| (Mark One) | |
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, |
| or | |
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From ________ to ________. |
| First Internet Bancorp | ||
| (Exact Name of Registrant as Specified in its Charter) | ||
| Indiana | ||
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| (Address of principal executive offices) | (Zip Code) | |
| (317) 532-7900 |
| (Registrant’s telephone number, including area code) |
| Title of class | Name of exchange on which registered | |
| Common stock, without par value | NASDAQ Capital Market | |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes þ No ¨ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ¨
Large Accelerated Filer ¨ | Accelerated Filer |
Non-accelerated Filer ¨ (Do not check if a smaller reporting company) | Smaller Reporting Company |
Furthermore, forward-looking statements are subject to risksaccounting policies and uncertainties related to our ability to, among other things: generate loan and deposit balances at projected spreads; sustain fee generation including gains on sales of loans; maintain asset quality and control risk; limitpractices, as may be adopted by the amount of net loan charge-offs; adapt to changing customer deposit, investment and borrowing behaviors; control expenses; dispose of properties or other assets obtained through foreclosures at expected prices and within a reasonable period of time; attract and retain key personnel; and monitor and manage our financial reporting, operating and disclosure control environments.
You should carefully reviewFinancial Accounting Standards Board, the disclosures and risk factors described in this and other documents we file form time to time with the U.S. Securities and Exchange Commission (“SEC”(the “SEC”), including this annual report on Form 10-K, quarterly reports on Form 10-Qthe Public Company Accounting Oversight Board and current reports on Form 8-K, each as amended from time to time. We cannot assure youother regulatory agencies; and the effect of fiscal and governmental policies of the United States federal government. Additional factors that the forward-looking statementsmay affect our results include those discussed in this report will prove to be accurateunder the heading “Risk Factors” and therefore you are encouragedin other reports filed with the SEC. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The factors listed above could affect our financial performance and could cause our actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. You should read this report completely. Other than
| PART I | PAGE | |
| Item 1. | Business | |
| Item 1A. | Risk Factors | |
| Item 1B. | Unresolved Staff Comments | |
| Item 2. | Properties | |
| Item 3. | Legal Proceedings | |
| Item 4. | Mine Safety Disclosures | |
| PART II | ||
| Item 5. | Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | |
| Item 6. | Selected Financial Data | |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | |
| Item 8. | Financial Statements and Supplementary Data | |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | |
| Item 9A. | Controls and Procedures | |
| Item 9B. | Other Information | |
| PART III | ||
| Item 10. | Directors, Executive Officers and Corporate Governance | |
| Item 11. | Executive Compensation | |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence | |
| Item 14. | Principal Accounting Fees and Services | |
| PART IV | ||
| Item 15. | Exhibits, Financial Statement Schedules | |
| SIGNATURES | ||
We 184.5% and 96.5%, respectively. Our 0.5% net deferred loan origination costs and premiums and discounts on purchased loans. As of December 31, 2011, the composition of our loan portfolio was 82.9% consumer loans, 16.1% commercial loans and 1.0% net deferred loan origination costs and premiums and discounts on purchased loans. capabilities and product or geographic expertise. financing. Residential real estate loans are segment. 2015 that were originated in prior years. the entire United States. We offered by our commercial banking team to businesses primarily within Central Indiana, Phoenix, Arizona, and adjacent markets. earnings. Community Reinvestment Act. Under the Community Reinvestment Act (the “CRA”), as implemented by FDIC regulations, the Bank has a continuing and affirmative obligation, consistent with safe and sound banking practices, to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the FDIC, in connection with its examinations of the Bank, to assess the Bank’s record of meeting the credit needs of its entire community and to take that record into account in evaluating certain applications for regulatory approvals that we may file with the FDIC.bank (the “Bank”). Thebank. First Internet Bank of Indiana was the first state-chartered, FDIC-insuredFederal Deposit Insurance Corporation (“FDIC”) insured Internet bank.bank and commenced banking operations in 1999. First Internet Bancorp 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.offershas one wholly owned subsidiary, JKH Realty Services, LLC, which was established on August 20, 2012 as a single member LLC to manage other real estate owned properties as needed.do soconduct our deposit operations primarily over the Internet and have no traditional branch offices.commenced bankinghave diversified our operations in 1999 and grew organically in our early years by adding new customers, products and capabilities. In 2007, we acquired Indianapolis-based Landmark Financial Corporation. The acquisition merged Landmark Savings Bank, FSB, into the Bank. The Landmark acquisition added a small number of deposit customers, primarily from Central Indiana, to the Bank; more importantly, it added a turnkey retail mortgage lending operation that we could expand through our Internet platform. More recently, we have added commercial real estate (“CRE”) lending, including nationwide single tenant lease financing and commercial and industrial (“C&I”) lending, including business banking/treasury management services to meet the needs of high-quality underserved commercial borrowers.Despite the downturn in banking that began in 2008, weborrowers and depositors. We have experienced substantial growth while maintaining a strong capital position, low non-performing assets, and a stable core deposit base. Fromno significant customer concentrations within our loan portfolio.2010,2015, we had total assets of $1.3 billion, total liabilities of $1.2 billion, and shareholders’ equity of $104.3 million. We employed 152 full-time equivalent employees at December 31, 2015.by 26.3%116.9% from $503.9 million to $636.4$585.4 million at December 31, 2012.2011 to $1.3 billion at December 31, 2015. This increase was driven primarily by strong organic growth. During the same time period, total deposits grewloans receivable increased from $422.7$335.2 million to $530.7$953.9 million an increaseand deposits increased from $486.7 million to $956.1 million, increases of 25.6%.Business Strategiesmain objectivesustained growth profile is the result of our flexible and highly scalable Internet banking platform that allows us to grow in size while enhancingtarget a broad reach of customers across all 50 states. Additionally, key strategic commercial banking hires have enabled us to further expand our profitability. product offerings on both a local and national basis. At December 31, 2015, commercial loans comprised 61.1% of loans receivable compared to 16.1% at December 31, 2011.expecthave maintained a high quality loan portfolio due to grow organicallyour emphasis on a strong credit culture, conservative underwriting standards, and a diverse national and local customer base. At December 31, 2015, our nonperforming assets to total assets was 0.37%, our nonperforming loans to total loans receivable was 0.02% and our allowance for loan losses to total loans receivable was 0.88%.inthrough our scalable Internet banking platform to gather deposits and offer residential mortgage and consumer (retail) activities andlending products rather than relying on a regionalconventional brick and mortar branch system. We also primarily conduct commercial banking and related activities on a local basis, except for single tenant lease financing which is offered nationwide. Our overriding strategic focus is enhancing franchise and shareholder value while maintaining strong risk management policies and procedures. We believe the continued creation of franchise and shareholder value will be driven by profitable growth in consumer and commercial banking, effective underwriting, strong asset quality and efficient technology-driven operations.commercial (wholesale) activities. To achieve this objective,Internet-based technology platform, we are pursuing the following strategies:Grow Nationwide Internet Activities.We offer our retail products and services throughout the United States through our web-based operations. Our retail banking offering appeals to consumers who require online access to their accounts but do not need a branch networkface geographic boundaries that traditional banks must overcome for making deposits or conducting transactions in person. We believe that we are well positioned to continue to take advantage of the consumer-driven shift from branch banking to direct banking. We believe Internet banking is now the preferred banking channel by consumers. According to a 2011 American Bankers Association survey, the number of bankcustomer acquisition. Armed with smart phones, tablets and computers, our customers who prefer to do their banking online increased from 21% to 62% between 2007 and 2011, while those who prefer branch banking has declined from 39% to 20% over the same period.Ourcan access our online banking platform is outsourcedsystem, bill pay, and is scalable without requiring additional fixed-cost investments to support growth.Increase Non-Interest Income.remote deposit capture 24 hours a day, seven days a week, on a real-time basis. In 2012,addition, we closed 2,623 residential mortgage loans. This was a 109% increase over 2011. Over 97% of these loans were sold into the secondary market, thereby contributing to non-interest income and not increasing the Bank’s assets.Increase Loan Volume and Diversify Loan Portfolio. While maintaining a conservative approach to lending, we expect to continue to pursue growth in our CRE and C&I loan portfolios. We entered into these markets by hiring teams of experienced bankers with lending expertise in specific industries and giving them authority to make certain pricing and credit decisions, avoiding the bureaucratic structure of larger banks. During 2012, these portfolios grew from $45.6 million to $99.2 million,have dedicated banking specialists who can service customer needs via telephone, email or 117.5%, and represented 28.0% of the total loan portfolio at December 31, 2012.Maintain Sound Asset Quality. We strive to maintain the sound asset quality that has been representative of our recent operations. As we continue to diversify and increase our lending activities, we may face higher rates of nonpayment and other increased risks.online chat. We intend to continue to employ the strict underwriting guidelinesexpand our deposit base by leveraging technology and comprehensivethrough cross-selling capabilities as well as targeted marketing efforts.review process that have contributedofficers and relationship managers with specialized market or product expertise.low incidencesuccess. Our management team and Board of nonperforming assetsDirectors are led by David B. Becker, the founder of First Internet Bank of Indiana. Mr. Becker is a seasoned business executive and minimal charge-offs in relation to our size.1Continue Focus on Technology and Efficiency. We have invested significantlyentrepreneur with over three decades of management experience in the infrastructure requiredfinancial services and financial technology space, and has served as Chief Executive Officer since 2005. Mr. Becker has been the recipient of numerous business awards, including Ernst & Young Entrepreneur of the Year in 2001, and was inducted into the Central Indiana Business Hall of Fame in 2008. The senior management team consists of individuals with backgrounds in both regional and community banking and financial technology services. The senior management team is complemented by a dedicated Board of Directors with a wide range of experience from careers in financial services, legal and regulatory services, and industrial services.operate a real-time, Internet-only business modelcontinue to leverage our technology, our long-term customer relationships and our noninterest income sources to drive profitability. As we continue to grow, we believe that our existing data processing infrastructure can accommodate additional growth while minimizing operational costs through economiesmodel will produce a greater level of scale. Our core banking platform is licensed software operatedefficiency than more traditional community banks, with the goal of higher returns on assets and maintained by Bank employees. Expanded banking operations could require additional software license or hardware costs in order to support the growth; however, these expenses are not expected to be significant. shareholders’ equity.planplace an emphasis on our strong credit culture and strict underwriting standards of diverse loan products to maintain our stringent cost control practicesexcellent credit quality. As of December 31, 2015, the composition of our loan portfolio was 38.4% consumer loans, 61.1% commercial loans and policies.Strategy. Strategy. We may expand through acquisitions on an opportunistic basis, primarily as a means of securing additional asset generation for example, by acquiring a bank with an established SBA loan program.Residential Mortgage Lending.offer first-lien residential mortgage loans in 49 states and second-lien (home equity)earn interest income on loans as well as home equity linesfee income from the origination of credit in 44 states. We offer loans for homebuyers (purchase money) as well as existing homeowners who wish to refinance their current loans. The low interest rate environment has made refinancing an attractive opportunity for homeowners in the past two years. Approximately 81%, 81% and 87% of the loans we originated in 2010, 2011 and, 2012, respectively, were refinances. While we expect the low interest rate environment to continue, we have begun introducing programs to increase the proportion of purchase money loans, as this will provide a reliable stream of business in a rising rate environment.We attract creditworthy loan applicants through disciplined online lead generation efforts and through repeat business from past customers. We track our acquisition costs vigilantly and discontinue any lead sources that are not contributing to a positive margin. We use customer relationship management tools to track prospects and identify the most likely sales opportunities on which to focus our efforts. For 2012, the weighted average credit score of our mortgage customer was 775 at time of origination.We currently sell the vast majority of our conforming conventional (fixed rate)Lending activities include loans to the secondary market and thereby avoid the potential interest rate riskindividuals, which primarily consist of these loans. We retain variable rate non-conforming (jumbo)residential real estate loans, in our portfolio. As rates rise, we will have the opportunity to retain conforming conventional loans on an opportunistic basis.We also actively promote home equity loans and lines of credit, through our Internet channel, leveraging our robust yet easy-to-use customer-facing toolset. We continue to expand our efforts to complement our first lien product.Consumer Lending. While we offerand consumer loans, and credit cards through our websiteloans to a nationwide consumer base, the majority of our consumercommercial clients, which include commercial loans, have been acquired through indirect dealer networks, primarily horse trailers and recreational vehicles (RVs). We expanded our recreational product dealer network in 2011 and implemented a new loan origination system in Q1 2012 to improve the customer experience and document tracking.Commercial Real Estate (CRE) Lending. We began offering CRE loans in Indiana and other parts of the Midwest in 2010. We have a team of five full-time employees, most with large regional bank experience. We expect that the majority of our CRE loans will be in office, retail, industrial, and multifamily loans in the Midwest, with credit tenant lease financing on a nationwide basis. While many banks in Central Indiana must address legacy problem CRE loans in their portfolios, we are in a position to meet pent-up demand from qualified borrowers. In 2011, the first full year of CRE loan operations, we attracted $49.8 million in CRE loan commitments. In early 2012, we made an opportunistic purchase of a small commercial real estate loan pool consistingloans, lines of eight (8) seasoned term loans with an aggregate principal balancecredit, letters of $8.9 million. The loans in this pool were secured by first mortgages oncredit, and single tenant commercial properties, each under long term lease arrangements to major national or regional companies. This acquisition aligned with our newly formulated strategy to enter into the national credit tenant lease financing market. Purchasing seasoned loans that fully amortized within the remaining lease terms also helped us with diversification of the loan portfolio as we began focusing on real estate markets over a wider geographical area with longer term leasing profiles and more predictable project cash flows.We believe our CRE portfolio will continue its growth in two ways: (1) regionally, in more traditional short-term financing arrangements supporting local developers and conventional property types (office, retail, multi-family, industrial, residential development & construction) as well as (2) nationally, where we will concentrate on longer term financing of properties occupied by single tenants committed to long-term leases with borrowers providing significant cash equity in relation to the debt structured. We entered the national credit tenant lease financing market in January 2012 with the purchase of a pool of eight loans as described above. We have not made any additional purchases of CRE loans, and such purchases are not part of our growth strategy.Commercial and Industrial (C&I) Lending. Historically, we only originated C&I loans occasionally as a result of referrals we received from customers and third parties. We began focusing on C&I loan originations in the Central Indiana area in late 2011. We currently have a team of seven full-time employees, most with large regional bank experience and strong local relationships. The recent increase in our C&I lending activity is intended to further diversify our lending portfolio and increase opportunities for new business. In addition to commercial loan originations, C&I lending activity can result in new deposits, including fee income from treasury management products, and opportunities to cross-sell other products such as residential mortgage loans and consumer home equity and installment loans. New C&I customers (and their advisors) also serve as referral sources for additional new business opportunities. We recently began piloting expanded online account access and treasury management service capabilities in order to attract deposits from C&I borrowers (which diversifies our deposit mix and reduces our cost of funds) and to enhance our non-interest income.Loan Portfolio Analysis(dollars in thousands) December 31, 2012 2011 2010 2009 2008 Real estate loans: Residential $ 128,815 36.34 % $ 143,452 43.24 % $ 106,729 35.30 % $ 80,781 26.02 % $ 68,408 21.48 % Commercial 84,918 23.95 % 43,507 13.11 % 19,563 6.47 % 20,212 6.51 % 15,856 4.98 % Total real estate loans 213,733 60.29 % 186,959 56.35 % 126,292 41.77 % 100,993 32.53 % 84,264 26.46 % Commercial loans 14,271 4.03 % 2,063 0.62 % 4,919 1.63 % 3,779 1.22 % 2,443 0.77 % Consumer loans 126,486 35.68 % 142,783 43.03 % 171,122 56.60 % 205,702 66.25 % 231,732 72.77 % 354,490 100.00 % 331,805 100.00 % 302,333 100.00 % 310,474 100.00 % 318,439 100.00 % Less: Net deferred loan fees, premiums and discounts 3,671 3,421 4,057 5,062 6,344 Allowance for losses (5,833 ) (5,656 ) (6,845 ) (10,097 ) (4,616 ) Total loans $ 352,328 $ 329,570 $ 299,545 $ 305,439 $ 320,167 Loan MaturitiesThe following table shows the contractual maturity distribution intervals of the outstanding loans in our portfolio as of December 31, 2012.(dollars in thousands) Real Estate At December 31, 2012 Residential Commercial Commercial Consumer Total Amounts due in: One year or less $ 4,368 $ 11,052 $ 5,537 $ 2,117 $ 23,074 More than one to two years 8,891 8,754 3,153 1,501 $ 22,299 More than two to three years 2,127 1,495 637 2,917 $ 7,176 More than three to five years 995 31,203 4,620 16,507 $ 53,325 More than five to ten years 1,055 26,814 – 82,342 $ 110,211 More than ten to fifteen years 3,490 4,852 324 21,102 $ 29,768 More than fifteen years 107,889 748 – – $ 108,637 Total $ 128,815 $ 84,918 $ 14,271 $ 126,486 $ 354,490 3Fixed vs. Adjustable Rate LoansThe following table shows the distribution of the outstanding loans in our portfolio between those with variable or floating interest rates and those with fixed or predetermined interest rates as of December 31, 2012. Due after December 31, 2012 (dollars in thousands) Fixed Adjustable Total Real estate loans: Residential $ 11,049 $ 117,766 $ 128,815 Commercial 40,248 44,670 $ 84,918 Total real estate loans 51,297 162,436 $ 213,733 Commercial loans 5,430 8,841 $ 14,271 Consumer loans 125,081 1,405 $ 126,486 Total loans $ 181,808 $ 172,682 $ 354,490 Loan Activity(dollars in thousands) Year ended December 31, 2012 2011 Total loans at beginning of period: $ 331,805 $ 302,333 Loans originated: Real estate loans: Residential 4,775 1,964 Commercial 35,861 25,732 Commercial loans 7,467 470 Consumer loans 24,572 15,304 Total loans originated 72,675 43,470 Loans purchased: Real estate loans: Residential – 59,477 Commercial 8,877 – Commercial loans – – Consumer loans – – Total loans purchased 8,877 59,477 Add (Deduct): Principal repayments (52,055 ) (67,362 ) Net other (6,812 ) (6,113 ) Net loan activity 22,685 29,472 Total loans at end of period $ 354,490 $ 331,805 4Non-Performing AssetsLoans are reviewed at least quarterly and any loan whose collectability is doubtful is placed on non-accrual status. Loans are placed on non-accrual status when either principal or interest is 90 days or more past due, unless, in the judgment of management, the loan is well collateralized and in the process of collection. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on the assessment of the ultimate collectability of the loan. Restructured loans include troubled debt restructurings that involved forgiving a portion of interest or principal or making loans at a rate materially less than the market rate to borrowers whose financial condition had deteriorated. Foreclosed and repossessed assets include assets acquired in the settlement of loans. The following table sets forth the amounts and categories of non-performing assets in our portfolio as of the dates indicated.(dollars in thousands) December 31, 2012 2011 2010 2009 2008 Non-accrual loans(1) Real estate loans: Residential $ 1,389 $ 876 $ 2,841 $ 3,388 $ 2,383 Commercial 2,362 7,523 3,593 5,186 227 Total real estate loans 3,751 8,399 6,434 8,574 2,610 Commercial loans – – 1,539 – – Consumer loans 155 224 683 1,726 1,898 Total non-accrual loans 3,906 8,623 8,656 10,300 4,508 Accruing loans past due 90 days or more: Real estate loans: Residential 450 75 – 47 38 Commercial – – 900 – – Total real estate loans 450 75 900 47 38 Commercial loans – – – – – Consumer loans 21 56 30 72 29 Total accruing loans past due 90 days or more 471 131 930 119 67 Total non-accrual and 90 days or more past due loans 4,377 8,754 9,586 10,419 4,575 Real estate owned: Residential 265 448 591 126 398 Commercial 3,401 1,064 1,616 – – Other – – – – – Total real estate owned 3,666 1,512 2,207 126 398 Other non-performing assets 2,253 3,113 5,118 2,164 453 Total non-performing assets 10,296 13,379 16,911 12,709 5,426 Troubled debt restructurings not included in non-accruals 1,412 1,086 360 – – Troubled debt restructurings and total non-performing assets $ 11,708 $ 14,465 $ 17,271 $ 12,709 $ 5,426 (1) Includes non-performing troubled debt restructurings.(dollars in thousands) December 31, 2012 2011 2010 2009 2008 Troubled debt restructurings: Real estate loans: Residential – Accruing $ 1,092 $ 817 $ 360 $ – $ – Residential – Non-accruing 29 285 – – – Commercial – Non-accruing 510 510 – – – Total real estate loans 1,631 1,612 360 – – Commercial loans – – – – – Consumer loans – Accruing 319 269 – – – Consumer loans – Non-accruing 20 89 – – – Total troubled debt restructurings $ 1,970 $ 1,970 $ 360 $ – $ – Total non-performing loans to total loans 1.23 % 2.64 % 3.17 % 3.36 % 1.44 % Total non-performing assets to total assets 1.62 % 2.29 % 3.36 % 2.52 % 1.00 % Total non-performing assets and troubled debt restructurings to total assets 1.84 % 2.47 % 3.43 % 2.52 % 1.00 % Classified Assets(dollars in thousands) December 31, 2012 2011 Special mention assets $ 2,032 $ 2,222 Substandard assets 2,467 7,635 Doubtful assets – – Loss assets – – Total classified assets $ 4,499 $ 9,857 Delinquencies(dollars in thousands) December 31, 2012 2011 30-59 Days
Past Due 60-89 Days
Past Due 90+ Days
Past Due 30-59 Days
Past Due 60-89 Days
Past Due 90+ Days
Past Due Real estate loans: Residential $ 130 $ 5 $ 1,555 $ 1,376 $ 121 $ 666 Commercial – – 2,362 – – 7,523 Total real estate loans 130 5 3,917 1,376 121 8,189 Commercial loans – – – – – – Consumer loans 1,025 148 122 1,709 213 206 Total $ 1,155 $ 153 $ 4,039 $ 3,085 $ 334 $ 8,395 Allocation of Allowance for Loan LossesThe determination of the allowance for loan losses and the related provision is one of our critical accounting policies that is subject to significant estimates, as previously discussed. The current level of the allowance for loan losses is a result of management’s assessment of the risks within the portfolio based on the information obtained through the credit evaluation process. We utilize a risk-rating system on non-homogenous CRE and C&I loans that includes regular credit reviews to identify and quantify the risk in the commercial portfolio. Our management conducts quarterly reviews of the entire loan portfolio and evaluates the need to establish allowances on the basis of these reviews.Management actively monitors asset quality and, when appropriate, charges off loans against the allowance for loan losses. Although management believes it uses the best information available to make determinations with respect to the allowance for loan losses, future adjustments may be necessary if economic conditions differ substantially from the economic conditions in the assumptions used to determine the size of the allowance for loan losses.The following table reflects allowance for loan losses and its allocations for the periods indicated.(dollars in thousands) December 31, 2012 2011 2010 2009 2008 Amount % of Total
Allowance % of Total
Loans Amount % of Total
Allowance % of Total
Loans Amount % of Total
Allowance % of Total
Loans Amount % of Total
Allowance % of Total
Loans Amount % of Total
Allowance % of Total
Loans Real estate loans: Residential $ 1,149 19.70 % 36.34 % $ 1,099 19.43 % 43.24 % $ 2,135 31.19 % 35.30 % $ 765 7.58 % 26.02 % $ 250 5.42 % 21.48 % Commercial 3,107 53.27 % 23.95 % 2,485 43.93 % 13.11 % 1,292 18.88 % 6.47 % 4,232 41.91 % 6.51 % 260 5.63 % 4.98 % Commercial loans 371 6.36 % 4.03 % 333 5.89 % 0.62 % 608 8.88 % 1.63 % 79 0.78 % 1.22 % 16 0.35 % 0.77 % Consumer loans 1,206 20.67 % 35.68 % 1,739 30.75 % 43.03 % 2,810 41.05 % 56.60 % 5,021 49.73 % 66.25 % 4,090 88.60 % 72.77 % Total allowance for loan losses $ 5,833 100.00 % 100.00 % $ 5,656 100.00 % 100.00 % $ 6,845 100.00 % 100.00 % $ 10,097 100.00 % 100.00 % $ 4,616 100.00 % 100.00 % Loan Loss ExperienceThe following table reflects activity in allowance for loan losses for the periods indicated and selected related statistics.(dollars in thousands) Fiscal Year ended
December 31, 2012 2011 2010 2009 2008 Allowance at beginning of period: $ 5,656 $ 6,845 $ 10,097 $ 4,616 $ 3,564 Provision for loan losses 2,852 2,440 927 11,564 4,819 Charge offs: Real estate loans: Residential (509 ) (811 ) (1,158 ) (1,402 ) (125 ) Commercial (1,464 ) (698 ) (445 ) (294 ) – Commercial loans – (612 ) (61 ) (10 ) (18 ) Consumer loans (1,438 ) (2,296 ) (3,399 ) (5,297 ) (4,330 ) Total charge-offs (3,411 ) (4,417 ) (5,063 ) (7,003 ) (4,473 ) Recoveries: Real estate loans: Residential 148 141 121 102 10 Commercial – – 17 – – Commercial loans 75 19 – – 18 Consumer loans 513 628 746 818 678 Total recoveries 736 788 884 920 706 Net charge-offs (2,675 ) (3,629 ) (4,179 ) (6,083 ) (3,767 ) Allowance at end of period $ 5,833 $ 5,656 $ 6,845 $ 10,097 $ 4,616 Allowance to non-performing loans 133.26 % 64.61 % 71.41 % 96.91 % 100.90 % Allowance to total loans outstanding at end of period 1.65 % 1.70 % 2.26 % 3.25 % 1.45 % Net annualized charge-offs to average loans outstanding during period (0.69 )% (1.05 )% (1.35 )% (1.85 )% (1.12 )% Underwriting Procedures and StandardsLoan Approval Procedures and Authority. Our lending activities follow written, non-discriminatory policies with loan approval limits approved by the Board of Directors. Loan officers have underwriting and approval authorization of varying amounts based on their years of experience in the lending field. Additionally, based on the amount of the loan, multiple signatures and or approvals are required. Our chief credit officer has approval limits on individual loans up to $5 million and pool purchases up to $30 million. The maximum we could lend to any one borrower at December 31, 2012 was approximately $8.1 million.Our goal is to have a well-diversified and balanced loan portfoliofocusing on consumer, CRE and C&I loans. In order to manage our loan portfolio risk, we establish concentration limits by borrower, product type, maturity, loan structure, industry and geography.To supplement our internal loan review resources, we have engaged an independent third-party loan review group, which together represent our internal loan review function. Our internal auditor reports to the Audit Committee of the Board of Directors. Responsibility for loan underwriting, compliance and document monitoring reside with the compliance function and loan operations function.Residential Real EstateLoans. Residential real estate loans generally include loans for the purchase or refinance of residential real estate properties consisting of 1-4 units and home equity loans and lines of credit. We currently sell substantially all of the long-term fixed rate residential real estate loans that we originate to secondary market investors. We also release the servicing of these loans upon sale. Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults, making certain insurance and tax payments on behalf of the borrowers and generally administering the loans. We typically retain in our portfolio all adjustable rate residential real estate loans that exceed the government maximum loan amount (which is currently $417,000) and also loans with balloon payment features. Balloon periods are up to a maximum of 15 years.typically underwritteneither kept in our loan portfolio or sold to conformsecondary investors, with gains or losses from the sales being recognized within noninterest income. Refer to industry standards including criteria for maximum debt-to-income and loan-to-value ratios as well as minimum credit scores. Our underwriting focuses on appraised valueNote 4 of the collateral as well as the applicant’s ability to repay the loan from his or her employment and from other sources. We verify an applicant’s credit information using third-party records and tax returns through the IRS.Additionally, our residential mortgage underwriters use a third party product to assess the riskfinancial statements for further discussion of the loan transaction for both the collateral and applicant. The product helps us identify suspicious mortgage loans and analyzes the property and neighborhood characteristics for each transaction. From the date of application to the date of closing all of an applicant’s credit activity is monitored. All appraisals are reviewed by our collateral underwriter, who is an Indiana state certified appraiser. The collateral underwriter has several third party products that help assess the quality of the appraisal, the comparables chosen, and the value determination. Loans secured by first liens on residential real estate held in the portfolio typically do not exceed 80% of the value of the collateral, are adjustable rate and have amortization periods of thirty years or less.We do not offer, and have not offered, “subprime loans” (loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios).Consumer Loans. Consumer loans are primarily comprised of loans and credit cards. The majority of our consumer loans are horse trailer and recreational vehicle loans, underwritten by our staff for buyers whose applications were sent to us through a dealer network. Minimum underwriting criteria have been established that consider credit score, debt-to-income ratio, employment history, the advance percentage and collateral coverage. Typically, consumer loans are set up on monthly payments with amortization periods based on the type and age of the collateral.Commercial Real Estate Loans. Traditional CRE loans are comprised of loans to small business entities to purchase or expand structures in which the business operations are housed, loans to owners of real estate who lease space to non-related commercial entities, loans for construction and land development, and loans to owners of multi-family residential structures, such as apartment buildings. CRE loans are underwritten primarily based on historical and projected cash flows of the borrower and secondarily on the appraised value of the underlying real estate pledged as collateral on the debt. Credit tenant leases are to a major national or regional firm, typically to open a new store front or other core business operation. Credit tenant leases follow the same guidelines with additional focus on the global creditworthiness of the national or regional firm. For the various types of commercial real estate loans, minimum criteria have been established within our loan policy regarding debt service coverage while maximum limits on loan-to-value and amortization periods have been defined. Maximum loan-to-value ratios range from 65% to 80% depending upon the type of real estate collateral, while the desired minimum debt coverage ratio is 1.20x. Amortization periods for commercial real estate loans are generally limited to twenty years. Our CRE loans represented 23.95% of our total loan portfolio at December 31, 2012.A CRE loan borrower’s financial information is monitored on an ongoing basis by requiring periodic financial statement updates, payment history reviews and periodic face-to-face meetings with the borrower. We require commercial borrowers to provide annually updated financial statements and federal tax returns. These requirements also apply to the individual principals of our commercial borrowers. We also require borrowers of credit tenant lease loans to provide an annual report of income and expenses for the property, including a tenant list and copies of leases, as applicable.Commercial and Industrial Loans. C&I loans focus on the entire business relationship and consist of loans for business expansion as well as working capital loans used to purchase inventory and fund accounts receivable that are secured by business assets other than real estate. These loans are generally written for three years or less. Also, new equipment financing is provided to businesses with these loans generally limited to 90% of the value of the collateral and amortization periods limited to seven years. C&I loans are often accompanied by a personal guaranty of the principal owners of a business. As with CRE loans, the underlying cash flow on a historic and projected basis of the business is the primary consideration in the underwriting process, with a desired minimum debt coverage ratio of 1.20x. We also assess the management’s operational effectiveness, level of equity invested in the business and customer relationships. We also consider relevant economic and industry factors, as well as competitor and supplier information relating to the applicant’s business. The financial condition of commercial borrowers is monitored at least annually with the type of financial information required determined by the size of the relationship. We address the needs of businesses with higher risk profiles through the use of government-assisted lending programs through the Small Business Administration. We determine the loan structure after evaluating what is appropriate for the specific situation and establish monitoring mechanisms for going forward.We do not currently solicit brokered deposits, althoughAdditionally, we had approximately $23.7 million and $18.3$12.8 million in brokered time deposits at December 31, 2011 and 2012, respectively.$6.00$10.00 per customer per month for surcharges our customers incur when using an ATM owned by another institution. Management believes this program is more cost effective for the Bank, and more convenient for customers, than it would be to build and maintain a proprietary nationwide ATM network for our customers.a robust online toolset,capabilities, quality customer service and a tremendous valuecompetitive pricing for the products and services offered, we have been able to develop relationships with our retail customers and build brand loyalty. The average retail checking or savings account has been open with us for more than eight years. As a result, we are not dependent upon costly account acquisition campaigns to attract new customers on a continual basis.Deposits(dollars in thousands) Fiscal Year ended December 31, 2012 2011 2010 Regular savings accounts $ 11,583 2.18 % $ 7,773 1.60 % $ 6,074 1.48 % Non-interest bearing 13,187 2.49 % 15,870 3.26 % 7,676 1.86 % Interest-bearing 73,660 13.88 % 64,006 13.15 % 53,108 12.90 % Money market accounts 202,388 38.14 % 165,561 34.02 % 114,874 27.91 % Certificates of deposit 211,542 39.86 % 209,762 43.10 % 199,248 48.41 % Brokered deposits 18,490 3.48 % 23,898 4.91 % 30,844 7.49 % Premiums on brokered deposits (159 ) -0.03 % (205 ) -0.04 % (197 ) -0.05 % Total $ 530,691 100.00 % $ 486,665 100.00 % $ 411,627 100.00 % Time Deposits at December 31, 2012(dollars in thousands)Interest Rate: <1.00% $ 48,829 1.00% – 1.99% 57,771 2.00% – 2.99% 80,815 3.00% – 3.99% 35,567 4.00% – 4.99% 4,512 5.00% – 5.99% 2,538 Total $ 230,032 Time Deposit Maturities at December 31, 2012(dollars in thousands) Period to Maturity Percentage of
Total Less than 1
year > 1 year
to 2 years > 2 years
to 3 years More than
3 years Total Certificate
Accounts Interest Rate: <1.00% $ 42,085 $ 5,247 $ 998 $ 499 $ 48,829 21.23 % 1.00% – 1.99% 27,115 7,815 6,882 15,959 57,771 25.12 % 2.00% – 2.99% 4,980 4,077 26,323 45,435 80,815 35.13 % 3.00% – 3.99% 897 19,069 5,256 10,345 35,567 15.46 % 4.00% – 4.99% 3,776 1 735 – 4,512 1.96 % 5.00% – 5.99% – – – 2,538 2,538 1.10 % Total $ 78,853 $ 36,209 $ 40,194 $ 74,776 $ 230,032 100.00 % Time Deposit Maturities of $100,000 or Greater at December 31, 2012(dollars in thousands) Certificates
of Deposit Maturity Period: 3 months or less $ 17,268 Over 3 through 6 months 10,417 Over 6 through 12 months 22,572 Over 12 months 83,313 Total $ 133,570 10Federal Home Loan AdvancesAlthough deposits are the primary source of funds for our lending and investment activities and for general business purposes, we may obtain advances from the Federal Home Loan Bank of Indianapolis (“FHLB”) as an alternative to retail deposit funds. The following table is a summary of FHLB borrowings for the periods indicated.(dollars in thousands) Fiscal Year ended
December 31, 2012 2011 2010 Balance outstanding at end of period $ 40,686 $ 40,573 $ 30,455 Average amount outstanding during period 40,625 38,539 36,427 Maximum outstanding at any month end during period 40,686 40,573 47,000 Weighted average interest rate at end of period 3.22 % 3.22 % 4.02 % Weighted average interest rate during period 3.35 % 3.52 % 4.20 % Our only office is located in Indianapolis, Indiana. The low cost of living in Indianapolis (a 2009Forbes study showed Indianapolis to be the most affordable place to live among the largest 40 MSAs in the United States) gives us access to highly skilled employees and office space at a competitive cost.retail banking activities, primarily residential mortgage andreal estate lending, consumer lending and deposit gathering activities is nationwide. The physical location of our office is of no consequence to our retail customers.serve CRE borrowers in surrounding states in the Midwest, while our more recent expansion into C&Ialso offer single tenant lease financing on a nationwide basis. Our other commercial banking focuses on Central Indiana. Bothactivities, including CRE and C&I relationshipsloans, corporate credit cards, and corporate treasury management services, are highly dependent on strong lender/borrower relationships.Competition ING Direct, EverBank and Bank of Internet. However, we also compete with other banks, savings banks, credit unions, investment banks, insurance companies, securities brokerages and other financial institutions, as nearly all have some form of Internet delivery for their services. For residential mortgage lending, competitors that use the Internet as a primary service channel include Quicken Loans and Lending Tree.Loan Depot. However, we also compete with the major banks in residential mortgage lending, including Bank of America, Chase and Wells Fargo.First MerchantsHuntington National Bank and First Financial Bank. AllIn the Southwest, competitors include Wells Fargo, Chase, Bank of America, U.S. Bank, Bank of Arizona and CoBiz Bank. For our single tenant lease financing activities, we compete nationally with regional banks, local banks and credit unions, as well as life insurance companies and commercial mortgage-backed securities lenders. Examples of these competitors include Wells Fargo, Everbank and StanCorp. These competitors may have significantly greater financial resources and higher lending limits than we do, and may also offer specialized products and services that we do not. For our commercial clients, we offer a highly personalized relationship and fast, local decision making.banking conglomeratesthese institutions for consumers who do not wish to subsidize the cost of large branch networks through high fees and unfavorable rates.revenues.WeWe areThe Company is a registered bank holding company under the Bank Holding Company Act of 1956 (the “BHCA”) and, as such, areis subject to regulation, supervision and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). We areThe Company is required to file reports with the Federal Reserve on a quarterly basis.Federal Deposit Insurance Corporation (the “FDIC”)FDIC as its primary federal bank regulator. The Bank is not a member of the Federal Reserve System.usthe Company has been and continues to be altered by the enactment of new statutes and the adoption of new regulations as well as by revisions to, and evolving interpretations of, existing regulations. State and federal banking agencies have significant discretion in the conduct of their supervisory and enforcement activities and their examination policies. Any change in such practices and policies could have a material impact on ourthe Company’s operations and shareholders.services.services they offer. Certain provisions of the Dodd-Frank Act noted in this section are also discussed in other sections. Furthermore, many of the provisions of the Dodd-Frank Act require further study or rulemaking by federal agencies, a process which will take months and years to implement fully.capital.capital based on the asset size of an institution. The Company has never issued any trust preferred securities. The Dodd-Frank Act permanently raised deposit insurance levels to $250,000, retroactive to January 1, 2008, and provided unlimited deposit insurance coverage for non-interest bearingnoninterest-bearing transaction accounts through December 31, 2012. Pursuant to modifications under the Dodd-Frank Act, deposit insurance assessments are now being calculated based on an insured depository institution’s assets rather than its insured deposits, and the minimum reserve ratio of the FDIC’s Deposit Insurance Fund (the “DIF”) has been raised to 1.35%. The payment of interest on business demand deposit accounts is permitted by the Dodd-Frank Act. The Dodd-Frank Act authorized the Federal Reserve to regulate interchange fees for debit card transactions and established new minimum mortgage underwriting standards for residential mortgages. Further, the Dodd-Frank Act barred certain banking organizations from engaging in proprietary trading and from sponsoring and investing in hedge funds and private equity funds, except as permitted under certain limited circumstances. The Dodd-Frank Act empowered the newly established Financial Stability Oversight Council to designate certain activities as posing a risk to the U.S. financial system and to recommend new or heightened standards and safeguards for financial organizations engaging in such activities.bureauagency within the Board of Governors of the Federal Reserve.Reserve System. The CFPB has the exclusive authority to prescribeadminister, enforce, and otherwise implement federal consumer financial laws, which includes the power to make rules, issue orders, and issue guidance governing the provision of consumer financial products and services, whichservices. The CFPB has exclusive federal consumer law supervisory authority and primary enforcement authority over insured depository institutions with assets totaling over $10 billion. Authority for institutions with $10 billion or less rests with the prudential regulator, and in the case of the Bank will be enforced by the FDIC. The CFPB was also required to establish four offices: 1) Office of Fair Lending and Equal Opportunity, 2) Office of Financial Education, 3) Office of Service Member Affairs, and 4) Office of Financial Protection for Older Americans. Additionally, the Bureau was required to establish a Consumer Advisory Board to advise and consult with the Bureau in the exercise of its functions. Further, the Dodd-Frank Act established the Office of Financial Research, which has the power to require reports from other financial services companies. Basel III Regulatory Capital Levels January 1,
2015 January 1,
2016 January 1,
2017 January 1,
2018 January 1,
2019Common equity tier 1 capital to risk-weighted assets 4.50 % 5.125 % 5.75 % 6.375 % 7.00 % Tier 1 capital to risk-weighted assets 6.00 % 6.625 % 7.25 % 7.875 % 8.50 % Total capital to risk-weighted assets 8.00 % 8.625 % 9.25 % 9.875 % 10.50 % Generally.The. The Bank derives its lending and investment powers from the IFIA, the Federal Deposit Insurance Act (the “FDIA”) and related regulations.Capital Requirements—Generally. FDIC regulations require insured non-member banks generally to meet three minimum capital standards:a ratio of tangible capital to adjusted total assets (tangible capital ratio) of not less than 1.5%;“Tangible capital” for this purpose is defined to include common stockholders’ equity (including retained earnings), noncumulative perpetual preferred stock and related earnings and minority interests in consolidated subsidiaries, less intangibles and investments in certain “non-includable” subsidiaries.a ratio of “core capital” to adjusted total assets (“Tier 1 Capital Ratio” or “leverage ratio”) of not less than 4%; and“Core capital” (also called “Tier 1 Capital”) is defined similarly to tangible capital, but also includes certain qualifying supervisory goodwill and certain purchased credit card relationships.a ratio of total capital (core and supplementary) to total risk-weighted assets (“Total Risk-Based Capital Ratio”) of not less than 8%, provided that the amount of supplementary capital used to satisfy this requirement may not exceed the amount of core capital.“Supplementary capital” (also called “Tier 2 Capital”) for this purpose is defined to include cumulative and certain other preferred stock, mandatory convertible debt securities, subordinated debt and the allowance for loan and lease losses (up to a maximum of 1.25% of risk-weighted assets). In addition, up to 45% of unrealized gains on available-for-sale equity securities with a readily determinable fair value may be included in Tier 2 Capital.In determining the amount of risk-weighted assets for purposes of the risk-based capital requirements, the Bank’s balance sheet assets and the credit conversion values of certain off-balance sheet items are multiplied by specified risk-weights, generally ranging from 0% for cash and obligations issued by the U.S. Government or its agencies to 100% for consumer and commercial loans, as specified by the FDIC regulations based on the degree of risk deemed to be inherent in the particular type of asset.The FDIC has adopted regulations to implement its capital adequacy requirements through the system of prompt corrective action established by Section 38 of the FDIA. Under the prompt corrective action regulations, a bank is “well capitalized” if it has: (1) a Total Risk-Based Capital Ratio of 10.0% or greater; (2) a Tier 1 (Core) risk-based capital ratio of 6.0% or greater; (3) a leverage ratio of 5.0% or greater; and (4) is not subject to any written agreement, order, capital directive or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. A bank is “adequately capitalized” if it has: (1) a Total Risk-Based Capital Ratio of 8.0% or greater; (2) a Tier 1 (Core) risk-based capital ratio of 4.0% or greater; and (3) a leverage ratio of 4.0% or greater (3.0% under certain circumstances) and does not meet the definition of a “well capitalized” savings association.Regulators also must take into consideration: (1) concentrations of credit risk, (2) interest rate risk and (3) risks from non-traditional activities, as well as an institution’s ability to manage those risks, when determining the adequacy of an institution’s capital. This evaluation will be made as a part of the institution’s regular safety and soundness examination.Generally, a bank, upon receiving notice that it is not adequately capitalized (i.e., that it is “undercapitalized”), becomes subject to the prompt corrective action provisions of Section 38 of the FDIA that, for example, (1) restrict payment of capital distributions and management fees, (2) require that the FDIC monitor the condition of the bank and its efforts to restore its capital, (3) require submission of a capital restoration plan, (4) restrict the growth of the bank’s assets and (5) require prior regulatory approval of certain expansion proposals. A bank that is required to submit a capital restoration plan must concurrently submit a performance guarantee by each company that controls the bank. A bank that is “critically undercapitalized” (i.e., has a ratio of tangible equity to total assets that is equal to or less than 2.0%) will be subject to further restrictions, and generally will be placed in conservatorship or receivership within 90 days.We are also subject to capital adequacy regulations of the Federal Reserve. These capital requirements are substantially similar to those applicable to the Bank. For bank holding companies, the minimum Tier 1 risk-based capital ratio is 4% and the minimum Total Risk-Based Capital Ratio is 8%. In addition to the risk-based capital requirements, the Federal Reserve requires top rated bank holding companies to maintain a minimum leverage capital ratio of Tier 1 capital (defined by reference to the risk-based capital guidelines) to its average total consolidated assets of at least 3.0%. For most other bank holding companies, the minimum leverage ratio is 4.0%. Bank holding companies with supervisory, financial, operational or managerial weaknesses, as well as bank holding companies that are anticipating or experiencing significant growth, are expected to maintain capital ratios well above the minimum levels. The following summarizes our applicable capital ratios as of December 31, 2012:(dollars in thousands) Actual Minimum
Capital
Requirement Minimum to be
Well Capitalized
Under Prompt
Corrective Actions Amount Ratio Amount Ratio Amount Ratio As of December 31, 2012: Total capital (to risk-weighted assets) Consolidated $ 60,701 11.0 % $ 44,286 8.0 % N/A N/A Bank 59,893 10.8 % 44,263 8.0 % 55,329 10.0 % Tier 1 capital (to risk-weighted assets) Consolidated 54,844 9.9 % 22,143 4.0 % N/A N/A Bank 54,036 9.8 % 22,132 4.0 % 33,198 6.0 % Tier 1 capital (to average assets) Consolidated 54,844 8.9 % 24,667 4.0 % N/A N/A Bank 54,036 8.8 % 24,653 4.0 % 30,817 5.0 % In June 2012, the federal banking agencies issued notices of proposed rulemaking that would replace the current risk-based and leveraged capital requirement consistent with agreements reached by the Basel Committee on Banking Supervision (the “Basel Committee”) in response to the recent financial crisis (collectively, “Basel III”). The proposed revisions would include implementation of a new common equity tier 1 minimum capital requirement, a higher minimum tier 1 capital requirement, and, for banking organizations subject to the advanced approaches capital rules, a supplementary leverage ratio that incorporates a broader set of exposures in the denominator measure. Additionally, consistent with Basel III, the agencies proposed to limit a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a specified amount of common equity tier 1 capital as well as more conservative standards for including an instrument in regulatory capital. The revisions were also intended to implement section 171 of the Dodd-Frank Act, which requires the agencies to establish minimum risk-based and leverage capital requirements. The revised capital requirements were to become effective on January 1, 2013; however in December 2012, the agencies announced that the effective date of the proposed revisions would be delayed for an unknown period of time. Accordingly, the Company is not yet in a position to determine the effect of Basel III on its capital requirements.TARP/CPP. Under the Troubled Asset Relief Program established by the Emergency Economic Stabilization Act of 2008, the U.S. Treasury Department established the Capital Purchase Program (“TARP/CPP”) by which the Treasury Department purchased senior preferred shares of participating holding companies or financial institutions. We determined that we did not need the capital infusion offered under the TARP/CPP, and so we never issued any preferred shares or other securities to the Treasury Department.The CRA regulations establish an assessment system that bases an association’s rating on its actual performance in meeting community needs. In particular, the assessment system focuses on three tests:•alending test, to evaluate our record of making loans in our local communities, defined as our CRA assessment areas;•aninvestment test, to evaluate our record of investing in community development projects, affordable housing and programs benefiting low or moderate income individuals and businesses in our CRA assessment areas or a broader area that includes our assessment areas; and•aservice test, to evaluate our delivery of services through our retail banking channels and the extent and innovation of our community development services.Internet focus,Internet-driven model and nationwide consumer banking platform, the Bank does not have the kind of easily defined local community market that most other banks have. As a result, the Bank operateshas opted to operate under a CRA Strategic Plan, which was submitted to and approved by the FDIC and sets forth certain guidelines the Bank must meet in order to achieve a “Satisfactory” rating.meet. The current Strategic Plan expires December 31, 2014; the Bank may elect to submit a new plan for approval prior to that date.2017. The Bank received a “Satisfactory” CRA rating in its most recent CRA examination. Failure of an institution to receive at least a “Satisfactory” rating could inhibit such institution or its holding company from undertaking certain activities, including engaging in certain activities andor pursuing acquisitions of other financial institutions.TheWe believe the Bank is in compliance with these provisions.stockholders,shareholders, as well as to entities controlled by such persons (“Related Interests”), is governed by Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve. Among other things, these provisions require that extensions of credit to insiders: (1) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and (2) not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the Bank’s capital. In addition, extensions of credit in excess of certain limits must be approved in advance by the Bank’s boardBoard of directors.Directors. Further, provisions of the Dodd-Frank Act require that after July 21, 2011, any sale or purchase of an asset by the Bank with an insider must be on market terms and if the transaction represents more than 10% of the Bank’s capital stock and surplus it must be approved in advance by a majority of the disinterested directors of the Bank. TheWe believe the Bank is in compliance with these provisions.
On November 9, 2010, the FDIC proposed to change its assessment base from total domestic deposits to average total assets minus average tangible equity 2015. business, financial condition and results of operations. portfolio. transformation, we are subject to risks of obsolescence. operations. operations. monthly rent in the amount of $18.50 per square foot. years. twelve months ended December 31, 2013. Income Analyses twelve months ended December 31, 2014. The nonperforming loans. the end of the last five years. certificates of deposit, $74.7 million, or 28.0%, in money market accounts, $10.0 million, or 13.5%, in interest-bearing demand deposits, $2.0 million, or 9.8%, in regular savings accounts, and $1.9 million, or 8.8%, in noninterest-bearing deposits. income (loss). frequently. less than one year. 2015 as stated in its report appearing on page F-2. Executive Officers and Corporate Governance Board since 2006 and as our President since 2007. Mr. Becker is the founder of the Bank, and has served as an officer and director of the Bank since 1998. Governance.” Governance.” 10, 2016 maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in thousands) thousands) The Company’s business activities are currently limited to one reporting unit and reportable segment, which is commercial banking. Held-for-Sale Receivable (“TDR”) ALLL. Officer. years for software and equipment, ten years for land improvements, and 39 years for buildings. computations. 10. $0.3 million. The carrying value of securities at December 31, derivative financial instruments. Corporate Securities 2015. 2015. 2015. the other loan portfolios, management monitors and evaluates these loans based on borrower and tenant financial performance, collateral value, industry trends and other risk grade criteria. borrowers in geographically diverse locations throughout the country. 2014. of such little value that continuing to carry them as assets is not warranted. 2014. 2014. 2014. The following 2015, 2014, and 2013. 2015 at any time after June 28, 2016. The debenture is intended to qualify for treatment as Tier 2 capital under regulatory guidelines. 2013. Agreement 2013 Plan. The Directors Deferred Stock Plan ended on December 31, 2013. may enter into transactions with various related parties. In management’s opinion, such loans, a phase-in period for certain provisions. Quantitative measures The Company did not own any securities classified within Level 3 of the hierarchy as of December 31, 2015 or 2014. 2014: 2015 or 2014. from Federal Home Loan Bank The carrying value of variable rate advances approximates fair value. 2014. 2014: Company on a non-consolidated basis: statements. Leases (Topic 842) (February 2016) is permitted. The Company consolidated financial statements. which is defined as Tier 1 capital, as required in the Dodd-Frank Act. The new assessment formula became effective on April 1, 2011, and was used to calculate the June 30, 2011 assessment. The FDIC plans to raise the same expected revenue under the new base as under the current assessment base. Since the new base is larger than the current base, the proposal would lower the assessment rate schedule to maintain revenue neutrality. Assessment rates would be reduced to a range of 2.5 to 9 basis points on the broader assessment base for banks in the lowest risk category (well capitalized and CAMELS I or II) and up to 30 to 45 basis points for banks in the highest risk category.FICOFinancing Corporation (FICO) bonds, totaled $455,000, $727,000 and $939,000$0.6 million for 2012, 2011 and 2010, respectively.core deposits, Federal Home Loan Bank of Indianapolis (“FHLB”) borrowings, fed funds lines with correspondent banks FHLB of Indianapolis borrowings and brokered deposits. The Bank does not currently solicit brokered deposits. The Bank believes it has sufficient liquidity to meet its funding obligations. of Indianapolis, which is one of the regional Federal Home Loan Banks comprising the Federal Home Loan Bank System. Each Federal Home Loan Bank serves as a central credit facility primarily for its member institutions. The Bank, as a member of the FHLB, of Indianapolis, is required to acquire and hold shares of FHLB capital stock in the FHLB of Indianapolis.stock. While the required percentage of stock ownership is subject to change by the FHLB, of Indianapolis, the Bank is in compliance with this requirement with an investment in FHLB of Indianapolis stock at December 31, 20122015 of $2.9$8.6 million. Any advances from the FHLB of Indianapolis must be secured by specified types of collateral, and long-termlong term advances may be used for the purpose of providing funds to make residential mortgage or commercial loans and to purchase investments. Long term advances may also be used to help alleviate interest rate risk for asset and liability management purposes. The Bank receives dividends on its FHLB of Indianapolis stock.TheAs of December 31, 2015, the Federal Reserve’s regulations currently requirerequired reserves equal to 3% on transaction account balances over $10.7$14.5 million and up to $58.8$103.6 million, plus 10% on the excess over $58.8$103.6 million. These requirements are subject to adjustment annually by the Federal Reserve. The Bank is in compliance with the foregoing reserve requirements. The balances maintained to meet the reserve requirements imposed by the Federal Reserve may be used to satisfy liquidity requirements imposed by the FDIC.togetherin conjunction with the implementing regulationsimplementation of various federal regulatory agencies,agency regulations, has caused financial institutions, such as the Bank, to adopt and implement additional policies or amend existing policies and procedures with respect to, among other things, anti-money laundering compliance, suspicious activity, currency transaction reporting, customer identity verification and customer risk analysis.Interchange Fees. Pursuant to the Dodd-Frank Act, the Federal Reserve has issued a final rule governing the interchange fees charged on debit card transactions. The rule caps the interchange income that an issuing bank can receive from a debit card holder’s transactions. The rule became effective October 1, 2011. Although the rule does not directly apply to institutions with less than $10 billion in assets, market forces may result in point-of-sale networks paying the same reduced interchange rate to banks of all sizes. If that were to occur, the Bank would receive less income on its debit card customers’ transactions.2012,2015, we had 97 employees, all of whom are152 full-time equivalent employees. None of our employees are currently represented by a union or covered by a collective bargaining agreement. Management believes that its employee relations are satisfactory.Corporate InformationWe were 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. Our principal executive offices are located at 8888 Keystone Crossing, Suite 1700, Indianapolis, Indiana 46240, and our telephone number is (317) 532-7900. plan to post important information for investors on our website in the “Investor Relations” section. We expect toand use this website as a means of disclosing material, non public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investor Relations section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. Investors can easily find or navigate to pertinent information about us, free of charge, on our website, including:·our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC;·announcements of investor conferences and events at which our executives talk about our products and competitive strategies. Archives of some of these events are also available;·press releases on quarterly earnings, product announcements, legal developments and other material news that we may post from time to time;·corporate governance information, including our Corporate Governance Principles, Code of Business Conduct and Ethics, information concerning our Board of Directors and its committees, including the charters of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee, and other governance-related policies;·shareholder services information, including ways to contact our transfer agent; and·opportunities to sign up for email alerts and RSS feeds to have information provided in real time.Executive Officers of the RegistrantOur executive officers are as follows:NameAgePositionDavid B. Becker59Chief Executive Officer, President, Director and ChairmanNicole S. Lorch38Senior Vice President, Retail BankingC. Charles Perfetti68Senior Vice PresidentEdward A. Roebuck48Senior Vice President and Chief Credit OfficerLaurinda A. Swank41Senior Vice President-Accounting and Chief Accounting OfficerKay E. Whitaker53Senior Vice President-Finance, Chief Financial Officer and Secretary20David B. Becker has served as our Chairman of the Board since 2006 and as our President since 2007.Mr. Becker is the founder of the Bank and has served as an officer and director of the Bank since 1999.Mr. Becker’s experiences as an entrepreneur in numerous businesses and in acting as our principal executive officer for over five years qualify him for service on our Board of Directors.Nicole S. Lorchhas served as Senior Vice President, Retail Banking since May 2011. Ms. Lorch joined the Company as Director of Marketing in 1999 and served as Vice President, Marketing & Technology from May 2003 to May 2011. She previously served as Director of Marketing at Virtual Financial Services, an online banking services provider, from 1996 to 1999.C. Charles Perfetti was appointed Senior Vice President in January 2012. Mr. Perfetti joined First Internet Bancorp in 2007 upon our acquisition of Landmark Financial Corporation, where he had served as President from 1989 to 2007. He previously conducted independent real estate and government consulting and served as the Chief Investment Manager of the State of Indiana from 1979 to 1986.Edward A. Roebuckhas served as Senior Vice President, Chief Credit Officer since August 2012. Mr. Roebuck previously served as Senior Asset Manager at PNC Bank from January 2009 to June 2012 and as Chief Credit Officer and Senior Underwriter at National City Bank from 1986 to December 2008.Laurinda A. Swankwas appointed to serve as Senior Vice President-Accounting and Chief Accounting Officer in January 2013. Ms. Swank previously served as Senior Vice President, Chief Financial Officer and Secretary from May 2002 to January 2013 and as Vice President and Controller from 1999 to 2002. Prior to that, she served as Controller at Automotive Finance Corporation, a floor plan financing source for auto dealers nationwide, from 1996 to 1999 as well as a Senior Auditor at Ernst & Young, a public accounting firm, from 1993 to 1996.Kay E. Whitaker was appointed to serve as Senior Vice President-Finance, Chief Financial Officer and Secretary in January 2013. Ms. Whitaker previously served as Chief Financial Officer at the Central Indiana Community Foundation from July 2007 to December 2012, where she managed all accounting, finance, human resources, facilities, technology and data functions. She also served as an independent consultant for PricewaterhouseCoopers from 2005 to 2007, as Chief Operating Officer of Energy Ventures, an energy services and utility corporation, from 1997 to 2004, as Chief Financial Officer of Golden Care, Inc., a respiratory therapy and supply company, from 1995 to 1997 and as a Senior Manager in the financial services: mortgage and commercial banking division of PricewaterhouseCoopers from 1982 to 1995.Executive officers are elected annually by our board of directors and serve a one-year period or until their successors are elected.None of the above-identified executive officers is related to each other or to any of our directors.Item 1A.Risk Factors21We are subject to extensive governmental regulation, which may result in significant restrictions on our activities, operations, financing and ownership.We and the Bank are subject to extensive governmental regulation that is intended primarily to protect depositors and the DFI, rather than our shareholders. As a bank holding company, we are regulated primarily by the Federal Reserve. As an Indiana-chartered bank, the Bank is subject to regulation, examination and supervision by the DFI as chartering authority, and the FDIC as the primary federal regulator and deposit insurer. These regulators have the ability, should the situation require, to place significant regulatory and operational restrictions upon us and the Bank. The Bank’s activities are also regulated under consumer protection laws applicable to our lending, deposit and other activities.Further, we may be required to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements, including the Dodd-Frank Act and new regulatory capital requirements intended to implement Basel III. Failure to comply with the new requirements may negatively affect our results of operations and financial condition. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to our investors.Federal and state laws and regulations govern numerous other matters including permissible types, amounts and terms of extensions of credit and investments; permissible nonbanking activities; the level of reserves against deposits; and restrictions on dividend payments. The DFI and FDIC possess the power to issue cease and desist orders to prevent or remedy unsafe or unsound practices or violations of law by banks subject to their regulation, and the Federal Reserve possesses similar powers with respect to bank holding companies. These and other restrictions limit the manner in which we, and the Bank, may conduct business and obtain financing.cause underwriting or other delaysadversely affect our Internet-based operations and could result in fewer applications being received, slowerslow the processing of applications, loan servicing, and reduced efficiency in servicing.deposit-related transactions. In addition, our communication and information systems may present security risks and could be susceptible to hacking or other unauthorized access. The occurrence of any of these events could have a material adverse effect on our business.planscommercial loan portfolio exposes us to growhigher credit risks than residential real estate and consumer loans, including risks relating to the success of the underlying business and conditions in the market or the economy and concentrations in our commercial loan portfolios may not succeed.may not succeed inare growing our plans to grow our CRE and C&I and CRE loan portfolios. Even if our plans can be implemented successfully, this may not result in the realizationAt December 31, 2015, C&I loans amounted to $102.0 million, or 10.7% of the expected benefits.total loans receivable, and CRE loans amounted to $480.9 million, or 50.4% of total loans receivable. These loans generally involve higher credit risks than residential real estate and consumer loans and are dependent onupon our lenders maintaining close relationships with the borrowers. Payments on these loans are often dependent upon the successful operation and management of the underlying business or assets, and repayment of such loans may be influenced to a great extent by conditions in the market or the economy. Commercial loans typically involve larger loan balances than residential real estate or consumer loans and could lead to concentration risks within our commercial loan portfolio. In addition, our C&I loans have primarily been extended to small to medium sized businesses that generally have fewer financial resources in terms of capital or borrowing capacity than larger entities.Our failure to achieve or manage this growth could have an adverse effect on our business, future prospects, financial condition or results of operations.An inadequate allowance for loan losses would reduce our earnings and adversely affect our financial condition and results of operations.Our success depends to a significant extent upon the quality of our assets, particularly loans. In originating loans, there is a substantial likelihood that credit losses will be experienced. The risk of loss will vary with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the quality of the collateral. Although we and our regulators regularly review our loan portfolio and evaluate the adequacy of our allowance and believe that the allowance is adequate to absorb such probable losses, there can be no assurance that we will not experience losses in excess of the allowance and be required to increase our provision.As of December 31, 2012, our allowance for loan losses was $5.8 million, which represented approximately 1.65% of total loans. We had $4.4 million in non-performing loans as of December 31, 2012. The allowance may not prove sufficient to cover future loan losses. Although management uses the best information available to make determinations with respect to the allowance for loan losses, future adjustments may be necessary if economic conditions differ substantially from the assumptions used or adverse developments arise with respect to our non-performing or performing loans. Accordingly, the allowance for loan losses may not be adequate to cover loan losses or significant increases to the allowance may be required in the future if economic conditions should worsen. Any increase in our provision could have a material adverse effect on our business, financial condition and results of operations.2012,2015, we held $3.3had a net unrealized holding loss of approximately $1.9 million on the available for sale portion of our $213.7 million investment securities portfolio. In assessing the impairment of investment securities, we consider the length of time and extent to which the fair value has been less than cost, the financial condition and near-term prospects of investments in private label mortgage-backedthe issuers, whether the market decline was affected by macroeconomic conditions and pooled trust securities which had an unrealized loss of $2.4 million. Althoughwhether we have the intent to sell the security or will be required to sell the security before its anticipated recovery. We also use economic models to assist in the valuation of some of our investment securities. If our investment securities experience a decline in value, we would need to determine whether the decline represented an other-than-temporary impairment, has occurred, such models have limitations. Although we do not anticipate any decline in the value of these investments, if they experience an other-than-temporary impairment,which case we would be required to record a write-down or lossof the investment and a corresponding charge to our earnings.Our products and services are delivereda technological platformtechnology that is subject to rapid change and transformation.deposit-gatheringdeposit gathering activities through the Internet. The financial services industry is undergoing rapid technological change, and we face constant evolution of customer demand for technology-driven financial and banking products and services. Many of our competitors have substantially greater resources to invest in technological improvement and product development, marketing and implementation. Any failure to successfully keep pace with and fund technological innovation in the markets in which we compete could have a material adverse impacteffect on our business, financial condition and results of operations. and condition and on conditions in the capital markets, as well as economic conditions generally. Accordingly, such financing may not be available to us on acceptable terms or at all. If we cannot raise additional capital when needed, it would have a material adverse effect on our business, financial condition and results of operations and prospects.long-termlong‑term profitability.elsewhere.nationwide. Some of our competitors have greater name recognition and market presence than we do and offer certain services that we do not or cannot provide. In addition, larger competitors may be able to price loans and deposits more aggressively than we do, which could affect our ability to increase our market share and remain profitable on a long-termlong term basis. Our success will depend on the ability of the Bank to compete successfully on a long-termlong term basis within the financial services industry. depositors and customers is highly dependent upon consumer and other external perceptions of our business practices and financial condition. Adverse perceptions could damage our reputation to a level that could lead to difficulties in generating and maintaining deposit accounts and accessing credit markets andas well as increased regulatory scrutiny of our business. Borrower payment behaviors also affect us. To the extent that borrowers determine to stop paying their loans where the financed properties’ market values are less than the amount of their loans, or for other reasons, our costs and losses may increase. Adverse developments or perceptions regarding the business practices or financial condition of our competitors, or our industry as a whole, may also indirectly adversely affect our reputation.We are dependent upon the servicesmanagement team.Our future success and profitability is substantially dependent upon our management and the abilitiesoperational or security systems or infrastructure, or those of our senior executives. third party vendors and other service providers, including as a result of cyber-attacks, could disrupt our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses.believe that our future results will also depend in part upon our ability to attractprocess, record and retain highly skilledmonitor our client transactions on a continuous basis. As client, public and qualified management. Competitionregulatory expectations regarding operational and information security have increased, our operational systems and infrastructure must continue to be safeguarded and monitored for senior personnel is intense,potential failures, disruptions and breakdowns. Our business, financial, accounting and data processing systems, or other operating systems and facilities, may stop operating properly or become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond our control. For example, there could be electrical or telecommunications outages; natural disasters such as earthquakes, tornadoes and hurricanes; disease pandemics; events arising from local or larger scale political or social matters, including terrorist acts; and, as described below, cyber-attacks. Although we have business continuity plans and other safeguards in place, our business operations may be adversely affected by significant and widespread disruption to our physical infrastructure or operating systems that support our business and clients. be successful in attractingshareholders. These laws and retaining such personnel. Changes in key personnelregulations, among other matters, affect our lending practices, capital structure, investment practices, dividend policy, operations and their responsibilities may be disruptivegrowth. Compliance with the myriad laws and regulations applicable to our businessesorganization can be difficult and costly. In addition, these laws, regulations and policies are subject to continual review by governmental authorities, and changes to these laws, regulations and policies, including changes in interpretation or implementation of these laws, regulations and policies, could affect us in substantial and unpredictable ways and often impose additional compliance costs. Further, any new laws, rules and regulations could make compliance more difficult or expensive. All of these laws and regulations, and the supervisory framework applicable to our industry, could have a material adverse effect on our businesses,business, financial condition and results of operations. In particular,lossFDIC and the Indiana Department of Financial Institutions periodically examine our business, including our compliance with laws and regulations. If, as a result of an examination, a federal or state banking agency were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our chief executive officeroperations had become unsatisfactory, or that we were in violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place us into receivership or conservatorship. Any regulatory action against us could have a material adverse effect on our business, financial condition and results of operations.Fluctuationsinterestthe statutory deposit insurance limits have increased resolution costs to the FDIC and put significant pressure on the Deposit Insurance Fund. In order to maintain a strong funding position and restore the reserve ratios of the Deposit Insurance Fund, the FDIC increased deposit insurance assessment rates and charged a special assessment to all FDIC-insured financial institutions. Further increases in assessment rates or special assessments may occur in the future, especially if there are significant additional financial institution failures. Any future special assessments, increases in assessment rates or required prepayments in FDIC insurance premiums could reduce our profitability and affect the value ofor limit our assets.Like other financial institutions, we are subjectability to interest rate risk. Our primary source of income is net interest income,pursue certain business opportunities, which is the difference between interest earned on loans and leases and investments and interest paid on deposits and borrowings. We expect that we will periodically experience imbalances in the interest rate sensitivities of our assets and liabilities and the relationships of various interest rates to each other. Over any defined period of time, our interest-earning assets may be more sensitive to changes in market interest rates than our interest-bearing liabilities, or vice-versa. In addition, the individual market interest rates underlying our loan and lease and deposit products may not change to the same degree over a given time period. In any event, if market interest rates should move contrary to our position, earnings may be negatively affected. In addition, loan and lease volume and quality and deposit volume and mix can be affected by market interest rates as can the businesses of our clients. Changes in levels of market interest rates could have a material adverse effect on our net interest spread, asset quality, origination volumebusiness, financial condition and overallresults of operations.Market interest rates are beyond our control, and they fluctuate in response to economic conditionspolicies of various governmental andFederal Reserve approved a new rule that substantially amends the regulatory agencies, in particular, the Federal Reserve. Changes in monetary policy, including changes in interest rates, may negatively affect our abilityrisk-based capital rules applicable to originate loans and leases, the value of assets and our ability to realize gains from the sale of our assets, all of which ultimately could affect our earnings.We are a holding company dependent on capital distributions from the Bank.We are a separate and distinct legal entity from the Bank and depend on dividends, distributionsthe Company. The final rule implements the “Basel III” regulatory capital reforms and other payments fromchanges required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The final rule includes new minimum risk-based capital and leverage ratios, which became effective for the Bank and the Company on January 1, 2015, and refines the definition of what constitutes “capital” for purposes of calculating these ratios. The new minimum capital requirements are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to fund all paymentsrisk-based assets capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4%. The final rule also establishes a “capital conservation buffer” of 2.5%, and will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 to risk-based assets capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement will be phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented in January 2019. An institution will be subject to limitations on our obligations. paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be used for such actions.abilityapplication of more stringent capital requirements for both the Bank and the Company could, among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions constraining us from paying dividends or repurchasing shares if we were to pay dividends to us is limited by state and federal law and depends generally on the Bank’s ability to generate net income. If we arebe unable to comply with applicable provisionssuch requirements, any of these statutes and regulations, the Bank may not be able to pay dividends to us, and we would not be able to pay dividendswhich could have a material adverse effect on our outstanding common stock.RISKS RELATED TO OUR COMMON STOCKThere is a limited trading market for our common stockbusiness and you may not be able to resell your shares.Our common stock began trading on the NASDAQ Capital Market on February 22, 2013; however, trading remains relatively limited. Although we expect that a more liquid market for our common stock will develop, we cannot guarantee that you would be able to resell shares of common stock at an attractive price or at all.Federal banking laws limit the acquisition and ownership of our common stock.Because we are a bank holding company, any purchaser of 5% or more of our common stock may be required to file a notice with or obtain the approval of the Federal Reserve under the Change in Bank Control Act of 1978, as amended, or the BHCA. Specifically, under regulations adopted by the Federal Reserve, (1) any other bank holding company may be required to obtain the approval of the Federal Reserve before acquiring 5% or more of our common stock and (2) any person other than a bank holding company may be required to file a notice with and not be disapproved by the Federal Reserve to acquire 10% or more of our common stock.Anti-takeover provisions could negatively impact our shareholders.Provisions of Indiana law and provisions of our Articles of Incorporation could make it more difficult for a third party to acquire control of us or have the effect of discouraging a third party from attempting to acquire control of us. profitability.certain anti-takeover provisionsnumerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.Indiana Business Corporation Law. Additionally, our ArticlesCommunity Reinvestment Act or fair lending laws and regulations could result in a wide variety of Incorporation authorize our Board of Directorssanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion and restrictions on entering new business lines. Private parties may also have the ability to issue one or more classes or series of preferred stock without shareholder approval and such preferred stockchallenge an institution’s performance under fair lending laws in private class action litigation. Such actions could be issued ashave a defensive measure in response to a takeover proposal. These provisions could make it more difficult for a third party to acquire us even if an acquisition might be in the best interest of our shareholders.Our shares of common stock are not an insured deposit and as such are subject to loss of entire investment.The shares of our common stock are not a bank deposit and will not be insured or guaranteed by the FDIC or any other government agency. Your investment will be subject to investment risk, and you must be capable of affording the loss of your entire investment.If we were to issue preferred stock, the rights of holders of our common stock and the value of such common stock could be adversely affected.Our Board of Directors is authorized to issue classes or series of preferred stock, without any actionmaterial adverse effect on the part of the stockholders. The Board of Directors also has the power, without stockholder approval, to set the terms of any such classes or series of preferred stock, including voting rights, dividend rights and preferences over the common stock with respect to dividends or upon the liquidation, dissolution or winding-up of our business, financial condition and other terms. If we issue preferred stock in the future that has a preference over the common stock with respect to the paymentresults of dividends or upon liquidation, dissolution or winding-up, or if we issue preferred stock with voting rights that dilute the voting power of the common stock, the rights of holders of the common stock or the value of the common stock would be adversely affected. corporate governance regulations and requirements. Our failure to adhere to these requirements or the failure or circumvention of our controls and procedures could seriously harm our business.Although weuntil recently we have historically not beenand are also required to follow the corporate governance and financial reporting practices and policies required of a company whose stock is registered under the Exchange Act and traded on a national securities exchange. With the listing of our common stocklisted on the NASDAQ Capital Market we are subject to these requirements.Market. Compliance with these requirements means we will incur significant legal, accounting and other expenses that we did not incur in the pastbefore 2013 and are not reflected in our historical financial statements.statements prior to that time. Compliance will also requirerequires a significant diversion of management time and attention, particularly with regard to disclosure controls and procedures and internal control over financial reporting, and will require changes in corporate governance practices.reporting. Although we have reviewed, and will continue to review, our disclosure controls and procedures in order to determine whether they are effective, our controls and procedures may not be able to prevent errors or frauds in the future. Faulty judgments, simple errors or mistakes, or the failure of our personnel to adhere to established controls and procedures may make it difficult for us to ensure that the objectives of the control system will be met. A failure of our controls and procedures to detect other than inconsequential errors or fraud could seriously harm our business and results of operations.Item 1B.Unresolved Staff CommentsNot applicable.Item 2.PropertiesOn February 21, 2012 we relocated our principal office within the same office park in Indianapolis, Indiana to accommodate our growth. As part of the move, we extended the terms of our existing lease with the landlord increasing our space from 14,766 square feet to approximately 23,891 square feet of office space under a lease that has a remaining term of approximately 97 months.On March 6, 2013, theacquiredowns an office building at 11201 USA Parkway, Fishers, Indiana 46037 with approximately 52,000 square feet of office space and related real estate located at 11201 USA Parkway,in Fishers, Indiana from an unaffiliated third party for an aggregate consideration of approximately $4.0 million. The Company acquiredIndiana. This building houses our principal executive offices and we intend to use the Fishers property for the current and future operations of the Company and the Bank.intends to use this property primarilyis currently leasing approximately 34,618 square feet of office space at the Fishers property. The lease has an initial term of five years and provides for administrative operations.TheIn March 2013, the Company borrowed $4.0 million from the Bank for the purchase of the Fishers property.Company’s principal executive offices. The original scheduled maturity date of the loan iswas March 6, 2014. Effective March 6, 2014, the Company entered into an Acknowledgment, Confirmation and Amendment that, among other things, extended the maturity of the loan to March 6, 2015. Effective March 6, 2015, the Company entered into a Second Acknowledgment, Confirmation and Amendment that extended the maturity of the loan to March 6, 2016. Effective February 26, 2016, the Company entered into a Third Acknowledgment, Confirmation and Amendment that extended the maturity of the loan to March 6, 2017. The loan bears interest during the term at avariable rate equal to the then applicable prime rate (as determined by the Bank with reference to the "Prime Rate"“Prime Rate” published inThe Wall Street Journal) plus 1.00% per annum. The loan agreement contains customary warranties and representations, affirmative covenants and events of default. The loan agreement provides that the loan is to be secured by a first priority mortgage and lien on the acquired property and requires that the Company, at all times, maintain collateral securing the loan that has awith an “as is” market value of not less than $5.2 million during1.3 times the termprincipal balance of the loan.On March 6, 2013, the Company entered into a lease with the Bank for the Bank's use of approximately 15,250 square feet of office space at the Fishers property. The lease has an initial term of five years and provides for monthly rent in the amount of $18.50 per square foot. We expect that the Bank will increase its use of the property over time. We believe that the leased principal office space and the Fishers property will be adequate to meet the Bank’s current and near-term needs.On March 5, 2013 the Bank entered into a sublease for 5,670 square feet of furnished office space in Tempe, Arizona and intends to use the space primarily to house administrative operations. The term of the lease is 37 months.Item 3.Legal ProceedingsItem 4.Mine Safety DisclosuresItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Effective February 22, 2013, ourbegainbegan trading on the NASDAQ Capital Market under the symbol “INBK.”“INBK” effective February 22, 2013. Previously, our common stock (and prior to the formation of the Company, shares of the Company’s common stock of the Bank) were quoted on the over-the-counter market under the symbol “FIBP.”bid quotationsstock prices and dividends declared per share for each quarter within the two most recent fiscal years and the subsequent interim period. These quotations as reported on the over-the-counter market reflect inter-dealer prices without retail mark-up, mark-down, or commissions and may not necessarily represent actual transactions. High Low Declared Period (US$) (US$) Dividends Year Ended December 31, 2011: First Quarter 11.40 10.25 Second Quarter 12.00 10.10 Third Quarter 11.74 9.25 Fourth Quarter 11.50 9.70 Year Ending December 31, 2012: First Quarter 15.90 10.25 Second Quarter 16.00 13.45 Third Quarter 17.05 14.63 Fourth Quarter 22.98 16.00 $ 0.25 Period Year Ended December 31, 2015: Fourth Quarter $ 33.00 $ 26.26 $ 0.06 Third Quarter 39.76 24.05 0.06 Second Quarter 25.70 18.01 0.06 First Quarter 19.00 14.25 0.06 Year Ended December 31, 2014: Fourth Quarter 19.00 15.10 0.06 Third Quarter 22.00 15.54 0.06 Second Quarter 24.00 19.38 0.06 First Quarter 26.10 19.66 0.06 25, 2013, we7, 2016, the Company had 1,876,782shares4,486,024 shares of common stock issued and outstanding, and there were 188147 holders of record of our common stock.DividendsOn November 20, 2012, we announced a special cash dividend of $0.25 per share of common stock, which was paid on December 28, 2012 toholders of record as of December 10, 2012.On March 18, 2013, the Board of Directors declared a cash dividend for the first quarter of 2013 of $0.06 per share payable on April 15, 2013five-year cumulative total return to shareholders of recordFirst Internet Bancorp common stock with that of the NASDAQ Composite Index and the SNL Micro Cap U.S. Bank Index. The SNL Micro Cap U.S. Bank Index is comprised of publicly-traded banking institutions with market capitalizations of less than $250 million. First Internet Bancorp is included in the SNL Micro Cap U.S. Bank Index.April 1,December 31, 2010 in First Internet Bancorp, the NASDAQ Composite Index and the SNL Micro Cap U.S. Bank Index, and assumes that dividends are reinvested.
December 31, 2010 2011 2012 2013 2014 2015 First Internet Bancorp $ 100.00 $ 85.00 $ 193.30 $ 313.80 $ 236.49 $ 409.27 NASDAQ Composite Index 100.00 99.17 116.48 163.21 187.27 200.31 SNL Micro Cap U.S. Bank Index 100.00 95.11 120.19 155.07 175.86 195.56 We expectTotal dividends declared in 2015 were $0.24 per share. 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 ourthe Board of Directors and will depend upon many factors, including ourits results of operations, financial condition, earnings, capital requirements, of our operating subsidiaries, legal requirements, regulatory constraintsand contractual restrictions (including with respect to the Company’s outstanding subordinated debt), business strategy and other factors deemed relevant by ourthe Board of Directors.During the fourth quarter of 2012, we issued 1,439 deferred stock rights to our non-employee directors under our Directors’ Deferred Stock Plan and 5,192 shares of common stock under our 2012 Senior Management Bonus Plan. None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering, and we believe the transactions were exempt from the registration requirements of the Securities Act of 1933, as amended, in reliance on Section 4(a)(2) thereof, and the rules and regulations promulgated thereunder, or Rule 701 thereunder, as transactions by an issuer not involving a public offering or transactions pursuant to compensatory benefit plans and agreements relating to compensation as provided under such Rule 701.28(dollarsthousands) Fiscal Year ended
December 31, 2012 2011 2010 2009 2008 Financial Condition: Total assets $ 636,367 $ 585,440 $ 503,915 $ 504,615 $ 543,044 Cash and cash equivalents 32,513 34,778 32,417 30,016 25,780 Investment securities available for sale 156,693 149,270 136,936 133,584 168,807 Loans held for sale 63,234 45,091 5,008 7,169 4,203 Loans receivable, net 352,328 329,570 299,545 305,439 320,167 Deposits 530,691 486,665 422,703 411,627 439,242 Federal Home Loan Bank advances 40,686 40,573 30,455 47,000 57,000 Total shareholders’ equity 61,350 55,423 48,897 44,764 45,411 Operating: Interest and dividends 24,117 23,944 25,296 28,607 31,155 Interest expense 8,532 9,621 10,785 14,859 18,873 Net interest income 15,585 14,323 14,511 13,748 12,282 Provision for loan losses 2,852 2,440 927 11,564 4,819 Non-interest income 11,744 3,559 3,437 2,903 2,585 Non-interest expenses 16,677 11,483 10,370 9,341 8,481 Income (loss) before income taxes 7,800 3,959 6,651 (4,254 ) 1,567 Income taxes 2,194 773 1,696 (2,136 ) (9 ) Net income (loss) $ 5,606 $ 3,186 $ 4,955 $ (2,118 ) $ 1,576 Performance Ratios: Return on average assets 0.91 % 0.59 % 1.01 % -0.40 % 0.29 % Return on average equity 9.51 % 6.13 % 10.21 % -4.59 % 3.47 % Interest rate spread(1) 2.49 % 2.57 % 2.83 % 2.42 % 2.07 % Net interest margin(2) 2.63 % 2.75 % 3.06 % 2.67 % 2.34 % Noninterest expense to average assets 2.71 % 2.12 % 2.11 % 1.76 % 1.56 % Efficiency ratio(3) 61.02 % 64.22 % 57.78 % 56.10 % 57.05 % Average interest-earning assets to average interest-bearing liabilities 110.19 % 110.02 % 109.89 % 108.65 % 107.63 % Average equity to average assets 9.59 % 9.61 % 9.85 % 8.68 % 8.38 % Capital Ratios: Total capital to risk weighted assets 11.0 % 12.4 % 12.2 % 11.0 % 13.2 % Tier 1 capital to risk weighted assets 9.9 % 11.2 % 10.9 % 9.8 % 12.0 % Tier 1 capital to average assets 8.9 % 8.7 % 9.4 % 7.7 % 8.2 % Fiscal Year ended
December 31, 2012 2011 2010 2009 2008 Asset Quality Ratios: Allowance for loan losses as a percentage of total loans 1.65 % 1.70 % 2.26 % 3.25 % 1.45 % Allowance for loan losses as a percentage of non-performing loans 133.26 % 64.61 % 71.41 % 96.91 % 100.90 % Net (charge-offs) recoveries to average outstanding loans during the period (0.69 )% (1.05 )% (1.35 )% (1.85 )% (1.12 )% Non-performing loans as a percentage of total loans 1.23 % 2.64 % 3.17 % 3.36 % 1.44 % Non-performing loans as percentage of total assets 0.69 % 1.50 % 1.90 % 2.06 % 0.84 % Total non-performing assets and troubled debt restructuring as a percentage of total assets 1.84 % 2.47 % 3.43 % 2.52 % 1.00 % Shares and Per Share Data: Average common shares outstanding: Basic 1,912,910 1,906,289 1,898,919 1,892,082 1,878,466 Diluted 1,912,910 1,906,289 1,898,919 1,892,082 1,886,466 Per share: Basic earnings available to common shareholders 2.93 1.67 2.61 (1.12 ) 0.84 Diluted earnings available to common shareholders 2.93 1.67 2.61 (1.12 ) 0.84 Dividends – common stock 0.25 – – – – Dividend payout ratio(4) 8.53 % 0.00 % 0.00 % 0.00 % 0.00 % Other: Number of offices 1 1 1 2 2 (dollars in thousands, except per share data) At or for the Twelve Months Ended December 31, 2015 2014 2013 2012 2011 Balance Sheet Data: Total assets $ 1,269,870 $ 970,503 $ 802,342 $ 636,367 $ 585,440 Cash and cash equivalents 25,152 28,289 53,690 32,513 34,778 Loans receivable 953,859 732,426 501,153 358,161 335,226 Loans held-for-sale 36,518 34,671 28,610 63,264 45,091 Securities available-for-sale 213,698 137,518 181,409 156,693 149,270 Deposits 956,054 758,598 673,095 530,691 486,665 99,643 92,098 86,221 56,663 50,736 Total shareholders’ equity 104,330 96,785 90,908 61,350 55,423 Income Statement Data: Interest income $ 41,447 $ 31,215 $ 25,536 $ 24,374 $ 23,944 Interest expense 10,694 8,928 8,088 8,532 9,621 Net interest income 30,753 22,287 17,448 15,842 14,323 Provision for loan losses 1,946 349 324 2,852 2,440 Net interest income after provision for loan losses 28,807 21,938 17,124 12,990 11,883 Noninterest income 10,141 7,174 9,517 11,423 3,559 Noninterest expense 25,283 22,662 20,482 16,613 11,483 Income before income taxes 13,665 6,450 6,159 7,800 3,959 Income tax provision 4,736 2,126 1,566 2,194 773 Net income $ 8,929 $ 4,324 $ 4,593 $ 5,606 $ 3,186 Per Share Data: Net income Basic $ 1.97 $ 0.96 $ 1.51 $ 1.95 $ 1.11 Diluted $ 1.96 $ 0.96 $ 1.51 $ 1.95 $ 1.11 Book value per common share $ 23.28 $ 21.80 $ 20.44 $ 21.79 $ 19.74 $ 22.24 $ 20.74 $ 19.38 $ 20.13 $ 18.07 Weighted average common shares outstanding Basic 4,528,528 4,497,007 3,041,666 2,869,365 2,859,434 Diluted 4,554,219 4,507,995 3,050,001 2,869,365 2,859,434 Common shares outstanding at end of period 4,481,347 4,439,575 4,448,326 2,815,094 2,807,385 Dividends declared per share $ 0.24 $ 0.24 $ 0.22 $ 0.17 $ — 12.24 % 25.00 % 14.57 % 8.53 % 0.00 % (1)RepresentsRefer to the difference between the weighted average yield on average interest-earning assets“Reconciliation of Non-GAAP Financial Measures” section of Item 7 of Part II of this report, Management's Discussion and the weighted average costAnalysis of interestbearing liabilities.Financial Condition and Results of Operations.(2)RepresentsDividends per share divided by diluted earnings per share. At or for the Twelve Months Ended December 31, 2015 2014 2013 2012 2011 Performance Ratios: Return on average assets 0.81 % 0.50 % 0.67 % 0.91 % 0.59 % 8.89 % 4.61 % 7.10 % 9.51 % 6.09 % 9.33 % 4.85 % 7.65 % 10.33 % 6.69 % 2.85 % 2.65 % 2.67 % 2.67 % 2.75 % Noninterest income to average assets 0.92 % 0.82 % 1.39 % 1.86 % 0.66 % Noninterest expense to average assets 2.28 % 2.60 % 2.99 % 2.70 % 2.12 % 61.83 % 78.35 % 75.78 % 61.04 % 64.52 % Asset Quality Ratios: Nonperforming loans to total loans 0.02 % 0.04 % 0.37 % 1.23 % 2.64 % Nonperforming assets to total assets 0.37 % 0.50 % 0.90 % 1.62 % 2.29 % Nonperforming assets (including troubled debt restructurings) to total assets 0.46 % 0.62 % 1.05 % 1.84 % 2.47 % Allowance for loan losses to total loans receivable 0.88 % 0.79 % 1.09 % 1.65 % 1.70 % Net (recoveries) charge-offs to average loans outstanding during period (0.07 )% 0.00 % 0.17 % 0.69 % 1.05 % Allowance for loan losses to nonperforming loans 5,000.6 % 1,959.5 % 293.0 % 133.3 % 64.6 % Capital Ratios: 7.88 % 9.54 % 10.81 % 8.97 % 8.74 % 8.28 % 9.87 % 11.66 % 8.89 % 8.74 % 10.11 % N/A N/A N/A N/A 10.11 % 12.55 % 15.61 % 12.20 % 11.15 % 12.25 % 13.75 % 17.09 % 13.46 % 12.40 % Other Data: Full-time equivalent employees 152 143 130 97 74 Number of banking and loan production offices 3 4 4 1 1 Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Item 7 of Part II of this report, Management's Discussion and Analysis of Financial Condition and Results of Operations. Net interest margin is net interest income as a percentage ofdivided by average interest-earningearning assets.(3)RepresentsEfficiency ratio is noninterest expense divided by the sum of net interest income and noninterest income.income, excluding gains and losses from the sale of securities.(4)Dividends per share dividedCapital ratios are calculated in accordance with regulatory guidelines specified by diluted earnings per share.our primary federal banking regulatory authority.30Item 7.Management’s Discussion and AnalysisIntroduced as part of Financial Condition and Resultsthe final implementation of Operationsthe “Basel III” regulatory capital reforms as of January 1, 2015. Not applicable to periods prior to 2015. and condensed 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” section of this report 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 “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report.The primary driversperformance since January 1, 2011,deposit operations primarily over the Internet and have been:abilityoperations by adding CRE lending, including nationwide single tenant lease financing, and C&I lending, including business banking/treasury management services to capitalize onmeet the demand for residential mortgage refinancing due to the ongoing low-rate environmentneeds of high-quality commercial borrowers and depositors.efficient process;deploymentresidential real estate lending, consumer lending, and deposit gathering activities is the entire United States. We also offer single tenant lease financing on a nationwide basis. Our other commercial banking activities, including CRE and C&I loans, corporate credit cards, and corporate treasury management services, are offered by our commercial banking team to businesses primarily within Central Indiana, Phoenix, Arizona and adjacent markets. We have no significant customer concentrations within our loan portfolio.excess cash into higher-yielding assets; andOperationsour abilitymaintain high credit quality despiteItem 6 for a summary of the ongoing difficulties affecting many other banks.Company's financial performance for the five most recent years.2011 and 2012, we reported collectivethe twelve months ended December 31, 2015, net income was $8.9 million, or $1.96 per diluted share, compared to net income of $8.8 million. During the same period, total assets increased by $132.5$4.3 million, or 26.3%. We increased$0.96 per diluted share, for the twelve months ended December 31, 2014 and net loans in this period by $52.8income of $4.6 million, or 17.6%, from$1.51 per diluted share, for the twelve months ended December 31, 2010. Net interest2013.totaled $29.9of $4.6 million in 2011 and 2012. Duringfor the same period, our net interest spread on an annualized basis has been relatively steady at 2.57% and 2.49% for 2011 and 2012, respectively. Securities available for sale increased by $19.8 million, or 14.4%. Our regulatory capital ratios have remained well above all required minimums. Non-performing loans as a percentage of total loans declined from 3.17% in 2010 to 2.64% and 1.23% in 2011 and 2012, respectively.Due to our sustained record of performance, our Board of Directors declared a special cash dividend of $0.25 per share payable December 28, 2012, to holders of our common stock on December 10, 2012.Results of OperationsFiscal Year Endedtwelve months ended December 31, 2012 vs. Fiscal Year Ended2015 compared to the twelve months ended December 31, 2011Interest income from loans for 2012 increased by $551,000, or 2.9%, compared to 20112014 was primarily due to an $8.5 million increase in net interest income and a $3.0 million increase in noninterest income. This was partially offset by a $2.6 million increase in income tax expense, a $2.6 million increase in noninterest expense and a $1.6 million increase in provision for loan losses.$43.5$0.3 million in average loans outstanding.Interest expense from deposits for 2012 decreased by $1.1 million, or 13.2%,the twelve months ended December 31, 2014 compared to 2011the twelve months ended December 31, 2013 was primarily due to a $2.3 million decrease in noninterest income, a $2.2 million increase in noninterest expense and a $0.6 million increase in income tax expense, partially offset by a $4.8 million increase in net interest income.low rate environment.Despite an increase of $62.9 million in thetwelve months ended December 31, 2015, return on average balance of interest bearing deposits, theassets and return on average cost of funds decreased by 0.46%.Provision for loan losses increased by $412,000, or 16.9%shareholders’ equity were 0.81% and 8.89%, from 2011 to 2012 as a result of management’s ongoing evaluation of the adequacy of the allowance for loan losses which includes an analysis of the overall size and composition of the portfolio as well as a review of all loans for which full collectability may not be reasonably assured which considers, among other matters, the estimated net realizable value of the underlying collateral, economic conditions, loan loss experience and other factors that are particularly susceptible to changes that could result in a material change to the borrower’s ability to pay the loan upon maturity. Provision expense improvements in 2012 occurred due to reduced delinquencies and charge-off activity which offset the impact of the growth within loans on the balance sheet.Gain on loans sold during 2012 increased by $7.0 million, or 188.5%,respectively, compared to 2011, primarily due to increased loan origination0.50% and 4.61%, respectively, for refinancing within the residential mortgage department. The ongoing low rate environment has made refinancing existing mortgages an attractive option for consumers.Other-than-temporary impairment (“OTTI”) charges in our securities portfolio decreased by $374,000, or 59.7%, compared to 2011. Management’s evaluation of the securities portfolio in 2012 indicated OTTI losses on three securities. The amortized cost remaining on securities with OTTI losses totaled $2.0 million as oftwelve months ended December 31, 2012.Loss on asset disposals decreased by $959,000, or 91.2%2014, and 0.67% and 7.10%, in 2012, primarily asrespectively, for the result of the write off in the fourth quarter of 2011 of $368,000 representing the full value of our investment in an Indiana financial institution which disclosed that it may be unable to continue as a going concern. The Bank also wrote down a commercial property held as Other Real Estate Owned (“OREO”) by $288,000 in the fourth quarter of 2011. In addition, the Bank recognized a $189,000 gain on liquidation of a commercial property in OREO in the third quarter of 2012.Salaries and employee benefits increased $3.2 million, or 60.6%, reflecting the addition of 23 full time employees during 2012 compared to 2011. We added staff within the residential mortgage and C&I departments to address increased origination volumes. In addition, the Bank recognized an additional $1.1 million of expense in 2012 related to performance bonuses.Marketing, advertising and promotion expenses increased by $426,000, or 45.5%, as the result of the increased usage of third party lead sources to attract potential borrowers to our mortgage website. We acquire mortgage leads from third party sources to drive loan applications.Consulting and professional fees increased by $645,000, or 83.0%, to accommodate increased legal fees of approximately $497,000 during 2012 incurred through the normal course of operations such as credit collection efforts and public company filing activities.Loan expenses increased by $571,000, or 108.6%, due primarily to $285,000 of expenses related to a non performing commercial real estate credit which was moved to OREO in October 2012. In addition, expenses related to loan underwriting activities increased $261,000 as a result of the increase in the level of mortgage originations.Premises and equipment expenses increased by $294,000, or 19.9%, due primarily to $191,000 of expenses related to a non performing commercial real estate credit which was moved to OREO in October 2012.Deposit insurance premiums decreased by $272,000, or 37.4%, due to a 0.015% decrease in the Bank’s FDIC assessment rates.Earningstable providestables provide the total dollar amountaverage balances of interest income from average interest-earning assets and interest-bearing liabilities and the resultingrelated yields and the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin.cost of funds. The table doestables do not reflect any effect of income taxes. Balances are based on the average of daily balances. Non-accrualNonaccrual loans are included in average loan balances.Average Balance Sheets(dollars in thousands) Year ended December 31, 2012 2011 2010 Average
Balance Interest and
Dividends Yield/Cost Average
Balance Interest and
Dividends Yield/Cost Average
Balance Interest
and
Dividends Yield/Cost Assets: Interest-earning assets: Loans $ 390,058 $ 19,303 4.95 % $ 346,589 $ 18,752 5.41 % $ 309,655 $ 19,868 6.42 % Investment securities 172,887 4,645 2.69 % 145,823 5,045 3.46 % 133,943 5,294 3.95 % FHLB stock 2,943 100 3.40 % 3,080 83 2.69 % 3,592 68 1.89 % Other interest-earning assets 27,363 69 0.25 % 25,383 64 0.25 % 27,447 66 0.24 % Total interest-earning assets 593,251 24,117 520,875 23,944 474,637 25,296 Noninterest-earning assets 21,289 19,938 17,896 Total assets $ 614,540 $ 540,813 $ 492,533 Liabilities and equity: Interest-bearing liabilities Regular savings accounts $ 9,999 $ 58 0.58 % $ 7,417 $ 48 0.65 % $ 6,760 $ 50 0.74 % Interest-bearing demand deposits 62,154 351 0.56 % 55,708 386 0.69 % 50,963 403 0.79 % Money market accounts 187,029 1,448 0.77 % 151,134 1,444 0.96 % 125,223 1,408 1.12 % Certificates and brokered deposits 238,575 5,315 2.23 % 220,601 6,388 2.90 % 212,553 7,393 3.48 % Total interest-bearing deposits 497,757 7,172 434,860 8,266 395,499 9,254 FHLB advances 40,625 1,360 3.35 % 38,539 1,355 3.52 % 36,427 1,531 4.20 % Other borrowings – – 0.00 % 20 – 0.51 % – – 0.00 % Total interest-bearing liabilities 538,382 8,532 473,419 9,621 431,926 10,785 Noninterest-bearing liabilities 13,939 8,218 7,069 Other non-interest bearing liabilities 3,285 6,863 4,502 Total liabilities 555,606 488,500 443,497 Stockholders’ equity 58,934 52,313 49,036 Total liabilities and equity $ 614,540 $ 540,813 $ 492,533 Net interest income $ 15,585 $ 14,323 $ 14,511 Interest rate spread 2.49 % 2.57 % 2.83 % Net interest margin 2.63 % 2.75 % 3.06 % Average interest-earning assets to average interest-bearing liabilities 110.19 % 110.02 % 109.89 % 33 Twelve Months Ended December 31, 2015 December 31, 2014 December 31, 2013 (dollars in thousands) Average Balance Yield/Cost Average Balance Yield/Cost Average Balance Yield/Cost Assets Interest-earning assets Loans, including loans held-for-sale $ 853,996 4.34 % $ 631,743 4.41 % $ 435,799 4.78 % Securities - taxable 171,502 2.17 % 151,967 2.00 % 137,230 2.11 % Securities - non-taxable 10,343 3.02 % 1,785 3.25 % 43,620 3.69 % Other earning assets 42,375 0.84 % 56,094 0.44 % 37,785 0.51 % Total interest-earning assets 1,078,216 3.84 % 841,589 3.71 % 654,434 3.90 % Allowance for loan losses (6,906 ) (5,414 ) (5,573 ) Noninterest earning-assets 35,912 36,128 35,719 Total assets $ 1,107,222 $ 872,303 $ 684,580 Liabilities Interest-bearing liabilities Interest-bearing demand deposits $ 76,145 0.55 % $ 70,362 0.55 % $ 68,366 0.55 % Regular savings accounts 24,442 0.58 % 18,509 0.59 % 13,806 0.59 % Money market accounts 299,990 0.71 % 269,271 0.73 % 224,383 0.74 % Certificates and brokered deposits 438,776 1.38 % 350,129 1.48 % 260,549 1.82 % Total interest-bearing deposits 839,353 1.04 % 708,271 1.08 % 567,104 1.21 % Other borrowed funds 139,695 1.39 % 45,425 2.81 % 31,471 3.90 % Total interest-bearing liabilities 979,048 1.09 % 753,696 1.18 % 598,575 1.35 % Noninterest-bearing deposits 22,866 20,028 13,605 Other noninterest-bearing liabilities 4,880 4,783 7,696 Total liabilities 1,006,794 778,507 619,876 Shareholders' equity 100,428 93,796 64,704 Total liabilities and shareholders' equity $ 1,107,222 $ 872,303 $ 684,580 2.75 % 2.53 % 2.55 % 2.85 % 2.65 % 2.67 % (dollars in thousands)sets forth certain information regardingillustrates the impact of changes in our interest incomethe volume of interest-earning assets and interest-bearing liabilities and interest expenserates on net interest income for the periods indicated. For each category of earning assets and interest bearing liabilities, information is provided on changes attributable to (i) changes in volume (change in average volume multiplied by old rate) and (ii) changes in rates (change in rate multiplied by old average volume). Changes in rate/volume (change in rate multiplied by theThe change in volume) haveinterest not due solely to volume or rate has been allocated to the changes due to volume and rate in proportion to the absolute valuedollar amounts of the change in each. Rate/Volume Analysis of Net Interest Income Twelve Months Ended December 31, 2015 vs. December 31, 2014 Due to Changes in Twelve Months Ended December 31, 2014 vs. December 31, 2013 Due to Changes in (amounts in thousands) Volume Rate Net Volume Rate Net Interest income Loans, including loans held-for-sale $ 9,624 $ (450 ) $ 9,174 $ 8,750 $ (1,718 ) $ 7,032 Securities – taxable 417 275 692 301 (156 ) 145 Securities – non-taxable 258 (4 ) 254 (1,381 ) (172 ) (1,553 ) Other earning assets (71 ) 183 112 84 (29 ) 55 Total 10,228 4 10,232 7,754 (2,075 ) 5,679 Interest expense Interest-bearing deposits 1,390 (288 ) 1,102 1,803 (1,011 ) 792 Other borrowed funds 1,571 (907 ) 664 450 (402 ) 48 Total 2,961 (1,195 ) 1,766 2,253 (1,413 ) 840 Increase in net interest income $ 7,267 $ 1,199 $ 8,466 $ 5,501 $ (662 ) $ 4,839 volume and rate priora $10.2 million, or 32.8%, increase in total interest income to $41.4 million for the twelve months ended December 31, 2015 compared to $31.2 million for the twelve months ended December 31, 2014. The increase in total interest income was partially offset by a $1.8 million, or 19.8%, increase in total interest expense to $10.7 million for the twelve months ended December 31, 2015 compared to $8.9 million for the twelve months ended December 31, 2014.allocation. Rate/Volume Analysis of Net Interest Income
Fiscal Years ended December 31, 2012 vs. 2011
Due to Changes in 2011 vs. 2010
Due to Changes in 2010 vs. 2009
Due to Changes in Volume Rate Net Volume Rate Net Volume Rate Net Interest income Loans receivable $ 2,233 $ (1,683 ) $ 550 $ 2,209 $ (3,325 ) $ (1,116 ) $ (1,234 ) $ (331 ) $ (1,565 ) Investment securities 776 (1,176 ) (400 ) 416 (665 ) (249 ) (957 ) (784 ) (1,741 ) FHLB stock (4 ) 22 18 (11 ) 26 15 (1 ) (10 ) (11 ) Other interest-earning assets 5 – 5 (5 ) 3 (2 ) 5 1 6 Total 3,010 (2,837 ) 173 2,609 (3,961 ) (1,352 ) (2,187 ) (1,124 ) (3,311 ) Interest expense Deposits 852 (1,946 ) (1,094 ) 578 (1,566 ) (988 ) (1,740 ) (1,782 ) (3,522 ) FHLB advances 71 (66 ) 5 85 (261 ) (176 ) (557 ) 5 (552 ) Total 923 (2,012 ) (1,089 ) 663 (1,827 ) (1,164 ) (2,297 ) (1,777 ) (4,074 ) Increase (decrease) in net interest income $ 2,087 $ (825 ) $ 1,262 $ 1,946 $ (2,134 ) $ (188 ) $ 110 $ 653 $ 763 Liquidity and Capital ResourcesCompany’s primary source of funds is dividends from the Bank, the declaration of which is subjectincrease in total interest income was also due to regulatory limits. Historically, the Company has not had significant demands for the use of its cash. However, we declared a special dividend of $0.25 per share of common stock21 basis point (“bp”) increase in the fourth quarter of 2012. At December 31, 2012, the Company, on an unconsolidated basis, had $782,000 in cash generally available for its cash needs.On March 18, 2013, the Board of Directors declared a cash dividend for the first quarter of 2013 of $0.06 per share payable April 15, 2013 to shareholders on April 1, 2013. We expect to continue to pay dividends on a quarterly basis; however, the declaration and amount of future dividends will be determined by the Board of Directorsyield earned on the basissecurities portfolio, partially offset by a decline in the yield earned on loans, including loans held-for-sale, of our financial condition, earnings, regulatory constraints and other factors.At December 31, 2012, we had $189.2 million7 bps.cash and investment securities available for sale and $63.2 milliontotal interest expense was driven primarily by an increase in loans held for sale that were generally available for our cash needs. At December 31, 2012, we had the abilityinterest expense related to borrow an additional $23.1 million in FHLB advances and correspondent bank fed funds line of credit draws.At December 31, 2012, approved outstanding loan commitments, including unused lines of credit, amounted to $33.6 million. Certificates of deposit scheduled to mature in one year or less at December 31, 2012, totaled $78.9 million; however, due to our competitive rates, we believe that a majority of maturinginterest-bearing deposits will remain with the Bank.Bank-owned life insurance increased 41.4% from the end of 2011 as a result of a $131.1 million, or 18.5%, increase in the average balance of interest-bearing deposits for the twelve months ended December 31, 2015 compared to the twelve months ended December 31, 2014, partially offset by a decline of 4 bps in the cost of funds related to these deposits. Interest expense related to other borrowed funds also contributed to the increase in total interest expense, due to a $94.3 million, or 207.5%, increase in the average balance of other borrowed funds for the twelve months ended December 31, 2015 compared to the twelve months ended December 31, 2014, partially offset by a decline of 142 bps in the cost of other borrowed funds. Twelve Months Ended December 31, (amounts in thousands) 2015 2014 2013 2012 2011 Service charges and fees $ 764 $ 707 $ 687 $ 685 $ 1,157 Mortgage banking activities 9,000 5,609 8,682 10,647 3,690 Other-than-temporary impairment loss recognized in net income — — (49 ) (252 ) (626 ) Gain (loss) on sale of securities — 538 (63 ) 48 84 Loss on asset disposals (34 ) (78 ) (146 ) (93 ) (1,052 ) Other 411 398 406 388 306 Total noninterest income $ 10,141 $ 7,174 $ 9,517 $ 11,423 $ 3,559 purchase completedor 41.4% compared to $7.2 million for the twelve months ended December 31, 2014. The increase in noninterest income was primarily driven by an increase of $3.4 million, or 60.5%, in mortgage banking activities resulting primarily from higher origination volumes. The increase in mortgage banking activities was partially offset by a $0.5 million decline in gains related to sales of securities.first quartervolume of 2012.OREOloans sold, which was slightly offset by an increase in the gain on sale margin. The decrease in income from mortgage banking activities was partially offset by an increase of $0.6 million related to gains on sales of securities and a decrease of $0.1 million from losses on asset disposals. Twelve Months Ended December 31, (amounts in thousands) 2015 2014 2013 2012 2011 Salaries and employee benefits $ 14,271 $ 12,348 $ 10,250 $ 8,529 $ 5,311 Marketing, advertising and promotion 1,756 1,455 1,858 1,362 936 Consulting and professional services 2,374 1,902 2,152 1,422 777 Data processing 1,016 995 911 897 915 Loan expenses 631 626 799 1,097 526 Premises and equipment 2,768 2,937 2,196 1,711 1,481 Deposit insurance premium 643 591 451 455 727 Other 1,824 1,808 1,865 1,140 810 Total noninterest expense $ 25,283 $ 22,662 $ 20,482 $ 16,613 $ 11,483 (amounts in thousands) December 31, Balance Sheet Data: 2015 2014 2013 2012 2011 Total assets $ 1,269,870 $ 970,503 $ 802,342 $ 636,367 $ 585,440 Loans receivable 953,859 732,426 501,153 358,161 335,226 Securities available-for-sale 213,698 137,518 181,409 156,693 149,270 Loans held-for-sale 36,518 34,671 28,610 63,264 45,091 Noninterest-bearing deposits 23,700 21,790 19,386 13,187 15,870 Interest-bearing deposits 932,354 736,808 653,709 517,504 470,795 Total deposits 956,054 758,598 673,095 530,691 486,665 Total shareholders' equity 104,330 96,785 90,908 61,350 55,423 December 31, (dollars in thousands) 2015 2014 2013 2012 2011 Commercial loans Commercial and industrial $ 102,000 10.7 % $ 77,232 10.5 % $ 55,168 11.0 % $ 14,271 4.0 % $ 2,063 0.7 % Owner-occupied commercial real estate 44,462 4.7 % 34,295 4.7 % 18,165 3.6 % 12,644 3.5 % — — % Investor commercial real estate 16,184 1.7 % 22,069 3.0 % 26,574 5.3 % 72,274 20.2 % 43,507 13.0 % Construction 45,898 4.8 % 24,883 3.4 % 28,200 5.6 % 11,321 3.2 % 8,223 2.5 % Single tenant lease financing 374,344 39.2 % 192,608 26.3 % 84,173 16.8 % — — % — — % Total commercial loans 582,888 61.1 % 351,087 47.9 % 212,280 42.3 % 110,510 30.9 % 53,793 16.1 % Consumer loans Residential mortgage 214,559 22.5 % 220,612 30.1 % 138,418 27.6 % 110,975 31.0 % 130,519 38.9 % Home equity 43,279 4.5 % 58,434 8.0 % 37,906 7.6 % 6,519 1.8 % 4,710 1.4 % Other consumer 108,312 11.4 % 97,094 13.3 % 107,562 21.5 % 126,486 35.3 % 142,783 42.6 % Total consumer loans 366,150 38.4 % 376,140 51.4 % 283,886 56.7 % 243,980 68.1 % 278,012 82.9 % Total commercial and consumer loans 949,038 99.5 % 727,227 99.3 % 496,166 99.0 % 354,490 99.0 % 331,805 99.0 % Deferred loan origination costs and premiums and discounts on purchased loans 4,821 0.5 % 5,199 0.7 % 4,987 1.0 % 3,671 1.0 % 3,421 1.0 % Total loans receivable 953,859 100.0 % 732,426 100.0 % 501,153 100.0 % 358,161 100.0 % 335,226 100.0 % Allowance for loan losses (8,351 ) (5,800 ) (5,426 ) (5,833 ) (5,656 ) Net loans receivable $ 945,508 $ 726,626 $ 495,727 $ 352,328 $ 329,570 (amounts in thousands) Within 1 Year 1-3 Years 4-5 Years Beyond 5 Years Total Commercial loans Commercial and industrial $ 20,808 $ 19,912 $ 38,087 $ 23,193 $ 102,000 Owner-occupied commercial real estate — 4,488 24,056 15,918 44,462 Investor commercial real estate 8,328 4,113 3,271 472 16,184 Construction 28,218 17,580 — 100 45,898 Single tenant lease financing 756 11,174 66,974 295,440 374,344 Total commercial loans 58,110 57,267 132,388 335,123 582,888 Consumer loans Residential mortgage 592 777 1,150 212,040 214,559 Home equity — 71 54 43,154 43,279 Other consumer 574 6,333 16,449 84,956 108,312 Total consumer loans 1,166 7,181 17,653 340,150 366,150 Total commercial and consumer loans $ 59,276 $ 64,448 $ 150,041 $ 675,273 $ 949,038 includeda key component of our overall risk management process related to credit administration. December 31, (dollars in thousands) 2015 2014 2013 2012 2011 Nonaccrual loans Commercial loans: Investor commercial real estate $ — $ 87 $ 1,054 $ 2,362 $ 7,523 Total commercial loans — 87 1,054 2,362 7,523 Consumer loans: Residential mortgage 103 25 630 1,389 876 Other consumer 64 123 150 155 224 Total consumer loans 167 148 780 1,544 1,100 Total nonaccrual loans 167 235 1,834 3,906 8,623 Past Due 90 days and accruing loans Consumer loans: Residential mortgage — 57 — 450 75 Other consumer — 4 18 21 56 Total consumer loans — 61 18 471 131 Total past due 90 days and accruing loans — 61 18 471 131 Total nonperforming loans 167 296 1,852 4,377 8,754 Other real estate owned Investor commercial real estate 4,488 4,488 4,013 3,401 1,064 Residential mortgage — — 368 265 448 Total other real estate owned 4,488 4,488 4,381 3,666 1,512 Other nonperforming assets 85 82 956 2,253 3,113 Total nonperforming assets $ 4,740 $ 4,866 $ 7,189 $ 10,296 $ 13,379 Total nonperforming loans to total loans receivable 0.02 % 0.04 % 0.37 % 1.23 % 2.64 % Total nonperforming assets to total assets 0.37 % 0.50 % 0.90 % 1.62 % 2.29 % other assets increased by 142.6% during 2012, primarily asaccordance with the resultimpairment accounting guidance when, based on current information or events, it is probable that the Company will be unable to collect all amounts due (principal and interest) according to the contractual terms of the transitionloan agreement. Payments with delays generally not exceeding 90 days outstanding are not considered impaired. Certain nonaccrual and substantially all delinquent loans more than 90 days past due may be considered to be impaired. Generally, loans are placed on nonaccrual status at 90 days past due and accrued interest is reversed against earnings, unless the loan is well-secured and in the process of collection. The accrual of interest on impaired and nonaccrual loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due.single commercialreduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance, or other actions intended to maximize collection.loan into OREO during the fourth quarterowned and other nonperforming assets, which consist of 2012 representing $2.6 million. The balance of OREOrepossessed assets. Nonperforming assets also included investments that were classified as other-than-temporarily impaired as of December 31, 2012 was $3.7 million.Other assets, excluding OREO, decreased by 10.0% since the end of 2011 reflecting aand 2011. December 31, (amounts in thousands) 2015 2014 2013 2012 2011 Troubled debt restructurings – nonaccrual $ — $ 5 $ 27 $ 558 $ 884 Troubled debt restructurings – performing 1,115 1,125 1,243 1,412 1,086 Total troubled debt restructurings $ 1,115 $ 1,130 $ 1,270 $ 1,970 $ 1,970 deferred taxtotal nonperforming assets was due primarily to continued positive earningsdeclines in loans 90 days past due and increasesaccruing and in unrealized gainsnonaccrual loans. Total nonperforming loans decreased $0.1 million, or 43.6%, to $0.2 million as of December 31, 2015 compared to $0.3 million as of December 31, 2014. Other nonperforming assets increased by less than $0.1 million, or 3.7%, as of December 31, 2015 compared to December 31, 2014. As a result, the ratio of nonperforming loans to total loans receivable improved to 0.02% as of December 31, 2015 compared to 0.04% as of December 31, 2014, and the ratio of nonperforming assets to total assets improved to 0.37% as of December 31, 2015 compared to 0.50% as of December 31, 2014. December 31, (amounts in thousands) 2015 2014 2013 2012 2011 Balance, beginning of period $ 5,800 $ 5,426 $ 5,833 $ 5,656 $ 6,845 Provision charged to expense 1,946 349 324 2,852 2,440 Losses charged off (636 ) (857 ) (1,212 ) (3,411 ) (4,417 ) Recoveries 1,241 882 481 736 788 Balance, end of period $ 8,351 $ 5,800 $ 5,426 $ 5,833 $ 5,656 on securities availableand the related provision is one of our critical accounting policies that is subject to significant estimates, as discussed within the Critical Accounting Policies and Estimates section below. The current level of the allowance for sale impacting mark-to-market adjustments within deferred taxes.Total deposits increased 9.0% from the end of 2011. Due to recent economic conditions, consumers have maintained higher cash balances in bank deposit accounts such as money market savings and short term time deposits.Total shareholders’ equity increased $5.9 million during 2012, asloan losses is a result of net incomemanagement’s assessment of $5.6the risks within the portfolio based on the information obtained through the credit evaluation process. The Company utilizes a risk-rating system on non-homogenous commercial loans that includes regular credit reviews to identify and quantify the risk in the commercial portfolio. Management conducts quarterly reviews of the entire loan portfolio and evaluates the need to establish allowances on the basis of these reviews.and anas of December 31, 2015, compared to $5.8 million as of December 31, 2014. The increase of $598,000$2.6 million, or 44.0%, was due primarily to the continued growth in accumulatedcommercial loan balances. During the twelve months ended December 31, 2015, the Company recorded net recoveries of $0.6 million, compared to net recoveries of less than $0.1 million during the twelve months ended December 31, 2014. During the twelve months ended December 31, 2015, the net recoveries were driven primarily by a $0.5 million recovery of an investor commercial real estate loan that had been previously charged-off and a $0.4 million recovery of a residential mortgage loan, of which $0.3 million related to the recapture of principal previously charged-off. The recoveries were partially offset by charge-offs of $0.6 million in residential mortgage and other comprehensive incomeconsumer loans. During the twelve months ended December 31, 2014, the net recoveries were driven primarily by a $0.5 million recovery of an investor commercial real estate loan. The recoveries were mostly offset by charge offs of $0.9 million, primarily related to residential mortgage and other consumer loans.increased unrealized gains on available-for-sale securities.At December 31, 2012, the Companyincrease in the allowance for loan losses and the Bank exceeded all applicable regulatory capital minimum requirements, and the Bank was considered “well-capitalized” under applicable regulations. We believe our capital resources are sufficient to meet our current and expected needs, including any cash dividends we may pay; however, if we continue to experience significant growth, we may require additional capital resources. Although we have limited experiencedecline in raising additional capital, we believe the listing of our common stock on the NASDAQ Capital Market will improve our ability to access capital markets when necessary by enhancing the marketability of our common stock.Investing Activities Portfolioourthe Company’s investment securities portfolio, we focusmanagement focuses on providing an adequate level of liquidity and establishing an interest rate-sensitive position, while earning an adequate level of investment income without taking undue risk. Investment securities that are acquired and held principally for the purpose of selling them in the near term with the objective of generating economic profits on short-term differences in market characteristics are classified as securities held for trading. Securities that we intend to hold until maturity are classified as held-to-maturity securities, and all other investment securities are classified as available-for-sale. Currently,As of December 31, 2015 and 2014, all of ourthe Company’s investment securities arewere classified as available-for-sale. The carrying values of available-for-sale investment securities are adjusted for unrealized gains or losses as a valuation allowance and any gain or loss is reported on an after-tax basis as a component of other comprehensive income. Purchases during 2012 focused primarily on mortgage-backed securities issued by U.S. government sponsored enterprises.The following table summarizes the book value and approximate fair value and distribution of our investment securities as of the dates indicated.(dollars in thousands) December 31, 2012 2011 2010 Amortized
Cost Approximate
Fair Value Amortized
Cost Approximate
Fair Value Amortized
Cost Approximate
Fair Value Securities available for sale: U.S. government-sponsored enterprises $ 18,666 $ 19,618 $ 24,685 $ 25,502 $ 43,444 $ 43,393 U.S. government treasuries – – – – 2,369 2,332 Municipals 39,999 42,540 40,849 42,761 42,463 40,764 Mortgage- and asset-backed securities– government-sponsored enterprises 75,782 77,489 67,354 69,790 37,850 39,981 Mortgage- and asset-backed securities – private labeled 2,696 2,453 5,850 5,445 9,720 9,000 Other securities 16,753 14,593 8,648 5,772 4,279 1,466 Total securities available for sale $ 153,896 $ 156,693 $ 147,386 $ 149,270 $ 140,125 $ 136,936 Our trust preferred securities consist of the two securities identified in the following table, which contains information regarding these securities as of December 31, 2012 (amounts in thousands):Deal name I-PreTSL I ALESCO IV Class B-2 Notes B-2 Notes Book value $ 2,000 $ 1,036 Fair value $ 812 $ 28 Unrealized loss $ (1,188 ) $ (1,008 ) Other-than-temporary impairment recorded in earnings $ - $ 964 Lowest credit rating assigned CCC- C Number of performing institutions 14 31 Number of issuers in default 0 1 Number of issuers in deferral 2 7 Original collateral $ 351,000 $ 400,000 Actual defaults & deferrals as a % of original collateral 4.27 % 12.13 % Remaining collateral $ 188,500 $ 258,397 Actual defaults & deferrals as a % of remaining collateral 7.96 % 18.77 % Expected defaults & deferrals as a % of remaining collateral 21.17 % 14.00 % Performing collateral $ 173,500 $ 209,897 Current balance of class $ 33,200 $ 55,550 Subordination $ 16,000 $ 0 Excess subordination $ 27,200 $ (111,276 ) Excess subordination as a % of performing collateral 15.7 % -53.0 % Cash Flow Analysis Assumptions: Discount margin (1) 7.00 % 14.25 % Cumulative Default % Range 4.9% - 100% 2.2% - 100% (Weighted Average) (29.1 )% (16.5 )% Loss Given Default % Range 85% - 85% 90% - 100% (Weighted Average) (85 )% (90.1 )% Cumulative Prepayment % Range 0% - 100% (Weighted Average) n/a (15.6 )% (1) The discount rate for floating rate bonds is a compound interest formula based on the LIBOR forward curve for each payment dateThese two securities are Collateralized Debt Obligations (“CDOs”) that are backed by pools of debt securitiesissued by financial institutions. The collateral of the ALESCO CDO consists of trust-preferred securities (“TruPS”) and subordinated debt securities issued by banks and bank holding companies. The collateral of the PreTSL CDO consists of TruPS and subordinated debt securities of insurance companies. Performing collateral is the amount of remaining collateral less the balances of collateral in deferral or default. Subordination is the amount of performing collateral in excess of the current balance of a specified class of notes and all classes senior to the specified class. Excess subordination is the amount that the performing collateral balance exceeds the outstanding bonds in the current class, plus all senior classes. It is a static measure of credit enhancement, but does not incorporate all of the structural elements of the security deal. This amount can also be impacted by future defaults and deferrals, deferring balances that cure or redemptions of securities by issuers. A negative excess subordination indicates that the current performing collateral of the security would be insufficient to pay the current principal balance of the class notes after all of the senior classes notes were paid.However, the performing collateral balance excludes the collateral of issuers currently deferring their interest payments. Because these issuers are expected to resume payment in the future (within five years of the first deferred interest period), a negative excess subordination does not necessarily mean a class note holder in the CDO will not receive a greater than projected or even full payment of cash flow at maturity.At December 31, 2012 and 2011 the Company was receiving “payment in kind” (“PIK”), in lieu of cash interest on the ALESCO trust preferred securities investment. The Company’s use of “PIK” does not indicate that additional securities have been issued in satisfaction of any outstanding obligation; rather, it indicates that a coverage test of a class or tranche directly senior to the class in question has failed and interest received on the PIK note is being capitalized, which means the principal balance is being increased. Once the coverage test is met, the capitalized interest will be paid in cash and current cash interest payments will resume.The Company’s CDOs both allow, under the terms of the issue, for issuers to defer interest for up to five consecutive years. After five years, if not cured, the securities are considered to be in default and the trustee may demand payment in full of principal and accrued interest. Issuers of the securities in the collateral pool are also considered to be in default in the event of the failure of the issuer or a subsidiary. The structuring of these CDOs provides for a waterfall approach to absorbing losses whereby lower classes or tranches are initially impacted and more senior tranches are only impacted after lower tranches can no longer absorb losses. Likewise, the waterfall approach also applies to principal and interest payments received, as senior tranches have priority over lower tranches in the receipt of payments. Both deferred and defaulted issuers are considered non-performing, and the trustee calculates, on a quarterly or semi-annual basis, certain coverage tests prior to the payment of cash interest to owners of the various tranches of the securities. The coverage tests are compared to an over-collateralization target that states the balance of performing collateral as a percentage of the tranche balance plus the balance of all senior tranches. The tests must show that performing collateral is sufficient to meet requirements for the senior tranches, both in terms of cash flow and collateral value, before cash interest can be paid to subordinate tranches. As a result of the cash flow waterfall provisions within the structure of these securities, when a senior tranche fails its coverage test, all of the cash flows that would have been paid to lower tranches are paid to the senior tranche and recorded as a reduction of the senior tranches’ principal. This principal reduction in the senior tranche continues until the coverage test of the senior tranche is passed or the principal of the tranche is paid in full. For so long as the cash flows are being diverted to the senior tranches, the amount of interest due and payable to the subordinate tranches is capitalized and recorded as an increase in the principal value of the tranche. The Company’s CDO investments are in the mezzanine tranches or classes which are subordinate to one of more senior tranches of their respective issues. The Company is receiving PIK for the ALESCO CDO due to failure of the required senior tranche coverage tests described. This security is currently projected to remain in full or partial PIK status for a period of three years.The impact of payment of PIK to subordinate tranches is to strengthen the position of the senior tranches by reducing the senior tranches’ principal balances relative to available collateral and cash flow. The impact to the subordinate tranches is to increase principal balances, decrease cash flow, and increase credit risk to the tranches receiving the PIK. The risk to holders of a security of a tranche in PIK status is that the total cash flow will not be sufficient to repay all principal and capitalized interest related to the investment.During the third quarter of 2009, after analysis of the expected future cash flows and the timing of resumed interest payments, the Company determined that placing the ALESCO CDO on non-accrual status was the most prudent course of action. The Company stopped all accrual of interest and never capitalized any PIK interest payments to the principal balance of the security. The Company intends to keep this security on non-accrual status until the scheduled interest payments resume on a regular basis and any previously recorded PIK has been paid. The PIK status of this security, among other factors, indicates potential OTTI and accordingly, the Company utilized an independent third party for the valuation of the CDOs as of December 31, 2012. Based on this valuation and the Company’s review of the assumptions and methodologies used, the Company believes the amortized costs recorded for its CDO investments accurately reflects the position of these securities at December 31, 2012.Within the valuation performed, the default and recovery probabilities for each piece of collateral were formed based on the evaluation of the collateral credit and a review of historical industry default data and current/near-term operating conditions. For collateral that has already defaulted, the Company assumed no recovery. For collateral that was in deferral, the Company assumed a recovery of 10% of par for banks, thrifts or other depository institutions, and 15% of par for insurance companies. Although the Company conservatively assumed that the majority of the deferring collateral continues to defer and eventually defaults, also recognizes there is a possibility that some deferring collateral may become current at some point in the future.TruPS CDOs are typically subject to five-year (in rare instances ten-year) no call provisions. At the expiration of these lockout periods, they are typically freely callable at par. As most of TruPS within CDOs were issued before 2008, most securities are now freely callable at par. Although less common, some issuances are callable before the end of a lock out period at a premium (levels varying from issuer to issuer and typically depending on how close to the end of the no call period). Additionally, there exists a provision in most trust preferred indentures that allow for the securities to become callable at par (even during the lockout period) if there is an adverse capital treatment event.Prepayment assumptions are predicated on the terms and pricing of TruPS relative to prevailing current market conditions, as well as regulatory and legislative developments that may affect issuers’ decision to prepay. There were no significant changes made within the prepayment assumptions during 2012. Most TruPS have a five-year call option – meaning that, on the fifth anniversary of issuance, the issuer has the right to redeem the security at par. Additionally, most trust preferred security indentures include language that permits an issuer to call the security if an adverse capital treatment event occurs. These provisions allow issuers to redeem their TruPS at virtually any time if a legislative or regulatory development changes the TruPS’ status as a component of Tier 1 capital. The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010, constituted such an event for certain bank holding companies. Specifically, bank holding companies with consolidated assets of $15 billion or more can no longer treat as Tier 1 Capital any hybrid capital instruments (such as TruPS) issued on or after May 19, 2010. Furthermore, the ability of these institutions to continue to treat as Tier 1 Capital any hybrid capital instruments, including TruPS, issued before May 19, 2010, will be phased out incrementally over a period of three years, beginning January 1, 2013. Notwithstanding the foregoing, we believe that the terms and pricing of TruPS issued by banks and insurance companies were so aggressive that it is unlikely that financing on such attractive terms will become available in the foreseeable future. Additionally, the favorable capital treatment of these securities (i.e. status as Tier 1 capital) makes them a particularly attractive debt instrument. Simply put, refinancing does not make sense from either an economic or regulatory capital standpoint. Therefore, we assume that the bulk of the TruPS collateral does not prepay over the life of the CDO. However, in light of legislative developments, we have instituted a 40% prepayment assumption rate for those banks with assets greater than $15 billion for two years corresponding to the start of the phase-out period for Tier 1 capital treatment – and, subsequently, an annual prepayment rate assumption of 2%. The 40% prepayment rate was the result of a detailed analysis of the terms of those TruPS issued by banks with assets in excess of $15 Billion. Specifically, we looked to the contractual interest rate of these instruments (i.e. fixed rate or spread over LIBOR) and compared them to current debt market rates of the issuing institutions. The bulk of the TruPS within the CDOs were issued at rates inside of current market debt yield (thus making refinancing prohibitively expensive). For issuers that have made a public announcement of intent to redeem their outstanding TruPS, we assume an immediate prepayment. Additionally, we assume immediate prepayment for TruPS issued by banks with greater than $15 billion in assets and a fixed coupon of 7% or greater. The bulk of the issuances with coupons greater than 7% were issued at rates wider than current market debt yield (thus making refinancing certain). Similarly, for those TruPS issued by banks with assets between $2 billion and $15 billion and coupons greater than 7%, we assume a constant annual prepayment rate of 5%. This rate is meant to reflect the possibility that some mid-size banks with limited access to the capital markets may choose to refinance the relatively high cost debt despite the remaining positive capital treatment of their TruPS.At present there is no prepayment rate being applied to insurance collateral. This is due to the de minimus rate of prepayment observed for insurance collateral. As stated above, the impact of a prepayment would be positive for insurance only CDOs. Additionally, unlike large banks which experienced a “taking away” of preferential capital treatment, insurance companies were never subject to such an adverse event and thus have no new incentive to prepay. There would be no increase in credit loss when adding a 1% prepayment assumption. However, there would be an increase in fair value of approximately one point.For CDOs with only bank collateral, such as the ALESCO CDO, generally senior tranches experience increased value and no credit loss effect with increased prepayment assumptions, while mezzanine tranches typically experience increased credit loss when collateral prepayment assumptions are increased. Typically redemptions are completed by issuers with stronger credit and/or higher coupon paper (as higher coupon paper has a higher probability of redemption due to refinancing options). Issuers with stronger credit are more likely to continue making interest payments (less likely to default) and higher coupon paper accounts for higher interest proceeds available to pay tranches in the CDO. The mezzanine tranches benefit from these heightened interest proceeds over time and prepayments compromise the likelihood of those payments.For CDOs with only insurance collateral, such as the PreTSL CDO, given the significant amounts of subordination and excellent asset coverage (due to the absence of material credit events), prepayments would have a positive effect on fair value for nearly all tranches and is unlikely to cause impairment.There would be no increase in credit loss when adding a 1% prepayment assumption. However, there would be an increase in fair value of approximately one and a half points.Investment MaturitiesThe total amount of securities in an unrealized loss position for greater than 12 months is comprised of municipal, mortgage-backed and other securities. Our management periodically evaluates each available-for-sale security available-for-sale in an unrealized loss position to determine if the impairment is temporary or other than temporary. Theother-than-temporary. As of December 31, 2015, the unrealized losses arein the Company’s investment securities portfolio were due solely to interest rate changes and we havechanges. The Company has the ability and intent to hold all investment securities with identified impairments resulting from interest rate changes to the earlier of the forecasted recovery or the maturity of the underlying investment security. As of December 31, 2012, we2015, the Company did not have any investment securities of a single issuer, which were not governmental or government-sponsored, that constitutedexceeded 10% or moreof shareholders’ equity.stockholders’ equityCompany’s investment securities portfolio by security type as of any third party issuer.(amounts in thousands) December 31, Amortized Cost 2015 2014 2013 2012 2011 Securities available-for-sale U.S. Government-sponsored agencies $ 38,093 $ 13,680 $ 57,569 $ 18,666 $ 24,685 Municipal securities 21,091 — 46,126 39,999 40,849 Mortgage-backed securities 113,948 117,134 76,371 78,478 73,204 Asset-backed securities 19,444 4,913 — — — Corporate securities 20,000 — — — — Other securities 3,000 2,000 5,025 16,753 8,648 Total securities available-for-sale $ 215,576 $ 137,727 $ 185,091 $ 153,896 $ 147,386 December 31, Approximate Fair Value 2015 2014 2013 2012 2011 Securities available-for-sale U.S. Government-sponsored agencies $ 37,750 $ 13,552 $ 56,277 $ 19,618 $ 25,502 Municipal securities 21,469 — 46,323 42,540 42,761 Mortgage-backed securities 113,052 117,048 75,173 79,942 75,235 Asset-backed securities 19,361 4,912 — — — Corporate securities 19,087 — — — — Other securities 2,979 2,006 3,636 14,593 5,772 Total securities available-for-sale $ 213,698 $ 137,518 $ 181,409 $ 156,693 $ 149,270 ourthe Company’s investment securities at their amortized cost and their weighted average yields at December 31, 2012.2015. 1 year or less More than 10 years Total (dollars in thousands) Wtd.
Avg.
Yield Wtd.
Avg.
Yield Wtd.
Avg.
Yield Wtd.
Avg.
Yield Wtd.
Avg.
YieldSecurities available for sale: U.S. Government-sponsored agencies $ — — % $ 487 3.75 % $ 14,198 2.18 % $ 23,408 2.34 % $ 38,093 2.30 % Municipal securities — — % — — % 1,160 2.50 % 19,931 3.10 % 21,091 3.07 % Mortgage-backed securities — — % — — % 44,433 1.60 % 69,515 2.14 % 113,948 1.93 % Asset-backed securities — — % — — % 5,083 2.27 % 14,361 2.60 % 19,444 2.51 % Corporate securities — — % — — % 10,000 3.50 % 10,000 4.00 % 20,000 3.75 % $ — — % $ 487 3.75 % $ 74,874 2.02 % $ 137,215 2.50 % $ 212,576 2.33 % (dollars December 31, (dollars in thousands) 2015 2014 2013 2012 2011 Noninterest-bearing deposits $ 23,700 2.5 % $ 21,790 2.9 % $ 19,386 2.9 % $ 13,187 2.5 % $ 15,870 3.2 % Interest-bearing demand deposits 84,241 8.8 % 74,238 9.8 % 73,748 11.0 % 73,660 13.9 % 64,006 13.2 % Regular savings accounts 22,808 2.4 % 20,776 2.7 % 14,330 2.1 % 11,583 2.2 % 7,773 1.6 % Money market accounts 341,732 35.7 % 267,046 35.2 % 255,169 37.9 % 202,388 38.1 % 165,561 34.0 % Certificates of deposits 470,736 49.2 % 361,202 47.6 % 292,685 43.5 % 211,542 39.9 % 209,762 43.1 % Brokered deposits 12,837 1.4 % 13,546 1.8 % 17,777 2.6 % 18,331 3.4 % 23,693 4.9 % Total $ 956,054 100.0 % $ 758,598 100.0 % $ 673,095 100.0 % $ 530,691 100.0 % $ 486,665 100.0 % thousands) 1 year or Less More than 1 year
to 5 years More than 5 years
to 10 years More than 10 years Total Amortized
Cost Weighted
Average
Yield Amortized
Cost Weighted
Average
Yield Amortized
Cost Weighted
Average
Yield Amortized
Cost Weighted
Average
Yield Amortized
Cost Weighted
Average
Yield Securities available for sale: U.S. government-sponsored enterprises $ – 0.00 % $ 1,102 3.69 % $ 3,289 5.39 % $ 14,275 4.45 % $ 18,666 4.57 % Municipals 1,305 2.35 % 3,168 3.42 % 9,619 3.41 % 25,907 3.73 % 39,999 3.58 % Mortgage- and asset-backed securities – government-sponsored enterprises – 0.00 % 229 6.00 % 6,150 4.28 % 69,403 5.12 % 75,782 5.06 % Mortgage- and asset-backed securities – private labeled – 0.00 % 193 5.25 % 611 4.58 % 1,892 1.89 % 2,696 2.74 % Other securities 1,500 2.17 % 12,217 3.74 % – 0.00 % 3,036 1.59 % 16,753 3.21 % Total securities available for sale $ 2,805 $ 16,909 $ 19,669 $ 114,513 $ 153,896 (dollars in thousands) December 31, 2015 Interest Rate: <1.00% $ 190,958 1.00% – 1.99% 188,491 2.00% – 2.99% 93,514 3.00% – 3.99% 8,085 4.00% – 4.99% 2,525 Total $ 483,573 Period to Maturity Percentage of Total Certificate Accounts (dollars in thousands) Total Interest Rate: <1.00% $ 189,551 $ 1,407 $ — $ — $ 190,958 39.5 % 1.00% – 1.99% 46,197 82,722 45,936 13,636 188,491 39.0 % 2.00% – 2.99% 46,967 92 — 46,455 93,514 19.3 % 3.00% – 3.99% 5,009 3,076 — — 8,085 1.7 % 4.00% – 4.99% — — 2,525 — 2,525 0.5 % Total $ 287,724 $ 87,297 $ 48,461 $ 60,091 $ 483,573 100.0 % (dollars in thousands) December 31, 2015 Maturity Period: 3 months or less $ 54,391 Over 3 through 6 months 59,228 Over 6 through 12 months 206,219 Over 12 months 91,386 Total $ 411,224 At or for the Twelve Months Ended December 31, (dollars in thousands) 2015 2014 2013 Balance outstanding at end of period $ 190,957 $ 106,897 $ 31,793 Average amount outstanding during period 134,689 42,597 30,054 Maximum outstanding at any month end during period 190,957 106,897 31,793 Weighted average interest rate at end of period 0.81 % 1.58 % 2.63 % Weighted average interest rate during period 1.09 % 2.23 % 3.53 % (dollars in thousands, except share and per share data) At or for the Twelve Months Ended December 31, 2015 2014 2013 2012 2011 Total equity - GAAP $ 104,330 $ 96,785 $ 90,908 $ 61,350 $ 55,423 Adjustments: Goodwill (4,687 ) (4,687 ) (4,687 ) (4,687 ) (4,687 ) Tangible common equity $ 99,643 $ 92,098 $ 86,221 $ 56,663 $ 50,736 Total assets - GAAP $ 1,269,870 $ 970,503 $ 802,342 $ 636,367 $ 585,440 Adjustments: Goodwill (4,687 ) (4,687 ) (4,687 ) (4,687 ) (4,687 ) Tangible assets $ 1,265,183 $ 965,816 $ 797,655 $ 631,680 $ 580,753 Total common shares outstanding 4,481,347 4,439,575 4,448,326 2,815,094 2,807,385 Book value per common share $ 23.28 $ 21.80 $ 20.44 $ 21.79 $ 19.74 Effect of goodwill (1.04 ) (1.06 ) (1.06 ) (1.66 ) (1.67 ) Tangible book value per common share $ 22.24 $ 20.74 $ 19.38 $ 20.13 $ 18.07 Total shareholders’ equity to assets ratio 8.22 % 9.97 % 11.33 % 9.64 % 9.47 % Effect of goodwill (0.34 )% (0.43 )% (0.52 )% (0.67 )% (0.73 )% Tangible common equity to tangible assets ratio 7.88 % 9.54 % 10.81 % 8.97 % 8.74 % Total average equity - GAAP $ 100,428 $ 93,796 $ 64,704 $ 58,934 $ 52,313 Adjustments: Average goodwill (4,687 ) (4,687 ) (4,687 ) (4,687 ) (4,687 ) Average tangible common equity $ 95,741 $ 89,109 $ 60,017 $ 54,247 $ 47,626 Return on average shareholders' equity 8.89 % 4.61 % 7.10 % 9.51 % 6.09 % Effect of goodwill 0.44 % 0.24 % 0.55 % 0.82 % 0.60 % Return on average tangible common equity 9.33 % 4.85 % 7.65 % 10.33 % 6.69 % areis determined and an allowance for those losses is established by considering factors including historical loss rates, expected cash flows, and estimated collateral values. The allowance for loan losses represents management’s best estimate of losses inherent in the existing loan portfolio. The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries. Management evaluates the allowance for loan losses quarterly. If the underlying assumptions later prove to be inaccurate based on subsequent loss evaluations, the allowance for loan losses is adjusted.the levelconcentrations of credit risk, associated with specific industries and markets.changes in industry conditions. Because the economic and business climate in any given industry or market, and its impact on any given borrower, can change rapidly, the risk profile of the loan portfolio is periodically assessed and adjusted when appropriate. Notwithstanding these procedures, there still exists the possibility that the assessment could prove to be significantly incorrect and that an immediate adjustment to the allowance for loan losses would be required.Investment either held-to-maturity or available-for-sale in accordance with Accounting Standards Codification, or ASC, Topic 320, “Accounting“Accounting for Certain Investments in Debt and Equity Securities.” Securities classified as held-to-maturity would be recorded at cost or amortized cost. Available-for-sale securities are carried at fair value. Fair value calculations are based on quoted market prices, when such prices are available. If quoted market prices are not available, estimates of fair value are computed using a variety of pricing sources, including Reuters/EJV, Interactive Data and Standard & Poors. Due to the subjective nature of the valuation process, it is possible that the actual fair values of these investments could differ from the estimated amounts, thereby affecting our financial position, results of operations and cash flows. If the estimated value of investments is less than the cost or amortized cost, management evaluates whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment. If such an event or change has occurred and management determines that the impairment is other-than-temporary, a further determination is made as to the portion of impairment that is related to credit loss. The impairment of the investment that is related to the credit loss is expensed in the period in which the event or change occurred. The remainder of the impairment is recorded in other comprehensive income.Owned.Owned (“OREO”). OREO acquired through loan foreclosure is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. The adjustment at the time of foreclosure is recorded through the allowance for loan losses. Due to the subjective nature of establishing the fair value when the asset is acquired, the actual fair value of the OREO or foreclosed asset could differ from the original estimate. If it is determined that fair value declines subsequent to foreclosure, a valuation adjustment is recorded through non-interestnoninterest expense. OperatingNet operating costs associated with the assets after acquisition are also recorded as non-interestnoninterest expense. Gains and losses on the disposition of OREO and foreclosed assets are netted and posted through non-interestnoninterest income.frequently than annually.Additionally, management reviews our uncertain tax positions annually under ASC Subtopic 740-10, “Accounting for Uncertainty in Income Taxes.” An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount actually recognized is the largest amount of tax benefit that is greater than 50% likely to be recognized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. A significant amount of judgment is applied to determine both whether the tax position meets the “more likely than not” test as well as to determine the largest amount of tax benefit that is greater than 50% likely to be recognized. Differences between the position taken by management and that of taxing authorities could result in a reduction of a tax benefit or increase to tax liability, which could adversely affect future income tax expense.In December 2011, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2011-11. The objective of this ASU isprovide enhanced disclosures that will enable users of financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. This includes the effect or potential effect of rights of setoff associated with an entity’s recognized assets and recognized liabilities within the scope of this ASU. The amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section 815-10-45. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. We will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.On July 27, 2012, the FASB released ASU 2012-02. The amendments in this Update will allow an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Under these amendments, an entity would not be required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines, based on qualitative assessment, that it is not more likely than not, the indefinite-lived intangible asset is impaired. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity's financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The Company has adopted the methodologies prescribed by this ASU by the date required, and the ASU did not have a material effect on its financial position or results of operations.On August 27, 2012, the FASB released ASU 2012-03. This Update amends various SEC paragraphs pursuant to SAB 114, SEC Release No. 33-9250, and ASU 2010-22, which amend or rescind portions of certain SAB Topics. These amendments are presented in two sections – AmendmentsNote 21 to the FASB Accounting Standards Codification®Company’s consolidated financial statements.Amendmentsforms of commitments that may be considered off-balance sheet arrangements. We enter into forward contracts relating to our mortgage banking business to hedge the XBRL Taxonomy. The Company has adopted the methodologies prescribed by this ASU,exposures we have from commitments to extend new residential mortgage loans to our customers and the ASU did not have a material effect on its financial position or results of operations.On October 1, 2012, the FASB released ASU 2012-04. The amendments in this Update make technical corrections, clarifications, and limited-scope improvements to various topics throughout the codification. These amendments are presented in two sections—Technical Corrections and Improvements and Conforming Amendments Related to Fair Value Measurements. The amendments in this Update that will not have transition guidance will be effective upon issuance for both public entities and nonpublic entities. For public entities, the amendments that are subject to the transition guidance will be effective for fiscal periods beginning after December 15, 2012. The Company has adopted the methodologies prescribed by this ASU for the period endedfrom our mortgage loans held-for-sale. At December 31, 2012,2015 and the ASU did not have a material effect on its financial position or resultsDecember 31, 2014, we had commitments to sell residential real estate loans of operations.In February 2013, the FASB issued ASU 2013-02 to improve the transparency of reporting reclassifications out of accumulated other comprehensive income. Other comprehensive income includes gains$42.7 million and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments$55.1 million, respectively. These contracts mature in the Update do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information required within this Update is already required to be disclosed elsewhere in the financial statements under United States Generally Accepted Accounting Principles (“GAAP”). The new amendments will require an organization to:·Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income–but only if the item reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period.·Cross-reference to other disclosures currently required under GAAP for other reclassification items (that are not required under GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account instead of directly to income or expense.The amendments are effective for reporting periods beginning after December 15, 2012. The Company will adopt the methodologies prescribed by this ASU by the date required, and the ASU is not expected to have a material effect on its financial position or results of operations.In January 2013, the FASB issued ASU 2013-01, which clarifies the scope of transactions that are subject to the disclosures about offsetting. The Update clarifies that ordinary trade receivables and receivables are not in the scope of ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. Specifically, Update 2011-11 applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in FASB Accounting Standards Codification® or subject to a master netting arrangement or similar agreement. Issued in December 2011, Update 2011-11 was the result of a joint project with the International Accounting Standards Board. Its objective was to improve transparency and comparability between GAAP and International Financial Reporting Standards by requiring enhanced disclosures about financial instruments and derivative instruments that are either (1) offset on the statement of financial position or (2) subject to an enforceable master netting arrangement or similar agreement. The FASB undertook this clarification project in response to concerns expressed by U.S. stakeholders about the standard’s broad definition of financial instruments. After the standard was finalized, companies realized that many contracts have standard commercial provisions that would equate to a master netting arrangement, significantly increasing the cost of compliance at minimal value to financial statement users.Off-Balance Sheet ArrangementsWe do not have any off-balance sheet arrangements.Item 7A.Quantitative and Qualitative Disclosures about Market Risk % Change from Base Case for Parallel Changes in Rates +100 Basis Points +200 Basis Points NII - next twelve months (1.06 )% 0.11 % 0.21 % EVE 1.60 % (5.16 )% (9.52 )% Not applicable.Item 8.Financial Statements and Supplementary DataItem 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A.Controls and ProceduresWe maintainwe arethe Company is required to disclose in reports that we filethe Company files or submitsubmits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time period specified in SEC rules and forms. These controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our principal executive and principal financial officers,officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating disclosure controls and procedures, we havethe Company has recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management is required to apply judgment in evaluating its controls and procedures.Weour management, including ourthe Company’s principal executive officer and principal financial officers,officer, to assess the effectiveness of the design and operation of our disclosure controls and procedures under the Exchange Act. Based on that evaluation, our management, including our principal executive officer and principal financial officers,officer, concluded that our disclosure controls and procedures were effective as of December 31, 2012.Report onAssessment of Internal Control Over Financial ReportingThis annual report does not include a report of management's assessment regardingor an attestation reportfor the Company, including accounting and other internal control systems that, in the opinion of management, provide reasonable assurance that (1) transactions are properly authorized, (2) the assets are properly safeguarded, and (3) transactions are properly recorded and reported to permit the preparation of the company'sconsolidated financial statements in conformity with accounting principles generally accepted in the United States. The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on that assessment, management concluded that, as of December 31, 2015, the Company’s internal control over financial reporting is effective based on those criteria. The Company’s internal control over financial reporting as of December 31, 2015 has been audited by BKD, LLP, an independent registered public accounting firm, due to a transition period established by the rules of the Securities and Exchange Commission for newly public companies.ourthe Company’s internal control over financial reporting during the quarter ended December 31, 2012,2015, that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.Item 9B.Other Information.On March 28, 2013, we entered into a new employment agreement with David Becker. This information is being reported in compliance with item 5.02(e) of the Current Report on Form 8-K. The new agreement replaces the employment agreement that had been last amended January 1, 2007.The new agreement provides for an annual base salary and an annual bonus, if any, as determined form time to time by the Compensation Committee of the Board of Directors. The annual bonus is to be determined with reference to the achievement of annual performance objectives established by the Compensation Committee for Mr. Becker and other senior officers. The new agreement also provides that Mr. Becker may be awarded additional compensation, benefits or consideration as the Compensation Committee may determine. The initial term of the new agreement expires on December 31, 2013, and will be automatically extended for successive one year terms unless we or Mr. Becker provide notice otherwise at least ninety (90) days before the expiration of the then existing term.The new agreement provides that if Mr. Becker's employment is terminated by us for cause, or by him without good reason, he will be paid the amounts then due for his services through the date of termination. If the executive's employment is terminated without cause or he resigns for good reason he will be paid, in twelve equal monthly payments beginning the month following termination, an amount equal to two times his then-annual base salary plus two times the amount of the annual bonus he was paid for the calendar year preceding the termination. If Mr. Becker's employment is terminated due to his death or disability he or his estate, as the case may be, will be paid within thirty days, an amount equal to 120% of the annual bonus he was paid for the calendar year preceding the termination. If his employment terminates or is not renewed or if he resigns for any reason with twelve months following a change in control of us, he will be paid, in twelve equal monthly payments beginning the month following the end of his employment, an amount equal to three times his then-current base salary plus two times the amount of the annual bonus he was paid for the calendar year preceding the termination; provided, however, the total payments will be limited to the maximum amount that could be paid to him without imposing excise tax under Section 4999 of the Internal Revenue Code. If the executive's employment is terminated for any reason outlined in this paragraph then, to the fullest extent permitted by law, all restrictions on any outstanding incentive awards, including equity awards will lapse and become 100% vested.In addition to other customary terms, the new agreement requires Mr. Becker to maintain confidentiality of trade secrets and other confidential information and entitles him to indemnification, subject to certain customary exceptions, by us against claims against him arising in connection with the performance of his duties. In addition, the new agreement provides that Mr. Becker will not work for or own any enterprise in competition with us in the United States for two years from the date of termination or expiration of his employment. Mr. Becker also agrees not to solicit any of our employees to work in a competing enterprise or interfere with any of our business relationships for the same period.The new employment agreement is being filed as an exhibit to this report and is incorporated herein by reference.theour 2016 Annual Meeting of Shareholders to be held on May 20, 2013 (the “Proxy Statement”), which we intend to file with the SEC pursuant to Regulation 14A within 120 days after December 31, 2012.2015. Except for those portions specifically incorporated in this report by reference tofrom our Proxy Statement, no other portions of the Proxy Statement are deemed to be filed as part of this report.Item 10.Directors, Executive Officers and Corporate GovernanceInformation regarding ouris set forth in Item 1 of Part I of this annual report under the caption “Executive Officersare as follows:Name Age Position David B. Becker 62 Chairman, President, Chief Executive Officer and Director Kenneth J. Lovik 46 Senior Vice President and Chief Financial Officer C. Charles Perfetti 71 Senior Vice President and Secretary Nicole S. Lorch 41 Senior Vice President, Retail Banking Registrant.”principal financial officer and principal accountingfinancial officer. This code is publicly available through the Investor RelationsCorporate Governance section of our website at www.firstinternetbancorp.com. To the extent permissible under applicable law, the rules of the SEC or NASDAQ listing standards, we intend to post on our website any amendment to the code of business conduct and ethics, or any grant of a waiver from a provision of the code of business conduct and ethics, that requires disclosure under applicable law, the rules of the SEC or NASDAQ listing standards.Governance” in the Proxy Statement.Governance” in the Proxy Statement.Governance” in the Proxy Statement.Governance.”Item 11.Executive Compensation“Executive“Director Compensation.”Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13.Certain Relationships and Related Transactions, and Director Independenceunder the heading “Proposal No. 1 – Election of Directors” and the information regarding related person transactions under the heading “Corporate Governance.”Item 14.Principal Accountant Fees and Services“Proposal No. 5 – Ratification“Audit-Related Matters.”Appointment of Independent Registered Public Accounting Firm.”PART IVItem 15.Exhibits and Financial Statement Schedules(a)Documents Filed as Part of this annual report on Form 10-K:1. See our financial statements beginning on page F-1. (b)Exhibits:Exhibit No. Description 3.1 Articles of Incorporation of First Internet Bancorp (incorporated by reference to Exhibit 3.1 to registration statement on Form 10 filed November 30, 2012) 3.2 Amended and Restated Bylaws of First Internet Bancorp as amended March 18, 2013 (incorporated by reference to Exhibit 3.2 to annual report on Form 10-K for the year ended December 31, 2012) 4.1 Warrant to purchase common stock dated June 28, 2013 (incorporated by reference to Exhibit 4.1 to current report on Form 8-K filed July 5, 2013) 4.2 Form of Senior Indenture (incorporated by reference to Exhibit 4.6 to registration statement on Form S-3 (Registration No. 333-208748) filed December 23, 2015) 4.3 Form of Subordinated Indenture (incorporated by reference to Exhibit 4.7 to registration statement on Form S-3 (Registration No. 333-208748) filed December 23, 2015) 10.1 First Internet Bancorp 20062013 Equity Incentive Plan (incorporated by reference to Appendix A to the definitive proxy statement on Schedule 14A filed April 9, 2013)*10.2 Form of Restricted Stock OptionAgreement under 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to registration statementcurrent report on Form 108-K filed November 30, 2012)*10.2Form of Award Document under 2006 Plan (incorporated by reference to Exhibit 10.2 to registration statement on Form 10 filed November 30, 2012)July 26, 2013)*10.3 First Internet Bancorp 2011 Directors’ Deferred Stock Plan (incorporated by reference to Exhibit 10.310.2 to registration statement on Form 10 filed November 30, 2012)*10.4 Amended and Restated Employment Agreement among First Internet Bank of Indiana, First Internet Bancorp and David B. Becker dated March 28, 2013*10.5Employment Agreement between First Internet Bank of Indiana and Laurinda A. Swank dated August 8, 19992013 (incorporated by reference to Exhibit 10.510.4 to registration statementannual report on Form 10 filed November 30,10-K for the year ended December 31, 2012)*10.6 Change in Control Agreement between First Internet Bank of Indiana and Kay E. Whitaker dated January 14, 2013*10.72012 Senior Management Bonus Plan (incorporated by reference to Exhibit 10.6 to registration statement on Form 10 filed November 30, 2012)*10.82013 Senior Management Bonus Plan*10.9Form of Supplemental Executive Retirement Agreement between First Internet Bank of Indiana and certain employees (incorporated by reference to Exhibit 10.7 to registration statement on Form 10 filed November 30, 2012)*10.10 Contract for Purchase of Property between First Internet Bancorp and LHRET Ascension SV, LLC dated January 30, 2013 (incorporated by reference to Exhibit 10.10 to annual report on Form 10-K for the year ended December 31, 2012) 10.1110.7 Offer and Contract for Purchase of Real Estate between First Internet Bancorp and St. Vincent Hospital and Health Care Center, Inc., accepted February 5, 2013 10.12Loan Agreement dated as of March 6, 2013, by and between First Internet Bancorp and First Internet Bank of Indiana (incorporated by reference to Exhibit 10.110.11 to Current Reportannual report on Form 8-K filed March 11, 2013)10-K for the year ended December 31, 2012)10.1310.8 Lease dated as of March 6, 2013, by and between First Internet Bancorp and First Internet Bank of Indiana (incorporated by reference to Exhibit 10.2 to Current Reportcurrent report on Form 8-K filed March 11, 2013)10.9 First Amendment to Office Lease dated as of July 1, 2015, by and between First Internet Bancorp and First Internet Bank of Indiana (incorporated by reference to Exhibit 10.1 to quarterly report on Form 10-Q filed August 5, 2015) 10.10 Subordinated Debenture Purchase Agreement with Community BanCapital, L.P., dated June 28, 2013 (incorporated by reference to Exhibit 10.1 to current report on Form 8-K filed July 5, 2013) 10.11 Subordinated Debenture dated June 28, 2013 (incorporated by reference to Exhibit 10.2 to current report on Form 8-K filed July 5, 2013) 10.12 2015 Senior Executive Cash Incentive Plan (incorporated by reference to Exhibit 10.1 to quarterly report on Form 10-Q filed May 7, 2015)* 10.13 Form of Management Incentive Award Agreement - Restricted Stock Units under First Internet Bancorp 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to quarterly report on Form 10-Q filed May 7, 2015)* 10.14 Loan Agreement dated as of March 6, 2013, by and between the Company and the Bank (incorporated by reference to Exhibit 10.1 to current report on Form 8-K filed March 11, 2013) 10.15 First, Second and Third Acknowledgment, Confirmation and Amendment between First Internet Bank of Indiana and First Internet Bancorp executed March 6, 2014, March 6, 2015, and February 26, 2016, respectively 21.1 List of Subsidiaries (incorporated by reference to Exhibit 21.1 to registration statement on Form 10 filed November 30, 2012) 23.1 Consent of Independent Registered Public Accounting Firm 24.1 Powers of Attorney 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer 32.1 Section 1350 Certifications *Management contract, compensatory plan or arrangement required to be filed as an exhibit.Exhibit No. Description 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Extension Calculation Linkbase 101.DEF XBRL Taxonomy Extension Definition Linkbase 101.LAB XBRL Taxonomy Extension Label Linkbase 101.PRE XBRL Taxonomy Extension Presentation Linkbase 28, 2013.10, 2016. FIRST INTERNET BANCORP ByBy: /s//s/ David B. Becker President and Chairman28, 2013.10, 2016. /s//s/ David B. Becker /s/ Kay E. Whitaker/s/ Kenneth J. LovikPresident,Chairman and Director Kay E. Whitaker,
Senior Vice President-Finance,President and
Chief Financial Officer
(Principal Financial Officer and Secretary(Principal FinancialAccounting Officer) * /s/ Laurinda A. Swank* Laurinda A. SwankDavid R. Lovejoy, Chief Accounting OfficerDirector(Principal Accounting Officer) /s/ John K. Keach Jr.* /s/ David R. Lovejoy*John K. Keach Jr.,Ann D. Murtlow, Director DavidRalph R. Lovejoy,Whitney, Jr., Director /s/ Ann S. Murtlow* /s/ Ralph R. Whitney*Ann S. Murtlow,Jerry Williams, Director Ralph R. Whitney,Jean L. Wojtowicz, Director* David B. Becker, by signing his name hereto, does hereby sign this document on behalf of each of the above-named directors of the Registrant pursuant to powers of attorney duly executed by such persons. By: /s/ David B. Becker /s/ Jerry Williams/s/ Jean L. WojtowiczJerry Williams,DirectorJean L. Wojtowicz,DirectorFirst Internet BancorpDecember 31, 2012 and 2011ContentsReport of Independent Registered Public Accounting FirmF-2Consolidated Financial StatementsBalance SheetsF-3Statements of IncomeF-4Statements of Comprehensive IncomeF-5Statements of Shareholders’ EquityF-6Statements of Cash FlowsF-7Notes to Financial StatementsF-8ReportIndianapolis,20122015 and 2011,2014, and the related consolidated statements of income, comprehensive income, shareholders’shareholders' equity and cash flows for each of the years then ended.in the three-year period ended December 31, 2015. The Company'sCompany’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.20122015 and 2011,2014, and the results of its operations and its cash flows for each of the years thenin the three-year period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.28, 2013December 31, 2012 and 2011Dollar Amounts in Thousandsthousands except per share data) 2012 2011 Assets Cash and due from banks $ 2,881 $ 1,582 Interest-bearing demand deposits 29,632 33,196 Total cash and cash equivalents 32,513 34,778 Securities available for sale - at fair value (amortized cost of $153,896 in 2012 and $147,386 in 2011 156,693 149,270 Loans held for sale 63,234 45,091 Loans receivable - net of allowance for loan losses of $5,833 and $5,656 at December 31, 2012 and 2011 352,328 329,570 Accrued interest receivable 2,196 2,129 Federal Home Loan Bank of Indianapolis stock 2,943 2,943 Bank-owned life insurance - at cash surrender value 11,539 8,161 Goodwill 4,687 4,687 Prepaid expenses and other assets 10,234 8,811 Total assets $ 636,367 $ 585,440 Liabilities and Shareholders’ Equity Liabilities Deposits $ 530,691 $ 486,665 Advances from Federal Home Loan Bank 40,686 40,573 Accrued payroll and related expenses 948 1,153 Accrued interest payable 120 120 Accrued expenses and other liabilities 2,572 1,506 Total liabilities 575,017 530,017 Commitments and Contingencies Shareholders’ Equity Preferred stock, no par value; 4,913,779 shares authorized; issued and outstanding - none Voting common stock, no par value; 45,000,000 shares authorized; 1,876,782 and 1,871,590 shares issued and outstanding 41,508 41,306 Nonvoting common stock, no par value; 86,221 shares authorized; issued and outstanding - none — — Retained earnings 18,024 12,897 Accumulated other comprehensive income (net of income taxes of $979 in 2012 and $664 in 2011) 1,818 1,220 Total shareholders’ equity 61,350 55,423 Total liabilities and shareholders’ equity $ 636,367 $ 585,440 December 31, 2015 2014 Assets Cash and due from banks $ 1,063 $ 1,940 Interest-bearing demand deposits 24,089 26,349 Total cash and cash equivalents 25,152 28,289 Interest-bearing time deposits 1,000 2,000 Securities available-for-sale - at fair value (amortized cost of $215,576 in 2015 and $137,727 in 2014) 213,698 137,518 Loans held-for-sale (includes $24,065 and $32,618 at fair value in 2015 and 2014, respectively) 36,518 34,671 Loans receivable 953,859 732,426 Allowance for loan losses (8,351 ) (5,800 ) Net loans receivable 945,508 726,626 Accrued interest receivable 4,105 2,833 Federal Home Loan Bank of Indianapolis stock 8,595 5,350 Cash surrender value of bank-owned life insurance 12,727 12,325 Premises and equipment, net 8,521 7,061 Goodwill 4,687 4,687 Other real estate owned 4,488 4,488 Accrued income and other assets 4,871 4,655 Total assets $ 1,269,870 $ 970,503 Liabilities and Shareholders’ Equity Liabilities Noninterest-bearing deposits $ 23,700 $ 21,790 Interest-bearing deposits 932,354 736,808 Total deposits 956,054 758,598 Advances from Federal Home Loan Bank 190,957 106,897 Subordinated debt, net of unamortized discounts and debt issuance costs of $276 and $127 in 2015 and 2014, respectively 12,724 2,873 Accrued interest payable 117 97 Accrued expenses and other liabilities 5,688 5,253 Total liabilities 1,165,540 873,718 Commitments and Contingencies Shareholders’ Equity Preferred stock, no par value; 4,913,779 shares authorized; issued and outstanding - none — — Voting common stock, no par value; 45,000,000 shares authorized; 4,481,347 and 4,439,575 shares issued and outstanding, respectively 72,559 71,774 Nonvoting common stock, no par value; 86,221 shares authorized; issued and outstanding - none — — Retained earnings 32,980 25,146 Accumulated other comprehensive loss (1,209 ) (135 ) Total shareholders’ equity 104,330 96,785 Total liabilities and shareholders’ equity $ 1,269,870 $ 970,503 Years Ended December 31, 2012 and 2011Dollar Amounts in Thousandsthousands except share and per share data) 2012 2011 Interest Income Securities – taxable $ 3,064 $ 3,436 Securities – non-taxable 1,681 1,692 Loans 19,303 18,752 Federal funds sold and other short-term investments 69 64 Total interest income 24,117 23,944 Interest Expense Deposits 7,172 8,266 Other borrowed funds 1,360 1,355 Total interest expense 8,532 9,621 Net Interest Income 15,585 14,323 Provision for Loan Losses 2,852 2,440 Net Interest Income After Provision for Loan Losses 12,733 11,883 Noninterest Income Service charges and fees 942 1,157 Gain on loans sold 10,647 3,690 Other-than-temporary impairment Total loss related to other than temporarily impaired securities (1,452 ) (2,036 ) Portion of loss recognized in other comprehensive income (loss) 1,200 1,410 Other-than-temporary impairment loss recognized in net income (252 ) (626 ) Gain on sale of securities 48 84 Loss on asset disposals (93 ) (1,052 ) Other 452 306 Total noninterest income 11,744 3,559 Noninterest Expense Salaries and employee benefits 8,529 5,311 Marketing, advertising and promotion 1,362 936 Consulting and professional fees 1,422 777 Data processing 897 915 Loan expenses 1,097 526 Premises and equipment 1,775 1,481 Deposit insurance premium 455 727 Other 1,140 810 Total noninterest expense 16,677 11,483 Income Before Income Taxes 7,800 3,959 Income Tax Provision 2,194 773 Net Income $ 5,606 $ 3,186 Income Per Share of Common Stock Basic $ 2.93 $ 1.67 Diluted 2.93 1.67 Weighted-Average Number of Common Shares Outstanding Basic 1,912,910 1,906,289 Diluted 1,912,910 1,906,289 Year Ended December 31, 2015 2014 2013 Interest Income Loans $ 37,049 $ 27,875 $ 20,843 Securities – taxable 3,728 3,036 2,891 Securities – non-taxable 312 58 1,611 Other earning assets 358 246 191 Total interest income 41,447 31,215 25,536 Interest Expense Deposits 8,755 7,653 6,861 Other borrowed funds 1,939 1,275 1,227 Total interest expense 10,694 8,928 8,088 Net Interest Income 30,753 22,287 17,448 Provision for Loan Losses 1,946 349 324 Net Interest Income After Provision for Loan Losses 28,807 21,938 17,124 Noninterest Income Service charges and fees 764 707 687 Mortgage banking activities 9,000 5,609 8,682 Other-than-temporary impairment Total loss related to other than temporarily impaired securities — — (129 ) Portion of loss recognized in other comprehensive income (loss) — — 80 Other-than-temporary impairment loss recognized in net income — — (49 ) Gain (loss) on sale of securities — 538 (63 ) Loss on asset disposals (34 ) (78 ) (146 ) Other 411 398 406 Total noninterest income 10,141 7,174 9,517 Noninterest Expense Salaries and employee benefits 14,271 12,348 10,250 Marketing, advertising, and promotion 1,756 1,455 1,858 Consulting and professional fees 2,374 1,902 2,152 Data processing 1,016 995 911 Loan expenses 631 626 799 Premises and equipment 2,768 2,937 2,196 Deposit insurance premium 643 591 451 Other 1,824 1,808 1,865 Total noninterest expense 25,283 22,662 20,482 Income Before Income Taxes 13,665 6,450 6,159 Income Tax Provision 4,736 2,126 1,566 Net Income $ 8,929 $ 4,324 $ 4,593 Income Per Share of Common Stock Basic $ 1.97 $ 0.96 $ 1.51 Diluted 1.96 0.96 1.51 Weighted-Average Number of Common Shares Outstanding Basic 4,528,528 4,497,007 3,041,666 Diluted 4,554,219 4,507,995 3,050,001 Dividends Declared Per Share $ 0.24 $ 0.24 $ 0.22 Years Ended December 31, 2012 and 2011Dollar Amounts in Thousands except per share data) Years Ended
December 31, 2012 2011 Net income $ 5,606 $ 3,186 Other comprehensive income Net unrealized holding gains on securities available for sale 2,161 6,567 Reclassification adjustment for gains realized (48 ) (84 ) Net unrealized holding losses on securities available for sale for which an other-than-temporary impairment has been recognized in income (1,452 ) (2,036 ) Reclassification adjustment for other-than-temporary impairment loss recognized in income 252 626 Other comprehensive income before tax 913 5,073 Income tax provision 315 1,793 Other comprehensive income - net of tax 598 3,280 Comprehensive income $ 6,204 $ 6,466 Year Ended December 31, 2015 2014 2013 Net income $ 8,929 $ 4,324 $ 4,593 Other comprehensive income (loss) Net unrealized holding gains (losses) on securities available for sale (1,669 ) 3,260 (6,462 ) Reclassification adjustment for (gains) losses realized — (538 ) 63 Net unrealized holding gains (losses) on securities available for sale for which an other-than-temporary impairment has been recognized in income — 751 (129 ) Reclassification adjustment for other-than-temporary impairment loss recognized in income — — 49 Other comprehensive income (loss) before tax (1,669 ) 3,473 (6,479 ) Income tax provision (benefit) (595 ) 1,236 (2,289 ) Other comprehensive income (loss) - net of tax (1,074 ) 2,237 (4,190 ) Comprehensive income $ 7,855 $ 6,561 $ 403 Years Ended December 31, 2012 and 2011Dollar Amounts in Thousandsthousands except per share data) Accumulated Voting and Other Nonvoting Comprehensive Total Common Income Retained Shareholders’ Stock (Loss) Earnings Equity Balance, January 1, 2011 $ 41,246 $ (2,060 ) $ 9,711 $ 48,897 Net income 3,186 3,186 Comprehensive income 3,280 3,280 Issuance of directors deferred stock rights 60 60 Balance, December 31, 2011 41,306 1,220 12,897 55,423 Net income 5,606 5,606 Comprehensive income 598 598 Cash dividends paid ($0.25 per share) (479 ) (479 ) Issuance of share-based compensation 107 107 Issuance of directors deferred stock rights 95 95 Balance, December 31, 2012 $ 41,508 $ 1,818 $ 18,024 $ 61,350 Balance, January 1, 2013 $ 41,508 $ 1,818 $ 18,024 $ 61,350 Net income — — 4,593 4,593 Other comprehensive loss — (4,190 ) — (4,190 ) Dividends declared ($0.22 per share) — — (715 ) (715 ) Recognition of the fair value of share-based compensation 514 — — 514 Issuance of common stock warrants 255 — — 255 Net cash proceeds from common stock issuance 29,101 — — 29,101 Balance, December 31, 2013 71,378 (2,372 ) 21,902 90,908 Net income — — 4,324 4,324 Other comprehensive income — 2,237 — 2,237 Dividends declared ($0.24 per share) — — (1,080 ) (1,080 ) Recognition of the fair value of share-based compensation 507 — — 507 Common stock redeemed for the net settlement of share-based awards (71 ) — — (71 ) Other (40 ) — — (40 ) Balance, December 31, 2014 $ 71,774 $ (135 ) $ 25,146 $ 96,785 Net income — — 8,929 8,929 Other comprehensive loss — (1,074 ) — (1,074 ) Dividends declared ($0.24 per share) — — (1,095 ) (1,095 ) Recognition of the fair value of share-based compensation 762 — — 762 Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units 25 — — 25 Excess tax benefit on share-based compensation 36 — — 36 Common stock redeemed for the net settlement of share-based awards (38 ) — — (38 ) Balance, December 31, 2015 $ 72,559 $ (1,209 ) $ 32,980 $ 104,330 Years Ended December 31, 2012 and 2011Dollar Amounts in Thousands except per share data) 2012 2011 Operating Activities Net income $ 5,606 $ 3,186 Adjustments to reconcile net income to net cash from operating activities Depreciation 308 251 Amortization and accretion on securities 2,441 341 Amortization on FHLB prepayment penalties 113 118 Loss from disposal of fixed assets 1 64 Loss (Gain) from real estate owned (99 ) 346 Loss from impairment of other asset — 368 Increase in cash surrender value of bank-owned life insurance (378 ) (292 ) Provision for loan losses 2,852 2,440 Deferred income taxes (191 ) (938 ) Director fees and officer compensation 202 60 Loss on other-than-temporary impairment of security 252 626 Gain from sale of available-for-sale securities (48 ) (84 ) Loans originated for sale (738,225 ) (373,512 ) Proceeds from sale of loans 730,729 337,119 Gain on loans sold (10,647 ) (3,690 ) Changes in assets and liabilities Accrued interest receivable (67 ) (34 ) Prepaid expenses and other assets 607 1,287 Accrued expenses and other liabilities 861 919 Net cash used in operating activities (5,683 ) (31,425 ) Investing Activities Net decrease (increase) in loans (19,274 ) 25,499 Loans purchased (9,737 ) (59,660 ) BOLI purchased (3,000 ) — Proceeds from liquidation of real estate owned 1,345 2,046 Maturities of securities available for sale 45,625 58,383 Proceeds from sale of securities available for sale 4,223 11,350 Proceeds from redemption of FHLB stock — 316 Purchase of securities available for sale (59,002 ) (77,877 ) Capital expenditures (309 ) (233 ) Net cash used in investing activities (40,129 ) (40,176 ) Financing Activities Net increase in deposits 44,026 63,962 Cash dividends paid (479 ) — Repayment of FHLB advances — (5,000 ) Proceeds from FHLB advances — 15,000 Net cash provided by financing activities 43,547 73,962 Net Increase (Decrease) in Cash and Cash Equivalents (2,265 ) 2,361 Cash and Cash Equivalents, Beginning of Year 34,778 32,417 Cash and Cash Equivalents, End of Year $ 32,513 $ 34,778 Supplemental Disclosures of Cash Flows Information Cash paid during the year for interest $ 8,532 $ 9,627 Cash paid during the year for taxes 2,253 614 Loans transferred to real estate owned 3,401 1,696 Year Ended December 31, 2015 2014 2013 Operating Activities Net income $ 8,929 $ 4,324 $ 4,593 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,942 1,904 2,257 Increase in cash surrender value of bank-owned life insurance (402 ) (390 ) (396 ) Provision for loan losses 1,946 349 324 Share-based compensation expense 762 507 514 Loss on other-than-temporary impairment of securities — — 49 (Gain) loss from sale of available-for-sale securities — (538 ) 63 Loans originated for sale (502,716 ) (409,715 ) (741,078 ) Proceeds from sale of loans 509,373 409,453 784,077 Gain on loans sold (8,845 ) (5,048 ) (8,379 ) Decrease (increase) in fair value of loans held-for-sale 341 (751 ) 4 (Gain) loss on derivatives (496 ) 190 (307 ) Deferred income tax 443 (1,529 ) 2,259 Net change in other assets (1,227 ) 2,035 (2,404 ) Net change in other liabilities 858 1,189 (36 ) Net cash provided by operating activities 10,908 1,980 41,540 Investing Activities Net loan activity, excluding sales and purchases (220,828 ) (124,696 ) (61,039 ) Net change in interest-bearing deposits 1,000 500 (2,500 ) Proceeds from liquidation of other real estate owned — 235 1,268 Maturities of securities available-for-sale 21,759 21,254 29,757 Proceeds from sale of securities available-for-sale — 137,816 72,019 Purchase of securities available-for-sale (100,335 ) (112,000 ) (134,471 ) Purchase of Federal Home Loan Bank of Indianapolis stock (3,245 ) (2,407 ) — Purchase of premises and equipment (2,543 ) (915 ) (7,187 ) Loans purchased — (106,480 ) (83,265 ) Net cash used in investing activities (304,192 ) (186,693 ) (185,418 ) Financing Activities Net increase in deposits 197,456 85,503 142,404 Cash dividends paid (1,093 ) (1,080 ) (450 ) Net proceeds from issuance of subordinated debt and related warrants 9,761 — 3,000 Net proceeds from common stock issuance — — 29,101 Proceeds from advances from Federal Home Loan Bank 300,000 170,000 13,000 Repayment of advances from Federal Home Loan Bank (216,000 ) (95,000 ) (22,000 ) Other, net 23 (111 ) — Net cash provided by financing activities 290,147 159,312 165,055 Net (Decrease) Increase in Cash and Cash Equivalents (3,137 ) (25,401 ) 21,177 Cash and Cash Equivalents, Beginning of Year 28,289 53,690 32,513 Cash and Cash Equivalents, End of Year $ 25,152 $ 28,289 $ 53,690 Supplemental Disclosures of Cash Flows Information Cash paid during the year for interest $ 10,674 $ 8,933 $ 8,106 Cash paid during the year for taxes 3,793 2,346 770 Loans transferred to other real estate owned — — 581 Cash dividends declared, not paid 267 265 265 December 31, 2012 and 2011Dollar AmountsTabular dollar amounts in Thousandsthousands except per share data)Note 1:Summary of Significant Accounting Policies(Company)and its subsidiaries (the “Company”) conform to accounting principles generally accepted in the United States of America.America (“GAAP”). A summary of the Company’s significant accounting policies follows:was approved to consummateconsummated a plan of exchange on March 21, 2006, whereasby which the Company became a single-bankbank holding company withand 100% ownership inowner of First Internet Bank of Indiana (Bank)(the “Bank”).The Bank was incorporated on October 28, 1998, and was approved to accept FDIC-insured deposits on December 28, 1998. The Bank commenced operations to the public on February 22, 1999. World Wide Web (Internet)Internet at atwww.firstib.com and primarily through its corporate office located in Indianapolis, Indiana.Fishers, Indiana as well as a loan production office in Tempe, Arizona. The majority of the Bank’s income is derived from commercial lending, retail lending, activities and investments in securities.mortgage banking activities. The Bank is subject to competition from other financial institutions. The Bank is regulated by certain state and federal agencies and undergoes periodic examinations by those regulatory authorities.subsidiary.direct and indirect subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.accounting principles generally accepted in the United States of AmericaGAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company utilizes processes that involve the use of significant estimates and the judgment of management in determining the amount of the Company’s allowance for credit losses and income taxes, as well as fair value measurements of investment securities, derivatives, goodwill, and loans held-for-sale.Actual results could differ from those estimates. Estimates most susceptible to change in the near term include the allowance for loan losses and the fair value of securities available for sale.First Internet Bancorp Notes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)ŸSecurities that the Company has the positive intent and ability to hold to maturity are classified as “securities held to maturity” and reported at amortized cost.ŸSecurities that are acquired and held principally for the purpose of selling them in the near term with the objective of generating economic profits on short-term differences in market characteristics are classified as “securities held for trading” and reported at fair value, with unrealized gains and losses included in earnings.ŸSecurities not classified as either held to maturity or trading securities are classified as “securities available for sale” and reported at fair value, with unrealized gains and losses, after applicable taxes, excluded from earnings and reported in a separate component of shareholders’ equity. Declines in the value of debt securities and marketable equity securities that are considered to be other than temporary are recorded as an other-than-temporary impairment of securities available for sale with the unrealized losses recorded in the consolidated statements of operations.operationsincome for the period in which securities are sold or otherwise disposed of. Gains and losses on sales of securities are determined onusing the specific-identification method.Held for Salebased on the principal balance outstanding and is recognizedaccrued as earned onusing the interest method based on unpaid principal balances except for interest on loans in nonaccrual status. Interest on loans in nonaccrual status which is recorded as a reduction of loan principal when received.First Internet Bancorp Notes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)has the intent and abilityintends to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balance adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans, and unamortized premiums or discounts on purchased loans.ensure thatmaintain an adequate allowance for loan losses (“ALLL”) will be maintained.. Primary responsibility for ensuring that the Company has processes in place to consistently assess the adequacy of the ALLL rests with the Board.Board of Directors (the “Board”). The Board has charged the Chief Financial Officer (“CFO”)management with responsibility for establishing the methodology to be used and to assess the adequacy of the ALLL quarterly. Quarterly, theALLL. The Board will reviewreviews recommendations from the CFOmanagement on a quarterly basis to adjust the allowance as appropriate.the CFOmanagement for each portfolio segment, will, at a minimum, containcontains the following:1. Loans will beare segmented by type of loan.2. The required ALLL for types of performing homogeneous loans which do not have a specific reserve will beis determined by applying a factor based on historical losses averaged over the past 12twelve months. In those instances where the Company’s historical experience is not available, the CFO will developmanagement develops factors based on industry experience and best practices.3. All criticized, classified and impaired loans will beare tested for impairment by applying one of three methodologies:a. Present value of future cash flows; b. Fair value of collateral less costcosts to sell; orc. The loan’s observable market price 4. All troubled debt restructurings (“TDR”) are considered impaired loans. 5. Loans tested for impairment will beare removed from other pools to prevent layering (double-counting).6. The required ALLL for each group of loans will beare added together to determine the total required ALLL for the Company. The required ALLL will beis compared to the currentexisting ALLL to determine the provision required to increase the ALLL or credit to decrease the ALLL.First Internet Bancorp Notes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)is based onconsiders two weighted average net charge-off trends: 1) the actualCompany’s average loss history experienced by the Company over the prior 12 months.previous sixteen quarters; and 2) average loss history over the previous sixteen quarters for a peer group. Management believes the historical loss experience methodology is appropriate in the current economic environment, as it captures loss rates that are comparable to the current period being analyzed.Wefactorfactors in the following qualitative considerations:1. Changes in policies and procedures; 2. Changes in national, regional, and local economic and business conditions; 3. Changes in the composition and size of the portfolio and in the terms of loans; 4. Changes in the experience, ability, and depth of lending management and other relevant staff; 5. Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans; 6. Changes in the quality of the Company’s loan review system; 7. Changes in the value of underlying collateral for collateral-dependent loans; 8. The existence and effect of any concentration of credit and changes in the level of such concentrations; and 9. The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio. operationsincome based upon management’s evaluation of the potential losses. Such an evaluation, which includes a review of all loans for which full collectibilityrepayment may not be reasonably assured, considers, among other matters, the estimated net realizable value of the underlying collateral, as applicable, economic conditions, loan loss experience, and other factors that are particularly susceptible to changes that could result in a material adjustment in the near term. While management endeavorsattempts to use the best information available in making its evaluations, future allowance adjustments may be necessary if economic conditions change substantially from the assumptions used in making the evaluations.ASC Topic 310,Receivables, requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loans effective interest rates or the fair value of the underlying collateral and allows existing methods for recognizing interest income.First Internet Bancorp Notes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)hasfor which the full collection of principal and interest may be in doubt will be considered for nonaccrual status. At the time a loan is placed on nonaccrual status, all accrued but unpaid interest will be reversed from interest income. Placing the loan on nonaccrual status does not relieve the borrower of the obligation to repay interest. A loan placed on nonaccrual status may be restored to accrual status when all delinquent principal and interest has been brought current, and the Company expects full payment of the remaining contractual principal and interest.insignificant delays generally not exceeding 90 days outstanding are not considered impaired. Certain nonaccrual and substantially all delinquent loans more than 90 days past due may be considered to be impaired. Generally, loans are placed on nonaccrual status at 90 days past due and accrued interest is reversed against earnings, unless the loan is well-secured and in the process of collection. The accrual of interest on impaired and nonaccrual loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due.(TDR) use the current fair value of the collateral, less selling costs for collateral dependent loans. If it is determined that the value of the modified loan is less than the recorded balance of the loan, impairment is recognized through a specific allowanceALLL or charge-off to the allowance.ALLL. In periods subsequent to modification, all TDRs, including those that have payment defaults, are evaluated for possible impairment, and impairment is recognized through the allowance.December 31, 2012 and 2011Dollar AmountsTabular dollar amounts in Thousandsthousands except per share data)collectablecollected within the parameters of policy. A secured loan generally should be charged off to the estimated fair value of the collateral, less costs to sell, no later than when it is 120 days past due as to principal or interest. An unsecured loan generally should be charged off no later than when it is 180 days past due as to principal or interest. All charge-offs are approved by the Chief Credit Review Committee.(FHLB)(“FHLB”) of Indianapolis StockRealallowance for loan losses.ALLL. Any subsequent deterioration of the property is charged directly to operating expense. Costs relating to the development and improvement of other real estate owned are capitalized, whereas costs relating to holding and maintaining the property are charged to expense as incurred. The Company has $3,666$1,512 of real estate owned as of December 31, 2012Equipment2011, respectively.EquipmentEquipmentequipment is stated at cost, less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives, which range from three to five years.Level 1 Quoted prices in active markets for identical assets or liabilities December 31, 2012 and 2011Dollar AmountsTabular dollar amounts in Thousandsthousands except per share data)Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities Indianaother state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local examinations by tax authorities for years before 2008.areis based on the weighted-average number of basic shares and dilutive shares outstanding during the year.computations for the years ended December 31, 2012 and 2011: 2012 2011 Basic earnings per share Weighted-average common shares 1,912,910 1,906,289 Diluted earnings per share Weighted-average common shares 1,912,910 1,906,289 Dilutive effect of stock compensation — — Dilutive effect of stock options — — Weighted-average common and incremental shares 1,912,910 1,906,289 Number of stock options excluded from the calculation of earnings per share as the options' exercise prices were greater than the average market price of the Company's common stock — 90,000 Year Ended December 31, 2015 2014 2013 Basic earnings per share Net income available to common shareholders $ 8,929 $ 4,324 $ 4,593 Weighted-average common shares 4,528,528 4,497,007 3,041,666 Basic earnings per common share $ 1.97 $ 0.96 $ 1.51 Diluted earnings per share Net income available to common shareholders $ 8,929 $ 4,324 $ 4,593 Weighted-average common shares 4,528,528 4,497,007 3,041,666 Dilutive effect of warrants 10,665 2,895 5,933 Dilutive effect of equity compensation 15,026 8,093 2,402 Weighted-average common and incremental shares 4,554,219 4,507,995 3,050,001 Diluted earnings per common share $ 1.96 $ 0.96 $ 1.51 Number of warrants excluded from the calculation of diluted earnings per share as the exercise prices were greater than the average market price of the Company’s common stock during the year — — — December 31, 2012 and 2011Dollar AmountsTabular dollar amounts in Thousandsthousands except per share data)Dividend RestrictionsBanking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the Company or by the Company to shareholders. As of December 31, 2012 and 2011 approximately $14,737 and $6,693 was available to be paid as dividends to the Company by the Bank.At December 31, 2012, the employee compensation plan using the fair value recognition provisions of ASC Topic 718,Compensation - Stock Based Compensation. The plan is described more fully in Note 9. Accumulated other comprehensive income (loss) at December 31, 2012 and 2011 is solely related to unrealized gains and losses on investment securities.First Internet BancorpNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)Current Economic ConditionsThe current protracted economic uncertainty continues to present financial institutions with circumstances and challenges which in some cases have resulted in large declines in the fair values of investments and other assets, constraints on liquidity and significant credit quality problems. Due to national, state and local economic conditions, values for commercial and development real estate have declined significantly, and the market for these properties is slowly recovering. The accompanying consolidated financial statements have been prepared using values and information currently available to the Company. Given the volatility of current economic conditions, the values of assets and liabilities recorded in the consolidated financial statements could change rapidly, resulting in material future adjustments in asset values, the allowance for loan losses and capital that could negatively impact the Company’s ability to meet regulatory capital requirements and maintain sufficient liquidity. Furthermore, the Company’s regulators could require material adjustments to asset values or the allowance for loan losses for regulatory capital purposes that could affect the Company’s measurement of regulatory capital and compliance with the capital adequacy guidelines under the regulatory framework for prompt corrective action.20112014 and 2013 financial statements to conform to the 20122015 financial statement presentation. These reclassifications had no effect on net income.Note 2:Cash and Cash EquivalentsPursuant to legislation enacted in 2010, the FDIC fully insured all noninterest-bearing transaction accounts beginning December 31, 2010, through December 31, 2012, at all FDIC-insured institutions. This legislation expired on December 31, 2012. Beginning January 1, 2013, noninterest-bearing transaction accounts are subject to the $250,000 limit on FDIC insurance per covered institution.2012,2015, the Company’s interest-bearing cash accounts at other institutions did not exceed federally insured limits. Additionally,the limits for full FDIC insurance coverage. However, approximately $1$1.9 million and $29,629$22.2 million of cash iswas held by the FHLB of Indianapolis and Federal Reserve Bank of Chicago, respectively, which isare not federally insured.20122015 was $94.December 31, 2012 and 2011Dollar AmountsTabular dollar amounts in Thousandsthousands except per share data)Note 3:Securities20122015 and 20112014 are as follows: 2012 Amortized Gross Unrealized Fair Cost Gains Losses Value (Unaudited) Securities available for sale U.S. government-sponsored enterprises $ 18,666 $ 953 $ (1 ) $ 19,618 Municipals 39,999 2,685 (144 ) 42,540 Mortgage-backed and asset-backed securities – government-sponsored enterprises 75,782 1,884 (177 ) 77,489 Mortgage-backed and asset-backed securities – private labeled 2,696 17 (260 ) 2,453 Other securities 16,753 105 (2,265 ) 14,593 Total available for sale $ 153,896 $ 5,644 $ (2,847 ) $ 156,693 2011 Amortized Gross Unrealized Fair Cost Gains Losses Value Securities available for sale U.S. government-sponsored enterprises $ 24,685 $ 817 $ — $ 25,502 Municipals 40,849 2,290 (378 ) 42,761 Mortgage-backed and asset-backed securities – government-sponsored enterprises 67,354 2,456 (20 ) 69,790 Mortgage-backed and asset-backed securities – private labeled 5,850 56 (461 ) 5,445 Other securities 8,648 41 (2,917 ) 5,772 Total available for sale $ 147,386 $ 5,660 $ (3,776 ) $ 149,270 First Internet Bancorp Notes to Consolidated Financial StatementsDecember 31, 2012 and 2011 December 31, 2015 Amortized Gross Unrealized Fair Cost Gains Losses Value Securities available-for-sale U.S. Government-sponsored agencies $ 38,093 $ 139 $ (482 ) $ 37,750 Municipal securities 21,091 385 (7 ) 21,469 Mortgage-backed securities 113,948 110 (1,006 ) 113,052 Asset-backed securities 19,444 — (83 ) 19,361 Corporate securities 20,000 — (913 ) 19,087 Other securities 3,000 — (21 ) 2,979 Total available for sale $ 215,576 $ 634 $ (2,512 ) $ 213,698 December 31, 2014 Amortized Gross Unrealized Fair Cost Gains Losses Value Securities available-for-sale U.S. Government-sponsored agencies $ 13,680 $ 129 $ (257 ) $ 13,552 Mortgage-backed securities 117,134 282 (368 ) 117,048 Asset-backed securities 4,913 — (1 ) 4,912 Other securities 2,000 6 — 2,006 Total available for sale $ 137,727 $ 417 $ (626 ) $ 137,518 (Dollar Amounts in Thousands except per share data)20122015 is shown below by their contractual maturity date. Actual maturities will differ because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Available for Sale Amortized Fair Cost Value Within one year $ 2,805 $ 2,867 One to five years 16,487 16,568 Five to ten years 12,908 13,392 After ten years 43,218 43,924 75,418 76,751 Mortgage-backed and asset-backed securities – government-sponsored enterprises 75,782 77,489 Mortgage-backed and asset-backed securities – private labeled 2,696 2,453 Totals $ 153,896 $ 156,693 Available for Sale Amortized
Cost Fair
ValueWithin one year $ — $ — One to five years 487 451 Five to ten years 25,358 24,935 After ten years 53,339 52,920 79,184 78,306 Mortgage-backed securities 113,948 113,052 Asset-backed securities 19,444 19,361 Other securities 3,000 2,979 Totals $ 215,576 $ 213,698 $56$0, $2.7 million, and $98,$0.5 million and gross realized losses of $8$0, $2.2 million, and $14$0.5 million resulting from sales of available-for-sale securities were realizedrecognized during the twelve months ended December 31, 2015, 2014, and 2013, respectively.2012various types of transactions, including FHLB advances and 2011, respectively.20122015 and 20112014 was $41,986$166.1 million and $20,239,$86.9 million, which is approximately 27%78% and 14%63%, respectively, of the Company’s available-for-sale investmentsecurities portfolio. These declines primarily resulted from fluctuations in market interest rates after purchase.First Internet Bancorp Notes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)Except as discussed below, managementandwith the resulting loss recognized in net income in the period the other-than-temporary impairment (“OTTI”) is identified.Company’s investments’securities portfolio’s gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 20122015 and 2011: 2012 Less Than 12 Months 12 Months or Longer Total Fair Unrealized Fair Unrealized Fair Unrealized Value Losses Value Losses Value Losses Securities available for sale: U.S. government-sponsored enterprises $ — $ — $ 119 $ (1 ) $ 119 $ (1 ) Municipals 470 (4 ) 2,618 (140 ) 3,088 (144 ) Mortgage-backed and asset-backed securities - government-sponsored enterprises 28,505 (177 ) — — 28,505 (177 ) Mortgage-backed and asset-backed securities – private labeled — — 1,504 (260 ) 1,504 (260 ) Other securities 5,947 (53 ) 2,823 (2,212 ) 8,770 (2,265 ) $ 34,922 $ (234 ) $ 7,064 $ (2,613 ) $ 41,986 $ (2,847 ) 2011 Less Than 12 Months 12 Months or Longer Total Fair Unrealized Fair Unrealized Fair Unrealized Value Losses Value Losses Value Losses Securities available for sale: Municipals $ 221 $ (2 ) $ 4,687 $ (376 ) $ 4,908 $ (378 ) Mortgage-backed and asset-backed securities - government-sponsored enterprises 8,229 (20 ) — — 8,229 (20 ) Mortgage-backed and asset-backed securities – private labeled — — 2,871 (461 ) 2,871 (461 ) Other securities 3,761 (239 ) 470 (2,678 ) 4,231 (2,917 ) $ 12,211 $ (261 ) $ 8,028 $ (3,515 ) $ 20,239 $ (3,776 ) First Internet Bancorp Notes to Consolidated Financial StatementsDecember 31, 2012 December 31, 2015 Less Than 12 Months 12 Months or Longer Total Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
LossesSecurities available-for-sale U.S. Government-sponsored agencies $ 18,289 $ (237 ) $ 8,537 $ (245 ) $ 26,826 $ (482 ) Municipal securities 1,026 (7 ) — — 1,026 (7 ) Mortgage-backed securities 74,198 (562 ) 22,655 (444 ) 96,853 (1,006 ) Asset-backed securities 19,361 (83 ) — — 19,361 (83 ) Corporate securities 19,087 (913 ) — — 19,087 (913 ) Other securities 2,979 (21 ) — — 2,979 (21 ) $ 134,940 $ (1,823 ) $ 31,192 $ (689 ) $ 166,132 $ (2,512 ) December 31, 2014 Less Than 12 Months 12 Months or Longer Total Securities available-for-sale U.S. Government-sponsored agencies $ 801 $ (10 ) $ 8,719 $ (247 ) $ 9,520 $ (257 ) Mortgage-backed securities 51,204 (57 ) 21,237 (311 ) 72,441 (368 ) Asset-backed securities 4,912 (1 ) — — 4,912 (1 ) $ 56,917 $ (68 ) $ 29,956 $ (558 ) $ 86,873 $ (626 ) 2011(Dollar Amounts in Thousands except per share data)Municipalssecuritiesorganizations and corporate entities were caused by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments, and it is not more likely than notthat the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other than temporarilyother-than-temporarily impaired at December 31, 2012.investmentinvestments in mortgage-backed and asset-backed securities were caused by interest rate changes. The Company expects to recover the amortized cost basisbases over the term of the securities. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments, and it is not more likely than notthat the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other than temporarilyother-than-temporarily impaired at December 31, 2012.Company’s unrealized losslosses on the Company’s investments in other securities is primarily made up of two investments. The first investment is a $2,000 parwere caused by the investment in I-PreTSL I B-2 pooled trust security. The unrealized loss was primarily caused by a sector downgrade by several industry analysts. The Company currently expects to recover the entire amortized cost basis of the investment. The determination of no credit loss was calculated by comparing expected discounted cash flows based on performance indicators of the underlying assets in the security to the carrying value of the investment.Community Reinvestment Act Qualified Fund. Because the Company does not intend to sell the investment and it is not more likely than notthat the Company will be required to sell the investment before recovery of its amortized cost basis, which may be maturity, itthe Company does not consider the remainder of thethis investment to be other than temporarilyother-than-temporarily impaired at December 31, 2012. The second investment is discussed in the next section.First Internet Bancorp Notes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)Other-Than-Temporary ImpairmentThe Company routinely conducts periodic reviews to identify and evaluate investment securities to determine whether an other-than-temporary impairment has occurred. Economic models are used to determine whether an other-than-temporary impairment has occurred on these securities.An other-than-temporary impairment has been recognized on a $2,000 par investment in ALESCO IV Series B2 pooled trust security. The unrealized loss was primarily caused by (a) a decrease in performance and (b) a sector downgrade by several industry analysts. The Company currently expects ALESCO IV to settle the security at a price less than the contractual amount of the investment (that is, the Company expects to recover less than the entire amortized cost basis of the security). The Company has recognized a loss equal to the credit loss, establishing a new, lower amortized cost basis. The credit loss was calculated by comparing expected discounted cash flows based on performance indicators of the underlying assets in the security to the carrying value of the investment. Because the Company does not intend to sell the investment and it is not more likely than not the Company will be required to sell the investment before recovery of its new, lower amortized cost basis, which may be maturity, it does not consider the remainder of the investment in ALESCO IV to be other than temporarily impaired at December 31, 2012.For identified mortgage-backed securities in the investment portfolio, an extensive, quarterly review is conducted to determine if an other-than-temporary impairment has occurred. Various inputs to the economic models are used to determine if an unrealized loss is other than temporary. The most significant inputs are voluntary prepay rates, default rates, liquidation rates and loss severity.To determine if the unrealized loss for mortgage-backed securities is other than temporary, the Company projects total estimated defaults of the underlying assets (mortgages) and multiplies that calculated amount by an estimate of realizable value upon sale in the marketplace (severity) in order to determine the projected collateral loss. The Company also evaluates the current credit enhancement underlying the bond to determine the impact on cash flows. If the Company determines that a given mortgage-backed security position will be subject to a write-down or loss, the Company records the expected credit loss as a charge to earnings.The credit losses recognized in earnings during the years ended December 31, 2012 and 2011 were as follows: 2012 2011 ALESCO IV Series B2 $ 112 $ 132 I-PreTSL I B-2 – – Mortgage-backed and asset-backed securities – private labeled 140 494 $ 252 $ 626 First Internet Bancorp Notes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)as well as due toand other market factors, but are not otherwise other than temporarilyconsidered other-than-temporarily impaired. Accumulated
Credit Losses Credit losses on debt securities held January 1, 2011 $ 1,209 Additions related to increases in previously recognized other-than-temporary losses 626 December 31, 2011 1,835 Realized losses related to other-than-temporary impairments (350 ) Additions related to other-than-temporary losses not previously recognized 68 Additions related to increases in previously recognized other-than-temporary losses 184 December 31, 2012 $ 1,737 Accumulated Credit Losses Credit losses on debt securities held January 1, 2013 $ 1,737 Realized losses related to OTTI (603 ) Additions related to OTTI losses not previously recognized 31 Additions related to increases in previously recognized OTTI losses 18 December 31, 2013 1,183 Realized losses related to OTTI (1,139 ) Recoveries related to OTTI (44 ) December 31, 2014 $ — Details About Accumulated Other Comprehensive Loss Components 2014 2013 Unrealized gains and losses on securities available for sale Gain (loss) realized in earnings $ 538 $ (63 ) Gain (loss) on sale of securities OTTI losses recognized in earnings — (49 ) Other-than-temporary impairment loss recognized in net income Total reclassified amount before tax 538 (112 ) Income Before Income Taxes Tax expense (benefit) 191 (38 ) Income Tax Provision Total reclassifications out of accumulated other comprehensive loss $ 347 $ (74 ) Net Income Note 4:Loans Receivableat December 31, include: 2012 2011 Real estate loans Residential $ 128,815 $ 143,452 Commercial 84,918 43,507 Total real estate loans 213,733 186,959 Commercial loans 14,271 2,063 Consumer loans 126,486 142,783 Total loans 354,490 331,805 Deferred loan origination costs and premiums and discounts on purchased loans 3,671 3,421 Allowance for loan losses (5,833 ) (5,656 ) Total net loans $ 352,328 $ 329,570 First Internet Bancorp Notes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data) December 31, 2015 2014 Commercial loans Commercial and industrial $ 102,000 $ 77,232 Owner-occupied commercial real estate 44,462 34,295 Investor commercial real estate 16,184 22,069 Construction 45,898 24,883 Single tenant lease financing 374,344 192,608 Total commercial loans 582,888 351,087 Consumer loans Residential mortgage 214,559 220,612 Home equity 43,279 58,434 Other consumer 108,312 97,094 Total consumer loans 366,150 376,140 Total commercial and consumer loans 949,038 727,227 Deferred loan origination costs and premiums and discounts on purchased loans 4,821 5,199 Total loans receivable 953,859 732,426 Allowance for loan losses (8,351 ) (5,800 ) Net loans receivable $ 945,508 $ 726,626 Real Estate: These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Industrial: Commercial real estate lending typically involves higher loan principal amounts, and theindustrial loans’ source of repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of property type and geographic location. Management monitors and evaluates commercial real estate loans based on property financial performance, collateral value and other risk grade criteria. As a general rule, the Company avoids financing special use projects or properties outside of its designated marketing areas unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate loans versus nonowner occupied loans.Commercial: Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value. Loans are made for working capital, equipment purchases, or other purposes. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made onguarantee.unsecured basis. Inaffiliate of the case of loansborrower, who owns the property. This portfolio is generally concentrated in the Central Indiana and greater Phoenix, Arizona markets and often times is secured by accounts receivable,manufacturing and service facilities, as well as office buildings.availabilitycash flow expected to be generated from the property and are secondarily supported by the value of funds forthe real estate. These loans typically incorporate a personal guarantee. This portfolio typically involves higher loan principal amounts, and the repayment of these loans may be substantiallyis generally dependent on the abilitysuccessful operation of the property securing the loan or the business conducted on the property securing the loan. Investor commercial real estate loans may be more adversely affected by conditions in the real estate markets, changing industry dynamics, or the overall health of the general economy. The properties securing the Company’s investor commercial real estate portfolio tend to be diverse in terms of property type and are typically located in the state of Indiana and markets adjacent to Indiana. Management monitors and evaluates commercial real estate loans based on property financial performance, collateral value, guarantor strength, and other risk grade criteria. As a general rule, the Company avoids financing special use projects or properties outside of its designated market areas unless other underwriting factors are present to help mitigate risk.collect amounts due from its customers.and Consumer:Mortgage: With respect to residential loans that are secured by 1-4 family residences and are generally owner occupied, the Company generallytypically establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured, such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal incomefinancial circumstances of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in residential property values on residential properties.values. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers. Twelve Months Ended December 31, 2015 Commercial and industrial Owner-occupied commercial real estate Investor commercial real estate Construction Single tenant lease financing Residential mortgage Home equity Other consumer Total Allowance for loan losses: Balance, beginning of period $ 920 $ 345 $ 261 $ 330 $ 2,061 $ 985 $ 207 $ 691 $ 5,800 Provision (credit) charged to expense 447 131 (549 ) 170 1,870 (311 ) (83 ) 271 1,946 Losses charged off — — — — — (185 ) — (451 ) (636 ) Recoveries — — 500 — — 407 1 333 1,241 Balance, end of period $ 1,367 $ 476 $ 212 $ 500 $ 3,931 $ 896 $ 125 $ 844 $ 8,351 December 31, 2012 and 2011Dollar AmountsTabular dollar amounts in Thousandsthousands except per share data) Twelve Months Ended December 31, 2014 Commercial and industrial Owner-occupied commercial real estate Investor commercial real estate Construction Single tenant lease financing Residential mortgage Home equity Other consumer Total Allowance for loan losses: Balance, beginning of period $ 819 $ 290 $ 219 $ 277 $ 1,731 $ 1,008 $ 211 $ 871 $ 5,426 Provision (credit) charged to expense 115 55 (418 ) 53 330 186 (4 ) 32 349 Losses charged off (14 ) — — — — (247 ) — (596 ) (857 ) Recoveries — — 460 — — 38 — 384 882 Balance, end of period $ 920 $ 345 $ 261 $ 330 $ 2,061 $ 985 $ 207 $ 691 $ 5,800 Twelve Months Ended December 31, 2013 Commercial and industrial Owner-occupied commercial real estate Investor commercial real estate Construction Single tenant lease financing Residential mortgage Home equity Other consumer Total Allowance for loan losses: Balance, beginning of period $ 371 $ 352 $ 266 $ 336 $ 2,153 $ 946 $ 203 $ 1,206 $ 5,833 Provision (credit) charged to expense 378 (62 ) 191 (59 ) (422 ) 128 8 162 324 Losses charged off — — (238 ) — — (164 ) — (810 ) (1,212 ) Recoveries 70 — — — — 98 — 313 481 Balance, end of period $ 819 $ 290 $ 219 $ 277 $ 1,731 $ 1,008 $ 211 $ 871 $ 5,426 20122015 and 2011: 2012 Residential
Real Estate Commercial
Real Estate Commercial Consumer Total Allowance for loan losses: Balance, beginning of year $ 1,099 $ 2,485 $ 333 $ 1,739 $ 5,656 Provision charged to expense 411 2,086 (37 ) 392 2,852 Losses charged off (509 ) (1,464 ) — (1,438 ) (3,411 ) Recoveries 148 — 75 513 736 Balance, end of year 1,149 3,107 371 1,206 5,833 Ending balance: individually evaluated for impairment 206 682 — 54 942 Ending balance: collectively evaluated for impairment $ 943 $ 2,425 $ 371 $ 1,152 $ 4,891 Loans: Ending balance $ 128,815 $ 84,918 $ 14,271 $ 126,486 $ 354,490 Ending balance: individually evaluated for impairment 2,482 2,467 — 474 5,423 Ending balance: collectively evaluated for impairment $ 126,333 $ 82,451 $ 14,271 $ 126,012 $ 349,067 2011 Residential
Real Estate Commercial
Real Estate Commercial Consumer Total Allowance for loan losses: Balance, beginning of year $ 2,135 $ 1,292 $ 608 $ 2,810 $ 6,845 Provision charged to expense (366 ) 1,891 318 597 2,440 Losses charged off (811 ) (698 ) (612 ) (2,296 ) (4,417 ) Recoveries 141 — 19 628 788 Balance, end of year 1,099 2,485 333 1,739 5,656 Ending balance: individually evaluated for impairment 93 1,329 — 52 1,474 Ending balance: collectively evaluated for impairment $ 1,006 $ 1,156 $ 333 $ 1,687 $ 4,182 Loans: Ending balance $ 143,452 $ 43,507 $ 2,063 $ 142,783 $ 331,805 Ending balance: individually evaluated for impairment 1,693 7,634 — 499 9,826 Ending balance: collectively evaluated for impairment $ 141,759 $ 35,873 $ 2,063 $ 142,284 $ 321,979 December 31, 2015 Commercial and industrial Owner-occupied commercial real estate Investor commercial real estate Construction Single tenant lease financing Residential mortgage Home equity Other consumer Total Loans: $ 102,000 $ 44,462 $ 16,184 $ 45,898 $ 374,344 $ 213,426 $ 43,279 $ 108,163 $ 947,756 — — — — — 1,133 — 149 1,282 Ending balance $ 102,000 $ 44,462 $ 16,184 $ 45,898 $ 374,344 $ 214,559 $ 43,279 $ 108,312 $ 949,038 Allowance for loan losses: $ 1,367 $ 476 $ 212 $ 500 $ 3,931 $ 896 $ 125 $ 844 $ 8,351 — — — — — — — — — Ending balance $ 1,367 $ 476 $ 212 $ 500 $ 3,931 $ 896 $ 125 $ 844 $ 8,351 December 31, 2014 Commercial and industrial Owner-occupied commercial real estate Investor commercial real estate Construction Single tenant lease financing Residential mortgage Home equity Other consumer Total Loans: $ 77,232 $ 34,295 $ 21,982 $ 24,883 $ 192,608 $ 219,473 $ 58,434 $ 96,789 $ 725,696 — — 87 — — 1,139 — 305 1,531 Ending balance $ 77,232 $ 34,295 $ 22,069 $ 24,883 $ 192,608 $ 220,612 $ 58,434 $ 97,094 $ 727,227 Allowance for loan losses: $ 920 $ 345 $ 261 $ 330 $ 2,061 $ 985 $ 207 $ 676 $ 5,785 — — — — — — — 15 15 Ending balance $ 920 $ 345 $ 261 $ 330 $ 2,061 $ 985 $ 207 $ 691 $ 5,800 December 31, 2012 and 2011Dollar AmountsTabular dollar amounts in Thousandsthousands except per share data)8.9. A description of the general characteristics of the 8nine risk grades is as follows:·Grades 1 & 2 These grades are assigned to loans with very high credit quality borrowers of investment or near investment grade or where the loan is primarily secured by cash or conservatively margined high quality marketable securities. These borrowers are generally publicly traded, have significant capital strength, possess investment grade public debt ratings, demonstrate low leverage, exhibit stable earnings and growth and have ready access to various financing alternatives.·Grades 3 & 4 - Loans assigned these grades include loans to borrowers possessing solid credit quality with acceptable risk. Borrowers in these grades are differentiated from higher grades on the basis of size (capital and/or revenue), leverage, asset quality, stability of the industry or specific market area and quality/coverage of collateral. These borrowers generally have a history of consistent earnings and reasonable leverage.·Grade 5 - This grade includes “pass grade” loans to borrowers which require special monitoring because of deteriorating financial results, declining credit ratings, decreasing cash flow, increasing leverage, marginal collateral coverage or industry stress that has resulted or may result in a changing overall risk profile.·Grade 6 - This grade is for “Special Mention” loans in accordance with regulatory guidelines. This grade is intended to include loans to borrowers whose credit quality has clearly deteriorated and where risk of further decline is possible unless active measures are taken to correct the situation. Weaknesses are considered potential at this state and are not yet fully defined.·Grade 7 - This grade includes “Substandard” loans in accordance with regulatory guidelines. Loans categorized in this grade possess a well-defined credit weakness, and the likelihood of repayment from the primary source is uncertain. Significant financial deterioration has occurred, and very close attention is warranted to ensure the full repayment without loss. Collateral coverage may be marginal, and the accrual of interest has been suspended.·Grade 8 - This grade includes “Doubtful” loans in accordance with regulatory guidelines. Such loans have been placed on nonaccrual status and may be heavily dependent upon collateral possessing a value that is difficult to determine or based upon some near-term event which lacks clear certainty. These loans have all of the weaknesses of those classified as Substandard; however, based on existing conditions, these weaknesses make full collection of the principal balance highly improbable.First Internet Bancorp Notes to Consolidated Financial Statementsdetermine or based upon some near-term event which lacks clear certainty. These loans have all of the weaknesses of those classified as Substandard; however, based on existing conditions, these weaknesses make full collection of the principal balance highly improbable.December 31, 20122011(Dollar Amounts in Thousands except per share data)20122015 and 2011: 2012 Commercial
Real Estate Commercial Rating: 1-5 Pass $ 80,830 $ 13,860 6 Special Mention 1,621 411 7 Substandard 2,467 — 8 Doubtful — — Total $ 84,918 $ 14,271 2012 Residential
Real Estate Consumer Performing $ 127,426 $ 126,331 Nonperforming (nonaccrual) 1,389 155 Total $ 128,815 $ 126,486 2011 Commercial
Real Estate Commercial Rating: 1-5 Pass $ 34,172 $ 1,541 6 Special Mention 1,700 522 7 Substandard 7,635 — 8 Doubtful — — Total $ 43,507 $ 2,063 2011 Residential
Real Estate Consumer Performing $ 142,576 $ 142,559 Nonperforming (nonaccrual) 876 224 Total $ 143,452 $ 142,783 December 31, 2015 Commercial and industrial Owner-occupied commercial real estate Investor commercial real estate Construction Single tenant lease financing Total Rating: 1-5 Pass $ 95,589 $ 43,913 $ 14,746 $ 45,599 $ 374,344 $ 574,191 6 Special Mention 2,006 535 — 299 — 2,840 7 Substandard 4,405 14 1,438 — — 5,857 8 Doubtful — — — — — — Total $ 102,000 $ 44,462 $ 16,184 $ 45,898 $ 374,344 $ 582,888 December 31, 2015 Residential mortgage Home equity Other consumer Total Performing $ 214,456 $ 43,279 $ 108,248 $ 365,983 Nonaccrual 103 — 64 167 Total $ 214,559 $ 43,279 $ 108,312 $ 366,150 December 31, 2012 and 2011Dollar AmountsTabular dollar amounts in Thousandsthousands except per share data) December 31, 2014 Commercial and industrial Owner-occupied commercial real estate Investor commercial real estate Construction Single tenant lease financing Total Rating: 1-5 Pass $ 77,232 $ 34,278 $ 20,478 $ 24,504 $ 192,608 $ 349,100 6 Special Mention — — — 379 — 379 7 Substandard — 17 1,591 — — 1,608 8 Doubtful — — — — — — Total $ 77,232 $ 34,295 $ 22,069 $ 24,883 $ 192,608 $ 351,087 December 31, 2014 Residential mortgage Home equity Other consumer Total Performing $ 220,587 $ 58,434 $ 96,971 $ 375,992 Nonaccrual 25 — 123 148 Total $ 220,612 $ 58,434 $ 97,094 $ 376,140 agingdelinquencies analysis as of December 31, 20122015 and 2011: 2012 30-59
Days
Past Due 60-89
Days
Past Due 90 Days
or More
Past Due Total
Past Due Current Total
Loans
Receivable Nonaccrual
Loans Total Loans
90 Days or
More Past Due
and Accruing (Unaudited) Real estate loans Residential $ 130 $ 5 $ 1,555 $ 1,690 $ 127,125 $ 128,815 $ 1,389 $ 450 Commercial — — 2,362 2,362 82,556 84,918 2,362 — Commercial — — — — 14,271 14,271 — — Consumer 1,025 148 122 1,295 125,191 126,486 155 21 Total $ 1,155 $ 153 $ 4,039 $ 5,347 $ 349,143 $ 354,490 $ 3,906 $ 471 2011 30-59
Days
Past Due 60-89
Days
Past Due 90 Days
or More
Past Due Total
Past Due Current Total
Loans
Receivable Nonaccrual
Loans Total Loans
90 Days or
More Past Due
and Accruing Real estate loans Residential $ 1,376 $ 121 $ 666 $ 2,163 $ 141,289 $ 143,452 $ 876 $ 75 Commercial — — 7,523 7,523 35,984 43,507 7,523 — Commercial — — — — 2,063 2,063 — — Consumer 1,709 213 206 2,128 140,655 142,783 224 56 Total $ 3,085 $ 334 $ 8,395 $ 11,814 $ 319,991 $ 331,805 $ 8,623 $ 131 A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16) when, based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. December 31, 2015 Current Total commercial and consumer loans Commercial and industrial $ 29 $ — $ — $ 29 $ 101,971 $ 102,000 $ — $ — Owner-occupied commercial real estate — — — — 44,462 44,462 — — Investor commercial real estate — — — — 16,184 16,184 — — Construction — — — — 45,898 45,898 — — Single tenant lease financing — — — — 374,344 374,344 — — Residential mortgage 300 23 45 368 214,191 214,559 103 — Home equity 20 — — 20 43,259 43,279 — — Other consumer 116 12 — 128 108,184 108,312 64 — Total $ 465 $ 35 $ 45 $ 545 $ 948,493 $ 949,038 $ 167 $ — December 31, 2014 Current Total commercial and consumer loans Commercial and industrial $ — $ — $ — $ — $ 77,232 $ 77,232 $ — $ — Owner-occupied commercial real estate — — — — 34,295 34,295 — — Investor commercial real estate — — — — 22,069 22,069 87 — Construction — — — — 24,883 24,883 — — Single tenant lease financing — — — — 192,608 192,608 — — Residential mortgage 161 — 57 218 220,394 220,612 25 57 Home equity — — — — 58,434 58,434 — — Other consumer 249 56 53 358 96,736 97,094 123 4 Total $ 410 $ 56 $ 110 $ 576 $ 726,651 $ 727,227 $ 235 $ 61 December 31, 2012 and 2011Dollar AmountsTabular dollar amounts in Thousandsthousands except per share data)20122015 and 2011: 2012 Recorded
Balance Unpaid
Principal
Balance Specific
Allowance Average
Balance Interest
Income Loans without a specific valuation allowance Residential real estate loans $ 2,047 $ 2,357 $ — $ 1,685 $ 29 Commercial real estate loans — — — 275 — Commercial loans — — — — — Consumer loans 380 577 — 385 — Total 2,427 2,934 — 2,345 29 Loans with a specific valuation allowance Residential real estate loans 435 442 206 514 — Commercial real estate loans 2,467 2,925 682 6,089 6 Commercial loans — — — — — Consumer loans 94 206 54 93 — Total 2,996 3,573 942 6,696 6 Total impaired loans Residential real estate loans 2,482 2,799 206 2,199 29 Commercial real estate loans 2,467 2,925 682 6,364 6 Commercial loans — — — — — Consumer loans 474 783 54 478 — Total $ 5,423 $ 6,507 $ 942 $ 9,041 $ 35 December 31, 2015 December 31, 2014 Recorded
Balance Unpaid
Principal
Balance Specific
Allowance Recorded
Balance Unpaid
Principal
Balance Specific
AllowanceLoans without a specific valuation allowance Investor commercial real estate $ — $ — $ — $ 87 $ 87 $ — Residential mortgage 1,133 1,154 — 1,139 1,146 — Other consumer 149 178 — 268 338 — Total 1,282 1,332 — 1,494 1,571 — Loans with a specific valuation allowance Residential mortgage — — — — — — Other consumer — — — 37 51 15 Total — — — 37 51 15 Total impaired loans $ 1,282 $ 1,332 $ — $ 1,531 $ 1,622 $ 15 Twelve Months Ended December 31, 2015 December 31, 2014 December 31, 2013 Average
Balance Interest
Income Average
Balance Interest
Income Average
Balance Interest
IncomeLoans without a specific valuation allowance Investor commercial real estate $ 21 $ 2 $ 666 $ 5 $ 239 $ — Residential mortgage 1,112 8 1,266 32 1,894 29 Other consumer 193 16 380 37 315 28 Total 1,326 26 2,312 74 2,448 57 Loans with a specific valuation allowance Investor commercial real estate — — — — 1,617 5 Residential mortgage 15 — — — 66 3 Other consumer 13 1 40 4 78 2 Total 28 1 40 4 1,761 10 Total impaired loans $ 1,354 $ 27 $ 2,352 $ 78 $ 4,209 $ 67 December 31, 2015 2014 Land $ 2,500 $ 2,500 Building and improvements 4,636 3,018 Furniture and equipment 6,164 5,277 Less: accumulated depreciation (4,779 ) (3,734 ) $ 8,521 $ 7,061 December 31, 2012 and 2011Dollar AmountsTabular dollar amounts in Thousandsthousands except per share data) 2011 Recorded
Balance Unpaid
Principal
Balance Specific
Allowance Average
Balance Interest
Income Loans without a specific valuation allowance Residential real estate loans $ 1,328 $ 1,529 $ — $ 902 $ — Commercial real estate loans — — — 220 — Commercial loans — — — 208 — Consumer loans 388 612 — 239 — Total 1,716 2,141 — 1,569 — Loans with a specific valuation allowance Residential real estate loans 365 373 93 1,193 — Commercial real estate loans 7,634 8,096 1,329 4,721 6 Commercial loans — — — 645 — Consumer loans 111 131 52 290 1 Total 8,110 8,600 1,474 6,849 7 Total impaired loans Residential real estate loans 1,693 1,902 93 2,095 — Commercial real estate loans 7,634 8,096 1,329 4,941 6 Commercial loans — — — 853 — Consumer loans 499 743 52 529 1 Total $ 9,826 $ 10,741 $ 1,474 $ 8,418 $ 7 In the course of working with troubled borrowers, the Company may choose to restructure the contractual terms of certain loans in an effort to work out an alternative payment schedule with the borrower in order to optimize the collectability of the loan. Any loan modified is reviewed by the Company to identify if a troubled debt restructuring has occurred, which is when the Company grants a concession to the borrower that it would not otherwise consider based on economic or legal reasons related to a borrower’s financial difficulties. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status or the loan may be restructured to secure additional collateral and/or guarantees to support the debt, or a combination of the two.First Internet BancorpNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)Loans classified as a troubled debt restructuring during the years ended December 31, 2012 and 2011 are shown in the tables below. These modifications consisted primarily of interest rate and maturity date concessions. 2012 Modifications Number Recorded
Balance
Before Recorded
Balance
After Real estate loans: Commercial — $ — $ — Residential 1 29 29 Commercial loans — — — Consumer loans 8 140 122 Total 9 $ 169 $ 151 2011 Modifications Number Recorded
Balance
Before Recorded
Balance
After Real estate loans: Commercial — $ — $ — Residential 3 751 751 Commercial loans — — — Consumer loans 11 196 123 Total 14 $ 947 $ 874 First Internet BancorpNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)Troubled debt restructured loans which had payment defaults during the years ended December 31, 2012 and 2011 are shown in the tables below. Default occurs when a loan is 90 days or more past due or transferred to nonaccrual within 12 months of restructuring. 2012 Number
of
Defaults Recorded
Balance Real estate loans: Commercial — $ — Residential 1 29 Commercial loans and leases — — Consumer loans 1 20 Total 2 $ 49 2011 Number
of
Defaults Recorded
Balance Real estate loans: Commercial — $ — Residential 2 285 Commercial loans and leases — — Consumer loans 6 45 Total 8 $ 330 First Internet BancorpNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)tables summarize loan modifications that occurred duringtable shows the years ended December 31, 2012 and 2011: 2012 Payment Extension Principal Reduction Rate Reduction Number Amount Number Amount Number Amount Real estate loans: Commercial – $ – – $ – – $ – Residential 1 29 – – – – Commercial loans – – – – – – Consumer loans 3 16 2 28 3 78 Total 4 $ 45 2 $ 28 3 $ 78 2011 Payment Extension Principal Reduction Rate Reduction Number Amount Number Amount Number Amount Real estate loans: Commercial – $ – – $ – – $ – Residential 3 751 – – – – Commercial loans – – – – – – Consumer loans 4 36 2 29 5 58 Total 7 $ 787 2 $ 29 5 $ 58 Principal reductions were made based on orders from a bankruptcy court. Payment extensions and rate reductions have proven to be successful in optimizing the overall collectability of the loan by increasing the period of time that the borrower is able to make required payments to the Company.Note 5:EquipmentEquipment included in other assets at December 31, 2012 and 2011 consists of the following: 2012 2011 Furniture and equipment $ 3,521 $ 3,460 Less accumulated depreciation (2,728 ) (2,667 ) $ 793 $ 793 First Internet BancorpNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)Note 6:GoodwillThe change in the carrying amount of goodwill for the twothree years ended December 31, 2012 was:Balance as of January 1, 2011 $ 4,687 Changes in goodwill during the year — Balance as of December 31, 2011 4,687 Changes in goodwill during the year — Balance as of December 31, 2012 $ 4,687 Note 7:DepositsBalance as of January 1, 2013 $ 4,687 Changes in goodwill during the year — Balance as of December 31, 2013 4,687 Changes in goodwill during the year — Balance as of December 31, 2014 4,687 Changes in goodwill during the year — Balance as of December 31, 2015 $ 4,687 at 20122015 and 2011 are2014. December 31, 2015 2014 Noninterest-bearing demand deposit accounts $ 23,700 $ 21,790 Interest-bearing demand deposit accounts 84,241 74,238 Regular savings accounts 22,808 20,776 Money market accounts 341,732 267,046 Certificates of deposits 470,736 361,202 Brokered deposits 12,837 13,546 Total deposits $ 956,054 $ 758,598 Certificates of deposit in the amount of $250 or more $ 117,335 $ 66,226 follows: 2012 2011 Regular savings accounts $ 11,583 $ 7,773 Noninterest-bearing demand deposit accounts 13,187 15,870 Interest-bearing demand deposit accounts 73,660 64,006 Money market accounts 202,388 165,561 Total transaction accounts 300,818 253,210 Certificates of deposits 211,542 209,762 Brokered deposits 18,490 23,898 Premiums on brokered deposits (159 ) (205 ) Total deposits $ 530,691 $ 486,665 Certificates of deposit in the amount of $100 or more totaled approximately $133,570 and $124,929 at 2012 and 2011, respectively.A summary of certificate accounts by scheduled maturities at December 31, 2012 is as follows:2013 $ 78,853 2014 36,209 2015 40,194 2016 60,222 2017 12,016 Thereafter 2,538 $ 230,032 2016 $ 287,724 2017 87,297 2018 48,461 2019 11,933 2020 48,158 Thereafter — $ 483,573 December 31, 2012 and 2011Dollar AmountsTabular dollar amounts in Thousandsthousands except per share data)Note 8:FHLB Advanceshashad outstanding FHLB advances of $40,686$191.0 million and $40,573$106.9 million as of December 31, 20122015 and 2011,2014, respectively. Advances, atAs of December 31, 2015, the interest rates on the Company’s outstanding FHLB advances ranged from 0.490.00% to 4.57 percent at December 31, 2012, are subject to restrictions or penalties in the event4.22%, with a weighted average interest rate of prepayment. The0.81%. All advances are collateralized by mortgage loans pledged and held by the Company and investment securities pledged by the Company and held in safekeeping with the FHLB. Mortgage loans pledged were approximately $0$186.4 million and $5,806$212.6 million as of December 31, 20122015 and 2011,2014, respectively, and the fair value of investment securities pledged to the FHLB was approximately $49,523$148.7 million and $53,117$128.2 million as of December 31, 20122015 and 2011,2014, respectively. Amount 2013 $ 19,000 2014 5,000 2015 11,000 2016 3,000 Thereafter 3,000 41,000 Deferred prepayment penalties on advance restructure (314 ) $ 40,686 Amounts advanced totaling $10,000 are subject Amount 2016 $ 83,000 2017 — 2018 3,000 2019 — 2020 50,000 Thereafter 55,000 191,000 Deferred prepayment penalties on advance restructure (43 ) $ 190,957 anmature on April 17, 2020. The advance will convert from a variable rate of 3-month LIBOR minus 0.75% to a fixed rate equal to 1.0525% on April 18, 2016. The FHLB has the option forto put the advance prior to its scheduled maturity date. If the advance is put by the FHLB, the Company has the option to convert the entire advance to a periodic adjustable rate one year after the date of the advance. If the FHLB exercises its optionrequest to convert the advance to an adjustable rate advance of predetermined index for the remaining term to maturity, at the FHLB’s discretion.pre-payableprepayable without a fee at the Company’s option at paron the exercise date. If the Company requests to convert the advance to an adjustable rate after the FHLB has put the advance, the Company may prepay the advance without a fee on any subsequent quarterly reset date.fee.Note 9:Benefit Plans December 31, 2015 December 31, 2014 Principal Unamortized Discount and Debt Issuance Costs Principal Unamortized Discount and Debt Issuance Costs 8.00% subordinated debenture, due 2021 $ 3,000 (42 ) 3,000 (127 ) 6.4375% subordinated notes, due 2025 10,000 (234 ) — — Total $ 13,000 (276 ) 3,000 (127 ) defined.defined in the plan. Employee contributions are limited to the maximum established by the Internal Revenue Service on an annual basis. The Company has elected to match contributions equal to 100% of the first 1% of employee deferrals and then 50% on deferrals over 1% up to a maximum of 6% of an individual’s total eligible salary, as defined byin the plan. Employer-matching contributions begin vesting after one year at a rate of 50% per year of employment and are fully vested after the completion of two years of service.employment. Contributions totaled approximately $0.3 million in each year duringof the yearstwelve months ended December 31, 20122015, 2014, and 2011, totaled approximately $214 and $137, respectively.First Internet BancorpNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)Agreementsagreementsagreement with certain officersits Chief Executive Officer that provideprovides for the continuation of salary and certain benefits for a specified period of time under certain conditions. Under the terms of the agreements,agreement, these payments could occur in the event of a change in control of the Company, as defined in the agreement, along with other specific conditions.Stock OptionsCompany has a qualified2013 Equity Incentive Plan (“2013 Plan”) authorizes the issuance of up to 750,000 shares of the Company’s common stock option planin the form of equity-based awards to employees, directors, and other eligible persons. Under the terms of the 2013 Plan, the pool of shares available for Directorsissuance may be used for available types of equity awards under the 2013 Plan, which includes stock options, stock appreciation rights, restricted stock awards, stock unit awards, and keyother share-based awards. All employees, consultants, and advisors of the Company (Stock Option Plan) and has reserved 400,000 shares of common stock that may be issued pursuant to the Stock Option Plan. The option exercise price per share is the fair value of a share on the date of grant, and the stock options become exercisable in a series of three equal and successive annual installments, with the first one-third vesting at the end of one year measured from the grant dateor any subsidiary, as well as all non-employee directors of the option. Each option grant expires within ten years ofCompany, are eligible to receive awards under the grant date. The options are nontransferable and are forfeited upon termination of employment.The following is an analysis of activity in the Stock Option Plan for the period ended December 31, 2012 and the stock options outstanding at the end of the year: 2012 Weighted- Weighted- Average Average Remaining Life Shares Exercise Price (In Years) Outstanding, beginning of year 90,000 $ 19.38 Expired (90,000 ) 19.38 Outstanding, end of year — — — Exercisable, end of year — — — December 31, 2012 and 2011Dollar AmountsTabular dollar amounts in Thousandsthousands except per share data) Restricted Stock Units Weighted-Average Grant Date Fair Value Per Share Restricted Stock Awards Weighted-Average Grant Date Fair Value Per Share Deferred Stock Units Weighted-Average Grant Date Fair Value Per Unit Nonvested at January 1, 2015 — $ — 20,777 $ 25.09 — $ — Granted 31,089 18.90 46,988 16.69 10 19.72 Vested — — (37,070 ) 20.18 (10 ) 19.72 Forfeited (2,787 ) 18.89 (3,166 ) 18.02 — — Nonvested at December 31, 2015 28,302 $ 18.90 27,529 $ 18.17 — $ — Thehas adoptedhad a stock compensation plan for non-employee members of the Board of Directors (Directors(“Directors Deferred Stock Plan)Plan”). The Company has reserved 120,000180,000 shares of common stock that may becould have been issued pursuant to the Directors Deferred Stock Plan. During 2011, this amount was increased from 60,000 shares. The plan providesprovided directors the option to elect to receive up to 100% of their annual retainer in either common stock or deferred stock rights. Monthly meeting fees are paidDeferred stock rights were to be settled in cash. The deferredcommon stock right isfollowing the end of the deferral period payable to the director on the basis of one share of common sharestock for each deferred stock right. Director compensation totaled $144 and $108 in 2012 and 2011, respectively,which $95 and $60 in 2012 and 2011, respectively, were paid in either common stock or deferred stock rights. The common stock and deferred stock rights are granted on January 1 at fair value and vestexpense related to awards made from January 1st until December 31st.the Directors Deferred Stock Plan. The Company recognizesrecognized compensation expense ratably over the vesting period based upon the fair value of the stock on the grant date.is an analysistable summarizes the status of deferred stock rights and common stock related to the Directors Deferred Stock Plan for the year ended December 31, 2012:2015:DeferredCommon Deferred Rights SharesOutstanding, beginning of year 80,528 37,629Granted 1,165 9,247Exercised — Outstanding, end of year 81,693 46,876Note 10:Income Taxes(credit)(benefit) for income taxes consists of the following: 2012 2011 Current $ 2,385 $ 1,711 Deferred (191 ) (938 ) Total $ 2,194 $ 773 First Internet BancorpNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data) December 31, 2015 2014 2013 Current $ 4,293 $ 3,655 $ (693 ) Deferred 443 (1,529 ) 2,259 Total $ 4,736 $ 2,126 $ 1,566 (credit)(benefit) is reconciled to the 34% statutory rate applied to pre-tax income as follows: 2012 2011 Statutory rate times pre-tax income $ 2,652 $ 1,346 Add (subtract) the tax effect of: Income from tax-exempt securities (533 ) (525 ) State income tax, net of federal tax effect 36 31 Bank-owned life insurance (129 ) (99 ) Other differences 168 20 Total income taxes $ 2,194 $ 773 December 31, 2015 2014 2013 Statutory rate times pre-tax income $ 4,646 $ 2,193 $ 2,094 Add (subtract) the tax effect of: Income from tax-exempt securities (132 ) (31 ) (514 ) State income tax, net of federal tax effect 154 63 33 Bank-owned life insurance (137 ) (132 ) (135 ) Other differences 205 33 88 Total income taxes $ 4,736 $ 2,126 $ 1,566 2012 2011 Deferred tax assets (liabilities) Allowance for loan losses $ 2,042 $ 1,995 Unrealized gain on available for sale securities (979 ) (664 ) Other than temporarily impaired securities 415 432 Mark to market adjustments 371 17 Depreciation (267 ) (260 ) Deferred compensation 460 409 Deferred loan origination fees (109 ) (59 ) Prepaid assets (92 ) (89 ) Other 237 421 Total deferred tax assets, net $ 2,078 $ 2,202 First Internet BancorpNotes to Consolidated Financial Statements December 31, 2015 2014 2013 Deferred tax assets (liabilities) Allowance for loan losses $ 2,980 $ 2,073 $ 1,930 Unrealized loss on available for sale securities 670 75 1,310 Fair value adjustments (925 ) (117 ) (1,840 ) Depreciation (573 ) (590 ) (270 ) Deferred compensation 262 262 510 Loan origination costs (704 ) (288 ) (209 ) Prepaid assets (247 ) (207 ) (205 ) Accrued payroll 697 458 155 Other 204 546 536 Total deferred tax assets, net $ 2,364 $ 2,212 $ 1,917 December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)Note 11:Related Party TransactionsAt December 31, 2012 and 2011, certain directors, executive officers and/or companies in which these individuals had a 10% or more beneficial ownership were indebted toas follows: 2012 2011 Beginning balance $ 50 $ 241 New loans 3 — Repayments (2 ) (191 ) Ending balance $ 51 $ 50 and other extensions of credit, and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management’s opinion, these loans did not involve more than normal risk of collectibilitycollectability or present other unfavorable features.20122015 and 20112014 totaled $14,646$9.8 million and $10,353,$13.7 million, respectively.The Company’s card processing services are provided by OneBridge, which is controlled by a shareholder of the Company. Total expenses incurred relatedcard processing provided by OneBridge during the years ended December 31, 2012 and 2011, were approximately $109 and $128, respectively.Consolidated Financial StatementsNote 12:Regulatory Capital Requirementsisand the Bank are subject to various regulatory capital requirements administered by state and federal banking regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capitalCapital adequacy guidelines and, the regulatory frameworkadditionally for banks, prompt corrective action the Company must meet specific capital guidelines thatregulations, involve quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capitalCapital amounts and classificationclassifications are also subject to qualitative judgments by the regulators about components, risk weightingsweighting and other factors. Furthermore,Company’s regulators could require adjustmentsCompany and the Bank on January 1, 2015, subject to regulatory capital not reflected in these consolidated financial statements.First Internet BancorpNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)that have been established by regulationthe Basel III Capital Rules to ensure capital adequacy require the Company to maintainmaintenance of minimum capital amounts and ratios (set forth in the table below) of total andCommon Equity Tier 1 capital, (asTier 1 capital and Total capital, as defined in the regulations)regulations, to risk-weighted assets, (as defined) and of Tier 1 capital (as defined) to adjusted quarterly average assets (as defined)(“Leverage Ratio”).To be categorized as well capitalized,must maintainand the Bank to maintain: 1) a minimum total risk-based,ratio of Common Equity Tier 1 risk-based andcapital to risk-weighted assets of 4.5%, plus a 2.5% “capital conservation buffer” (resulting in a minimum ratio of Common Equity Tier 1 leveragecapital to risk-weighted assets of 7.0% upon full implementation); 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% upon full implementation); 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% upon full implementation); and 4) a minimum Leverage Ratio of 4.0%. set forth in the table. As of December 31, 2012, the most recent notification from the FDIC categorized2015 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 December 31, 2015 based on the phase-in provisions of the Basel III Capital Rules and the minimum required capital levels as of January 1, 2019 when the Basel III Capital Rules have been fully phased-in. 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. Actual Minimum Capital Required - Basel III Phase-In Schedule Minimum Capital Required - Basel III Fully Phased-In Minimum Required to be Considered Well Capitalized Capital Amount Ratio Capital Amount Ratio Capital Amount Ratio Capital Amount Ratio As of December 31, 2015: Common equity tier 1 capital to risk-weighted assets Consolidated $ 100,839 10.11 % $ 44,881 4.50 % $ 69,815 7.00 % N/A N/A Bank 104,434 10.50 % 44,768 4.50 % 69,639 7.00 % 64,664 6.50 % Tier 1 capital to risk-weighted assets Consolidated 100,839 10.11 % 59,842 6.00 % 84,776 8.50 % N/A N/A Bank 104,434 10.50 % 59,690 6.00 % 84,561 8.50 % 79,587 8.00 % Total capital to risk-weighted assets Consolidated 122,190 12.25 % 79,789 8.00 % 104,723 10.50 % N/A N/A Bank 112,785 11.34 % 79,587 8.00 % 104,458 10.50 % 99,484 10.00 % Leverage ratio Consolidated 100,839 8.28 % 48,713 4.00 % 48,713 4.00 % N/A N/A Bank 104,434 8.59 % 48,636 4.00 % 48,636 4.00 % 60,796 5.00 % framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Company’s categories. Minimum to be Minimum Well Capitalized Capital Under Prompt Actual Requirement Corrective Actions Amount Ratio Amount Ratio Amount Ratio As of December 31, 2012: Total capital (to risk-weighted assets) Consolidated $ 60,701 11.0 % $ 44,286 8.0 % N/A N/A Bank 59,893 10.8 % 44,263 8.0 % $ 55,329 10.0 % Tier 1 capital (to risk-weighted assets) Consolidated 54,844 9.9 % 22,143 4.0 % N/A N/A Bank 54,036 9.8 % 22,132 4.0 % 33,198 6.0 % Tier 1 capital (to average assets) Consolidated 54,844 8.9 % 24,667 4.0 % N/A N/A Bank 54,036 8.8 % 24,653 4.0 % 30,817 5.0 % As of December 31, 2011: Total capital (to risk-weighted assets) Consolidated $ 55,088 12.4 % $ 35,530 8.0 % N/A N/A Bank 53,793 12.2 % 35,425 8.0 % $ 44,281 10.0 % Tier 1 capital (to risk-weighted assets) Consolidated 49,516 11.2 % 17,765 4.0 % N/A N/A Bank 48,237 10.9 % 17,712 4.0 % 26,569 6.0 % Tier 1 capital (to average assets) Consolidated 49,516 8.7 % 22,660 4.0 % N/A N/A Bank 48,237 8.5 % 22,603 4.0 % 28,254 5.0 % Actual Amount Ratio Amount Ratio Amount Ratio As of December 31, 2014: Tier 1 capital to risk-weighted assets Consolidated $ 92,233 12.55 % $ 29,388 4.00 % N/A N/A Bank 83,377 11.38 % 29,300 4.00 % 43,950 6.00 % Total capital to risk-weighted assets Consolidated 101,033 13.75 % 58,777 8.00 % N/A N/A Bank 89,177 12.17 % 58,600 8.00 % 73,250 10.00 % Leverage ratio Consolidated 92,233 9.87 % 37,381 4.00 % N/A N/A Bank 83,377 8.94 % 37,303 4.00 % 46,629 5.00 % Note 13:Commitments and Credit Risk20122015 and 2011,2014, the Company had outstanding loan commitments totaling approximately $33,598$131.9 million and $23,840,$110.4 million, respectively.First Internet BancorpNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)2011,2015, the Company leased its office facilityfacilities under anvarious operating lease expiring July 2018. As of December 31, 2012, the Companyleases. The leases its office facility under an amended operating lease expiring January 2021. The lease ismay be subject to additional rentalspayments based on building operating costs and property taxes in excess of specified amounts. The Company recorded rental expense for all operating leases of $0.5 million, $0.5 million, and $0.5 million for the years ended December 31, 2015, 2014, and 2013 respectively. Future minimum cash lease payments are as follows: Amount 2013 $ 473 2014 492 2015 501 2016 509 2017 518 Thereafter 1,648 $ 4,141 Amount 2016 $ 557 2017 517 2018 526 2019 534 2020 542 Thereafter 92 $ 2,768 Note 14:Fair Value of Financial InstrumentsLevel 1 Quoted prices in active markets for identical assets or liabilitiesLevel 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilitiesLevel 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilitiesLevel 1 Quoted prices in active markets for identical assets or liabilities Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities First Internet BancorpNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)government-sponsored enterprises,Government-sponsored agencies, mortgage and asset-backed securities, state and obligations of state, municipalsmunicipal securities, and certain corporate securities. Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities.hierarchy and include certain other securities.hierarchy. Fair values are calculated using discounted cash flows. Discounted cash flows are calculated based off of the anticipated future cash flows updated to incorporate loss severities and volatility.severities. Rating agency and industry research reports as well as default and deferral activity are reviewed and incorporated into the calculation.securities available for saleassets and liabilities recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 20122015 and 2011: 2012 Fair Value Measurements Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Fair Assets Inputs Inputs Value (Level 1) (Level 2) (Level 3) U.S. government-sponsored enterprises $ 19,618 $ — $ 19,618 $ — Municipals 42,540 — 42,540 — Mortgage-backed and asset-backed securities - government-sponsored enterprises 77,489 — 77,489 — Mortgage-backed and asset-backed securities - private labeled 2,453 — 2,453 — Other securities 14,593 1,553 12,200 840 $ 156,693 $ 1,553 $ 154,300 $ 840 December 31, 2015 Fair Value Measurements Using U.S. Government-sponsored agencies $ 37,750 $ — $ 37,750 $ — Municipal securities 21,469 — 21,469 — Mortgage-backed securities 113,052 — 113,052 — Asset-backed securities 19,361 — 19,361 — Corporate securities 19,087 — 19,087 — Other securities 2,979 2,979 — — Total available for sale securities $ 213,698 $ 2,979 $ 210,719 $ — Loans held-for-sale (mandatory pricing agreements) 24,065 — 24,065 — Forward contracts 30 30 — — IRLCs 582 — — 582 December 31, 2012 and 2011Dollar AmountsTabular dollar amounts in Thousandsthousands except per share data) 2011 Fair Value Measurements Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Fair Assets Inputs Inputs Value (Level 1) (Level 2) (Level 3) U.S. government-sponsored enterprises $ 25,502 $ — $ 25,502 $ — Municipals 42,761 — 42,761 — Mortgage-backed and asset-backed securities - government-sponsored enterprises 69,790 — 69,790 — Mortgage-backed and asset-backed securities - private labeled 5,445 — 5,445 — Other securities 5,772 1,541 3,761 470 $ 149,270 $ 1,541 $ 147,259 $ 470 December 31, 2014 Fair Value Measurements Using U.S. Government-sponsored agencies $ 13,552 $ — $ 13,552 $ — Mortgage-backed securities 117,048 — 117,048 — Asset-backed securities 4,912 — 4,912 — Other securities 2,006 2,006 — — Total available for sale securities $ 137,518 $ 2,006 $ 135,512 $ — Loans held-for-sale (mandatory pricing agreements) 32,618 — 32,618 — Forward contracts (405 ) (405 ) — — IRLCs 521 — — 521 Securities
Available for Sale Balance, January 1, 2011 $ 454 Total realized and unrealized gains and losses Included in net income (132 ) Included in other comprehensive loss 148 Balance, December 31, 2011 470 Total realized and unrealized gains and losses Included in net income (112 ) Included in other comprehensive loss 482 Balance, December 31, 2012 $ 840 First Internet Bancorp Notes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)Following is a description of Securities
Available-for-Sale Interest Rate
Lock
CommitmentsBalance as of January 1, 2013 $ 840 $ — Total realized gains Included in net income — 79 Included in other comprehensive income (loss) 833 — Balance, December 31, 2013 1,673 79 Total realized gains (losses) Included in net income (259 ) 442 Included in other comprehensive income 1,333 — Sales (2,747 ) — Balance, December 31, 2014 — 521 Total realized gains Included in net income — 61 Balance, December 31, 2015 $ — $ 582 and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.The following tables present the fair value measurements ofrecognized in the accompanying consolidated balance sheetsthat were measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2012 and 2011: 2012 Fair Value Measurements Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Fair Assets Inputs Inputs Value (Level 1) (Level 2) (Level 3) Impaired loans $ 1,481 $ — $ — $ 1,481 2011 Fair Value Measurements Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Fair Assets Inputs Inputs Value (Level 1) (Level 2) (Level 3) Impaired loans $ 7,309 $ — $ — $ 7,309 First Internet BancorpNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data) Fair Value at December 31,
2012 Valuation
Technique Unobservable
Inputs Weighted
Average Collateral dependent impaired loans $ 1,481 Market comparable properties Marketability discount 12 % Fair Value at December 31,
2011 Valuation
Technique Unobservable
Inputs Weighted
Average Collateral dependent impaired loans $ 7,309 Market comparable properties Marketability discount 20 % Fair Value at
December 31, 2015 Valuation
Technique Unobservable
Inputs Range IRLCs $ 582 Discounted cash flow Loan closing rates 43% - 100% Fair Value at
December 31, 2014 Valuation
Technique Unobservable
Inputs Range IRLCs $ 521 Discounted cash flow Loan closing rates 40% - 95% Loans Held For Saleamount approximates fair value.First Internet Bancorp Notes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)and savings and NOWmoney market accounts is the amount payable as of the reporting date.approximates carrying value. The fair value of fixed maturity certificates of deposit isand brokered deposits are estimated using rates currently offered for deposits of similar remaining maturities.FHLB First Internet Bancorp Notes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)20122015 and 2011.20122015 and 2011: 2012 Fair Value Measurements Using Quoted Prices In Active Significant Market for Other Significant Identical Observable Unobservable Carrying Assets Inputs Inputs Amount (Level 1) (Level 2) (Level 3) Cash and cash equivalents $ 32,513 $ 32,513 $ — $ — Loans held for sale 63,234 — 63,234 — Loans receivable - net 352,328 — — 351,194 Accrued interest receivable 2,196 2,196 — — FHLB stock 2,943 2,943 — — Deposits 530,691 300,818 — 236,375 FHLB advances 40,686 — 42,986 — Accrued interest payable 120 120 — — 2011 Fair Value Measurements Using Quoted Prices In Active Significant Market for Other Significant Identical Observable Unobservable Carrying Assets Inputs Inputs Amount (Level 1) (Level 2) (Level 3) Cash and cash equivalents $ 34,778 $ 34,778 $ — $ — Loans held for sale 45,091 — 45,091 — Loans receivable - net 329,570 — — 322,557 Accrued interest receivable 2,129 2,129 — — FHLB stock 2,943 2,943 — — Deposits 486,665 253,210 — 240,482 FHLB advances 40,573 — 43,526 — Accrued interest payable 120 120 — — December 31, 2015 Fair Value Measurements Using Cash and cash equivalents $ 25,152 $ 25,152 $ — $ — Interest-bearing time deposits 1,000 1,000 — — Loans held-for-sale (best efforts pricing agreements) 12,453 — 12,453 — Loans receivable 953,859 — — 967,303 Accrued interest receivable 4,105 4,105 — — Federal Home Loan Bank of Indianapolis stock 8,595 — 8,595 — Deposits 956,054 472,481 — 478,360 Advances from Federal Home Loan Bank 190,957 — 188,126 — Subordinated debt 12,724 — 13,212 — Accrued interest payable 117 117 — — December 31, 2012 and 2011Dollar AmountsTabular dollar amounts in Thousandsthousands except per share data)Note 15:Condensed Financial Information (Parent Company Only) December 31, 2014 Fair Value Measurements Using Cash and cash equivalents $ 28,289 $ 28,289 $ — $ — Interest-bearing time deposits 2,000 2,000 — — Loans held-for-sale (best efforts pricing agreements) 2,053 — 2,053 — Loans receivable 732,426 — — 733,538 Accrued interest receivable 2,833 2,833 — — Federal Home Loan Bank of Indianapolis stock 5,350 — 5,350 — Deposits 758,598 383,847 — 377,067 Advances from Federal Home Loan Bank 106,897 — 107,743 — Subordinated debt 2,873 — 3,094 — Accrued interest payable 97 97 — — Year Ended December 31, 2015 2014 2013 Gain on loans sold $ 8,845 $ 5,048 $ 8,379 (Loss) gain resulting from the change in fair value of loans held-for-sale (341 ) 751 (4 ) Gain (loss) resulting from the change in fair value of derivatives 496 (190 ) 307 Net revenue from mortgage banking activities $ 9,000 $ 5,609 $ 8,682 December 31, 2015 December 31, 2014 Notional
Amount Fair
Value Notional
Amount Fair
ValueAsset Derivatives Derivatives not designated as hedging instruments IRLCs $ 28,444 $ 582 $ 29,967 $ 521 Forward contracts 42,743 30 — — Liability Derivatives Derivatives not designated as hedging instruments Forward contracts $ — $ — $ 55,102 $ (405 ) Amount of gain / (loss) recognized in the twelve months ended December 31, 2015 December 31, 2014 December 31, 2013 Asset Derivatives Derivatives not designated as hedging instruments IRLCs $ 61 $ 442 $ 79 Forward contracts 435 — 227 Liability Derivatives Derivatives not designated as hedging instruments Forward contracts $ — $ (632 ) $ — Company: December 31, 2012 2011 Assets Cash and cash equivalents $ 782 $ 152 Investment in common stock of subsidiaries 60,542 54,144 Other assets 283 1,292 Total assets $ 61,607 $ 55,588 Liabilities and Equity Other liabilities $ 257 $ 165 Shareholders’ equity 61,350 55,423 Total liabilities and equity $ 61,607 $ 55,588 Condensed Statements of Income Years Ended
December 31, 2012 2011 Income Dividends from subsidiaries $ 250 $ — Total income 250 — Expenses Loss on asset disposal — 368 Other expenses 484 258 Total expenses 484 626 Loss Before Income Tax and Equity in Undistributed Net Income of Subsidiaries (234 ) (626 ) Income Tax Benefit (41 ) (221 ) Loss Before Equity in Undistributed Net Income of Subsidiaries (193 ) (405 ) Equity in Undistributed Net Income of Subsidiaries 5,799 3,591 Net Income $ 5,606 $ 3,186 Year Ended December 31, 2015 2014 Assets Cash and cash equivalents $ 6,860 $ 10,056 Investment in common stock of subsidiaries 107,925 87,929 Premises and equipment, net 5,793 4,542 Accrued income and other assets 750 1,678 Total assets $ 121,328 $ 104,205 Liabilities and Shareholders’ Equity Subordinated debt, net of unamortized discounts and debt issuance costs of $276 and $127 in 2015 and 2014, respectively $ 12,724 $ 2,873 Note payable to the Bank 4,000 4,000 Accrued expenses and other liabilities 274 547 Total liabilities 16,998 7,420 Shareholders’ equity 104,330 96,785 Total liabilities and shareholders’ equity $ 121,328 $ 104,205 December 31, 2012 and 2011Dollar AmountsTabular dollar amounts in Thousandsthousands except per share data) Year Ended December 31, 2015 2014 2013 Income Dividends from subsidiaries $ — $ — $ 500 Total income — — 500 Expenses Interest on borrowings 643 498 307 Salaries and employee benefits 425 298 320 Consulting and professional fees 930 777 859 Premises and equipment 200 239 87 Other 174 206 231 Total expenses 2,372 2,018 1,804 Loss Before Income Tax and Equity in Undistributed Net Income of Subsidiaries (2,372 ) (2,018 ) (1,304 ) Income Tax Benefit (813 ) (756 ) (596 ) Loss Before Equity in Undistributed Net Income of Subsidiaries (1,559 ) (1,262 ) (708 ) Equity in Undistributed Net Income of Subsidiaries 10,488 5,586 5,301 Net Income $ 8,929 $ 4,324 $ 4,593 Years Ended
December 31, 2012 2011 Net income $ 5,606 $ 3,186 Other comprehensive income Net unrealized holding gains on securities available for sale 2,161 6,567 Reclassification adjustment for gains realized (48 ) (84 ) Net unrealized holding losses on securities available for sale for which an other-than-temporary impairment has been recognized in income (1,452 ) (2,036 ) Reclassification adjustment for other-than-temporary impairment loss recognized in income 252 626 Other comprehensive income before tax 913 5,073 Income tax provision 315 1,793 Other comprehensive income - net of tax 598 3,280 Comprehensive income $ 6,204 $ 6,466 Year Ended December 31, 2015 2014 2013 Net income $ 8,929 $ 4,324 $ 4,593 Other comprehensive income (loss) Net unrealized holding gains (losses) on securities available for sale (1,669 ) 3,260 (6,462 ) Reclassification adjustment for (gains) losses realized — (538 ) �� 63 Net unrealized holding gains (losses) on securities available for sale for which an other-than-temporary impairment has been recognized in income — 751 (129 ) Reclassification adjustment for other-than-temporary impairment loss recognized in income — — 49 Other comprehensive income (loss) before tax (1,669 ) 3,473 (6,479 ) Income tax provision (benefit) (595 ) 1,236 (2,289 ) Other comprehensive income (loss) - net of tax (1,074 ) 2,237 (4,190 ) Comprehensive income $ 7,855 $ 6,561 $ 403 Years Ended
December 31, 2012 2011 Operating Activities Net income $ 5,606 $ 3,186 Items not providing cash (4,604 ) (3,281 ) Net cash provided by (used in) operating activities 1,002 (95 ) Financing Activities Proceeds from stock issuance 107 — Cash dividends (479 ) — Net cash used in financing activities (372 ) — Net Increase (Decrease) in Cash and Cash Equivalents 630 (95 ) Cash and Cash Equivalents at Beginning of Year 152 247 Cash and Cash Equivalents at End of Year $ 782 $ 152 Year Ended December 31, 2015 2014 2013 Operating Activities Net income $ 8,929 $ 4,324 $ 4,593 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of subsidiaries (10,488 ) (5,586 ) (5,301 ) Depreciation and amortization 246 226 161 Share-based compensation expense 150 120 127 Net change in: Accrued income and other assets 958 (641 ) (433 ) Accrued expenses and other liabilities (275 ) (19 ) 44 Net cash used in operating activities (480 ) (1,576 ) (809 ) Investing Activities Capital contribution to the Bank (10,000 ) (5,000 ) (13,000 ) Purchase of premises and equipment (1,407 ) (160 ) (4,641 ) Net cash used in investing activities (11,407 ) (5,160 ) (17,641 ) Financing Activities Cash dividends paid (1,093 ) (1,080 ) (450 ) Net proceeds from issuance of subordinated debt and related warrants 9,761 — 3,000 Proceeds from loan from the Bank — — 4,000 Net proceeds from common stock issuance — — 29,101 Other, net 23 (111 ) — Net cash provided by (used in) financing activities 8,691 (1,191 ) 35,651 Net (Decrease) Increase in Cash and Cash Equivalents (3,196 ) (7,927 ) 17,201 Cash and Cash Equivalents at Beginning of Year 10,056 17,983 782 Cash and Cash Equivalents at End of Year $ 6,860 $ 10,056 $ 17,983 December 31, 2012 and 2011Dollar AmountsTabular dollar amounts in Thousandsthousands except per share data) Three Months Ended December 31,
2015 September 30,
2015 June 30,
2015 March 31,
2015Income Statement Data: Interest income $ 11,594 $ 10,536 $ 10,130 $ 9,187 Interest expense 3,026 2,697 2,558 2,413 Net interest income 8,568 7,839 7,572 6,774 Provision for loan losses 746 454 304 442 Net interest income after provision for loan losses 7,822 7,385 7,268 6,332 Noninterest income 2,143 2,374 2,476 3,148 Noninterest expense 6,492 6,207 6,327 6,257 Income before income taxes 3,473 3,552 3,417 3,223 Income tax provision 1,195 1,229 1,152 1,160 Net income $ 2,278 $ 2,323 $ 2,265 $ 2,063 Per Share Data: Net income Basic $ 0.50 $ 0.51 $ 0.50 $ 0.46 Diluted $ 0.50 $ 0.51 $ 0.50 $ 0.46 Weighted average common shares outstanding Basic 4,534,910 4,532,360 4,529,823 4,516,776 Diluted 4,580,353 4,574,455 4,550,034 4,523,246 Three Months Ended December 31,
2014 September 30,
2014 June 30,
2014 March 31,
2014Income Statement Data: Interest income $ 8,623 $ 7,947 $ 7,612 $ 7,033 Interest expense 2,248 2,274 2,239 2,167 Net interest income 6,375 5,673 5,373 4,866 Provision (credit) for loan losses 387 (112 ) (73 ) 147 Net interest income after provision (credit) for loan losses 5,988 5,785 5,446 4,719 Noninterest income 2,098 1,943 1,622 1,511 Noninterest expense 5,879 5,785 5,560 5,438 Income before income taxes 2,207 1,943 1,508 792 Income tax provision 742 661 531 192 Net income $ 1,465 $ 1,282 $ 977 $ 600 Per Share Data: Net income Basic $ 0.33 $ 0.29 $ 0.22 $ 0.13 Diluted $ 0.32 $ 0.28 $ 0.22 $ 0.13 Weighted average common shares outstanding Basic 4,499,316 4,497,762 4,496,219 4,494,670 Diluted 4,514,505 4,511,291 4,504,302 4,501,705 Note 16:Recent Accounting PronouncementsIn2011,15, 2015. This Update will be applied retrospectively to all periods presented, beginning after December 15, 2015. Early adoption was permitted. The Company adopted this Update during the FASB issued ASU 2011-11. twelve months ended December 31, 2015 and has included the required disclosures in this annual report on Form 10-K.objectiveamendments in this Update defer the effective date of Update 2014-09 for all entities by one year. Update 2014-09 provides a five-step model for revenue recognition that all industries will apply to recognize revenue when a customer obtains control of a good or service. Public business entities should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Adoption of this Update is not expected to provide enhanced disclosureshave a significant effect on the Company’s consolidated financial statements.will enable users ofan acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquirer record, in the same period’s financial statements, to evaluate the effect on earnings of changes in depreciation, amortization, or potentialother income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years and should be implemented using the prospective method. Adoption of this Update is not expected to have a significant effect on the Company’s consolidated financial statements.netting arrangements onFinancial Assets and Financial Liabilities (January 2016)entity’s financial position. This includes the effect or potential effect of rights of setoff associated with an entity’s recognized assets and recognized liabilitiesinvestee are not included within the scope of this Update. The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The amendments also require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section 815-10-45. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.On July 27, 2012, the FASB released ASU 2012-02. investments.will allowalso simplify the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period. That impairment assessment is similar to the qualitative assessment for long-lived assets, goodwill, and indefinite-lived intangible assets. Upon determining that impairment exists, an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Under these amendments, an entity would not be required toshould calculate the fair value of that investment and recognize as an indefinite-lived intangible asset unlessimpairment in net income any amount by which the entity determines, based on qualitative assessment, that it is not more likely than not,carrying value exceeds the indefinite-lived intangible asset is impaired. fair value of the investment.include a numberin this Update require public business entities that are required to disclose fair value of events and circumstancesfinancial instruments measured at amortized cost on the balance sheet to measure that fair value using the exit price notion consistent with Topic 820, Fair Value Measurement. This change to GAAP eliminates the entry price method previously used by some entities for disclosure purposes for some financial assets. Previously, GAAP permitted entities an option to measure fair value in two different ways.considerpresent separately in conductingother comprehensive income the qualitative assessment. portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option. That presentation addresses financial statement users’ feedback that presenting the total change in fair value of a liability in net income reduced the decision usefulness of an entity’s net income when it had a deterioration in its credit worthiness. This amendment excludes from net income gains or losses that the entity may not realize because those financial liabilities are not usually transferred or settled at their fair values before maturity. for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity's financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The Company has adopted the methodologies prescribed by this ASU by the date required, and the ASU did not have a material effect on its financial position or results of operations.On August 27, 2012, the FASB released ASU 2012-03. This Update amends various SEC paragraphs pursuant to SAB 114, SEC Release No. 33-9250, and ASU 2010-22, which amend or rescind portions of certain SAB Topics. These amendments are presented in two sections – Amendments to the FASB Accounting Standards Codification® and Amendments to the XBRL Taxonomy. The Company has adopted the methodologies prescribed by this ASU, and the ASU did not have a material effect on its financial position or results of operations.First Internet Bancorp Notes to Consolidated Financial StatementsDecember 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)On October 1, 2012, the FASB released ASU 2012-04. The amendments in this Update make technical corrections, clarifications, and limited-scope improvements to various topics throughout the Codification. These amendments are presented in two sections—Technical Corrections and Improvements and Conforming Amendments Related to Fair Value Measurements. The amendments in this Update that will not have transition guidance will be effective upon issuance for both public entities and nonpublic entities. For public entities, the amendments that are subject to the transition guidance will be effective for fiscal periods beginning after December 15, 2012. The Company has adopted2017, including interim periods within those fiscal years and should be implemented using the methodologies prescribed byprospective method. Adoption of this ASU for the period ended December 31, 2012, and the ASU did not have a material effect on its financial position or results of operations.In February 2013, the FASB issued ASU 2013-02 to improve the transparency of reporting reclassifications out of accumulated other comprehensive income. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the Update do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information required within this Update is already required to be disclosed elsewhere in the financial statements under United States Generally Accepted Accounting Principles (GAAP).The new amendments will require an organization to:·Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income–but only if the item reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period·Cross-reference to other disclosures currently required under GAAP for other reclassification items (that are not required under GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account instead of directly to income or expense.The amendments are effective for reporting periods beginning after December 15, 2012. The Company will adopt the methodologies prescribed by this ASU by the date required, and the ASU is not expected to have a materialsignificant effect on itsthe Company’s consolidated financial position or results of operations.December 31, 2012 and 2011Dollar AmountsTabular dollar amounts in Thousandsthousands except per share data)January 2013,February 2016, the FASB issued ASU 2013-01, which clarifies the scope of transactions that are subjectFinancial Accounting Standards Board amended its standards with respect to the disclosures about offsetting.accounting for leases. The Update clarifiesamended standard serves to replace all current GAAP guidance on this topic and requires that ordinary trade receivables and receivables are not inan operating lease be recognized by the scope of ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. Specifically, Update 2011-11 applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in FASB Accounting Standards Codification® or subject to a master netting arrangement or similar agreement. Issued in December 2011, Update 2011-11 was the result of a joint project with the International Accounting Standards Board. Its objective was to improve transparency and comparability between GAAP and International Financial Reporting Standards by requiring enhanced disclosures about financial instruments and derivative instruments that are either (1) offsetlessee on the statementbalance sheet as a “right-of-use” asset along with a corresponding liability representing the rent obligation. Key aspects of financial position or (2) subjectcurrent lessor accounting remain unchanged from existing guidance. This standard is expected to result in an enforceable master netting arrangement or similar agreement.increase to assets and liabilities recognized and, therefore, increase risk-weighted assets for regulatory capital purposes. The Board undertook this clarification project in response to concerns expressed by U.S. stakeholders aboutamended standard requires the standard’s broad definitionuse of financial instruments. After the modified retrospective transition approach for existing leases that have not expired before the date of initial application and will become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Earlier application of the amended standard was finalized, companies realized that many contracts have standard commercial provisions that would equate to a master netting arrangement, significantly increasing the cost of compliance at minimal value to financial statement users.Note 17:Subsequent Eventsacquired an office building and related real estate located in Fishers, Indiana from an unaffiliated third party for an aggregate consideration of approximately $4,000.The Company’s Board of Directors declared a cash dividend of $0.06 per share payable April 15, 2013, to holdersis currently evaluating the impact of the amended guidance on the Company’s common stock on April 1, 2013.F-51EXHIBIT INDEXExhibit No. Description Method of Filing 3.1 Articles of Incorporation of First Internet Bancorp Incorporated by Reference 3.2 Amended and Restated Bylaws of First Internet Bancorp as amended March 18, 2013 Filed ElectronicallyIncorporated by Reference4.1 Warrant to purchase common stock dated June 28, 2013 Incorporated by Reference 4.2 Form of Senior Indenture Incorporated by Reference 4.3 Form of Subordinated Indenture Incorporated by Reference 10.1 First Internet Bancorp 2006 Stock Option2013 Equity Incentive Plan Incorporated by Reference 10.2 Form of Award DocumentRestricted Stock Agreement under 20062013 Equity Incentive Plan Incorporated by Reference 10.3 First Internet Bancorp 2011 Directors’ Deferred Stock Plan Incorporated by Reference 10.4 Amended and Restated Employment Agreement among First Internet Bank of Indiana, First Internet Bancorp and David B. Becker dated March 28, 2013 Filed Electronically10.5Employment Agreement between First Internet Bank of Indiana and Laurinda A. Swank dated August 8, 1999Incorporated by Reference 10.6 Change in Control Agreement between First Internet Bank of Indiana and Kay E. Whitaker dated January 14, 2013Filed Electronically10.72012 Senior Management Bonus PlanIncorporated by Reference10.82013 Senior Management Bonus PlanFiled Electronically10.9Form of Supplemental Executive Retirement Agreement between First Internet Bank of Indiana and certain employeesIncorporated by Reference10.10 Contract for Purchase of Property between First Internet Bancorp and LHRET Ascension SV, LLC dated January 30, 2013 Filed ElectronicallyIncorporated by Reference10.1110.7 Offer and Contract for Purchase of Real Estate between First Internet Bancorp and St. Vincent Hospital and Health Care Center, Inc., accepted February 5, 2013 Filed ElectronicallyIncorporated by Reference10.12Loan Agreement dated as of March 6, 2013, by and between First Internet Bancorp and First Internet Bank of Indiana (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed March 11, 2013)Filed Electronically10.1310.8 Lease dated as of March 6, 2013, by and between First Internet Bancorp and First Internet Bank of Indiana (incorporatedIncorporated by referenceReference10.9 First Amendment to Exhibit 10.2 to Current Report on Office Lease dated as of July 1, 2015, by and between First Internet Bancorp and First Internet Bank of IndianaIncorporated by Reference 10.10 Subordinated Debenture Purchase Agreement with Community BanCapital, L.P., dated June 28, 2013 Incorporated by Reference 10.11 Subordinated Debenture dated June 28, 2013 Incorporated by Reference 10.12 2015 Senior Executive Cash Incentive Plan Incorporated by Reference 10.13 Form 8-K filedof Management Incentive Award Agreement - Restricted Stock Units under First Internet Bancorp 2013 Equity Incentive PlanIncorporated by Reference 10.14 Loan Agreement dated as of March 11, 2013)6, 2013, by and between the Company and the BankIncorporated by Reference 10.15 First, Second and Third Acknowledgment, Confirmation and Amendment between First Internet Bank of Indiana and First Internet Bancorp executed March 6, 2014, March 6, 2015, and February 26, 2016, respectively Filed Electronically 21.1 List of Subsidiaries Incorporated by Reference 23.1 Consent of Independent Registered Public Accounting Firm Filed Electronically 24.1 Powers of Attorney Filed Electronically 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer Filed Electronically 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer Filed Electronically 32.1 Section 1350 Certifications Filed Electronically 101.INS XBRL Instance Document Filed Electronically 101.SCH XBRL Taxonomy Extension Schema Filed Electronically 101.CAL XBRL Taxonomy Extension Calculation Linkbase Filed Electronically 101.DEF XBRL Taxonomy Extension Definition Linkbase Filed Electronically 101.LAB XBRL Taxonomy Extension Label Linkbase Filed Electronically 101.PRE XBRL Taxonomy Extension Presentation Linkbase Filed Electronically