Bridgewater Bancshares Inc

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Net income was $8.1 million for the second quarter of 2024, compared to net income of $9.8 million for the second quarter of 2023. Earnings per diluted common share for the second quarter of 2024 were $0.26, compared to $0.31 per diluted common share for the second quarter of 2023. Net income was $15.9 million for the six months ended June 30, 2024, compared to net income of $21.5 million for the six months ended June 30, 2023. Earnings per diluted common share for the six months ended June 30, 2024 were $0.50, compared to $0.69 per diluted common share for the six months ended June 30, 2023.

Current wording

Net income was $8.7 million for the third quarter of 2024, compared to net income of $9.6 million for the third quarter of 2023. Earnings per diluted common share for the third quarter of 2024 were $0.27, compared to $0.30 per diluted common share for the third quarter of 2023. Net income was $24.6 million for the nine months ended September 30, 2024, compared to net income of $31.1 million for the nine months ended September 30, 2023. Earnings per diluted common share for the nine months ended September 30, 2024 were $0.77, compared to $0.99 per diluted common share for the nine months ended September 30, 2023.

Previous wording

The following tables present, for the three and six months ended June 30, 2024 and 2023, the average balances of each principal category of assets, liabilities and shareholders’ equity, and an analysis of net interest income. The average balances are principally daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of net deferred loan origination fees and costs accounted for as yield adjustments. These tables are presented on a tax-equivalent basis, if applicable.

Current wording

The following tables present, for the three and nine months ended September 30, 2024 and 2023, the average balances of each principal category of assets, liabilities and shareholders’ equity, and an analysis of net interest income. The average balances are principally daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of net deferred loan origination fees and costs accounted for as yield adjustments. These tables are presented on a tax-equivalent basis, if applicable.

Previous wording

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

Current wording

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

Previous wording

Net interest margin (on a fully tax-equivalent basis) for the second quarter of 2024 was 2.24%, a 16 basis point decline from 2.40% in the second quarter of 2023. Core net interest margin (on a fully tax-equivalent basis), a non-GAAP financial measure which excludes the impact of loan fees, was 2.17% for the second quarter of 2024, a 14 basis point decline from 2.31% in the second quarter of 2023. The decline in the margin was primarily due to higher funding costs, offset partially by higher earning asset yields.

Current wording

Net interest margin (on a fully tax-equivalent basis) for the third quarter of 2024 was 2.24%, an eight basis point decline from 2.32% in the third quarter of 2023. Core net interest margin (on a fully tax-equivalent basis), a non-GAAP financial measure which excludes the impact of loan fees, was 2.16% for the third quarter of 2024, an eight basis point decline from 2.24% in the third quarter of 2023. The decline in the margin was primarily due to higher funding costs, offset partially by higher earning asset yields.

Previous wording

Average interest earning assets were $4.55 billion for the second quarter of 2024, an increase of $150.9 million, or 3.4%, compared to $4.40 billion for the second quarter of 2023. This increase in average interest earning assets was primarily due to growth in the loan portfolio and purchases of investment securities. Average interest bearing liabilities were $3.45 billion for the second quarter of 2024, an increase of $187.6 million, or 5.8%, compared to $3.26 billion for the second quarter of 2023. The increase in average interest bearing liabilities was primarily due to an increase in all deposit types and FHLB advances, offset partially by a decrease in federal funds purchased.

Current wording

Average interest earning assets were $4.60 billion for the third quarter of 2024, an increase of $179.1 million, or 4.1%, compared to $4.42 billion for the third quarter of 2023. This increase in average interest earning assets was primarily due to increased cash balances and purchases of investment securities. Average interest bearing liabilities were $3.49 billion for the third quarter of 2024, an increase of $226.6 million, or 6.9%, compared to $3.26 billion for the third quarter of 2023. The increase in average interest bearing liabilities was primarily due to an increase in all deposit types and FHLB advances, offset partially by a decrease in federal funds purchased.

Previous wording

Average interest earning assets produced a tax-equivalent yield of 5.41% for the second quarter of 2024, compared to 5.06% for the second quarter of 2023. The increase in the yield on interest earning assets was primarily due to the purchase of higher yielding securities and the growth and repricing of the loan and securities portfolios in the rising interest rate environment. The average rate paid on interest bearing liabilities was 4.19% for the second quarter of

Current wording

Average interest earning assets produced a tax-equivalent yield of 5.48% for the third quarter of 2024, compared to 5.14% for the third quarter of 2023. The increase in the yield on interest earning assets was primarily due to the purchase of higher yielding securities and the repricing of the loan and securities portfolios in the higher interest rate environment. The average rate paid on interest bearing liabilities was 4.27% for the third quarter of 2024, compared to

Previous wording

*Interest Income.*Total interest income, on a tax-equivalent basis, was $61.2 million for the second quarter of 2024, compared to $55.4 million for the second quarter of 2023. The $5.8 million increase in total interest income on a tax-equivalent basis was primarily due to growth in the loan portfolio, purchases of investment securities and higher earning asset yields in the rising interest rate environment.

Current wording

*Interest Income.*Total interest income, on a tax-equivalent basis, was $63.3 million for the third quarter of 2024, compared to $57.2 million for the third quarter of 2023. The $6.1 million, or 10.7%, increase in total interest income on a tax-equivalent basis was primarily due to purchases of investment securities and higher earning asset yields in the higher interest rate environment.

Previous wording

Interest income on the investment securities portfolio, on a tax-equivalent basis, increased $2.0 million for the second quarter of 2024, compared to the second quarter of 2023, primarily due to a $77.8 million, or 13.1%, increase in average balances between the two periods and higher rates earned on securities.

Current wording

Interest income on the investment securities portfolio, on a tax-equivalent basis, increased $2.2 million for the third quarter of 2024, compared to the third quarter of 2023, primarily due to a $105.0 million, or 17.6%, increase in average balances between the two periods and higher rates earned on securities.

Previous wording

Interest income on loans, on a tax-equivalent basis, was $51.6 million for the second quarter of 2024, compared to $48.1 million for the second quarter of 2023. The $3.5 million increase was primarily due to growth and repricing of the loan portfolio in the rising interest rate environment.

Current wording

Interest income on loans, on a tax-equivalent basis, was $52.1 million for the third quarter of 2024, compared to $49.3 million for the third quarter of 2023. The $2.8 million increase was primarily due to the repricing of the loan portfolio in the higher interest rate environment.

Previous wording

Loan interest income and loan fees remain the primary contributing factors to the changes in the yield on interest earning assets. The aggregate loan yield increased to 5.50% in the second quarter of 2024, which was 31 basis points higher than 5.19% in the second quarter of 2023. Despite the overall decrease in fee recognition, the core loan yield continues to rise as new loan originations and the existing portfolio reprice in the higher rate environment.

Current wording

Loan interest income and loan fees remained one of the primary contributing factors to the changes in the yield on interest earning assets. The aggregate loan yield increased to 5.57% in the third quarter of 2024, which was 31 basis points higher than 5.26% in the third quarter of 2023. The core loan yield continued to rise as new loans originated at higher yields and the existing portfolio reprice in the higher rate environment.

Previous wording

*Interest Expense.*Interest expense on interest bearing liabilities was $35.9 million for the second quarter of 2024, an increase of $6.8 million, from $29.1 million for the second quarter of 2023. The increase was primarily due to growth and upward repricing of the deposit portfolio in the higher interest rate environment, offset partially by an overall decrease in borrowings.

Current wording

*Interest Expense.*Interest expense on interest bearing liabilities was $37.4 million for the third quarter of 2024, an increase of $6.0 million, from $31.4 million for the third quarter of 2023. The increase was primarily due to growth and upward repricing of the deposit portfolio in the higher interest rate environment.

Previous wording

Interest expense on deposits was $31.6 million for the second quarter of 2024, an increase of $8.6 million, from $23.0 million for the second quarter of 2023. Theincrease in interest expense on deposits was primarily due to upward repricing of the deposit portfolio in the higher interest rate environment and the average balance of interest bearing deposits increasing by $273.1 million, or 10.1%. The cost of total deposits was 3.46% in the second quarter of 2024, an 80 basis point increase, compared to 2.66% in the second quarter of 2023. The increase was primarily due to the upward repricing of the deposit portfolio in the higher interest rate environment.

Current wording

Interest expense on deposits was $34.2 million for the third quarter of 2024, an increase of $7.0 million, from $27.2 million for the third quarter of 2023. Theincrease in interest expense on deposits was primarily due to upward repricing of the deposit portfolio in the higher interest rate environment and the average balance of interest bearing deposits increasing by $231.8 million, or 8.1%. The cost of total deposits was 3.58% in the third quarter of 2024, a 59 basis point increase, compared to 2.99% in the third quarter of 2023. The increase was primarily due to the upward repricing of the deposit portfolio in the higher interest rate environment.

Previous wording

Interest expense on borrowings was $4.3 million for the second quarter of 2024, a decrease of $1.9 million, compared to $6.1 million for the second quarter of 2023. The decrease was primarily due to a decreased utilization of federal funds purchased.

Current wording

Interest expense on borrowings was $3.2 million for the third quarter of 2024, a decrease of $921,000, compared to $4.2 million for the third quarter of 2023. The decrease was primarily due to a decreased utilization of federal funds purchased and a decrease in the rate on FHLB advances.

Previous wording

Net interest income was $49.6 million for the six months ended June 30, 2024, a decrease of $4.8 million, or 8.8%, compared to $54.4 million for the six months ended June 30, 2023. The decrease in net interest income was primarily due to higher rates paid on deposits and growth in the rising interest rate environment, offset partially by higher earning asset yields.

Current wording

Net interest income was $75.2 million for the nine months ended September 30, 2024, a decrease of $4.6 million, or 5.8%, compared to $79.9 million for the nine months ended September 30, 2023. The decrease in net interest income was primarily due to growth and higher rates paid on deposits, offset partially by growth and higher earning asset yields in the higher interest rate environment.

Previous wording

Net interest margin (on a fully tax-equivalent basis) for the six months ended June 30, 2024 was 2.24%, a 31 basis point decline from 2.55% for the six months ended June 30, 2023. Core net interest margin (on a fully tax-

Current wording

Net interest margin (on a fully tax-equivalent basis) for the nine months ended September 30, 2024 was 2.24%, a 23 basis point decline from 2.47% for the nine months ended September 30, 2023. Core net interest margin (on a fully

Previous wording

equivalent basis), a non-GAAP financial measure which excludes the impact of loan fees, was 2.18% for the six months ended June 30, 2024, a 29 basis point decline from 2.47% for the six months ended June 30, 2023.

Current wording

tax-equivalent basis), a non-GAAP financial measure which excludes the impact of loan fees, was 2.17% for the nine months ended September 30, 2024, a 22 basis point decline from 2.39% for the nine months ended September 30, 2023.

Previous wording

Average interest earning assets were $4.52 billion for the six months ended June 30, 2024, an increase of $159.8 million, or 3.7%, compared to $4.36 billion for the six months ended June 30, 2023. This increase in average interest earning assets was primarily due to organic growth in the loan portfolio, continued purchases of investment securities, and an increase in cash balances. Average interest bearing liabilities were $3.42 billion for the six months ended June 30, 2024, an increase of $226.7 million, or 7.1%, compared to $3.19 billion for the six months ended June 30, 2023. The increase in average interest bearing liabilities was primarily due to an increase in interest bearing transaction deposits, time deposits, brokered deposits, and FHLB advances, offset partially by a decrease in federal funds purchased.

Current wording

Average interest earning assets were $4.54 billion for the nine months ended September 30, 2024, an increase of $166.2 million, or 3.8%, compared to $4.38 billion for the nine months ended September 30, 2023. This increase in average interest earning assets was primarily due to organic growth in the loan portfolio, continued purchases of investment securities, and an increase in cash balances. Average interest bearing liabilities were $3.44 billion for the nine months ended September 30, 2024, an increase of $225.8 million, or 7.0%, compared to $3.22 billion for the nine months ended September 30, 2023. The increase in average interest bearing liabilities was primarily due to an increase in interest bearing transaction deposits, time deposits, brokered deposits, and FHLB advances, offset partially by a decrease in federal funds purchased.

Previous wording

Average interest earning assets produced a tax-equivalent yield of 5.35% for the six months ended June 30, 2024, compared to 4.99% for the six months ended June 30, 2023. The average rate paid on interest bearing liabilities was 4.11% for the six months ended June 30, 2024, compared to 3.32% for the six months ended June 30, 2023.

Current wording

Average interest earning assets produced a tax-equivalent yield of 5.39% for the nine months ended September 30, 2024, compared to 5.04% for the nine months ended September 30, 2023. The average rate paid on interest bearing liabilities was 4.16% for the nine months ended September 30, 2024, compared to 3.49% for the nine months ended September 30, 2023.

Previous wording

*Interest Income.*Total interest income on a tax-equivalent basis was $120.2 million for the six months ended June 30, 2024, compared to $107.8 million for the six months ended June 30, 2023. The $12.4 million increase in total interest income on a tax-equivalent basis was primarily due to organic growth in the loan portfolio, purchases of investment securities and higher earning asset yields in the rising interest rate environment.

Current wording

*Interest Income.*Total interest income on a tax-equivalent basis was $183.5 million for the nine months ended September 30, 2024, compared to $165.0 million for the nine months ended September 30, 2023. The $18.5 million increase in total interest income on a tax-equivalent basis was primarily due to an increase in cash balances, organic growth in the loan portfolio, purchases of investment securities and higher earning asset yields in the higher interest rate environment.

Previous wording

Interest income on the investment securities portfolio, on a tax-equivalent basis, increased $3.7 million during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to a $72.0 million, or 12.0%, increase in average balances and a 64 basis point increase in yield between the periods.

Current wording

Interest income on the investment securities portfolio, on a tax-equivalent basis, increased $5.9 million during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to a $83.1 million, or 13.9%, increase in average balances and a 63 basis point increase in yield between the periods.

Previous wording

Interest income on loans, on a tax-equivalent basis, for the six months ended June 30, 2024 was $101.5 million, compared to $93.3 million for the six months ended June 30, 2023. The $8.1 million increase was primarily due to a 2.1% increase in the average balances of loans outstanding and a 32 basis point increase in yield.

Current wording

Interest income on loans, on a tax-equivalent basis, was $153.6 million for the nine months ended September 30, 2024, compared to $142.7 million for the nine months ended September 30, 2023. The $10.9 million increase was primarily due to a 1.4% increase in the average balances of loans outstanding and a 31 basis point increase in yield.

Previous wording

Interest expense on deposits increased to $61.8 million for the six months ended June 30, 2024, compared to $39.4 million for the six months ended June 30, 2023. The $22.4 million increase in interest expense on deposits was primarily due to upward repricing of the deposit portfolio in the higher interest rate environment.

Current wording

Interest expense on deposits increased to $96.0 million for the nine months ended September 30, 2024, compared to $66.6 million for the nine months ended September 30, 2023. The $29.4 million increase in interest expense on deposits was primarily due to upward repricing of the deposit portfolio in the higher interest rate environment.

Previous wording

Interest expense on borrowings was $8.1 million for the six months ended June 30, 2024, compared to $13.2 million for the six months ended June 30, 2023. This decrease was primarily due to lower average balances of federal funds purchased, offset partially by higher average balances of FHLB advances.

Current wording

Interest expense on borrowings was $11.4 million for the nine months ended September 30, 2024, compared to $17.3 million for the nine months ended September 30, 2023. This decrease was primarily due to lower average balances of federal funds purchased.

Previous wording

The provision for credit losses on loans was $600,000 for the second quarter of 2024, compared to $550,000 for the second quarter of 2023. The provision for credit losses on loans was $1.5 million for the six months ended June 30, 2024, compared to $2.1 million for the six months ended June 30, 2023. The provision for credit losses on loans recorded in the second quarter of 2024 was primarily attributable to changes in the mix of the loan portfolio. The allowance for credit losses on loans to total loans was 1.37% at June 30, 2024, compared to 1.36% at June 30, 2023.

Current wording

The provision for credit losses on loans was $-0- for both the third quarter of 2024 and the third quarter of 2023. The provision for credit losses on loans was $1.5 million for the nine months ended September 30, 2024, compared to $2.1 million for the nine months ended September 30, 2023. Although loans decreased during the quarter, increased loss rates and other qualitative factor adjustments resulted in no provision for the quarter. The allowance for credit losses on loans to total loans was 1.38% at September 30, 2024, compared to 1.36% at December 31, 2023.

Previous wording

There was no provision for credit losses for off-balance sheet credit exposures for the second quarter of 2024, compared to a negative provision of $500,000 for the second quarter of 2023. No provision was recorded during the second quarter of 2024 due to unfunded commitments remaining stable as the migration to funded loans was offset by the volume of newly originated loans with unfunded commitments. The provision for credit losses for off-balance sheet exposures was a negative provision of $100,000 for the six months ended June 30, 2024, compared to a negative provision of $1.4 million for the six months ended June 30, 2023. The negative provision for both periods was due to a reduction in outstanding unfunded commitments. The allowance for credit losses on off-balance sheet credit exposures was $2.9 million as of second quarter of 2024, compared to $3.0 million as of December 31, 2023.

Current wording

The provision for credit losses for off-balance sheet credit exposures was $-0- for the third quarter of 2024, compared to a negative provision of $600,000 for the third quarter of 2023. No provision was recorded during the third quarter of 2024 due to unfunded commitments remaining stable as the migration to funded loans was offset by the volume of newly originated loans with unfunded commitments. The provision for credit losses for off-balance sheet exposures was a negative provision of $100,000 for the nine months ended September 30, 2024, compared to a negative provision of $2.0 million for the nine months ended September 30, 2023. The negative provision for both periods was due to a reduction in outstanding unfunded commitments. The allowance for credit losses on off-balance sheet credit exposures was $2.9 million as of September 30, 2024, compared to $3.0 million as of December 31, 2023.

Previous wording

Noninterest income was $1.8 million for the second quarter of 2024, an increase of $348,000 from $1.4 million for the second quarter of 2023. The increase was primarily due toa net gain on sale of securities and an increase in the cash surrender value of bank-owned life insurance. Noninterest income was $3.3 million for the six months ended June 30, 2024, a decrease of $45,000 from $3.4 million for the six months ended June 30, 2023. The decrease was primarily due to lower letter of credit fees and $299,000 of FHLB prepayment income recognized in the previous year which did not reoccur, offset partially by an increase in net gain on sale of securities.

Current wording

Noninterest income was $1.5 million for the third quarter of 2024, a decrease of $204,000 from $1.7 million for the third quarter of 2023. The decrease was primarily due to $493,000 of FHLB prepayment income recognized in the previous year which did not reoccur, offset partially by higher letter of credit fees, an increase in the cash surrender value of bank-owned life insurance and an increase in other income. Noninterest income was $4.8 million for the nine months ended September 30, 2024, a decrease of $249,000 from $5.1 million for the nine months ended September 30, 2023. The decrease was primarily due to lower letter of credit fees and $792,000 of FHLB prepayment income recognized in the previous year which did not reoccur, offset partially by an increase in net gain on sale of securities and an increase in the cash surrender value of bank-owned life insurance.

Previous wording

Noninterest expense was $15.5 million for the second quarter of 2024, an increase of $1.3 million from $14.3 million for the second quarter of 2023. The increase was primarily attributable to increasesin salaries and employee benefits, higher derivative collateral fees and information technology and telecommunications, offset partially by a decrease in the FDIC insurance assessment.

Current wording

Noninterest expense was $15.8 million for the third quarter of 2024, an increase of $523,000 from $15.2 million for the third quarter of 2023. The increase was primarily attributable to increasesin salaries and employee benefits, higher professional and consulting fees relating to the acquisition of First Minnetonka City Bank, increases in information technology and telecommunications, and marketing and advertising expense, offset partially by a decrease in the FDIC insurance assessment and lower derivative collateral fees.

Previous wording

Noninterest expense was $30.7 million for the six months ended June 30, 2024, an increase of $2.4 million, from $28.3 million for the six months ended June 30, 2023. The increase was primarily attributable to increases in salaries and employee benefits, higher derivative collateral fees and increases in information technology and communications, professional and consulting fees and data processing fees.

Current wording

Noninterest expense was $46.5 million for the nine months ended September 30, 2024, an increase of $2.9 million, from $43.6 million for the nine months ended September 30, 2023. The increase was primarily attributable to increases in salaries and employee benefits andhigher professional and consulting fees driven by the acquisition of First Minnetonka City Bank.

Previous wording

The Company had 258 full-time equivalent employees at the end of the second quarter of 2024, compared to 253 at the end of the second quarter of 2023.

Current wording

The Company had 265 full-time equivalent employees at the end of the third quarter of 2024, compared to 255 at the end of the third quarter of 2023.

Previous wording

The efficiency ratio was 58.7% for the second quarter of 2024, compared to 52.3% for the second quarter of 2023. The efficiency ratio for the six months ended June 30, 2024 and 2023 was 58.5% and 48.9%, respectively. The efficiencies of the Company’s “branch-light” model have positioned the Company well to continue navigating a challenging environment for a more spread-based revenue model.

Current wording

The efficiency ratio was 58.0% for the third quarter of 2024, compared to 56.1% for the third quarter of 2023. The efficiency ratio for the nine months ended September 30, 2024 and 2023 was 58.3% and 51.2%, respectively. The efficiencies of the Company’s “branch-light” model have positioned the Company well to continue navigating a challenging environment for a more spread-based revenue model.

Previous wording

Income tax expense was $2.5 million for the second quarter of 2024, compared to $3.1 million for the second quarter of 2023. The effective combined federal and state income tax rate for the second quarter of 2024 was 23.6%, compared to 24.3% for the second quarter of 2023. Income tax expense was $4.9 million for the six months ended June 30, 2024, compared to $7.3 million for the six months ended June 30, 2023. The effective combined federal and state income tax rate for the six months ended June 30, 2024 and 2023 was 23.6% and 25.4%, respectively. The decrease in the effective tax rate across both periods was primarily due to the timing and delivery of tax credits.

Current wording

Income tax expense was $2.7 million for the third quarter of 2024, compared to $2.9 million for the third quarter of 2023. The effective combined federal and state income tax rate for the third quarter of 2024 was 23.6%, compared to 23.0% for the third quarter of 2023. Income tax expense was $7.6 million for the nine months ended September 30, 2024, compared to $10.2 million for the nine months ended September 30, 2023. The effective combined federal and state income tax rate for the nine months ended September 30, 2024 and 2023 was 23.6% and 24.7%, respectively. The fluctuations in the effective tax rate across both periods was primarily due to the timing and delivery of tax credits.

Previous wording

Total assets at June 30, 2024 were $4.69 billion, an increase of $75.0 million, or 1.6%, over total assets of $4.61 billion at December 31, 2023, and an increase of $83.9 million, or 1.8%, over total assets of $4.60 billion at June 30, 2023. The year-to-date growth was primarily due to organic loan growth. The year-over-year growth was primarily due to organic loan growth and purchases of investment securities, offset partially by a decrease in cash and cash equivalents.

Current wording

Total assets at September 30, 2024 were $4.69 billion, an increase of $79.5 million, or 1.7%, over total assets of $4.61 billion at December 31, 2023, and an increase of $134.4 million, or 3.0%, over total assets of $4.56 billion at September 30, 2023. The year-to-date and year-over-year growth were primarily due to an increase in cash and cash equivalents and purchases of investment securities.

Previous wording

The investment securities portfolio consists primarily of U.S. government agency mortgage backed securities, municipal securities, and corporate securities comprised primarily of subordinated debentures of banks and financial holding companies. In addition, the Company also holds other mortgage backed and other debt securities, all with

Current wording

The investment securities portfolio consists primarily of U.S. government agency mortgage backed securities, municipal securities, and corporate securities comprised primarily of subordinated debentures of banks and financial holding companies. In addition, the Company also holds U.S. treasury securities, other mortgage backed and other debt

Previous wording

varying contractual maturities. These maturities do not necessarily represent the expected life of the securities as the securities may be called or paid down without penalty prior to their stated maturities. All investment securities are held as available for sale.

Current wording

securities. The investment securities portfolio has varying contractual maturities, some of these maturities do not necessarily represent the expected life of the securities as the securities may be called or paid down without penalty prior to their stated maturities. All investment securities are held as available for sale.

Previous wording

Securities available for sale were $601.1 million at June 30, 2024, compared to $604.1 million at December 31, 2023, a decrease of $3.0 million or 0.5%. At June 30, 2024, U.S. government agency mortgage-backed securities represented 16.5% of the portfolio, municipal securities represented 22.1% of the portfolio, corporate securities represented 23.3% of the portfolio, SBA securities represented 2.6% of the portfolio, other mortgage-backed securities represented 17.5% of the portfolio, and asset-backed securities represented 18.0% of the portfolio.

Current wording

Securities available for sale were $664.7 million at September 30, 2024, compared to $604.1 million at December 31, 2023, an increase of $60.6 million, or 10.0%. At September 30, 2024, U.S. government agency mortgage-backed securities represented 15.5% of the portfolio, municipal securities represented 16.8% of the portfolio, corporate securities represented 20.8% of the portfolio, U.S. treasury securities represented 15.9% of the portfolio, SBA securities represented 2.2% of the portfolio, other mortgage-backed securities represented 16.1% of the portfolio, and asset-backed securities represented 12.7% of the portfolio.

Previous wording

Total gross loans at June 30, 2024 were $3.80 billion, an increase of $76.1 million, or 2.0%, over total gross loans of $3.72 billion at December 31, 2023, and an increase of $64.2 million, or 1.7%, over total gross loans of $3.74 billion at June 30, 2023. For the six months ended June 30, 2024, the increase in the loan portfolio was primarily due to increased loan originations, partially offset by an increase in loan payoffs. Gross loans grew on an annualized basis of 4.1% during the six months ended June 30, 2024. The pace of loan growth has moderated, when compared to historical levels, due to active balance sheet management to align loan growth with the funding outlook and ultimately the impact of the higher interest rate environment on the number of prospective deals that meet underwriting standards.

Current wording

Total gross loans at September 30, 2024 were $3.69 billion, a decrease of $38.7 million, or 1.0%, over total gross loans of $3.72 billion at December 31, 2023, and a decrease of $36.7 million, or 1.0%, over total gross loans of $3.72 billion at September 30, 2023. The decrease in the loan portfolio during both periods was primarily due to elevated loan payoffs, offset partially by loan originations. The pace of loan growth has moderated in recent quarters, when compared to historical levels, due to active balance sheet management to continue to align loan growth with the funding outlook and ultimately the impact of the higher interest rate environment on the number of prospective deals that meet underwriting standards.

Previous wording

The Company primarily focuses on real estate mortgage lending, which constituted 81.1% of the portfolio at June 30, 2024. The composition of the portfolio has remained relatively consistent with prior periods and the Company does not expect any significant changes in the foreseeable future in the composition of the loan portfolio or in the emphasis on real estate lending.

Current wording

The Company primarily focuses on real estate mortgage lending, which constituted 81.8% of the portfolio at September 30, 2024. The composition of the portfolio has remained relatively consistent with prior periods and the Company does not expect any significant changes in the composition of the loan portfolio or the emphasis on real estate lending in the foreseeable future.

Previous wording

As of June 30, 2024, investor CRE loans totaled $2.67 billion, consisting of $1.07 billion of loans secured by nonowner occupied CRE, $1.40 billion of loans secured by multifamily residential properties, $60.6 million of 1-4 family construction loans and $134.1 million of construction and land development loans. Investor CRE loans represented 70.2% of the total gross loan portfolio and 465.9% of the Bank’s total risk-based capital at June 30, 2024, compared to 71.8% and 482.4%, respectively, at December 31, 2023.

Current wording

As of September 30, 2024, investor CRE loans totaled $2.58 billion, consisting of $1.03 billion of loans secured by nonowner occupied CRE, $1.38 billion of loans secured by multifamily residential properties, $45.8 million of 1-4 family construction loans and $118.6 million of construction and land development loans. Investor CRE loans represented 69.9% of the total gross loan portfolio and 449.1% of the Bank’s total risk-based capital at September 30, 2024, compared to 71.8% and 482.4%, respectively, at December 31, 2023.