FIRST ANALYSIS BY BANCORP INTERNET MANAGEMENT ON THE FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

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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,
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2020 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.

Overview

  First Internet Bancorp ("we," "our," "us," or the "Company") is a bank holding
company 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. 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, which manages other real estate owned ("OREO") properties
as needed; and SPF15, Inc., which was established to acquire and hold real
estate.

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 real estate ("CRE") banking,
commercial and industrial ("C&I") banking, public finance, healthcare finance,
small business lending, franchise finance and commercial deposits and treasury
management. Through our CRE team, we offer single tenant lease financing on a
nationwide basis in addition to traditional investor CRE and construction loans
on a regional basis. Our C&I banking team provides credit solutions such as
lines of credit, term loans, owner-occupied CRE loans and corporate credit cards
to commercial borrowers located primarily on a regional basis in the Midwest and
Southwest regions of the United States. 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 originally established in
conjunction with our strategic business 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 acquisition or refinancing of owner-occupied CRE and
equipment purchases. During the second quarter 2021, Provide announced that it
had entered into an agreement to be acquired by a super-regional financial
institution, which closed in the third quarter 2021. It is our expectation that
the acquiring institution will retain most, if not all, of Provide's loan
origination activity and that our healthcare finance loan balances may decline.
Our franchise finance business was established in July 2021 in conjunction with
our business relationship with ApplePie Capital, a leading provider of growth
financing to franchisees in various industry segments across the country. 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 hired and continue to recruit
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.

Covid-19 pandemic

  Throughout the coronavirus pandemic ("COVID-19"), our top priority has been
the health of our team and clients. As a digitally-focused institution without
branch locations, we were able to continue serving clients when they needed us
most, while minimizing operational disruptions caused by COVID-19. The vast
majority of our employees who worked remotely during the earlier stages of the
pandemic have returned to the office. Management continues to assess the
evolving health and safety situations at local, regional and national levels.
Our plans remain flexible to adapt as these situations evolve.

COVID-19 impacted our business during 2020 as the low interest rate environment
following Federal Reserve rate cuts in the first quarter 2020 reduced the yield
on interest-earning assets but also allowed us to reprice our interest-bearing
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deposits significantly lower, which provided an increase to net interest income.
Additionally, the low interest rate environment has driven residential mortgage
rates to historically low levels, which continued to benefit our mortgage
business.

  During 2021, federal, state and local governments have continued to take
additional steps to reopen and stimulate economies. We are optimistic that the
combination of vaccinations and government stimulus programs will help mitigate
any significant negative effects from the pandemic on our business and credit
quality; however, there is still significant uncertainty concerning the ongoing
trajectory of the pandemic and the speed at which the national and local
economies will recover. The extent to which COVID-19 will continue to impact our
business will depend on numerous evolving factors and future developments that
we are not able to predict, including potential new variants of COVID-19, the
effectiveness of continuing containment measures, including the speed of the
ongoing vaccine distribution effort, the efficacy of the various vaccines, and
how quickly and to what extent normal economic and operating conditions can
resume. Should economic conditions worsen to levels experienced in 2020, our
business and credit quality could be adversely affected.

Pending merge transaction

As previously reported, on November 1, 2021, we entered into a definitive
agreement to acquire all of the outstanding shares of common stock of First
Century Bancorp. ("First Century"), the parent company of First Century Bank,
N.A., for $80 million cash. With current headquarters in Roswell, GA, First
Century is a technology-driven, financial solutions company with lines of
business focused on payments, tax product lending, sponsored card programs and
homeowners association services. First Century also provides a wide range of
products and services, including business banking, specialty lending and deposit
products, to community-based businesses and individuals across its two branches
located in Commerce, GA and Hilton Head Island, SC. We expect to fund our
payment obligations upon closing with available on-balance sheet cash. The
transaction is anticipated to close in the first quarter 2022, subject to
satisfaction of customary closing conditions, including required approvals from
the FDIC, Indiana Department of Financial Institutions and the Federal Reserve
as well as First Century shareholder approval. As of September 30, 2021, First
Century had total assets of $408 million, total deposits of $330 million, and
total loans of $32 million. The acquisition, when completed, is expected to be
accretive to 2023 earnings per share and initially dilutive to tangible book
value per share.


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Results of operations

During the third quarter 2021, net income was $12.1 million, or $1.21 per
diluted share, compared to the third quarter 2020 net income of $8.4 million, or
$0.86 per diluted share, representing an increase in net income of $3.7 million,
or 43.7%. During the nine months ended September 30, 2021, net income was $35.6
million, or $3.57 per diluted share, compared to the nine months ended September
30, 2020 net income of $18.4 million, or $1.87 per diluted share, representing
an increase in net income of $17.3 million, or 94.1%.

The $3.7 million increase in net income for the third quarter 2021 compared to
the third quarter 2020 was due primarily to an increase of $4.7 million, or
28.9%, in net interest income, a decrease of $2.5 million, or 101.2%, in
(benefit) provision for loan losses and a $2.0 million, or 11.9%, decrease in
noninterest expense, partially offset by a decrease of $4.7 million, or 37.5%,
in noninterest income and an increase of $0.8 million, or 59.1%, in income tax
expense.

The $17.3 million increase in net income for the nine months ended September 30,
2021 compared to the nine months ended September 30, 2020 was due primarily to
an increase of $17.4 million, or 38.0%, in net interest income, a decrease of
$5.2 million, or 80.4%, in provision for loan losses and an increase of $1.5
million, or 6.2%, in noninterest income, partially offset by a $5.1 million, or
364.3%, increase in income tax expense and a $1.7 million, or 3.9%, increase in
noninterest expense.

During the third quarter 2021, return on average assets ("ROAA"), return on
average shareholders' equity ("ROAE"), and return on average tangible common
equity ("ROATCE") were 1.12%, 13.10%, and 13.27%, respectively, compared to
0.78%, 10.67%, and 10.83%, respectively, for the third quarter 2020. During the
nine months ended September 30, 2021, ROAA, ROAE, and ROATCE were 1.13%, 13.54%,
and 13.73%, respectively, compared to 0.58%, 7.90%, and 8.02%, respectively, for
the nine months ended September 30, 2020.

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. During the second
quarter 2021, the Company recognized a $2.5 million pre-tax gain on sale of its
corporate headquarters. Excluding both the redemption costs associated with the
subordinated notes due in 2026 and the gain on sale of the Company's corporate
headquarters, adjusted net income for the nine months ended September 30, 2021
was $34.3 million and adjusted diluted earnings per share was $3.44.
Additionally, for the third quarter 2021, adjusted ROAA, adjusted ROAE and
adjusted ROATCE were 1.18%, 13.79% and 13.97%, respectively, and for the nine
months ended September 30, 2021, adjusted ROAA, adjusted ROAE and adjusted
ROATCE were 1.09%, 13.03% and 13.21%, respectively.

These profitability ratios improved in the 2021 periods compared to the 2020
periods, as increases in net income and adjusted net income outpaced average
asset growth, which was down slightly from the 2020 periods.

Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Part I, Section 2 of this Report, Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information.

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Average consolidated balance sheets and analyzes of net interest income

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.
(dollars in thousands)                                                                                                                  Three Months Ended
                                                                September 30, 2021                                                         June 30, 2021                                                        September 30, 2020
                                                                      Interest                                                                Interest                                                                Interest
                                           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                      $      2,956,333          $     30,126                    4.04  %       $      3,016,330          $     30,835                    4.10  %       $      3,031,024          $     29,560                    3.88  %
Securities - taxable                              629,101                 2,297                    1.45  %                490,634                 1,921                    1.57  %                539,154                 2,240                    1.65  %
Securities - non-taxable                           84,241                   241                    1.14  %                 84,050                   259                    1.24  %                 94,398                   381                    1.61  %
Other earning assets                              479,051                   370                    0.31  %                509,735                   362                    0.28  %                552,058                   569                    0.41  %
Total interest-earning assets                   4,148,726                33,034                    3.16  %              4,100,749                33,377                    3.26  %              4,216,634                32,750                    3.09  %

Allowance for loan losses                         (28,127)                                                                (30,348)                                                                (25,347)
Noninterest-earning assets                        144,590                                                                 136,565                                                                 116,532
Total assets                             $      4,265,189                                                        $      4,206,966                                                        $      4,307,819

Liabilities
Interest-bearing liabilities
Interest-bearing demand deposits         $        198,637          $        150                    0.30  %       $        192,777          $        143                    0.30  %       $        154,275          $        228                    0.59  %
Regular savings accounts                           62,195                    56                    0.36  %                 55,811                    49                    0.35  %                 45,466                    79                    0.69  %
Money market accounts                           1,498,218                 1,532                    0.41  %              1,416,406                 1,462                    0.41  %              1,295,249                 2,442                    0.75  %
Certificates and brokered deposits              1,378,678                 5,352                    1.54  %              1,444,171                 6,051                    1.68  %              1,784,631                 9,679                    2.16  %
Total interest-bearing deposits                 3,137,728                 7,090                    0.90  %              3,109,165                 7,705                    0.99  %              3,279,621                12,428                    1.51  %
Other borrowed funds                              611,975                 5,025                    3.26  %                584,751                 4,065                    2.79  %                584,634                 4,090                    2.78  %
Total interest-bearing liabilities              3,749,703                12,115                    1.28  %              3,693,916                11,770                    1.28  %              3,864,255                16,518                    1.70  %
Noninterest-bearing deposits                      104,161                                                                  98,207                                                                  75,901
Other noninterest-bearing
liabilities                                        45,138                                                                  61,949                                                                  54,052
Total liabilities                               3,899,002                                                               3,854,072                                                               3,994,208

Shareholders' equity                              366,187                                                                 352,894                                                                 313,611
Total liabilities and
shareholders' equity                     $      4,265,189                                                        $      4,206,966                                                        $      4,307,819

Net interest income                                                $     20,919                                                            $     21,607                                                            $     16,232

Interest rate spread 1                                                                   1.88%                                                                   1.98%                                                                             1.39  %
Net interest margin 2                                                                    2.00%                                                                   2.11%                                                                             1.53  %
Net interest margin - FTE 3                                                              2.13%                                                                   2.25%                                                                             1.67  %



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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(dollars in thousands)                                                                                Nine Months Ended
                                                                 September 30, 2021                                                      September 30, 2020
                                                                       Interest                                                                Interest
                                            Average Balance           /Dividends             Yield /Cost            Average Balance           /Dividends             Yield /Cost
Assets
Interest-earning assets
Loans, including loans
held-for-sale                             $      3,016,817          $     91,846                    4.07  %       $      2,999,711          $     89,698                    3.99  %
Securities - taxable                               527,625                 5,997                    1.52  %                543,699                 9,135                    2.24  %
Securities - non-taxable                            85,130                   781                    1.23  %                 96,960                 1,410                    1.94  %
Other earning assets                               478,399                 1,067                    0.30  %                520,875                 2,973                    0.76  %
Total interest-earning assets                    4,107,971                99,691                    3.24  %              4,161,245               103,216                    3.31  %

Allowance for loan losses                          (29,446)                                                                (23,605)
Noninterest-earning assets                         136,954                                                                 108,561
Total assets                              $      4,215,479                                                        $      4,246,201

Liabilities
Interest-bearing liabilities
Interest-bearing demand deposits          $        190,785          $        425                    0.30  %       $        138,288          $        684                    0.66  %
Regular savings accounts                            54,740                   145                    0.35  %                 37,700                   249                    0.88  %
Money market accounts                            1,428,554                 4,385                    0.41  %              1,084,411                 9,726                    1.20  %
Certificates and brokered deposits               1,446,960                18,468                    1.71  %              1,952,973                34,740                    2.38  %
Total interest-bearing deposits                  3,121,039                23,423                    1.00  %              3,213,372                45,399                    1.89  %
Other borrowed funds                               593,605                13,217                    2.98  %                584,547                12,141                    2.77  %
Total interest-bearing liabilities               3,714,644                36,640                    1.32  %              3,797,919                57,540                    2.02  %
Noninterest-bearing deposits                        97,760                                                                  70,060
Other noninterest-bearing
liabilities                                         51,281                                                                  67,716
Total liabilities                                3,863,685                                                               3,935,695

Shareholders' equity                               351,794                                                                 310,506
Total liabilities and shareholders'
equity                                    $      4,215,479                                                        $      4,246,201

Net interest income                                                 $     63,051                                                            $     45,676

Interest rate spread 1                                                                              1.92  %                                                                 1.29  %
Net interest margin 2                                                                               2.05  %                                                                 1.47  %
Net interest margin - FTE 3                                                                         2.19  %                                                                 1.61  %



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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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, 2021 vs. June          Three Months Ended September 30, 2021 vs.              Nine Months Ended September 30, 2021 vs.
(dollars in thousands)                              30, 2021 Due to Changes in                       September 30, 2020 Due to Changes in               

September 30, 2020 Due to changes in

                                             Volume              Rate             Net              Volume              Rate             Net             Volume             Rate               Net
Interest income
Loans, including loans
held-for-sale                             $     (408)         $  (301)     

$ (709) $ (3,416) $ 3,982 $ 566 $

    476          $  1,672          $  2,148
Securities - taxable                           1,223             (847)            376                1,282           (1,225)              57           
  (264)           (2,874)           (3,138)
Securities - non-taxable                           3              (21)            (18)                 (38)            (102)            (140)             (158)             (471)             (629)
Other earning assets                            (107)             115               8                  (70)            (129)            (199)             (226)           (1,680)           (1,906)
Total                                            711           (1,054)           (343)              (2,242)           2,526              284              (172)           (3,353)           (3,525)

Interest expense
Interest-bearing deposits                        458           (1,073)           (615)                (516)          (4,822)          (5,338)           (1,264)          (20,712)          (21,976)
Other borrowed funds                             208              752             960                  199              736              935               183               893             1,076
Total                                            666             (321)            345                 (317)          (4,086)          (4,403)           (1,081)          (19,819)          (20,900)

Increase (decrease) in net interest
income                                    $       45          $  (733)         $ (688)         $    (1,925)         $ 6,612          $ 4,687          $    909          $ 16,466          $ 17,375



Net interest income for the third quarter 2021 was $20.9 million, an increase of
$4.7 million, or 28.9%, compared to $16.2 million for the third quarter 2020.
The increase in net interest income was the result of a $4.4 million, or 26.7%,
decrease in total interest expense to $12.1 million for the third quarter 2021
from $16.5 million for the third quarter 2020, as well as a $0.3 million, or
0.9% increase in total interest income to $33.0 million for the third quarter
2021 from $32.8 million for the third quarter 2020.

Net interest income for the nine months ended September 30, 2021 was $63.1
million, an increase of $17.4 million, or 38.0%, compared to $45.7 million for
the nine months ended September 30, 2020. The increase in net interest income
was the result of a $20.9 million, or 36.3%, decrease in total interest expense
to $36.6 million for the nine months ended September 30, 2021 from $57.5 million
for the nine months ended September 30, 2020, partially offset by a $3.5
million, or 3.4%, decrease in total interest income to $99.7 million for the
nine months ended September 30, 2021 from $103.2 million for the nine months
ended September 30, 2020.

The increase in total interest income for the third quarter 2021 compared to the
third quarter 2020 was due primarily to an increase in interest earned on loans,
partially offset by decreases in interest earned on other earning assets and
securities. Interest income earned on loans increased $0.6 million, or 1.9%, due
primarily to an increase of 16 basis points ("bps") in the yield earned on
average loan balances, partially offset by a decrease of $74.7 million, or 2.5%,
in average loan balances. The decrease in average loan balances was due
primarily to decreases in the average balance of single tenant lease financing,
residential mortgage, public finance, consumer lending and small business
lending portfolios, which included loans originated through the Paycheck
Protection Program ("PPP") that have since been forgiven, partially offset by
increases in the average balance of commercial and industrial, construction and
healthcare finance loan balances. Interest income earned on other earning assets
declined $0.2 million, or 35.0%, due mainly to a 10 bp decline in the yield
earned on these assets, as well as a decrease of $73.0 million, or 13.2%, in the
average balance of other earning assets. The decrease in the average balance of
other earning assets was due primarily to lower cash balances. Interest earned
on securities decreased $0.1 million, or 3.2%, due to a decline of 23 bps in the
yield earned on securities, partially offset by an increase of $79.8 million, or
12.6%, in the average balance of securities. The increase in loan yield was due
mainly to an increase in prepayment fee income. The decrease in the yield earned
on other earning assets was due primarily to lower market interest rates. The
decrease in the yield earned on securities was driven primarily by lower yields
earned on corporate securities as well as early redemptions and maturities in
corporate securities.

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The decrease in total interest income for the nine months ended September 30,
2021 compared to the nine months ended September 30, 2020 was due primarily to a
$3.8 million, or 35.7%, decrease in interest earned on securities and a $1.9
million, or 64.1%, decrease in interest earned on other earning assets,
partially offset by a $2.1 million, or 2.4%, increase in income from loans. The
decrease in income from securities and other earning assets was primarily due to
decreases of 72 bps and 46 bps, respectively, in the yield earned on these
assets as well as a modest decrease in the average balance of these assets. The
decrease in the yield earned on securities was driven primarily by lower market
interest rates following Federal Reserve interest rate cuts in March 2020 in
response to the economic effects of COVID-19, which contributed to increased
prepayment activity and lower yields earned on private label and agency
mortgage-backed securities and U.S. Government agency securities as well as
early redemptions and maturities in corporate and municipal securities. The
decrease in the yield earned on other earning assets was primarily due to lower
market interest rates, as described above. The increase in income from loans was
driven primarily by an 8 bp increase in the yield on loans and a modest increase
in average loan balances. The increase in loan yield was mostly due to an
increase in prepayment fee income as well as a shift in the loan mix towards
higher yielding commercial products.

Overall, the yield on interest-earning assets for the third quarter 2021
increased 7 bps to 3.16% from 3.09% for the third quarter 2020. The yield on
interest-earning assets for the nine months ended September 30, 2021 declined 7
bps to 3.24% from 3.31% for the nine months ended September 30, 2020. The
increase in the yield earned on interest-earning assets for the third quarter
2021 compared to the third quarter 2020 was due to a 16 bp increase in the yield
earned on loans, partially offset by decreases of 23 bps in the yield earned on
securities and 10 bps in other earning assets. The decrease in the yield earned
on interest-earning assets for the nine months ended September 30, 2021 compared
to the nine months ended September 30, 2020 was due to decreases of 72 bps in
the yield earned on securities and 46 bps in other earning assets, partially
offset by an 8 bp increase in the yield earned on loans. The decline in market
interest rates negatively impacted the yields earned on securities and cash
balances during both the quarter and the nine months ended September 30, 2021,
in comparison to the same time periods in 2020.

The decrease in total interest expense for the third quarter 2021 compared to
the third quarter 2020 was due to a decrease in interest expense related to
interest-bearing deposits, partially offset by an increase in interest expense
associated with other borrowed funds. Interest expense on certificates and
brokered deposits decreased $4.3 million, or 44.7%, due to a decline of 62 bps
in the cost of these deposits, as well as a $406.0 million, or 22.8%, decrease
in the 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 decrease in interest expense
related to money market accounts of $0.9 million, or 37.3%, was driven by a
decline of 34 bps in the cost of these deposits, partially offset by an increase
of $203.0 million, or 15.7%, in the average balance of these deposits. Average
money market balances increased from the prior year period due primarily to
targeted digital marketing efforts to grow small business accounts, as well as
consumers, small businesses and commercial clients increasing their cash
balances due in part to the economic uncertainty resulting from COVID-19. The
decrease in interest expense related to interest-bearing demand deposits and
savings accounts was due primarily to decreases of 29 bps and 33 bps,
respectively, partially offset by increases of $44.4 million, or 28.8%, and
$16.7 million, or 36.8%, respectively, in the average balance of these deposits.
The increase in interest expense associated with other borrowed funds was due
primarily to the recognition of $0.8 million of costs related to the Company
redeeming the 2026 Notes on September 30, 2021.

The decrease in total interest expense for the nine months ended September 30,
2021 compared to the nine months ended September 30, 2020 was due to a decrease
in interest expense related to interest-bearing deposits, partially offset by an
increase in interest expense associated with other borrowed funds. The decrease
in deposit interest expense was driven primarily by an 89 bp decline in the cost
of funds related to interest-bearing deposits and a decrease of $92.3 million,
or 2.9%, in the average balance of interest-bearing deposits. The average
balance of certificates and brokered deposits decreased $506.0 million, or
25.9%, while the cost of these deposits decreased 67 bps. 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 decrease in
interest expense related to money market accounts of $5.3 million, or 54.9%, was
driven by a decline of 79 bps in the cost of these deposits, partially offset by
an increase of $344.1 million, or 31.7%, in the average balance of these
deposits. Average money market balances increased from the prior year period due
primarily to targeted digital marketing efforts to grow small business accounts,
as well as consumers, small businesses and commercial clients increasing their
cash balances due in part to the economic uncertainty resulting from COVID-19.
The increase in interest expense associated with other borrowed funds was due
primarily to to the recognition of $0.8 million of costs related to the Company
redeeming the 2026 Notes on September 30, 2021.

Overall, the cost of total interest-bearing liabilities for the third quarter
2021 declined 42 bps to 1.28% from 1.70% for the third quarter 2020.
Additionally, the cost of total interest-bearing liabilities for the nine months
ended September 30, 2021 declined 70 bps to 1.32% from 2.02% for the nine months
ended September 30, 2020. Declines in the cost of funds were due to
                                       47
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the continued decrease in market interest rates from the prior year periods. The
sharp declines in both short- and long-term interest rates in response to the
economic effects of COVID-19 allowed the Company to reprice all of its deposit
products at lower rates. Furthermore, a shift in the deposit composition from
higher cost certificates and brokered deposits to lower cost non-maturity
deposit accounts also contributed to the decline in the cost of deposit funding.

Net interest margin ("NIM") was 2.00% for the third quarter 2021 compared to
1.53% for the third quarter 2020, an increase of 47 bps. On a fully-taxable
equivalent ("FTE") basis, NIM was 2.13% for the third quarter 2021 compared to
1.67% for the third quarter 2020, an increase of 46 bps.

NIM was 2.05% for the nine months ended September 30, 2021 compared to 1.47% for
the nine months ended September 30, 2020; an increase of 58 bps. FTE NIM was
2.19% for the nine months ended September 30, 2021 compared to 1.61% for the
nine months ended September 30, 2020; an increase of 58 bps.
The increase in third quarter 2021 NIM and FTE NIM compared to the third quarter
2020 reflects a decrease in the cost of funds while asset yields were up
modestly. The reduction in the cost of interest-bearing liabilities was due
primarily to the continued decrease in market interest rates from the prior year
period.

The increase in year-to-date September 2021 NIM and FTE NIM compared to
year-to-date September 2020 reflects a decrease in the cost of funds, partially
offset by a moderate decrease in interest-earning asset yields. The decline in
the cost of interest-bearing liabilities and the yield on interest-earning
assets was due primarily to the continued decrease in market interest rates from
the prior year period.

Looking ahead to the fourth quarter 2021 and into 2022, the Company believes
that yields on interest-earning assets will revert closer to what they were in
the second quarter 2021 and then increase from there as the Company anticipates
growing its commercial loan portfolio. The Company also continues to see
opportunities for further downward repricing of deposits in future periods. Over
the next twelve months, the Company has approximately $787.0 million of
certificates and brokered deposits with a weighted average cost of 1.22% that
are scheduled to mature. As the weighted average of cost of these deposits is
significantly higher than current new production costs, the Company expects the
cost of deposit funding to continue to decline during the remainder of 2021 and
into 2022.

Noninterest Income

The following table shows the non-interest income for the last five fiscal quarters ended and the nine months ended. September 30, 2021 and 2020. (in thousands)

                                                    Three Months Ended                                                             

Nine months ended

                          September 30,          June 30,           March 31,           December 31,           September 30,           September 30,           September 30,
                              2021                 2021               2021                  2020                   2020                    2021                    2020
Service charges and
fees                    $          276          $    280          $      266          $         206          $          224          $          822          $          618
Loan servicing revenue             511               457                 422                    379                     274                   1,390                     780
Loan servicing asset
revaluation                       (274)             (240)               (155)                   (60)                   (103)                   (669)                   (372)
Mortgage banking
activities                       3,850             2,674               5,750                  7,987                   9,630                  12,274                  16,706
Gain on sale of loans            2,719             3,019               1,723                  3,702                   2,033                   7,461                   4,596
Gain on sale of
securities                           -                 -                   -                      -                      98                       -                     139
Gain on sale of
premises and equipment               -             2.523                   -                      -                       -                   2,523                       -
Other                              731               249                 369                    443                     339                   1,349                   1,212
Total noninterest
income                  $        7,813          $  8.962          $    8,375          $      12,657          $       12,495          $       25,150          $       23,679



During the third quarter 2021, noninterest income was $7.8 million, representing
a decrease of $4.7 million, or 37.5%, compared to $12.5 million for the third
quarter 2020. The decrease in noninterest income was due primarily to a decrease
in revenue from mortgage banking activities, partially offset by increases in
gain on sale of loans and other noninterest income. The decline in mortgage
banking revenue in the third quarter of 2021 versus the third quarter of 2020
was due primarily to decreases in interest rate locks, sold loan volume and
gain-on-sale margins. The increase in gain on sale of loans was due an increase
in the volume of SBA 7(a) guaranteed loan sales and an increase in secondary
market premiums during the third quarter 2021. The increase in other noninterest
income was due primarily to a distribution from the Company's investment in a
Small Business Investment Company fund.

                                       48
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During the nine months ended September 30, 2021, noninterest income was $25.2
million, an increase of $1.5 million, or 6.2%, compared to $23.7 million for the
nine months ended September 30, 2020. The increase in noninterest income was due
primarily to increases in revenue from gain on sale of loans, gain on sale of
premises and equipment, and loan servicing revenue, which was partially offset
by a decrease in mortgage banking activities. The increase in gain on sale of
loans was due to an increase in the volume of SBA 7(a) guaranteed loan sales and
an increase in secondary market premiums during the nine months ended September
30, 2021. The increase in gain on sale of premises and equipment was due to the
Company completing the sale of its headquarters. The increase in loan servicing
revenue was due to growth in the balance of the Company's SBA 7(a) servicing
portfolio due to continued origination activity. The decrease in mortgage
banking income was due primarily to decreases in interest rate locks, sold loan
volume and gain-on-sale margins.

Non-interest charges

The following table shows the non-interest expenses for the last five fiscal quarters ended and the nine months ended. September 30, 2021 and 2020. (in thousands)

                                                  Three Months Ended                                                             

Nine months ended

                         September 30,          June 30,          March 31,           December 31,           September 30,           September 30,           September 30,
                             2021                 2021               2021                 2020                   2020                    2021                    2020
Salaries and employee
benefits               $        9,316          $  9,232          $   9,492          $       9,135          $        9,533          $       28,040          $       25,096
Marketing, advertising
and promotion                     813               872                680                    443                     426                   2,365                   1,212
Consulting and
professional services             728             1,078                986                    788                     614                   2,792                   2,723
Data processing                   380               382                462                    426                     388                   1,224                   1,102
Loan expenses                     383               541                534                    630                     408                   1,458                   1,406
Premises and equipment          1,687             1,587              1,601                  1,601                   1,568                   4,875                   4,795
Deposit insurance
premium                           230               275                425                    450                     440                     930                   1,360
Write-down of other
real estate owned                   -                 -                  -                      -                   2,065                       -                   2,065
Other                             914             1,108              1,137                  1,040                     970                   3,159                   3,383
Total noninterest
expense                $       14,451          $ 15,075          $  15,317          $      14,513          $       16,412          $       44,843          $       43,142



Noninterest expense for the third quarter 2021 was $14.5 million, compared to
$16.4 million for the third quarter 2020. The decrease of $2.0 million, or
11.9%, was due primarily to a $2.1 million write-down of a commercial other real
estate owned ("OREO") property during the third quarter 2020 as well as
decreases of $0.2 million, or 2.3%, in salaries and employee benefits and $0.2
million, or 47.7%, in deposit insurance premium during the third quarter 2021
compared to the third quarter 2020, partially offset by an increase of $0.4
million, or 90.8%, in marketing, advertising and promotion. The decrease in
salaries and employee benefits was due primarily to a decrease in medical claims
expense. The decrease in deposit insurance premium was due primarily to a
decrease in asset growth and an increase in the Bank's regulatory capital
ratios, both of which positively impact the formula used to calculate deposit
insurance expense. The increase in marketing, advertising and promotion was due
mainly to higher mortgage lead generation costs and digital marketing
initiatives.

Noninterest expense for the nine months ended September 30, 2021 was $44.8
million, compared to $43.1 million for the nine months ended September 30, 2020.
The increase of $1.7 million, or 3.9%, was due primarily to increases of $2.9
million in salaries and employee benefits and $1.2 million in marketing,
advertising and promotion, partially offset by a decrease of $2.1 million in
write-down of OREO, a $0.4 million decrease in deposit insurance premium and a
$0.2 million decrease in other noninterest expense. The increase in salaries and
employee benefits was due mainly to an increase in headcount, which includes the
impact of personnel growth associated with the Company's small business lending
platform. The increase in marketing, advertising and promotion was due primarily
to higher mortgage lead generation costs and digital marketing initiatives. The
decrease in write-down of OREO is due to a $2.1 million write-down of a
commercial OREO property that occurred in 2020. The decrease in deposit
insurance premium was due primarily to a decrease in asset growth and an
increase in the Bank's regulatory capital ratios, both of which positively
impact the formula used to calculate deposit insurance expense. The decrease in
other noninterest expense was due primarily to a $0.3 million charitable
contribution the Company made in 2020 to assist small businesses and nonprofits
in addressing the economic challenges of the COVID-19 pandemic.

Income tax provision was $2.2 million for the third quarter 2021, resulting in
an effective tax rate of 15.5%, compared to a tax provision of $1.4 million for
the third quarter 2020 and an effective tax rate of 14.2%. Income tax provision
was $6.5
                                       49
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million for the nine months ended September 30, 2021, resulting in an effective
tax rate of 15.3%, compared to an income tax provision of $1.4 million and an
effective tax rate of 7.0% for the nine months ended September 30, 2020. The
increase in income tax provision for the three months ended September 30, 2021
compared to the three months ended September 30, 2020 was due primarily to the
increase in pre-tax earnings driven primarily by the $2.1 million write-down of
OREO that occurred in the third quarter 2020. The increase in income tax
provision for the nine months ended September 30, 2021 compared to the nine
months ended September 30, 2020, was due primarily to the increase in pre-tax
earnings driven primarily by an increase in revenue and a decrease in the
provision for loan losses, partially offset by an increase in noninterest
expenses. Additionally, the lower income tax provision and effective tax rate
during the nine months ended September 30, 2020, was impacted by the passage of
the CARES Act, which was signed into law on March 27, 2020, and provided the
Company the ability to carryback certain federal net operating losses.

Financial condition

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

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

30,

Balance Sheet Data:                                 2021                   2021                 2021                 2020                   2020
Total assets                                  $    4,252,292          $ 4,204,642          $ 4,188,570          $  4,246,156          $    4,333,624
Loans                                              2,936,148            2,957,608            3,058,694             3,059,231               3,012,914
Total securities                                     696,136              729,178              530,566               565,851                 596,565

Loans held-for-sale                                   43,970               27,587               30,235                39,584                  76,208
Noninterest-bearing deposits                         110,117              113,996              101,700                96,753                  86,088
Interest-bearing deposits                          3,114,478           
3,092,151            3,116,903             3,174,132               3,286,303
Total deposits                                     3,224,595            3,206,147            3,217,603             3,270,885               3,372,391
Advances from Federal Home Loan Bank                 514,920              514,919              514,917               514,916                 514,914
Total shareholders' equity                           370,442              358,641              344,566               330,944                 318,102


Total assets increased $ 6.1 million, or 0.1%, to $ 4.3 billion To September 30, 2021 compared to $ 4.2 billion To December 31, 2020.

As of September 30, 2021, total shareholders' equity was $370.4 million, an
increase of $39.5 million, or 11.9%, compared to December 31, 2020, due
primarily to the net income earned during the period, as well as a decrease in
accumulated other comprehensive loss. Tangible common equity totaled $365.8
million as of September 30, 2021, representing an increase of $39.5 million, or
12.1%, compared to December 31, 2020. As both total shareholders' equity and
tangible common equity outpaced the growth in both total assets and tangible
assets, the ratio of total shareholders' equity to total assets increased to
8.71% as of September 30, 2021 from 7.79% as of December 31, 2020, and the ratio
of tangible common equity to tangible assets increased to 8.61% as of September
30, 2021 from 7.69% as of December 31, 2020.

Book value per common share increased 11.3% to $37.59 as of September 30, 2021
from $33.77 as of December 31, 2020. Tangible book value per share increased
11.5% to $37.12 as of September 30, 2021 from $33.29 as of December 31, 2020.
The growth in both book value per common share and tangible book value per share
reflects the growth in total shareholders' equity and tangible common equity
while total common shares outstanding increased slightly from December 31, 2020.
Refer to the "Reconciliation of Non-GAAP Financial Measures" section of Part I,
Item 2 of this report, Management's Discussion and Analysis of Financial
Condition and Results of Operations for additional information.


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Loan portfolio analysis

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

                                    September 30,                              June 30,                                March 31,                             December 31,                            September 30,
(dollars in thousands)                   2021                                    2021                                    2021                                    2020                                     2020
Commercial loans
Commercial and industrial $    107,142                3.6  %       $    96,203                3.3  %       $    71,835                2.3  %       $    75,387                2.5  %       $     77,116                2.6  %
Owner-occupied commercial
real estate                     84,819                2.9  %            87,136                2.9  %            87,930                2.9  %            89,785                2.9  %             89,095                3.0  %
Investor commercial real
estate                          28,505                1.0  %            28,871                1.0  %            14,832                0.5  %            13,902                0.5  %             13,084                0.4  %
Construction                   115,414                3.9  %           117,970                4.0  %           123,483                4.0  %           110,385                3.6  %             92,154                3.1  %
Single tenant lease
financing                      921,998               31.5  %           913,115               30.9  %           941,322               30.8  %           950,172               31.1  %            960,505               31.9  %
Public finance                 601,738               20.5  %           612,138               20.7  %           637,600               20.8  %           622,257               20.3  %            625,638               20.8  %
Healthcare finance             417,388               14.2  %           455,890               15.3  %           510,237               16.8  %           528,154               17.3  %            461,740               15.3  %
Small business lending         102,889                3.5  %           123,293                4.2  %           132,490                4.3  %           125,589                4.1  %            123,168                4.1  %
Franchise finance               25,598                0.9  %                 -                  -  %                 -                  -  %                 -                  -  %                  -                  -  %
Total commercial loans       2,405,491               82.0  %         2,434,616               82.3  %         2,519,729               82.4  %         2,515,631               82.3  %          2,442,500               81.2  %
Consumer loans
Residential mortgage           188,750                6.4  %           177,148                6.0  %           190,148                6.2  %           186,787                6.1  %            203,041                6.7  %
Home equity                     17,960                0.6  %            17,510                0.6  %            17,949                0.6  %            19,857                0.6  %             22,169                0.7  %
Other consumer                 268,396                9.1  %           271,796                9.2  %           270,209                8.8  %           275,692                9.0  %            282,450                9.3  %
Total consumer loans           475,106               16.1  %           466,454               15.8  %           478,306               15.6  %           482,336               15.7  %            507,660               16.7  %
Net deferred loan
origination costs,
premiums and discounts on
purchased loans and other
(1)                             55,551                1.9  %            56,538                1.9  %            60,659                2.0  %            61,264                2.0  %             62,754                2.1  %
Total loans                  2,936,148              100.0  %         2,957,608              100.0  %         3,058,694              100.0  %         3,059,231              100.0  %          3,012,914              100.0  %
Allowance for loan losses      (28,000)                                (28,066)                                (30,642)                                (29,484)                                 (26,917)
Net loans                 $  2,908,148                             $ 2,929,542                             $ 3,028,052                             $ 3,029,747                             $  2,985,997



(1) Includes carrying value adjustments of $38.9 million, $40.4 million, $41.6
million, $42.7 million and $44.3 million related to terminated interest rate
swaps associated with public finance loans as of September 30, 2021, June 30,
2021, March 31, 2021, December 31, 2020, and September 30, 2020, respectively.


Total loans were $2.9 billion as of September 30, 2021, a decrease of $123.1
million, or 4.0%, compared to December 31, 2020. Total commercial loan balances
were $2.4 billion as of September 30, 2021, down $110.1 million, or 4.4%, from
December 31, 2020. Total consumer loan balances were $475.1 million as of
September 30, 2021, a decrease of $7.2 million, or 1.5%, compared to December
31, 2020. Compared to December 31, 2020, the decline in commercial loan balances
was driven largely by net payoffs in healthcare finance, single tenant lease
financing, small business lending and public finance loans, which were partially
offset by increases in commercial and industrial, franchise finance and investor
commercial real estate loan balances.

The net payoffs in the healthcare finance portfolio were driven primarily by
elevated prepayment activity and minimal origination activity. Going forward, we
expect the balance of healthcare finance loans may continue to decline as a
result of Provide's acquisition by a super-regional financial institution, as
well as potential prepayment activity. The net payoffs in small business lending
were predominantly related to PPP loan forgiveness, partially offset by new
originations.

Franchise finance was established in July 2021 in conjunction with the Copmany's
business relationship with ApplePie Capital, a leading provider of growth
financing to franchisees in various industry segments across the country.
Through this relationship, we began funding portfolio loans in the third quarter
2021 and expect to fund a total of up to $100.0 million of loans by the end of
2021 and up to an additional $150.0 million of loans during 2022.

                                       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, OREO 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 31,         December 31,          September 30,
(dollars in thousands)                 2021                2021              2021                2020                  2020
Nonaccrual loans
Commercial loans:
Commercial and industrial         $        678          $    692          $

$ 1,002 – $ 117
Owner-occupied commercial property

                                   3,429             3,487             4,266                 1,838                 1,390

Single tenant lease financing            1,100             2,373             7,080                 7,116                 7,148
Small business lending (1)               1,351             1,209               865                     -                     -

Total commercial loans                   6,558             7,761            13,213                 8,954                 8,655
Consumer loans:
Residential mortgage                     1,253             1,253             1,120                 1,183                 1,085
Home equity                                 14                14                15                     -                     -
Other consumer                              26                10                23                    46                    34
Total consumer loans                     1,293             1,277             1,158                 1,229                 1,119
Total nonaccrual loans                   7,851             9,038            14,371                10,183                 9,774

Past Due 90 days and accruing
loans
Commercial loans:
Commercial and industrial                    -                 -               278                     -                     -

Total commercial loans                       -                 -               278                     -                     -

Total past due 90 days and
accruing loans                               -                 -               278                     -                     -

Total nonperforming loans                7,851             9,038            14,649                10,183                 9,774

Other real estate owned
Investor commercial real estate          1,188             1,188                 -                     -                     -
Residential mortgage                         -               112                 -                     -                     -
Total other real estate owned            1,188             1,300                 -                     -                     -

Other nonperforming assets                   -                 -                29                    35                     8

Total non-performing assets $ 9,039 $ 10,338 $ 14,678 $ 10,218 $ 9,782

Total nonperforming loans to
total loans(2)                            0.27  %           0.31  %           0.48  %               0.33  %               0.32  %
Total nonperforming assets to
total assets(2)                           0.21  %           0.25  %           0.35  %               0.24  %               0.23  %
Allowance for loan losses to
total loans                               0.95  %           0.95  %           1.00  %               0.96  %               0.89  %
Allowance for loan losses to
total loans, excluding PPP
loans(3)                                  0.96  %           0.96  %           1.02  %               0.98  %               0.91  %
Allowance for loan losses to
nonperforming loans(2)                   356.6  %          310.5  %          209.2  %              289.5  %              275.4  %



1 Balance represents U.S. government guaranteed loans.
2 Includes the impact of nonperforming small business lending loans, which are
guaranteed by the U.S. government.
3 This information 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.
                                       52
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Debt restructuring in difficulty

The following table provides a summary of troubled debt restructurings for the
last five completed fiscal quarters.
(in thousands)                          September 30,           June 30,           March 31,           December 31,           September 30,
                                            2021                  2021               2021                  2020                   2020
Troubled debt restructurings -
nonaccrual                            $        2,550          $   2,581     

$ 2,606 $ 2,637 $ 811 Distressed Debt Restructuring – Performing

                                       843              1,179               1,187                    367                     365

Total restructuring of troubled debts $ 3,393 $ 3,760

$ 3,793 $ 3,004 $ 1,176



The decline in nonperforming loans of $2.3 million, or 22.9%, to $7.9 million as
of September 30, 2021 compared to $10.2 million as of December 31, 2020 was due
primarily to a decrease in nonaccrual single tenant lease financing balances,
which was partially offset by an increase in nonperforming small business
lending, owner-occupied commercial real estate and commercial and industrial
loans. The decrease in nonaccrual single tenant lease financing balances was due
to a payoff of a loan that was previously on nonaccrual, as well as positive
developments related to a relationship which included two loans, one of which
was paid off at net book value (unpaid principal balance less specific reserves)
and the other was transferred to OREO.

Total nonperforming assets decreased $1.2 million, or 11.5%, as of September 30,
2021 compared to December 31, 2020, due primarily to a $2.3 million decrease in
nonperforming loans discussed above, partially offset by a $1.2 million increase
in OREO. The ratio of nonperforming loans to total loans decreased to 0.27% as
of September 30, 2021 compared to 0.33% as of December 31, 2020 and the ratio of
nonperforming assets to total assets decreased to 0.21% as of September 30, 2021
compared to 0.24% as of December 31, 2020, also due primarily to the loans and
OREO mentioned above.

Total TOR at September 30, 2021 were $ 3.4 million, up $ 0.4 million of
December 31, 2020. The increase is due to a residential mortgage that became a TDR in the first quarter of 2021.

  As of September 30, 2021, the Company had one commercial property in OREO,
with a carrying value of $1.2 million. The Company did not have any OREO as of
December 31, 2020.

  As of September 30, 2021, our financial results have reflected little impact
on asset quality as a result of COVID-19. We are optimistic that the combination
of vaccinations, government stimulus programs and relief programs we have
provided to our clients will continue to mitigate the impact of the pandemic on
the Company's business. However, if economic conditions return to levels
experienced during 2020, our credit quality and overall financial performance
could be adversely affected.

Non-TDR loan modifications 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 are in effect from the period beginning March 1, 2020 until the
earlier of January 1, 2022, or 60 days after the date on which the national
emergency related to the COVID-19 pandemic formally terminates.

  In accordance with this guidance, the Company has offered modifications to
borrowers who were both impacted by COVID-19 and current on all principal and
interest payments.   As of September 30, 2021, the Company had thirteen loans
totaling $3.0 million in non-TDR loan modifications due to COVID-19.

we Small Business Administration Paycheque Protection Program

Section 1102 of the CARES Act created the PPP, which is jointly administered by
the U.S. Small Business Administration ("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 workforces in an uncertain and challenging environment.
The loans originated in 2020 bear an interest rate of 1.00%, and we received
gross origination
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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 99.5% of loan
balances have been forgiven as of September 30, 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 is being
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 51.9% of loan balances have been forgiven as of September 30,
2021.

The Company anticipates that the majority of the PPP loans will ultimately be
forgiven, in whole or in part, by the SBA in accordance with the terms of the
program. Management anticipates that loan forgiveness applications will continue
throughout 2021.

The following table provides a rollforward of the activity of PPP loans through
September 30, 2021.

(dollars in thousands)
                                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                     (549)                     (63,548)
Net deferred fees recognized                                                            (1,242)
Balance, September 30, 2021           108                       14,981                     481



Allowance 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,
2021 and 2020.
(dollars in thousands)                                            Three Months Ended                                                          Nine Months Ended
                            September 30,          June 30,          March 31,         December 31,          September 30,          September 30,          September 30,
                                 2021                2021              2021                2020                   2020                   2021                   2020
Balance, beginning of
period                     $      28,066          $ 30,642          $ 29,484          $     26,917          $      24,465          $      29,484          $      21,840
Provision charged to
expense                              (29)               21             1,276                 2,865                  2,509                  1,268                  6,461
Losses charged off                  (120)           (2,689)             (311)                 (408)                  (241)                (3,121)                (1,755)
Recoveries                            83                92               193                   110                    184                    369                    371
Balance, end of period     $      28,000          $ 28,066          $ 30,642          $     29,484          $      26,917          $      28,000          $      26,917

Net charge-offs to average
loans                               0.01  %           0.35  %           0.02  %               0.04  %                0.01  %                0.12  %                0.06  %



  The allowance for loan losses was $28.0 million as of September 30, 2021,
compared to $29.5 million as of December 31, 2020. The decrease in the allowance
for loan losses compared to December 31, 2020 was due primarily to the
elimination of $2.9 million of specific reserves related to single tenant lease
financing loans and a commercial and industrial relationship, all of which had
been classified as nonaccrual. The single tenant lease financing loans included
a nonaccrual loan that was paid off during the quarter and a single tenant lease
financing relationship consisting of two loans, one of which was paid off at net
book value (unpaid principal balance less specific reserves) and the other was
transferred to OREO. The commercial and industrial relationship included four
loans, two of which were paid off during the quarter. The decrease in the
specific reserves
                                       54
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was partially offset by additional adjustments to the qualitative factors in the
Company's allowance model that increased the allowance for loan losses to total
loans.

   The allowance for loan losses as a percentage of total loans was 0.95% at
September 30, 2021, or 0.96%, when excluding PPP loans, compared to 0.96%, or
0.98%, when excluding PPP loans, at December 31, 2020. The allowance for loan
losses as a percentage of nonperforming loans increased to 356.6% as of
September 30, 2021, compared to 289.5% as of December 31, 2020, due to the
decrease in nonperforming loans related to single tenant lease financing loans
and the commercial and industrial relationship discussed above. The provision
for loan losses in the third quarter 2021 was less than $0.1 million, compared
to $2.5 million for the third quarter 2020. The decrease in the provision for
loan losses was due primarily to the decline in loan balances. During the third
quarter 2021, the Company recorded net charge-offs of less than $0.1 million,
compared to net charge-offs of $0.1 million for the third quarter 2020.


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                                 2021                  2021               2021                 2020                   2020
Securities available-for-sale
U.S. Government-sponsored agencies       $       53,380          $  57,984  

$ 60,815 $ 61,765 $ 65,007
Municipal titles

                             76,528             77,364             79,168                 82,757                  87,365
Agency mortgage-backed securities               432,613            445,895            229,981                241,795                 250,755
Private label mortgage-backed securities         19,997             29,003             40,550                 57,268                  71,519
Asset-backed securities                           5,000              5,000              5,000                  5,000                   5,000
Corporate securities                             48,460             48,447             48,433                 48,419                  48,406

Total available-for-sale                        635,978            663,693            463,947                497,004                 528,052
Securities held-to-maturity
Municipal securities                             14,538             14,549             14,560                 14,571                  14,582
Corporate securities                             47,591             51,110             53,630                 53,652                  53,672
Total held-to-maturity                           62,129             65,659             68,190                 68,223                  68,254
Total securities                         $      698,107          $ 729,352          $ 532,137          $     565,227          $      596,306


(in thousands)
                                           September 30,           June 30,          March 31,           December 31,           September 30,
Approximate Fair Value                         2021                  2021               2021                 2020                   2020
Securities available-for-sale
U.S. Government-sponsored agencies       $       52,455          $  57,135  

$ 59,478 $ 60,545 $ 63,682
Municipal titles

                             77,450             78,438             79,208                 82,489                  86,421
Agency mortgage-backed securities               429,885            444,494            228,818                243,921                 253,292
Private label mortgage-backed securities         20,235             29,363             41,106                 58,116                  72,626
Asset-backed securities                           5,005              5,005              5,006                  4,961                   4,921
Corporate securities                             48,977             49,084             48,760                 47,596                  47,369

Total available-for-sale                        634,007            663,519            462,376                497,628                 528,311
Securities held-to-maturity
Municipal securities                             15,319             15,373             15,109                 15,317                  15,328
Corporate securities                             49,018             52,685             54,274                 54,135                  53,848
Total held-to-maturity                           64,337             68,058             69,383                 69,452                  69,176
Total securities                         $      698,344          $ 731,577          $ 531,759          $     567,080          $      597,487



The approximate fair value of available-for-sale investment securities increased
$136.4 million, or 27.4%, to $634.0 million as of September 30, 2021, compared
to $497.6 million as of December 31, 2020. The increase was due primarily to an
increase of $186.0 million in agency mortgage-backed securities, partially
offset by a $38.1 million decrease in private label mortgage-backed securities
and a $8.1 million decrease in U.S. Government-sponsored agencies. The increase
in agency mortgage-backed securities was driven primarily by purchases during
the nine months ended September 30, 2021, partially
                                       55
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offset by prepayments and maturities on agency and private label mortgage-backed securities, as well as prepayments and maturities on municipal bonds.

Accrued income and other assets

  Accrued income and other assets decreased $9.9 million, or 15.4%, to $54.4
million at September 30, 2021 compared to $64.3 million at December 31, 2020.
The decrease was primarily related to a decrease of $11.3 million in cash
pledged as collateral. As of these dates, the Company pledged $19.3 million and
$30.6 million, respectively, of cash collateral 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.

Accruals and other liabilities

  Accrued expenses and other liabilities were $36.6 million at September 30,
2021 compared to $48.4 million at December 31, 2020. The decrease in accrued
expenses and other liabilities was due primarily to an $11.8 million, or 38.7%,
decrease in derivative liabilities due to changes in fair value.

Deposits

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

                                                        September 30,                             June 30,                              March 31,                             December 31,                           September 30,
(dollars in thousands)                                      2021                                    2021                                   2021                                   2020                                   2020
Noninterest-bearing deposits                  $    110,117               3.4  %       $   113,996               3.6  %       $   100,700               3.1  %       $    96,753               3.0  %       $     86,088               2.6  %
Interest-bearing demand deposits                   201,557               6.3  %           196,841               6.1  %           186,015               5.8  %           188,645               5.8  %            155,054               4.6  %
Savings accounts                                    66,762               2.1  %            56,298               1.8  %            51,251               1.6  %            43,200               1.3  %             49,890               1.5  %
Money market accounts                            1,479,358              45.8  %         1,432,355              44.6  %         1,397,449              43.4  %         1,350,566              41.3  %          1,359,178              40.3  %
Certificates of deposits                         1,043,898              32.4  %         1,087,350              33.9  %         1,174,764              36.5  %         1,289,319              39.4  %          1,360,575              40.3  %
Brokered deposits                                  322,903              10.0  %           319,307              10.0  %           307,424               9.6  %           302,402               9.2  %            361,606              10.7  %
Total deposits                                $  3,224,595             100.0  %       $ 3,206,147             100.0  %       $ 3,217,603             100.0  %       $ 3,270,885             100.0  %       $  3,372,391             100.0  %



Total deposits decreased $46.3 million, or 1.4%, to $3.2 billion as of
September 30, 2021, compared to $3.3 billion as of December 31, 2020. This
decrease was due primarily to a decline of $245.4 million, or 19.0%, in
certificates of deposits, partially offset by increases of $128.8 million, or
9.6%, in money market accounts, $23.6 million, or 54.5%, in savings accounts,
$20.5 million, or 6.8%, in brokered deposits, $13.4 million, or 13.8%, in
noninterest-bearing deposits, and $12.9 million, or 6.8%, in interest-bearing
demand deposits. The Company experienced strong growth in money market deposit
accounts due to targeted digital marketing efforts to grow small business
accounts as well as consumers, small business and commercial clients increasing
their cash balances in part due to the economic uncertainty resulting from the
COVID-19 pandemic. The decrease in certificates of deposits was due to the
maturity of higher cost balances and reduced pricing strategies designed to
limit the volume of new production.

Recent Debt Offers

  On October 26, 2020, the Company issued $10.0 million in aggregate principal
amount of 6.0% Fixed-to-Floating Rate Subordinated Notes due 2030 (the "2030
Notes"). The Notes were offered and sold by the Company in a private placement
and are scheduled to mature on November 1, 2030. The 2030 Notes bear interest at
a fixed rate of 6.0% per year from and including October 26, 2020, to, but
excluding, November 1, 2025, and thereafter at a floating interest rate
initially equal to the three-month term SOFR plus 5.795%. The 2030 Notes are
unsecured subordinated obligations of the Company and may be repaid, without
penalty, on any interest payment date on or after November 1, 2025. The 2030
Notes are intended to qualify as Tier 2 capital under regulatory guidelines. The
net proceeds were used to redeem the 2025 Note in January 2021.

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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 three-month SOFR, plus 311 basis points. 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. The Company
used a portion of the net proceeds from the issuance of the 2031 Notes to redeem
the 2026 Notes. Under the terms of a Registration Rights Agreement between the
Company and the initial purchasers of the 2031 Notes, the Company has agreed to
take certain actions to provide for the exchange of 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.

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").

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.

                                       57
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The following tables present actual and required capital ratios as of
September 30, 2021 and December 31, 2020 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, 2021 and December 31,
2020, 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, 2021:
Common equity tier 1 capital to
risk-weighted assets
Consolidated                               $       376,903               12.62  %                   $       209,119             7.00  %                      N/A                 N/A
Bank                                               417,612               13.99  %                           208,885             7.00  %       $       193,964                6.50  %
Tier 1 capital to risk-weighted assets
Consolidated                                       376,903               12.62  %                           253,930             8.50  %                      N/A                 N/A
Bank                                               417,612               13.99  %                           253,646             8.50  %               238,725                8.00  %
Total capital to risk-weighted assets
Consolidated                                       509,059               17.04  %                           313,679            10.50  %                      N/A                 N/A
Bank                                               445,612               14.93  %                           313,327            10.50  %               298,407               10.00  %
Leverage ratio
Consolidated                                       376,903                8.86  %                           170,169             4.00  %                      N/A                 N/A
Bank                                               417,612                9.83  %                           169,865             4.00  %               212,332                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, 2020:
Common equity tier 1 capital to
risk-weighted assets
Consolidated                               $       342,159               11.31  %                   $       211,828             7.00  %                      N/A                 N/A
Bank                                               377,678               12.49  %                           211,612             7.00  %       $       196,497                6.50  %
Tier 1 capital to risk-weighted assets
Consolidated                                       342,159               11.31  %                           257,220             8.50  %                      N/A                 N/A
Bank                                               377,678               12.49  %                           256,957             8.50  %               241,842                8.00  %
Total capital to risk-weighted assets
Consolidated                                       451,246               14.91  %                           317,742            10.50  %                      N/A                 N/A
Bank                                               407,162               13.47  %                           317,418            10.50  %               302,303               10.00  %
Leverage ratio
Consolidated                                       342,159                7.95  %                           172,154             4.00  %                      N/A                 N/A
Bank                                               377,678                8.78  %                           172,036             4.00  %               215,045                5.00  %



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Shareholder dividends

The Company's Board of Directors declared a cash dividend of $0.06 per share of
common stock payable October 15, 2021 to shareholders of record as of
September 30, 2021. 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 its 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,
including any potential impact resulting from COVID-19.

As of September 30, 2021, the Company had $107.0 million principal amount of
subordinated debt outstanding evidenced by its 6.0% Fixed-to-Floating Rate
Subordinated Notes due 2026, the 2029 Notes, the 2030 Notes, as well as its
3.75% Fixed-to-Floating Rate Subordinated Notes due 2031. 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 at least the next twelve
months. 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.

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 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. We believe we have sufficient on-balance sheet liquidity,
supplemented by access to additional funding sources, to manage the potential
economic impact of COVID-19. At September 30, 2021, on a consolidated basis, the
Company had $1.0 billion in cash and cash equivalents and investment securities
available-for-sale and $44.0 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, 2021, the Bank
had the ability to borrow an additional $597.9 million from the FHLB, the
Federal Reserve and correspondent bank Fed Funds lines of credit.

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, 2021, the Company, on
an unconsolidated basis, had $58.8 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, 2021,
approved outstanding loan commitments, including unused lines of credit and
standby letters of credit, amounted to $278.3 million. Certificates of deposits
and brokered deposits scheduled to mature in one year or less at September 30,
2021 totaled $787.0 million.
                                       59
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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.

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Reconciliation of non-GAAP financial measures

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 ratio, average
tangible common equity, return on average tangible common equity, total interest
income - FTE, net interest income - FTE, net interest margin - FTE, allowance
for loan losses to loans, excluding PPP loans, adjusted revenue, adjusted income
before income taxes, adjusted income tax, 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
and adjusted effective income tax rate 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, 2021 and 2020.

                                                                        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)           2021                  2021                 2021                 2020                 2020                  2021                  2020
Total equity - GAAP            $    370,442          $   358,641          $ 

344,566 $ 330,944 $ 318,102 $ 370,442

         $    318,102
Adjustments:
   Goodwill                          (4,687)              (4,687)              (4,687)              (4,687)               (4,687)               (4,687)               (4,687)

Ordinary tangible assets $ 365,755 $ 353,954 $

339 879 $ 326,257 $ 313,415 $ 365,765

$ 313,415

Total assets - GAAP            $  4,252,292          $ 4,204,642          $ 

4,188,570 $ 4,246,156 $ 4,333,624 $ 4,252,292

        $  4,333,624
Adjustments:
   Goodwill                          (4,687)              (4,687)              (4,687)              (4,687)               (4,687)               (4,687)               (4,687)
Tangible assets                $  4,247,605          $ 4,199,955          $

4,183,883 $ 4,241,469 $ 4,328,937 $ 4,247,605

$ 4,328,937

Common shares outstanding         9,854,153            9,854,153            9,823,831            9,800,569             9,800,569             9,854,153             9,800,569

Book value per common share $ 37.59 $ 36.39 $

35.07 $ 33.77 $ 32.46 $ 37.59

         $      32.46
Effect of goodwill                    (0.47)               (0.47)               (0.47)               (0.48)                (0.48)                (0.47)                (0.48)
Tangible book value per common
share                          $      37.12          $     35.92          $ 

34.60 $ 33.29 $ 31.98 $ 37.12

$ 31.98

Total shareholders' equity to
assets                                 8.71  %              8.53  %              8.23  %              7.79  %               7.34  %               8.71  %               7.34  %
Effect of goodwill                    (0.10) %             (0.10) %             (0.11) %             (0.10) %              (0.10) %              (0.10) %              (0.10) %
Tangible common equity to
tangible assets                        8.61  %              8.43  %              8.12  %              7.69  %               7.24  %               8.61  %               7.24  %

Total average equity – GAAP $ 366,187 $ 352,894 $

335,968 $ 323,464 $ 313,611 $ 351,794

         $    310,506
Adjustments:
   Average goodwill                  (4,687)              (4,687)              (4,687)              (4,687)               (4,687)               (4,687)               (4,687)

Average tangible ordinary equity $ 361,500 $ 348,207 $

  331,281          $   318,777          $    308,924          $    347,107          $    305,819

Return on average
shareholders' equity                  13.10  %             14.88  %             12.61  %             13.64  %              10.67  %              13.54  %               7.90  %
Effect of goodwill                     0.17  %              0.21  %              0.18  %              0.20  %               0.16  %               0.19  %               0.12  %
Return on average tangible
common equity                         13.27  %             15.09  %             12.79  %             13.84  %              10.83  %              13.73  %               8.02  %


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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)           2021                  2021                 2021                 2020                 2020                  2021                  2020
Total interest income          $     33,034          $    33,377          $    33,280          $    33,643          $     32,750          $     99,691          $    103,216
Adjustments:
Fully-taxable equivalent
adjustments 1                         1,356                1,394                1,356                1,400                 1,424                 4,105                 4,396

Total interest income – FTE $ 34,390 $ 34,771 $

34 636 $ 35,043 $ 34,174 $ 103,796

$ 107,612

Net interest income            $     20,919          $    21,607          $ 

20,525 $ 18,865 $ 16,232 $ 63,051

         $     45,676
Adjustments:
Fully-taxable equivalent
adjustments 1                         1,356                1,394                1,356                1,424                 1,424                 4,105                 4,396

Net interest income – FTE $ 22,275 $ 23,001 $

   21,881          $    20,289          $     17,656          $     67,156          $     50,072

Net interest income            $     20,919          $    21,607          $    20,525          $    18,865          $     16,232          $     63,051          $     45,676
Adjustments:
Subordinated debt redemption
cost                                    810                    -                    -                    -                     -                   810                     -

Adjusted net interest income $ 21,729 $ 21,607 $

   20,525          $    18,865          $     16,232          $     63,861          $     45,676

Net interest income            $     20,919          $    21,607          $    20,525          $    18,865          $     16,232          $     63,051          $     45,676
Adjustments:
Fully-taxable equivalent
adjustments 1                         1,356                1,394                1,356                1,400                 1,424                 4,105                 4,396
Subordinated debt redemption
cost                                    810                    -                    -                    -                     -                   810                     -
Adjusted net interest income -
FTE                            $     23,085          $    23,001          $ 

21 881 $ 20,265 $ 17,656 $ 67,966

$ 50,072

Net interest margin                    2.00  %              2.11  %              2.04  %              1.78  %               1.53  %               2.05  %               1.47  %
Effect of fully-taxable
equivalent adjustments 1               0.13  %              0.14  %              0.14  %              0.13  %               0.14  %               0.14  %               0.15  %
Net interest margin - FTE              2.13  %              2.25  %              2.18  %              1.91  %               1.67  %               2.19  %               1.61  %

Net interest margin                    2.00  %              2.11  %              2.04  %              1.78  %               1.53  %               2.05  %               1.47  %
Effect of subordinated debt
redemption cost                        0.08  %                 -  %                 -  %                 -  %                  -  %               0.02  %                  -  %
Adjusted net interest margin           2.08  %              2.11  %              2.04  %              1.78  %               1.53  %               2.07  %               1.47  %

Net interest margin                    2.00  %              2.11  %              2.04  %              1.78  %               1.53  %               2.05  %               1.47  %
Effect of fully-taxable
equivalent adjustments                 0.13  %              0.14  %              0.14  %              0.13  %               0.14  %               0.14  %               0.14  %
Effect of subordinated debt
redemption cost                        0.08  %                 -  %                 -  %                 -  %                  -  %               0.02  %                  -  %
Adjusted net interest margin -
FTE                                    2.21  %              2.25  %              2.18  %              1.91  %               1.67  %               2.21  %               1.61  %

Allowance for loan losses $ 28,000 $ 28,066 $

   30,642          $    29,484          $     26,917          $     28,000          $     26,917

Loans                          $  2,936,148          $ 2,957,608          $ 3,058,694          $ 3,059,231          $  3,012,914          $  2,936,148 
        $  3,012,914
Adjustments:
   PPP loans                        (14,981)             (39,682)             (53,365)             (50,554)              (58,337)              (14,981)              (58,337)

Loans, excluding PPP loans $ 2,921,167 $ 2,917,926 $ 3,005,329 $ 3,008,677 $ 2,954,577 $ 2,921,167

$ 2,954,577

Allowance for loan losses to
loans                                  0.95  %              0.95  %              1.00  %              0.96  %               0.89  %               0.95  %               0.89  %
Effect of PPP loans                    0.01  %              0.01  %              0.02  %              0.02  %               0.02  %               0.01  %               0.02  %
Allowance for loan losses to
loans, excluding PPP loans             0.96  %              0.96  %              1.02  %              0.98  %               0.91  %               0.96 
%               0.91  %


1 Assuming a 21% tax rate

                                       62
--------------------------------------------------------------------------------




(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)                           2021                   2021                 2021                   2020                    2020                    2021                     2020
Total Revenue- GAAP            $        28,732          $    30,569          $     28,900          $      31,522          $        28,727          $       88,201          $        69,355
Adjustments:
Gain on sale of premises
and equipment                                -               (2,523)                    -                      -                        -                  (2,523)                       -
Subordinated debt
redemption cost                            810                    -                     -                      -                        -                     810                        -
Adjusted total revenue         $        27,922          $    28,046          $     28,900          $      31,522          $        28,727          $   

86,488 $ 69,355

Non-interest income -
GAAP                           $         7,813          $     8,962         

$ 8,375 $ 12,657 $ 12,495 $

    25,150          $        23,679
Adjustments:
Gain on sale of premises
and equipment                                -               (2,523)                    -                      -                        -                  (2,523)                       -
Adjusted non-interest
income                         $         7,813          $     6,439          $      8,375          $      12,657          $        12,495          $   

22 627 $ 23,679

Income before income
taxes - GAAP                   $        14,310          $    15,473         

$ 12,307 $ 14,145 $ 9,806

    42,090          $        19,752
Adjustments:
 Write-down of other
real estate owned                            -                    -                     -                      -                    2,065                       -                    2,065
 Gain on sale of
premises and equipment                       -               (2,523)                    -                      -                        -                  (2,523)                       -
Subordinated debt
redemption cost                            810                    -                     -                      -                        -                     810                        -
Adjusted income before
income taxes                   $        15,120          $    12,950         

$ 12,307 $ 14,145 $ 11,871 $

40,377 $ 21,817

Income tax provision -
GAAP                           $         2,220          $     2,377         

$ 1,857 $ 3,055 $ 1,395

     6,454          $         1,390
Adjustments:
Write-down of other real
estate owned                                 -                    -                     -                      -                      434                       -                      434
   Gain on sale of
premises and equipment                       -                 (530)                    -                      -                        -                    (530)                       -
Subordinated debt
redemption cost                            170                    -                     -                      -                        -                     170                        -
Adjusted income tax
provision                      $         2,390          $     1,847          $      1,857          $       3,055          $         1,829          $        6,094          $         1,824

Net income - GAAP              $        12,090          $    13,096          $     10,450          $      11,090          $         8,411          $       35,636          $        18,362
Adjustments:
   Write-down of other
real estate owned                            -                    -                     -                      -                    1,631                       -                    1,631
   Gain on sale of
premises and equipment                       -               (1,993)                    -                      -                        -                  (1,993)                       -
Subordinated debt
redemption cost                            640                    -                     -                      -                        -                     640                        -
Adjusted net income            $        12,730          $    11,103          $     10,450          $      11,090          $        10,042          $       34,283          $        19,993

Diluted average common
shares outstanding                   9,988,102            9,981,422             9,963,036              9,914,022                9,773,224               9,974,071                9,827,182

Diluted earnings per
share - GAAP                   $          1.21          $      1.31          $       1.05          $        1.12          $          0.86          $         3.57          $          1.87
Adjustments:


                                       63
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  Effect of write-down
of other real estate
owned                                    -                 -                  -                    -                  0.17                      -                  0.16
   Effect of gain on
sale of premises and
equipment                                -             (0.20)                 -                    -                     -                  (0.19)                    -
Effect of subordinated
debt redemption cost                  0.06                 -                  -                    -                     -                   0.06                     -
Adjusted diluted
earnings per share            $       1.27          $   1.11          $    1.05          $      1.12          $       1.03          $        3.44          $       2.03


(dollars in thousands,                                              Three Months Ended                                                        Nine Months Ended
except share and per           September 30,         June 30,         

March, 31st, the 31st of December, September 30, September 30,

         September 30,
share data)                        2021                2021               2021                2020                 2020                   2021                  2020
Return on average
assets                                1.12  %           1.25  %            1.02  %              1.02  %               0.78  %                1.13  %               0.58  %
  Effect of write-down
of other real estate
owned                                 0.00  %           0.00  %            0.00  %              0.00  %               0.15  %                0.00  %               0.05  %
   Effect of gain on
sale of premises and
equipment                             0.00  %          (0.19) %            0.00  %              0.00  %               0.00  %               (0.06) %               0.00  %
Effect of subordinated
debt redemption cost                  0.06  %           0.00  %            0.00  %              0.00  %               0.00  %                0.02  %               0.00  %
Adjusted return on
average assets                        1.18  %           1.06  %            1.02  %              1.02  %               0.93  %                1.09  %               0.63  %

Return on average
shareholders' equity                 13.10  %          14.88  %           12.61  %             13.64  %              10.67  %               13.54  %               7.90  %
   Effect of write-down
of other real estate
owned                                 0.00  %           0.00  %            0.00  %              0.00  %               2.07  %                0.00  %               0.70  %
Effect of gain on sale
of premises and
equipment                             0.00  %          (2.26) %            0.00  %              0.00  %               0.00  %               (0.75) %               0.00  %
  Effect of
subordinated debt
redemption cost                       0.69  %           0.00  %            0.00  %              0.00  %               0.00  %                0.24  %               0.00  %
Adjusted return on
average shareholders'
equity                               13.79  %          12.62  %           12.61  %             13.64  %              12.74  %               13.03  %               8.60  %

Return on average
tangible common equity               13.27  %          15.09  %           12.79  %             13.84  %              10.83  %               13.73  %               8.02  %
   Effect of write-down
of other real estate
owned                                 0.00  %           0.00  %            0.00  %              0.00  %               2.10  %                0.00  %               0.71  %
   Effect of gain on
sale of premises and
equipment                             0.00  %          (2.30) %            0.00  %              0.00  %               0.00  %               (0.77) %               0.00  %
Effect of subordinated
debt redemption cost                  0.70  %           0.00  %            0.00  %              0.00  %               0.00  %                0.25  %               0.00  %
Adjusted return on
average tangible common
equity                               13.97  %          12.79  %           12.79  %             13.84  %              12.93  %               13.21  %               8.73  %

Effective income tax
rate                                  15.5  %           15.4  %            15.1  %              21.6  %               14.2  %                15.3  %                7.0  %
   Effect of write-down
of other real estate
owned                                  0.0  %            0.0  %             0.0  %               0.0  %                1.2  %                 0.0  %                1.4  %
   Effect of gain on
sale of premises and
equipment                              0.0  %           (1.1) %             0.0  %               0.0  %                0.0  %                (0.6) %                0.0  %
Effect of subordinated
debt redemption cost                   0.3  %            0.0  %             0.0  %               0.0  %                0.0  %                 0.4  %                0.0  %
Adjusted effective
income tax rate                       15.8  %           14.3  %            15.1  %              21.6  %               15.4  %                15.1  %                8.4  %



Critical accounting conventions and estimates

There have been no material changes in the Company’s critical accounting policies or estimates from those disclosed in its annual report on Form 10-K for the year ended. December 31, 2020.

Recent accounting positions

Refer to note 15 of the condensed consolidated financial statements.

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Off-balance sheet provisions

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. In June
2020, the Company terminated all fair value hedging instruments associated with
loans. At September 30, 2021 and December 31, 2020, the Company had interest
rate swaps with notional amounts of $260.0 million and $298.2 million,
respectively. 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, 2021 and December 31, 2020, the Company
had commitments to sell residential real estate loans of $78.6 million and
$107.5 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.

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