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Discussion and analysis of the first Internet Bank’s management of the financial position and results of operations (Form 10-Q) | MarketScreener

Discussion and analysis of the first Internet Bank’s management of the financial position and results of operations (Form 10-Q) | MarketScreener

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes appearing elsewhere in this report. This
discussion and analysis includes certain forward-looking statements that involve
risks, uncertainties, and assumptions. You should review the "Risk Factors"
sections of this report and our Annual Report on Form 10-K for the year ended
December 31, 2021 for a discussion of important factors that could cause actual
results to differ materially from the results described in or implied by such
forward-looking statements. See also "Cautionary Note Regarding Forward-Looking
Statements" at the beginning of this report.

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Summary


  First Internet Bancorp ("we," "our," "us," or the "Company") is a financial
holding company with $4.3 billion in total assets as of September 30, 2022, that
conducts its primary business activities through its wholly owned subsidiary,
First Internet Bank of Indiana, an Indiana chartered bank (the "Bank"). The Bank
was the first state-chartered, Federal Deposit Insurance Corporation ("FDIC")
insured Internet bank and commenced banking operations in 1999. The Company was
incorporated under the laws of the State of Indiana on September 15, 2005. On
March 21, 2006, we consummated a plan of exchange by which we acquired all of
the outstanding shares of the Bank.

  The Bank has three wholly-owned subsidiaries: First Internet Public Finance
Corp., an Indiana corporation that provides a range of public and municipal
finance lending and leasing products to governmental entities throughout the
United States and acquires securities issued by state and local governments and
other municipalities; JKH Realty Services, LLC, a Delaware limited liability
company that manages other real estate owned ("OREO") properties as needed; and
SPF15, Inc., an Indiana corporation that owns real estate used primarily for the
Bank's principal office.

We offer a wide range of commercial, small business, consumer and municipal
banking products and services. We conduct our consumer and small business
deposit operations primarily through digital channels on a nationwide basis and
have no traditional branch offices. Our residential mortgage products are
offered nationwide primarily through a digital direct-to-consumer platform and
are supplemented with Central Indiana-based mortgage and construction lending.
Our consumer lending products are primarily originated on a nationwide basis
through relationships with dealerships and financing partners.

Our commercial banking products and services are delivered through a
relationship banking model and include commercial and industrial ("C&I"),
construction and investor commercial real estate, single tenant lease financing,
public finance, healthcare finance, small business lending, franchise finance
and commercial deposits and treasury management. Our C&I team provides credit
solutions such as lines of credit, term loans, owner-occupied commercial real
estate loans and corporate credit cards on a regional basis to commercial
borrowers primarily in the Midwest and Southwest regions of the United States.
We primarily offer construction and investor commercial real estate loans within
Central Indiana or on a regional basis and single tenant lease financing on a
nationwide basis. Our public finance team provides a range of public and
municipal lending and leasing products to government entities on a nationwide
basis. Our healthcare finance team was established in conjunction with our
strategic partnership with Provide, Inc. (formerly known as Lendeavor, Inc.), a
San Francisco-based technology-enabled lender to healthcare practices, which
provided lending on a nationwide basis for healthcare practice finance or
acquisition, acquisition or refinancing of owner-occupied commercial real estate
and equipment purchases. In the third quarter 2021, Provide was acquired by a
super-regional financial institution. Subsequent to Provide being acquired, the
acquiring institution has retained most, if not all, of Provide's loan
origination activity and our healthcare finance loan balances have declined. Our
franchise finance business was established in July 2021 in conjunction with our
business relationship with ApplePie Capital, a financial technology ("fintech")
company that specializes in providing financing to franchisees in various
industry segments. Our commercial deposits and treasury management team works
with the other commercial teams to provide deposit products and treasury
management services to our commercial and municipal lending customers as well as
pursues commercial deposit opportunities in business segments where we have no
credit relationships.

We believe that we can differentiate ourselves from larger financial
institutions by providing a full suite of services to emerging small businesses
and entrepreneurs on a nationwide basis. We have recruited experienced small
business sales, credit and operations personnel to expand our capabilities in
small business lending and U.S. government guaranteed lending programs. We
continue to scale up this business with the goal of driving increased earnings
and profitability in future periods.

We plan to expand our fintech partnerships. With the rapid evolution of
technology that enables consumers and small businesses to manage their finances
digitally, fintechs are addressing a significantly growing marketplace. Fintechs
have created robust digital offerings, unburdened by legacy technology
architecture, to address growing customer expectations. Through partnerships
with selected fintechs, we believe our ability to win and retain consumer and
small business relationships will be significantly enhanced. Furthermore, we
believe partnering with select fintechs will allow us to further diversify our
revenue sources, acquire lower-cost deposits and pursue additional asset
generation capabilities.

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Operations results


During the third quarter 2022, net income was $8.4 million, or $0.89 per diluted
share, compared to third quarter 2021 net income of $12.1 million, or $1.21 per
diluted share, representing a decrease in net income of $3.7 million, or 30.2%,
and a decrease in diluted earnings per share of $0.32, or 26.4%. During the nine
months ended September 30, 2022, net income was $29.2 million, or $3.01 per
diluted share, compared to the nine months ended September 30, 2021 net income
of $35.6 million, or $3.57 per diluted share, resulting in a decrease in net
income of $6.4 million, or 18.1%, and a decrease in diluted earnings per share
of $0.56, or 15.7%.

The $3.7 million The reason for the decrease in net profit during the third quarter of 2022 compared to the third quarter of 2021 is mainly due to a decrease of 3.5 million dollarsor 44.8%, in non-interest income, up 3.5 million dollarsor 24.5% in non-interest expense and an increase $0.9 millionin the provision for loan losses, partially offset by an increase $3.1 millionor 14.7%, in net interest income, a decrease of $1.2 millionor 55.5% of income tax expense.


The $6.4 million decrease in net income for the nine months ended September 30,
2022 compared to the nine months ended September 30, 2021 was due primarily to
an increase of $9.9 million, or 22.1% in noninterest expense, a decrease of $9.7
million, or 38.6%, in noninterest income and an increase of $1.6 million, or
126.2%, in provision for loan losses, partially offset by an increase of $12.4
million, or 19.6%, in net interest income and a decrease of $2.4 million, or
37.2%, in income tax expense.

During the third quarter 2022, return on average assets ("ROAA"), return on
average shareholders' equity ("ROAE"), and return on average tangible common
equity ("ROATCE") were 0.82%, 9.01%, and 9.13%, respectively, compared to 1.12%,
13.10%, and 13.27%, respectively, for the third quarter 2021. During the nine
months ended September 30, 2022, ROAA, ROAE and ROATCE were 0.94%, 10.40%, and
10.53%, respectively, compared to 1.13%, 13.54%, and 13.73%, respectively, for
the nine months ended September 30, 2021.

During the third quarter 2022, the company had 0.1 million dollars Program notation. Excluding this item, the adjusted net income for the third quarter of 2022 was $8.5 million The adjusted diluted earnings per share was $0.90. Additionally, for the third quarter of 2022, adjusted return on assets, adjusted return on equity, and adjusted return on assets were 0.83%, 9.12%, and 9.24%, respectively.


During the third quarter 2021, the Company fully redeemed its $25.0 million
aggregate principal amount of 6.0%
fixed-to-floating rate subordinated notes due in 2026 and recognized $0.8
million of pre-tax costs related to this redemption.
Excluding this item, adjusted net income for the third quarter 2021 was $12.7
million and adjusted diluted earnings per share
was $1.27. Additionally, for the third quarter 2021, adjusted ROAA, adjusted
ROAE and adjusted ROATCE were 1.18%, 13.79% and 13.97%, respectively.

During the nine months ended September 30, 2022, the Company recognized a
nonrecurring consulting fee associated with a special project of $0.9 million,
paid a $0.5 million discretionary inflation bonus to certain employees,
recognized accelerated equity compensation expense of $0.3 million related to
several retirements, incurred acquisition-related expenses of $0.3 million and
expensed a write-down of software of $0.1 million. Excluding these items,
adjusted net income for the nine months ended September 30, 2022 was $30.8
million and adjusted diluted earnings per share was $3.17. Additionally, for the
nine months ended September 30, 2022, adjusted ROAA, adjusted ROAE and adjusted
ROATCE were 0.99%, 11.00% and 11.13%, respectively.

During the nine months ended September 30, 2021, the Company recognized a $2.5
million pre-tax gain on sale of its corporate headquarters and recognized $0.8
million of pre-tax costs related to the redemption of its $25.0 million
aggregate principal amount of 6.0% fixed-to-floating rate subordinated notes due
in 2026. Excluding these items, adjusted net income for the nine months ended
September 30, 2021 was $34.3 million, or $3.44 per diluted share. Additionally,
for the nine months ended September 30, 2021, adjusted ROAA, adjusted ROAE and
adjusted ROATCE were 1.09%, 13.03% and 13.21%, respectively.

See the “Reconciliation of Non-GAAP Financial Actions” section of Part 1, Clause 2 of this report, Management’s Discussion and Analysis of Financial Position and Results of Operations for additional information.

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Average consolidated budgets and net interest income analytics


For the periods presented, the following tables provide the average balances of
interest-earning assets and interest-bearing liabilities and the related yields
and cost of funds. The tables do not reflect any effect of income taxes except
for net interest margin - FTE, as discussed below. Balances are based on the
average of daily balances. Nonaccrual loans are included in average loan
balances.

                                                                                                                                        Three Months Ended
                                                                September 30, 2022                                                         June 30, 2022                                                        September 30, 2021
                                                                      Interest                                                                Interest                                                                Interest
(in thousands)                             Average Balance           /Dividends             Yield /Cost            Average Balance           /Dividends             Yield /Cost            Average Balance           /Dividends             Yield /Cost
Assets
Interest-earning assets
Loans, including
loans held-for-sale                      $      3,175,854          $     34,643                    4.33  %       $      3,019,891          $     32,415                    4.31  %       $      2,956,333          $     30,126                    4.04  %
Securities - taxable                              532,470                 2,701                    2.01  %                543,422                 2,567                    1.89  %                629,101                 2,297                    1.45  %
Securities - non-taxable                           73,859                   491                    2.64  %                 76,974                   328                    1.71  %                 84,241                   241                    1.14  %
Other earning assets                              188,467                 1,264                    2.66  %                322,302                   796                    0.99  %                479,051                   370                    0.31  %
Total interest-earning assets                   3,970,650                39,099                    3.91  %              3,962,589                36,106                    3.65  %              4,148,726                33,034                    3.16  %

Allowance for loan losses                         (29,423)                                                                (28,599)                                                                (28,127)
Noninterest-earning assets                        164,461                                                                 163,875                                                                 144,590
Total assets                             $      4,105,688                                                        $      4,097,865                                                        $      4,265,189

Liabilities
Interest-bearing liabilities
Interest-bearing demand deposits         $        342,116          $        551                    0.64  %       $        348,274          $        466                    0.54  %       $        198,637          $        150                    0.30  %
Savings accounts                                   57,700                   111                    0.76  %                 66,657                    68                    0.41  %                 62,195                    56                    0.36  %
Money market accounts                           1,369,783                 4,581                    1.33  %              1,427,665                 1,921                    0.54  %              1,498,218                 1,532                    0.41  %
BaaS - brokered deposits                          153,936                   859                    2.21  %                 71,234                   154                    0.87  %                      -                     -                    0.00  %
Certificates and brokered deposits              1,037,792                 4,418                    1.69  %              1,104,592                 3,799                    1.38  %              1,378,678                 5,352                    1.54  %
Total interest-bearing deposits                 2,961,327                10,520                    1.41  %              3,018,422                 6,408                    0.85  %              3,137,728                 7,090                    0.90  %
Other borrowed funds                              637,877                 4,585                    2.85  %                583,553                 4,018                    2.76  %                611,975                 5,025                    3.26  %
Total interest-bearing liabilities              3,599,204                15,105                    1.67  %              3,601,975                10,426                    1.16  %              3,749,703                12,115                    1.28  %
Noninterest-bearing deposits                      124,067                                                                 108,980                                                                 104,161
Other noninterest-bearing
liabilities                                        11,114                                                                  12,636                                                                  45,138
Total liabilities                               3,734,385                                                               3,723,591                                                               3,899,002

Shareholders' equity                              371,303                                                                 374,274                                                                 366,187
Total liabilities and
shareholders' equity                     $      4,105,688                                                        $      4,097,865                                                        $      4,265,189

Net interest income                                                $     23,994                                                            $     25,680                                                            $     20,919

Interest rate spread 1                                                                   2.24%                                                                   2.49%                                                                             1.88  %
Net interest margin 2                                                                    2.40%                                                                   2.60%                                                                             2.00  %
Net interest margin - FTE 3                                                              2.53%                                                                   2.74%                                                                             2.13  %



1 Yield on total interest-earning assets minus cost of total interest-bearing
liabilities.
2 Net interest income divided by total average interest-earning assets
(annualized).
3 On an FTE basis assuming a 21% tax rate. Net interest income is adjusted to
reflect income from assets such as municipal loans and securities that are
exempt from Federal income taxes. This is to recognize the income tax savings
that facilitates a comparison between taxable and tax-exempt assets. The Company
believes that it is a standard practice in the banking industry to present net
interest margin and net interest income on a fully-taxable equivalent basis, as
these measures provide useful information to make peer comparisons. Net interest
margin - FTE represents a non-GAAP financial measure. See "Reconciliation of
Non-GAAP Financial Measures" for a reconciliation of this measure to its most
directly comparable GAAP measure.

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                                                                                                         Nine Months Ended
                                                                      September 30, 2022                                                   September 30, 2021
                                                                             Interest                                                             Interest
(in thousands)                                    Average Balance           /Dividends           Yield /Cost           Average Balance           /Dividends            Yield /Cost
Assets
Interest-earning assets
Loans, including
loans held-for-sale                             $      3,057,768          $   100,246                  4.38  %       $      3,016,817          $     91,846                  4.07  %
Securities - taxable                                     547,759                7,489                  1.83  %                527,625                 5,997                  1.52  %
Securities - non-taxable                                  77,236                1,068                  1.85  %                 85,130                   781                  1.23  %
Other earning assets                                     321,262                2,436                  1.01  %                478,399                 1,067                  0.30  %
Total interest-earning assets                          4,004,025              111,239                  3.71  %              4,107,971                99,691                  3.24  %

Allowance for loan losses                                (28,671)                                                             (29,446)
Noninterest-earning assets                               163,512                                                              136,954
Total assets                                    $      4,138,866                                                     $      4,215,479

Liabilities
Interest-bearing liabilities
Interest-bearing demand deposits                $        336,311          $     1,429                  0.57  %       $        190,785          $        425                  0.30  %
Savings accounts                                          61,647                  232                  0.50  %       $         54,740                   145                  0.35  %
Money market accounts                                  1,416,984                8,006                  0.76  %              1,428,554                 4,385                  0.41  %
BaaS - brokered deposits                                  79,613                1,019                  1.71  %                      -                     -                  0.00  %
Certificates and brokered deposits                     1,122,097               12,339                  1.47  %              1,446,960                18,468                  1.71  %
Total interest-bearing deposits                        3,016,652               23,025                  1.02  %              3,121,039                23,423                  1.00  %
Other borrowed funds                                     613,609               12,790                  2.79  %                593,605                13,217                  2.98  %
Total interest-bearing liabilities                     3,630,261               35,815                  1.32  %              3,714,644                36,640                  1.32  %
Noninterest-bearing deposits                             115,142                                                               97,760
Other noninterest-bearing liabilities                     18,273                                                               51,281
Total liabilities                                      3,763,676                                                            3,863,685

Shareholders' equity                                     375,190                                                              351,794
Total liabilities and shareholders'
equity                                          $      4,138,866                                                     $      4,215,479

Net interest income                                                       $    75,424                                                          $     63,051

Interest rate spread 1                                                                         2.39%                                                                 1.92%
Net interest margin 2                                                                          2.52%                                                                 2.05%
Net interest margin - FTE 3                                                                    2.65%                                                                 2.19%



1 Yield on total interest-earning assets minus cost of total interest-bearing
liabilities.
2 Net interest income divided by total average interest-earning assets
(annualized).
3 On an FTE basis assuming a 21% tax rate. Net interest income is adjusted to
reflect income from assets such as municipal loans and securities that are
exempt from Federal income taxes. This is to recognize the income tax savings
that facilitates a comparison between taxable and tax-exempt assets. The Company
believes that it is a standard practice in the banking industry to present net
interest margin and net interest income on a fully-taxable equivalent basis, as
these measures provide useful information to make peer comparisons. Net interest
margin - FTE represents a non-GAAP financial measure. See "Reconciliation of
Non-GAAP Financial Measures" for a reconciliation of this measure to its most
directly comparable GAAP measure.
                                       46
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rate / volume analysis


The following table illustrates the impact of changes in the volume of
interest-earning assets and interest-bearing liabilities and interest rates on
net interest income for the periods indicated. The change in interest not due
solely to volume or rate has been allocated in proportion to the absolute dollar
amounts of the change in each.

                                     Three Months Ended September 30, 2022 vs. June            Three Months Ended September 30, 2022 vs.              

Nine months are over September 30, 2022 against.

                                               30, 2022 Due to Changes in                        September 30, 2021 Due to Changes in                   September 30, 2021 Due to Changes in
(in thousands)                         Volume              Rate               Net              Volume              Rate             Net              Volume              Rate               Net
Interest income
Loans, including loans
held-for-sale                       $    2,044          $    184          $  2,228          $    2,297          $ 2,220          $ 4,517          $    1,271          $  7,129          $  8,400
Securities - taxable                      (282)              416               134              (1,890)           2,294              404                 235             1,257             1,492
Securities - non-taxable                   (87)              250               163                (195)             445              250                (119)              406               287
Other earning assets                    (2,034)            2,502               468              (1,602)           2,496              894                (661)            2,030             1,369
Total                                     (359)            3,352             2,993              (1,390)           7,455            6,065                 726            10,822            11,548

Interest expense
Interest-bearing deposits                 (828)            4,940             4,112              (2,580)           6,010            3,430              (1,030)              632              (398)
Other borrowed funds                       420               147               567               1,152           (1,592)            (440)                632            (1,059)             (427)
Total                                     (408)            5,087             4,679              (1,428)           4,418            2,990                (398)             (427)             (825)

Increase (decrease) in net
interest income                     $       49          $ (1,735)         $ (1,686)         $       38          $ 3,037          $ 3,075          $    1,124          $ 11,249          $ 12,373



Net interest income for the third quarter 2022 was $24.0 million, an increase of
$3.1 million, or 14.7%, compared to $20.9 million for the third quarter 2021.
The increase in net interest income was the result of a $6.1 million, or 18.4%
increase in total interest income to $39.1 million for the third quarter 2022
from $33.0 million for the third quarter 2021, partially offset by a $3.0
million, or 24.7%, increase in total interest expense to $15.1 million for the
third quarter 2022 from $12.1 million for the third quarter 2021.

Net interest income for the nine months ended September 30, 2022 was $75.4
million, an increase of $12.4 million, or 19.6%, compared to $63.1 million for
the nine months ended September 30, 2021. The increase in net interest income
was the result of an $11.5 million, or 11.6%, increase in total interest income
to $111.2 million for the nine months ended September 30, 2022 from $99.7
million for the nine months ended September 30, 2021, as well as a $0.8 million,
or 2.3%, decrease in total interest expense to $35.8 million for the nine months
ended September 30, 2022 from $36.6 million for the nine months ended
September 30, 2021.

The increase in total interest income for the third quarter 2022 compared to
third quarter 2021 was due primarily to a $4.5 million, or 15.0%, increase in
interest earned on loans, $0.9 million, or 241.6%, increase in income from other
earning assets and a $0.7 million, or 25.8%, increase in interest earned on
securities. The increase in income from loans was due primarily to a 29 bp
increase in the yield earned on loans, as well as an increase of $219.5 million,
or 7.4%, in the average balance of loans compared to the third quarter 2021. The
yield earned on other earning assets increased 235 bps, partially offset by a
decrease in the average balance of other earning assets of $290.6 million, or
60.7%. The decrease in the average balance of other earning assets was due
primarily to lower cash balances. The average balance of securities decreased
$107.0 million, or 15.0%, while the yield earned on the securities portfolio
increased 68 bps for the third quarter 2022 compared to the third quarter 2021.
The increase in the yields earned on loans, other earning assets and securities
was due to the rise in interest rates throughout 2022.

                                       47
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The increase in total interest income for the nine months ended September 30,
2022 compared to the nine months ended September 30, 2021 was due primarily to
an $8.4 million, or 9.2%, increase in interest earned on loans, a $1.8 million,
or 26.3%, increase in interest earned on securities and a $1.4 million, or
128.3%, increase in income from other earning assets. The increase in income
from loans was due primarily to a 31 bp increase in the yield earned on loans,
as well as a $41.0 million, or 1.4%, increase in the average balance of loans.
The average balance of securities increased $12.2 million, or 2.0%, and the
yield earned on the securities portfolio increased 35 bps for the nine months
ended September 30, 2022 compared to the nine months ended September 30, 2021.
In addition, the yield earned on other earning assets increased 71 bps, but was
partially offset by a decrease in the average balance of other earning assets of
$157.1 million, or 32.9%. The decrease in the average balance of other earning
assets was due primarily to lower cash balances. The increase in the yields
earned on loans, securities and other earning assets was due to the rise in
interest rates throughout 2022.

The increase in total interest expense for the third quarter 2022 compared to
the third quarter 2021 was due primarily to an increase of $3.0 million, or
199.0%, in interest expense associated with money market accounts and a $0.4
million, or 267.3%, increase in interest expense associated with
interest-bearing demand deposits, partially offset by a $0.9 million, or 17.5%,
decrease in interest expense related to certificates and brokered deposits.
Additionally, the Company added Banking-as-a-Service ("BaaS") deposits in 2022,
which increased interest expense by $0.9 million. The increase in interest
expense related to money market accounts was driven primarily by an increase of
92 bps in the cost of these deposits, partially offset by a decrease in the
average balance of these deposits of $128.4 million, or 8.6%. The increase in
interest expense related to interest-bearing demand deposits was due primarily
to approximately $100.0 million in deposits with a contractual term of five
years and a fixed rate of 1.15% pursuant to a new customer relationship in 2022.
Interest expense on certificates and brokered deposits decreased due to a $340.9
million, or 24.7%, decrease in the average balance of these deposits, partially
offset by an increase of 15 bps in the cost of these deposits. The decrease in
certificates and brokered deposit balances was driven by the Company's pricing
strategy to reduce the level of these higher cost deposits. The increase in the
cost of money market accounts and certificates and brokered deposits, as well as
the cost of BaaS deposits, was due to the rise in interest rates throughout
2022.

The decrease in total interest expense for the nine months ended September 30,
2022 compared to the nine months ended September 30, 2021 was driven primarily
by a $6.1 million, or 33.2%, decrease in interest expense related to
certificates and brokered deposits, partially offset by a $3.6 million, or
82.6%, increase in interest expense associated with money market accounts and a
$1.0 million, or 236.2%, increase in interest expense associated with
interest-bearing demand deposits. Additionally, the Company added BaaS deposits
in 2022, which increased interest expense by $1.0 million. Interest expense on
certificates and brokered deposits decreased due to a decline of 24 bps in the
cost of these deposits, as well as a $324.9 million, or 22.5%, decrease in
average balance of these deposits. The decrease in certificates and brokered
deposit balances was driven by the Company's pricing strategy to reduce the
level of these higher cost deposits. The increase in interest expense related to
money market accounts was driven primarily by an increase of 35 bps in the cost
of these deposits, partially offset by a decrease in the average balance of
these deposits of $11.6 million, or 0.8%. The increase in interest expense
related to interest-bearing demand deposits was due primarily to approximately
$100.0 million in deposits with a contractual term of five years and a fixed
rate of 1.15% pursuant to a new customer relationship in 2022. The increase in
the cost of money market accounts, as well as the cost of BaaS deposits,
reflects the increase in interest rates throughout 2022

Overall, the cost of total interest-bearing liabilities for the third quarter
2022 increased 39 bps to 1.67% from 1.28% for the third quarter 2021. The cost
of total interest-bearing liabilities for the nine months ended September 30,
2022 remained flat with the nine months ended September 30, 2021 at 1.32%. The
increase in the cost of funds for the third quarter 2022 reflects the rapid rise
in interest rates throughout 2022.

Net interest margin ("NIM") was 2.40% for the third quarter 2022 compared to
2.00% for the third quarter 2021, an increase of 40 bps. On a fully-taxable
equivalent ("FTE") basis, NIM was 2.53% for the third quarter 2022 compared to
2.13% for the third quarter 2021, an increase of 40 bps. The increase in third
quarter 2022 NIM and FTE NIM compared to the third quarter 2021 reflects the
increase in earning asset yields noted above, partially offset by the increase
in the cost of interest-bearing liabilities.

NIM was 2.52% for the nine months ended September 30, 2022 compared to 2.05% for
the nine months ended September 30, 2021, an increase of 47 bps. On a
fully-taxable equivalent basis, NIM was 2.65% for the nine months ended
September 30, 2022, compared to 2.19% for the nine months ended September 30,
2021, an increase of 46 bps. The increase in NIM for the nine months ended
September 30, 2022 compared to the nine months ended September 30, 2021 reflects
the increase in earning asset yields noted above, as the cost of
interest-bearing liabilities remained stable.


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Income without interest

The following table presents non-interest income for the last five completed fiscal quarters and the nine months ended September 30, 2022 and 2021.


                                                                  Three Months Ended                                                             

Nine months are over

                          September 30,          June 30,           March 31,           December 31,           September 30,           September 30,           September 30,
(in thousands)                2022                 2022               2022                  2021                   2021                    2022                    2021
Service charges and
fees                    $          248          $    281          $      316          $         292          $          276          $          845          $          822
Loan servicing revenue             653               620                 585                    544                     511                   1,858                   1,390
Loan servicing asset
revaluation                       (333)             (470)               (297)                  (400)                   (274)                 (1,100)                   (669)
Mortgage banking
activities                         871             1,710               1,873                  2,776                   3,850                   4,454                  12,274
Gain on sale of loans            2,713             1,952               3,845                  4,137                   2,719                   8,510                   7,461

Gain on sale of
premises and equipment               -                 -                   -                      -                       -                       -                   2,523
Other                              164               221                 498                    345                     731                     883                   1,349
Total noninterest
income                  $        4,316          $  4,314          $    6,820          $       7,694          $        7,813          $       15,450          $       25,150



During the third quarter 2022, noninterest income was $4.3 million, representing
a decrease of $3.5 million, or 44.8%, compared to $7.8 million for the third
quarter 2021. The decrease in noninterest income was due primarily to a decrease
in revenue from mortgage banking activities and a decrease in other noninterest
income, partially offset by an increase in loan servicing revenue. The decline
in mortgage banking revenue was due primarily to decreases in interest rate
locks, sold loan volumes and gain-on-sale margins driven by the increase in
interest rates throughout 2022. The decrease in other noninterest income is due
primarily to a distribution from the Company's investment in a Small Business
Investment Company fund that occurred during the three months ended September
30, 2021. The increase in loan servicing revenue was due to growth in the
balance of the Company's SBA 7(a) servicing portfolio.

During the nine months ended September 30, 2022, noninterest income was $15.5
million, representing a decrease of $9.7 million, or 38.6%, compared to $25.2
million for the nine months ended September 30, 2021. The decrease in
noninterest income was due primarily to a decrease in revenue from mortgage
banking activities and a decrease of $2.5 million from the gain on sale of
premises and equipment resulting from the sale of the Company's former
headquarters that occurred in the second quarter 2021, partially offset by a
$1.0 million, or 14.1%, increase in gain on sale of loans. The decrease in
mortgage banking activities was due mainly to decreases in interest rate locks,
sold loan volumes and gain-on-sale margins driven by the increase in interest
rates throughout 2022. The increase in gain on sale of loans was due to an
increase in the volume of U.S. SBA 7(a) guaranteed loan sales, as well as a gain
on the sale of $14.4 million of single tenant lease financing loans in 2022.

Useless expenses

The following table shows non-interest expenses for the last five completed fiscal quarters and nine months completed September 30, 2022 and 2021.


                                                                Three Months Ended                                                             

Nine months are over

                         September 30,          June 30,          March 31,           December 31,           September 30,           September 30,           September 30,
(in thousands)               2022                 2022               2022                 2021                   2021                    2022                    2021
Salaries and employee
benefits               $       10,439          $ 10,832          $   9,878          $      10,183          $        9,316          $       31,149          $       28,040
Marketing, advertising
and promotion                   1,041               920                756                    896                     813                   2,717                   2,365
Consulting and
professional services             790             1,197              1,925                  1,262                     728                   3,912                   2,792
Data processing                   483               490                449                    425                     380                   1,422                   1,224
Loan expenses                   1,142               693              1,582                    654                     383                   3,417                   1,458
Premises and equipment          2,808             2,419              2,540                  2,188                   1,687                   7,767                   4,875
Deposit insurance
premium                           229               287                281                    283                     230                     797                     930

Other                           1,063             1,147              1,369                  1,064                     914                   3,579                   3,159
Total noninterest
expense                $       17,995          $ 17,985          $  18,780          $      16,955          $       14,451          $       54,760          $       44,843



                                       49
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Noninterest expense for the third quarter 2022 was $18.0 million, compared to
$14.5 million for the third quarter 2021. The increase of $3.5 million, or
24.5%, was due primarily to increases of $1.1 million, or 12.1%, in salaries and
employee benefits, $1.1 million, or 2.9%, in premises and equipment, and $0.8
million, or 2.0%, in loan expenses. The higher salaries and employee benefits
expense was due mainly to an increase in headcount as well as an increase in
medical claims expense.The increase in premises and equipment was primarily
related to costs associated with the Company's new corporate headquarters, as
well as investments in technology, software maintenance and a write-down of
software. The increase in loan expenses was due mainly to servicing fees related
to the growth in franchise finance loans.

Noninterest expense for the nine months ended September 30, 2022 was $54.8
million, compared to $44.8 million for the nine months ended September 30, 2021.
The increase of $9.9 million, or 22.1%, was due primarily to increases of $3.1
million in salaries and employee benefits, $2.9 million in premises and
equipment, $2.0 million in loan expenses and $1.1 million in consulting and
professional fees. The higher salaries and employee benefits expense was due
primarily to an increase in headcount, higher medical claims expense, a $0.5
million discretionary inflation bonus paid to certain employees and $0.3 million
of accelerated equity compensation related to employees who retired during the
year. The increase in premises and equipment was due mainly to costs associated
with the Company's new corporate headquarters, as well as investments in
technology, software maintenance and a write-down of software. The increase in
loan expenses was due primarily to servicing fees related to tax refund advance
loans and franchise finance loans. The increase in consulting and professional
fees was due primarily to a $0.9 million consulting fee associated with a
special project.

Income tax provision was $1.0 million for the third quarter 2022, resulting in
an effective tax rate of 10.5%, compared to a tax provision of $2.2 million for
the third quarter 2021 and an effective tax rate of 15.5%. Income tax provision
was $4.1 million for the nine months ended September 30, 2022, resulting in an
effective tax rate of 12.2%, compared to an income tax provision of $6.5
million, or an effective tax rate of 15.3%, for the nine months ended September
30, 2021. The lower income tax provision and effective tax rate during the three
and nine months ended September 30, 2022 is the result of the decline in
noninterest income, resulting in a higher proportion of tax exempt income to
total pre-tax income.

Financial Condition

The following table shows balance sheet summary data for the last five completed fiscal quarters. (in thousands)

                                                September 30,            June 30,            March 31,           December 31,           September 

30,

Balance Sheet Data:                                 2022                   2022                 2022                 2021                   2021
Total assets                                  $    4,264,424          $ 4,099,806          $ 4,225,397          $  4,210,994          $    4,252,292
Loans                                              3,255,906            3,082,127            2,880,780             2,887,662               2,936,148
Total securities                                     584,622              610,602              628,658               662,609                 696,136

Loans held-for-sale                                   23,103               31,580               33,991                47,745                  43,970
Noninterest-bearing deposits                         142,875              126,153              119,196               117,531                 110,117
Interest-bearing deposits                          3,049,769           
3,025,948            3,098,783             3,061,428               3,114,478
Total deposits                                     3,192,644            3,152,101            3,217,979             3,178,959               3,224,595
Advances from Federal Home Loan Bank                 589,926              464,925              514,923               514,922                 514,920
Total shareholders' equity                           360,857              365,332              374,655               380,338                 370,442



Total assets increased $53.4 million, or 1.3%, to $4.3 billion at September 30,
2022 compared to $4.2 billion at December 31, 2021. The increase was due
primarily to increases in loan balances, partially offset by decreases in total
securities balances and cash balances.

As of September 30, 2022, total shareholders' equity was $360.9 million, a
decrease of $19.5 million, or 5.1%, compared to December 31, 2021, due primarily
to stock repurchase activity and an increase in accumulated other comprehensive
loss resulting from a decline in the value of the available-for-sale securities
portfolio caused by the continued rise in interest rates during the year. This
was partially offset by the net income earned during the year and an increase in
the value of interest rate swaps classified as cash flow hedges. Tangible common
equity totaled $356.2 million as of September 30, 2022, representing a decrease
of $19.5 million, or 5.2%, compared to December 31, 2021. The ratio of total
shareholders' equity to total assets decreased to 8.46% as of September 30, 2022
from 9.03% as of December 31, 2021, and the ratio of tangible common equity to
tangible assets decreased to 8.36% as of September 30, 2022 from 8.93% as of
December 31, 2021.

Book value per common share decreased 0.4% to $38.84 as of September 30, 2022
from $38.99 as of December 31, 2021. Tangible book value per share decreased
0.4% to $38.34 as of September 30, 2022 from $38.51 as of December 31, 2021. The
slight decline in both book value per common share and tangible book value per
share reflects the declines in total
                                       50
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Shareholder’s equity and tangible common equity, mostly offset by shares repurchased throughout the year. See the “Reconciliation of Non-GAAP Financial Actions” section of Part 1, Clause 2 of this report, Management’s Discussion and Analysis of Financial Position and Results of Operations for additional information.



Loan Portfolio Analysis

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

                                    September 30,                              June 30,                                March 31,                             December 31,                            September 30,
(dollars in thousands)                   2022                                    2022                                    2022                                    2021                                     2021
Commercial loans
Commercial and industrial $    104,780                3.2  %       $   110,540                3.6  %       $    99,808                3.5  %       $    96,008                3.3  %       $    107,142                3.6  %
Owner-occupied commercial
real estate                     58,615                1.8  %            61,277                2.0  %            56,752                2.0  %            66,732                2.3  %             84,819                2.9  %
Investor commercial real
estate                          91,021                2.8  %            52,648                1.7  %            34,627                1.2  %            28,019                1.0  %             28,505                1.0  %
Construction                   139,509                4.3  %           143,475                4.7  %           149,662                5.2  %           136,619                4.7  %            115,414                3.9  %
Single tenant lease
financing                      895,302               27.4  %           867,181               28.1  %           852,519               29.6  %           865,854               30.0  %            921,998               31.5  %
Public finance                 614,139               18.9  %           613,759               19.9  %           587,817               20.4  %           592,665               20.5  %            601,738               20.5  %
Healthcare finance             293,686                9.0  %           317,180               10.3  %           354,574               12.3  %           387,852               13.4  %            417,388               14.2  %
Small business lending         113,001                3.5  %           102,724                3.3  %            97,040                3.4  %           108,666                3.8  %            102,889                3.5  %
Franchise finance              225,012                6.8  %           168,942                5.5  %           107,246                3.7  %            81,448                2.8  %             25,598                0.9  %

Total commercial loans       2,535,065               77.7  %         2,437,726               79.1  %         2,340,045               81.3  %         2,363,863               81.8  %          2,405,491               82.0  %
Consumer loans
Residential mortgage           337,565               10.4  %           281,124                9.1  %           191,153                6.6  %           186,770                6.5  %            188,750                6.4  %
Home equity                     22,114                0.7  %            19,928                0.6  %            18,100                0.6  %            17,665                0.6  %             17,960                0.6  %
Other consumer                 312,512                9.7  %           292,955                9.6  %           270,330                9.4  %           265,478                9.2  %            268,396                9.1  %
Tax refund advance loans             -                0.0  %                 -                0.0  %             9,177                0.3  %                 -                0.0  %                  -                0.0  %
Total consumer loans           672,191               20.8  %           594,007               19.3  %           488,760               16.9  %           469,913               16.3  %            475,106               16.1  %
Net deferred loan
origination costs,
premiums and discounts on
purchased loans and other
(1)                             48,650                1.5  %            50,394                1.6  %            51,975                1.8  %            53,886                1.9  %             55,551                1.9  %
Total loans                  3,255,906              100.0  %         3,082,127              100.0  %         2,880,780              100.0  %         2,887,662              100.0  %          2,936,148              100.0  %
Allowance for loan losses      (29,866)                                (29,153)                                (28,251)                                (27,841)                                 (28,000)
Net loans                 $  3,226,040                             $ 3,052,974                             $ 2,852,529                             $ 2,859,821                             $  2,908,148



(1) Includes carrying value adjustments of $33.9 million, $35.4 million, $36.4
million, $37.5 million and $38.9 million related to terminated interest rate
swaps associated with public finance loans as of September 30, 2022, June 30,
2022, March 31, 2022, December 31, 2021, and September 30, 2021, respectively.


Total loans were $3.3 billion as of September 30, 2022, an increase of $368.2
million, or 12.8%, compared to December 31, 2021. Total commercial loan balances
were $2.5 billion as of September 30, 2022, up $171.2 million, or 7.2%, from
December 31, 2021. Total consumer loan balances were $672.2 million as of
September 30, 2022, an increase of $202.3 million, or 43.1%, compared to
December 31, 2021. Compared to December 31, 2021, the increase in commercial
loan balances was driven by growth in franchise finance, investor commercial
real estate, single tenant lease financing, public finance, commercial and
industrial and small business lending. The increase was partially offset by net
payoffs in healthcare finance and owner-occupied commercial real estate loans.
The increase in consumer loans was due to higher balances in the residential
mortgage, home equity, trailers, recreational vehicles and other consumer loan
portfolios.

Franchise Finance is established in July 2021 in partnership with Apple Bay Capital, the leading provider of growth financing to franchisees in various sectors of the industry across the country. Through this relationship, we have financed
$234.1 million In total assets from the start.

                                       51
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Asset quality


Nonperforming loans are comprised of nonaccrual loans and loans 90 days past due
and accruing. Nonperforming assets include nonperforming loans, other real
estate owned and other nonperforming assets, which consist of repossessed
assets. The following table provides a summary of the Company's nonperforming
assets for the last five completed fiscal quarters.

                                      September 30,         June 30,        

March 31And the December 31And the September 30(in thousands of dollars)

                    2022                2022               2022                2021                 2021
Nonaccrual loans
Commercial loans:
Commercial and industrial            $        350          $    350         

610 bucks $674 $678
Owner-occupied commercial real estate

                                      1,622             1,661              3,267                3,419                 3,429

Single tenant lease financing                   -                 -              1,092                1,100                 1,100
Small business lending (1)                  2,958             1,297                881                  959                 1,351

Total commercial loans                      4,930             3,308              5,850                6,152                 6,558
Consumer loans:
Residential mortgage                        1,073             1,201              1,207                1,226                 1,253
Home equity                                     -                14                 14                   14                    14
Other consumer                                  3                 4                 13                    9                    26
Total consumer loans                        1,076             1,219              1,234                1,249                 1,293
Total nonaccrual loans                      6,006             4,527              7,084                7,401                 7,851

90 days past due and outstanding loans


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

Total nonperforming loans                   6,006             4,527              7,084                7,401                 7,851

Other real estate owned
Single tenant lease financing                   -                 -                  -                1,188                 1,188
Residential mortgage                            -                 -                  -                    -                     -
Total other real estate owned                   -                 -                  -                1,188                 1,188

Other nonperforming assets                      -                23                  1                   29                     -

Total nonperforming assets           $      6,006          $  4,550         

7,085 USD $8,618 $9,039


Total nonperforming loans to total
loans(2)                                     0.18  %           0.15  %            0.25  %              0.26  %               0.27  %
Total nonperforming assets to total
assets(2)                                    0.14  %           0.11  %            0.17  %              0.20  %               0.21  %
Allowance for loan losses to total
loans                                        0.92  %           0.95  %            0.98  %              0.96  %               0.95  %
Nonaccrual loans to total loans              0.18  %           0.15  %            0.25  %              0.26  %               0.27  %
Allowance for loan losses to
nonperforming loans(2)                      497.3  %          644.0  %           398.8  %             376.2  %              356.6  %


1 The loan balance is partially secured by we Government. 2 Includes the impact of lending loans to distressed small businesses that are guaranteed by we Government.



Total nonperforming loans declined $1.4 million, or 18.9%, to $6.0 million as of
September 30, 2022 compared to $7.4 million as of December 31, 2021 due
primarily to upgrades and payoffs in the owner-occupied commercial real estate
and commercial and industrial loan portfolios, partially offset by SBA loans
placed on nonaccrual during 2022. Total nonperforming assets declined $2.6
million, or 30.3%, as of September 30, 2022, compared to December 31, 2021, due
primarily to the upgrades and payoffs discussed above, as well as the decline in
other real estate owned ("OREO") discussed below.

                                       52
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bad debt restructuring

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


                                        September 30,           June 30,           March 31,           December 31,           September 30,
(in thousands)                              2022                  2022               2022                  2021                   2021
Troubled debt restructurings -
nonaccrual                            $        2,342          $   2,389     

USD 2440 USD 2492 2550 USD
Bad Debt Restructuring – Performance

                                     2,410              2,425               2,418                  1,693                     843

Total bad debt restructuring $4,752 $4814

$4,858 $4185 $3,393

Total TDRs as of September 30, 2022 they were $4.8 millionabove $0.6 million From
December 31, 2021. The increase was driven by a single mortgage loan that became TDR in 2022.


   As of September 30, 2022, the Company did not own any OREO. As of December
31, 2021, the Company had one single tenant lease financing property in OREO
with a carrying value of $1.2 million. During the first quarter 2022, the
Company reached a settlement agreement with the guarantor, which resulted in the
Company recovering $1.2 million in excess of the carrying value of OREO.

Non-TDR loan adjustments due to COVID-19


  The "Interagency Statement on Loan Modifications and Reporting for Financial
Institutions Working with Customers Affected by the Coronavirus" was issued by
our banking regulators on March 22, 2020. This guidance encourages financial
institutions to work prudently with borrowers who are or may be unable to meet
their contractual payment obligations due to the effects of COVID-19.

  Additionally, Section 4013 of the CARES Act further provides that loan
modifications due to the impact of COVID-19 that would otherwise be classified
as TDRs under GAAP will not be so classified. Modifications within the scope of
this relief were in effect from the period beginning March 1, 2020 until January
1, 2022.

In accordance with this guidance, the company has provided adjustments to borrowers affected by COVID-19 and is in progress on all principal and interest payments. From September 30, 2022The company has had no non-TDR loan adjustments due to COVID-19.

we Small Business Administration Payroll Protection Program


Section 1102 of the CARES Act created the PPP, which is jointly administered by
the SBA and the Department of the Treasury. The PPP is designed to provide a
direct incentive to small businesses to retain employees on their payroll during
COVID-19 as well as to help cover certain utility costs and rent payments. These
loans may be forgiven if certain conditions are satisfied and are fully
guaranteed by the SBA. In 2020, as a preferred SBA lender, we assisted our
clients in participating in the PPP to help them maintain their workforce in an
uncertain and challenging environment. The loans originated in 2020 bear an
interest rate of 1.00%, and we received gross origination fees of approximately
$2.3 million. The Company received this fee revenue from the SBA in late June
2020, and it was deferred over the life of the PPP loans and recognized as
interest income. The Company began processing applications for forgiveness from
this round beginning in December 2020 and 100% of loan balances had been
forgiven as of December 31, 2021.

On December 27, 2020, $285 billion in additional funding was allocated to the
PPP through the passage of the Economic Aid to Hard-Hit Small Businesses,
Nonprofits, and Venues Act. The Company began offering PPP loans again in 2021
and continued until the program's funds were depleted. These loans may be
forgiven if certain conditions are satisfied and are fully guaranteed by the
SBA. The loans originated during 2021 bear an interest rate of 1.00% and the
Company received gross origination fees of approximately $1.3 million. The
Company received this fee revenue from the SBA during 2021, and it was deferred
over the life of the PPP loans and recognized as interest income. The Company
began processing applications for forgiveness from this round beginning in May
2021 and 100% of loan balances had been forgiven as of September 30, 2022.

                                       53
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The following table provides a step-by-step view of PPP loan activity through
September 30, 2022.


(in thousands, except Number of Loans)          Number of Loans             Principal Balance           Net Deferred Fees
Originated                                               447              $           58,336          $            1,851
Principal repaid                                         (71)                         (7,184)
Net deferred fees recognized                                                                                      (1,253)
Balance, December 31, 2020                               376                          51,152                         598
Originated                                               281                          27,377                       1,125
Principal repaid                                        (634)                        (75,377)
Net deferred fees recognized                                                                                      (1,624)
Balance, December 31, 2021                                23                           3,152                          99
Originated                                                 -                               -                           -
Principal repaid                                         (18)                         (2,149)
Net deferred fees recognized                                                                                         (75)
Balance, March 31, 2022                                    5              $            1,003          $               24
Originated                                                 -                               -                           -
Principal repaid                                          (3)                           (809)
Net deferred fees recognized                                                                                         (19)
Balance, June 30, 2022                                     2              $              194          $                5
Originated                                                 -                               -                           -
Principal repaid                                          (2)                           (194)
Net deferred fees recognized                                                                                          (5)
Balance, September 30, 2022                                -              $                -          $                -


































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Provision for loan losses


The following table provides a rollforward of the allowance for loan losses for
the last five completed fiscal quarters and the nine months ended September 30,
2022 and 2021.
                                                                Three Months Ended                                                           Nine Months Ended
                         September 30,           June 30,          March
31,          December 31,          September 30,          September 30,          September 30,
(in thousands)                2022                 2022               2022                2021                   2021                   2022                   2021
Balance, beginning of
period                  $     29,153           $ 28,251           $ 27,841           $    28,000           $     28,066           $     27,841           $     29,484
Provision (credit)
charged to expense               892              1,185                791                  (238)                   (29)                 2,868                  1,268
Losses charged off
Commercial and
industrial                         -                  -                  -                     -                      -                      -                     28

Single tenant lease
financing                          -                  -                  -                     -                      -                      -                  2,391

Small business lending           130                  -                 80                     -                     10                    210                    222

Residential mortgage               -                  -                  -                     -                      -                      -                      6
Home equity                        -                  -                  -                     -                      -                      -                     51

Other consumer                   106                128                163                   106                    110                    397                    423
Tax refund advance
loans                              -                372              1,488                     -                      -                  1,860                      -
Total losses charged
off                              236                500              1,731                   106                    120                  2,467                  3,121
Recoveries
Commercial and
industrial                         2                  -                  -                     3                      2                      2                     85

Single tenant lease
financing                          -                  -              1,231                     -                      -                  1,231                      -

Small business lending             3                  2                 17                    48                     26                     22                     32
Residential mortgage               1                  1                  1                    51                      3                      3                     12
Home equity                        1                134                  2                     2                      2                    137                      5
Other consumer                    50                 80                 99                    81                     50                    229                    235
Total losses charged
off                               57                217              1,350                   185                     83                  1,624                    369
Balance, end of period  $     29,866           $ 29,153           $ 28,251           $    27,841           $     28,000           $     29,866           $     28,000

Net charge-offs
(recoveries)            $        179           $    283           $    381           $       (79)          $         37           $        843           $      2,752

Net charge-offs
(recoveries) to average
loans (annualized)
Commercial and
industrial                      0.00   %           0.00   %           0.00   %             (0.01  %)              (0.01  %)               0.00   %              (0.10  %)

Single tenant lease
financing                       0.00  %            0.00  %           (0.58  %)              0.00   %               0.00   %              (0.19  %)               0.34   %

Small business lending          0.14   %           0.00   %           0.23   %             (0.17  %)              (0.05  %)               0.22   %               0.20   %

Total commercial net
charge-offs
(recoveries)                    0.01  %            0.00  %           (0.20  %)             (0.01  %)               0.00   %              (0.06  %)               0.14  %
Residential mortgage            0.00   %           0.00   %           0.00   %             (0.11  %)              (0.01  %)               0.00   %               0.00   %
Home equity                    (0.01  %)          (1.42  %)          (0.04  %)             (0.04  %)              (0.05  %)              (0.94  %)               0.34   %
Other consumer                  0.20   %           0.30   %           0.40   %              0.28   %               0.24   %               0.30   %               0.32   %
Tax refund advance
loans                           0.00   %          23.55   %           9.97   %              0.00   %               0.00   %              11.84  %                0.00   %
Total consumer net
charge-offs
(recoveries)                    0.01   %           0.11   %           1.18   %             (0.02  %)               0.05   %               0.44   %               0.06   %
Total net charge-offs
(recoveries) to average
loans                           0.02  %            0.04  %            0.05  %              (0.01)  %               0.01   %               0.04   %               0.12   %
Total net (recoveries)
charge-offs, excluding
tax refund advance
loans                           0.02  %           (0.01  %)          (0.16  %)             (0.01)  %               0.01   %              (0.05)  %               0.12   %


                                       55
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  The allowance for loan losses was $29.9 million as of September 30, 2022,
compared to $27.8 million as of December 31, 2021. The allowance for loan losses
as a percentage of total loans, including and excluding PPP loans, was 0.92% at
September 30, 2022, compared to 0.96%, or 0.97% when excluding PPP loans, at
December 31, 2021. The allowance for loan losses as a percentage of
nonperforming loans increased to 497.3% as of September 30, 2022, compared to
376.2% as of December 31, 2021.

net shipments from 0.2 million dollars During the third quarter of 2022, which resulted in net discounts on average loans of 0.02%, compared to net refunds of average loans of 0.01% for the third quarter of 2021.


The provision for loan losses in the third quarter 2022 was $0.9 million,
compared to a $29 thousand credit for the third quarter 2021. The provision for
the third quarter 2022 was driven primarily by growth in the loan portfolio,
partially offset by reductions in specific reserves due to positive developments
on certain monitored loans.

investment securities portfolio


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

(in thousands)
                                       September 30,           June 30,          March 31,           December 31,           September 30,
Amortized Cost                             2022                  2022               2022                 2021                   2021
Securities available-for-sale
U.S. Government-sponsored agencies   $       38,197          $  41,542      

$45,335 $50,013 53,380 dollars
municipal bonds

                         71,156             71,264             72,420                 75,158                  76,528
Agency mortgage-backed securities -
residential                                 259,568            265,196            276,392                377,928                 398,504
Agency mortgage-backed securities -
commercial                                   17,825             23,312             24,815                 36,024                  34,109
Private label mortgage-backed
securities - residential                     12,320             13,259             15,090                 15,902                  19,997
Asset-backed securities                       5,000              5,000              5,000                  5,000                   5,000
Corporate securities                         44,644             42,655             47,580                 46,482                  48,460

Total available-for-sale                    448,710            462,228            486,632                606,507                 635,978
Securities held-to-maturity
Municipal securities                         13,957             13,969             13,981                 13,992                  14,538
Agency mortgage-backed securities -
residential                                 123,718            117,749             95,982                      -                       -
Agency mortgage-backed securities -
commercial                                    5,828              5,838              5,847                      -                       -
Corporate securities                         47,554             47,557             47,560                 45,573                  47,591
Total held-to-maturity                      191,057            185,113            163,370                 59,565                  62,129
Total securities                     $      639,767          $ 647,341          $ 650,002          $     666,072          $      698,107


                                       56
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(in thousands)
                                       September 30,           June 30,          March 31,           December 31,           September 30,
Approximate Fair Value                     2022                  2022               2022                 2021                   2021
Securities available-for-sale
U.S. Government-sponsored agencies   $       36,329          $  40,003      

43,847 dollars $49,040 $52,455
municipal bonds

                         63,537             67,923             72,804                 77,033                  77,450
Agency mortgage-backed securities -
residential                                 219,191            237,546            257,682                373,236                 395,105
Agency mortgage-backed securities -
commercial                                   16,522             22,207             24,156                 36,326                  34,780
Private label mortgage-backed
securities - residential                     11,041             12,479             14,818                 16,021                  20,235
Asset-backed securities                       4,884              4,897              4,986                  5,004                   5,005
Corporate securities                         42,061             40,434             46,995                 46,384                  48,977

Total available-for-sale                    393,565            425,489            465,288                603,044                 634,007
Securities held-to-maturity
Municipal securities                         12,668             13,356             14,093                 14,709                  15,319
Agency mortgage-backed securities -
residential                                 107,570            109,054             92,939                      -                       -
Agency mortgage-backed securities -
commercial                                    4,686              5,048              5,420                      -                       -
Corporate securities                         45,053             46,561             47,519                 46,759                  49,018
Total held-to-maturity                      169,977            174,019            159,971                 61,468                  64,337
Total securities                     $      563,542          $ 599,508          $ 625,259          $     664,512          $      698,344



The approximate fair value of available-for-sale investment securities decreased
$209.5 million, or 34.7%, to $393.6 million as of September 30, 2022, compared
to $603.0 million as of December 31, 2021. The decrease was due primarily to
decreases of $154.0 million in agency mortgage-backed securities - residential,
$19.8 million in agency mortgage-backed securities - commercial, $13.5 million
in municipal securities, and $12.7 million in U.S. Government-sponsored
agencies. The decrease in agency mortgage-backed securities - residential and
agency mortgage-backed securities - commercial was due primarily to the transfer
of $96.2 million of these securities from available-for-sale to held-to-maturity
in the first quarter 2022, as well as a decline in fair value resulting from the
continued rise in interest rates. The decreases in other securities types were
also driven by a decline in value resulting from the continued rise in interest
rates, as well as net paydown activity.

Accrued income and other assets


  Accrued income and other assets decreased $3.4 million, or 7.2%, to $43.5
million at September 30, 2022 compared to $46.9 million at December 31, 2021.
The decrease was primarily related to a decrease of $15.7 million in cash
pledged as collateral and $7.7 million in deferred tax assets, partially offset
by increases of $9.3 million in derivative assets, $8.6 million in income tax
receivable, and $2.1 million in investment fund partnerships. As of September
30, 2022 the Company had no pledged cash collateral compared to $15.7 million,
as of December 31, 2021. Cash collateral is pledged to counterparties on
interest rate swap agreements as security for its obligations related to these
agreements. Collateral posted and received is dependent on the fair value of the
underlying agreements as of the respective date.

Accrued expenses and other liabilities


  Accrued expenses and other liabilities decreased $15.9 million, or 52.0%, to
$14.7 million at September 30, 2022, compared to $30.5 million at December 31,
2021. The decrease in accrued expenses and other liabilities was due primarily
to decreases of $13.9 million, or 97.3%, in derivative liabilities and $3.9
million in accrued taxes, partially offset by increases of $1.8 million, or
0.3%, in other liabilities and $0.1 million in accrued salary and benefits.

                                       57
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deposit

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


                                                        September 30,                             June 30,                              March 31,                             December 31,                           September 30,
(dollars in thousands)                                      2022                                    2022                                   2022                                   2021                                   2021
Noninterest-bearing deposits                  $    142,635               4.5  %       $   126,153               4.0  %       $   119,197               3.7  %       $   117,531               3.7  %       $    110,117               3.4  %
Interest-bearing demand deposits                   337,765              10.6  %           350,551              11.1  %           334,723              10.4  %           247,967               7.8  %            201,557               6.3  %
Savings accounts                                    52,228               1.6  %            65,365               2.1  %            66,320               2.1  %            59,998               1.9  %             66,762               2.1  %
Money market accounts                            1,378,087              43.2  %         1,363,424              43.3  %         1,475,857              45.8  %         1,483,936              46.7  %          1,479,358              45.8  %
BaaS - brokered deposits                            96,287               3.0  %           194,133               6.2  %            50,006               1.6  %                 -               0.0  %                  -               0.0  %
Certificates of deposits                           773,040              24.2  %           800,598              25.3  %           889,789              27.6  %           970,107              30.5  %          1,043,898              32.4  %
Brokered deposits                                  412,602              12.9  %           251,877               8.0  %           282,087               8.8  %           299,420               9.4  %            322,903              10.0  %
Total deposits                                $  3,192,644             100.0  %       $ 3,152,101             100.0  %       $ 3,217,979             100.0  %       $ 3,178,959             100.0  %       $  3,224,595             100.0  %



Total deposits increased $13.7 million, or 0.4%, to $3.2 billion as of
September 30, 2022, compared to $3.2 billion as of December 31, 2021. This
increase was due primarily to increases of $113.2 million, or 37.8%, in brokered
deposits, $96.3 million in BaaS - brokered deposits, $89.8 million, or 36.2%, in
interest-bearing demand deposits and $25.1 million, or 21.4%, in
noninterest-bearing deposits, partially offset by decreases of $197.1 million,
or 20.3%, in certificates of deposits, $105.8 million, or 7.1% in money market
accounts and $7.8 million, or 13.0%, in savings accounts. The increase in
brokered deposits was due to accessing certain deposit channels during the third
quarter 2022 to support balance sheet liquidity and manage interest rate risk.
The increase in BaaS brokered deposits was due to a relationship established in
the first quarter 2022. The increase in the balance of interest-bearing demand
deposits was due primarily to a new customer relationship from the first quarter
of 2022 with approximately $100.0 million in deposits with a contractual term of
five years and a fixed rate of 1.15%. The decrease in the balance of
certificates of deposits was due to the maturity of higher-cost balances and
reduced pricing strategies designed to limit the volume of new production. The
decrease in money market accounts was due primarily to certain customer activity
that can be periodically volatile.

Recent Debt Offers


  In August 2021, the Company issued $60.0 million aggregate principal amount of
3.75% Fixed-to-Floating Rate Subordinated Notes due 2031 (the "2031 Notes") in a
private placement. The 2031 Notes initially bear a fixed interest rate of 3.75%
per year to, but excluding, September 1, 2026, and thereafter a floating rate
equal to the then-current benchmark rate (initially three-month Term SOFR plus
3.11%). The 2031 Notes are scheduled to mature on September 1, 2031. The 2031
Notes are unsecured subordinated obligations of the Company and may be repaid,
without penalty, on any interest payment date on or after September 1, 2026. The
2031 Notes are intended to qualify as Tier 2 capital under regulatory
guidelines. Pursuant to the terms of a Registration Rights Agreement between the
Company and the initial purchasers of the 2031 Notes, the Company offered to
exchange the 2031 Notes for subordinated notes that are registered under the
Securities Act of 1933, as amended, and have substantially the same terms as the
2031 Notes. On December 30, 2021, the Company completed an exchange of $59.3
million principal amount of the unregistered 2031 Notes for registered 2031
Notes in satisfaction of its obligations under the registration rights
agreement. Holders of $0.7 million of unregistered 2031 Notes did not
participate in the exchange.

Regulatory Capital Requirements


The Company and the Bank are subject to various regulatory capital requirements
administered by state and federal banking agencies. Capital adequacy guidelines
and, additionally for banks, prompt corrective action regulations, involve
quantitative measures of assets, liabilities, and certain off-balance-sheet
items calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by regulators about
components, risk weighting and other factors.

The Basel III Capital Rules became effective for the Company and the Bank on
January 1, 2015, subject to a phase-in period for certain provisions.
Quantitative measures established by the Basel III Capital Rules to ensure
capital adequacy require the maintenance of minimum amounts and ratios of Common
Equity Tier 1 capital, Tier 1 capital and Total capital, as defined in the
regulations, to risk-weighted assets, and of Tier 1 capital to adjusted
quarterly average assets ("Leverage Ratio").

                                       58
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The Basel III Capital Rules were fully phased in on January 1, 2019 and require
the Company and the Bank to maintain: 1) a minimum ratio of Common Equity Tier 1
capital to risk-weighted assets of 4.5%, plus a 2.5% "capital conservation
buffer" (resulting in a minimum ratio of Common Equity Tier 1 capital to
risk-weighted assets of 7.0%); 2) a minimum ratio of Tier 1 capital to
risk-weighted assets of 6.0%, plus the capital conservation buffer (resulting in
a minimum Tier 1 capital ratio of 8.5%); 3) a minimum ratio of Total capital to
risk-weighted assets of 8.0%, plus the capital conservation buffer (resulting in
a minimum Total capital ratio of 10.5%); and 4) a minimum Leverage Ratio of
4.0%.

The capital conservation buffer is designed to absorb losses during periods of
economic stress. Failure to maintain the minimum Common Equity Tier 1 capital
ratio plus the capital conservation buffer will result in potential restrictions
on a banking institution's ability to pay dividends, repurchase stock and/or pay
discretionary compensation to its employees.

The following tables present actual and required capital ratios as of
September 30, 2022 and December 31, 2021 for the Company and the Bank under the
Basel III Capital Rules. The minimum required capital amounts presented include
the minimum required capital levels as of September 30, 2022 and December 31,
2021, which are based on the Basel III Capital Rules. Capital levels required to
be considered well capitalized are based upon prompt corrective action
regulations, as amended to reflect the changes under the Basel III Capital
Rules.

                                                                                              Minimum Capital Required        Minimum Required to be Considered
                                                           Actual                                   - Basel III                       Well Capitalized
(dollars in thousands)                       Capital Amount             Ratio                         Capital Amount           Ratio            Capital Amount             Ratio
As of September 30, 2022:
Common equity tier 1 capital to
risk-weighted assets
Consolidated                               $       392,281               11.72  %                   $       234,271             7.00  %                      N/A                 N/A
Bank                                               462,999               13.87  %                           233,603             7.00  %       $       216,917                6.50  %
Tier 1 capital to risk-weighted assets
Consolidated                                       392,281               11.72  %                           284,472             8.50  %                      N/A                 N/A
Bank                                               462,999               13.87  %                           283,661             8.50  %               266,975                8.00  %
Total capital to risk-weighted assets
Consolidated                                       526,603               15.73  %                           351,406            10.50  %                      N/A                 N/A
Bank                                               492,865               14.77  %                           350,404            10.50  %               333,719               10.00  %
Leverage ratio
Consolidated                                       392,281                9.49  %                           165,323             4.00  %                      N/A                 N/A
Bank                                               462,999               11.22  %                           165,096             4.00  %               206,370                5.00  %



                                                                                           Minimum Capital Required -         Minimum Required to be Considered
                                                           Actual                                   Basel III                         Well Capitalized
(dollars in thousands)                       Capital Amount             Ratio                         Capital Amount           Ratio            Capital Amount             Ratio
As of December 31, 2021:
Common equity tier 1 capital to
risk-weighted assets
Consolidated                               $       384,499               12.93  %                   $       208,202             7.00  %                      N/A                 N/A
Bank                                               432,181               14.55  %                           207,913             7.00  %       $       193,062                6.50  %
Tier 1 capital to risk-weighted assets
Consolidated                                       384,499               12.93  %                           252,817             8.50  %                      N/A                 N/A
Bank                                               432,181               14.55  %                           252,466             8.50  %               237,615                8.00  %
Total capital to risk-weighted assets
Consolidated                                       516,571               17.37  %                           312,303            10.50  %                      N/A                 N/A
Bank                                               460,022               15.49  %                           311,870            10.50  %               297,019               10.00  %
Leverage ratio
Consolidated                                       384,499                9.22  %                           166,824             4.00  %                      N/A                 N/A
Bank                                               432,181               10.37  %                           166,693             4.00  %               208,366                5.00  %


                                       59
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shareholder profits


The Company's Board of Directors declared a cash dividend of $0.06 per share of
common stock payable October 17, 2022 to shareholders of record as of
September 30, 2022. The Company expects to continue to pay cash dividends on a
quarterly basis; however, the declaration and amount of any future cash
dividends will be subject to the sole discretion of the Board of Directors and
will depend upon many factors, including the Company's results of operations,
financial condition, capital requirements, regulatory and contractual
restrictions (including with respect to the Company's outstanding subordinated
debt), business strategy and other factors deemed relevant by the Board of
Directors.

As of September 30, 2022, the Company had $107.0 million principal amount of
subordinated debt outstanding evidenced by the 2029 Notes, 2030 Note and 2031
Notes. The agreements that govern our outstanding subordinated debt prohibit the
Company from paying any dividends on its common stock or making any other
distributions to shareholders at any time when there shall have occurred, and be
continuing to occur, an event of default under the applicable agreement. If an
event of default were to occur and the Company did not cure it, the Company
would be prohibited from paying any dividends or making any other distributions
to shareholders or from redeeming or repurchasing any common stock.

capital resources


The Company believes it has sufficient liquidity and capital resources to meet
its cash and capital expenditure requirements for the next twelve months and
longer. The Company may explore strategic alternatives, including additional
asset, deposit or revenue generation channels that complement our commercial and
consumer banking platforms, which may require additional capital. If the Company
is unable to secure such capital at favorable terms, its ability to take
advantage of such opportunities could be adversely affected.

On October 20, 2021, the Company's Board of Directors approved a stock
repurchase program authorizing the repurchase of up to $30.0 million of the
Company's outstanding common stock from time to time on the open market or in
privately negotiated transactions. In October 2022, the Company's Board of
Directors increased the authorization to $35.0 million. Under this program, the
Company repurchased 100,000 shares at a total cost of $4.4 million during 2021,
103,703 shares at a total cost of $5.1 million during the first quarter 2022,
294,464 shares at a total cost of $11.1 million during the second quarter 2022
and 120,000 shares at a total cost of $4.4 million during the third quarter
2022. The stock repurchase authorization is scheduled to expire on December 31,
2022. Various factors determine the amount and timing of our share repurchases,
including our capital requirements, organic growth and other strategic
opportunities, economic and market conditions (including the trading price of
our stock), and regulatory and legal considerations. See Part II, Item 2, of
this report for information regarding recent repurchase activity and our
remaining authority under the program.

Liquidity


Liquidity management is the process used by the Company to manage the continuing
flow of funds necessary to meet its financial commitments on a timely basis and
at a reasonable cost while also maintaining safe and sound operations.
Liquidity, represented by cash and investment securities, is a product of the
Company's operating, investing and financing activities. The primary sources of
funds are deposits, principal and interest payments on loans and investment
securities, maturing loans and investment securities, access to wholesale
funding sources and collateralized borrowings. While scheduled payments and
maturities of loans and investment securities are relatively predictable sources
of funds, deposit flows are greatly influenced by interest rates, general
economic conditions and competition. Therefore, the Company supplements deposit
growth and enhances interest rate risk management through borrowings and
wholesale funding, which are generally advances from the Federal Home Loan Bank
("FHLB") and brokered deposits.

The Company holds cash and investment securities that qualify as liquid assets
to maintain adequate liquidity to ensure safe and sound operations and meet its
financial commitments. At September 30, 2022, on a consolidated basis, the
Company had $614.6 million in cash and cash equivalents and investment
securities available-for-sale and $23.1 million in loans held-for-sale that were
generally available for its cash needs. The Company can also generate funds from
wholesale funding sources and collateralized borrowings. At September 30, 2022,
the Bank had the ability to borrow an additional $473.7 million from the FHLB,
the Federal Reserve and correspondent bank Fed Funds lines of credit.

                                       60
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The Company is a separate legal entity from the Bank and must provide for its
own liquidity. In addition to its operating expenses, the Company is responsible
for paying any dividends declared to its common shareholders and interest and
principal on outstanding debt. The Company's primary sources of funds are cash
maintained at the holding company level and dividends from the Bank, the payment
of which is subject to regulatory limits. At September 30, 2022, the Company, on
an unconsolidated basis, had $25.7 million in cash generally available for its
cash needs, which is in excess of its current annual regular shareholder
dividend and operating expenses.

The Company uses its sources of funds primarily to meet ongoing financial
commitments, including withdrawals by depositors, credit commitments to
borrowers, operating expenses and capital expenditures. At September 30, 2022,
approved outstanding loan commitments, including unused lines of credit and
standby letters of credit, amounted to $508.6 million. Certificates of deposits
and brokered deposits scheduled to mature in one year or less at September 30,
2022 totaled $549.5 million.

Management is not aware of any other events or regulatory requirements that, if
implemented, are likely to have a material effect on either the Company's or the
Bank's liquidity.

                                       61
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Reconciliation of non-GAAP financial actions


This Management's Discussion and Analysis contains financial information
determined by methods other than in accordance with GAAP. Non-GAAP financial
measures, specifically tangible common equity, tangible assets, tangible book
value per common share, tangible common equity to tangible assets, average
tangible common equity, return on average tangible common equity, total interest
income - FTE, adjusted total interest income - FTE, net interest income - FTE,
adjusted net interest income, adjusted net interest income - FTE, net interest
margin - FTE, adjusted net interest margin, adjusted net interest margin - FTE,
provision (benefit) for loan losses, excluding tax refund advance loans, average
loans, excluding tax refund advance loans, net (recoveries) charge-offs to
average loans, excluding tax refund advance loans, loans, excluding PPP loans,
allowance for loan losses to loans, excluding PPP loans, adjusted noninterest
expense, adjusted income before income taxes, adjusted income tax provision,
adjusted net income, adjusted diluted earnings per share, adjusted return on
average assets, adjusted return on average shareholders' equity, adjusted return
on average tangible common equity, adjusted effective income tax rate, income
before income taxes, excluding tax refund advance loans, income tax provision,
excluding tax refund advance loans, and net income, excluding tax refund advance
loans are used by the Company's management to measure the strength of its
capital and analyze profitability, including its ability to generate earnings on
tangible capital invested by its shareholders. The Company also believes that it
is a standard practice in the banking industry to present total interest income,
net interest income and net interest margin on a fully-taxable equivalent basis,
as those measures provide useful information for peer comparisons. Although the
Company believes these non-GAAP financial measures provide a greater
understanding of its business, they should not be considered a substitute for
financial measures determined in accordance with GAAP, nor are they necessarily
comparable to non-GAAP financial measures that may be presented by other
companies. Reconciliations of these non-GAAP financial measures to the most
directly comparable GAAP financial measures are included in the following table
for the last five completed fiscal quarters and the nine months ended September
30, 2022 and 2021.
                                       62
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                                                                         Three Months Ended                                                            Nine Months Ended
(dollars in thousands, except   September 30,           June 30,              March 31,           December 31,          September 30,         September 30,         September 30,
share and per share data)           2022                  2022                  2022                  2021                  2021                  2022                  2021
Total equity - GAAP            $   360,857           $   365,332           $   374,655           $   380,338           $   370,442           $    360,857          $    370,442
Adjustments:
  Goodwill                          (4,687)               (4,687)               (4,687)               (4,687)               (4,687)                (4,687)               (4,687)
Tangible common equity         $   356,170           $   360,645           $   369,968           $   375,651           $   365,755           $    356,170          $    365,755

Total assets - GAAP            $ 4,264,424           $ 4,099,806           $ 4,225,397           $ 4,210,994           $ 4,252,292           $  4,264,424          $  4,252,292
Adjustments:
  Goodwill                          (4,687)               (4,687)               (4,687)               (4,687)               (4,687)                (4,687)               (4,687)
Tangible assets                $ 4,259,737           $ 4,095,119           $ 4,220,710           $ 4,206,307           $ 4,247,605           $  4,259,737          $  4,247,605

Common shares outstanding        9,290,885             9,404,000             9,683,727             9,754,455             9,854,153              9,290,885             9,854,153

Book value per common share    $     38.84           $     38.85           $     38.69           $     38.99           $     37.59           $      38.84          $      37.59
Effect of goodwill                   (0.50)                (0.50)                (0.48)                (0.48)                (0.47)                 (0.50)                (0.47)
Tangible book value per common
share                          $     38.34           $     38.35           $     38.21           $     38.51           $     37.12           $      

38.34 $37.12


Total shareholders' equity to
assets                                8.46   %              8.91   %              8.87   %              9.03   %              8.71   %               8.46  %               8.71  %
Effect of goodwill                   (0.10  %)             (0.10  %)             (0.10  %)             (0.10  %)             (0.10  %)              (0.10) %              (0.10) %
Tangible common equity to
tangible assets                       8.36   %              8.81   %              8.77   %              8.93   %              8.61   %               8.36  %               8.61  %

Total average equity - GAAP    $   371,303           $   374,274           $   380,767           $   376,832           $   366,187           $    375,190          $    351,794
Adjustments:
  Average goodwill                  (4,687)               (4,687)               (4,687)               (4,687)               (4,687)                (4,687)               (4,687)
Average tangible common equity $   366,616           $   369,587           $   376,080           $   372,145           $   361,500           $    370,503          $    347,107

Return on average
shareholders' equity                  9.01   %             10.23   %             11.94   %             13.14   %             13.10   %              10.40  %              13.54  %
Effect of goodwill                    0.12   %              0.13   %              0.15   %              0.16   %              0.17   %               0.13  %               0.19  %
Return on average tangible
common equity                         9.13   %             10.36   %             12.09   %             13.30   %             13.27   %              10.53  %              13.73  %




















                                       63
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                                                                    Three Months Ended                                                             

Nine months are over

                             September 30,          June 30,          March 31,           December 31,           September 30,           September 30,           September 30,
(dollars in thousands)           2022                 2022               2022                 2021                   2021                    2022                    2021
Total interest income      $       39,099          $ 36,106          $  36,034          $      34,192          $       33,034          $      111,239          $       99,691
Adjustments:
  Fully-taxable equivalent
adjustments 1                       1,280             1,377              1,314                  1,348                   1,356                   3,971                   4,105
Total interest income -
FTE                        $       40,379          $ 37,483          $ 

37348 35,540 dollars $34390 $115,210 $103.796


Total interest income -
FTE                        $       40,379          $ 37,483          $  37,348          $      35,540          $       34,390          $      115,210          $      103,796
Adjustments:
  Income from tax refund
advance loans                           -              (149)            (2,864)                     -                       -                  (3,013)                      -
Adjusted total interest
income - FTE               $       40,379          $ 37,334          $  34,484          $      35,540          $       34,390          $      112,197          $      103,796

Net interest income        $       23,994          $ 25,680          $  25,750          $      23,505          $       20,919          $       75,424          $       63,051
Adjustments:
  Fully-taxable equivalent
adjustments 1                       1,280             1,377              1,314                  1,348                   1,356                   3,971                   4,105

Net Interest Income – Full Time $25,274 $27.057 $27.064 $24853 $22,275 $79,395 $67,156


Net interest income        $       23,994          $ 25,680          $  25,750          $      23,505          $       20,919          $       75,424          $       63,051
Adjustments:
  Subordinated debt
redemption cost                         -                 -                  -                      -                     810                       -                     810
  Income from tax refund
advance loans                           -              (149)            (2,864)                     -                       -                  (3,013)                      -
Adjusted net interest
income                     $       23,994          $ 25,531          $  22,886          $      23,505          $       21,729          $       72,411          $       63,861

Net interest income        $       23,994          $ 25,680          $  25,750          $      23,505          $       20,919          $       75,424          $       63,051
Adjustments:
  Fully-taxable equivalent
adjustments 1                       1,280             1,377              1,314                  1,348                   1,356                   3,971                   4,105
  Subordinated debt
redemption cost                         -                 -                  -                      -                     810                       -                     810
  Income from tax refund
advance loans                           -              (149)            (2,864)                     -                       -                  (3,013)                      -
Adjusted net interest
income - FTE               $       25,274          $ 26,908          $ 

24,200 $24853 $23,085 $76,382 67,966 dollars
1 Assuming a tax rate of 21%

                                       64
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                                                                       Three Months Ended                                                          

Nine months are over

                              September 30,           June 30,              March 31,           December 31,          September 30,         September 30,         September 30,
(dollars in thousands)            2022                  2022                  2022                  2021                  2021                  2022                  2021
Net interest margin                  2.40  %              2.60   %              2.56   %              2.30   %               2.00  %              2.52   %               2.05  %
  Effect of fully-taxable
equivalent adjustments 1             0.13  %              0.14   %              0.13   %              0.13   %               0.13  %              0.13   %               0.14  %
Net interest margin - FTE            2.53  %              2.74   %              2.69   %              2.43   %               2.13  %              2.65   %               2.19  %

Net interest margin                  2.40  %              2.60   %              2.56   %              2.30   %               2.00  %              2.52   %               2.05  %
  Effect of subordinated
debt redemption cost                 0.00  %              0.00  %               0.00  %               0.00   %               0.08  %              0.00   %               0.02  %
  Effect of income from tax
refund advance loans                 0.00  %             (0.02  %)             (0.28  %)              0.00   %               0.00  %             (0.10  %)               0.00  %
Adjusted net interest margin         2.40  %              2.58   %              2.28   %              2.30   %               2.08  %              2.42   %               2.07  %

Net interest margin                  2.40  %              2.60   %              2.56   %              2.30   %               2.00  %              2.52   %               2.05  %
  Effect of fully-taxable
equivalent adjustments               0.13  %              0.14  %               0.13  %               0.13   %               0.13  %              0.13   %               0.14  %
  Effect of subordinated
debt redemption cost                 0.00  %              0.00  %               0.00  %               0.00   %               0.08  %              0.00   %               0.02  %
  Effect of income from tax
refund advance loans                 0.00  %             (0.02  %)             (0.28  %)              0.00   %               0.00  %             (0.10  %)               0.00  %
Adjusted net interest margin
- FTE                                2.53  %              2.72   %              2.41   %              2.43   %               2.21  %              2.55   %               2.21  %

Provision (benefit) for loan
losses                       $        892          $     1,185           $       791           $      (238)          $        (29)         $     2,868 
         $      1,268
Adjustments:
  Provision for tax refund
advance loans losses                    -                  (18)               (1,842)                    -                      -               (1,860)                     -
 Provision (benefit) for
loan losses, excluding tax
refund advance loans         $        892          $     1,167           $    (1,051)          $      (238)          $        (29)         $     1,008           $      1,268

Average loans                $  3,161,850          $ 2,998,144           $ 2,947,924           $ 2,914,858           $  2,933,654          $ 3,036,532           $  2,991,556
Adjustments:
  Average tax refund advance
loans                                   -               (3,185)              (60,499)                    -                      -              (20,996)                     -
Average loans, excluding tax
refund advance loans         $  3,161,850          $ 2,994,959           $ 2,887,425           $ 2,914,858           $  2,933,654          $ 3,015,536 

$2,991,556


Net charge-offs (recoveries)
to average loans                     0.02  %              0.04   %              0.05   %             (0.01  %)               0.01  %              0.04 
 %               0.12  %
Adjustments:
  Effect of tax refund
advance lending net
charge-offs to average loans         0.00  %             (0.05  %)             (0.21  %)              0.00   %               0.00  %             (0.08  %)               0.00  %
Net (recoveries) charge-offs
to average loans, excluding
tax refund advance loans             0.02  %             (0.01  %)             (0.16  %)             (0.01  %)               0.01  %             (0.04  %)               0.12  %

Allowance for loan losses    $     29,866          $    29,153           $    28,251           $    27,841           $     28,000          $    29,866  

$28000


Loans                        $  3,255,906          $ 3,082,127           $ 2,880,780           $ 2,887,662           $  2,936,148          $ 3,255,906           $  2,936,148
Adjustments:
  PPP loans                             -                 (194)               (1,003)               (3,152)               (14,981)                   -                (14,981)
Loans, excluding PPP loans   $  3,255,906          $ 3,081,933           $ 2,879,777           $ 2,884,510           $  2,921,167          $ 3,255,906 

$2921,167


Allowance for loan losses to
loans                                0.92  %              0.95   %              0.98   %              0.96   %               0.95  %              0.92   %               0.95  %
Effect of PPP loans                  0.00  %              0.00   %              0.00   %              0.01   %               0.01  %              0.00   %               0.01  %
Allowance for loan losses to
loans, excluding PPP loans           0.92  %              0.95   %              0.98   %              0.97   %               0.96  %              0.92 
 %               0.96  %


1 Assuming a 21% tax rate

                                       65
--------------------------------------------------------------------------------


(dollars in thousands,                                                      Three Months Ended                                                             Nine Months Ended
except share and per share           September 30,          June 30,       
  March 31,           December 31,           September 30,           September 30,           September 30,
data)                                    2022                 2022               2022                 2021                   2021                    2022                    2021

Useless account – GAAP $17995 17,985 dollars

  $  18,780          $      16,955          $       14,451          $       54,760          $       44,843
Adjustments:
  Acquisition-related
expenses                                        -              (103)              (170)                  (163)                      -                    (273)                      -
  Nonrecurring consulting
fee                                             -                 -               (875)                     -                       -                    (125)                      -
  Write-down of Software                     (125)                -                  -                   (475)                      -                    (875)                      -
  Discretionary inflation
bonus                                           -              (531)                 -                      -                       -                    (531)                      -
  Accelerated equity
compensation                                    -              (289)                 -                      -                       -                    (289)                      -

Adjusted non-interest expense $17,870 $17.062

$17,735 $16,317 14,451 dollars $52,667 $44,843


Income before income taxes -
GAAP                               $        9,423          $ 10,824         

$12,999 14,482 dollars $14,310 $33,246 $42,090
Adjustments:

  Gain on sale of premises
and equipment                                   -                 -                  -                      -                       -                       -                  (2,523)
  Acquisition-related
expenses                                        -               103                170                    163                       -                     273                       -
  Nonrecurring consulting
fee                                             -                 -                875                      -                       -                     875                       -
  Write-down of Software                      125                 -                  -                    475                       -                     125                       -
  Subordinated debt
redemption cost                                 -                 -                  -                      -                     810                       -                     810
  Discretionary inflation
bonus                                           -               531                  -                      -                       -                     531                       -
  Accelerated equity
compensation                                    -               289                  -                      -                       -                     289                       -
Adjusted income before
income taxes                       $        9,548          $ 11,747         

$14,044 $15,120 $15,120 $35,339 $40,377

Provision for Income Tax – $987 GAAP $1,279

$1,790 2,004 dollars $2220 $4,056 $6,454
Adjustments: 1

  Gain on sale of premises
and equipment                                   -                 -                  -                      -                       -                       -                    (530)
  Acquisition-related
expenses                                        -                21                 36                     34                       -                      57                       -
  Nonrecurring consulting
fee                                             -                 -                184                      -                       -                     184                       -
  Write-down of Software                       26                 -                  -                    100                       -                      26                       -
  Subordinated debt
redemption cost                                 -                 -                  -                      -                     170                       -                     170
  Discretionary inflation
bonus                                           -               112                  -                      -                       -                     112                       -
  Accelerated equity
compensation                                    -                61                  -                      -                       -                      61                       -
Adjusted income tax
provision                          $        1,013          $  1,473          $   2,010          $       2,138          $        2,390          $        4,496          $        6,094

Net income - GAAP                  $        8,436          $  9,545          $  11,209          $      12,478          $       12,090          $       29,190          $       35,636
Adjustments:
  Gain on sale of premises
and equipment                                   -                 -                  -                      -                       -                       -                  (1,993)
  Acquisition-related
expenses                                        -                82                134                    129                       -                     216                       -
  Nonrecurring consulting
fee                                             -                 -                691                      -                       -                     691                       -
  Write-down of Software                       99                 -                  -                    375                       -                      99                       -
  Subordinated debt
redemption cost                                 -                 -                  -                      -                     640                       -                     640
  Discretionary inflation
bonus                                           -               419                  -                      -                       -                     419                       -
  Accelerated equity
compensation                                    -               228                  -                      -                       -                     228                       -
Adjusted net income                $        8,535          $ 10,274        

12,034 USD $12,982 $12,730 $30,843 $34283
1 Assuming a tax rate of 21%

                                       66
--------------------------------------------------------------------------------

                                                                                     Three Months Ended                                                             Nine Months Ended
(dollars in thousands, except share        September 30,            June 30,              March 31,           December 31,          September 30,          September 30,         September 30,
and per share data)                             2022                  2022                  2022                  2021                   2021                  2022                   2021
Diluted average common shares
outstanding                                   9,525,855             9,658,689             9,870,394             9,989,951              9,988,102             9,681,742             9,974,071

Diluted earnings per share - GAAP         $        0.89          $       0.99          $       1.14          $       1.25          $        1.21          $       3.01          $       3.57
Adjustments:
  Effect of gain on sale of
premises and equipment                                -                     -                     -                     -                      -                     -                 (0.19)
  Effect of acquisition-related
expenses                                              -                  0.01                  0.01                  0.01                      -                  0.02                     -
  Effect of nonrecurring consulting
fee                                                   -                     -                  0.07                     -                      -                  0.07                     -
  Effect of write-down of software                 0.01                     -                     -                  0.04                      -                  0.01                     -
  Effect of subordinated debt
redemption cost                                       -                     -                     -                     -                   0.06                     -                  0.06
  Effect of discretionary inflation
bonus                                                 -                  0.04                     -                     -                      -                  0.04                     -
  Effect of accelerated equity
compensation                                          -                  0.02                     -                     -                      -                  0.02                     -

Adjusted diluted earnings per share $0.90 $1.06 $1.22 $1.30 $1.27

$3.17 $3.44


Return on average assets                           0.82  %               0.93  %               1.08  %               1.19  %                1.12  %               0.94  %               1.13   %
  Effect of gain on sale of
premises and equipment                             0.00  %               0.00  %               0.00  %               0.00  %                0.00  %               0.00  %              (0.06  %)
  Effect of acquisition-related
expenses                                           0.00  %               0.01  %               0.01  %               0.01  %                0.00  %               0.01  %               0.00   %
  Effect of nonrecurring consulting
fee                                                0.00  %               0.00  %               0.07  %               0.00  %                0.00  %               0.02  %               0.00   %
  Effect of write-down of software                 0.01  %               0.00  %               0.00  %               0.04  %                0.00  %               0.00  %               0.00   %
  Effect of subordinated debt
redemption cost                                    0.00  %               0.00  %               0.00  %               0.00  %                0.06  %               0.00  %               0.02   %
  Effect of discretionary inflation
bonus                                              0.00  %               0.04  %               0.00  %               0.00  %                0.00  %               0.01  %               0.00   %
  Effect of accelerated equity
compensation                                       0.00  %               0.02  %               0.00  %               0.00  %                0.00  %               0.01  %               0.00   %
Adjusted return on average assets                  0.83  %               1.00  %               1.16  %               1.24  %                1.18  %               0.99  %               1.09   %

Return on average shareholders'
equity                                             9.01  %              10.23  %              11.94  %              13.14  %               13.10  %              10.40  %              13.54   %
  Effect of gain on sale of
premises and equipment                             0.00  %               0.00  %               0.00  %               0.00  %                0.00  %               0.00  %              (0.75  %)
  Effect of acquisition-related
expenses                                           0.00  %               0.09  %               0.14  %               0.14  %                0.00  %               0.08  %               0.00   %
  Effect of nonrecurring consulting
fee                                                0.00  %               0.00  %               0.74  %               0.00  %                0.00  %               0.25  %               0.00   %
  Effect of write-down of software                 0.11  %               0.00  %               0.00  %               0.39  %                0.00  %               0.04  %               0.00   %
  Effect of subordinated debt
redemption cost                                    0.00  %               0.00  %               0.00  %               0.00  %                0.69  %               0.00  %               0.24   %
  Effect of discretionary inflation
bonus                                              0.00  %               0.45  %               0.00  %               0.00  %                0.00  %               0.15  %               0.00   %
  Effect of accelerated equity
compensation                                       0.00  %               0.24  %               0.00  %               0.00  %                0.00  %               0.08  %               0.00   %
Adjusted return on average
shareholders' equity                               9.12  %              11.01  %              12.82  %              13.67  %               13.79  %              11.00  %              13.03   %


                                       67
--------------------------------------------------------------------------------

(dollars in thousands,                                                    Three Months Ended                                                         Nine Months Ended
except share and per share          September 30,         June 30,          March 31,         December 31,          September 30,          September 30,          September 30,
data)                                   2022                2022              2022                2021                   2021                   2022                   2021
Return on average tangible
common equity                              9.13  %          10.36  %          12.09  %              13.30  %               13.27  %               10.53  %              13.73   %
  Effect of gain on sale of
premises and equipment                     0.00  %           0.00  %           0.00  %               0.00  %                0.00  %                0.00  %              (0.77  %)
  Effect of
acquisition-related expenses               0.00  %           0.09  %           0.14  %               0.14  %                0.00  %                0.08  %               0.00   %
  Effect of nonrecurring
consulting fee                             0.00  %           0.00  %           0.75  %               0.00  %                0.00  %                0.25  %               0.00   %
  Effect of write-down of
software                                   0.11  %           0.00  %           0.00  %               0.40  %                0.00  %                0.04  %               0.00   %
  Effect of subordinated
debt redemption cost                       0.00  %           0.00  %           0.00  %               0.00  %                0.70  %                0.00  %               0.25   %
  Effect of discretionary
inflation bonus                            0.00  %           0.45  %           0.00  %               0.00  %                0.00  %                0.15  %               0.00   %
  Effect of accelerated
equity compensation                        0.00  %           0.25  %           0.00  %               0.00  %                0.00  %                0.08  %               0.00   %
Adjusted return on average
tangible common equity                     9.24  %          11.15  %          12.98  %              13.84  %               13.97  %               11.13  %              13.21   %

Effective income tax rate                  10.5  %           11.8  %           13.8  %               13.8  %                15.5  %                12.2  %               15.3   %
  Effect of gain on sale of
premises and equipment                      0.0  %            0.0  %            0.0  %                0.0  %                 0.0  %                 0.0  %               (0.6  %)
  Effect of
acquisition-related expenses                0.0  %            0.2  %            0.3  %                0.1  %                 0.0  %                 0.2  %                0.0   %
  Effect of nonrecurring
consulting fee                              0.0  %            0.0  %            1.3  %                0.0  %                 0.0  %                 0.5  %                0.0   %
  Effect of write-down of
software                                    0.3  %            0.0  %            0.0  %                0.2  %                 0.0  %                 0.1  %                0.0   %
  Effect of subordinated
debt redemption cost                        0.0  %            0.0  %            0.0  %                0.0  %                 0.3  %                 0.0  %                0.4   %
  Effect of discretionary
inflation bonus                             0.0  %            1.0  %            0.0  %                0.0  %                 0.0  %                 0.3  %                0.0   %
  Effect of accelerated
equity compensation                         0.0  %            0.6  %            0.0  %                0.0  %                 0.0  %                 0.2  %                0.0   %
Adjusted effective income
tax rate                                   10.8  %           13.6  %           15.4  %               14.1  %                15.8  %                13.5  %               15.1   %
Income before income taxes -
GAAP                               $      9,423          $ 10,824          $ 12,999          $     14,482          $      14,310          $      33,246          $     42,090
Adjustments:
  Income from tax refund
advance lending                               -              (149)           (2,864)                    -                      -                 (3,013)                    -
  Provision for tax refund
advance loans losses                          -                18             1,842                     -                      -                  1,860                     -
  Tax refund advance lending
servicing fee                                 -                 9               921                     -                      -                    930                     -
Income before income taxes,
excluding tax refund advance
loans                              $      9,423          $ 10,702          

$12898 14,482 dollars $14,310 $33,023 $42,090

Provision for Income Tax – GAAP $987 $1,279 $1,790 2,004 dollars $2220 $4,056 $6,454
Adjustments: 1

  Income from tax refund
advance lending                               -               (31)             (601)                    -                      -                   (632)                    -
  Provision for tax refund
advance loans losses                          -                 4               387                     -                      -                    391                     -
  Tax refund advance lending
servicing fee                                 -                 2               193                     -                      -                    195                     -
Income tax provision,
excluding tax refund advance
loans                              $        987          $  1,254          $  1,769          $      2,004          $       2,220          $       4,010          $      6,454


                                       68
--------------------------------------------------------------------------------

(dollars in thousands,                                                Three Months Ended                                                             Nine Months Ended
except share and per           September 30,          June 30,         
March 31,           December 31,           September 30,           September 30,           September 30,
share data)                        2022                 2022               2022                 2021                   2021                    2022                    2021
Net income - GAAP            $        8,436          $  9,545          $  11,209          $      12,478          $       12,090          $       29,190          $       35,636
Adjustments:
  Income from tax
refund advance lending                    -              (118)            (2,263)                     -                       -                  (2,381)                      -
  Provision for tax
refund advance loans
losses                                    -                14              1,455                      -                       -                   1,469                       -
  Tax refund advance
lending servicing fee                     -                 7                728                      -                       -                     735                       -
Net income, excluding
tax refund advance
loans                        $        8,436          $  9,448          $  11,129          $      12,478          $       12,090          $       29,013          $       35,636


1 Assuming a tax rate of 21%

SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

There were no material changes in the company’s significant accounting policies or estimates from those disclosed in its annual report on Form 10-K for the year ended. December 31, 2021.

Modern Accounting Statements

Refer to note 15 to the condensed consolidated financial statements.

Balance Sheet Arrangements


In the ordinary course of business, the Company enters into financial
transactions to extend credit, interest rate swap agreements and forms of
commitments that may be considered off-balance sheet arrangements. Interest rate
swaps are arranged to receive hedge accounting treatment and are classified as
either fair value or cash flow hedges. Fair value hedges are purchased to
convert certain fixed rate assets to floating rate. Cash flow hedges are used to
convert certain variable rate liabilities into fixed rate liabilities. At both
September 30, 2022 and December 31, 2021, the Company had interest rate swaps
with notional amounts of $260.0 million. Additionally, we enter into forward
contracts related to our mortgage banking business to hedge the exposures we
have from commitments to extend new residential mortgage loans to our customers
and from our mortgage loans held-for-sale. At September 30, 2022 and
December 31, 2021, the Company had commitments to sell residential real estate
loans of $27.8 million and $72.8 million, respectively. These contracts mature
in less than one year. Refer to Note 13 to the condensed consolidated financial
statements for additional information about derivative financial instruments.
                                       69

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