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 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.

Current wording

The following discussion explains the Company’s financial condition and results of operations as of and for the three months ended March 31, 2025. 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, 2024, filed with the Securities and Exchange Commission, or the SEC, on March 6, 2025.

Previous wording

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

Current wording

dividends earned on investment securities and service charges. The Company’s principal expenses are interest paid on deposit accounts and borrowings, employee compensation and other overhead expenses. The Company’s simple, efficient business model of providing responsive support and unconventional experiences to clients continues to be the underlying principle that drives the Company’s profitable growth.

Previous wording

The consolidated financial statements of the Company are prepared based on the application of certain accounting policies, the most significant of which are described in “Note 1 – Description of the Business and Summary of Significant Accounting Policies” of the notes to the consolidated financial statements included as a part of the Company’s most recent Annual Report on Form 10-K, filed with the SEC on March 7, 2024. There have been no significant changes in the critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2023. Certain policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may significantly affect the reported results and financial position for the current period or in future periods. The use of estimates, assumptions, and judgments are necessary when financial assets and liabilities are required to be recorded or adjusted to reflect fair value. Assets carried at fair value inherently result in more financial statement volatility. Fair values and information used to record valuation adjustments for certain assets and liabilities are based on either quoted market prices or are provided by other independent third-party sources, when available. When such information is not available, management estimates valuation adjustments. Changes in underlying factors, assumptions or estimates in any of these areas could have a material impact on the future financial condition and results of operations. Management has discussed each critical accounting policy and the methodology for the identification and determination of critical accounting policies with the Company’s Audit Committee.

Current wording

The consolidated financial statements of the Company are prepared based on the application of certain accounting policies, the most significant of which are described in “Note 1 – Description of the Business and Summary of Significant Accounting Policies” of the notes to the consolidated financial statements included as a part of the Company’s most recent Annual Report on Form 10-K, filed with the SEC on March 6, 2025. There have been no significant changes in the critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2024. Certain policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may significantly affect the reported results and financial position for the current period or in future periods. Changes in underlying factors, assumptions or estimates in any of these areas could have a material impact on the future financial condition and results of operations. Management has discussed each critical accounting policy and the methodology for the identification and determination of critical accounting policies with the Company’s Audit Committee.

Previous 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.

Current wording

Net income was $9.6 million for the first quarter of 2025, compared to net income of $7.8 million for the first quarter of 2024. Earnings per diluted common share for the first quarter of 2025 were $0.31, compared to $0.24 per diluted common share for the first quarter of 2024. Adjusted net income, a non-GAAP financial measure, was $10.1 million for the first quarter of 2025, compared to $7.8 million for the first quarter of 2024. Adjusted earnings per diluted common share, a non-GAAP financial measure, for the first quarter of 2025 were $0.32, compared to $0.24 per diluted common share for the first quarter of 2024.

Previous 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.

Current wording

The following table presents, for the three months ended March 31, 2025 and 2024, 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. This table is 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 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:

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 March 31, 2025, compared to the three months ended March 31, 2024:

Previous wording

Net interest income was $25.6 million for the third quarter of 2024, an increase of $178,000 compared to $25.4 million for the third quarter of 2023. The increase in net interest income was primarily due to increased cash balances, growth and higher yields in the securities portfolio, and higher yields on loans, offset partially by growth and higher rates on deposits.

Current wording

Net interest income was $30.2 million for the first quarter of 2025, an increase of $5.6 million compared to $24.6 million for the first quarter of 2024. The increase in net interest income was primarily due to growth and higher yields in the securities and loan portfolios and purchase accounting accretion, offset partially by growth in deposits.

Previous 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.

Current wording

Net interest margin (on a fully tax-equivalent basis) for the first quarter of 2025 was 2.51%, a 27 basis point increase from 2.24% in the first quarter of 2024. Core net interest margin (on a fully tax-equivalent basis), a non-GAAP financial measure which excludes the impact of loan fees and purchase accounting accretion, was 2.37% for the first quarter of 2025, a 19 basis point increase from 2.18% in the first quarter of 2024. The increase in the margin was primarily due to lower costs of deposits, purchase accounting accretion, and higher core loan yields.

Previous 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

Current wording

Average interest earning assets produced a tax-equivalent yield of 5.43% for the first quarter of 2025, compared to 5.28% for the first quarter of 2024. The increase in the yield on interest earning assets was primarily due to growth and repricing of the loan portfolio, higher rates paid on FHLB stock, and purchase accounting accretion attributable to the acquisition of FMCB. The average rate paid on interest bearing liabilities was 3.82% for the first quarter of 2025, compared to 4.03% for the first quarter of 2024. The decrease was primarilydue to lower rates paid on deposits.

Previous 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.

Current wording

*Interest Income.*Total interest income, on a tax-equivalent basis, was $66.0 million for the first quarter of 2025, compared to $59.0 million for the first quarter of 2024. The $6.9 million, or 11.7%, increase in total interest income on a tax-equivalent basis was primarily due to growth of the loan portfolio and higher earning asset yields.

Previous 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.

Current wording

Interest income on the investment securities portfolio, on a tax-equivalent basis, increased $1.5 million for the first quarter of 2025, compared to the first quarter of 2024, primarily due to a $133.9 million, or 20.0%, increase in average balances between the two periods primarily attributable to the acquisition of FMCB.

Previous 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.

Current wording

Interest income on loans, on a tax-equivalent basis, was $54.0 million for the first quarter of 2025, compared to $49.9 million for the first quarter of 2024. The $4.1 million increase was primarily due to growth and repricing of the loan portfolio in the higher interest rate environment.

Previous 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.

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 5.61% in the first quarter of 2025, which was 23 basis points higher than 5.38% in the first quarter of 2024. Core loan yield continued to rise as new loans originated at higher yields and the existing portfolio repriced in the higher interest rate environment.

Previous wording

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

Current wording

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

Previous 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.

Current wording

*Interest Expense.*Interest expense on interest bearing liabilities was $35.5 million for the first quarter of 2025, an increase of $1.5 million, from $34.0 million for the first quarter of 2024. The increase was primarily due to growth of the deposit portfolio.

Previous 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.

Current wording

Interest expense on deposits was $32.1 million for the first quarter of 2025, an increase of $1.9 million, from $30.2 million for the first quarter of 2024. Theincrease in interest expense on deposits was primarily due tohigher balances in interest bearing transaction, savings and money market, and time deposits. The cost of total deposits was 3.18% in the first quarter of 2025, a 14 basis point decrease, compared to 3.32% in the first quarter of 2024. The decrease was primarily due to the downward repricing of the deposit portfolio and decreased average balance of brokered deposits.

Previous 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.

Current wording

Interest expense on borrowings was $3.4 million for the first quarter of 2025, a decrease of $400,000, compared to $3.8 million for the first quarter of 2024. The decrease was primarily due to a decreased utilization of federal funds purchased and a decrease in the average balance of FHLB advances.

Previous 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.

Current wording

The provision for credit losses on loans and leases was $1.5 million for the first quarter of 2025, compared to $850,000 for the first quarter of 2024. The provision for credit losses on loans and leases recorded in the first quarter of 2025 was primarily attributable to increased growth in the loan portfolio. The allowance for credit losses on loans and leases to total loans was 1.34% at March 31, 2025, compared to 1.36% at March 31, 2024.

Previous wording

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

Current wording

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

Previous 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.

Current wording

The provision for credit losses for off-balance sheet credit exposures was $-0- for the first quarter of 2025, compared to a negative provision of $100,000 for the first quarter of 2024. No provision was recorded during the first quarter of 2025 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 allowance for credit losses on off-balance sheet credit exposures was $3.6 million as of March 31, 2025 and December 31, 2024.

Previous 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.

Current wording

Noninterest expense was $18.1 million for the first quarter of 2025, an increase of $2.9 million from $15.2 million for the first quarter of 2024. The increase was primarily attributable to increasesin salaries and employee benefits, increased operating costs related to the acquisition, and merger-related expenses, offset partially by a decrease in the FDIC insurance assessment, which resulted from decreased brokered deposits and moderated loan growth.

Previous 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.

Current wording

The Company had 292 full-time equivalent employees at the end of the first quarter of 2025, compared to 255 at the end of the first quarter of 2024. The year-over-year increase was largely driven by the addition of employees from the acquisition of FMCB.

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 U.S. treasury securities, other mortgage backed and other debt

Current wording

The investment securities portfolio consists primarily of U.S. treasury securities, 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 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.

Previous wording

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

Current wording

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

Previous 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.

Current wording

The Company primarily focuses on real estate mortgage lending, which constituted 81.2% of the portfolio at March 31, 2025. 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 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.

Current wording

As of March 31, 2025, investor CRE loans totaled $2.76 billion, consisting of $1.06 billion of loans secured by nonowner occupied CRE, $1.53 billion of loans secured by multifamily residential properties, $39.4 million of 1-4 family construction loans and $128.1 million of construction and land development loans. Investor CRE loans represented 68.6% of the total gross loan portfolio and 469.8% of the Bank’s total risk-based capital at March 31, 2025, compared to 68.4% and 462.0%, respectively, at December 31, 2024.

Previous wording

The following table provides a breakdown of CRE nonowner occupied loans by collateral types as of September 30, 2024:

Current wording

The following table provides a breakdown of CRE nonowner occupied loans by collateral types as of March 31, 2025 and December 31, 2024:

Previous wording

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

Current wording

The Company emphasizes credit quality in the originating and monitoring of the loan portfolio, and success in underwriting is measured by the levels of classified and nonperforming assets and net charge-offs. Federal regulations and internal policies require the use of an asset classification system as a means of managing and reporting problem and potential problem assets. The Company has incorporated an internal asset classification system, substantially consistent with federal banking regulations, as a part of the credit monitoring system. Federal banking regulations set forth a classification scheme for problem and potential problem assets as “special mention,” “substandard,” “doubtful” or “loss” assets. An asset identified as “special mention” is not adversely classified but has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the payment prospects of the asset. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. A financial institution with assets classified

Previous wording

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

Current wording

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

Previous wording

Loans that have potential weaknesses that warranted a watchlist risk rating at September 30, 2024 totaled $32.0 million, compared to $26.5 million at December 31, 2023. Loans that warranted a substandard risk rating at September 30, 2024 totaled $31.6 million, compared to $35.9 million at December 31, 2023. Management continues to actively work with these borrowers and closely monitor substandard credits.

Current wording

Loans that have potential weaknesses that warranted a watch or special mention risk rating at March 31, 2025 totaled $38.3 million, compared to $46.6 million at December 31, 2024. Loans that warranted a substandard risk rating at March 31, 2025 totaled $31.6 million, compared to $21.8 million at December 31, 2024. Management continues to actively work with these borrowers and closely monitor substandard credits.

Previous wording

Nonperforming loans include loans accounted for on a nonaccrual basis and loans 90 days past due and still accruing. Nonaccrual loans totaled $8.4 million as of September 30, 2024 and $919,000 as of December 31, 2023. There were no loans 90 days past due and still accruing as of September 30, 2024 or December 31, 2023. As of September 30, 2024, there were $434,000 of foreclosed assets. There were no foreclosed assets as of December 31, 2023. The overall increase in nonperforming assets was primarily due to one central business district office loan, which previously had a substandard risk rating.

Current wording

Nonperforming loans include loans accounted for on a nonaccrual basis and loans 90 days past due and still accruing. Nonaccrual loans totaled $10.3 million as of March 31, 2025 and $301,000 as of December 31, 2024. There were no loans 90 days past due and still accruing as of March 31, 2025 or December 31, 2024. There were also no foreclosed assets as of March 31, 2025 and December 31, 2024.

Previous wording

The balance of nonperforming assets can fluctuate due to changes in economic conditions. The Company has established a policy to discontinue accruing interest on a loan (that is, to place the loan on nonaccrual status) after it has become 90 days delinquent as to payment of principal or interest, unless the loan is considered to be well-collateralized and is actively in the process of collection. In addition, a loan will be placed on nonaccrual status before it becomes 90 days delinquent unless management believes that the collection of interest is expected. Interest previously accrued but

Current wording

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

Previous wording

uncollected on such loans is reversed and charged against current income when the receivable is determined to be uncollectible. If management believes that a loan will not be collected in full, an increase to the allowance for credit losses on loans is recorded to reflect management’s estimate of any potential exposure or loss. Generally, payments received on nonaccrual loans are applied directly to principal. For the three and nine months ended September 30, 2024, the gross income that would have been recorded on nonaccrual loans was $116,000 and $152,000, respectively. For the three and nine months ended September 30, 2023, gross income that would have been recorded on nonacrrual loans was $20,000 and $51,000, respectively.

Current wording

received on nonaccrual loans are applied directly to principal. Gross income that would have been recorded on nonaccrual loans for three months ended March 31, 2025 and 2024 was $173,000 and $13,000, respectively.

Previous wording

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

Current wording

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

Previous wording

At September 30, 2024, the allowance for credit losses on loans was $51.0 million, an increase of $524,000 from $50.5 million at December 31, 2023. Net charge-offs totaled $931,000 during the third quarter of 2024 and $116,000 during the third quarter of 2023. Net charge-offs totaled $926,000 for the nine months ended September 30, 2024 and $111,000 for the nine months ended September 30, 2023. The allowance for credit losses on loans as a percentage of total loans was 1.38% at September 30, 2024, compared to 1.36% at December 31, 2023.

Current wording

At March 31, 2025, the allowance for credit losses on loans and leases was $53.8 million, an increase of $1.5 million from $52.3 million at December 31, 2024. Net charge-offs (recoveries) totaled $11,000 during the first quarter of 2025 and ($3,000) during the first quarter of 2024. The allowance for credit losses on loans and leases as a percentage of total loans was 1.34% at March 31, 2025 and 1.35% at December 31, 2024.

Previous wording

Total deposits at September 30, 2024 were $3.75 billion, an increase of $37.5 million, or 1.0%, compared to total deposits of $3.71 billion at December 31, 2023, and an increase of $71.9 million, or 2.0%, over total deposits of $3.68 billion at September 30, 2023. Core deposits, defined as total deposits excluding brokered deposits and time deposits greater than $250,000, increased $131.2 million, or 6.9% annualized, from December 31, 2023. Growth in core deposits was primarily due to increased balances of existing clients and new client acquisitions. Based on the nature of the Company’s client base, management believes core deposits could fluctuate in future periods as deposit growth is not always linear.

Current wording

Total deposits at March 31, 2025 were $4.16 billion, an increase of $75.7 million, or 1.9%, compared to total deposits of $4.09 billion at December 31, 2024, and an increase of $355.2 million, or 9.3%, over total deposits of $3.81 billion at March 31, 2024. Core deposits, defined as total deposits excluding brokered deposits and time deposits greater than $250,000, increased $63.7 million, or 8.3% annualized, from December 31, 2024. Growth in core deposits was primarily due to both increased balances of existing clients and new client acquisitions. Based on the nature of the Company’s client base, management believes core deposits could fluctuate in future periods as deposit growth is not always linear.

Previous wording

The Company relies on increasing the deposit base to fund loans and other asset growth. The Company is in a highly competitive market and competes for local deposits by offering attractive products with competitive rates. The Company expects to have a higher average cost of funds for local deposits compared to competitor banks due to the lack of an extensive branch network. The Company’s strategy is to offset the higher cost of funding with a lower level of operating expense. When appropriate, the Company utilizes alternative funding sources such as brokered deposits. The brokered deposit market provides flexibility in structure, optionality and efficiency not afforded in traditional retail deposit channels. As of September 30, 2024, total brokered deposits were $901.0 million, a decrease of $123.5 million, compared to total brokered deposits of $1.02 billion at December 31, 2023. Brokered deposits continue to be used as a supplemental funding source, as needed, to support loan portfolio growth.

Current wording

The Company relies on increasing the deposit base to fund loans and other asset growth. The Company is in a highly competitive market and competes for local deposits by offering attractive products with competitive rates. The Company expects to have a higher average cost of funds for local deposits compared to competitor banks due to the lack of an extensive branch network. The Company’s strategy is to offset the higher cost of funding with a lower level of operating expense. When appropriate, the Company utilizes alternative funding sources such as brokered deposits. The brokered deposit market provides flexibility in structure, optionality and efficiency not afforded in traditional retail deposit channels. As of March 31, 2025, total brokered deposits were $831.5 million, an increase of $5.7 million, compared to total brokered deposits of $825.8 million at December 31, 2024. Brokered deposits continue to be used as a supplemental funding source, as needed, to support loan portfolio growth.

Previous wording

The Company’s total uninsured deposits, which are the amounts of deposit accounts that exceed the FDIC insurance limit, currently $250,000, were approximately $944.0 million, or 25.0% of total deposits, at September 30, 2024 and $900.0 million, or 24.3% of total deposits, at December 31, 2023. These amounts were estimated based on the same methodologies and assumptions used for regulatory reporting purposes.

Current wording

The Company’s total uninsured deposits, which are the amounts of deposit accounts that exceed the FDIC insurance limit, currently $250,000, were approximately $1.20 billion, or 29.0% of total deposits, at March 31, 2025 and $1.14 billion, or 28% of total deposits, at December 31, 2024. These amounts were estimated based on the same methodologies and assumptions used for regulatory reporting purposes.

Previous wording

At September 30, 2024, the Company had outstanding FHLB advances of $349.5 million, compared to $319.5 million at December 31, 2023. The Company’s borrowing capacity at the FHLB is determined based on collateral pledged, generally consisting of loans. The Company had additional borrowing capacity under this credit facility of $509.2 million and $498.7 million at September 30, 2024 and December 31, 2023, respectively.

Current wording

At March 31, 2025, the Company had outstanding FHLB advances of $349.5 million, compared to $359.5 million at December 31, 2024. The Company’s borrowing capacity at the FHLB is determined based on collateral pledged, generally consisting of loans. The Company had additional borrowing capacity under this credit facility of $537.8 million and $483.2 million at March 31, 2025 and December 31, 2024, respectively.

Previous wording

The Company has an outstanding Loan and Security Agreement and revolving note with a third party correspondent lender, which is secured by 100% of the issued and outstanding stock of the Bank. On September 1, 2024, the Company entered into a third amendment to the agreement which extended the maturity date of the Company’s existing revolving line of credit with a maximum principal amount of $40.0 million from September 1, 2024 to September 1, 2026. The amendment also increased the floor rate from 3.85% to 4.50%. As of both September 30, 2024 and December 31, 2023, the Company had $13.8 million of outstanding balances under the revolving line of credit.

Current wording

The Company has an outstanding Loan and Security Agreement and revolving note with a third party correspondent lender, which is secured by 100% of the issued and outstanding stock of the Bank. The maximum principal amount of the revolving line of credit is $40.0 million, and the facility matures on September 1, 2026. As of both March 31, 2025 and December 31, 2024, the Company had $13.8 million of outstanding balances under the revolving line of credit and two outstanding letters of credit totaling $6.4 million under this facility.