
66,514

27,587,978

$
276

$
95,973

$
235,964

$
(16,720)

$
382,007

BALANCE December 31, 2022

$
66,514

27,751,950

$
278

$
96,529

$
248,685

$
(17,942)

$
394,064
Cumulative Effect of Change in Accounting Principle, Net of Tax

—

—

—

—

(3,920)

—

(3,920)
Balance as of January 1, 2023, as Adjusted for Change in Accounting Principle

66,514

27,751,950

278

96,529

244,765

(17,942)

390,144
Stock-based Compensation

—

35,460

—

2,910

—

—

2,910
Comprehensive Income (Loss)

—

—

—

—

31,087

(5,824)

25,263
Stock Options Exercised

—

226,000

2

715

—

—

717
Forfeiture of Restricted Stock Awards

—

(250)

—

—

—

—

—
Vested Restricted Stock Units

—

5,225

—

—

—

—

—
Restricted Shares Withheld for Taxes

—

(2,880)

—

(34)

—

—

(34)
Preferred Stock Dividend

—

—

—

—

(3,040)

—

(3,040)
BALANCE September 30, 2023

$
66,514

28,015,505

$
280

$
100,120

$
272,812

$
(23,766)

$
415,960

~~See accompanying notes to consolidated financial statements.~~

~~Table of Contents~~

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(dollars in thousands)

(Unaudited)


	Nine Months Ended				Three Months Ended
	September 30,				March 31,
	2023		2022		2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	31,087	$	39,657	$	7,831	$	11,642
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Net Amortization on Securities Available for Sale		196		1,712		(281)		101
Net (Gain) Loss on Sales of Securities Available for Sale		6		(52)		(93)		56
Provision for Credit Losses on Loans		2,050		6,200		850		1,500
Credit for Off-Balance Sheet Exposures		(1,975)		—		(100)		(875)
Depreciation of Premises and Equipment		1,901		1,911		593		651
Amortization of Other Intangible Assets		91		143		9		48
Amortization of Right-of Use Asset		396		—		139		125
Amortization of Subordinated Debt Issuance Costs		287		320		95		96
Stock-based Compensation		2,910		2,557		1,031		941
Changes in Operating Assets and Liabilities:
Accrued Interest Receivable and Other Assets		(8,923)		(7,859)		(6,398)		(6,369)
Accrued Interest Payable and Other Liabilities		10,457		35,780		3,509		(118)
Net Cash Provided by Operating Activities		38,483		80,369		7,185		7,798

CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) Decrease in Bank-Owned Certificates of Deposit		(44)		694
Increase in Bank-Owned Certificates of Deposit						—		(44)
Proceeds from Sales of Securities Available for Sale		26,976		25,066		12,784		19,959
Proceeds from Maturities, Paydowns, Payups and Calls of Securities Available for Sale		23,812		30,253		9,143		7,055
Purchases of Securities Available for Sale		(63,777)		(210,432)		(45,559)		(32,689)
Net Increase in Loans		(155,123)		(560,786)		(60,137)		(114,711)
Net Decrease (Increase) in FHLB Stock		2,550		(10,361)
Net Increase in FHLB Stock						(98)		(9,026)
Purchases of Premises and Equipment		(2,787)		(1,457)		(6)		(7)
Proceeds from Sales of Foreclosed Assets		116		—
Purchase of Bank-Owned Life Insurance		—		(7,407)
Net Cash Used in Investing Activities		(168,277)		(734,430)		(83,873)		(129,463)

CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits		258,966		358,837
Net (Decrease) Increase in Federal Funds Purchased		(287,000)		212,000
Net (Increase) Decrease in Deposits						97,277		(5,420)
Net Increase in Federal Funds Purchased						—		150,000
Proceeds from FHLB Advances		486,500		29,000		208,000		155,500
Principal Payments on FHLB Advances		(289,000)		—		(210,500)		(55,500)
Preferred Stock Dividends Paid		(3,040)		(3,040)		(1,013)		(1,013)
Stock Options Exercised		717		106		66		261
Stock Repurchases		—		(10,778)		(2,276)		—
Forfeiture of Restricted Stock Awards		—		(3)
Shares Repurchased for Tax Withholdings Upon Vesting of Restricted Stock-Based Awards		(34)		(38)		(73)		(14)
Net Cash Provided by Financing Activities		167,109		586,084		91,481		243,814

NET CHANGE IN CASH AND CASH EQUIVALENTS		37,315		(67,977)		14,793		122,149
Cash and Cash Equivalents Beginning		87,043		143,473		128,562		87,043
Cash and Cash Equivalents Ending	$	124,358	$	75,496	$	143,355	$	209,192

SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash Paid for Interest	$	82,670	$	16,905	$	34,820	$	22,903
Cash Paid for Income Taxes		8,931		14,155		—		39
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Net Investment Securities Purchased but Not Settled		6,007		5,731
Net Investment Securities (Purchased) Sold but Not Settled						3,446		—

See accompanying notes to consolidated financial statements.

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Bridgewater Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note 1: Description of the Business and Summary of Significant Accounting Policies

Organization

Bridgewater Bancshares, Inc. (the “Company”) is a financial holding company whose operations consist of the ownership of its wholly-owned ~~subsidiaries,~~subsidiary, Bridgewater Bank (the “Bank”) ~~and Bridgewater Risk Management, Inc.~~. The Bank commenced operations in 2005 and provides retail and commercial loan and deposit services, principally to customers within the Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area. In 2008, the Bank formed BWB Holdings, LLC, a wholly-owned subsidiary of the Bank, for the purpose of holding repossessed property. In 2018, the Bank formed Bridgewater Investment Management, Inc., a wholly-owned subsidiary of the Bank, for the purpose of holding certain municipal securities and to engage in municipal lending activities.

Bridgewater Risk Management, Inc. was incorporated in December 2016 as a wholly-owned insurance company. It insures the Company and its subsidiaries against certain risks unique to the operations of the Company and for which insurance may not be currently available or economically feasible in today’s insurance marketplace. Bridgewater Risk Management pools resources with several other insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves.

Basis of Presentation

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of the consolidated balance sheets, consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of shareholders’ equity and consolidated statements of cash flows in conformity with U.S. generally accepted accounting principles (“GAAP”). However, all normal recurring adjustments which are, in the opinion of management, necessary for the fair presentation of the interim financial statements have been included. The results of operations for the three ~~and nine-month periods~~months ended ~~September 30, 2023~~March 31, 2024 are not necessarily indicative of the results which may be expected for the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 7, ~~2023.~~2024.

Principles of Consolidation

These consolidated financial statements include the amounts of the Company, the Bank, with locations in Bloomington, Greenwood, Minneapolis (2), St. Louis Park, Orono, and St. Paul, Minnesota, BWB Holdings, LLC, ~~Bridgewater Investment Management, Inc.,~~ and Bridgewater ~~Risk~~Investment Management, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates in Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Information available which could affect judgements includes, but is not limited to, changes in interest rates, changes in the performance of the economy, including elevated levels of inflation and possible recession, and changes in the financial condition of borrowers.

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Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for credit losses, calculation of deferred tax assets, fair value of financial instruments, and investment securities impairment.

~~Emerging Growth Company~~

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, even if the Company complies with the greater obligations of public companies that are not emerging growth companies, the Company may avail itself of the reduced requirements applicable to emerging growth companies from time to time in the future, so long as the Company is an emerging growth company. The Company will continue to be an emerging growth company until the earliest to occur of: (1) the end of the fiscal year following the fifth anniversary of the date of the first sale of common equity securities under the Company’s Registration Statement on Form S-1, which was declared effective by the SEC on March 13, 2018; (2) the last day of the fiscal year in which the Company has $1.235 billion or more in annual revenues; (3) the date on which the Company is deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); or (4) the date on which the Company has, during the previous three-year period, issued publicly or privately, more than $1.0 billion in non-convertible debt securities.

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards. As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company elected to take advantage of the benefits of this extended transition period.

~~Allowance for Credit Losses~~

~~Securities Available for Sale~~

For any securities classified as available for sale that are in an unrealized loss position at the balance sheet date, the Company assesses whether or not it intends to sell the security, or if it is more likely than not it will be required to sell the security, before recovery of its amortized cost basis. If either criteria is met, the security's amortized cost basis is written down to fair value through income with the establishment of an allowance. For securities that do not meet the aforementioned criteria, the Company evaluates whether any portion of the decline in fair value is the result of credit deterioration. In making this assessment, management considers the extent to which the amortized cost of the security exceeds its fair value, changes in credit ratings and any other known adverse conditions related to the specific security, among other factors. If the assessment indicates that a credit loss exists, an allowance for credit losses, or ACL, is recorded for the amount by which the amortized cost basis of the security exceeds the present value of cash flows expected to be collected, limited by the amount by which the amortized cost exceeds fair value. Any impairment not recognized in the allowance for credit losses is recognized in other comprehensive income.

Changes in the ACL on securities are recorded as a provision for (or recovery of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on securities available for sale is excluded from the estimate of credit losses.

~~Loans~~

The ACL on loans is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on loans over their contractual life. The contractual term does not consider

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extensions, renewals or modifications. Loans are charged off against the ACL on loans when management believes the uncollectibility of a loan balance has been confirmed. Recoveries do not exceed the aggregate of amounts previously charged off or expected to be charged off. Subsequent recoveries, if any, are credited to the ACL on loans.

The ACL on loans is measured on a collective or pooled basis when similar risk characteristics exist. The Company’s pooling method is primarily based on loan purpose and collateral type and generally follows the Company’s loan segmentation for regulatory reporting. The Company has identified the following pools of loans with similar risk characteristics for measuring the ACL on loans:

~~Commercial:~~ Commercial loans generally are loans to sole proprietorships, partnerships, corporations, and other business enterprises to finance working capital, capital investment, or for other business related purposes. Collateral generally consists of pledges of business assets or interests, including but not limited to accounts receivable, inventory, plant and equipment, and real estate interests, if applicable. The primary repayment sources for commercial loans are the cash flow of the operating businesses which can be adversely affected by company, industry and economic business cycles. Commercial loans may be secured or unsecured.

~~Paycheck Protection Program (PPP):~~ PPP loans are loans to businesses, sole proprietorships, independent contractors and self-employed individuals who met certain criteria and eligibility requirements through a loan program established by the CARES Act and administered through the Small Business Administration, or SBA. In 2021, the PPP loan program ended and the Company is no longer originating loans under this program. Credit risk in these loans is limited due to a full guarantee by the U.S. Government.

~~Construction and Land Development:~~ Construction and land development loans are generally loans to finance land development or the construction of industrial, commercial, or multifamily buildings. Construction loans can include construction of new structures, additions or alterations to existing structures, or the demolition of existing structures to make way for new structures. Construction loans are generally secured by real estate. The primary risk characteristics are specific to the uncertainty on whether the construction will be completed according to the specifications and schedules and the reliance on the sale of the completed project as the primary repayment source for the loan. Factors that may influence the completion of construction may be customer specific, such as the quality and depth of property management, or related to changes in general economic conditions. Trends in the commercial and residential construction industries can significantly impact the credit quality of these loans due to supply and demand imbalances. In addition, fluctuations in real estate values can significantly impact the credit quality of these loans, as property values may determine the economic viability of construction projects and adversely impact the value of the collateral securing the loan.

~~1-4 Family Construction:~~ 1-4 family construction loans are generally loans to finance the construction of new structures, additions or alterations to existing structures, or the demolition of existing structures to make way for new structures. 1-4 family construction loans are generally secured by real estate. The primary risk characteristics are specific to the uncertainty on whether the construction will be completed according to the specifications and schedules. Factors that may influence the completion of 1-4 family construction may be customer specific or related to changes in general economic conditions.

~~1-4 Family Mortgage:~~ 1-4 family mortgage loans are generally loans to finance loans on owner occupied and nonowner occupied properties. 1-4 family mortgage loans are secured by first or second liens on the property. The degree of risk in residential mortgage lending involving owner occupied properties depends primarily on the borrower’s ability to repay and the loan amount in relation to collateral value. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrower’s capacity to repay their obligations may be deteriorating. 1-4 family mortgage loans include credits to finance nonowner occupied properties used as rentals. These loans can involve additional risks as the borrower’s ability to repay is based on the net operating income from the property which can be impacted by occupancy levels, rental rates, and operating expenses. Declines in net operating income can negatively impact the value of the property which increases the credit risk in the event of default.

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~~Multifamily:~~ Multifamily loans are loans to finance multifamily properties. The primary source of repayment for multifamily loans is the cash flows of the underlying property. The primary risk characteristics include increases in vacancy rates, overbuilt supply, interest rates or changes in general economic conditions. Economic factors such as unemployment, wage growth and home affordability can impact vacancy rates and property cash flow.

~~Commercial Real Estate (CRE) Owner Occupied:~~ Owner occupied commercial real estate loans are properties that are owned and operated by the borrower and the primary source for repayment is the cash flow from the ongoing operations and activities conducted by the borrower’s business. The primary risk characteristics are specific to the underlying business and its ability to generate sustainable profitability and positive cash flow. Also, certain types of businesses also may require specialized facilities that can increase costs and may not be economically feasible to an alternative user, which could adversely impact the market value of the collateral. Factors that may influence a borrower's ability to repay their loan include demand for the business’ products or services, the quality and depth of management, the degree of competition, regulatory changes, and general economic conditions.

~~Commercial Real Estate (CRE) Nonowner Occupied:~~ Nonowner occupied commercial real estate loans are investment properties and the primary source for repayment of the loan is derived from rental income associated with the property or proceeds of the sale of the property. Nonowner occupied commercial real estate loans consist of mortgage loans to finance investments in real property that may include, but are not limited to, commercial/retail office space, industrial/warehouse space, hotels, assisted living facilities and other specific use properties. The primary risk characteristics include impacts of overall leasing rates, absorption timelines, levels of vacancy rates and operating expenses, and general economic conditions. Banks that are concentrated in commercial real estate lending are subject to additional regulatory scrutiny and must employ enhanced risk management practices.

~~Consumer and Other:~~ Consumer and other loans generally include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as auto loans, debt consolidation loans, personal expense loans or overdraft protection. The primary risk characteristics associated with consumer and other loans typically include major changes to the borrower’s financial or personal circumstances, including unemployment or other loss of income, unexpected significant expenses, such as for major medical expenses, catastrophic events, divorce or death.

Management assesses the adequacy of the ACL on loans on a quarterly basis. Management estimates the ACL on loans using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Company uses the weighted-average remaining maturity, or WARM, method as the basis for estimating expected credit losses. The WARM method uses a historical average annual charge off rate. This average annual charge off rate contains loss content over a historical lookback period and is used as a foundation for estimating the ACL on loans for the remaining outstanding balances of loans by segment at the balance sheet date. The average annual charge off rate is applied to the contractual term, further adjusted for estimated prepayments, to determine the unadjusted historical charge off rate. The calculation of the unadjusted historical charge off rate is then adjusted for current conditions and for reasonable and supportable forecast periods through qualitative factors prior to being applied to the current balance of the loan segments. Accrued interest receivable on loans available for sale is excluded from the estimate of credit losses.

Forecast adjustments to the historical loss rate are based on a forecast of the U.S. national unemployment rate, a forecast of the difference between the 10-year and 3-month treasury rates, and the most recent available BBB rated corporate bond spreads to U.S. Treasury securities, or BBB Spread. The forecast overlay adjustment for the reasonable and supportable forecast assumes an immediate reversion after a one-year forecast period to historical loss rates for the remaining life of the respective loan segment.

~~Qualitative factors are used to cover losses that are expected but, in the Company’s assessment, may not be adequately represented in the quantitative analysis or the forecasts described above.~~ These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not reflected in the historic loss factors. Each qualitative loss factor, for each loan segment within the portfolio, incorporates consideration for a minimum to maximum range for loss factors. These qualitative factor adjustments may increase or decrease the Company’s estimate of expected credit losses and are applied to each loan segment. The qualitative factors applied to each loan segment include changes in lending policies and procedures, general economic and business conditions, the nature, volume and

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terms of loans, the experience, depth and ability of lending staff, the quality of the loan review function, the value of underlying collateral, competition, legal and regulatory factors, the volume and severity of watchlist and past due loans, and the level of concentrations.

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the pooled evaluations and typically represent collateral dependent loans but may also include other nonperforming loans or modifications. The Company has elected to use the practical expedient to measure individually evaluated loans as collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral. The credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the underlying collateral. The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale of the collateral.

Management may also adjust its assumptions to account for differences between expected and actual losses from period to period. The variability of management’s assumptions could alter the ACL on loans materially and impact future results of operations and financial condition. The loss estimation models and methods used to determine the allowance for credit losses are continually refined and enhanced.

~~Off-Balance Sheet Credit Exposures~~

The Company maintains a separate ACL on off-balance sheet credit exposures, including unfunded loan commitments, financial guarantees, and letters of credit, which is included in other liabilities on the consolidated balance sheet, unless the obligation is unconditionally cancellable. The ACL on off-balance sheet credit exposures is adjusted as a provision for (or recovery of) credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over the estimated life of such commitments. The allowance is calculated using the same aggregate reserve rates calculated for the funded portion of the loan segment and applied to the amount of commitments expected to fund.

~~Impact of Recently Adopted Accounting Guidance~~

~~On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13 “~~~~Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments,”~~ as amended, which replaces the incurred loss methodology with an expected loss methodology that is commonly referred to as the current expected credit loss, or CECL, methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments). In addition, CECL made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management does intend to sell or believes that it is more likely than not they will be required to sell.

The Company adopted CECL using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to retained earnings of $3.9 million as of January 1, 2023 for the cumulative effect of adopting CECL. The transition adjustment included a $650,000 impact due to the increase in ACL related to loans, a $4.8 million impact due the establishment of the allowance for off-balance sheet credit exposures, and a $1.6 million impact on deferred taxes.

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~~The following table presents the impact of adopting CECL:~~

January 1, 2023

Impact of

As Reported
(dollars in thousands)

Pre-CECL Adoption

CECL Adoption

Under CECL
Assets:

Loans

Commercial

$
6,500

$
(1,157)

$
5,343
Paycheck Protection Program

1

(1)

—
Construction and Land Development

3,911

(1,070)

2,841
1-4 Family Construction

845

(235)

610
Real Estate Mortgage:

1-4 Family Mortgage

4,325

(1,778)

2,547
Multifamily

17,459

3,318

20,777
CRE Owner Occupied

1,965

(943)

1,022
CRE Nonowner Occupied

12,576

2,869

15,445
Consumer and Other

151

(90)

61
Unallocated

263

(263)

—
Allowance for Credit Losses on Loans

$
47,996

$
650

$
48,646

Liabilities:

Allowance for Credit Losses on Off-balance Sheet Credit Exposures

$
360

$
4,850

$
5,210

~~In March 2022, the FASB issued ASU No. 2022-02,~~ ~~Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.~~ ~~This ASU updates guidance in Topic 326 to eliminate the accounting guidance for troubled debt restructurings, or TDRs, by creditors in Subtopic 310-40,~~ ~~Receivables – Troubled Debt Restructurings by Creditors,~~ while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current period gross write offs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivables by year of origination. The Company adopted this standard during the first quarter of 2023 and the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Impact of Recently Issued Accounting Guidance

In ~~October 2023,~~March 2024, the Financial Accounting Standards Board, ~~(“FASB”)~~or FASB, issued Accounting Standards Update, or ASU, ~~2023-06,~~ No. 2024-02, ~~Disclosure~~Codification Improvements: ~~Codification~~ Amendments ~~in Response~~to Remove References to the ~~SEC’s Disclosure Update~~Concepts Statements. The ASU amends the Codification to remove references to various concepts and ~~Simplification Initiative.~~ ~~This ASU was issued to clarify or improve disclosure and presentation requirements of~~impacts a variety of topics ~~which will allow users to more easily compare entities subject to the SEC's existing disclosures with those entities that were not previously subject to the requirements, and align the requirements~~ in the ~~FASB accounting standard codification with~~Codification. The amendments apply to all reporting entities within the ~~SEC's regulations. The Company is currently evaluating the provisions~~scope of the ~~amendments~~affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the ~~impact on its future consolidated statements.~~

~~In March 2023,~~guidance. Generally, the ~~FASB issued ASU No. 2023-01,~~ ~~Leases (Topic 842): Common Control Arrangements~~. The FASB issued guidance clarifies the accounting for leasehold improvements associated with common control leases, by requiring that leasehold improvements associated with common control leases be amortized by the lessee over the useful life of the leasehold improvements to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset through a lease. Additionally, leasehold improvements associated with common control leases should be accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lessee no longer controls the use of the underlying asset. The amendments in ~~this~~ ASU 2024-02 are not intended to result in significant accounting changes for most entities. ASU 2024-02 is effective ~~for annual~~January 1, 2025 and ~~interim periods beginning after December 15, 2023 and are~~is not expected to have a material impact on the Company’s consolidated financial statements.

~~In March 2023, the FASB issued ASU No. 2023-02,~~ ~~Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method~~~~. These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional~~

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amortization method, regardless of the program giving rise to the related income tax credits. This guidance is effective for public business entities for fiscal years including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted in any interim period. The Company is assessing ASU 2023-02 and its impact on its accounting and disclosures.

Subsequent Events

Subsequent events have been evaluated through ~~November~~May 2, ~~2023,~~2024, which is the date the consolidated financial statements were available to be issued.

Note 2: Earnings Per Share

Basic earnings per common share are computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per common share are computed by dividing net income available to common shareholders by the weighted average number of common shares adjusted for the dilutive effect of stock compensation. For the three ~~and nine~~ months ended ~~September 30, 2023,~~March 31, 2024, stock options, restricted stock awards and restricted stock units ~~of approximately 1,152,100 and 1,042,500 shares, respectively,~~totaling 1,158,046 were excluded from the calculation because they were deemed to be anti-dilutive. For the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, stock options, restricted stock awards and restricted stock units ~~of approximately 300,500~~totaling 621,994 shares were excluded from the calculation because ~~their effect would have been anti-dilutive.~~they were deemed to be antidilutive.

The following table presents the numerators and denominators for basic and diluted earnings per share computations for the three ~~and nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~2022:~~2023:


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
(dollars in thousands, except per share data)	2023		2022		2023		2022		2024		2023
Net Income Available to Common Shareholders	$	8,616	$	13,500	$	28,047	$	36,617	$	6,818	$	10,629
Weighted Average Common Stock Outstanding:
Weighted Average Common Stock Outstanding (Basic)		27,943,409		27,520,117		27,853,036		27,825,517		27,691,401		27,726,894
Dilutive Effect of Stock Compensation		368,369		1,072,737		486,816		1,057,184		398,404		763,152
Weighted Average Common Stock Outstanding (Dilutive)		28,311,778		28,592,854		28,339,852		28,882,701		28,089,805		28,490,046

Basic Earnings per Common Share	$	0.31	$	0.49	$	1.01	$	1.32	$	0.25	$	0.38
Diluted Earnings per Common Share		0.30		0.47		0.99		1.27		0.24		0.37

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Note 3: Securities

The following tables present the amortized cost and estimated fair value of securities with gross unrealized gains and losses at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


	September 30, 2023								March 31, 2024
			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized				Amortized		Unrealized		Unrealized
(dollars in thousands)	Cost		Gains		Losses		Fair Value		Cost		Gains		Losses		Fair Value
Securities Available for Sale:
U.S. Treasury Securities	$	2,883	$	—	$	(19)	$	2,864
Municipal Bonds		148,725		—		(26,228)		122,497	$	151,221	$	28	$	(19,158)	$	132,091
Mortgage-Backed Securities		233,920		137		(23,682)		210,375		260,079		1,544		(17,407)		244,216
Corporate Securities		134,369		268		(12,920)		121,717		142,851		348		(10,247)		132,952
SBA Securities		19,779		312		(125)		19,966		16,864		252		(91)		17,025
Asset-Backed Securities		75,616		388		(347)		75,657		106,637		519		(158)		106,998
Total Securities Available for Sale	$	615,292	$	1,105	$	(63,321)	$	553,076	$	677,652	$	2,691	$	(47,061)	$	633,282


	December 31, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized
(dollars in thousands)	Cost		Gains		Losses		Fair Value
Securities Available for Sale:
Municipal Bonds	$	151,512	$	47	$	(19,035)	$	132,524
Mortgage-Backed Securities		249,455		2,261		(16,401)		235,315
Corporate Securities		142,098		386		(11,879)		130,605
SBA Securities		18,497		279		(102)		18,674
Asset-Backed Securities		87,054		357		(425)		86,986
Total Securities Available for Sale	$	648,616	$	3,330	$	(47,842)	$	604,104

Securities with a carrying value of $169.5 million and $170.7 million were pledged to secure borrowing capacity at the Federal Reserve Discount Window as of March 31, 2024 and December 31, 2023, respectively.

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December 31, 2022

Gross

Gross

Amortized

Unrealized

Unrealized

(dollars in thousands)

Cost

Gains

Losses

Fair Value
Securities Available for Sale:

U.S. Treasury Securities

$
2,621

$
—

$
(41)

$
2,580
Municipal Bonds

156,506

62

(25,214)

131,354
Mortgage-Backed Securities

252,919

2,465

(17,600)

237,784
Corporate Securities

116,871

45

(7,089)

109,827
SBA Securities

20,957

79

(159)

20,877
Asset-Backed Securities

46,623

188

(620)

46,191
Total Securities Available for Sale

$
596,497

$
2,839

$
(50,723)

$
548,613

~~Securities with a carrying value of $164.3 million at September 30, 2023 were pledged to secure borrowing capacity. The securities portfolio was unencumbered at December 31, 2022.~~

The following tables present the fair value and gross unrealized losses of securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


		Less Than 12 Months				12 Months or Greater				Total						Less Than 12 Months				12 Months or Greater				Total
	Number of			Unrealized				Unrealized				Unrealized			Number of			Unrealized				Unrealized				Unrealized
(dollars in thousands, except number of holdings)	Holdings	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses			Holdings	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
September 30, 2023
U.S. Treasury Securities	5	$	886	$	(5)	$	880	$	(14)	$	1,766	$	(19)
March 31, 2024														March 31, 2024
Municipal Bonds	218		8,358		(232)		114,139		(25,996)		122,497		(26,228)		215	$	7,862	$	(44)	$	122,437	$	(19,114)	$	130,299	$	(19,158)
Mortgage-Backed Securities	140		68,938		(2,205)		135,408		(21,477)		204,346		(23,682)		129		42,583		(665)		124,205		(16,742)		166,788		(17,407)
Corporate Securities	109		18,899		(1,024)		94,731		(11,896)		113,630		(12,920)		113		16,148		(290)		105,583		(9,957)		121,731		(10,247)
SBA Securities	47		2,319		(6)		6,811		(119)		9,130		(125)		45		1,973		(5)		6,296		(86)		8,269		(91)
Asset-Backed Securities	16		17,215		(130)		14,173		(217)		31,388		(347)		17		24,404		(67)		16,595		(91)		40,999		(158)
Total Securities Available for Sale	535	$	116,615	$	(3,602)	$	366,142	$	(59,719)	$	482,757	$	(63,321)		519	$	92,970	$	(1,071)	$	375,116	$	(45,990)	$	468,086	$	(47,061)


		Less Than 12 Months				12 Months or Greater				Total						Less Than 12 Months				12 Months or Greater				Total
	Number of			Unrealized				Unrealized				Unrealized			Number of			Unrealized				Unrealized				Unrealized
(dollars in thousands, except number of holdings)	Holdings	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses			Holdings	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
December 31, 2022
U.S. Treasury Securities	6	$	2,330	$	(41)	$	—	$	—	$	2,330	$	(41)
December 31, 2023														December 31, 2023
Municipal Bonds	225		59,912		(5,321)		69,424		(19,893)		129,336		(25,214)		212	$	4,052	$	(17)	$	120,527	$	(19,018)	$	124,579	$	(19,035)
Mortgage-Backed Securities	130		123,224		(5,427)		62,882		(12,173)		186,106		(17,600)		128		35,719		(310)		135,829		(16,091)		171,548		(16,401)
Corporate Securities	100		88,486		(5,121)		17,054		(1,968)		105,540		(7,089)		110		14,528		(756)		101,311		(11,123)		115,839		(11,879)
SBA Securities	49		2,498		(6)		9,750		(153)		12,248		(159)		47		1,731		(3)		7,072		(99)		8,803		(102)
Asset-Backed Securities	20		21,919		(396)		6,186		(224)		28,105		(620)		24		39,011		(234)		13,805		(191)		52,816		(425)
Total Securities Available for Sale	530	$	298,369	$	(16,312)	$	165,296	$	(34,411)	$	463,665	$	(50,723)		521	$	95,041	$	(1,320)	$	378,544	$	(46,522)	$	473,585	$	(47,842)

Beginning January 1, 2023, the Company evaluates all securities quarterly to determine if any securities in a loss position require an allowance for credit losses on securities in accordance with ASC 326 - ~~Measurement of Credit Losses on Financial Instruments~~.

~~Table of Contents~~

At ~~September 30, 2023, 535~~March 31, 2024, 519 debt securities had unrealized losses with aggregate depreciation of approximately ~~11.6%~~9.1% from the Company’s amortized cost basis. At December 31, 2023, 521 debt securities had unrealized losses with aggregate depreciation of approximately 9.2% from the Company’s amortized cost basis. These unrealized losses have not been recognized into income because management does not intend to sell these securities, and it is not more likely than not it will be required to sell the securities before recovery of its amortized cost basis. Furthermore, the unrealized losses are due to changes in interest rates and other market conditions and were not reflective of credit events. To make this determination, consideration is given to such factors as the credit rating of the issuer, level of credit enhancement, changes in credit ratings, market conditions such as current interest rates, any adverse conditions specific to the security, and delinquency status on contractual payments. As of ~~September 30,~~March 31, 2024 and December 31, 2023, there was no allowance for credit losses carried on the Company’s securities portfolio.

Accrued interest receivable on securities, which is recorded within accrued interest on the balance sheet, totaled ~~$4.3~~$5.2 million and $4.9 million at ~~September 30,~~March 31, 2024 and December 31, 2023, respectively, and is excluded from the estimate of credit losses.

~~At December 31, 2022, 530 debt securities had unrealized losses with aggregate depreciation~~11

Table of approximately 9.9% from the Company’s amortized cost basis. For periods prior to the adoption of ASC 326, management conducted a quarterly review and evaluation of its securities for other than temporary impairment. In analyzing whether unrealized losses on debt securities were other than temporary, management considered the length of time and the extent to which the fair value was less than amortized cost, whether the securities are issued by a government body or agency, whether a rating agency has downgraded the securities, industry analysts’ reports, the financial condition and performance of the issuer, the quality of any underlying assets or credit enhancements, and the Company’s intent and ability to hold the security for a period of time sufficient to allow for a recovery in fair value. No declines were deemed to be other than temporary as of December 31, 2022.Contents

The following table presents a summary of amortized cost and estimated fair value of debt securities by the lesser of expected call date or contractual maturity as of ~~September 30, 2023.~~March 31, 2024. Call date is used when a call of the debt security is expected, as determined by the Company when the security has a market value above its amortized cost. Contractual maturities will differ from expected maturities for mortgage-backed, SBA securities and asset-backed securities because borrowers may have the right to call or prepay obligations without penalties.


(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
September 30, 2023
March 31, 2024
Due in One Year or Less	$	9,779	$	9,833	$	16,679	$	16,643
Due After One Year Through Five Years		44,811		42,665		48,627		46,923
Due After Five Years Through 10 Years		179,590		155,444		192,786		172,941
Due After 10 Years		51,797		39,136		35,980		28,536
Subtotal		285,977		247,078		294,072		265,043
Mortgage-Backed Securities		233,920		210,375		260,079		244,216
SBA Securities		19,779		19,966		16,864		17,025
Asset-Backed Securities		75,616		75,657		106,637		106,998
Totals	$	615,292	$	553,076	$	677,652	$	633,282

The following table presents a summary of the proceeds from sales of securities available for sale, as well as gross gains and losses, for the three ~~and nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~September 30, 2022:~~March 31, 2023:


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
(dollars in thousands)	2023		2022		2023		2022		2024		2023
Proceeds From Sales of Securities	$	—	$	—	$	26,976	$	25,066	$	12,784	$	19,959
Gross Gains on Sales		—		—		247		234		786		197
Gross Losses on Sales		—		—		(253)		(182)		(693)		(253)

Note 4: Loans and Allowance for Credit Losses

The following table presents the components of the loan portfolio at March 31, 2024 and December 31, 2023:


	March 31,		December 31,
(dollars in thousands)	2024		2023
Commercial	$	483,069	$	464,061
Construction and Land Development		200,970		232,804
1-4 Family Construction		65,606		65,087
Real Estate Mortgage:
1-4 Family Mortgage		417,773		402,396
Multifamily		1,389,345		1,388,541
CRE Owner Occupied		182,589		175,783
CRE Nonowner Occupied		1,035,702		987,306
Total Real Estate Mortgage Loans		3,025,409		2,954,026
Consumer and Other		9,151		8,304
Total Loans, Gross		3,784,205		3,724,282
Allowance for Credit Losses		(51,347)		(50,494)
Net Deferred Loan Fees		(6,356)		(6,573)
Total Loans, Net	$	3,726,502	$	3,667,215

1712

Table of Contents

~~Note 4: Loans and Allowance for Credit Losses~~

~~The following table presents the components of the loan portfolio at September 30, 2023 and December 31, 2022:~~

September 30,

December 31,
(dollars in thousands)

2023

2022
Commercial

$
459,063

$
435,344
Paycheck Protection Program

791

1,049
Construction and Land Development

294,818

295,554
1-4 Family Construction

64,463

70,242
Real Estate Mortgage:

1-4 Family Mortgage

404,716

355,474
Multifamily

1,378,669

1,306,738
CRE Owner Occupied

159,485

149,905
CRE Nonowner Occupied

951,263

947,008
Total Real Estate Mortgage Loans

2,894,133

2,759,125
Consumer and Other

9,003

8,132
Total Loans, Gross

3,722,271

3,569,446
Allowance for Credit Losses

(50,585)

(47,996)
Net Deferred Loan Fees

(7,222)

(9,293)
Total Loans, Net

$
3,664,464

$
3,512,157

~~The following tables present the aging in past due loans and nonaccrual status, with and without an ACL, by loan segment as of September 30, 2023 and December 31, 2022:~~

Accruing Interest

30-89 Days

90 Days or

Nonaccrual

Nonaccrual

(dollars in thousands)

Current

Past Due

More Past Due

with ACL

without ACL

Total
September 30, 2023

Commercial

$
458,883

$
11

$
—

$
74

$
95

$
459,063
Paycheck Protection Program

791

—

—

—

—

791
Construction and Land Development

294,732

—

—

—

86

294,818
1-4 Family Construction

64,463

—

—

—

—

64,463
Real Estate Mortgage:

1-4 Family Mortgage

404,716

—

—

—

—

404,716
Multifamily

1,378,669

—

—

—

—

1,378,669
CRE Owner Occupied

158,991

—

—

—

494

159,485
CRE Nonowner Occupied

951,263

—

—

—

—

951,263
Consumer and Other

9,003

—

—

—

—

9,003
Totals

$
3,721,511

$
11

$
—

$
74

$
675

$
3,722,271

~~Table of Contents~~

Accruing Interest

30-89 Days

90 Days or

Nonaccrual

Nonaccrual

(dollars in thousands)

Current

Past Due

More Past Due

with ACL

without ACL

Total
December 31, 2022

Commercial

$
435,274

$
70

$
—

$
—

$
—

$
435,344
Paycheck Protection Program

1,049

—

—

—

—

1,049
Construction and Land Development

295,448

—

—

—

106

295,554
1-4 Family Construction

70,242

—

—

—

—

70,242
Real Estate Mortgage:

HELOC and 1-4 Family Junior Mortgage

36,875

—

—

—

—

36,875
1st REM - 1-4 Family

50,945

—

—

—

—

50,945
LOCs and 2nd REM - Rentals

27,985

—

—

—

—

27,985
1st REM - Rentals

239,553

116

—

—

—

239,669
Multifamily

1,306,738

—

—

—

—

1,306,738
CRE Owner Occupied

149,372

—

—

—

533

149,905
CRE Nonowner Occupied

947,008

—

—

—

—

947,008
Consumer and Other

8,132

—

—

—

—

8,132
Totals

$
3,568,621

$
186

$
—

$
—

$
639

$
3,569,446

The following tables present the aging in past due loans and nonaccrual status, with and without an ACL, by loan segment as of March 31, 2024 and December 31, 2023:


	Accruing Interest
			30-89 Days		90 Days or		Nonaccrual		Nonaccrual
(dollars in thousands)	Current		Past Due		More Past Due		with ACL		without ACL		Total
March 31, 2024
Commercial	$	482,894	$	—	$	—	$	—	$	175	$	483,069
Construction and Land Development		200,896		—		—		—		74		200,970
1-4 Family Construction		65,606		—		—		—		—		65,606
Real Estate Mortgage:
1-4 Family Mortgage		417,773		—		—		—		—		417,773
Multifamily		1,389,345		—		—		—		—		1,389,345
CRE Owner Occupied		182,589		—		—		—		—		182,589
CRE Nonowner Occupied		1,035,702		—		—		—		—		1,035,702
Consumer and Other		9,151		—		—		—		—		9,151
Totals	$	3,783,956	$	—	$	—	$	—	$	249	$	3,784,205


	Accruing Interest
			30-89 Days		90 Days or		Nonaccrual		Nonaccrual
(dollars in thousands)	Current		Past Due		More Past Due		with ACL		without ACL		Total
December 31, 2023
Commercial	$	463,966	$	—	$	—	$	—	$	95	$	464,061
Construction and Land Development		232,724		—		—		—		80		232,804
1-4 Family Construction		64,838		—		—		—		249		65,087
Real Estate Mortgage:
1-4 Family Mortgage		402,396		—		—		—		—		402,396
Multifamily		1,373,431		15,110		—		—		—		1,388,541
CRE Owner Occupied		175,289		—		—		—		494		175,783
CRE Nonowner Occupied		987,306		—		—		—		—		987,306
Consumer and Other		8,303		—		—		—		1		8,304
Totals	$	3,708,253	$	15,110	$	—	$	—	$	919	$	3,724,282

The Company aggregates loans into credit quality indicators based on relevant information about the ability of borrowers to service their debt by using internal reviews in which management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which the borrowers operate, and the fair values of collateral securing the loans. The Company analyzes all loans individually to assign a risk rating, grouped into five major categories defined as follows:

Pass: A pass loan is a credit with no known or existing potential weaknesses deserving of management’s close attention.

Watch: Loans classified as watch have a potential weakness that deserves management’s close attention. If left uncorrected, this potential weakness may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date. Watch loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard: Loans classified as substandard are not adequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. Well defined weaknesses include a borrower’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time, or the failure to fulfill economic expectations. They are characterized by the distinct possibility that the Company will sustain loss if the deficiencies are not corrected.

Table of Contents

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss: Loans classified as loss are considered uncollectible and charged-off immediately.

1914

Table of Contents

The following table presents loan balances classified by credit quality indicators by year of origination as of ~~September 30,~~March 31, 2024 and December 31, 2023:

September 30, 2023
(dollars in thousands)

2023

2022

2021

2020

2019

Prior

Revolving

Total
Commercial

Pass
$
47,507

$
141,694

$
39,407

$
25,556

$
19,018

$
4,735

$
160,955

$
438,872
Watch

7

332

38

—

3

1,796

2,184

4,360
Substandard

76

11,462

11

—

—

62

4,220

15,831
Total Commercial

47,590

153,488

39,456

25,556

19,021

6,593

167,359

459,063
Current Period Gross Write-offs

96

—

—

—

—

—

—

96

Paycheck Protection Program

Pass

—

—

791

—

—

—

—

791
Total Paycheck Protection Program

—

—

791

—

—

—

—

791
Current Period Gross Write-offs

—

—

—

—

—

—

—

—

Construction and Land Development

Pass

37,814

194,143

48,288

5,021

—

91

9,375

294,732
Substandard

—

86

—

—

—

—

—

86
Total Construction and Land Development

37,814

194,229

48,288

5,021

—

91

9,375

294,818
Current Period Gross Write-offs

—

—

—

—

—

—

—

—

1-4 Family Construction

Pass

33,966

13,594

935

358

—

—

15,610

64,463
Total 1-4 Family Construction

33,966

13,594

935

358

—

—

15,610

64,463
Current Period Gross Write-offs

—

—

—

—

—

—

—

—

Real Estate Mortgage:

—
1-4 Family Mortgage

Pass

61,412

109,495

87,381

55,250

19,059

4,880

66,575

404,052
Watch

—

—

—

—

—

1

—

1
Substandard

—

—

—

—

—

663

—

663
Total 1-4 Family Mortgage

61,412

109,495

87,381

55,250

19,059

5,544

66,575

404,716
Current Period Gross Write-offs

—

—

—

—

—

—

—

—

Multifamily

Pass

136,071

437,174

473,938

230,980

42,344

46,635

8,598

1,375,740
Watch

2,929

—

—

—

—

—

—

2,929
Total Multifamily

139,000

437,174

473,938

230,980

42,344

46,635

8,598

1,378,669
Current Period Gross Write-offs

—

—

—

—

—

—

—

—

CRE Owner Occupied

Pass

31,090

48,727

41,274

20,827

5,076

9,728

1,194

157,916
Substandard

200

—

494

—

—

875

—

1,569
Total CRE Owner Occupied

31,290

48,727

41,768

20,827

5,076

10,603

1,194

159,485
Current Period Gross Write-offs

—

—

—

—

—

—

—

—

CRE Nonowner Occupied

Pass

123,283

297,158

256,990

84,384

78,708

68,128

5,553

914,204
Watch

6,176

10,173

3,238

—

—

—

—

19,587
Substandard

9,780

4,408

—

—

3,284

—

—

17,472
Total CRE Nonowner Occupied

139,239

311,739

260,228

84,384

81,992

68,128

5,553

951,263
Current Period Gross Write-offs

—

—

—

—

—

—

—

—

Total Real Estate Mortgage Loans

370,941

907,135

863,315

391,441

148,471

130,910

81,920

2,894,133

Consumer and Other

Pass

2,744

290

10

1,501

11

—

4,447

9,003
Total Consumer and Other

2,744

290

10

1,501

11

—

4,447

9,003
Current Period Gross Write-offs

2

—

—

—

—

—

31

33

Total Period Gross Write-offs

98

—

—

—

—

—

31

129
Total Loans
$
493,055

$
1,268,736

$
952,795

$
423,877

$
167,503

$
137,594

$
278,711

$
3,722,271


		March 31, 2024
(dollars in thousands)		2024		2023		2022		2021		2020		Prior		Revolving		Total
Commercial
Pass	$	45,707	$	77,410	$	116,209	$	35,888	$	17,453	$	21,502	$	153,257	$	467,426
Watch		—		—		—		24		—		—		495		519
Substandard		—		45		11,213		—		—		—		3,866		15,124
Total Commercial		45,707		77,455		127,422		35,912		17,453		21,502		157,618		483,069
Current Period Gross Write-offs		—		—		—		—		—		—		—		—

Construction and Land Development
Pass		18,627		72,163		84,752		16,961		41		—		8,352		200,896
Substandard		—		—		74		—		—		—		—		74
Total Construction and Land Development		18,627		72,163		84,826		16,961		41		—		8,352		200,970
Current Period Gross Write-offs		—		—		—		—		—		—		—		—

1-4 Family Construction
Pass		4,521		30,238		16,331		942		—		—		13,574		65,606
Total 1-4 Family Construction		4,521		30,238		16,331		942		—		—		13,574		65,606
Current Period Gross Write-offs		—		—		—		—		—		—		—		—

Real Estate Mortgage:
1-4 Family Mortgage
Pass		30,248		66,675		104,943		80,452		55,779		20,138		58,883		417,118
Substandard		—		—		—		—		—		655		—		655
Total 1-4 Family Mortgage		30,248		66,675		104,943		80,452		55,779		20,793		58,883		417,773
Current Period Gross Write-offs		—		—		—		—		—		—		—		—

Multifamily
Pass		86,323		169,735		452,006		402,045		189,453		74,471		12,408		1,386,441
Watch		—		2,904		—		—		—		—		—		2,904
Total Multifamily		86,323		172,639		452,006		402,045		189,453		74,471		12,408		1,389,345
Current Period Gross Write-offs		—		—		—		—		—		—		—		—

CRE Owner Occupied
Pass		14,053		30,839		63,297		39,429		20,219		11,966		1,790		181,593
Substandard		—		996		—		—		—		—		—		996
Total CRE Owner Occupied		14,053		31,835		63,297		39,429		20,219		11,966		1,790		182,589
Current Period Gross Write-offs		—		—		—		—		—		—		—		—

CRE Nonowner Occupied
Pass		70,675		153,480		318,367		236,313		76,481		141,216		3,989		1,000,521
Watch		—		15,013		—		3,188		—		—		—		18,201
Substandard		—		15,036		1,944		—		—		—		—		16,980
Total CRE Nonowner Occupied		70,675		183,529		320,311		239,501		76,481		141,216		3,989		1,035,702
Current Period Gross Write-offs		—		—		—		—		—		—		—		—

Total Real Estate Mortgage Loans		201,299		454,678		940,557		761,427		341,932		248,446		77,070		3,025,409

Consumer and Other
Pass		193		2,731		206		7		1,363		3		4,648		9,151
Total Consumer and Other		193		2,731		206		7		1,363		3		4,648		9,151
Current Period Gross Write-offs		1		—		—		—		—		—		1		2

Total Period Gross Write-offs		1		—		—		—		—		—		1		2
Total Loans	$	270,347	$	637,265	$	1,169,342	$	815,249	$	360,789	$	269,951	$	261,262	$	3,784,205

2015

Table of Contents

~~The following table presents the risk category of loans by loan segment as of December 31, 2022:~~

December 31, 2022
(dollars in thousands)

Pass

Watch

Substandard

Total
Commercial

$
406,192

$
9,477

$
19,675

$
435,344
Paycheck Protection Program

1,049

—

—

1,049
Construction and Land Development

294,736

712

106

295,554
1-4 Family Construction

70,242

—

—

70,242
Real Estate Mortgage:

HELOC and 1-4 Family Junior Mortgage

36,875

—

—

36,875
1st REM - 1-4 Family

50,271

674

—

50,945
LOCs and 2nd REM - Rentals

27,978

7

—

27,985
1st REM - Rentals

239,277

—

392

239,669
Multifamily

1,303,468

3,270

—

1,306,738
CRE Owner Occupied

148,268

—

1,637

149,905
CRE Nonowner Occupied

922,657

18,112

6,239

947,008
Consumer and Other

8,132

—

—

8,132
Totals

$
3,509,145

$
32,252

$
28,049

$
3,569,446

The following table presents the activity in the allowance for credit losses, by segment, for the three and nine months ended September 30, 2023. On January 1, 2023, the Company adopted CECL, which added $650,000 to the total ACL. Under CECL, the Company recorded a $0 and $2.1 million provision for credit losses on loans during the three and nine months ended September 30, 2023, respectively, compared to a $1.5 million and $6.2 million provision for loan losses in the three and nine months ended September 30, 2022, respectively, under the incurred loss method.

Paycheck

Construction

CRE

CRE

Protection

and Land

1-4 Family

1--4 Family

Owner

Non-owner

Consumer

(dollars in thousands)

Commercial

Program

Development

Construction

Mortgage

Multifamily

Occupied

Occupied

and Other

Unallocated

Total
Three Months Ended September 30, 2023

Allowance for Credit Losses for Loans:

Beginning Balance

$
5,439

$
—

$
3,476

$
654

$
2,836

$
21,164

$
1,086

$
15,976

$
70

$
—

$
50,701
Provision for Credit Losses for Loans

151

—

(704)

(80)

22

1,052

3

(464)

20

—

—
Loans Charged-off

(96)

—

—

—

—

—

—

—

(26)

—

(122)
Recoveries of Loans

2

—

—

—

2

—

—

—

2

—

6
Total Ending Allowance Balance

$
5,496

$
—

$
2,772

$
574

$
2,860

$
22,216

$
1,089

$
15,512

$
66

$
—

$
50,585

Nine Months Ended September 30, 2023

Allowance for Credit Losses for Loans:

Beginning Balance, Prior to Adoption of CECL

$
6,500

$
1

$
3,911

$
845

$
4,325

$
17,459

$
1,965

$
12,576

$
151

$
263

$
47,996
Impact of Adopting CECL

(1,157)

(1)

(1,070)

(235)

(1,778)

3,318

(943)

2,869

(90)

(263)

650
Provision for Credit Losses for Loans

242

—

(69)

(36)

309

1,439

67

67

31

—

2,050
Loans Charged-off

(96)

—

—

—

—

—

—

—

(33)

—

(129)
Recoveries of Loans

7

—

—

—

4

—

—

—

7

—

18
Total Ending Allowance Balance

$
5,496

$
—

$
2,772

$
574

$
2,860

$
22,216

$
1,089

$
15,512

$
66

$
—

$
50,585


		December 31, 2023
(dollars in thousands)		2023		2022		2021		2020		2019		Prior		Revolving		Total
Commercial
Pass	$	93,299	$	121,274	$	37,056	$	19,297	$	18,594	$	4,507	$	149,836	$	443,863
Watch		1,700		318		34		—		—		—		2,003		4,055
Substandard		3		11,299		—		—		—		50		4,791		16,143
Total Commercial		95,002		132,891		37,090		19,297		18,594		4,557		156,630		464,061
Current Period Gross Write-offs		72		96		12		—		—		—		—		180

Construction and Land Development
Pass		87,402		99,133		34,122		46		—		—		12,021		232,724
Substandard		—		80		—		—		—		—		—		80
Total Construction and Land Development		87,402		99,213		34,122		46		—		—		12,021		232,804
Current Period Gross Write-offs		—		—		—		—		—		—		—		—

1-4 Family Construction
Pass		35,172		16,156		941		355		—		—		12,214		64,838
Substandard		249		—		—		—		—		—		—		249
Total 1-4 Family Construction		35,421		16,156		941		355		—		—		12,214		65,087
Current Period Gross Write-offs		—		—		—		—		—		—		—		—

Real Estate Mortgage:
1-4 Family Mortgage
Pass		74,602		106,085		83,525		52,813		18,789		3,403		62,490		401,707
Substandard		—		—		—		—		—		659		30		689
Total 1-4 Family Mortgage		74,602		106,085		83,525		52,813		18,789		4,062		62,520		402,396
Current Period Gross Write-offs		—		—		—		—		—		—		—		—

Multifamily
Pass		192,078		456,179		444,162		196,784		41,998		45,847		8,577		1,385,625
Watch		2,916		—		—		—		—		—		—		2,916
Total Multifamily		194,994		456,179		444,162		196,784		41,998		45,847		8,577		1,388,541
Current Period Gross Write-offs		—		—		—		—		—		—		—		—

CRE Owner Occupied
Pass		36,255		61,724		40,748		20,610		4,903		8,312		1,672		174,224
Substandard		194		—		494		—		—		871		—		1,559
Total CRE Owner Occupied		36,449		61,724		41,242		20,610		4,903		9,183		1,672		175,783
Current Period Gross Write-offs		—		—		—		—		—		—		—		—

CRE Nonowner Occupied
Pass		164,226		305,749		253,683		77,618		78,288		66,569		4,521		950,654
Watch		16,301		—		3,213		—		—		—		—		19,514
Substandard		15,183		1,955		—		—		—		—		—		17,138
Total CRE Nonowner Occupied		195,710		307,704		256,896		77,618		78,288		66,569		4,521		987,306
Current Period Gross Write-offs		—		—		—		—		—		—		—		—

Total Real Estate Mortgage Loans		501,755		931,692		825,825		347,825		143,978		125,661		77,290		2,954,026

Consumer and Other
Pass		2,908		256		9		1,460		6		—		3,665		8,304
Total Consumer and Other		2,908		256		9		1,460		6		—		3,665		8,304
Current Period Gross Write-offs		42		—		—		—		—		—		2		44

Total Period Gross Write-offs		114		96		12		—		—		—		2		224
Total Loans	$	722,488	$	1,180,208	$	897,987	$	368,983	$	162,578	$	130,218	$	261,820	$	3,724,282

2116

Table of Contents

The following ~~table presents~~tables present the activity in the allowance for ~~loan~~credit losses, by ~~portfolio~~ segment, for the three ~~and nine~~ months ended ~~September 30, 2022, prepared using the previous GAAP incurred loss method prior to the adoption of CECL:~~March 31, 2024 and 2023:


			Paycheck		Construction								CRE		CRE										Construction								CRE		CRE
			Protection		and Land		1-4 Family		1--4 Family				Owner		Non-owner		Consumer								and Land		1-4 Family		1--4 Family				Owner		Non-owner		Consumer
(dollars in thousands)	Commercial		Program		Development		Construction		Mortgage		Multifamily		Occupied		Occupied		and Other		Unallocated		Total		Commercial		Development		Construction		Mortgage		Multifamily		Occupied		Occupied		and Other		Total
Three Months Ended September 30, 2022
Allowance for Loan Losses:
Three Months Ended March 31, 2024
Allowance for Credit Losses for Loans:
Beginning Balance	$	6,275	$	2	$	4,134	$	638	$	4,206	$	14,977	$	1,920	$	12,235	$	154	$	170	$	44,711	$	5,398	$	2,156	$	558	$	2,651	$	22,217	$	1,184	$	16,225	$	105	$	50,494
Provision for Loan Losses		70		(1)		(363)		60		(257)		1,845		107		47		13		(21)		1,500
Provision for Credit Losses for Loans																								206		(328)		19		102		13		51		780		7		850
Loans Charged-off		—		—		—		—		—		—		—		—		(5)		—		(5)		—		—		—		—		—		—		—		(2)		(2)
Recoveries of Loans		3		—		—		—		281		—		—		—		1		—		285		3		—		—		1		—		—		—		1		5
Total Ending Allowance Balance	$	6,348	$	1	$	3,771	$	698	$	4,230	$	16,822	$	2,027	$	12,282	$	163	$	149	$	46,491	$	5,607	$	1,828	$	577	$	2,754	$	22,230	$	1,235	$	17,005	$	111	$	51,347

Nine Months Ended September 30, 2022
Allowance for Loan Losses:
Beginning Balance	$	6,256	$	13	$	3,139	$	618	$	3,757	$	12,610	$	1,495	$	11,335	$	147	$	650	$	40,020
Provision for Loan Losses		98		(12)		632		80		187		4,212		532		947		25		(501)		6,200
Loans Charged-off		(13)		—		—		—		—		—		—		—		(21)		—		(34)
Recoveries of Loans		7		—		—		—		286		—		—		—		12		—		305
Total Ending Allowance Balance	$	6,348	$	1	$	3,771	$	698	$	4,230	$	16,822	$	2,027	$	12,282	$	163	$	149	$	46,491


			Construction								CRE		CRE
			and Land		1-4 Family		1--4 Family				Owner		Non-owner		Consumer
(dollars in thousands)	Commercial		Development		Construction		Mortgage		Multifamily		Occupied		Occupied		and Other		Unallocated		Total
Three Months Ended March 31, 2023
Allowance for Credit Losses for Loans:
Beginning Balance, Prior to Adoption of CECL	$	6,501	$	3,911		845	$	4,325	$	17,459	$	1,965	$	12,576	$	151	$	263	$	47,996
Impact of Adopting CECL		(1,158)		(1,070)		(235)		(1,778)		3,318		(943)		2,869		(90)		(263)		650
Balance ss of January 1, 2023, as Adjusted for Adoption of CECL		5,343		2,841		610		2,547		20,777		1,022		15,445		61		—		48,646
Provision for Credit Losses for Loans		220		328		196		169		212		61		299		15		—		1,500
Loans Charged-off		—		—		—		—		—		—		—		(4)		—		(4)
Recoveries of Loans		3		—		—		1		—		—		—		2		—		6
Total Ending Allowance Balance	$	5,566	$	3,169	$	806	$	2,717	$	20,989	$	1,083	$	15,744	$	74	$	—	$	50,148

The following tables present the balance in the allowance for credit losses and the recorded investment in loans, by segment, ~~based on impairment method~~ as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


			Paycheck		Construction								CRE		CRE										Construction								CRE		CRE
			Protection		and Land		1-4 Family		1--4 Family				Owner		Non-owner		Consumer								and Land		1-4 Family		1--4 Family				Owner		Non-owner		Consumer
(dollars in thousands)	Commercial		Program		Development		Construction		Mortgage		Multifamily		Occupied		Occupied		and Other		Unallocated		Total		Commercial		Development		Construction		Mortgage		Multifamily		Occupied		Occupied		and Other		Total
ACL at September 30, 2023
ACL at March 31, 2024
Individually Evaluated for Impairment	$	84	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	84	$	26	$	—	$	—	$	—	$	—	$	—	$	205	$	—	$	231
Collectively Evaluated for Impairment		5,412		—		2,772		574		2,860		22,216		1,089		15,512		66		—		50,501		5,581		1,828		577		2,754		22,230		1,235		16,800		111		51,116
Totals	$	5,496	$	—	$	2,772	$	574	$	2,860	$	22,216	$	1,089	$	15,512	$	66	$	—	$	50,585	$	5,607	$	1,828	$	577	$	2,754	$	22,230	$	1,235	$	17,005	$	111	$	51,347

ALL at December 31, 2022
Individually Evaluated for Impairment	$	71	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	71
Collectively Evaluated for Impairment		6,429		1		3,911		845		4,325		17,459		1,965		12,576		151		263		47,925
Totals	$	6,500	$	1	$	3,911	$	845	$	4,325	$	17,459	$	1,965	$	12,576	$	151	$	263	$	47,996


			Paycheck		Construction								CRE		CRE								Construction								CRE		CRE
			Protection		and Land		1-4 Family		1--4 Family				Owner		Non-owner		Consumer						and Land		1-4 Family		1--4 Family				Owner		Non-owner		Consumer
(dollars in thousands)	Commercial		Program		Development		Construction		Mortgage		Multifamily		Occupied		Occupied		and Other		Total		Commercial		Development		Construction		Mortgage		Multifamily		Occupied		Occupied		and Other		Total
Loans at September 30, 2023
ACL at December 31, 2023
Individually Evaluated for Impairment	$	15,831	$	—	$	86	$	—	$	663	$	—	$	1,569	$	17,472	$	—	$	35,621	$	8	$	—	$	—	$	—	$	—	$	—	$	95	$	—	$	103
Collectively Evaluated for Impairment		443,232		791		294,732		64,463		404,053		1,378,669		157,916		933,791		9,003		3,686,650		5,390		2,156		558		2,651		22,217		1,184		16,130		105		50,391
Totals	$	459,063	$	791	$	294,818	$	64,463	$	404,716	$	1,378,669	$	159,485	$	951,263	$	9,003	$	3,722,271	$	5,398	$	2,156	$	558	$	2,651	$	22,217	$	1,184	$	16,225	$	105	$	50,494

Loans at December 31, 2022
Individually Evaluated for Impairment	$	19,675	$	—	$	106	$	—	$	392	$	—	$	1,637	$	6,239	$	—	$	28,049
Collectively Evaluated for Impairment		415,669		1,049		295,448		70,242		355,082		1,306,738		148,268		940,769		8,132		3,541,397
Totals	$	435,344	$	1,049	$	295,554	$	70,242	$	355,474	$	1,306,738	$	149,905	$	947,008	$	8,132	$	3,569,446


			Construction								CRE		CRE
			and Land		1-4 Family		1--4 Family				Owner		Non-owner		Consumer
(dollars in thousands)	Commercial		Development		Construction		Mortgage		Multifamily		Occupied		Occupied		and Other		Total
Loans at March 31, 2024
Individually Evaluated for Impairment	$	15,124	$	74	$	—	$	655	$	—	$	996	$	16,980	$	—	$	33,829
Collectively Evaluated for Impairment		467,945		200,896		65,606		417,118		1,389,345		181,593		1,018,722		9,151		3,750,376
Totals	$	483,069	$	200,970	$	65,606	$	417,773	$	1,389,345	$	182,589	$	1,035,702	$	9,151	$	3,784,205

Loans at December 31, 2023
Individually Evaluated for Impairment	$	16,143	$	80	$	249	$	689	$	—	$	1,559	$	17,138	$	—	$	35,858
Collectively Evaluated for Impairment		447,918		232,724		64,838		401,707		1,388,541		174,224		970,168		8,304		3,688,424
Totals	$	464,061	$	232,804	$	65,087	$	402,396	$	1,388,541	$	175,783	$	987,306	$	8,304	$	3,724,282

2217

Table of Contents

The following ~~table presents~~tables present the amortized cost basis of collateral dependent loans by the primary collateral type, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans as of ~~September 30,~~March 31, 2024 and December 31, 2023:


	Primary Type of Collateral										Primary Type of Collateral
			Business						ACL				Business						ACL
(dollars in thousands)	Real Estate		Assets		Other		Total		Allocation		Real Estate		Assets		Other		Total		Allocation
September 30, 2023
March 31, 2024
Commercial	$	—	$	5,459	$	10,372	$	15,831	$	84	$	—	$	4,766	$	10,358	$	15,124	$	26
Construction and Land Development		86		—		—		86		—		74		—		—		74
Real Estate Mortgage:
1-4 Family Mortgage		663		—		—		663		—		655		—		—		655		—
CRE Owner Occupied		1,569		—		—		1,569		—		996		—		—		996		—
CRE Nonowner Occupied		17,472		—		—		17,472		—		16,980		—		—		16,980		205
Totals	$	19,790	$	5,459	$	10,372	$	35,621	$	84	$	18,705	$	4,766	$	10,358	$	33,829	$	231


	Primary Type of Collateral
			Business						ACL
(dollars in thousands)	Real Estate		Assets		Other		Total		Allocation
December 31, 2023
Commercial	$	—	$	5,782	$	10,361	$	16,143	$	8
Construction and Land Development		80		—		—		80		—
1-4 Family Construction		249		—		—		249		—
Real Estate Mortgage:
1-4 Family Mortgage		689		—		—		689		—
CRE Owner Occupied		1,559		—		—		1,559		—
CRE Nonowner Occupied		17,138		—		—		17,138		95
Totals	$	19,715	$	5,782	$	10,361	$	35,858	$	103

Accrued interest receivable on loans, which is recorded within accrued interest on the balance sheet, totaled ~~$10.8~~$11.5 million and $11.8 million at ~~September 30,~~March 31, 2024 and December 31, 2023, respectively, and was excluded from the estimate of credit losses.

~~Effective January 1, 2023, the Company adopted the provision of ASU 2022-02, which eliminated the accounting for TDRs, while expanding loan modification and vintage disclosure requirements.~~ For the three months ended ~~September 30, 2023,~~March 31, 2024, there were no ~~loan modifications.~~loans modified to borrowers experiencing financial difficulty. For the ~~nine~~three months ended ~~September 30,~~March 31, 2023, the Company modified one CRE nonowner occupied loan, with an outstanding balance of ~~$9.6~~$9.5 million, for a borrower experiencing financial difficulty by granting a 12-month extension at a below market rate. There was no forgiveness of principal and this loan was current with its modified terms as of ~~September 30, 2023.~~

~~Prior to the adoption of ASU 2022-02, at December~~March 31, ~~2022, there were two loans classified as TDRs with total aggregate outstanding balances of $188,000.~~2024.

~~Pre-ASC 326 Adoption Impaired Loan Disclosures~~

~~The following table presents information regarding total carrying amounts and total unpaid principal balances of impaired loans by loan segment as of December 31, 2022:~~

December 31, 2022

Recorded

Principal

Related
(dollars in thousands)

Investment

Balance

Allowance
Loans With No Related Allowance for Loan Losses:

Commercial

$
19,508

$
19,508

$
—
Construction and Land Development

106

713

—
Real Estate Mortgage:

1-4 Family Mortgage

392

392

—
CRE Owner Occupied

1,637

1,726

—
CRE Nonowner Occupied

6,239

6,239

—
Totals

27,882

28,578

—

Loans With An Allowance for Loan Losses:




Commercial

167

167

71
Totals

167

167

71
Grand Totals

$
28,049

$
28,745

$
71

~~Table of Contents~~

~~The following table presents information regarding the average balances and interest income recognized on impaired loans by loan segment for the three and nine months ended September 30, 2022:~~

Three Months Ended

Nine Months Ended

September 30, 2022

September 30, 2022

Average

Interest

Average

Interest
(dollars in thousands)

Investment

Recognized

Investment

Recognized
Loans With No Related Allowance for Loan Losses:

Commercial

$
9,929

$
187

$
11,343

$
519
Construction and Land Development

114

—

120

—
Real Estate Mortgage:

1st REM - 1-4 Family

282

4

286

11
CRE Owner Occupied

1,751

17

1,762

49
CRE Nonowner Occupied

6,333

85

6,431

249
Totals

18,409

293

19,942

828

Loans With An Allowance for Loan Losses:





Commercial

84

—

86

1
Real Estate Mortgage:

CRE Nonowner Occupied

12,135

127

12,135

370
Totals

12,219

127

12,221

371
Grand Totals

$
30,628

$
420

$
32,163

$
1,199

Note 5: Deposits

The following table presents the composition of deposits at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


	September 30,		December 31,		March 31,		December 31,
(dollars in thousands)	2023		2022		2024		2023
Transaction Deposits	$	1,535,160	$	1,336,264	$	1,482,168	$	1,449,765
Savings and Money Market Deposits		872,534		1,031,873		979,773		935,091
Time Deposits		265,737		272,253		352,510		300,651
Brokered Deposits		1,002,078		776,153		992,774		1,024,441
Totals	$	3,675,509	$	3,416,543	$	3,807,225	$	3,709,948

Brokered deposits ~~are comprised of~~include brokered transaction and money market accounts of ~~$177.7~~$155.5 million and ~~$184.3~~$174.0 million as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively.

~~The following table presents the scheduled maturities of brokered and customer time deposits at September 30, 2023:~~

September 30,
(dollars in thousands)

2023
Less than 1 Year

$
397,981
1 to 2 Years

143,267
2 to 3 Years

350,978
3 to 4 Years

63,790
4 to 5 Years

101,357
Greater than 5 Years

32,709
Totals

$
1,090,082

~~The aggregate amount of time deposits greater than $250,000 was approximately $88.5 million and $92.3 million at September 30, 2023 and December 31, 2022, respectively.~~

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The following table presents the scheduled maturities of brokered and customer time deposits at March 31, 2024:


	March 31,
(dollars in thousands)	2024
Less than 1 Year	$	389,466
1 to 2 Years		393,452
2 to 3 Years		191,883
3 to 4 Years		84,128
4 to 5 Years		86,108
Greater than 5 Years		44,706
Totals	$	1,189,743

The aggregate amount of time deposits greater than $250,000 was approximately $177.0 million and $138.4 million at March 31, 2024 and December 31, 2023, respectively.

Note 6: Derivative Instruments and Hedging Activities

The Company uses derivative financial instruments, which consist of interest rate swaps and interest rate caps, to assist in its interest rate risk management. The notional amount does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual agreements. Derivative financial instruments are reported at fair value in other assets or other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship. For derivatives not designated as hedges, the gain or loss is recognized in current earnings.

Non-hedge Derivatives

The Company enters into interest rate swaps to facilitate client transactions and meet their financing needs. Upon entering into these instruments to meet client needs, the Company enters into offsetting positions with large U.S. financial institutions in order to minimize the risk to the Company. These swaps are derivatives, but are not designated as hedging instruments.

Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty or client owes the Company, and results in credit risk to the Company. When the fair value of a derivative instrument contract is negative, the Company owes the client or counterparty and therefore, the Company has no credit risk.

The following table presents a summary of the Company’s interest rate swaps to facilitate customer transactions as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


	September 30, 2023				December 31, 2022				March 31, 2024				December 31, 2023
	Notional		Estimated		Notional		Estimated		Notional		Estimated		Notional		Estimated
(dollars in thousands)	Amount		Fair Value		Amount		Fair Value		Amount		Fair Value		Amount		Fair Value
Interest rate swap agreements:
Assets	$	64,241	$	9,962	$	65,315	$	8,240	$	63,380	$	8,049	$	63,814	$	6,981
Liabilities		64,241		(9,962)		65,315		(8,240)		63,380		(8,049)		63,814		(6,981)
Total	$	128,482	$	—	$	130,630	$	—	$	126,760	$	—	$	127,628	$	—

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Cash Flow Hedging Derivatives

For derivative instruments that are designated and qualify as a cash flow hedge, the aggregate fair value of the derivative instrument is recorded in other assets or other liabilities with any gain or loss related to changes in fair value recorded in accumulated other comprehensive income, net of tax. The gain or loss is reclassified into earnings in the same period during which the hedged asset or liability affects earnings and is presented in the same income statement line item as the earnings effect of the hedged asset or liability. The Company utilizes cash flow hedges to manage interest rate exposure for the brokered deposit and wholesale borrowing portfolios. During the next 12 months, the Company estimates that ~~$8.6~~$8.1 million will be reclassified to interest expense, as a reduction of the expense.

The following table presents a summary of the Company’s interest rate swaps designated as cash flow hedges as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


(dollars in thousands)	September 30, 2023			December 31, 2022			March 31, 2024			December 31, 2023
Notional Amount	$	183,000		$	163,000		$	183,000		$	183,000
Weighted Average Pay Rate		2.00	%		1.90	%		2.00	%		2.00	%
Weighted Average Receive Rate		5.40	%		3.47	%		5.48	%		5.48	%
Weighted Average Maturity (Years)		4.30			5.15			3.79			4.04
Net Unrealized Gain	$	11,139		$	9,175		$	6,756		$	5,271

The following table presents a summary of the Company’s interest rate caps designated as cash flow hedges as of March 31, 2024 and December 31, 2023:


(dollars in thousands)	March 31, 2024			December 31, 2023
Notional Amount	$	125,000		$	125,000
Unamortized Premium Paid		4,885			5,081
Weighted Average Strike Rate		0.96	%		0.96	%
Weighted Average Maturity (Years)		6.10			6.34

The following table presents a summary of the Company’s interest rate contracts as of March 31, 2024 and December 31, 2023:


	March 31, 2024				December 31, 2023
	Notional		Estimated		Notional		Estimated
(dollars in thousands)	Amount		Fair Value		Amount		Fair Value
Interest rate swap agreements:
Assets	$	152,500	$	7,020	$	135,000	$	6,891
Liabilities		30,500		(264)		48,000		(1,620)
Interest rate cap agreements:
Assets		125,000		20,445		125,000		18,717

The Company is party to collateral support agreements with certain derivative counterparties. These agreements require that the Company maintain collateral based on the fair values of derivative transactions. In the event of default by the Company, the counterparty would be entitled to the collateral. As of March 31, 2024 and December 31, 2023, the Company pledged no cash collateral for the Company’s derivative contracts. In addition, as of March 31, 2024 and

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The Company purchases interest rate caps, designated as cash flow hedges, of certain deposit liabilities. The interest rate caps require receipt of variable amounts from the counterparties when interest rates rise above the strike price in the contracts. For the three and nine months ended September 30, 2023, the company recognized amortization expense on the interest rate caps of $198,000 and $593,000, respectively, which was recorded as a component of interest expense on brokered deposits and FHLB advances. For the three and nine months ended September 30, 2022, the company recognized amortization expense on the interest rate caps of $204,000 and $574,000, respectively, which was recorded as a component of interest expense on brokered deposits and FHLB advances.

~~The following table presents a summary of the Company’s interest rate caps designated as cash flow hedges as of September 30, 2023 and~~ December 31, ~~2022:~~

(dollars in thousands)

September 30, 2023

December 31, 2022

Notional Amount

$
125,000

$
125,000

Unamortized Premium Paid

5,279

5,872

Weighted Average Strike Rate

0.96
%

0.96
%
Weighted Average Maturity (Years)

6.60

7.35

~~The following table presents a summary of the Company’s interest rate contracts as of September 30,~~ 2023, ~~and December 31, 2022:~~

September 30, 2023

December 31, 2022

Notional

Estimated

Notional

Estimated
(dollars in thousands)

Amount

Fair Value

Amount

Fair Value
Interest rate swap agreements:

Assets

$
183,000

$
11,139

$
125,000

$
10,477
Liabilities

—

—

38,000

(1,302)
Interest rate cap agreements:

Assets

125,000

23,006

125,000

19,406

The Company is party to collateral support agreements with certain derivative counterparties. These agreements require that the Company maintain collateral based on the fair values of derivative transactions. In the event of default by the Company, the counterparty would be entitled to the collateral. As of September 30, 2023 and December 31, 2022, the Company pledged no cash collateral for the Company’s derivative contracts. In addition, as of September 30, 2023 and December 31, 2022, the Company's counterparties pledged cash collateral to the Company of ~~$46.0~~$36.7 million and ~~$36.4~~$31.8 million, respectively.

The following table summarizes gross and net information about derivative instruments that are eligible for offset in the balance sheet at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


							Gross Amounts Not Offset in the Balance Sheet												Gross Amounts Not Offset in the Balance Sheet
					Net Amounts of												Net Amounts of
	Gross Amounts		Gross Amounts		Assets (Liabilities)								Gross Amounts		Gross Amounts		Assets (Liabilities)
	of Recognized		Offset in the		Presented in the		Financial		Cash Collateral		Net Assets		of Recognized		Offset in the		Presented in the		Financial		Cash Collateral		Net Assets
(dollars in thousands)	Assets (Liabilities)		Balance Sheet		Balance Sheet		Instruments		Received (Paid)		(Liabilities)		Assets (Liabilities)		Balance Sheet		Balance Sheet		Instruments		Received (Paid)		(Liabilities)
September 30, 2023
March 31, 2024
Assets	$	44,107	$	—	$	44,107	$	—	$	46,023	$	(1,916)	$	35,514	$	—	$	35,514	$	—	$	36,663	$	(1,149)
Liabilities		(9,962)		—		(9,962)		—		—		(9,962)		(8,313)		—		(8,313)		—		—		(8,313)

December 31, 2022
December 31, 2023
Assets	$	38,123	$	—	$	38,123	$	—	$	36,353	$	1,770	$	32,589	$	—	$	32,589	$	—	$	31,783	$	806
Liabilities		(9,542)		—		(9,542)		—		—		(9,542)		(8,601)		—		(8,601)		—		—		(8,601)

~~Table of Contents~~

The following table presents the effect of derivative instruments in cash flow hedging relationships on the consolidated statements of income for the three ~~and nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~2022:~~2023:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

2023

2022

2023

2022

(dollars in thousands)

2024

2023

Derivatives in

Location of Gain (Loss)

Gain (Loss)

Loss

Location of Gain (Loss)

Gain (Loss)

Cash Flow Hedging

Reclassified

Reclassified from

Reclassified

Reclassified from

Relationships

from AOCI into Income

AOCI into Earnings

from AOCI into Income

AOCI into Earnings

Interest rate swaps

Interest expense

1,575

288

4,169

(24)

Interest expense

1,596

1,177

Interest rate caps

Interest expense

(169)

(159)

(539)

Interest expense

707

(110)

No amounts were reclassified from accumulated other comprehensive income into net income related to hedge ineffectiveness for these derivatives during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ and no amounts are expected to be reclassified from accumulated other comprehensive income into net income related to hedge ineffectiveness over the next twelve months.

Note 7: Federal Home Loan Bank Advances and Other Borrowings

Federal Home Loan Bank Advances. The Company has entered into an Advances, Pledge, and Security Agreement with the FHLB whereby specific mortgage loans of the Bank with aggregate principal balances of $~~1.37 billion and $1.20~~1.45 billion at ~~September 30, 2023~~both March 31, 2024 and December 31, ~~2022, respectively,~~2023, were pledged to the FHLB as collateral. FHLB advances are also secured with FHLB stock owned by the Company. Total remaining available capacity under the agreement was ~~$516.5~~$446.8 million and ~~$390.9~~$498.7 million at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively.

The following table presents FHLB advances, by maturity, at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


	September 30, 2023				December 31, 2022				March 31, 2024				December 31, 2023
	Weighted				Weighted				Weighted				Weighted
	Average		Total		Average		Total		Average		Total		Average		Total
(dollars in thousands)	Rate		Outstanding		Rate		Outstanding		Rate		Outstanding		Rate		Outstanding
Less than 1 Year	5.26	%	$	208,000	4.30	%	$	83,000	5.35	%	$	243,000	5.31	%	$	233,000
1 to 2 Years	4.31			25,000	1.05			5,000	4.35			12,500	4.31			25,000
2 to 3 Years	4.06			17,500	1.22			5,000	3.45			21,500	3.45			21,500
3 to 4 Years	3.35			21,500	0.78			4,000	4.03			27,500	3.94			17,500
4 to 5 Years	4.01			22,500	—			—	3.87			12,500	4.01			22,500
Totals			$	294,500			$	97,000			$	317,000			$	319,500

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Line of Credit. ~~In 2021, the~~The Company ~~entered into~~has a Loan and Security Agreement and related revolving note with an unaffiliated financial institution that ~~was~~is secured by 100% of the issued and outstanding stock of the Bank. The note contains customary representations, warranties, and covenants, including certain financial covenants and capital ratio requirements. The Company believes it was in compliance with all covenants as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.

~~On September 1, 2022,~~The following table presents the ~~Company entered into a second amendment to the agreement which increased the maximum principal amount of the Company’s~~ revolving line of credit ~~from $25.0 million to $40.0 million and extended the maturity date from February 28, 2023 to September 1, 2024. As of September 30, 2023~~at March 31, 2024 and December 31, ~~2022, there was an outstanding balance of $13.8 million under the revolving line of credit.~~2023:

Total Debt

Outstanding

Interest

Name

Maturity Date

March 31, 2024

December 31, 2023

Rate

Coupon Structure

Revolving Credit Facility

September 1, 2024

13,750

8.50

Variable with Floor ⁽¹⁾

(1)	The variable interest rate is equal to the greater of Wall Street Journal Prime Rate in effect or a floor of 3.85%.

~~Table of Contents~~

Note 8: Subordinated Debentures

The following table presents a summary of the Company’s subordinated debentures as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


					Total Debt		Total Debt								Total Debt		Total Debt
	Date	First	Maturity		Outstanding		Outstanding	Interest			Date	First	Maturity		Outstanding		Outstanding	Interest
Name	Established	Redemption Date	Date		September 30, 2023		December 31, 2022	Rate		Coupon Structure	Established	Redemption Date	Date		March 31, 2024		December 31, 2023	Rate		Coupon Structure
(dollars in thousands)
2030 Notes	June 19, 2020	July 1, 2025	July 1, 2030	$	50,000	$	50,000	5.25	%	Fixed-to-Floating⁽¹⁾	June 19, 2020	July 1, 2025	July 1, 2030	$	50,000	$	50,000	5.25	%	Fixed-to-Floating⁽¹⁾
2031 Notes	July 8, 2021	July 15, 2026	July 15, 2031		30,000		30,000	3.25	%	Fixed-to-Floating⁽²⁾	July 8, 2021	July 15, 2026	July 15, 2031		30,000		30,000	3.25	%	Fixed-to-Floating⁽²⁾
Subordinated Debentures					80,000		80,000								80,000		80,000
Debt Issuance Costs					(808)		(1,095)								(617)		(712)
Subordinated Debentures, Net of Issuance Costs				$	79,192	$	78,905							$	79,383	$	79,288

(1)	Migrates to three month term SOFR + 5.13% beginning July 1, 2025 until either the early redemption date or the maturity date.

(2)	Migrates to three month term SOFR + 2.52% beginning July 15, 2026 until either the early redemption date or the maturity date.

Note 9: Tax Credit Investments

The Company invests in qualified affordable housing projects and federal historic projects for the purpose of community reinvestment and obtaining tax credits. The Company’s tax credit investments are limited to existing lending relationships with well-known developers and projects within the Company’s market area.

The following table presents a summary of the Company’s investments in qualified affordable housing projects

and other tax credit investments at March 31, 2024 and December 31, 2023:


(dollars in thousands)	March 31, 2024				December 31, 2023
Investment Type		Investment		Unfunded Commitment ⁽¹⁾		Investment		Unfunded Commitment
Low Income Housing Tax Credit (LIHTC)	$	16,880	$	7,579	$	16,897	$	7,579
Federal Historic Tax Credit (FHTC)		2,765		2,353		3,403		2,353
Total	$	19,645	$	9,932	$	20,300	$	9,932

(1)	All commitments are expected to be paid by the Company by March 31, 2025.

Table of Contents

The following table presents a summary of the amortization expense and tax benefit recognized for the Company’s qualified affordable housing projects and other tax credit investments during the three months ended March 31, 2024 and 2023:


	Three Months Ended
	March 31,
(dollars in thousands)	2024		2023
Amortization Expense⁽¹⁾
LIHTC	$	492	$	368
FHTC		163		108
Total	$	655	$	476
Tax Benefit Recognized⁽²⁾
LIHTC	$	(671)	$	(374)
FHTC		(215)		(152)
Total	$	(886)	$	(526)

(1)	The amortization expense for the LIHTC and FHTC investments are included in income tax expense.

(2)	All of the tax benefits recognized are included in income tax expense.

Note 9:10: Commitments, Contingencies and Credit Risk

Financial Instruments with Off-Balance Sheet Credit Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

The Company’s exposure to credit loss is represented by the contractual, or notional, amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments. Since some of the commitments are expected to expire without being drawn upon and some of the commitments may not be drawn upon to the total extent of the commitment, the notional amount of these commitments does not necessarily represent future cash requirements.

The following table presents commitments outstanding at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


	September 30,		December 31,		March 31,		December 31,
(dollars in thousands)	2023		2022		2024		2023
Unfunded Commitments Under Lines of Credit	$	570,363	$	848,734	$	507,704	$	546,632
Letters of Credit		107,292		115,769		99,807		103,289
Totals	$	677,655	$	964,503	$	607,511	$	649,921

The Company had outstanding letters of credit with the FHLB in total amounts of ~~$66.8~~$164.9 million and ~~$78.4~~$114.4 million at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively, on behalf of customers and to secure public deposits.

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The ACL for off-balance sheet credit exposures was ~~$3.2~~$2.9 million and $3.0 million at ~~September 30,~~March 31, 2024 and December 31, 2023, respectively, and is separately classified on the balance sheet within other liabilities. ~~Prior to the adoption of CECL, the Company’s ACL for off-balance sheet credit exposures was not material.~~ The following table presents the balance and activity in the allowance for credit losses for off-balance sheet credit exposures for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2024 and 2023:


		Three Months Ended		Nine Months Ended		Three Months Ended		Three Months Ended
(dollars in thousands)		September 30, 2023		September 30, 2023		March 31, 2024		March 31, 2023
Allowance for Credit Losses:
Beginning Balance, Prior to Adoption of CECL	$	3,835	$	360	$	2,985	$	360
Impact of Adopting CECL		—		4,850		—		4,850
Provision for (Recovery of) Off-Balance Sheet Credit Exposures		(600)		(1,975)
Recovery of Off-Balance Sheet Credit Exposures						(100)		(875)
Total Ending Balance	$	3,235	$	3,235	$	2,885	$	4,335

Legal Contingencies

Neither the Company nor any of its subsidiaries is a party, and no property of these entities is subject, to any material pending legal proceedings, other than ordinary routine litigation incidental to the Bank’s business. The Company does not know of any material proceeding contemplated by a governmental authority against the Company or any of its subsidiaries.

Note ~~10:~~11: Stock Options and Restricted Stock

In 2012, the Company adopted the Bridgewater Bancshares, Inc. 2012 Combined Incentive and Non-Statutory Stock Option Plan (the “2012 Plan”) under which the Company was able to grant options to its directors, officers, and employees for up to 750,000 shares of common stock. Both incentive stock options and nonqualified stock options were granted under the 2012 Plan. The exercise price of each option equals the fair market value of the Company’s stock on the date of grant, and the maximum term of each outstanding option is ten years. All outstanding options have been granted with vesting periods of four or five years. The 2012 Plan expired in March 2022, and awards are no longer able to be granted under the 2012 Plan.

In 2017, the Company adopted the Bridgewater Bancshares, Inc. 2017 Combined Incentive and Non-Statutory Stock Option Plan (the “2017 Plan”). Under the 2017 Plan, the Company may grant options to its directors, officers, employees and consultants for up to 1,500,000 shares of common stock. Both incentive stock options and nonqualified stock options may be granted under the 2017 Plan. The exercise price of each option equals the fair market value of the Company’s stock on the date of grant and the maximum term of each outstanding option is ten years. All outstanding options have been granted with vesting periods of four or five years. As of ~~September 30, 2023~~both March 31, 2024 and December 31, ~~2022,~~2023, there were ~~-0- and 44,700~~5,000 shares ~~respectively,~~ of the Company’s common stock reserved for future option grants under the 2017 Plan.

In 2019, the Company adopted the Bridgewater Bancshares, Inc. 2019 Equity Incentive Plan (the “2019 EIP”). ~~Under~~The types of awards which may be granted under the 2019 EIP ~~the Company may grant~~include incentive and nonqualified stock options, stock appreciation rights, stock awards, restricted stock units, restricted stock and cash incentive awards. The Company may grant these awards to its directors, officers, employees and certain other service providers for up to 1,000,000 shares of common stock. The exercise price of each option equals the fair market value of the Company’s stock on the date of grant and the maximum term of each award is ten years. All outstanding awards have been granted with a vesting period of four years. As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, there were ~~-0-~~6,592 and ~~231,363~~-0- shares, respectively, of the Company’s common stock reserved for future grants under the 2019 EIP.

~~At the~~In 2023, ~~Annual Meeting of Shareholders (the "Annual Meeting") of~~ the Company ~~which was held on April 25, 2023, the Company's shareholders approved~~adopted the Bridgewater Bancshares, ~~Inc.~~inc. 2023 Equity Incentive Plan (the "2023 EIP")~~, which the Company's board of directors adopted on February 28, 2023, subject to shareholder approval at the Annual Meeting.~~. Under the 2023 EIP, the Company may grant incentive and nonqualified stock options, stock appreciation rights, stock awards, restricted stock units, restricted stock and cash incentive awards. The Company may

~~Table of Contents~~

grant these awards to its directors, officers, employees and certain other service providers for up to 1,500,000 shares of common stock. The exercise price of each option equals the fair market value of the Company’s stock on the date of grant and the maximum term of each award is ten years. All outstanding awards have been granted with a vesting period of four years. As of ~~September 30,~~

Table of Contents

March 31, 2024 and December 31, 2023, there were ~~1,438,137~~1,042,800 and 1,107,752 shares, respectively, of the Company’s common stock reserved for future grants under the 2023 EIP.

Stock Options

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) ~~model~~ ~~that uses the assumptions noted in the table below. Expected volatilities are based on an industry~~

~~index as described below. The expected term of options granted is based on historical data and represents the period of~~

~~time that options granted are expected to be outstanding, which takes into account that the options are not transferable.~~

~~The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the~~

~~time of grant. Historically, the Company has not paid a dividend on its common stock and does not expect to do so in the~~

~~near future.~~

~~The Company used the S&P 600 CM Bank Index as its historical volatility index. The S&P 600 CM Bank~~

~~Index is an index of publicly traded small capitalization, regional, commercial banks located throughout the United~~

~~States. There were 51 banks in the index ranging in market capitalization from $500 million up to $4.0 billion.~~

~~The weighted average assumptions used in the model of valuing stock option grants for the nine months ended September 30, 2023, are as follows:~~


	~~September 30,~~
	~~2023~~
~~Dividend Yield~~	—	%
~~Expected Life~~	7	~~Years~~
~~Expected Volatility~~	~~42.25~~	%
~~Risk-Free Interest Rate~~	~~4.15~~	%

model. The following table presents a summary of the status of the Company’s outstanding stock options for the ~~nine~~three months ended ~~September 30, 2023:~~March 31, 2024:


	September 30, 2023			March 31, 2024
		Weighted			Weighted
		Average			Average
	Shares	Exercise Price		Shares	Exercise Price
Outstanding at Beginning of Year	1,913,444	$	9.35	2,014,994	$	10.57
Granted	239,000		10.65	—		—
Exercised	(226,000)		3.17	(8,000)		8.28
Forfeitures	(9,000)		13.04	(5,000)		11.10
Outstanding at Period End	1,917,444	$	10.22	2,001,994	$	10.58

Options Exercisable at Period End	1,378,194	$	8.88	1,421,494	$	9.80

For the three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ the Company recognized compensation expense for stock options of ~~$230,000~~$249,000 and ~~$326,000,~~$186,000, respectively. ~~For~~

The following table presents information pertaining to options outstanding at March 31, 2024:


		Options Outstanding				Options Exercisable
					Weighted Average
		Number of	Weighted Average		Remaining Contractual	Number of	Weighted Average
Range of Exercise Prices		Options	Exercise Price		Life in Years	Options	Exercise Price
$	3.00 - 3.99	10,000	$	3.58	0.8	10,000	$	3.58
	7.00 - 7.99	888,966		7.47	3.5	888,966		7.47
	8.00 - 8.99	12,500		8.76	6.0	6,250		8.76
	10.00 - 10.99	249,000		10.63	9.2	7,500		10.08
	11.00 - 11.99	262,500		11.15	8.2	75,000		11.29
	12.00 - 12.99	263,528		12.90	5.3	263,528		12.90
	13.00 - 13.99	25,000		13.22	4.1	25,000		13.22
	17.00 - 17.99	290,500		17.50	7.8	145,250		17.50
	Totals	2,001,994	$	10.58	5.7	1,421,494	$	9.80

As of March 31, 2024, there was $2.5 million of total unrecognized compensation cost related to nonvested stock options that is expected to be recognized over a weighted-average period of 3.0 years.

The following table presents an analysis of nonvested options to purchase shares of the ~~nine~~Company’s stock issued and outstanding for the three months ended ~~September 30, 2023 and 2022, the Company recognized compensation expense for stock options of $601,000 and $926,000, respectively.~~March 31, 2024:


		Weighted
	Number of	Average Grant
	Shares	Date Fair Value
Nonvested Options at December 31, 2023	666,250	$	5.09
Granted	—		—
Vested	(80,750)		5.05
Forfeited	(5,000)		4.58
Nonvested Options at March 31, 2024	580,500	$	5.10

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~~The following table presents information pertaining to options outstanding at September 30, 2023:~~

Options Outstanding

Options Exercisable

Weighted Average

Number of

Weighted Average

Remaining Contractual

Number of

Weighted Average
Range of Exercise Prices

Options

Exercise Price

Life in Years

Options

Exercise Price
$
3.00 - 3.99

88,500

$
3.07

0.4

88,500

$
3.07

7.00 - 7.99

893,416

7.47

4.0

893,416

7.47

8.00 - 8.99

17,500

8.76

6.5

11,250

8.76

10.00 - 10.99

249,000

10.63

9.7

7,500

10.08

11.00 - 11.99

85,000

11.27

5.6

68,000

11.27

12.00 - 12.99

263,528

12.90

5.9

206,778

12.90

13.00 - 13.99

25,000

13.22

4.6

25,000

13.22

17.00 - 17.99

295,500

17.50

8.3

77,750

17.50

Totals

1,917,444

$
10.22

5.6

1,378,194

$
8.88

As of September 30, 2023, there was $2.2 million of total unrecognized compensation cost related to nonvested stock options granted under the 2012 Plan, 2017 Plan, 2019 EIP, and 2023 EIP that is expected to be recognized over a weighted-average period of 2.7 years.

~~The following table presents an analysis of nonvested options to purchase shares of the Company’s stock issued and outstanding for the nine months ended September 30, 2023:~~

Weighted

Number of

Average Grant

Shares

Date Fair Value
Nonvested Options at December 31, 2022

421,375

$
4.87
Granted

239,000

5.39
Vested

(116,125)

4.78
Forfeited

(5,000)

5.74
Nonvested Options at September 30, 2023

539,250

$
5.11

Restricted Stock Awards

In 2019 and 2020, the Company granted restricted stock awards out of the 2019 EIP. These awards vest in equal annual installments on the first four anniversaries of the date of the grant. Nonvested restricted stock awards are classified as outstanding shares with forfeitable voting and dividend rights.

The following table presents an analysis of nonvested restricted stock awards outstanding for the ~~nine~~three months ended ~~September 30, 2023:~~March 31, 2024:


		Weighted			Weighted
	Number of	Average Grant		Number of	Average Grant
	Shares	Date Fair Value		Shares	Date Fair Value
Nonvested Awards at December 31, 2022	38,762	$	12.50
Nonvested at December 31, 2023				3,411	$	10.53
Granted	—		—	—		—
Vested	(2,785)		10.32	(987)		12.67
Forfeited	(250)		12.92	—		—
Nonvested Awards at September 30, 2023	35,727	$	12.67
Nonvested at March 31, 2024				2,424	$	9.66

Compensation expense associated with the restricted stock awards is recognized on a straight-line basis over the period that the restrictions associated with the awards lapse based on the total cost of the award at the grant date. For the three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022, the Company recognized compensation expense for restricted stock~~

~~Table of Contents~~

~~awards of $112,000 and $113,000, respectively. For the nine months ended September 30, 2023 and 2022,~~ the Company recognized compensation expense for restricted stock awards of ~~$333,000~~$8,000 and ~~$335,000,~~$111,000, respectively.

As of ~~September 30, 2023,~~March 31, 2024, there was ~~$97,000~~$5,000 of total unrecognized compensation cost related to nonvested restricted stock awards granted under the 2019 EIP that is expected to be recognized over a weighted-average period of ~~0.2~~0.4 years.

In addition, during the ~~nine~~three months ended ~~September 30, 2023,~~March 31, 2024, the Company issued ~~35,460~~10,452 shares of unrestricted common stock to non-employee directors, as a part of their compensation for their annual services on the Company’s board of directors. The aggregate value of the shares issued to non-employee directors of ~~$355,000~~$121,000 was included in stock based compensation expense in the accompanying consolidated statements of shareholders’ equity.

Restricted Stock Units

~~In 2020, the~~The Company ~~began granting~~has granted restricted stock units out of the 2019 EIP and 2023 EIP. Restricted stock units ~~granted out of the 2019 EIP~~ represent the right to receive one share of Company stock upon vesting and vest in equal annual installments on the first four anniversaries of the date of the grant. Nonvested restricted stock units have no voting or dividend rights and are not considered outstanding until vesting.

The following table presents an analysis of nonvested restricted stock units outstanding for the ~~nine~~three months ended ~~September 30, 2023:~~March 31, 2024:


		Weighted			Weighted
	Number of	Average Grant		Number of	Average Grant
	Units	Date Fair Value		Units	Date Fair Value
Nonvested Units at December 31, 2022	351,310	$	16.30
Nonvested at December 31, 2023				441,015	$	14.71
Granted	82,969		15.59	63,184		11.89
Vested	(5,225)		16.20	(22,365)		15.60
Forfeited	(10,253)		17.79	(10,276)		14.75
Nonvested Units at September 30, 2023	418,801	$	16.13
Nonvested at March 31, 2024				471,558	$	14.29

Compensation expense associated with the restricted stock units is recognized on a straight-line basis over the period that the restrictions associated with the units lapse based on the total cost of the unit at the grant date. For the three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ the Company recognized compensation expense for restricted stock units of ~~$535,000~~$653,000 and ~~$358,000,~~$529,000, respectively. ~~For the nine months ended September 30, 2023 and 2022, the Company recognized compensation expense for the restricted stock~~

Table of ~~$1.6 million and $1.1 million, respectively.~~Contents

As of ~~September 30, 2023,~~March 31, 2024, there was ~~$5.0~~$5.9 million of total unrecognized compensation cost related to nonvested restricted stock units granted under the 2019 EIP or 2023 EIP that is expected to be recognized over a weighted-average period of ~~2.4~~2.8 years.

Note ~~11:~~12: Regulatory Capital

The Company and the Bank are subject to various regulatory requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank must also meet certain specific capital guidelines under the regulatory framework for prompt corrective action. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios of common equity Tier 1 capital, Tier 1 capital and total capital to risk-weighted assets and of Tier 1 capital to average consolidated assets (referred to as the “leverage ratio”), as defined under the applicable regulatory capital rules.

The following tables present the capital amounts and ratios for the Company, on a consolidated basis, and the Bank as of March 31, 2024 and December 31, 2023:


					Minimum Required				For Capital Adequacy				To be Well Capitalized
					For Capital Adequacy				Purposes Plus Capital				Under Prompt Corrective
	Actual				Purposes				Conservation Buffer				Action Regulations
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
March 31, 2024
Company (Consolidated):
Total Risk-based Capital	$	577,485	14.00	%	$	329,909	8.00	%	$	433,006	10.50	%		N/A	N/A
Tier 1 Risk-based Capital		446,521	10.83			247,432	6.00			350,529	8.50			N/A	N/A
Common Equity Tier 1 Capital		380,007	9.21			185,574	4.50			288,671	7.00			N/A	N/A
Tier 1 Leverage Ratio		446,521	9.66			184,949	4.00			184,949	4.00			N/A	N/A
Bank:
Total Risk-based Capital	$	565,440	13.73	%	$	329,510	8.00	%	$	432,482	10.50	%	$	411,887	10.00	%
Tier 1 Risk-based Capital		513,920	12.48			247,132	6.00			350,104	8.50			329,510	8.00
Common Equity Tier 1 Capital		513,920	12.48			185,349	4.50			288,321	7.00			267,727	6.50
Tier 1 Leverage Ratio		513,920	11.12			184,797	4.00			184,797	4.00			230,996	5.00

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~~assets and of Tier 1 capital to average consolidated assets (referred to as the “leverage ratio”), as defined under the applicable regulatory capital rules.~~

~~The following tables present the capital amounts and ratios for the Company, on a consolidated basis, and the Bank as of September 30, 2023 and December 31, 2022:~~

Minimum Required

For Capital Adequacy

To be Well Capitalized

For Capital Adequacy

Purposes Plus Capital

Under Prompt Corrective

Actual

Purposes

Conservation Buffer

Action Regulations

(dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

September 30, 2023

Company (Consolidated):

Total Risk-based Capital

$
567,202

13.88
%
$
326,865

8.00
%
$
429,010

10.50
%

N/A

N/A

Tier 1 Risk-based Capital

436,903

10.69

245,149

6.00

347,294

8.50

N/A

N/A

Common Equity Tier 1 Capital

370,389

9.07

183,861

4.50

286,007

7.00

N/A

N/A

Tier 1 Leverage Ratio

436,903

9.62

181,605

4.00

181,605

4.00

N/A

N/A

Bank:

Total Risk-based Capital

$
543,914

13.33
%
$
326,519

8.00
%
$
428,556

10.50
%
$
408,149

10.00
%
Tier 1 Risk-based Capital

492,861

12.08

244,889

6.00

346,926

8.50

326,519

8.00

Common Equity Tier 1 Capital

492,861

12.08

183,667

4.50

285,704

7.00

265,297

6.50

Tier 1 Leverage Ratio

492,861

10.88

181,256

4.00

181,256

4.00

226,570

5.00


					Minimum Required				For Capital Adequacy				To be Well Capitalized								Minimum Required				For Capital Adequacy				To be Well Capitalized
					For Capital Adequacy				Purposes Plus Capital				Under Prompt Corrective								For Capital Adequacy				Purposes Plus Capital				Under Prompt Corrective
	Actual				Purposes				Conservation Buffer				Action Regulations				Actual				Purposes				Conservation Buffer				Action Regulations
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2022
December 31, 2023
Company (Consolidated):
Total Risk-based Capital	$	536,352	13.15	%	$	326,190	8.00	%	$	428,125	10.50	%		N/A	N/A		$	570,770	13.97	%	$	326,872	8.00	%	$	429,019	10.50	%		N/A	N/A
Tier 1 Risk-based Capital		409,092	10.03			244,643	6.00			346,577	8.50			N/A	N/A			440,947	10.79			245,154	6.00			347,301	8.50			N/A	N/A
Common Equity Tier 1 Capital		342,578	8.40			183,482	4.50			285,417	7.00			N/A	N/A			374,433	9.16			183,865	4.50			286,013	7.00			N/A	N/A
Tier 1 Leverage Ratio		409,092	9.55			171,368	4.00			171,368	4.00			N/A	N/A			440,947	9.57			184,383	4.00			184,383	4.00			N/A	N/A
Bank:
Total Risk-based Capital	$	508,760	12.47	%	$	326,288	8.00	%	$	428,253	10.50	%	$	407,860	10.00	%	$	554,269	13.58	%	$	326,528	8.00	%	$	428,568	10.50	%	$	408,160	10.00	%
Tier 1 Risk-based Capital		460,404	11.29			244,716	6.00			346,681	8.50			326,288	8.00			503,787	12.34			244,896	6.00			346,936	8.50			326,528	8.00
Common Equity Tier 1 Capital		460,404	11.29			183,537	4.50			285,502	7.00			265,109	6.50			503,787	12.34			183,672	4.50			285,712	7.00			265,304	6.50
Tier 1 Leverage Ratio		460,404	10.76			171,113	4.00			171,113	4.00			213,891	5.00			503,787	10.95			184,037	4.00			184,037	4.00			230,047	5.00

The Company and the Bank must maintain a capital conservation buffer, as defined by regulatory guidelines, in order to avoid limitations on capital distributions, including dividend payments, stock repurchases and certain discretionary bonus payments to executive officers.

Note ~~12:~~13: Fair Value Measurement

The Company categorizes its assets and liabilities measured at fair value into a three-level hierarchy based on the priority of the inputs to the valuation technique used to determine fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used in the determination of the fair value measurement fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement. Assets and liabilities valued at fair value are categorized based on the inputs to the valuation techniques as follows:

Level 1 – Inputs that utilized quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.

~~Table of Contents~~

Level 2 – Inputs that include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments. Fair values for these instruments are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.

Level 3 – Inputs that are unobservable for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.

Subsequent to initial recognition, the Company may re-measure the carrying value of assets and liabilities measured on a nonrecurring basis to fair value. Adjustments to fair value usually result when certain assets are impaired. Such assets are written down from their carrying amounts to their fair value.

Professional standards allow entities the irrevocable option to elect to measure certain financial instruments and other items at fair value for the initial and subsequent measurement on an instrument-by-instrument basis. The Company adopted the policy to value certain financial instruments at fair value. The Company has not elected to measure any existing financial instruments at fair value; however, it may elect to measure newly acquired financial instruments at fair value in the future.

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Recurring Basis

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. There have been no changes in methodologies used as of March 31, 2024. The following tables present the balances of assets and liabilities measured at fair value on a recurring basis as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


	September 30, 2023								March 31, 2024
(dollars in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Fair Value of Financial Assets:
Securities Available for Sale:
U.S. Treasury Securities	$	2,864	$	—	$	—	$	2,864
Municipal Bonds		—		122,497		—		122,497	$	—	$	132,091	$	—	$	132,091
Mortgage-Backed Securities		—		210,375		—		210,375		—		244,216		—		244,216
Corporate Securities		—		121,717		—		121,717		—		132,952		—		132,952
SBA Securities		—		19,966		—		19,966		—		17,025		—		17,025
Asset-Backed Securities		—		75,657		—		75,657		—		106,998		—		106,998
Interest Rate Caps		—		23,006		—		23,006		—		20,445		—		20,445
Interest Rate Swaps		—		21,101		—		21,101		—		15,069		—		15,069
Total Fair Value of Financial Assets	$	2,864	$	594,319	$	—	$	597,183	$	—	$	668,796	$	—	$	668,796
Fair Value of Financial Liabilities:
Interest Rate Swaps	$	—	$	9,962	$	—	$	9,962	$	—	$	8,313	$	—	$	8,313
Total Fair Value of Financial Liabilities	$	—	$	9,962	$	—	$	9,962	$	—	$	8,313	$	—	$	8,313

~~Table of Contents~~


	December 31, 2022								December 31, 2023
(dollars in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Fair Value of Financial Assets:
Securities Available for Sale:
U.S. Treasury Securities	$	2,580	$	—	$	—	$	2,580
Municipal Bonds		—		131,354		—		131,354	$	—	$	132,524	$	—	$	132,524
Mortgage-Backed Securities		—		237,784		—		237,784		—		235,315		—		235,315
Corporate Securities		—		109,827		—		109,827		—		130,605		—		130,605
SBA Securities		—		20,877		—		20,877		—		18,674		—		18,674
Asset-Backed Securities		—		46,191		—		46,191		—		86,986		—		86,986
Interest Rate Caps		—		19,406		—		19,406		—		18,717		—		18,717
Interest Rate Swaps		—		18,717		—		18,717		—		13,872		—		13,872
Total Fair Value of Financial Assets	$	2,580	$	584,156	$	—	$	586,736	$	—	$	636,693	$	—	$	636,693
Fair Value of Financial Liabilities:
Interest Rate Swaps	$	—	$	9,542	$	—	$	9,542	$	—	$	8,601	$	—	$	8,601
Total Fair Value of Financial Liabilities	$	—	$	9,542	$	—	$	9,542	$	—	$	8,601	$	—	$	8,601

Investment Securities

When available, the Company uses quoted market prices to determine the fair value of investment securities; such items are classified in Level 1 of the fair value hierarchy.

For the Company’s investments, when quoted prices are not available for identical securities in an active market, the Company determines fair value utilizing vendors who apply matrix pricing for similar bonds where no price is observable or may compile prices from various sources. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, prepayment speeds, default rates, loss severity, current market, and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially, all of these assumptions are observable in the marketplace and can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Fair values from these models are verified, where possible, against quoted market prices for recent trading activity of assets with similar characteristics to the security being valued. Such methods are generally classified as Level 2. However, when prices from independent sources vary, or cannot be obtained or corroborated, a security is generally classified as Level 3.

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Interest Rate Caps

The fair value of the caps is calculated by determining the total expected asset or liability exposure of the derivatives. Total expected exposure incorporates both the current and potential future exposure of the derivative, derived from using observable inputs, such as yield curves and volatilities, and accordingly are valued using Level 2 inputs.

Interest Rate Swaps

Interest rate swaps are traded in over-the-counter markets where quoted market prices are not readily available. For those interest rate swaps, fair value is determined using internally developed models of a third party that uses primarily market observable inputs, such as yield curves and option volatilities, and accordingly are valued using Level 2 inputs.

Nonrecurring Basis

Certain assets are measured at fair value on a nonrecurring basis. These assets are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment or a change in the amount of previously recognized impairment.

The following tables present net impairment losses related to nonrecurring fair value measurements of certain assets at March 31, 2024 and December 31, 2023:


	March 31, 2024
(dollars in thousands)	Level 1		Level 2		Level 3		Loss
Individually Evaluated Loans	$	—	$	—	$	9,364	$	231
Totals	$	—	$	—	$	9,364	$	231


	December 31, 2023
(dollars in thousands)	Level 1		Level 2		Level 3		Loss
Individually Evaluated Loans	$	—	$	—	$	9,602	$	199
Totals	$	—	$	—	$	9,602	$	199

Individually Evaluated Loans

The Company records certain loans at fair value on a non-recurring basis. Individually evaluated loans for which an allowance is established, or a write-down has occurred during the period, based on the fair value of collateral require classification in the fair value hierarchy. The fair value of the loan’s collateral is determined by appraisals, independent valuation and other techniques. When the fair value of the loan’s collateral is based on an observable market price the Company classifies the fair value of the individually evaluated loans within Level 2 of the valuation hierarchy. For loans in which the valuation has unobservable inputs, the Company classifies these within the Level 3 of the valuation hierarchy. As of March 31, 2024, collateral values were estimated using a combination of observable inputs, including recent appraisals, and unobservable inputs, including internally determined values based on cost adjusted for depreciation and customized discounting criteria on appraisals which ranged from 3-15%. Due to the significance of unobservable inputs, fair values of individually evaluated loans have been classified as Level 3.

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~~The following tables present net impairment losses related to nonrecurring fair value measurements of certain assets at September 30, 2023 and December 31, 2022:~~

September 30, 2023
(dollars in thousands)

Level 1

Level 2

Level 3

Loss
Individually Evaluated Loans

$
—

$
175

$
—

$
179
Totals

$
—

$
175

$
—

$
179

December 31, 2022
(dollars in thousands)

Level 1

Level 2

Level 3

Loss
Impaired Loans

$
—

$
96

$
—

$
71
Totals

$
—

$
96

$
—

$
71

~~Individually Evaluated Loans (Impaired Loans prior to January 1, 2023)~~

In accordance with the provisions of the individually evaluated loan guidance, credit loss is measured on loans when it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement. The Company has elected to use the practical expedient to measure individually evaluated loans as collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral. The credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the underlying collateral. The fair value of the collateral is adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale of the collateral. Those individually evaluated loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceeds the recorded investments in such loans. Individually evaluated loans for which an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. Collateral values are estimated using Level 2 inputs based on customized discounting criteria.

Credit loss amounts on individually evaluated loans represent specific valuation allowance and write-downs during the period presented that were individually evaluated for impairment based on the estimated fair value of the collateral less estimated selling costs, excluding impaired loans fully charged-off.

Fair Value

Disclosure of fair value information about financial instruments, for which it is practicable to estimate that value, is required whether or not recognized in the consolidated balance sheets. In cases where quoted market prices are not available, fair values are based on estimates using present value of cash flow or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases could not be realized in immediate settlement of the instruments. Certain financial instruments with a fair value that is not practicable to estimate and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not necessarily represent the underlying value of the Company.

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters that could affect the estimates. Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business. Deposits with no stated maturities are defined as having a fair value equivalent to the amount payable on demand. This prohibits adjusting fair value derived from retaining those deposits for an expected future period of time. This component, commonly referred to as a deposit base intangible, is neither considered in the above amounts nor is it recorded as an intangible asset on the balance sheet. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

The following tables present the carrying amounts and estimated fair values of financial instruments at March 31, 2024 and December 31, 2023:


	March 31, 2024
			Fair Value Hierarchy
	Carrying								Estimated
(dollars in thousands)	Amount		Level 1		Level 2		Level 3		Fair Value
Financial Assets:
Cash and Due From Banks	$	143,355	$	143,355	$	—	$	—	$	143,355
Securities Available for Sale		633,282		—		633,282		—		633,282
FHLB Stock, at Cost		17,195		—		17,195		—		17,195
Loans, Net		3,726,502		—		3,627,836		9,364		3,637,200
Accrued Interest Receivable		16,696		—		16,696		—		16,696
Interest Rate Caps		20,445		—		20,445		—		20,445
Interest Rate Swaps		15,069		—		15,069		—		15,069

Financial Liabilities:
Deposits	$	3,807,225	$	—	$	3,799,680	$	—	$	3,799,680
Notes Payable		13,750		—		13,763		—		13,763
FHLB Advances		317,000		—		316,046		—		316,046
Subordinated Debentures		79,383		—		78,991		—		78,991
Accrued Interest Payable		4,405		—		4,405		—		4,405
Interest Rate Swaps		8,313		—		8,313		—		8,313

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~~realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.~~

~~The following tables present the carrying amounts and estimated fair values of financial instruments at September 30, 2023 and December 31, 2022:~~

September 30, 2023

Fair Value Hierarchy

Carrying

Estimated
(dollars in thousands)

Amount

Level 1

Level 2

Level 3

Fair Value
Financial Assets:

Cash and Due From Banks

$
124,358

$
124,358

$
—

$
—

$
124,358
Bank-Owned Certificates of Deposit

1,225

—

1,210

—

1,210
Securities Available for Sale

553,076

2,864

550,212

—

553,076
FHLB Stock, at Cost

17,056

—

17,056

—

17,056
Loans, Net

3,664,464

—

3,522,379

—

3,522,379
Accrued Interest Receivable

15,182

—

15,182

—

15,182
Interest Rate Caps

23,006

—

23,006

—

23,006
Interest Rate Swaps

21,101

—

21,101

—

21,101

Financial Liabilities:

Deposits

$
3,675,509

$
—

$
3,653,876

$
—

$
3,653,876
Notes Payable

13,750

—

13,771

—

13,771
FHLB Advances

294,500

—

292,436

—

292,436
Subordinated Debentures

79,192

—

71,794

—

71,794
Accrued Interest Payable

3,816

—

3,816

—

3,816
Interest Rate Swaps

9,962

—

9,962

—

9,962


	December 31, 2022										December 31, 2023
			Fair Value Hierarchy										Fair Value Hierarchy
	Carrying								Estimated		Carrying								Estimated
(dollars in thousands)	Amount		Level 1		Level 2		Level 3		Fair Value		Amount		Level 1		Level 2		Level 3		Fair Value
Financial Assets:
Cash and Due From Banks	$	87,043	$	87,043	$	—	$	—	$	87,043	$	128,562	$	128,562	$	—	$	—	$	128,562
Bank-Owned Certificates of Deposit		1,181		—		1,173		—		1,173
Securities Available for Sale		548,613		2,580		546,033		—		548,613		604,104		—		604,104		—		604,104
FHLB Stock, at Cost		19,606		—		19,606		—		19,606		17,097		—		17,097		—		17,097
Loans, Net		3,512,157		—		3,314,190		—		3,314,190		3,667,215		—		3,579,583		9,602		3,589,185
Accrued Interest Receivable		13,479		—		13,479		—		13,479		16,697		—		16,697		—		16,697
Interest Rate Caps		19,406		—		19,406		—		19,406		18,717		—		18,717		—		18,717
Interest Rate Swaps		18,717		—		18,717		—		18,717		13,872		—		13,872		—		13,872

Financial Liabilities:
Deposits	$	3,416,543	$	—	$	3,390,416	$	—	$	3,390,416	$	3,709,948	$	—	$	3,709,086	$	—	$	3,709,086
Federal Funds Purchased		287,000		—		287,000		—		287,000
Notes Payable		13,750		—		13,473		—		13,473		13,750		—		13,805		—		13,805
FHLB Advances		97,000		—		96,061		—		96,061		319,500		—		319,305		—		319,305
Subordinated Debentures		78,905		—		70,931		—		70,931		79,288		—		77,557		—		77,557
Accrued Interest Payable		2,831		—		2,831		—		2,831		5,282		—		5,282		—		5,282
Interest Rate Swaps		9,542		—		9,542		—		9,542		8,601		—		8,601		—		8,601

The following methods and assumptions were used by the Company to estimate fair value of ~~consolidated~~ financial ~~statements~~instruments not previously discussed.

Cash and due from banks – The carrying amount of cash and cash equivalents approximates their fair value.

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~~Bank-owned certificates of deposit~~ ~~– Fair values of bank-owned certificates of deposit are estimated using the discounted cash flow analysis based on current rates for similar types of deposits.~~

FHLB stock – The carrying amount of FHLB stock approximates its fair value.

Loans, net – Fair values for loans are estimated based on discounted cash flows, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality.

Accrued interest receivable – The carrying amount of accrued interest receivable approximates its fair value since it is short term in nature and does not present anticipated credit concerns.

Deposits – The fair values disclosed for demand deposits without stated maturities (interest and noninterest transaction, savings, and money market accounts) are equal to the amount payable on demand at the reporting date (their carrying amounts). Fair values for the fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

~~Federal funds purchased~~Notes payable and subordinated debentures – The ~~carrying amount~~fair values of ~~federal funds purchased approximates~~ the ~~fair value.~~Company’s notes payable and subordinated debentures are estimated using a discounted cash flow analysis, based on the Company’s current incremental borrowing rate for similar types of borrowing arrangements.

FHLB advances – The fair values of the Company’s FHLB advances are estimated using discounted cash flow analysis based on the Company’s current incremental borrowing rates for similar types of borrowing agreements.

~~Subordinated debentures~~ – The fair values of the Company’s subordinated debt are estimated using a discounted cash flow analysis, based on the Company’s current incremental borrowing rate for similar types of borrowing arrangements.

Accrued interest payable – The carrying amount of accrued interest payable approximates its fair value since it is short term in nature.

Off-balance sheet instruments – Fair values of the Company’s off-balance sheet instruments (lending commitments and unused lines of credit) are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the counterparties’ credit standing and discounted cash flow analysis.

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The fair value of these off-balance sheet items approximates the recorded amounts of the related fees and was not material at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.

Limitations – The fair value of a financial instrument is the current amount that would be exchanged between market participants, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Note ~~13:~~14: Accumulated Other Comprehensive Income

The following table presents the components of other comprehensive income for the three months ended March 31, 2024 and 2023:


(dollars in thousands)	Before Tax		Tax Effect		Net of Tax
Three Months Ended March 31, 2024
Net Unrealized Gain on Available for Sale Securities	$	235	$	(67)	$	168
Less: Reclassification Adjustment for Net Gains Included in Net Income		(93)		27		(66)
Total Unrealized Gain		142		(40)		102

Net Unrealized Gain on Cash Flow Hedge		5,712		(1,642)		4,070
Less: Reclassification Adjustment for Gains Included in Net Income		(2,303)		661		(1,642)
Total Unrealized Gain		3,409		(981)		2,428

Other Comprehensive Income	$	3,551	$	(1,021)	$	2,530

Three Months Ended March 31, 2023
Net Unrealized Gain on Available for Sale Securities	$	5,243	$	(1,506)	$	3,737
Less: Reclassification Adjustment for Net Losses Included in Net Income		56		(16)		40
Total Unrealized Gain		5,299		(1,522)		3,777

Net Unrealized Loss on Cash Flow Hedge		(4,169)		1,198		(2,971)
Less: Reclassification Adjustment for Gains Included in Net Income		(1,067)		307		(760)
Total Unrealized Loss		(5,236)		1,505		(3,731)

Other Comprehensive Income	$	63	$	(17)	$	46

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The following table presents the changes in each component of accumulated other comprehensive income, net of tax, for the three months ended March 31, 2024 and 2023:


					Accumulated
	Available For				Other Comprehensive
(dollars in thousands)	Sale Securities		Cash Flow Hedge		Income (Loss)
Three Months Ended March 31, 2024
Balance at Beginning of Period	$	(31,720)	$	13,474	$	(18,246)
Other Comprehensive Income Before Reclassifications		168		4,070		4,238
Amounts Reclassified from Accumulated Other Comprehensive Income		(66)		(1,642)		(1,708)
Net Other Comprehensive Income During Period		102		2,428		2,530
Balance at End of Period	$	(31,618)	$	15,902	$	(15,716)

Three Months Ended March 31, 2023
Balance at Beginning of Period	$	(34,124)	$	16,182	$	(17,942)
Other Comprehensive Income (Loss) Before Reclassifications		3,737		(2,971)		766
Amounts Reclassified from Accumulated Other Comprehensive Income		40		(760)		(720)
Net Other Comprehensive Income (Loss) During Period		3,777		(3,731)		46
Balance at End of Period	$	(30,347)	$	12,451	$	(17,896)

Note 15: Subsequent Events

On ~~October 25, 2023,~~April 24, 2024, the Company’s Board of Directors announced a quarterly cash dividend of $36.72 per share ($0.3672 per depositary share) on its 5.875% Non-Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Stock”), payable on ~~December 1, 2023,~~June 3, 2024, to shareholders of record on the Series A Preferred Stock at the close of business on ~~November~~May 15, ~~2023.~~2024.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion explains the Company’s financial condition and results of operations as of and for the three ~~and nine~~ months ended ~~September 30, 2023.~~March 31, 2024. Annualized results for this interim period may not be indicative of results for the full year or future periods. The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes presented elsewhere in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2022,~~2023, filed with the Securities and Exchange Commission, or the SEC, on March 7, ~~2023.~~2024.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of the Company. These statements are often, but not always, identified by words such as “may”, “might”, “should”, “could”, “predict”, “potential”, “believe”, “expect”, “continue”, “will”, “anticipate”, “seek”, “estimate”, “intend”, “plan”, “projection”, “would”, “annualized”, “target” and “outlook”, or the negative version of those words or other comparable words of a future or forward-looking nature. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could

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cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

●

interest rate risk, including the effects of ~~recent and potential additional~~significant rate increases by the Federal ~~Reserve;~~Reserve since 2022;

●

fluctuations in the values of the securities held in our securities portfolio, including as the result of changes in interest rates;

●

business and economic conditions generally and in the financial services industry, nationally and within our market area, including ~~rising~~high rates of inflation and possible recession;

●

~~loan concentrations in our loan portfolio;~~

●

the effects of ~~recent~~ developments and events in the financial services industry, including the large-scale deposit withdrawals over a short period of time ~~at Silicon Valley Bank, Signature Bank and First Republic Bank~~ that resulted in ~~the failure of those institutions;~~recent bank failures;

●

loan concentrations in our loan portfolio;

●

the overall health of the local and national real estate market;

●

the ability to successfully manage credit risk;

●

the ability to maintain an adequate level of allowance for credit ~~losses;~~losses on loans;

●

new or revised accounting ~~standards, including as a result of the implementation of the new CECL standard;~~standards;

●

the concentration of large loans to certain borrowers;

●

the concentration of large deposits from certain clients, who have balances above current Federal Deposit Insurance Corporation (“FDIC”) insurance limits;

●

the ability to successfully manage liquidity risk, which may increase the dependence on non-core funding sources such as brokered deposits, and negatively impact our cost of funds;

●

the ability to raise additional capital to implement our business plan;

●

the ability to implement our growth strategy and manage costs effectively;

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●

the composition of the Company’s senior leadership team and the ability to attract and retain key personnel;

●

~~talent and labor shortages and high rates of employee turnover;~~

●

the occurrence of fraudulent activity, breaches or failures of our third party vendors’ information security controls or cybersecurity-related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools;

●

interruptions involving our information technology and telecommunications systems or third-party servicers;

●

competition in the financial services industry, including from nonbank competitors such as credit unions and “fintech” companies;

●

the effectiveness of the risk management framework;

●

the commencement and outcome of litigation and other legal proceedings and regulatory actions against us;

●

the impact of recent and future legislative and regulatory changes, including in response to ~~the~~ recent ~~failures of Silicon Valley Bank, Signature Bank and First Republic Bank;~~bank failures;

●

risks related to climate change and the negative impact it may have on our ~~customers~~clients and their businesses;

●

the imposition of other governmental policies impacting the value of products produced by our commercial borrowers;

●

severe weather, natural disasters, wide spread disease or pandemics, ~~(including the COVID-19 pandemic),~~ acts of war or terrorism, or other adverse external events, including the ongoing Israeli-Palestinian conflict and the Russian invasion of Ukraine;

●

potential impairment to the goodwill the Company recorded in connection with a past acquisition;

●

changes to U.S. or state tax laws, regulations and guidance, including the ~~new~~ 1% excise tax on stock buybacks by publicly traded companies;

●

~~success at managing the risks involved in the foregoing items;~~ and

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●

any other risks described in the “Risk Factors” section of this report and in other reports filed by Bridgewater Bancshares, Inc. with the Securities and Exchange Commission.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report. In addition, past results of operations are not necessarily indicative of future results. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. The Company undertakes no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Overview

The Company is a financial holding company headquartered in St. Louis Park, Minnesota. The principal sources of funds for loans and investments are transaction, savings, time, and other deposits, and short-term and long-term borrowings. The Company’s principal sources of income are interest and fees collected on loans, interest and dividends earned on investment securities and service charges. The Company’s principal expenses are interest paid on deposit accounts and borrowings, employee compensation and other overhead expenses. The Company’s simple, efficient business model of providing responsive support and unconventional experiences to clients continues to be the underlying principle that drives the Company’s profitable growth.

Critical Accounting Policies and Estimates

The consolidated financial statements of the Company are prepared based on the application of certain accounting policies, the most significant of which are described in “Note 1 – Description of the Business and Summary

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of Significant Accounting Policies” of the notes to the consolidated financial statements included as a part of the Company’s most recent Annual Report on Form 10-K, filed with the SEC on March 7, 2024. There have been no significant changes in the critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2023. Certain policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may significantly affect the reported results and financial position for the current period or in future periods. The use of estimates, assumptions, and judgments are necessary when financial assets and liabilities are required to be recorded or adjusted to reflect fair value. Assets carried at fair value inherently result in more financial statement volatility. Fair values and information used to record valuation adjustments for certain assets and liabilities are based on either quoted market prices or are provided by other independent third-party sources, when available. When such information is not available, management estimates valuation adjustments. Changes in underlying factors, assumptions or estimates in any of these areas could have a material impact on the future financial condition and results of operations. Management has discussed each critical accounting policy and the methodology for the identification and determination of critical accounting policies with the Company's Audit Committee.

The JOBS Act permits the Company an extended transition period for complying with new or revised accounting standards affecting public companies. The Company has elected to take advantage of this extended transition period, which means that the financial statements included in this report, as well as any financial statements filed in the future, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as the Company remains an emerging growth company or until the Company affirmatively and irrevocably opts out of the extended transition period under the JOBS Act.

~~The following is a discussion of the critical accounting policies and significant estimates that require the Company to make complex and subjective judgements.~~

~~Allowance for Credit Losses~~

~~In accordance with ASC 326,~~ ~~Financial Instruments - Credit Losses~~, the allowance for credit losses on loans is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans are charged against the allowance for credit losses when management determines all or a portion of the loan balance is uncollectible. Subsequent recoveries, if any, are credited to the allowance. The allowance is increased (decreased) by provisions (or reversals of) reported in the income statement as a component of provisions for credit loss. Under the new guidance, the allowance for credit losses on off-balance sheet credit exposures is a liability account representing expected credit losses over the contractual period for which the Company is exposed to credit risk resulting from an off-balance sheet exposure.

The amount of each allowance account represents management's best estimate of current expected credit losses on such financial instruments using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. The allowance for credit losses for loans is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. For determining the appropriate allowance for credit losses on a collective basis, the loan portfolio is segmented into pools based upon similar risk characteristics and a lifetime loss-rate model is utilized. Management qualitatively adjusts model results for reasonable and supportable forecasts and risk factors that are not considered within the modeling processes but are relevant in assessing the expected credit losses within the loan segment. These qualitative factor adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. Due to the subjective nature of these estimates the various components of the calculation require significant management judgement and certain assumptions are highly subjective. Volatility in certain credit metrics and variations between expected and actual outcomes are likely.

~~Investment Securities Impairment~~

~~In accordance with ASC 326,~~ ~~Financial Instruments - Credit Losses~~, available for sale securities in unrealized loss positions are evaluated for impairment related to credit losses. For any securities classified as available for sale that are in an unrealized loss position, the Company assesses whether or not it intends to sell the security, or if it is more likely than not it will be required to sell the security, before recovery of its amortized cost basis. If either criteria is met,

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the security's amortized cost basis is written down to fair value through income with the establishment of an allowance. For securities that do not meet the aforementioned criteria, the Company evaluates whether any portion of the decline in fair value is the result of credit deterioration. In making this assessment, management considers the extent to which the amortized cost of the security exceeds its fair value, changes in credit ratings and any other known adverse conditions related to the specific security, among other factors. If the assessment indicates that a credit loss exists, an allowance for credit losses is recorded for the amount by which the amortized cost basis of the security exceeds the present value of cash flows expected to be collected, limited by the amount by which the amortized cost exceeds fair value. Any impairment not recognized in the allowance for credit losses is recognized in other comprehensive income.

The fair values of investment securities are generally determined by various pricing models. The Company evaluates the methodologies used to develop the resulting fair values. The Company performs an annual analysis on the pricing of investment securities to ensure that the prices represent reasonable estimates of fair value. The procedures include initial and ongoing reviews of pricing methodologies and trends. The Company seeks to ensure prices represent reasonable estimates of fair value through the use of broker quotes, current sales transactions from the portfolio and pricing techniques, which are based on the net present value of future expected cash flows discounted at a rate of return market participants would require. As a result of this analysis, if the Company determines there is a more appropriate fair value, the price is adjusted accordingly.

~~Fair Value of Financial Instruments~~

The fair value of a financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts business. A framework has been established for measuring the fair value of financial instruments that considers the attributes specific to particular assets or liabilities and includes a three-level hierarchy for determining fair value based on the transparency of inputs to each valuation as of the measurement date. The Company estimates the fair value of financial instruments using a variety of valuation methods. When financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value and are classified as Level 1. When financial instruments, such as investment securities and derivatives, are not actively traded, the Company determines fair value based on various sources and may apply matrix pricing with observable prices for similar instruments where a price for the identical instrument is not observable. The fair values of these financial instruments, which are classified as Level 2, are determined by pricing models that consider observable market data such as interest rate volatilities, yield curve, credit spreads, prices from external market data providers and/or nonbinding broker-dealer quotations. When observable inputs do not exist, the Company estimates fair value based on available market data, and these values are classified as Level 3. Imprecision in estimating fair values can impact the carrying value of assets and liabilities and the amount of revenue or loss recorded.

~~Deferred Tax Asset~~

The Company uses the asset and liability method of accounting for income taxes as prescribed by GAAP. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. If currently available information indicates it is “more likely than not” that the deferred tax asset will not be realized, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Accounting for deferred income taxes is a critical accounting estimate because the Company exercises significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. Management’s determination of the realization of deferred tax assets is based upon management’s judgment of various future events and uncertainties, including the timing and amount of future income, reversing temporary differences which may offset, and the implementation of various tax plans to maximize realization of the deferred tax asset. These judgments and estimates are inherently subjective and reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require the Company to record a valuation allowance against the deferred tax assets. A valuation allowance would result in additional income tax expense in such period, which would negatively affect earnings.

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Operating Results Overview

The following table summarizes certain key financial results as of and for the periods indicated:

As of and for the Three Months Ended

September 30,

June 30,

March 31,

December 31,

September 30,

(dollars in thousands, except per share data)

2023

2023

2023

2022

2022

Per Common Share Data

Basic Earnings Per Share

$
0.31

$
0.32

$
0.38

$
0.46

$
0.49

Diluted Earnings Per Share

0.30

0.31

0.37

0.45

0.47

Book Value Per Share

12.47

12.25

12.05

11.80

11.44

Tangible Book Value Per Share ⁽¹⁾

12.37

12.15

11.95

11.69

11.33

Basic Weighted Average Shares Outstanding

27,943,409

27,886,425

27,726,894

27,558,983

27,520,117

Diluted Weighted Average Shares Outstanding

28,311,778

28,198,739

28,490,046

28,527,306

28,592,854

Shares Outstanding at Period End

28,015,505

27,973,995

27,845,244

27,751,950

27,587,978

Selected Performance Ratios

Return on Average Assets ⁽²⁾

0.85
%

0.88
%

1.07
%

1.28
%

1.46
%
Pre-Provision Net Revenue Return on Average Assets ⁽¹⁾⁽²⁾

1.01

1.16

1.49

1.82

2.15

Return on Average Shareholders' Equity ⁽²⁾

9.23

9.69

11.70

14.06

14.99

Return on Average Tangible Common Equity⁽¹⁾⁽²⁾

9.92

10.48

12.90

15.86

17.03

Yield on Interest Earning Assets⁽³⁾

5.14

5.06

4.91

4.67

4.37

Yield on Total Loans, Gross⁽³⁾

5.26

5.19

5.06

4.87

4.59

Cost of Interest Bearing Liabilities

3.81

3.59

3.03

2.22

1.30

Cost of Funds

3.10

2.91

2.41

1.67

0.93

Cost of Total Deposits

2.99

2.66

2.01

1.31

0.73

Net Interest Margin ⁽³⁾

2.32

2.40

2.72

3.16

3.53

Core Net Interest Margin ⁽¹⁾⁽³⁾

2.24

2.31

2.62

3.05

3.38

Efficiency Ratio⁽¹⁾

56.5

52.7

46.2

43.8

39.8

Noninterest Expense to Average Assets ⁽²⁾

1.35

1.29

1.31

1.42

1.42

Loan to Deposit Ratio

101.3

104.4

108.0

104.5

102.3

Core Deposits to Total Deposits ⁽⁴⁾

70.3

70.3

72.4

74.6

83.0

Tangible Common Equity to Tangible Assets ⁽¹⁾

7.61

7.39

7.23

7.48

7.57

~~(1)~~

~~Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" for further details.~~

~~(2)~~

~~Annualized.~~

~~(3)~~

~~Amounts calculated on a tax-equivalent basis using the statutory federal tax rate of 21%.~~

~~(4)~~

~~Core deposits are defined as total deposits less brokered deposits and certificates of deposit greater than $250,000.~~

~~Table of Contents~~

~~Selected Financial Data~~

~~The following tables summarize certain selected financial data as of and for the periods indicated:~~

As of and for the Three Months Ended

September 30,

June 30,

March 31,

December 31,

September 30,
(dollars in thousands)

2023

2023

2023

2022

2022
Selected Balance Sheet Data

Total Assets

$
4,557,070

$
4,603,185

$
4,602,899

$
4,345,662

$
4,128,987
Total Loans, Gross

3,722,271

3,736,211

3,684,360

3,569,446

3,380,082
Allowance for Credit Losses

50,585

50,701

50,148

47,996

46,491
Goodwill and Other Intangibles

2,823

2,832

2,866

2,914

2,962

Deposits

3,675,509

3,577,932

3,411,123

3,416,543

3,305,074
Tangible Common Equity⁽¹⁾

346,623

339,780

332,626

324,636

312,531
Total Shareholders' Equity

415,960

409,126

402,006

394,064

382,007
Average Total Assets - Quarter-to-Date

4,504,937

4,483,662

4,405,234

4,251,345

3,948,201
Average Shareholders' Equity - Quarter-to-Date

414,047

406,347

403,533

387,589

384,020

~~(1)~~

~~Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” for further details.~~

For the Three Months Ended

September 30,

June 30,

March 31,

December 31,

September 30,
(dollars in thousands)

2023

2023

2023

2022

2022
Selected Income Statement Data

Interest Income

$
56,809

$
55,001

$
51,992

$
48,860

$
42,359
Interest Expense

31,388

29,129

23,425

15,967

8,264
Net Interest Income

25,421

25,872

28,567

32,893

34,095
Provision for (Recovery of) Credit Losses

(600)

50

625

1,500

1,500
Net Interest Income after Provision for Credit Losses

26,021

25,822

27,942

31,393

32,595
Noninterest Income

1,726

1,415

1,943

1,738

1,387
Noninterest Expense

15,350

14,388

14,183

15,203

14,157
Income Before Income Taxes

12,397

12,849

15,702

17,928

19,825
Provision for Income Taxes

2,768

3,033

4,060

4,193

5,312
Net Income

9,629

9,816

11,642

13,735

14,513
Preferred Stock Dividends

(1,013)

(1,014)

(1,013)

(1,014)

(1,013)
Net Income Available to Common Shareholders

$
8,616

$
8,802

$
10,629

$
12,721

$
13,500

~~Table of Contents~~

~~Discussion and Analysis of Results of Operations~~

~~Net Income~~

Net income was $9.6 million for the third quarter of 2023, compared to net income of $14.5 million for the third quarter of 2022. Earnings per diluted common share for the third quarter of 2023 were $0.30, compared to $0.47 per diluted common share for the third quarter of 2022. Net income was $31.1 million for the nine months ended September 30, 2023, compared to net income of $39.7 million for the nine months ended September 30, 2022. Earnings per diluted common share for the nine months ended September 30, 2023 were $0.99, compared to $1.27 per diluted common share for the nine months ended September 30, 2022.


	As of and for the Three Months Ended
	March 31,			December 31			September 30,			June 30,			March 31,
(dollars in thousands, except per share data)	2024			2023			2023			2023			2023
Income Statement
Net Interest Income	$	24,631		$	25,314		$	25,421		$	25,872		$	28,567
Provision for (Recovery of) Credit Losses		750			(250)			(600)			50			625
Noninterest Income		1,550			1,409			1,726			1,415			1,943
Noninterest Expense		15,189			15,740			15,237			14,274			14,069
Net Income		7,831			8,873			9,629			9,816			11,642
Net Income Available to Common Shareholders		6,818			7,859			8,616			8,802			10,629

Per Common Share Data
Basic Earnings Per Share	$	0.25		$	0.28		$	0.31		$	0.32		$	0.38
Diluted Earnings Per Share		0.24			0.28			0.30			0.31			0.37
Book Value Per Share		13.30			12.94			12.47			12.25			12.05
Tangible Book Value Per Share ⁽¹⁾		13.20			12.84			12.37			12.15			11.95
Basic Weighted Average Shares Outstanding		27,691,401			27,870,430			27,943,409			27,886,425			27,726,894
Diluted Weighted Average Shares Outstanding		28,089,805			28,238,056			28,311,778			28,198,739			28,490,046
Shares Outstanding at Period End		27,589,827			27,748,965			28,015,505			27,973,995			27,845,244

Selected Performance Ratios
Return on Average Assets ⁽²⁾		0.69	%		0.77	%		0.85	%		0.88	%		1.07	%
Pre-Provision Net Revenue Return on Average Assets ⁽¹⁾⁽²⁾		0.95			0.96			1.01			1.16			1.49
Return on Average Shareholders' Equity ⁽²⁾		7.35			8.43			9.23			9.69			11.70
Return on Average Tangible Common Equity⁽¹⁾⁽²⁾		7.64			8.95			9.92			10.48			12.90
Average Shareholders' Equity to Average Assets		9.32			9.15			9.19			9.06			9.16
Net Interest Margin ⁽³⁾		2.24			2.27			2.32			2.40			2.72
Core Net Interest Margin ⁽¹⁾⁽³⁾		2.18			2.21			2.24			2.31			2.62
Yield on Interest Earning Assets⁽³⁾		5.28			5.22			5.14			5.06			4.91
Yield on Total Loans, Gross⁽³⁾		5.38			5.33			5.26			5.19			5.06
Cost of Interest Bearing Liabilities		4.03			3.97			3.81			3.59			3.03
Cost of Total Deposits		3.32			3.19			2.99			2.66			2.01
Cost of Funds		3.34			3.23			3.10			2.91			2.41
Efficiency Ratio⁽¹⁾		58.2			58.8			56.1			52.3			45.9
Noninterest Expense to Average Assets ⁽²⁾		1.33			1.37			1.34			1.28			1.30

Balance Sheet
Total Assets	$	4,723,109		$	4,611,990		$	4,557,070		$	4,603,185		$	4,602,899
Total Loans, Gross		3,784,205			3,724,282			3,722,271			3,736,211			3,684,360
Deposits		3,807,225			3,709,948			3,675,509			3,577,932			3,411,123
Total Shareholders' Equity		433,611			425,515			415,960			409,126			402,006
Loan to Deposit Ratio		99.4	%		100.4	%		101.3	%		104.4	%		108.0	%
Core Deposits to Total Deposits ⁽⁴⁾		69.3			68.7			70.3			70.3			72.4
Uninsured Deposits to Total Deposits		26.0			24.3			22.2			22.1			24.0

Capital Ratios (Consolidated) ⁽⁶⁾
Tier 1 Leverage Ratio		9.66	%		9.57	%		9.62	%		9.47	%		9.41	%
Common Equity Tier 1 Risk-based Capital Ratio		9.21			9.16			9.07			8.72			8.48
Tier 1 Risk-based Capital Ratio		10.83			10.79			10.69			10.33			10.08
Total Risk-based Capital Ratio		14.00			13.97			13.88			13.50			13.25
Tangible Common Equity to Tangible Assets ⁽¹⁾		7.72			7.73			7.61			7.39			7.23

Table of Contents


	As of and for the Three Months Ended
	March 31,			December 31			September 30,			June 30,			March 31,
(dollars in thousands)	2024			2023			2023			2023			2023
Selected Asset Quality Data
Loans 30-89 Days Past Due	$	—		$	15,110		$	11		$	—		$	21
Loans 30-89 Days Past Due to Total Loans		0.00	%		0.41	%		0.00	%		0.00	%		0.00	%
Nonperforming Loans	$	249		$	919		$	749		$	662		$	693
Nonperforming Loans to Total Loans		0.01	%		0.02	%		0.02	%		0.02	%		0.02	%
Nonaccrual Loans to Total Loans		0.01			0.02			0.02			0.02			0.02
Nonaccrual Loans and Loans Past Due 90 Days and Still Accruing to Total Loans		0.01			0.02			0.02			0.02			0.02
Foreclosed Assets	$	20		$	—		$	—		$	116		$	116
Nonperforming Assets ⁽⁵⁾		269			919			749			778			809
Nonperforming Assets to Total Assets ⁽⁵⁾		0.01	%		0.02	%		0.02	%		0.02	%		0.02	%
Allowance for Credit Losses on Loans to Total Loans		1.36			1.36			1.36			1.36			1.36
Allowance for Credit Losses on Loans to Nonaccrual Loans		20,621.29			5,494.45			6,753.67			7,658.76			7,236.36
Net Loan Charge-Offs to Average Loans ⁽²⁾		0.00			0.01			0.01			0.00			0.00
Watchlist Risk Rating Loans	$	21,624		$	26,485		$	26,877		$	27,215		$	27,574
Substandard Risk Rating Loans		33,829			33,858			35,621			33,821			36,258

(1)	Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" for further details.

(2)	Annualized.

(3)	Amounts calculated on a tax-equivalent basis using the statutory federal tax rate of 21%.

(4)	Core deposits are defined as total deposits less brokered deposits and certificates of deposit greater than $250,000.

(5)	Nonperforming assets are defined as nonaccrual loans plus 90 days past due plus foreclosed assets.

Discussion and Analysis of Results of Operations

Net Income

Net income was $7.8 million for the first quarter of 2024, compared to net income of $11.6 million for the first quarter of 2023. Earnings per diluted common share for the first quarter of 2024 were $0.24, compared to $0.37 per diluted common share for the first quarter of 2023.

Net Interest Income

The Company’s primary source of revenue is net interest income, which is impacted by the level of interest earning assets and related funding sources, as well as changes in the level of interest rates. The difference between the average yield on earning assets and the average rate paid for interest bearing liabilities is the net interest spread. Noninterest bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. The impact of the noninterest bearing sources of funds is captured in the net interest margin, which is calculated as net interest income divided by average earning assets. Both the net interest margin and net interest spread are presented on a tax-equivalent basis, which means that tax-free interest income has been adjusted to pretax-equivalent income, assuming a 21% federal tax rate. Management’s ability to respond to changes in interest rates by using effective asset-liability management techniques is critical to managing net interest margin and the Company’s primary source of earnings.

Table of Contents

Average Balances and Yields

The following table presents, for the three months ended March 31, 2024 and 2023, the average balances of each principal category of assets, liabilities and shareholders’ equity, and an analysis of net interest income. The average balances are principally daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of net deferred loan origination fees and costs accounted for as yield adjustments. These tables are presented on a tax-equivalent basis, if applicable.


	For the Three Months Ended
	March 31, 2024						March 31, 2023
	Average		Interest		Yield/		Average		Interest		Yield/
	Balance		& Fees		Rate		Balance		& Fees		Rate
(dollars in thousands)
Interest Earning Assets:
Cash Investments	$	75,089	$	829	4.44	%	$	63,253	$	447	2.86	%
Investment Securities:
Taxable Investment Securities		638,509		7,600	4.79			574,242		5,958	4.21
Tax-Exempt Investment Securities⁽¹⁾		31,745		400	5.07			29,803		330	4.49
Total Investment Securities		670,254		8,000	4.80			604,045		6,288	4.22
Loans ⁽¹⁾⁽²⁾		3,729,355		49,858	5.38			3,630,446		45,265	5.06
Federal Home Loan Bank Stock		18,058		343	7.64			25,962		372	5.81
Total Interest Earning Assets		4,492,756		59,030	5.28	%		4,323,706		52,372	4.91	%
Noninterest Earning Assets		100,082						81,528
Total Assets	$	4,592,838					$	4,405,234
Interest Bearing Liabilities:
Deposits:
Interest Bearing Transaction Deposits	$	732,186	$	7,693	4.23	%	$	461,372	$	2,780	2.44	%
Savings and Money Market Deposits		896,844		8,781	3.94			1,044,794		6,499	2.52
Time Deposits		317,595		3,167	4.01			248,174		1,069	1.75
Brokered Deposits		1,014,197		10,549	4.18			743,465		6,026	3.29
Total Interest Bearing Deposits		2,960,822		30,190	4.10			2,497,805		16,374	2.66
Federal Funds Purchased		21,824		304	5.60			415,111		4,944	4.83
Notes Payable		13,750		295	8.64			13,750		263	7.77
FHLB Advances		318,648		2,258	2.85			128,222		861	2.72
Subordinated Debentures		79,328		991	5.02			78,945		983	5.05
Total Interest Bearing Liabilities		3,394,372		34,038	4.03	%		3,133,833		23,425	3.03	%
Noninterest Bearing Liabilities:
Noninterest Bearing Transaction Deposits		701,175						813,598
Other Noninterest Bearing Liabilities		69,043						54,270
Total Noninterest Bearing Liabilities		770,218						867,868
Shareholders' Equity		428,248						403,533
Total Liabilities and Shareholders' Equity	$	4,592,838					$	4,405,234
Net Interest Income / Interest Rate Spread				24,992	1.25	%				28,947	1.88	%
Net Interest Margin ⁽³⁾					2.24	%					2.72	%
Taxable Equivalent Adjustment:
Tax-Exempt Investment Securities and Loans				(361)						(380)
Net Interest Income			$	24,631					$	28,567

(1)	Interest income and average rates for tax-exempt investment securities and loans are presented on a tax-equivalent basis, ~~which means that tax-free~~assuming a federal income tax rate of 21%.

(2)	Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.

(3)

Net interest margin includes the tax equivalent adjustment and represents the annualized results of: (i) the difference between interest income ~~has been adjusted to pretax-equivalent income, assuming a 21% federal tax rate. Management’s ability to respond to changes in~~on interest ~~rates by using effective asset-liability management techniques is critical to maintaining the stability of the net interest margin~~earning assets and the ~~Company’s primary source of earnings.~~

45interest expense on interest bearing liabilities, divided by (ii) average interest earning assets for the period.

Table of Contents

~~Average Balances and Yields~~

The following tables present, for the three and nine months ended September 30, 2023 and 2022, the average balances of each principal category of assets, liabilities and shareholders’ equity, and an analysis of net interest income. The average balances are principally daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of net deferred loan origination fees and costs accounted for as yield adjustments. These tables are presented on a tax-equivalent basis, if applicable.

For the Three Months Ended

September 30, 2023

September 30, 2022

Average

Interest

Yield/

Average

Interest

Yield/


Balance

& Fees

Rate

Balance

& Fees

Rate

(dollars in thousands)

Interest Earning Assets:

Cash Investments

$
81,038

$
903

4.42
%
$
57,613

$
165

1.13
%
Investment Securities:

Taxable Investment Securities

565,008

6,234

4.38

461,255

3,741

3.22

Tax-Exempt Investment Securities⁽¹⁾

29,955

346

4.58

75,801

799

4.18

Total Investment Securities

594,963

6,580

4.39

537,056

4,540

3.35

Paycheck Protection Program Loans ⁽²⁾

828

2

1.00

2,424

96

15.75

Loans ⁽¹⁾⁽²⁾

3,721,766

49,324

5.26

3,263,390

37,724

4.59

Total Loans

3,722,594

49,326

5.26

3,265,814

37,820

4.59

Federal Home Loan Bank Stock

17,829

400

8.89

11,413

156

5.42

Total Interest Earning Assets

4,416,424

57,209

5.14
%

3,871,896

42,681

4.37
%
Noninterest Earning Assets

88,513

76,305

Total Assets

$
4,504,937

$
3,948,201

Interest Bearing Liabilities:

Deposits:

Interest Bearing Transaction Deposits

$
730,244

$
7,136

3.88
%
$
517,658

$
1,032

0.79
%
Savings and Money Market Deposits

874,612

8,089

3.67

999,932

2,494

0.99

Time Deposits

266,635

1,962

2.92

288,621

847

1.16

Brokered Deposits

985,276

10,038

4.04

447,034

1,612

1.43

Total Interest Bearing Deposits

2,856,767

27,225

3.78

2,253,245

5,985

1.05

Federal Funds Purchased

39,641

548

5.48

106,826

709

2.63

Notes Payable

13,750

296

8.58

—

—

—

FHLB Advances

275,261

2,316

3.34

72,343

328

1.80

Subordinated Debentures

79,137

1,003

5.03

92,503

1,242

5.33

Total Interest Bearing Liabilities

3,264,556

31,388

3.81
%

2,524,917

8,264

1.30
%
Noninterest Bearing Liabilities:

Noninterest Bearing Transaction Deposits

754,567

991,545

Other Noninterest Bearing Liabilities

71,767

47,719

Total Noninterest Bearing Liabilities

826,334

1,039,264

Shareholders' Equity

414,047

384,020

Total Liabilities and Shareholders' Equity

$
4,504,937

$
3,948,201

Net Interest Income / Interest Rate Spread

25,821

1.33
%

34,417

3.07
%
Net Interest Margin ⁽³⁾

2.32
%

3.53
%
Taxable Equivalent Adjustment:

Tax-Exempt Investment Securities and Loans

(400)

(322)

Net Interest Income

$
25,421

$
34,095

~~(1)~~

~~Interest income and average rates for tax-exempt investment securities and loans are presented on a tax-equivalent basis, assuming a federal income tax rate of 21%.~~

~~(2)~~

~~Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.~~

~~(3)~~

Net interest margin includes the tax equivalent adjustment and represents the annualized results of: (i) the difference between interest income on interest earning assets and the interest expense on interest bearing liabilities, divided by (ii) average interest earning assets for the period.

~~Table of Contents~~

For the Nine Months Ended

September 30, 2023

September 30, 2022

Average

Interest

Yield/

Average

Interest

Yield/


Balance

& Fees

Rate

Balance

& Fees

Rate

(dollars in thousands)

Interest Earning Assets:

Cash Investments

$
68,150

$
1,937

3.80
%
$
66,301

$
231

0.47
%
Investment Securities:

Taxable Investment Securities

569,097

18,192

4.27

417,462

8,692

2.78

Tax-Exempt Investment Securities⁽¹⁾

28,947

975

4.50

73,900

2,373

4.29

Total Investment Securities

598,044

19,167

4.29

491,362

11,065

3.01

Paycheck Protection Program Loans ⁽²⁾

913

7

1.00

9,575

922

12.88

Loans ⁽¹⁾⁽²⁾

3,689,283

142,652

5.17

3,082,924

103,204

4.48

Total Loans

3,690,196

142,659

5.17

3,092,499

104,126

4.50

Federal Home Loan Bank Stock

22,343

1,228

7.34

9,593

269

3.75

Total Interest Earning Assets

4,378,733

164,991

5.04
%

3,659,755

115,691

4.23
%
Noninterest Earning Assets

86,243

77,028

Total Assets

$
4,464,976

$
3,736,783

Interest Bearing Liabilities:

Deposits:

Interest Bearing Transaction Deposits

$
625,531

$
15,833

3.38
%
$
545,301

$
2,322

0.57
%
Savings and Money Market Deposits

926,494

21,636

3.12

934,408

4,597

0.66

Time Deposits

261,474

4,734

2.42

286,059

2,257

1.05

Brokered Deposits

876,130

24,394

3.72

419,352

3,422

1.09

Total Interest Bearing Deposits

2,689,629

66,597

3.31

2,185,120

12,598

0.77

Federal Funds Purchased

220,434

8,253

5.01

85,287

1,128

1.77

Notes Payable

13,750

844

8.21

—

—

—

FHLB Advances

215,938

5,269

3.26

54,227

646

1.59

Subordinated Debentures

79,042

2,979

5.04

92,396

3,658

5.29

Total Interest Bearing Liabilities

3,218,793

83,942

3.49
%

2,417,030

18,030

1.00
%
Noninterest Bearing Liabilities:

Noninterest Bearing Transaction Deposits

774,523

899,456

Other Noninterest Bearing Liabilities

63,646

37,463

Total Noninterest Bearing Liabilities

838,169

936,919

Shareholders' Equity

408,014

382,834

Total Liabilities and Shareholders' Equity

$
4,464,976

$
3,736,783

Net Interest Income / Interest Rate Spread

81,049

1.55
%

97,661

3.23
%
Net Interest Margin ⁽³⁾

2.47
%

3.57
%
Taxable Equivalent Adjustment:

Tax-Exempt Investment Securities and Loans

(1,189)

(856)

Net Interest Income

$
79,860

$
96,805

~~(1)~~

~~Interest income and average rates for tax-exempt investment securities and loans are presented on a tax-equivalent basis, assuming a federal income tax rate of 21%.~~

~~(2)~~

~~Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.~~

~~(3)~~

~~Table of Contents~~

Interest Rates and Operating Interest Differential

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest earning assets and interest bearing liabilities, as well as changes in average interest rates. The following table presents the effect that these factors had on the interest earned on interest earning assets and the interest incurred on interest bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous period’s volume. The changes not attributable specifically to either volume or rate have been allocated to the changes due to volume. The following ~~tables present~~table presents the changes in the volume and rate of interest bearing assets and liabilities for the three months ended ~~September 30, 2023,~~March 31, 2024, compared to the three months ended ~~September 30, 2022~~March 31, 2023~~, and for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022:~~:


	Three Months Ended September 30, 2023						Three Months Ended March 31, 2024
	Compared with						Compared with
	Three Months Ended September 30, 2022						Three Months Ended March 31, 2023
	Change Due To:				Interest		Change Due To:				Interest
(dollars in thousands)	Volume		Rate		Variance		Volume		Rate		Variance
Interest Earning Assets:
Cash Investments	$	261	$	477	$	738	$	134	$	248	$	382
Investment Securities:
Taxable Investment Securities		1,145		1,348		2,493		814		828		1,642
Tax-Exempt Investment Securities		(529)		76		(453)		27		43		70
Total Securities		616		1,424		2,040		841		871		1,712
Loans:
Paycheck Protection Program Loans		(4)		(90)		(94)
Loans		6,074		5,526		11,600		1,705		2,888		4,593
Total Loans		6,070		5,436		11,506
Federal Home Loan Bank Stock		144		100		244		(147)		118		(29)
Total Interest Earning Assets	$	7,091	$	7,437	$	14,528	$	2,533	$	4,125	$	6,658

Interest Bearing Liabilities:
Interest Bearing Transaction Deposits	$	2,077	$	4,027	$	6,104	$	2,868	$	2,045	$	4,913
Savings and Money Market Deposits		(1,159)		6,754		5,595		(1,394)		3,676		2,282
Time Deposits		(162)		1,277		1,115		701		1,397		2,098
Brokered Deposits		5,484		2,942		8,426		2,867		1,656		4,523
Total Deposits		6,240		15,000		21,240		5,042		8,774		13,816
Federal Funds Purchased		(928)		767		(161)		(5,438)		798		(4,640)
Notes Payable		296		—		296		2		30		32
FHLB Advances		1,708		280		1,988		1,357		40		1,397
Subordinated Debentures		(170)		(69)		(239)		14		(6)		8
Total Interest Bearing Liabilities		7,146		15,978		23,124		977		9,636		10,613
Net Interest Income	$	(55)	$	(8,541)	$	(8,596)	$	1,556	$	(5,511)	$	(3,955)

~~Table of Contents~~

Nine Months Ended September 30, 2023

Compared with

Nine Months Ended September 30, 2022

Change Due To:

Interest
(dollars in thousands)


Volume


Rate


Variance
Interest Earning Assets:

Cash Investments

$
52

$
1,654

$
1,706
Investment Securities:

Taxable Investment Securities

4,848

4,652

9,500
Tax-Exempt Investment Securities

(1,514)

116

(1,398)
Total Securities

3,334

4,768

8,102
Loans:

Paycheck Protection Program Loans

(64)

(851)

(915)
Loans

23,446

16,002

39,448
Total Loans

23,382

15,151

38,533
Federal Home Loan Bank Stock

701

258

959
Total Interest Earning Assets

$
27,469

$
21,831

$
49,300

Interest Bearing Liabilities:

Interest Bearing Transaction Deposits

$
2,031

$
11,480

$
13,511
Savings and Money Market Deposits

(185)

17,224

17,039
Time Deposits

(445)

2,922

2,477
Brokered Deposits

12,718

8,254

20,972
Total Deposits

14,119

39,880

53,999
Federal Funds Purchased

5,059

2,066

7,125
Notes Payable

844

—

844
FHLB Advances

3,946

677

4,623
Subordinated Debentures

(504)

(175)

(679)
Total Interest Bearing Liabilities

23,464

42,448

65,912
Net Interest Income

$
4,005

$
(20,617)

$
(16,612)

Comparison of Interest Income, Interest Expense, and Net Interest Margin

~~Third Quarter of 2023 Compared to Third Quarter of 2022~~

Net interest income was ~~$25.4~~$24.6 million for the ~~third~~first quarter of ~~2023,~~2024, a decrease of ~~$8.7~~$3.9 million compared to ~~$34.1~~$28.6 million for the ~~third~~first quarter of ~~2022.~~2023. The decrease in net interest income was primarily due to higher rates paid on deposits and ~~increased borrowings~~growth in the rising interest rate ~~environment.~~environment, which outpaced the repricing of the loan and securities portfolios.

Net interest margin (on a fully tax-equivalent basis) for the ~~third~~first quarter of ~~2023~~2024 was ~~2.32%~~2.24%, a ~~121~~48 basis point decline from ~~3.53%~~2.72% in the ~~third~~first quarter of ~~2022.~~2023. Core net interest margin (on a fully tax-equivalent basis), a non-GAAP financial measure which excludes the impact of loan fees, ~~and PPP balances, interest, and fees,~~was 2.18% for the ~~third~~first quarter of ~~2023 was 2.24%,~~2024, a ~~114~~44 basis point decline from ~~3.38%~~2.62% in the ~~third~~first quarter of ~~2022.~~2023. The decline in the margin was primarily due to higher funding costs, ~~and increased borrowings in the rising interest rate environment,~~ offset partially by higher earning asset yields.

Average interest earning assets were $4.49 million for the ~~third~~first quarter of ~~2023 increased $544.5~~2024, an increase of $169.0 million, or ~~14.1%~~3.9%, compared to ~~$4.42 billion, from $3.87~~$4.32 billion for the ~~third~~first quarter of ~~2022.~~2023. This increase in average interest earning assets was

Table of Contents

primarily due to ~~strong organic~~ growth in the loan portfolio and purchases of investment securities. Average interest bearing liabilities ~~increased $739.6 million, or 29.3%, to $3.26~~were $3.39 billion for the ~~third~~first quarter of ~~2023, from $2.52~~2024, an increase of $260.5 million, or 8.3%, compared to $3.13 billion for the ~~third~~first quarter of ~~2022.~~2023. The increase in average interest bearing liabilities was primarily due to an increase in interest bearing transaction deposits, time deposits, brokered deposits and FHLB ~~advances.~~advances, offset partially by a decrease in federal funds purchased.

Average interest earning assets produced a tax-equivalent yield of ~~5.14%~~5.28% for the ~~third~~first quarter of ~~2023,~~2024, compared to ~~4.37%~~4.91% for the ~~third~~first quarter of ~~2022.~~2023. The increase in the yield on interest earning assets was primarily due to growth and repricing of the loan and securities portfolios in the rising interest rate environment. The average rate paid on

~~Table of Contents~~

interest bearing liabilities was ~~3.81%~~4.03% for the ~~third~~first quarter of ~~2023,~~2024, compared to ~~1.30%~~3.03% for the ~~third~~first quarter of ~~2022~~2023. The increase was primarily due to ~~the~~deposit repricing, which resulted from a rapid increase in market interest ~~rates that occurred between the periods, which impacted all funding sources.~~rates.

Interest Income. Total interest income, on a tax-equivalent basis, was ~~$57.2~~$59.0 million for the ~~third~~first quarter of ~~2023,~~2024, compared to ~~$42.7~~$52.4 million for the ~~third~~first quarter of ~~2022.~~2023. The ~~$14.5~~$6.7 million increase in total interest income on a tax-equivalent basis was primarily due to ~~strong organic~~ growth in the loan portfolio, ~~continued~~ purchases of investment securities and higher earning asset yields in the rising interest rate environment.

Interest income on the investment securities portfolio, on a tax-equivalent basis, increased $1.7 million for the first quarter of 2024, compared to the first quarter of 2023, primarily due to a $66.2 million, or 11.0%, increase in average balances between the two periods and higher rates earned on securities.

Interest income on loans, on a tax-equivalent basis, was ~~$49.3~~$49.9 million for the ~~third~~first quarter of ~~2023,~~2024, compared to ~~$37.8~~$45.3 million for the ~~third~~first quarter of ~~2022.~~2023. The ~~$11.5~~$4.6 million increase was primarily due to ~~a 14.0% increase in the average balance of loans outstanding from organic loan~~ growth and ~~a 67 basis point increase~~repricing of the loan portfolio in ~~yield from~~ the rising interest rate environment.

Loan interest income and loan fees remain the primary contributing factors to the changes in the yield on interest earning assets. The aggregate loan yield increased to ~~5.26%~~5.38% in the ~~third~~first quarter of ~~2023,~~2024, which was 6732 basis points higher than ~~4.59%~~5.06% in the ~~third~~first quarter of 2022. While loan fees have historically maintained a relatively stable contribution to the aggregate loan yield, the recent periods saw fewer loan prepayments, which historically has accelerated the recognition of loan fees.2023. Despite the overall decrease in fee recognition, ~~the Company is encouraged that~~ the core loan yield continues to rise as new loan originations and the existing portfolio reprice in the higher ~~interest~~ rate environment.

The following table presents a summary of interest and fees recognized on loans ~~excluding PPP loans,~~ for the periods indicated:


	Three Months Ended										Three Months Ended
	September 30, 2023		June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022		March 31, 2024		December 31, 2023		September 30, 2023		June 30, 2023		March 31, 2023
Interest	5.16	%	5.09	%	4.95	%	4.74	%	4.42	%	5.31	%	5.25	%	5.16	%	5.09	%	4.95	%
Fees	0.10		0.10		0.11		0.12		0.17		0.07		0.08		0.10		0.10		0.11
Yield on Loans, Excluding PPP Loans	5.26	%	5.19	%	5.06	%	4.86	%	4.59	%
Yield on Loans											5.38	%	5.33	%	5.26	%	5.19	%	5.06	%

Interest Expense. Interest expense on interest bearing liabilities ~~increased $23.1 million, to $31.4~~was $34.0 million for the ~~third~~first quarter of ~~2023, compared to $8.3~~2024, an increase of $10.6 million, from $23.4 million for the ~~third~~first quarter of ~~2022.~~2023. The ~~cost of interest bearing liabilities increased 251 basis points from 1.30% in the third quarter of 2022 to 3.81% in the third quarter of 2023,~~increase was primarily due to growth and upward repricing of the ~~rapid increase~~deposit and FHLB advances portfolios in ~~market~~the higher interest ~~rates that occurred between the periods, which impacted all funding sources.~~rate environment.

Interest expense on deposits was ~~$27.2~~$30.2 million for the ~~third~~first quarter of ~~2023,~~2024, an increase of ~~$21.2~~$13.8 million, from ~~$6.0~~$16.4 million for the ~~third~~first quarter of ~~2022.~~2023. The increase in interest expense on deposits was primarily due to upward repricing of the deposit portfolio in the higher interest rate environment and the average balance of interest bearing deposits increasing by $463.0 million, or 18.5%. The cost of total deposits ~~increased 226 basis points from 0.73%~~was 3.32% in the ~~third~~first quarter of ~~2022,~~2024, a 131 basis point increase, compared to ~~2.99%~~2.01% in the ~~third~~first quarter of ~~2023,~~2023. The increase was primarily due to the upward repricing of the deposit portfolio in the higher interest rate environment.

Interest expense on borrowings was ~~$4.2~~$3.8 million for the ~~third~~first quarter of ~~2023, an increase~~2024, a decrease of ~~$1.9~~$3.2 million, ~~from $2.3~~compared to $7.1 million for the ~~third~~first quarter of ~~2022. This increase~~2023. The decrease was primarily due to ~~higher average balances~~a decreased utilization of ~~FHLB advances~~federal funds purchased in the higher interest rate environment, offset partially by ~~a decreased~~increased utilization of ~~federal funds purchased.~~

~~Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022~~

Net interest income was $79.9 million for the nine months ended September 30, 2023, a decrease of $16.9 million, or 17.5%, compared to $96.8 million for the nine months ended September 30, 2022. The decrease in net interest income was primarily due to ~~higher rates paid on deposits and increased borrowings in the rising interest rate environment, offset partially by higher earning asset yields.~~

FHLB advances.

5041

Table of Contents

Net interest margin (on a fully tax-equivalent basis) for the nine months ended September 30, 2023 was 2.47%, compared to 3.57% for the nine months ended September 30, 2022, a decrease of 110 basis points. Core net interest margin (on a fully tax-equivalent basis), a non-GAAP financial measure which excludes the impact of loan fees and PPP balances, interest, and fees, for the nine months ended September 30, 2023 was 2.39%, a 96 basis point decrease from 3.35% for the nine months ended September 30, 2022.

Average interest earning assets for the nine months ended September 30, 2023 increased $719.0 million, or 19.6%, to $4.38 billion, from $3.66 billion for the nine months ended September 30, 2022. This increase in average interest earning assets was primarily due to strong organic growth in the loan portfolio and continued purchases of investment securities, offset partially by the forgiveness of PPP loans. Average interest bearing liabilities increased $801.8 million, or 33.2%, to $3.22 billion for the nine months ended September 30, 2023, from $2.42 billion for the nine months ended September 30, 2022. The increase in average interest bearing liabilities was primarily due to an increase in interest bearing transaction deposits, brokered deposits, federal funds purchased, and FHLB advances.

Average interest earning assets produced a tax-equivalent yield of 5.04% for the nine months ended September 30, 2023, compared to 4.23% for the nine months ended September 30, 2022. The average rate paid on interest bearing liabilities was 3.49% for the nine months ended September 30, 2023, compared to 1.00% for the nine months ended

~~September 30, 2022.~~

~~Interest Income.~~ Total interest income on a tax-equivalent basis was $165.0 million for the nine months ended September 30, 2023, compared to $115.7 million for the nine months ended September 30, 2022. The $49.3 million increase in total interest income on a tax-equivalent basis was primarily due to strong organic growth in the loan portfolio, continued purchases of investment securities, and higher earning asset yields in the rising interest rate environment.

Interest income on the investment securities portfolio, on a fully-tax equivalent basis, increased $8.1 million during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to a $106.7 million, or 21.7%, increase in average balances and a 128 basis point increase in yield between the periods.

Interest income on loans, on a fully-tax equivalent basis, for the nine months ended September 30, 2023 was $142.7 million, compared to $104.1 million for the nine months ended September 30, 2022. The $38.5 million increase was primarily due to a 19.3% increase in the average balances of loans outstanding and a 67 basis point increase in yield.

~~Interest Expense.~~ Interest expense on interest bearing liabilities increased $65.9 million to $83.9 million for the nine months ended September 30, 2023, compared to $18.0 million for the nine months ended September 30, 2022, primarily due to higher rates paid on deposits and increased utilization of federal funds purchased and FHLB advances in the rising interest rate environment.

Interest expense on deposits increased to $66.6 million for the nine months ended September 30, 2023, compared to $12.6 million for the nine months ended September 30, 2022. The $54.0 million increase in interest expense on deposits was primarily due to upward repricing of the deposit portfolio in the higher interest rate environment.

Interest expense on borrowings increased $11.9 million to $17.3 million for the nine months ended September 30, 2023, compared to $5.4 million for the nine months ended September 30, 2022. This increase was primarily due to higher average balances of federal funds purchased and FHLB advances in the higher interest rate environment.

Provision for Credit Losses

The provision for credit losses on loans was ~~$-0-~~$850,000 for the ~~third~~first quarter of ~~2023,~~2024, compared to $1.5 million for the ~~third~~first quarter of ~~2022.~~2023. The provision for credit losses on loans ~~was $2.1 million for the nine months ended September 30, 2023, compared to $6.2 million for the nine months ended September 30, 2022. No provision for credit losses on loans was~~ recorded in the ~~third~~first quarter of ~~2023 due~~2024 was primarily attributable to ~~a more managed pace~~the increased growth of the loan ~~growth and continued strong asset quality.~~portfolio.

~~Table of Contents~~

The allowance for credit losses on loans to total loans was 1.36% at ~~September 30, 2023, compared to 1.38% at September 30, 2022.~~both March 31, 2024 and March 31, 2023.

The following table presents a summary of the activity in the allowance for credit losses on loans for the periods indicated:


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
(dollars in thousands)	2023		2022		2023		2022		2024		2023
Balance at Beginning of Period	$	50,701	$	44,711	$	47,996	$	40,020	$	50,494	$	47,996
Impact of Adopting CECL		—		—		650		—		—		650
Provision for Credit Losses		—		1,500		2,050		6,200		850		1,500
Charge-offs		(122)		(5)		(129)		(34)		(2)		(4)
Recoveries		6		285		18		305		5		6
Balance at End of Period	$	50,585	$	46,491	$	50,585	$	46,491	$	51,347	$	50,148

The provision for credit losses for off-balance sheet credit exposures was a negative provision of ~~$600,000~~$100,000 for the ~~third~~first quarter of ~~2023,~~2024, compared to ~~$-0- for the third quarter of 2022. The provision for credit losses for off-balance sheet credit exposures was~~ a negative provision of ~~$2.0 million~~$875,000 for the ~~nine months ended September 30, 2023, compared to $-0- for the nine months ended September 30, 2022.~~first quarter of 2023. The negative provision for both periods was due to a reduction in outstanding unfunded commitments primarily attributable to the migration to funded loans, as well as a moderation of volume of newly originated projects with unfunded commitments. The allowance for credit losses on off-balance sheet credit exposures was ~~$3.2~~$2.9 million ~~at September 30, 2023,~~as of March 31, 2024, compared to ~~$360,000 at~~$3.0 million as of December 31, ~~2022.~~2023.

The following table presents a summary of the activity in the provision for credit losses for the periods indicated:


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,				Increase/		September 30,				Increase/		March 31,				Increase/
(dollars in thousands)	2023		2022		(Decrease)		2023		2022		(Decrease)		2024		2023		(Decrease)
Provision for Credit Losses on Loans	$	—	$	1,500	$	(1,500)	$	2,050	$	6,200	$	(4,150)	$	850	$	1,500	$	(650)
Provision for (Recovery of) Credit Losses for Off-Balance Sheet Credit Exposures		(600)		—		(600)		(1,975)		—		(1,975)		(100)		(875)		775
Provision for (Recovery of) Credit Losses	$	(600)	$	1,500	$	(2,100)	$	75	$	6,200	$	(6,125)
Provision for Credit Losses													$	750	$	625	$	125

Noninterest Income

Noninterest income was ~~$1.7~~$1.6 million for the ~~third~~first quarter of ~~2023, an increase~~2024, a decrease of ~~$339,000~~$393,000 from ~~$1.4~~$1.9 million for the ~~third~~first quarter of ~~2022.~~2023. The ~~increase~~decrease was primarily due to lower letter of credit fees and $299,000 of FHLB prepayment income recognized in the previous year which did not reoccur, offset partially by ~~lower other income. Noninterest income was $5.1 million for the nine months ended September 30, 2023, an increase~~a net gain on sale of $490,000, compared to $4.6 million for the nine months ended September 30, 2022. The increase was primarily due to increased customer service fees, swap fees, and bank-owned life insurance income, offset partially by lower other income.securities.

5242

Table of Contents

The following table presents the major components of noninterest income for the periods indicated:


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,				Increase/		September 30,				Increase/		March 31,				Increase/
(dollars in thousands)	2023		2022		(Decrease)		2023		2022		(Decrease)		2024		2023		(Decrease)
Noninterest Income:
Customer Service Fees	$	379	$	313	$	66	$	1,096	$	892	$	204	$	342	$	349	$	(7)
Net Gain (Loss) on Sales of Securities		—		—		—		(6)		52		(58)		93		(56)		149
Letter of Credit Fees		315		428		(113)		1,328		1,234		94		316		634		(318)
Debit Card Interchange Fees		150		153		(3)		443		438		5		141		138		3
Swap Fees		—		—		—		—		557		(557)
Bank-Owned Life Insurance		252		227		25		724		524		200		301		234		67
FHLB Prepayment Income		493		—		493		792		—		792		—		299		(299)
Other Income		137		266		(129)		707		897		(190)		357		345		12
Totals	$	1,726	$	1,387	$	339	$	5,084	$	4,594	$	490	$	1,550	$	1,943	$	(393)

Noninterest Expense

~~Third Quarter of 2023 Compared to Third Quarter of 2022~~

Noninterest expense was ~~$15.4~~$15.2 million for the ~~third~~first quarter of ~~2023,~~2024, an increase of ~~$1.2~~$1.1 million from ~~$14.2~~$14.1 million for the ~~third~~first quarter of ~~2022.~~2023. The increase was primarily attributable to increases in salaries and employee benefits, industry-wide increases in the FDIC insurance assessment, higher professional and consulting fees, derivative collateral fees and information technology and telecommunications, offset partially by decreases in ~~marketing~~occupancy and ~~advertising expenses.~~

~~Nine months ended September 30, 2023 Compared to Nine months ended September 30, 2022~~

Noninterest expense was $43.9 million for the nine months ended September 30, 2023, an increase of $2.5 million, or 6.0%, from $41.4 million for the nine months ended September 30, 2022. The increase was primarily ~~attributable to~~ ~~increases in the FDIC insurance assessment and derivative collateral fees, offset partially by decreases in marketing and advertising expenses.~~

equipment.

The Company had 255 full-time equivalent employees at the end of the ~~third~~first quarter of ~~2023~~2024 compared to 246 employees at the end of the ~~third~~first quarter of ~~2022.~~2023.

Efficiency Ratio. The efficiency ratio, a non-GAAP financial measure, reports total noninterest expense, less amortization of intangible assets, as a percentage of net interest income plus total noninterest income, less gains (losses) on sales of securities. Management believes this non-GAAP financial measure provides a meaningful comparison of operational performance and facilitates investors’ assessments of business performance and trends in comparison to peers in the banking industry.

The efficiency ratio was ~~56.5%~~58.2% for the ~~third~~first quarter of ~~2023,~~2024, compared to ~~39.8%~~45.9% for the ~~third~~first quarter of ~~2022.~~ ~~The efficiency ratio for the nine months ended September 30, 2023 and 2022 was 51.6% and 40.7%, respectively.~~2023. The efficiencies of the Company's "branch-light" model have positioned the Company well to continue navigating a challenging environment for a more spread-based revenue model.

~~Table of Contents~~

The following table presents the major components of noninterest expense for the periods indicated:


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,				Increase/		September 30,				Increase/		March 31,				Increase/
(dollars in thousands)	2023		2022		(Decrease)		2023		2022		(Decrease)		2024		2023		(Decrease)
Noninterest Expense:
Salaries and Employee Benefits	$	9,519	$	9,449	$	70	$	26,923	$	27,120	$	(197)	$	9,433	$	8,815	$	618
Occupancy and Equipment		1,101		1,086		15		3,385		3,213		172		1,057		1,209		(152)
FDIC Insurance Assessment		1,075		315		760		2,640		1,005		1,635		875		665		210
Data Processing		392		372		20		1,150		1,025		125		412		357		55
Professional and Consulting Fees		715		594		121		2,299		2,030		269		889		755		134
Derivative Collateral Fees		543		122		421		1,327		151		1,176		486		380		106
Information Technology and Telecommunications		683		650		33		2,077		1,822		255		796		683		113
Marketing and Advertising		222		479		(257)		805		1,629		(824)		322		262		60
Intangible Asset Amortization		9		48		(39)		91		143		(52)		9		48		(39)
Amortization of Tax Credit Investments		113		114		(1)		341		294		47
Other Expense		978		928		50		2,883		2,985		(102)		910		895		15
Totals	$	15,350	$	14,157	$	1,193	$	43,921	$	41,417	$	2,504	$	15,189	$	14,069	$	1,120

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Income Tax Expense

The provision for income taxes includes both federal and state taxes. Fluctuations in effective tax rates reflect the differences in the inclusion or deductibility of certain income and expenses for income tax purposes and the recognition of tax credits. The Company’s future effective income tax rate will fluctuate based on the mix of taxable and tax-free investments and loans, the recognition and availability of tax credit investments, and overall taxable income.

Income tax expense was ~~$2.8~~$2.4 million for the ~~third~~first quarter of ~~2023,~~2024, compared to ~~$5.3~~$4.1 million for the ~~third~~first quarter of ~~2022.~~2023. The effective combined federal and state income tax rate for the ~~third~~first quarter of ~~2023~~2024 was ~~22.3%~~23.5%, compared to ~~26.8%~~26.4% for the ~~third~~first quarter of ~~2022.~~ ~~Income tax expense was $9.9 million for~~2023. The decrease in the ~~nine months ended September 30, 2023, compared to $14.1 million for the nine months ended September 30, 2022. The~~ effective ~~combined federal and state income~~ tax rate ~~for~~was primarily due to the ~~nine months ended September 30, 2023~~timing and ~~2022 was 24.1% and 26.3%, respectively.~~delivery of tax credits.

Financial Condition

Assets

Total assets at ~~September 30, 2023~~March 31, 2024 were ~~$4.56~~$4.72 billion, an increase of ~~$211.4~~$111.1 million, or ~~4.9%~~2.4%, over total assets of ~~$4.35~~$4.61 billion at December 31, ~~2022,~~2023, and an increase of ~~$428.1~~$120.2 million, or ~~10.4%~~2.6%, over total assets of ~~$4.13~~$4.60 billion at ~~September 30, 2022.~~March 31, 2023. The growth in both periods was primarily due to ~~strong~~ organic loan growth and ~~an increase in cash and cash equivalents.~~

~~Total gross loans at September 30, 2023 were $3.72 billion, an increase~~purchases of $152.8 million, or 4.3%, over total gross loans of $3.57 billion at December 31, 2022, and an increase of $342.2 million, or 10.1%, over total gross loans of $3.38 billion at September 30, 2022. Although loan growth for the year has been strong, the pace of loan growth has been moderated due to active balance sheet management to align loan growth with the funding outlook, sales of participations on larger originations to manage growth, and ultimately the impact of the higher interest rate environment on the number of prospective deals that meet underwriting standards.investment securities.

Investment Securities Portfolio

The investment securities portfolio is used to make various term investments and is intended to provide the Company with adequate liquidity, a source of stable income, and at times, to serve as collateral for certain types of deposits or borrowings. Investment balances in the investment securities portfolio are subject to change over time based

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on funding needs and interest rate risk management objectives. The liquidity levels take into account anticipated future cash flows and are maintained at levels management believes are appropriate to ensure future flexibility in meeting anticipated funding needs.

The investment securities portfolio consists primarily of U.S. government agency mortgage backed securities, municipal securities, and corporate securities comprised primarily of subordinated debentures of banks and financial holding companies. In addition, the Company also holds ~~U.S. treasury securities~~other mortgage backed and other debt securities, all with varying contractual maturities. These maturities do not necessarily represent the expected life of the securities as the securities may be called or paid down without penalty prior to their stated maturities. All investment securities are held as available for sale.

Securities available for sale were ~~$553.1~~$633.3 million at ~~September 30, 2023,~~March 31, 2024, compared to ~~$548.6~~$604.1 million at December 31, ~~2022,~~2023, an increase of ~~$4.5~~$29.2 million or ~~0.8%~~4.8%. At ~~September 30, 2023,~~March 31, 2024, U.S. government agency mortgage-backed securities represented ~~25.1%~~22.0% of the portfolio, municipal securities represented ~~22.2%~~20.9% of the portfolio, corporate securities represented ~~22.0% of the portfolio, U.S. treasury securities represented 0.5%~~21.0% of the portfolio, SBA securities represented ~~3.6%~~2.7% of the portfolio, other mortgage-backed securities represented ~~12.9%~~16.5% of the portfolio, and asset-backed securities represented ~~13.7%~~16.9% of the portfolio.

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The following table presents the amortized cost and fair value of securities available for sale, by type, at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


	September 30, 2023				December 31, 2022				March 31, 2024				December 31, 2023
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair
(dollars in thousands)	Cost		Value		Cost		Value		Cost		Value		Cost		Value
U.S. Treasury Securities	$	2,883	$	2,864	$	2,621	$	2,580
SBA Securities		19,779		19,966		20,957		20,877	$	16,864	$	17,025	$	18,497	$	18,674
Mortgage-Backed Securities Issued or Guaranteed by U.S. Agencies (MBS):
Residential Pass-Through:
Guaranteed by GNMA		45,372		44,044		55,200		54,441		45,065		44,825		45,256		44,188
Issued by FNMA and FHLMC		24,722		20,793		26,159		22,960		23,937		21,004		24,319		21,687
Other Residential Mortgage-Backed Securities		76,163		64,094		80,299		70,184		73,487		63,615		74,832		65,617
Commercial Mortgage-Backed Securities		10,847		10,029		10,993		10,345		10,688		10,113		10,811		10,292
All Other Commercial MBS		76,816		71,415		80,268		79,854		106,902		104,659		94,237		93,531
Total MBS		233,920		210,375		252,919		237,784		260,079		244,216		249,455		235,315
Municipal Securities		148,725		122,497		156,506		131,354		151,221		132,091		151,512		132,524
Corporate Securities		134,369		121,717		116,871		109,827		142,851		132,952		142,098		130,605
Asset-Backed Securities		75,616		75,657		46,623		46,191		106,637		106,998		87,054		86,986
Total	$	615,292	$	553,076	$	596,497	$	548,613	$	677,652	$	633,282	$	648,616	$	604,104

Loan Portfolio

The Company focuses on lending to borrowers located or investing in the Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area across a diverse range of industries and property types. The Company lends primarily to commercial customers, consisting of loans secured by nonfarm, nonresidential properties, multifamily residential properties, land, and non-real estate business assets. Responsive service, local decision making, and an efficient turnaround time from application to closing have been significant factors in growing the loan portfolio.

The Company manages concentrations of credit exposure through a risk management program which implements formalized processes and procedures specifically for managing and mitigating risk within the loan portfolio. The processes and procedures include board and management oversight, commercial real estate exposure limits, portfolio monitoring tools, management information systems, market reports, underwriting standards, internal and external loan review, and stress testing.

Total gross loans at March 31, 2024 were $3.78 billion, an increase of $59.9 million, or 1.6%, over total gross loans of $3.72 billion at December 31, 2023, and an increase of $99.8 million, or 2.7%, over total gross loans of $3.68 billion at March 31, 2023. The increase in the loan portfolio during the first quarter of 2024 was primarily due to increased loan demand and originations as well as a moderation in loan payoffs. Gross loans grew on an annualized basis of 6.5% during the first quarter of 2024. The pace of loan growth has moderated, when compared to historical levels, due to active balance sheet management to align loan growth with the funding outlook and ultimately the impact of the higher interest rate environment on the number of prospective deals that meet underwriting standards.

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Total gross loans increased $152.8 million to $3.72 billion at September 30, 2023, compared to $3.57 billion at December 31, 2022, and increased $342.2 million from $3.38 billion at September 30, 2022. As of September 30, 2023, commercial loans increased $23.7 million, 1-4 family mortgage loans increased $49.2 million and multifamily loans increased $71.9 million, compared to December 31, 2022. Collectively, the Company’s annualized loan growth for the nine months ended September 30, 2023 was 5.7%.

The following table presents the dollar and percentage composition of the loan portfolio by category, at the dates indicated:


	September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022				September 30, 2022				March 31, 2024				December 31, 2023				September 30, 2023				June 30, 2023				March 31, 2023
(dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
Commercial	$	459,063	12.3	%	$	459,184	12.3	%	$	454,193	12.3	%	$	435,344	12.2	%	$	412,448	12.2	%	$	483,069	12.8	%	$	464,061	12.4	%	$	459,854	12.3	%	$	460,061	12.3	%	$	455,156	12.3	%
Paycheck Protection Program		791	—			877	—			963	—			1,049	—			1,192	—
Construction and Land Development		294,818	7.9			351,069	9.4			312,277	8.5			295,554	8.3			280,380	8.3			200,970	5.3			232,804	6.3			294,818	7.9			351,069	9.4			312,277	8.5
1-4 Family Construction		64,463	1.7			69,648	1.8			85,797	2.3			70,242	2.0			55,177	1.6			65,606	1.7			65,087	1.8			64,463	1.7			69,648	1.8			85,797	2.3
Real Estate Mortgage:
1 - 4 Family Mortgage		404,716	10.9			400,708	10.7			380,210	10.3			355,474	10.0			341,102	10.1
1-4 Family Mortgage																						417,773	11.0			402,396	10.8			404,716	10.9			400,708	10.7			380,210	10.3
Multifamily		1,378,669	37.0			1,314,524	35.2			1,320,081	35.8			1,306,738	36.6			1,230,509	36.4			1,389,345	36.7			1,388,541	37.3			1,378,669	37.0			1,314,524	35.2			1,320,081	35.8
CRE Owner Occupied		159,485	4.3			159,088	4.3			158,650	4.3			149,905	4.2			151,088	4.5			182,589	4.8			175,783	4.7			159,485	4.3			159,088	4.3			158,650	4.3
CRE Nonowner Occupied		951,263	25.6			971,532	26.0			962,671	26.2			947,008	26.5			900,691	26.7			1,035,702	27.4			987,306	26.5			951,263	25.6			971,532	26.0			962,671	26.2
Total Real Estate Mortgage Loans		2,894,133	77.8			2,845,852	76.2			2,821,612	76.6			2,759,125	77.3			2,623,390	77.7			3,025,409	79.9			2,954,026	79.3			2,894,133	77.8			2,845,852	76.2			2,821,612	76.6
Consumer and Other		9,003	0.3			9,581	0.3			9,518	0.3			8,132	0.2			7,495	0.2			9,151	0.3			8,304	0.2			9,003	0.3			9,581	0.3			9,518	0.3
Total Loans, Gross		3,722,271	100.0	%		3,736,211	100.0	%		3,684,360	100.0	%		3,569,446	100.0	%		3,380,082	100.0	%		3,784,205	100.0	%		3,724,282	100.0	%		3,722,271	100.0	%		3,736,211	100.0	%		3,684,360	100.0	%
Allowance for Credit Losses		(50,585)				(50,701)				(50,148)				(47,996)				(46,491)				(51,347)				(50,494)				(50,585)				(50,701)				(50,148)
Net Deferred Loan Fees		(7,222)				(7,718)				(8,735)				(9,293)				(9,088)				(6,356)				(6,573)				(7,222)				(7,718)				(8,735)
Total Loans, Net	$	3,664,464			$	3,677,792			$	3,625,477			$	3,512,157			$	3,324,503			$	3,726,502			$	3,667,215			$	3,664,464			$	3,677,792			$	3,625,477

The ~~Company’s primary focus throughout its history has been~~Company primarily focuses on real estate mortgage lending, which constituted ~~77.8%~~79.9% of the portfolio as of ~~September 30, 2023.~~March 31, 2024. The composition of the portfolio has remained relatively consistent with prior periods and the Company does not expect any significant changes in the foreseeable future in the composition of the loan portfolio or in the emphasis on real estate lending.

As of ~~September 30, 2023,~~March 31, 2024, investor CRE loans totaled $2.69 billion, consisting of ~~$951.3 million~~$1.04 billion of loans secured by nonowner occupied CRE, ~~$1.38~~$1.39 billion of loans secured by multifamily residential properties, ~~$64.5~~$65.6 million of 1-4 family construction loans and ~~$294.8~~$201.0 million of construction and land development loans. Investor CRE loans represented ~~72.2%~~71.1% of the total gross loan portfolio and ~~494.4%~~476.0% of the Bank’s total risk-based capital at ~~September 30, 2023,~~March 31, 2024, compared to ~~73.4%~~71.8% and ~~514.9%~~482.4%, respectively, at December 31, ~~2022.~~2023.

The following table provides a breakdown of CRE nonowner occupied loans by collateral types as of March 31, 2024:


			Percent of		Percent of
			CRE Nonowner		Total Loan
(dollars in thousands)	Balance		Occupied Portfolio		Portfolio
Collateral Type:
Industrial	$	263,269	25.4	%	7.0	%
Office		199,656	19.3		5.3
Retail		147,669	14.3		3.9
Nursing/Assisted Living		143,748	13.9		3.8
Mini Storage Facility		101,473	9.8		2.7
Medical Office		80,779	7.8		2.1
Other		99,108	9.5		2.6
Total CRE Nonowner Occupied	$	1,035,702	100.0	%	27.4	%

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The following tables present time to contractual maturity and sensitivity to interest rate changes for the loan portfolio as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


	As of September 30, 2023								As of March 31, 2024
	Due in One Year		More Than One		More Than Five		After		Due in One Year		More Than One		More Than Five		After
(dollars in thousands)	or Less		Year to Five Years		Year to Fifteen Years		Fifteen Years		or Less		Year to Five Years		Year to Fifteen Years		Fifteen Years
Commercial	$	165,607	$	195,627	$	94,844	$	2,985	$	192,788	$	190,706	$	95,875	$	3,700
Paycheck Protection Program		—		791		—		—
Construction and Land Development		95,708		135,525		63,585		—		74,580		94,660		31,730		—
1-4 Family Construction		49,895		9,040		5,528		—		46,898		9,463		9,245		—
Real Estate Mortgage:
1 - 4 Family Mortgage		66,485		257,028		80,553		650
1-4 Family Mortgage										57,260		280,317		79,554		642
Multifamily		254,101		456,778		580,048		87,742		219,491		533,350		549,203		87,301
CRE Owner Occupied		7,087		65,501		86,897		—		6,959		92,602		83,028		—
CRE Nonowner Occupied		170,999		506,886		273,378		—		232,918		533,134		269,650		—
Total Real Estate Mortgage Loans		498,672		1,286,193		1,020,876		88,392		516,628		1,439,403		981,435		87,943
Consumer and Other		2,611		6,180		—		212		5,086		3,857		—		208
Total Loans, Gross	$	812,493	$	1,633,356	$	1,184,833	$	91,589	$	835,980	$	1,738,089	$	1,118,285	$	91,851
Interest Rate Sensitivity:
Fixed Interest Rates	$	459,365	$	1,380,238	$	682,841	$	25,345	$	515,299	$	1,451,798	$	615,691	$	26,287
Floating or Adjustable Rates		353,128		253,118		501,992		66,244		320,681		286,291		502,594		65,564
Total Loans, Gross	$	812,493	$	1,633,356	$	1,184,833	$	91,589	$	835,980	$	1,738,089	$	1,118,285	$	91,851


	As of December 31, 2022								As of December 31, 2023
	Due in One Year		More Than One		More Than Five		After		Due in One Year		More Than One		More Than Five		After
(dollars in thousands)	or Less		Year to Five Years		Year to Fifteen Years		Fifteen Years		or Less		Year to Five Years		Year to Fifteen Years		Fifteen Years
Commercial	$	137,657	$	197,363	$	97,259	$	3,065	$	157,047	$	206,460	$	96,826	$	3,728
Paycheck Protection Program		—		1,049		—		—
Construction and Land Development		96,702		125,996		66,156		6,700		99,183		93,013		40,608		—
1-4 Family Construction		54,469		10,510		5,263		—		46,601		9,476		9,010		—
Real Estate Mortgage:
1 - 4 Family Mortgage		54,499		214,434		85,880		661
1-4 Family Mortgage										59,962		262,468		79,320		646
Multifamily		157,585		454,880		642,029		52,244		242,291		482,380		576,348		87,522
CRE Owner Occupied		5,709		47,894		96,302		—		8,271		83,280		84,232		—
CRE Nonowner Occupied		120,645		471,656		354,707		—		204,297		503,196		279,813		—
Total Real Estate Mortgage Loans		338,438		1,188,864		1,178,918		52,905		514,821		1,331,324		1,019,713		88,168
Consumer and Other		4,921		2,988		—		223		2,568		5,533		—		203
Total Loans, Gross	$	632,187	$	1,526,770	$	1,347,596	$	62,893	$	820,220	$	1,645,806	$	1,166,157	$	92,099
Interest Rate Sensitivity:
Fixed Interest Rates	$	333,898	$	1,187,519	$	804,838	$	11,115	$	502,454	$	1,414,656	$	673,563	$	26,172
Floating or Adjustable Rates		298,289		339,251		542,758		51,778		317,766		231,150		492,594		65,927
Total Loans, Gross	$	632,187	$	1,526,770	$	1,347,596	$	62,893	$	820,220	$	1,645,806	$	1,166,157	$	92,099

Asset Quality

The Company emphasizes credit quality in the originating and monitoring of the loan portfolio, and success in underwriting is measured by the levels of classified and nonperforming assets and net charge-offs. Federal regulations and internal policies require the use of an asset classification system as a means of managing and reporting problem and potential problem assets. The Company has incorporated an internal asset classification system, substantially consistent with federal banking regulations, as a part of the credit monitoring system. Federal banking regulations set forth a classification scheme for problem and potential problem assets as “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the financial institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all

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of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly

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questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated “watch.”

The following table presents information on loan classifications at ~~September 30, 2023.~~March 31, 2024. The Company had no assets classified as doubtful or loss at ~~September 30, 2023.~~March 31, 2024.


	Risk Category						Risk Category
(dollars in thousands)	Watch		Substandard		Total		Watch		Substandard		Total
Commercial	$	4,360	$	15,831	$	20,191	$	519	$	15,124	$	15,643
Construction and Land Development		—		86		86		—		74		74
Real Estate Mortgage:
1 - 4 Family Mortgage		1		663		664
1-4 Family Mortgage								—		655		655
Multifamily		2,929		—		2,929		2,904		—		2,904
CRE Owner Occupied		—		1,569		1,569		—		996		996
CRE Nonowner Occupied		19,587		17,472		37,059		18,201		16,980		35,181
Total Real Estate Mortgage Loans		22,517		19,704		42,221		21,105		18,631		39,736
Totals	$	26,877	$	35,621	$	62,498	$	21,624	$	33,829	$	55,453

Loans that have potential weaknesses that warranted a watchlist risk rating at ~~September 30, 2023,~~March 31, 2024, totaled ~~$26.9~~$21.6 million, compared to ~~$32.3~~$26.5 million at December 31, ~~2022.~~2023. Loans that warranted a substandard risk rating at ~~September 30, 2023~~March 31, 2024 totaled ~~$35.6~~$33.8 million, compared to ~~$28.0~~$35.9 million at December 31, ~~2022.~~2023. Management continues to actively work with these borrowers and closely monitor substandard credits.

Nonperforming Assets

Nonperforming loans include loans accounted for on a nonaccrual basis and loans 90 days past due and still accruing. Nonaccrual loans totaled ~~$749,000~~$249,000 at ~~September 30, 2023~~March 31, 2024 and ~~$639,000~~$919,000 at December 31, ~~2022, an increase~~2023, a decrease of ~~$110,000.~~$670,000. There were no loans 90 days past due and still accruing as of ~~September 30, 2023~~March 31, 2024 or December 31, ~~2022.~~2023. There were no foreclosed assets of $20,000 and -$0- as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023, respectively.

The following table presents a summary of nonperforming assets, by category, at the dates indicated:


	September 30,			December 31,			March 31,			December 31,
(dollars in thousands)	2023			2022			2024			2023
Total Nonaccrual Loans	$	749		$	639		$	249		$	919
Total Nonperforming Loans	$	749		$	639		$	249		$	919
Plus: Foreclosed Assets								20			—
Total Nonperforming Assets ⁽¹⁾	$	749		$	639		$	269		$	919
Total Modified Accruing Loans⁽²⁾		9,702			82
Total Nonperforming Assets and Modified Accruing Loans ⁽²⁾	$	10,451		$	721
Nonaccrual Loans to Total Loans		0.02	%		0.02	%		0.01	%		0.02	%
Nonperforming Loans to Total Loans		0.02			0.02			0.01			0.02
Nonperforming Assets to Total Loans Plus Foreclosed Assets ⁽¹⁾		0.02			0.02			0.01			0.02

(1)	Nonperforming assets are defined as nonaccrual loans and loans greater than 90 days past due still accruing plus foreclosed assets. There were no loans greater than 90 days past due still accruing for any period shown.

~~(2)~~

Reflects the balance outstanding at September 30, 2023 of accruing modified loans to borrowers experiencing financial difficulty since adoption of ASU 2022-02. See “Note 1 – Description of the Business and Summary of Significant Accounting Policies” of the Company’s Consolidated Financial Statements included as part of this report for a discussion for this standard. Periods presented prior to that date reflect the outstanding balance of accruing troubled debt restructures as defined by superseded accounting guidance of ASC 310-40. Accruing loans are those where the Company expects to collect all amounts contractually due.

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The balance of nonperforming assets can fluctuate due to changes in economic conditions. The Company has established a policy to discontinue accruing interest on a loan (that is, place the loan on nonaccrual status) after it has become 90 days delinquent as to payment of principal or interest, unless the loan is considered to be well-collateralized and is actively in the process of collection. In addition, a loan will be placed on nonaccrual status before it becomes 90 days delinquent unless management believes that the collection of interest is expected. Interest previously accrued but uncollected on such loans is reversed and charged against current income when the receivable is determined to be uncollectible. If management believes that a loan will not be collected in full, an increase to the allowance for credit

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losses on loans is recorded to reflect management’s estimate of any potential exposure or loss. Generally, payments received on nonaccrual loans are applied directly to principal. Gross income that would have been recorded on nonaccrual loans during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2024 and 2023 was ~~$20,000~~$13,000 and ~~$51,000,~~$16,000, respectively.

Allowance for Credit Losses

The allowance for credit losses on loans is a reserve established through charges to earnings in the form of a provision for credit losses. The Company maintains an allowance for credit losses at a level management considers adequate to provide for expected lifetime losses in the portfolio. Although management strives to maintain an allowance it deems adequate, future economic changes, deterioration of borrowers’ creditworthiness, and the impact of examinations by regulatory agencies, among other factors, all could cause changes to the allowance for credit losses on loans.

At ~~September 30, 2023,~~March 31, 2024, the allowance for credit losses on loans was ~~$50.6~~$51.3 million, an increase of ~~$2.6 million~~$853,000 from ~~$48.0~~$50.5 million at December 31, ~~2022.~~2023. Net charge-offs (recoveries) totaled ~~$116,000~~($3,000) during the ~~third~~first quarter of ~~2023~~2024 and ($~~280,000)~~2,000) during the ~~third~~first quarter of ~~2022. Net charge-offs (recoveries) totaled $111,000 for the nine months ended September 30, 2023 and ($271,000) during the nine months ended September 30, 2022.~~2023. The allowance for credit losses on loans as a percentage of total loans was 1.36% at ~~September 30, 2023 compared to 1.34% at~~both March 31, 2024 and December 31, ~~2022.~~2023.

The following table presents a summary of net charge-offs for the periods indicated:


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
(dollars in thousands)	2023			2022			2023			2022			2024			2023
Net Charge-offs (Recoveries)
Commercial	$	94		$	(3)		$	89		$	6		$	(3)		$	(3)
Real Estate Mortgage:
1 - 4 Family Mortgage		(2)			(281)			(4)			(286)
1-4 Family Mortgage														(1)			(1)
Total Real Estate Mortgage Loans		(2)			(281)			(4)			(286)			(1)			(1)
Consumer and Other		24			4			26			9			1			2
Total Net Charge-offs (Recoveries)	$	116		$	(280)		$	111		$	(271)		$	(3)		$	(2)
Net Charge-offs to Average Loans
Commercial		0.08	%		0.00	%		0.03	%		0.00	%		0.00	%		0.00	%
Real Estate Mortgage:
1 - 4 Family Mortgage		0.00			(0.33)			0.00			(0.12)
1-4 Family Mortgage														0.00			0.00
Total Real Estate Mortgage Loans		0.00			(0.04)			0.00			(0.02)			0.00			0.00
Consumer and Other		1.02			0.22			0.36			0.16			0.04			0.09
Total Net Charge-offs (Recoveries) (Annualized) to Average Loans		0.01	%		(0.03)	%		0.00	%		(0.01)	%		0.00	%		0.00	%
Gross Loans, End of Period	$	3,722,271		$	3,380,082		$	3,722,271		$	3,380,082		$	3,784,205		$	3,684,360
Average Loans		3,722,594			3,265,814			3,690,196			3,092,499			3,729,355			3,630,446
Allowance to Total Gross Loans		1.36	%		1.38	%		1.36	%		1.38	%
Allowance for Credit Losses to Total Gross Loans														1.36	%		1.36	%

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The following table presents a summary of the allocation of the allowance for credit losses on loans by loan portfolio segment as of the dates indicated:


	September 30,				December 31,				March 31,				December 31,
	2023				2022				2024				2023
(dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
Commercial	$	5,496	10.9	%	$	6,500	13.5	%	$	5,607	10.9	%	$	5,398	10.7	%
Paycheck Protection Program		—	—			1	—
Construction and Land Development		2,772	5.5			3,911	8.1			1,828	3.6			2,156	4.3
1-4 Family Construction		574	1.1			845	1.8			577	1.1			558	1.1
Real Estate Mortgage:
1 - 4 Family Mortgage		2,860	5.6			4,325	9.0			2,754	5.4			2,651	5.3
Multifamily		22,216	43.9			17,459	36.4			22,230	43.3			22,217	44.0
CRE Owner Occupied		1,089	2.2			1,965	4.1			1,235	2.4			1,184	2.3
CRE Nonowner Occupied		15,512	30.7			12,576	26.2			17,005	33.1			16,225	32.1
Total Real Estate Mortgage Loans		41,677	82.4			36,325	75.7			43,224	84.2			42,277	83.7
Consumer and Other		66	0.1			151	0.3			111	0.2			105	0.2
Unallocated		—	—			263	0.6
Total Allowance for Credit Losses	$	50,585	100.0	%	$	47,996	100.0	%	$	51,347	100.0	%	$	50,494	100.0	%

Deposits

The principal sources of funds for the Company are deposits, consisting of demand deposits, money market accounts, savings accounts, and certificates of deposit. The following table presents the dollar and percentage composition of the deposit portfolio, by category, at the dates indicated:


	September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022				September 30, 2022				March 31, 2024				December 31, 2023				September 30, 2023				June 30, 2023				March 31, 2023
(dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
Noninterest Bearing Transaction Deposits	$	754,297	20.5	%	$	751,217	21.0	%	$	742,198	21.8	%	$	884,272	25.9	%	$	961,084	29.1	%	$	698,432	18.3	%	$	756,964	20.4	%	$	754,297	20.5	%	$	751,217	21.0	%	$	742,198	21.8	%
Interest Bearing Transaction Deposits		780,863	21.3			719,488	20.1			630,037	18.4			451,992	13.2			510,396	15.4			783,736	20.6			692,801	18.7			780,863	21.3			719,488	20.1			630,037	18.4
Savings and Money Market Deposits		872,534	23.7			860,613	24.1			913,013	26.8			1,031,873	30.2			1,077,333	32.6			979,773	25.7			935,091	25.2			872,534	23.7			860,613	24.1			913,013	26.8
Time Deposits		265,737	7.2			271,783	7.6			266,213	7.8			272,253	8.0			293,052	8.9			352,510	9.3			300,651	8.1			265,737	7.2			271,783	7.6			266,213	7.8
Brokered Deposits		1,002,078	27.3			974,831	27.2			859,662	25.2			776,153	22.7			463,209	14.0			992,774	26.1			1,024,441	27.6			1,002,078	27.3			974,831	27.2			859,662	25.2
Total Deposits	$	3,675,509	100.0	%	$	3,577,932	100.0	%	$	3,411,123	100.0	%	$	3,416,543	100.0	%	$	3,305,074	100.0	%	$	3,807,225	100.0	%	$	3,709,948	100.0	%	$	3,675,509	100.0	%	$	3,577,932	100.0	%	$	3,411,123	100.0	%

Total deposits at ~~September 30, 2023~~March 31, 2024 were ~~$3.68~~$3.81 billion, an increase of ~~$259.0~~$97.3 million, or ~~7.6%~~2.6%, compared to total deposits of ~~$3.42~~$3.71 billion at December 31, ~~2022,~~2023, and an increase of ~~$370.4~~$396.1 million, or ~~11.2%~~11.6%, over total deposits of ~~$3.31~~$3.41 billion at ~~September 30, 2022.~~ March 31, 2023. Deposits increased in the ~~third~~first quarter of ~~2023~~2024 primarily due to inflows of core deposits, defined as deposits excluding brokered deposits and time deposits greater than $250,000. ~~Brokered~~Core deposits ~~continue~~increased $90.3

million, or 14.3% annualized, from the fourth quarter of 2023. Growth in core deposits was primarily due to ~~be used~~increased balances of existing clients and new client acquisitions. Based on the nature of these inflows, management believes core deposits could fluctuate in future periods as ~~a supplemental funding source, as needed, to support loan portfolio growth.~~deposit growth is not always linear.

The Company relies on increasing the deposit base to fund loans and other asset growth. The Company is in a highly competitive market and competes for local deposits by offering attractive products with competitive rates. The Company expects to have a higher average cost of funds for local deposits compared to competitor banks due to the lack of an extensive branch network. The Company’s strategy is to offset the higher cost of funding with a lower level of operating expense. When appropriate, the Company utilizes alternative funding sources such as brokered deposits. The brokered deposit market provides flexibility in structure, optionality and efficiency not afforded in traditional retail deposit channels. At ~~September 30, 2023,~~March 31, 2024, total brokered deposits were ~~$1.0 billion, an increase~~$992.8 million, a decrease of ~~$225.9~~$31.7 million, compared to total brokered deposits of ~~$776.2 million~~$1.02 billion at December 31, ~~2022.~~2023. Brokered deposits, which declined for the first time since the fourth quarter of 2021, continue to be used as a supplemental funding source, as needed, to support loan portfolio growth.

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The following table presents the average balance and average rate paid on each of the following deposit categories as of and for the three months ended ~~September 30, 2023~~March 31, 2024 and ~~2022:~~2023:


	As of and for the				As of and for the				As of and for the				As of and for the
	Three Months Ended				Three Months Ended				Three Months Ended				Three Months Ended
	September 30, 2023				September 30, 2022				March 31, 2024				March 31, 2023
	Average		Average		Average		Average		Average		Average		Average		Average
(dollars in thousands)	Balance		Rate		Balance		Rate		Balance		Rate		Balance		Rate
Noninterest Bearing Transaction Deposits	$	754,567	—	%	$	991,545	—	%	$	701,175	—	%	$	813,598	—	%
Interest Bearing Transaction Deposits		730,244	3.88			517,658	0.79			732,186	4.23			461,372	2.44
Savings and Money Market Deposits		874,612	3.67			999,932	0.99			896,844	3.94			1,044,794	2.52
Time Deposits < $250,000		181,689	2.56			209,200	0.95			169,622	3.40			179,168	1.61
Time Deposits > $250,000		84,946	3.70			79,421	1.74			147,973	4.71			69,006	2.10
Brokered Deposits		985,276	4.04			447,034	1.43			1,014,197	4.18			743,465	3.29
Total Deposits	$	3,611,334	2.99	%	$	3,244,790	0.73	%	$	3,661,997	3.32	%	$	3,311,403	2.01	%

The Company’s total uninsured deposits, which are the amounts of deposit accounts that exceed the FDIC insurance limit, currently $250,000, were approximately ~~$814.7~~$989.1 million, or ~~22%~~26.0% of total deposits, at ~~September 30, 2023~~March 31, 2024 and ~~$1.32 billion,~~$900.0 million, or ~~38%~~24.3% of total deposits, at December 31, ~~2022.~~2023. These amounts were estimated based on the same methodologies and assumptions used for regulatory reporting purposes.

Borrowed Funds

~~Federal Funds Purchased~~

In addition to deposits, the Company utilizes overnight borrowings to meet the daily liquidity needs as a supplemental funding source for loan growth. The Company had $-0- and $287.0 million federal funds purchased as of September 30, 2023 and December 31, 2022, respectively.

Other Borrowings

At ~~September 30, 2023, other borrowings~~March 31, 2024, the Company had outstanding ~~consisted~~ of FHLB advances of ~~$294.5~~$317.0 million, compared to ~~$97.0~~$319.5 million at December 31, ~~2022.~~2023. The Company’s borrowing capacity at the FHLB is determined based on collateral pledged, generally consisting of loans. The Company had additional borrowing capacity under this credit facility of ~~$516.5~~$446.8 million and ~~$390.9~~$498.7 million at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively.

The Company has an outstanding Loan and Security Agreement and revolving note with a third party correspondent lender, which is secured by 100% of the issued and outstanding stock of the Bank. ~~On September 1, 2022, the Company entered into a second amendment to the agreement which increased the~~The maximum principal amount of the ~~Company’s~~ revolving line of credit ~~from $25.0 million to~~is $40.0 million and ~~extended the maturity date from February 28, 2023 to~~matures on September 1, 2024. As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the Company had $13.8 million of outstanding balances under the revolving line of credit.

Additionally, the Company has borrowing capacity from other sources. As of ~~September 30, 2023,~~March 31, 2024, the Bank was eligible to use the Federal Reserve discount window for borrowings. Based on assets pledged as collateral as of the applicable date, the Bank’s borrowing availability was approximately ~~$1.02~~$1.01 billion and ~~$157.8~~$979.4 million at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the Company had no outstanding advances from the discount ~~window or the Bank Term Funding Program (BTFP).~~window.

Subordinated Debentures

As of March 31, 2024 and December 31, 2023, the Company had subordinated debentures, net of issuance costs, of $79.4 million and $79.3 million, respectively.

For additional information, see “Note 8 – Subordinated Debentures” of the Company’s Consolidated Financial Statements included as part of this report.

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Contractual Obligations

The following table presents supplemental information regarding total contractual obligations at ~~September 30, 2023:~~March 31, 2024:


	Within		One to		Three to		After				Within		One to		Three to		After
(dollars in thousands)	One Year		Three Years		Five Years		Five Years		Total		One Year		Three Years		Five Years		Five Years		Total
Deposits Without a Stated Maturity	$	2,585,427	$	—	$	—	$	—	$	2,585,427	$	2,617,482	$	—	$	—	$	—	$	2,617,482
Time Deposits		397,981		494,245		165,147		32,709		1,090,082		389,466		585,335		170,236		44,706		1,189,743
Notes Payable		13,750		—		—		—		13,750		13,750		—		—		—		13,750
FHLB Advances		208,000		42,500		44,000		—		294,500		243,000		34,000		40,000		—		317,000
Subordinated Debentures		—		—		—		80,000		80,000		—		—		—		80,000		80,000
Commitment to Fund Tax Credit Investments		1,100		—		—		—		1,100		9,932		—		—		—		9,932
Operating Lease Obligations		584		980		503		117		2,184		590		807		474		21		1,892
Totals	$	3,206,842	$	537,725	$	209,650	$	112,826	$	4,067,043	$	3,274,220	$	620,142	$	210,710	$	124,727	$	4,229,799

The Company believes that it will be able to meet all contractual obligations as they come due through the maintenance of adequate cash levels. The Company expects to maintain adequate cash levels through earnings, loan and securities repayments and maturity activity and continued deposit gathering activities. As described above, the Company has in place various borrowing mechanisms for both short-term and long-term liquidity needs.

Capital

Total shareholders’ equity at ~~September 30, 2023~~March 31, 2024 was ~~$416.0~~$433.6 million, an increase of ~~$21.9~~$8.1 million, or 1.9%, compared to total shareholders’ equity of ~~$394.1~~$425.5 million at December 31, ~~2022.~~2023. The increase was primarily due to net income retained and an increase in unrealized gains in the derivatives portfolio, offset partially by ~~the day 1 impact of adopting CECL,~~ preferred stock dividends and ~~net unrealized losses.~~stock repurchases.

Tangible book value per share, a non-GAAP financial measure, was ~~$12.37~~$13.20 as of ~~September 30, 2023,~~March 31, 2024, an increase of ~~5.8%~~2.9% from ~~$11.69~~$12.84 as of December 31, ~~2022. The increase occurred despite the market value depreciation of the securities portfolio driven by the rising interest rate environment.~~2023. Tangible common equity as a percentage of tangible assets, a non-GAAP financial measure, was ~~7.61%~~7.72% at ~~September 30, 2023,~~March 31, 2024, compared to ~~7.48%~~7.73% at December 31, ~~2022.~~2023.

Stock Repurchase Program. ~~The Company has a stock repurchase program which authorizes~~During the three months ended March 31, 2024, the Company ~~to repurchase up to $25.0 million~~repurchased 193,802 shares of its common stock, ~~subject to certain limitations and conditions. The~~representing less than 1% of the Company’s outstanding shares. Shares were repurchased during this period at a weighted average price of $11.75 for a total of $2.3 million. All shares repurchased under the stock repurchase program ~~will expire on August 16, 2024. As of September 30, 2023, no shares had been repurchased under the plan.~~were converted to authorized but unissued shares. The Company remains committed to maintaining strong capital levels while enhancing shareholder value as it strategically executes its stock repurchase program based on various factors including valuation, capital levels and other uses of capital.

Regulatory Capital. The Company and the Bank are subject to various regulatory capital requirements administered by federal banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by federal banking regulators that, if undertaken, could have a direct material effect on the Company’s and Bank’s business.

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Management believes the Company and the Bank met all capital adequacy requirements to which they were subject as of ~~September 30, 2023.~~March 31, 2024. The regulatory capital ratios for the Company and the Bank to meet the minimum capital adequacy standards and for the Bank to be considered well capitalized under the prompt corrective action framework are set forth in the following tables. The Company’s and the Bank’s actual capital amounts and ratios were as of the dates indicated:


					Minimum Required				For Capital Adequacy				To be Well Capitalized								Minimum Required				For Capital Adequacy				To be Well Capitalized
					For Capital Adequacy				Purposes Plus Capital				Under Prompt Corrective								For Capital Adequacy				Purposes Plus Capital				Under Prompt Corrective
	Actual				Purposes				Conservation Buffer				Action Regulations				Actual				Purposes				Conservation Buffer				Action Regulations
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2023
March 31, 2024
Company (Consolidated):
Total Risk-based Capital	$	567,202	13.88	%	$	326,865	8.00	%	$	429,010	10.50	%		N/A	N/A		$	577,485	14.00	%	$	329,909	8.00	%	$	433,006	10.50	%		N/A	N/A
Tier 1 Risk-based Capital		436,903	10.69			245,149	6.00			347,294	8.50			N/A	N/A			446,521	10.83			247,432	6.00			350,529	8.50			N/A	N/A
Common Equity Tier 1 Capital		370,389	9.07			183,861	4.50			286,007	7.00			N/A	N/A			380,007	9.21			185,574	4.50			288,671	7.00			N/A	N/A
Tier 1 Leverage Ratio		436,903	9.62			181,605	4.00			181,605	4.00			N/A	N/A			446,521	9.66			184,949	4.00			184,949	4.00			N/A	N/A
Bank:
Total Risk-based Capital	$	543,914	13.33	%	$	326,519	8.00	%	$	428,556	10.50	%	$	408,149	10.00	%	$	565,440	13.73	%	$	329,510	8.00	%	$	432,482	10.50	%	$	411,887	10.00	%
Tier 1 Risk-based Capital		492,861	12.08			244,889	6.00			346,926	8.50			326,519	8.00			513,920	12.48			247,132	6.00			350,104	8.50			329,510	8.00
Common Equity Tier 1 Capital		492,861	12.08			183,667	4.50			285,704	7.00			265,297	6.50			513,920	12.48			185,349	4.50			288,321	7.00			267,727	6.50
Tier 1 Leverage Ratio		492,861	10.88			181,256	4.00			181,256	4.00			226,570	5.00			513,920	11.12			184,797	4.00			184,797	4.00			230,996	5.00


					Minimum Required				For Capital Adequacy				To be Well Capitalized								Minimum Required				For Capital Adequacy				To be Well Capitalized
					For Capital Adequacy				Purposes Plus Capital				Under Prompt Corrective								For Capital Adequacy				Purposes Plus Capital				Under Prompt Corrective
	Actual				Purposes				Conservation Buffer				Action Regulations				Actual				Purposes				Conservation Buffer				Action Regulations
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2022
December 31, 2023
Company (Consolidated):
Total Risk-based Capital	$	536,352	13.15	%	$	326,190	8.00	%	$	428,125	10.50	%		N/A	N/A		$	570,770	13.97	%	$	326,872	8.00	%	$	429,019	10.50	%		N/A	N/A
Tier 1 Risk-based Capital		409,092	10.03			244,643	6.00			346,577	8.50			N/A	N/A			440,947	10.79			245,154	6.00			347,301	8.50			N/A	N/A
Common Equity Tier 1 Capital		342,578	8.40			183,482	4.50			285,417	7.00			N/A	N/A			374,433	9.16			183,865	4.50			286,013	7.00			N/A	N/A
Tier 1 Leverage Ratio		409,092	9.55			171,368	4.00			171,368	4.00			N/A	N/A			440,947	9.57			184,383	4.00			184,383	4.00			N/A	N/A
Bank:
Total Risk-based Capital	$	508,760	12.47	%	$	326,288	8.00	%	$	428,253	10.50	%	$	407,860	10.00	%	$	554,269	13.58	%	$	326,528	8.00	%	$	428,568	10.50	%	$	408,160	10.00	%
Tier 1 Risk-based Capital		460,404	11.29			244,716	6.00			346,681	8.50			326,288	8.00			503,787	12.34			244,896	6.00			346,936	8.50			326,528	8.00
Common Equity Tier 1 Capital		460,404	11.29			183,537	4.50			285,502	7.00			265,109	6.50			503,787	12.34			183,672	4.50			285,712	7.00			265,304	6.50
Tier 1 Leverage Ratio		460,404	10.76			171,113	4.00			171,113	4.00			213,891	5.00			503,787	10.95			184,037	4.00			184,037	4.00			230,047	5.00

Regulations include a capital conservation buffer of 2.5% that was added to the minimum requirements for capital adequacy purposes. A banking organization with a conservation buffer of less than the required amount is subject to limitations on capital distributions, including dividend payments, stock repurchases and certain discretionary bonus payments to executive officers. At ~~September 30, 2023,~~March 31, 2024, the ratios for the Company and the Bank were sufficient to meet the conservation buffer.

Off-Balance Sheet Arrangements

In the normal course of business, the Company enters into various transactions to meet the financing needs of clients, which, in accordance with GAAP, are not included in the consolidated balance sheets. These transactions include commitments to extend credit, standby letters of credit, and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. Most of these commitments mature within two years and the standby letters of credit are expected to expire without being drawn upon. All off-balance sheet commitments are included in the determination of the amount of risk-based capital that the Company and the Bank are required to hold.

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The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, standby letters of credit, and commercial letters of credit is represented by the contractual or notional amount of those instruments. The Company decreases its exposure to losses under these commitments by subjecting them to credit approval and monitoring procedures. The Company assesses the credit risk associated with certain commitments to extend credit and establishes a liability for probable credit losses.

The following table presents credit arrangements and financial instruments whose contract amounts represented credit risk as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


	September 30, 2023				December 31, 2022				March 31, 2024				December 31, 2023
	Fixed		Variable		Fixed		Variable		Fixed		Variable		Fixed		Variable
(dollars in thousands)
Unfunded Commitments Under Lines of Credit	$	191,186	$	379,177	$	444,669	$	404,065	$	147,951	$	359,753	$	164,880	$	381,752
Letters of Credit		7,573		99,719		20,658		95,111		7,468		92,339		6,780		96,509
Totals	$	198,759	$	478,896	$	465,327	$	499,176	$	155,419	$	452,092	$	171,660	$	478,261

The Company had outstanding letters of credit with the FHLB in the amount of $164.9 million and $114.4 million at March 31, 2024 and December 31, 2023, respectively, on behalf of customers and to secure public deposits.

Liquidity

Liquidity is the Company’s capacity to meet cash and collateral obligations at a reasonable cost. Maintaining an adequate level of liquidity depends on the Company’s ability to efficiently meet both expected and unexpected cash flows and collateral needs without adversely affecting either daily operations or financial condition. The Bank’s Asset Liability Management, or ALM, Committee, which is comprised of members of senior management, is responsible for managing commitments to meet the needs of customers while achieving the Company’s financial objectives. The ALM Committee meets regularly to review balance sheet composition, funding capacities, and current and forecasted loan demand.

The Company manages liquidity by maintaining adequate levels of cash and other assets from on- and off-balance sheet arrangements. Specifically, on-balance sheet liquidity consists of cash and due from banks and unpledged investment securities available for sale, which are referred to as primary liquidity. In regards to off-balance sheet capacity, the Company maintains available borrowing capacity under secured borrowing lines with the FHLB, the Federal Reserve Bank of Minneapolis, and a correspondent lender, as well as unsecured lines of credit for the purpose of overnight funds with various correspondent banks, which the Company refers to as secondary liquidity.

In addition, the Bank is a member of the American Financial Exchange, or AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of approved commercial banks. The availability of funds changes daily. As of ~~September 30,~~March 31, 2024 and December 31, 2023, the Company had no borrowings outstanding through the AFX.

Total on- and off-balance sheet liquidity was ~~$2.18~~$2.25 billion as of ~~September 30, 2023,~~March 31, 2024, compared to ~~$1.38~~$2.23 billion at December 31, ~~2022.~~2023. The Company did not utilize the ~~Bank Term Funding Program (BTFP) or~~ Federal Reserve Discount Window during the ~~nine~~three months ended ~~September 30, 2023.~~March 31, 2024.

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The following tables present a summary of primary and secondary liquidity levels as of the dates indicated:


Primary Liquidity—On-Balance Sheet	September 30, 2023			December 31, 2022			March 31, 2024			December 31, 2023
(dollars in thousands)
Cash and Cash Equivalents	$	77,617		$	48,090		$	105,784		$	96,594
Securities Available for Sale		553,076			548,613			633,282			604,104
Less: Pledged Securities		(164,277)			—			(169,479)			(170,727)
Total Primary Liquidity	$	466,416		$	596,703		$	569,587		$	529,971
Ratio of Primary Liquidity to Total Deposits		12.7	%		17.5	%		15.0	%		14.3	%

Secondary Liquidity—Off-Balance Sheet
Net Secured Borrowing Capacity with the FHLB							$	446,801		$	498,736
Net Secured Borrowing Capacity with the Federal Reserve Bank								1,006,010			979,448
Unsecured Borrowing Capacity with Correspondent Lenders								200,000			200,000
Secured Borrowing Capacity with Correspondent Lender								26,250			26,250
Total Secondary Liquidity								1,679,061			1,704,434
Total Primary and Secondary Liquidity							$	2,248,648		$	2,234,405
Ratio of Primary and Secondary Liquidity to Total Deposits								59.1	%		60.2	%

Secondary Liquidity—Off-Balance Sheet

Borrowing Capacity

September 30, 2023

December 31, 2022

(dollars in thousands)

Net Secured Borrowing Capacity with the FHLB

$
516,501

$
390,898

Net Secured Borrowing Capacity with the Federal Reserve Bank

1,022,128

157,827

Unsecured Borrowing Capacity with Correspondent Lenders

150,000

208,000

Secured Borrowing Capacity with Correspondent Lender

26,250

26,250

Total Secondary Liquidity

1,714,879

782,975

Total Primary and Secondary Liquidity

$
2,181,295

$
1,379,678

Ratio of Primary and Secondary Liquidity to Total Deposits

59.3
%

40.4
%

During the ~~nine~~three months ended ~~September 30, 2023,~~March 31, 2024, primary liquidity ~~decreased~~increased by ~~$130.3~~$39.6 million due ~~to pledging $164.3 million of securities, partially offset by~~ a ~~$29.5~~$9.2 million increase in cash and cash equivalents, ~~and~~ a ~~$4.5~~$29.2 million increase in securities available for sale and a $1.2 million decrease in pledged securities, when compared to December 31, ~~2022.~~2023. Secondary liquidity ~~increased~~decreased by ~~$931.9~~$25.4 million as of ~~September 30, 2023,~~March 31, 2024, when compared to December 31, ~~2022,~~2023, due to ~~an $864.3~~a $51.9 million ~~increase in the borrowing capacity with the Federal Reserve Bank and a $125.6 million increase~~decrease in the borrowing capacity with the FHLB, offset partially by a ~~$58.0~~$26.6 million ~~decrease~~increase in the ~~unsecured~~ borrowing capacity with ~~correspondent lenders.~~the Federal Reserve Bank.

In addition to primary liquidity, the Company generates liquidity from cash flows from the loan and securities portfolios and from the large base of core customer deposits, defined as noninterest bearing transaction, interest bearing transaction, savings, non-brokered money market accounts and non-brokered time deposits less than $250,000. At ~~September 30, 2023,~~March 31, 2024, core deposits totaled approximately ~~$2.58~~$2.64 billion and represented ~~70.3%~~69.3% of total deposits. These core deposits are normally less volatile, often with customer relationships tied to other products offered by the Company, which promote long-standing relationships and stable funding sources.

The Company uses brokered deposits, the availability of which is uncertain and subject to competitive market forces and regulation, for liquidity and interest rate risk management purposes. At ~~September 30, 2023,~~March 31, 2024, brokered deposits totaled ~~$1.0 billion,~~$992.8 million, consisting of ~~$824.3~~$837.2 million of brokered time deposits and ~~$177.7~~$155.5 million of non-maturity brokered money market and transaction accounts. At December 31, ~~2022,~~2023, brokered deposits totaled ~~$776.2 million,~~$1.02 billion, consisting of ~~$591.9~~$850.5 million of brokered time deposits and ~~$184.3~~$174.0 million of non-maturity brokered money market and transaction accounts.

The Company’s liquidity policy includes guidelines for On-Balance Sheet Liquidity (a measurement of primary liquidity to total deposits plus borrowings), Total On-Balance Sheet Liquidity with Borrowing Capacity (a measurement of primary and secondary liquidity to total deposits plus borrowings), Wholesale Funding Ratio (a measurement of total wholesale funding to total deposits plus borrowings), and other guidelines developed for measuring and maintaining liquidity.

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Non-GAAP Financial Measures

In addition to the results presented in accordance with GAAP, the Company routinely supplements its evaluation with an analysis of certain non-GAAP financial measures. The Company believes these non-GAAP financial measures, in addition to the related GAAP measures, provide meaningful information to investors to help them understand the Company’s operating performance and trends, and to facilitate comparisons with the performance of peers. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of non-GAAP disclosures used in this report to the comparable GAAP measures are provided in the following tables:


	For the Three Months Ended															For the Nine Months Ended						For the Three Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,			March 31,			December 31,			September 30,			June 30,			March 31,
(dollars in thousands)	2023			2023			2023			2022			2022			2023			2022			2024			2023			2023			2023			2023

Pre-Provision Net Revenue
Noninterest Income	$	1,726		$	1,415		$	1,943		$	1,738		$	1,387		$	5,084		$	4,594		$	1,550		$	1,409		$	1,726		$	1,415		$	1,943
Less: (Gain) Loss on Sales of Securities		—			(50)			56			(30)			—			6			(52)			(93)			27			—			(50)			56
Less: FHLB Advance Prepayment Income		(493)			—			(299)			—			—			(792)			—			—			—			(493)			—			(299)
Total Operating Noninterest Income		1,233			1,365			1,700			1,708			1,387			4,298			4,542			1,457			1,436			1,233			1,365			1,700
Plus: Net Interest Income		25,421			25,872			28,567			32,893			34,095			79,860			96,805			24,631			25,314			25,421			25,872			28,567
Net Operating Revenue	$	26,654		$	27,237		$	30,267		$	34,601		$	35,482		$	84,158		$	101,347		$	26,088		$	26,750		$	26,654		$	27,237		$	30,267

Noninterest Expense	$	15,350		$	14,388		$	14,183		$	15,203		$	14,157		$	43,921		$	41,417		$	15,189		$	15,740		$	15,237		$	14,274		$	14,069
Less: Amortization of Tax Credit Investments		(113)			(114)			(114)			(114)			(114)			(341)			(294)
Total Operating Noninterest Expense	$	15,237		$	14,274		$	14,069		$	15,089		$	14,043		$	43,580		$	41,123		$	15,189		$	15,740		$	15,237		$	14,274		$	14,069

Pre-Provision Net Revenue	$	11,417		$	12,963		$	16,198		$	19,512		$	21,439		$	40,578		$	60,224		$	10,899		$	11,010		$	11,417		$	12,963		$	16,198

Plus:
Non-Operating Revenue Adjustments		493			50			243			30			—			786			52			93			(27)			493			50			243
Less:
Provision for Credit Losses		(600)			50			625			1,500			1,500			75			6,200
Non-Operating Expense Adjustments		113			114			114			114			114			341			294
Provision for (Recovery of) Credit Losses																							750			(250)			(600)			50			625
Provision for Income Taxes		2,768			3,033			4,060			4,193			5,312			9,861			14,125			2,411			2,360			2,881			3,147			4,174
Net Income	$	9,629		$	9,816		$	11,642		$	13,735		$	14,513		$	31,087		$	39,657		$	7,831		$	8,873		$	9,629		$	9,816		$	11,642

Average Assets	$	4,504,937		$	4,483,662		$	4,405,234		$	4,251,345		$	3,948,201		$	4,464,976		$	3,736,783		$	4,592,838		$	4,567,446		$	4,504,937		$	4,483,662		$	4,405,234
Pre-Provision Net Revenue Return on Average Assets		1.01	%		1.16	%		1.49	%		1.82	%		2.15	%		1.22	%		2.15	%		0.95	%		0.96	%		1.01	%		1.16	%		1.49	%


	For the Three Months Ended																For the Nine Months Ended					For the Three Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,				September 30,			September 30,		March 31,			December 31,			September 30,			June 30,			March 31,
(dollars in thousands)	2023			2023			2023			2022			2022				2023			2022		2024			2023			2023			2023			2023

Core Net Interest Margin
Net Interest Income (Tax-equivalent Basis)	$	25,822		$	26,280		$	28,947		$	33,260		$	34,417		$	81,049		$	97,661		$	24,992		$	25,683		$	25,822		$	26,280		$	28,947
Less: Loan Fees		(914)			(941)			(998)			(1,100)			(1,400)			(2,853)			(5,173)			(608)			(751)			(914)			(941)			(998)
Less: PPP Interest and Fees		(2)			(3)			(2)			(48)			(96)			(7)			(922)
Core Net Interest Income	$	24,906		$	25,336		$	27,947		$	32,112		$	32,921		$	78,189		$	91,566		$	24,384		$	24,932		$	24,908		$	25,339		$	27,949

Average Interest Earning Assets	$	4,416,424		$	4,395,050		$	4,323,706		$	4,177,644		$	3,871,896		$	4,378,733		$	3,659,755		$	4,492,756		$	4,480,428		$	4,416,424		$	4,395,050		$	4,323,706
Less: Average PPP Loans		(828)			(913)			(999)			(1,109)			(2,424)			(913)			(9,575)
Core Average Interest Earning Assets	$	4,415,596		$	4,394,137		$	4,322,707		$	4,176,535		$	3,869,472		$	4,377,820		$	3,650,180
Core Net Interest Margin		2.24	%		2.31	%		2.62	%		3.05	%		3.38	%		2.39	%		3.35	%		2.18	%		2.21	%		2.24	%		2.31	%		2.62	%

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	For the Three Months Ended															For the Nine Months Ended						For the Three Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,			March 31,			December 31,			September 30,			June 30,			March 31,
(dollars in thousands)	2023			2023			2023			2022			2022			2023			2022			2024			2023			2023			2023			2023

Efficiency Ratio
Noninterest Expense	$	15,350		$	14,388		$	14,183		$	15,203		$	14,157		$	43,921		$	41,417		$	15,189		$	15,740		$	15,237		$	14,274		$	14,069
Less: Amortization of Intangible Assets		(9)			(34)			(48)			(48)			(48)			(91)			(143)			(9)			(9)			(9)			(34)			(48)
Adjusted Noninterest Expense	$	15,341		$	14,354		$	14,135		$	15,155		$	14,109		$	43,830		$	41,274		$	15,180		$	15,731		$	15,228		$	14,240		$	14,021

Net Interest Income		25,421			25,872			28,567			32,893			34,095			79,860			96,805		$	24,631		$	25,314		$	25,421		$	25,872		$	28,567
Noninterest Income		1,726			1,415			1,943			1,738			1,387			5,084			4,594			1,550			1,409			1,726			1,415			1,943
Less: Gain on Sales of Securities		—			(50)			56			(30)			—			6			(52)
Less: Gain (Loss) on Sales of Securities																							(93)			27			—			(50)			56
Adjusted Operating Revenue	$	27,147		$	27,237		$	30,566		$	34,601		$	35,482		$	84,950		$	101,347		$	26,088		$	26,750		$	27,147		$	27,237		$	30,566
Efficiency Ratio		56.5	%		52.7	%		46.2	%		43.8	%		39.8	%		51.6	%		40.7	%		58.2	%		58.8	%		56.1	%		52.3	%		45.9	%

For the Three Months Ended

For the Nine Months Ended

September 30,

June 30,

March 31,

December 31,

September 30,

September 30,

September 30,

(dollars in thousands)

2023

2023

2023

2022

2022

2023

2022

Tangible Common Equity and Tangible Common Equity/Tangible Assets

Total Shareholders' Equity

$
415,960

$
409,126

$
402,006

$
394,064

$
382,007

Less: Preferred Stock

(66,514)

(66,514)

(66,514)

(66,514)

(66,514)

Total Common Shareholders' Equity

349,446

342,612

335,492

327,550

315,493

Less: Intangible Assets

(2,823)

(2,832)

(2,866)

(2,914)

(2,962)

Tangible Common Equity

$
346,623

$
339,780

$
332,626

$
324,636

$
312,531

Total Assets

$
4,557,070

$
4,603,185

$
4,602,899

$
4,345,662

$
4,128,987

Less: Intangible Assets

(2,823)

(2,832)

(2,866)

(2,914)

(2,962)

Tangible Assets

$
4,554,247

$
4,600,353

$
4,600,033

$
4,342,748

$
4,126,025

Tangible Common Equity/Tangible Assets

7.61
%

7.39
%

7.23
%

7.48
%

7.57
%

Tangible Book Value Per Share

Book Value Per Common Share

$
12.47

$
12.25

$
12.05

$
11.80

$
11.44

Less: Effects of Intangible Assets

(0.10)

(0.10)

(0.10)

(0.11)

(0.11)

Tangible Book Value Per Common Share

$
12.37

$
12.15

$
11.95

$
11.69

$
11.33

Return on Average Tangible Common Equity

Net Income Available to Common Shareholders

$
8,616

$
8,802

$
10,629

$
12,721

$
13,500

$
28,047

$
36,617

Average Shareholders' Equity

$
414,047

$
406,347

$
403,533

$
387,589

$
384,020

$
408,014

$
382,834

Less: Average Preferred Stock

(66,514)

(66,514)

(66,514)

(66,514)

(66,514)

(66,514)

(66,514)

Average Common Equity

347,533

339,833

337,019

321,075

317,506

341,500

316,320

Less: Effects of Average Intangible Assets

(2,828)

(2,846)

(2,894)

(2,941)

(2,989)

(2,856)

(3,036)

Average Tangible Common Equity

$
344,705

$
336,987

$
334,125

$
318,134

$
314,517

$
338,644

$
313,284

Return on Average Tangible Common Equity

9.92
%

10.48
%

12.90
%

15.86
%

17.03
%

11.07
%

15.63
%


	For the Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
(dollars in thousands)	2024			2023			2023			2023			2023

Tangible Common Equity and Tangible Common Equity/Tangible Assets
Total Shareholders' Equity	$	433,611		$	425,515		$	415,960		$	409,126		$	402,006
Less: Preferred Stock		(66,514)			(66,514)			(66,514)			(66,514)			(66,514)
Total Common Shareholders' Equity		367,097			359,001			349,446			342,612			335,492
Less: Intangible Assets		(2,806)			(2,814)			(2,823)			(2,832)			(2,866)
Tangible Common Equity	$	364,291		$	356,187		$	346,623		$	339,780		$	332,626

Total Assets	$	4,723,109		$	4,611,990		$	4,557,070		$	4,603,185		$	4,602,899
Less: Intangible Assets		(2,806)			(2,814)			(2,823)			(2,832)			(2,866)
Tangible Assets	$	4,720,303		$	4,609,176		$	4,554,247		$	4,600,353		$	4,600,033
Tangible Common Equity/Tangible Assets		7.72	%		7.73	%		7.61	%		7.39	%		7.23	%

Tangible Book Value Per Share
Book Value Per Common Share	$	13.30		$	12.94		$	12.47		$	12.25		$	12.05
Less: Effects of Intangible Assets		(0.10)			(0.10)			(0.10)			(0.10)			(0.10)
Tangible Book Value Per Common Share	$	13.20		$	12.84		$	12.37		$	12.15		$	11.95

Return on Average Tangible Common Equity
Net Income Available to Common Shareholders	$	6,818		$	7,859		$	8,616		$	8,802		$	10,629

Average Shareholders' Equity	$	428,248		$	417,789		$	414,047		$	406,347		$	403,533
Less: Average Preferred Stock		(66,514)			(66,514)			(66,514)			(66,514)			(66,514)
Average Common Equity		361,734			351,275			347,533			339,833			337,019
Less: Effects of Average Intangible Assets		(2,811)			(2,819)			(2,828)			(2,846)			(2,894)
Average Tangible Common Equity	$	358,923		$	348,456		$	344,705		$	336,987		$	334,125
Return on Average Tangible Common Equity		7.64	%		8.95	%		9.92	%		10.48	%		12.90	%

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

As a financial institution, the Company’s primary market risk is interest rate risk, which is defined as the risk of loss of net interest income or net interest margin because of changes in interest rates. The Company continually seeks to measure and manage the potential impact of interest rate risk. Interest rate risk occurs when interest earning assets and interest bearing liabilities mature or re-price at different times, on a different basis or in unequal amounts. Interest rate risk also arises when assets and liabilities each respond differently to changes in interest rates.

The Company’s management of interest rate risk is overseen by its ALM Committee, based on a risk management infrastructure approved by the board of directors that outlines reporting and measurement requirements. In particular, this infrastructure sets limits and management targets for various metrics, including net interest income simulation involving parallel shifts in interest rate curves, steepening and flattening yield curves, and various prepayment and deposit duration assumptions. The Company’s risk management infrastructure also requires a periodic review of all key assumptions used, such as identifying appropriate interest rate scenarios, setting loan prepayment rates

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based on historical analysis and noninterest bearing and interest bearing transaction deposit durations based on historical analysis. The Company does not engage in speculative trading activities relating to interest rates, foreign exchange rates, commodity prices, equities or credit.

The Company manages the interest rate risk associated with interest earning assets by managing the interest rates and terms associated with the investment securities portfolio by purchasing and selling investment securities from time to time. The Company manages the interest rate risk associated with interest bearing liabilities by managing the interest rates and terms associated with wholesale borrowings and deposits from customers which the Company relies on for funding. For example, the Company occasionally uses special offers on deposits to alter the interest rates and terms associated with interest bearing liabilities.

The Company has entered into certain hedging transactions including interest rate swaps and caps, which are designed to lessen elements of the Company’s interest rate exposure. Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions. The Company utilizes cash flow hedges to manage interest rate exposure for the brokered deposit and wholesale borrowing portfolios. At ~~September 30, 2023~~both March 31, 2024 and December 31, ~~2022,~~2023, these cash flow hedges had a total notional amount of $308.0 ~~million and $288.0 million, respectively.~~million. In the event that interest rates do not change in the manner anticipated, such transactions may adversely affect the Company’s results of operations.

Net Interest Income Simulation

The Company uses a net interest income simulation model to measure and evaluate potential changes in net interest income that would result over the next 12 months from immediate and sustained changes in interest rates as of the measurement date. This model has inherent limitations and the results are based on a given set of rate changes and assumptions as of a certain point in time. For purposes of the simulation, the Company assumes no growth in either interest-sensitive assets or liabilities over the next 12 months; therefore, the model’s results reflect an interest rate shock to a static balance sheet. The simulation model also incorporates various other assumptions, which the Company believes are reasonable but which may have a significant impact on results, such as: (1) the timing of changes in interest rates, (2) shifts or rotations in the yield curve, (3) re-pricing characteristics for market-rate-sensitive instruments, (4) differing sensitivities of financial instruments due to differing underlying rate indices, (5) varying loan prepayment speeds for different interest rate scenarios, (6) the effect of interest rate limitations in assets, such as floors and caps, and (7) overall growth and repayment rates and product mix of assets and liabilities. Because of the limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on the results, but rather as a means to better plan and execute appropriate asset-liability management strategies and to manage interest rate risk.

Potential changes to the Company’s net interest income in hypothetical rising and declining rate scenarios calculated as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 are presented in the table below. The projections assume an immediate, parallel shift downward of the yield curve of 100, 200, and 300 basis points and immediate, parallel shifts

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upward of the yield curve of 100, 200, 300 and 400 basis points. In the current interest rate environment, a downward shift of the yield curve of 400 basis points does not provide us with meaningful results and thus is not presented.


(dollars in thousands)	September 30, 2023				December 31, 2022				March 31, 2024				December 31, 2023
Change (basis points)	Forecasted		Percentage		Forecasted		Percentage		Forecasted		Percentage		Forecasted		Percentage
in Interest Rates	Net Interest		Change		Net Interest		Change		Net Interest		Change		Net Interest		Change
(12-Month Projection)	Income		from Base		Income		from Base		Income		from Base		Income		from Base
+400	$	130,379	(1.69)	%	$	129,621	(4.84)	%	$	118,158	(1.74)	%	$	118,597	(2.39)	%
+300		130,562	(1.55)			131,357	(3.57)			118,278	(1.64)			118,983	(2.08)
+200		131,101	(1.14)			133,089	(2.30)			118,417	(1.52)			119,395	(1.74)
+100		131,791	(0.62)			134,591	(1.20)			118,866	(1.15)			119,916	(1.31)
0		132,617	—			136,220	—			120,244	—			121,504	—
−100		135,862	2.45			137,641	1.04			122,798	2.12			125,138	2.99
−200		139,058	4.86			137,968	1.28			125,228	4.14			128,643	5.87
−300		142,200	7.23			138,587	1.74			128,022	6.47			132,269	8.86

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The table above indicates that as of ~~September 30, 2023,~~March 31, 2024, in the event of an immediate and sustained 400 basis point increase in interest rates, the Company would experience an ~~1.69%~~1.74% decrease in net interest income. In the event of an immediate 300 basis point decrease in interest rates, the Company would experience ~~an 7.23%~~a 6.47% increase in net interest income.

The results of this simulation analysis are hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted. For example, if the timing and magnitude of interest rate changes differ from those projected, net interest income might vary significantly. Non-parallel yield curve shifts such as a flattening or steepening of the yield curve or changes in interest rate spreads would also cause net interest income to be different from that depicted. An increasing interest rate environment could reduce projected net interest income if deposits and other short-term liabilities re-price faster than expected or re-price faster than the Company’s assets. Actual results could differ from those projected if the Company grows assets and liabilities faster or slower than estimated, if the Company experienced a net outflow of deposit liabilities, or if the mix of assets and liabilities otherwise changes. Actual results could also differ from those projected if the Company experienced substantially different repayment speeds in the loan portfolio than those assumed in the simulation model. Finally, these simulation results do not contemplate all the actions that the Company may undertake in response to potential or actual changes in interest rates, such as changes to the Company’s loan, investment, deposit, or funding strategies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as that term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or the Exchange Act) as of ~~September 30, 2023,~~March 31, 2024, the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~September 30, 2023,~~March 31, 2024, the Company’s disclosure controls and procedures were effective to ensure that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Neither the Company nor any of its subsidiaries is a party, and no property of these entities is subject, to any material pending legal proceedings, other than ordinary routine litigation incidental to the Bank’s business. The Company does not know of any proceeding contemplated by a governmental authority against the Company or any of its subsidiaries.

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Item 1.A. Risk Factors

There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K filed with the SEC on March 7, ~~2023.~~2024.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ~~and Issuer Purchases of Equity Securities~~

Issuer Repurchases of Equity Securities

The following table presents stock purchases made during the ~~third~~first quarter of ~~2023:~~2024:


Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs		Total Number of Shares Purchased ⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 - 31, 2023	1,078	$	9.85	—	$	25,000,000
August 1 - 31, 2023	—		—	—		25,000,000
September 1 - 30, 2023	—		—	—		25,000,000
January 1 - 31, 2024							225	$	12.62	—	$	20,458,801
February 1 - 29, 2024							63,286		11.75	57,893		19,779,536
March 1 - 31, 2024							136,444		11.76	135,909		18,181,490
Total	1,078	$	9.85	—	$	25,000,000	199,955	$	11.76	193,802	$	18,181,490

(1)

The total number of shares repurchased during the periods indicated includes shares repurchased as part of the Company’s stock repurchase program and shares withheld for income tax purposes in connection with vesting of restricted stock. The shares were purchased or otherwise valued at the closing price of the Company’s common stock on the date of purchase and/or withholding.

(2)

On August 17, 2022, the Company’s board of directors approved a ~~new~~ stock repurchase program which authorizes the Company to repurchase up to $25.0 million of its common stock, subject to certain limitations and conditions. The ~~new stock repurchase program replaced and superseded the previous $40.0 million stock repurchase program which expired on October 27, 2022, under which approximately $1.6 million remained. The new~~ stock repurchase program will expire on August 16, 2024. The stock repurchase program does not obligate the Company to repurchase any shares of its common stock, and other than repurchases that have been completed to date, there is no assurance that the Company will do so. Under the stock repurchase program, the Company may repurchase shares of common stock from time to time in open market or privately negotiated transactions. The extent to which the Company repurchases its shares, and the timing of such repurchases, will depend upon a variety of factors, including general market and economic conditions, regulatory requirements, availability of funds, and other relevant considerations, as determined by the Company. The Company may, in its discretion, begin, suspend or terminate repurchases at any time prior to the Program’s expiration, without any prior notice.

Unregistered Sales of Equity Securities

None.

Use of Proceeds from Registered Securities

None.

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Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Rule 10b5-1 Trading Plans

During the quarter ended ~~September 30, 2023,~~March 31, 2024, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule10b5-1(c) or any non-Rule 10b5-1 trading arrangement.

Item 6. Exhibits


Exhibit Number		Description
3.1		Third Amended and Restated Articles of Incorporation of Bridgewater Bancshares, Inc. (incorporated herein by reference to Exhibit 3.1 on Form 8-K filed on April 27, 2023)
3.2		Second Amended and Restated Bylaws of Bridgewater Bancshares, Inc. (incorporated herein by reference to Exhibit 3.2 on Form 8-K filed on April 27, 2023)
3.3		Statement of Designation of 5.875% Non-Cumulative Perpetual Preferred Stock, Series A (incorporated herein by reference to Exhibit 3.1 on Form 8-K filed on August 17, 2021)
10.1		Second Amendment to Loan and Security Agreement, dated as of September 1, 2022, by and between Bridgewater Bancshares, Inc. and ServisFirst Bank (incorporated herein by reference to Exhibit 10.1 on Form 8-K filed on September 1, 2022)
10.2		Amended and Restated Revolving Note, dated as of September 1, 2022, made by Bridgewater Bancshares, Inc. to and in favor of ServisFirst Bank (incorporated herein by reference to Exhibit 10.2 on Form 8-K filed on September 1, 2022)
31.1		Certification of the Chief Executive Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, and Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of the Chief Financial Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, and Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.1		Financial information from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended ~~September 30, 2023,~~March 31, 2024, formatted in inline XBRL interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Shareholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements
104		The cover page for Bridgewater Bancshares, Inc’s Form 10-Q Report for the quarterly period ended ~~September 30, 2023~~March 31, 2024 formatted in inline XBRL and contained in Exhibit 101

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Bridgewater Bancshares, Inc.

Date: ~~November~~May 2, ~~2023~~2024	By:	/s/ Jerry J. Baack
	Name:	Jerry J. Baack
	Title:	Chairman and Chief Executive Officer ~~and President~~ (Principal Executive Officer)

Date: ~~November~~May 2, ~~2023~~2024	By:	/s/ Joe M. Chybowski
	Name:	Joe M. Chybowski
	Title:	President and Chief Financial Officer (Principal Financial ~~and Accounting~~ Officer)

7262


	January 1, 2023		Impact of		As Reported
(dollars in thousands)	Pre-CECL Adoption		CECL Adoption		Under CECL
Assets:
Loans
Commercial	$	6,500	$	(1,157)	$	5,343
Paycheck Protection Program		1		(1)		—
Construction and Land Development		3,911		(1,070)		2,841
1-4 Family Construction		845		(235)		610
Real Estate Mortgage:
1-4 Family Mortgage		4,325		(1,778)		2,547
Multifamily		17,459		3,318		20,777
CRE Owner Occupied		1,965		(943)		1,022
CRE Nonowner Occupied		12,576		2,869		15,445
Consumer and Other		151		(90)		61
Unallocated		263		(263)		—
Allowance for Credit Losses on Loans	$	47,996	$	650	$	48,646

Liabilities:
Allowance for Credit Losses on Off-balance Sheet Credit Exposures	$	360	$	4,850	$	5,210


	December 31, 2022
(dollars in thousands)	Pass		Watch		Substandard		Total
Commercial	$	406,192	$	9,477	$	19,675	$	435,344
Paycheck Protection Program		1,049		—		—		1,049
Construction and Land Development		294,736		712		106		295,554
1-4 Family Construction		70,242		—		—		70,242
Real Estate Mortgage:
HELOC and 1-4 Family Junior Mortgage		36,875		—		—		36,875
1st REM - 1-4 Family		50,271		674		—		50,945
LOCs and 2nd REM - Rentals		27,978		7		—		27,985
1st REM - Rentals		239,277		—		392		239,669
Multifamily		1,303,468		3,270		—		1,306,738
CRE Owner Occupied		148,268		—		1,637		149,905
CRE Nonowner Occupied		922,657		18,112		6,239		947,008
Consumer and Other		8,132		—		—		8,132
Totals	$	3,509,145	$	32,252	$	28,049	$	3,569,446


	December 31, 2022
	Recorded		Principal		Related
(dollars in thousands)	Investment		Balance		Allowance
Loans With No Related Allowance for Loan Losses:
Commercial	$	19,508	$	19,508	$	—
Construction and Land Development		106		713		—
Real Estate Mortgage:
1-4 Family Mortgage		392		392		—
CRE Owner Occupied		1,637		1,726		—
CRE Nonowner Occupied		6,239		6,239		—
Totals		27,882		28,578		—

Loans With An Allowance for Loan Losses:
Commercial		167		167		71
Totals		167		167		71
Grand Totals	$	28,049	$	28,745	$	71


Secondary Liquidity—Off-Balance Sheet
Borrowing Capacity	September 30, 2023			December 31, 2022
(dollars in thousands)
Net Secured Borrowing Capacity with the FHLB	$	516,501		$	390,898
Net Secured Borrowing Capacity with the Federal Reserve Bank		1,022,128			157,827
Unsecured Borrowing Capacity with Correspondent Lenders		150,000			208,000
Secured Borrowing Capacity with Correspondent Lender		26,250			26,250
Total Secondary Liquidity		1,714,879			782,975
Total Primary and Secondary Liquidity	$	2,181,295		$	1,379,678
Ratio of Primary and Secondary Liquidity to Total Deposits		59.3	%		40.4	%