UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended ~~June 30, 2021~~March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From ________ to ________.

Commission File Number 001-35750


First Internet Bancorp
(Exact Name of Registrant as Specified in Its Charter)


Indiana						20-3489991
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

~~11201 USA Parkway~~8701 East 116th Street Fishers, IN						~~46037~~46038
(Address of Principal Executive Offices)						(Zip Code)


			(317) 532-7900
			(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbols

Name of each exchange on which registered

Common Stock, without par value

INBK

~~The Nasdaq Stock Market LLC~~

~~6.0% Fixed to Floating Subordinated Notes due 2026~~

~~INBKL~~

The Nasdaq Stock Market LLC

6.0% Fixed to Floating Subordinated Notes due 2029

INBKZ

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer ¨			Accelerated Filer þ
Non-accelerated Filer ¨			Smaller Reporting Company ☑
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of ~~August~~May 6, ~~2021,~~2022, the registrant had ~~9,854,153~~9,655,480 shares of common stock issued and outstanding.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains ~~“forward-looking statements”~~forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts, but rather statements based on the current expectations of First Internet Bancorp and its consolidated subsidiaries ~~(“we,~~(the “Company,” “we,” “our,” ~~“us”~~ or ~~the “Company”~~“us”) regarding its business strategies, intended results and future ~~performance.~~performance, including without limitation statements concerning the financial condition, results of operations, trends in lending policies and loan programs, plans and prospective business partnerships, objectives, future performance and business of the Company. Forward-looking statements are generally preceded by terms such as “anticipate,” “attempt,” “believe,” “can,” “continue,” “could,” “effort,” “estimate,” “expect,” “intend,” “likely,” “may,” “objective,” “optimistic,” “pending,” “plan,” “position,” “potential,” “preliminary,” “remain,” “should,” “will,” “would” or other similar expressions. Such statements are ~~not a guarantee of future performance or results, are based on information available at the time the statements are made and are~~ subject to certain risks and uncertainties including: the continued or potential effects of the COVID-19 global pandemic and related variants and mutations and other adverse public health developments on the economy, our business and operations and the business and operations of our vendors and ~~customers:~~customers; the war in Ukraine and potential adverse global economic effects; other general economic conditions, whether national or regional, and conditions in the lending markets in which we participate that may have an adverse effect on the demand for our loans and other products; our credit quality and related levels of nonperforming assets and loan losses, and the value and salability of the real estate that we own or that is the collateral for our loans; failures or breaches of or interruptions in the communication and information systems on which we rely to conduct our business that could reduce our revenues, increase our costs or lead to disruptions in our business; our plans to continue originating and growing our commercial real estate, commercial and industrial, public finance, U.S. Small Business Administration (“SBA”) ~~and~~, healthcare finance ~~loans,~~ and ~~to start originating~~ franchise finance ~~loans,~~loan portfolios, which may carry greater risks of non-payment or other unfavorable consequences; our dependence on capital distributions from First Internet Bank of Indiana ~~(the “Bank”~~(“the Bank”); results of examinations of us by our regulators, including the possibility that our regulators may, among other things, require us to increase our allowance for loan losses or to write-down assets; changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, that could lead to restrictions on activities of banks generally, or the Bank in particular; more restrictive regulatory capital requirements; increased costs, including deposit insurance premiums; regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products; changes in market rates and prices that may adversely impact the value of securities, loans, deposits and other financial instruments and the interest rate sensitivity of our balance sheet; our liquidity requirements being adversely affected by changes in our assets and liabilities; the effect of legislative or regulatory developments, including changes in laws concerning taxes, banking, securities, insurance and other aspects of the financial services industry; competitive factors among financial services organizations, including product and pricing pressures and our ability to attract, develop and retain qualified banking professionals; execution of future acquisition, reorganization or disposition transactions, including without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growth and/or expense savings and other anticipated benefits from such transactions; changes in applicable tax laws; the growth and profitability of noninterest or fee income being less than expected; the loss of any key members of senior management; the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board, the Securities and Exchange Commission (the “SEC”), the Public Company Accounting Oversight Board and other regulatory agencies; and the effect of fiscal and governmental policies of the United States federal government. Additional factors that may affect our results include those discussed in this Quarterly Report on Form 10-Q and our most recent Annual Report on Form 10-K under the heading “Risk Factors” and in other reports filed with the ~~SEC.~~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.

Except as required by law, we do not undertake, and specifically disclaim any obligation, to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

PART I

ITEM 1. FINANCIAL STATEMENTS

First Internet Bancorp

Condensed Consolidated Balance Sheets

(Amounts in thousands except share data)


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(Unaudited)					(Unaudited)
Assets	Assets					Assets
Cash and due from banks	Cash and due from banks	$	4,347	$	7,367	Cash and due from banks	$	20,976	$	7,492
Interest-bearing deposits	Interest-bearing deposits	324,450		412,439		Interest-bearing deposits	496,573		435,468
Total cash and cash equivalents	Total cash and cash equivalents	328,797		419,806		Total cash and cash equivalents	517,549		442,960

Securities available-for-sale, at fair value (amortized cost of $663,693 and $497,004 in 2021 and 2020, respectively)		663,519		497,628
Securities held-to-maturity, at amortized cost (fair value of $68,058 and $69,452 in 2021 and 2020, respectively)		65,659		68,223
Loans held-for-sale (includes $16,870 and $26,341 at fair value in 2021 and 2020, respectively)		27,587		39,584
Securities available-for-sale, at fair value (amortized cost of $486,632 and $606,507 in 2022 and 2021, respectively)						Securities available-for-sale, at fair value (amortized cost of $486,632 and $606,507 in 2022 and 2021, respectively)	465,288		603,044
Securities held-to-maturity, at amortized cost (fair value of $159,971 and $61,468 in 2022 and 2021, respectively)						Securities held-to-maturity, at amortized cost (fair value of $159,971 and $61,468 in 2022 and 2021, respectively)	163,370		59,565
Loans held-for-sale (includes $17,364 and $23,233 at fair value in 2022 and 2021, respectively)						Loans held-for-sale (includes $17,364 and $23,233 at fair value in 2022 and 2021, respectively)	33,991		47,745
Loans	Loans	2,957,608		3,059,231		Loans	2,880,780		2,887,662
Allowance for loan losses	Allowance for loan losses	(28,066)		(29,484)		Allowance for loan losses	(28,251)		(27,841)
Net loans	Net loans	2,929,542		3,029,747		Net loans	2,852,529		2,859,821
Accrued interest receivable	Accrued interest receivable	16,345		17,416		Accrued interest receivable	15,263		16,037
Federal Home Loan Bank of Indianapolis stock	Federal Home Loan Bank of Indianapolis stock	25,650		25,650		Federal Home Loan Bank of Indianapolis stock	25,219		25,650
Cash surrender value of bank-owned life insurance	Cash surrender value of bank-owned life insurance	38,421		37,952		Cash surrender value of bank-owned life insurance	39,133		38,900
Premises and equipment, net	Premises and equipment, net	44,249		37,590		Premises and equipment, net	68,632		59,842
Goodwill	Goodwill	4,687		4,687		Goodwill	4,687		4,687
Servicing asset, at fair value	Servicing asset, at fair value	4,120		3,569		Servicing asset, at fair value	5,249		4,702
Other real estate owned	Other real estate owned	1,300		0		Other real estate owned	—		1,188
Accrued income and other assets	Accrued income and other assets	54,766		64,304		Accrued income and other assets	34,487		46,853
Total assets	Total assets	$	4,204,642	$	4,246,156	Total assets	$	4,225,397	$	4,210,994
Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Liabilities	Liabilities					Liabilities
Noninterest-bearing deposits	Noninterest-bearing deposits	$	113,996	$	96,753	Noninterest-bearing deposits	$	119,196	$	117,531
Interest-bearing deposits	Interest-bearing deposits	3,092,151		3,174,132		Interest-bearing deposits	3,098,783		3,061,428
Total deposits	Total deposits	3,206,147		3,270,885		Total deposits	3,217,979		3,178,959
Advances from Federal Home Loan Bank	Advances from Federal Home Loan Bank	514,919		514,916		Advances from Federal Home Loan Bank	514,923		514,922
Subordinated debt, net of unamortized debt issuance costs of $2,129 and $2,397 in 2021 and 2020, respectively		69,871		79,603
Subordinated debt, net of unamortized debt issuance costs of $2,694 and $2,769 in 2022 and 2021, respectively						Subordinated debt, net of unamortized debt issuance costs of $2,694 and $2,769 in 2022 and 2021, respectively	104,306		104,231
Accrued interest payable	Accrued interest payable	1,132		1,439		Accrued interest payable	1,532		2,018
Accrued expenses and other liabilities	Accrued expenses and other liabilities	53,932		48,369		Accrued expenses and other liabilities	12,002		30,526
Total liabilities	Total liabilities	3,846,001		3,915,212		Total liabilities	3,850,742		3,830,656
Commitments and Contingencies	Commitments and Contingencies	0		0		Commitments and Contingencies	0		0
Shareholders’ Equity	Shareholders’ Equity					Shareholders’ Equity
Preferred stock, no par value; 4,913,779 shares authorized; issued and outstanding - none	Preferred stock, no par value; 4,913,779 shares authorized; issued and outstanding - none	0		0		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; 9,854,153 and 9,800,569 shares issued and outstanding in 2021 and 2020, respectively		222,486		221,408
Voting common stock, no par value; 45,000,000 shares authorized; 9,683,727 and 9,754,455 shares issued and outstanding in 2022 and 2021, respectively						Voting common stock, no par value; 45,000,000 shares authorized; 9,683,727 and 9,754,455 shares issued and outstanding in 2022 and 2021, respectively	214,473		218,946
Nonvoting common stock, no par value; 86,221 shares authorized; issued and outstanding - none	Nonvoting common stock, no par value; 86,221 shares authorized; issued and outstanding - none	0		0		Nonvoting common stock, no par value; 86,221 shares authorized; issued and outstanding - none	—		—
Retained earnings	Retained earnings	149,066		126,732		Retained earnings	183,043		172,431
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(12,911)		(17,196)		Accumulated other comprehensive loss	(22,861)		(11,039)
Total shareholders’ equity	Total shareholders’ equity	358,641		330,944		Total shareholders’ equity	374,655		380,338
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	4,204,642	$	4,246,156	Total liabilities and shareholders’ equity	$	4,225,397	$	4,210,994

See Notes to Condensed Consolidated Financial Statements

First Internet Bancorp

Condensed Consolidated Statements of Income – Unaudited

(Amounts in thousands except share and per share data)


		Three Months Ended				Six Months Ended					Three Months Ended
		June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020			March 31, 2022		March 31, 2021
Interest Income	Interest Income									Interest Income
Loans	Loans	$	30,835	$	29,730	$	61,720	$	60,138	Loans	$	33,188	$	30,885
Securities – taxable	Securities – taxable	1,921		3,276		3,700		6,895		Securities – taxable	2,221		1,779
Securities – non-taxable	Securities – non-taxable	259		457		540		1,029		Securities – non-taxable	249		281
Other earning assets	Other earning assets	362		759		697		2,404		Other earning assets	376		335
Total interest income	Total interest income	33,377		34,222		66,657		70,466		Total interest income	36,034		33,280
Interest Expense	Interest Expense									Interest Expense
Deposits	Deposits	7,705		15,763		16,333		32,971		Deposits	6,097		8,628
Other borrowed funds	Other borrowed funds	4,065		4,033		8,192		8,051		Other borrowed funds	4,187		4,127
Total interest expense	Total interest expense	11,770		19,796		24,525		41,022		Total interest expense	10,284		12,755
Net Interest Income	Net Interest Income	21,607		14,426		42,132		29,444		Net Interest Income	25,750		20,525
Provision for Loan Losses	Provision for Loan Losses	21		2,491		1,297		3,952		Provision for Loan Losses	791		1,276
Net Interest Income After Provision for Loan Losses	Net Interest Income After Provision for Loan Losses	21,586		11,935		40,835		25,492		Net Interest Income After Provision for Loan Losses	24,959		19,249
Noninterest Income	Noninterest Income									Noninterest Income
Service charges and fees	Service charges and fees	280		182		546		394		Service charges and fees	316		266
Loan servicing revenue	Loan servicing revenue	457		255		879		506		Loan servicing revenue	585		422
Loan servicing asset revaluation	Loan servicing asset revaluation	(240)		(90)		(395)		(269)		Loan servicing asset revaluation	(297)		(155)
Mortgage banking activities	Mortgage banking activities	2,674		3,408		8,424		7,076		Mortgage banking activities	1,873		5,750

Gain on sale of loans	Gain on sale of loans	3,019		762		4,742		2,563		Gain on sale of loans	3,845		1,723
Gain on sale of securities		0		0		0		41
Gain on sale of premises and equipment		2,523		0		2,523		0

Other	Other	249		456		618		873		Other	498		369
Total noninterest income	Total noninterest income	8,962		4,973		17,337		11,184		Total noninterest income	6,820		8,375
Noninterest Expense	Noninterest Expense									Noninterest Expense
Salaries and employee benefits	Salaries and employee benefits	9,232		7,789		18,724		15,563		Salaries and employee benefits	9,878		9,492
Marketing, advertising and promotion	Marketing, advertising and promotion	872		411		1,552		786		Marketing, advertising and promotion	756		680
Consulting and professional services	Consulting and professional services	1,078		932		2,064		2,109		Consulting and professional services	1,925		986
Data processing	Data processing	382		339		844		714		Data processing	449		462
Loan expenses	Loan expenses	541		399		1,075		998		Loan expenses	1,582		534
Premises and equipment	Premises and equipment	1,587		1,602		3,188		3,227		Premises and equipment	2,540		1,601
Deposit insurance premium	Deposit insurance premium	275		435		700		920		Deposit insurance premium	281		425

Other	Other	1,108		1,337		2,245		2,413		Other	1,369		1,137
Total noninterest expense	Total noninterest expense	15,075		13,244		30,392		26,730		Total noninterest expense	18,780		15,317
Income Before Income Taxes	Income Before Income Taxes	15,473		3,664		27,780		9,946		Income Before Income Taxes	12,999		12,307
Income Tax Provision (Benefit)		2,377		(268)		4,234		(5)
Income Tax Provision										Income Tax Provision	1,790		1,857
Net Income	Net Income	$	13,096	$	3,932	$	23,546	$	9,951	Net Income	$	11,209	$	10,450
Income Per Share of Common Stock	Income Per Share of Common Stock									Income Per Share of Common Stock
Basic	Basic	$	1.32	$	0.40	$	2.37	$	1.02	Basic	$	1.14	$	1.06
Diluted	Diluted	$	1.31	$	0.40	$	2.36	$	1.02	Diluted	$	1.14	$	1.05
Weighted-Average Number of Common Shares Outstanding	Weighted-Average Number of Common Shares Outstanding									Weighted-Average Number of Common Shares Outstanding
Basic	Basic	9,932,761		9,768,227		9,916,087		9,798,528		Basic	9,790,122		9,899,230
Diluted	Diluted	9,981,422		9,768,227		9,970,147		9,802,427		Diluted	9,870,394		9,963,036
Dividends Declared Per Share	Dividends Declared Per Share	$	0.06	$	0.06	$	0.12	$	0.12	Dividends Declared Per Share	$	0.06	$	0.06

See Notes to Condensed Consolidated Financial Statements

First Internet Bancorp

Condensed Consolidated Statements of Comprehensive Income – Unaudited

(Amounts in ~~thousands)~~thousands except per share data)

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Net income $ 13,096 $ 3,932 $ 23,546 $ 9,951
Other comprehensive income (loss)
Net unrealized holding gains (losses) on securities available-for-sale recorded within other comprehensive income (loss) before income tax 1,388 (1,498) (807) 4,801
Reclassification adjustment for gains realized 0 0 0 (41)
Net unrealized holding (losses) gains on cash flow hedging derivatives recorded within other comprehensive income (loss) before income tax (54) (509) 6,226 (13,967)
Other comprehensive income (loss) before income tax 1,334 (2,007) 5,419 (9,207)
Income tax provision (benefit) 325 (735) 1,134 (2,260)
Other comprehensive income (loss) 1,009 (1,272) 4,285 (6,947)
Comprehensive income $ 14,105 $ 2,660 $ 27,831 $ 3,004


	Three Months Ended March 31,
	2022		2021
Net income	$	11,209	$	10,450
Other comprehensive (loss) income
Securities available-for-sale
Net unrealized holding losses recorded within other comprehensive income before income tax	(17,881)		(2,195)

Income tax benefit	(4,077)		(508)
Net effect on other comprehensive (loss) income	(13,804)		(1,687)

Securities held-to-maturity
Reclassification of securities from available-for-sale to held-to-maturity	(5,402)		—
Amortization of net unrealized holding losses on securities transferred from available-for-sale to held-to-maturity	119		—
Income tax benefit	(1,249)		—
Net effect on other comprehensive (loss) income	(4,034)		—

Cash flow hedges
Net unrealized holding gains on cash flow hedging derivatives recorded within other comprehensive income before income tax	9,334		6,280
Income tax provision	3,318		1,317
Net effect on other comprehensive (loss) income	6,016		4,963

Total other comprehensive (loss) income	(11,822)		3,276
Comprehensive (loss) income	$	(613)	$	13,726

See Notes to Condensed Consolidated Financial Statements

~~First Internet Bancorp~~

~~Condensed Consolidated Statements of Changes in Shareholders’ Equity - Unaudited~~

~~Six Months Ended June 30, 2021 and 2020~~

~~(Amounts in thousands except per share data)~~

Voting and
Nonvoting
Common
Stock Retained
Earnings Accumulated
Other
Comprehensive
Loss Total
Shareholders’
Equity
Balance, January 1, 2021 $ 221,408 $ 126,732 $ (17,196) $ 330,944
Net income — 23,546 — 23,546
Other comprehensive income — — 4,285 4,285
Dividends declared ($0.12 per share) — (1,212) — (1,212)
Recognition of the fair value of share-based compensation 1,262 — — 1,262
Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units 11 — — 11
Common stock redeemed for the net settlement of share-based awards (195) — — (195)
Balance, June 30, 2021 $ 222,486 $ 149,066 $ (12,911) $ 358,641
Balance, January 1, 2020 $ 219,423 $ 99,681 $ (14,191) $ 304,913
Net income — 9,951 — 9,951
Other comprehensive loss — — (6,947) (6,947)
Dividends declared ($0.12 per share) — (1,201) — (1,201)
Recognition of the fair value of share-based compensation 1,073 — — 1,073
Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units 15 — — 15
Common stock redeemed for the net settlement of share-based awards (93) — — (93)
Balance, June 30, 2020 $ 220,418 $ 108,431 $ (21,138) $ 307,711

~~See Notes to Condensed Consolidated Financial Statements~~

First Internet Bancorp

Condensed Consolidated Statements of Changes in Shareholders’ Equity - Unaudited

Three Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~

(Amounts in thousands except per share data)


		Voting and Nonvoting Common Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity			Voting and Nonvoting Common Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
Balance, April 1, 2021		$	221,911	$	136,575	$	(13,920)	$	344,566
Balance, January 1, 2022										Balance, January 1, 2022	$	218,946	$	172,431	$	(11,039)	$	380,338

Net income										Net income	—		11,209		—		11,209

Other comprehensive loss										Other comprehensive loss	—		—		(11,822)		(11,822)
Dividends declared ($0.06 per share)										Dividends declared ($0.06 per share)	—		(597)		—		(597)

Recognition of the fair value of share-based compensation										Recognition of the fair value of share-based compensation	640		—		—		640
Repurchase of common stock										Repurchase of common stock	(5,118)		—		—		(5,118)
Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units										Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units	5		—		—		5

Balance, March 31, 2022										Balance, March 31, 2022	$	214,473	$	183,043	$	(22,861)	$	374,655

Balance, January 1, 2021										Balance, January 1, 2021	$	221,408	$	126,732	$	(17,196)	$	330,944
Net income	Net income	—		13,096		—		13,096		Net income	—		10,450		—		10,450

Other comprehensive income	Other comprehensive income	—		—		1,009		1,009		Other comprehensive income	—		—		3,276		3,276
Dividends declared ($0.06 per share)	Dividends declared ($0.06 per share)	—		(605)		—		(605)		Dividends declared ($0.06 per share)	—		(607)		—		(607)

Recognition of the fair value of share-based compensation	Recognition of the fair value of share-based compensation	570		—		—		570		Recognition of the fair value of share-based compensation	692		—		—		692

Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units	Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units	5		—		—		5		Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units	6		—		—		6
Common stock redeemed for the net settlement of share-based awards	Common stock redeemed for the net settlement of share-based awards	0		—		—		0		Common stock redeemed for the net settlement of share-based awards	(195)		—		—		(195)

Balance, June 30, 2021		$	222,486	$	149,066	$	(12,911)	$	358,641

Balance, April 1, 2020		$	219,893	$	105,100	$	(19,866)	$	305,127
Net income		—		3,932		—		3,932

Other comprehensive loss		—		—		(1,272)		(1,272)
Dividends declared ($0.06 per share)		—		(601)		—		(601)

Recognition of the fair value of share-based compensation		517		—		—		517

Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units		8		—		—		8
Common stock redeemed for the net settlement of share-based awards		0		—		—		0

Balance, June 30, 2020		$	220,418	$	108,431	$	(21,138)	$	307,711
Balance, March 31, 2021										Balance, March 31, 2021	$	221,911	$	136,575	$	(13,920)	$	344,566

See Notes to Condensed Consolidated Financial Statements

First Internet Bancorp

Condensed Consolidated Statements of Cash Flows – Unaudited

(Amounts in ~~thousands)~~thousands except per share data)


		Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020			2022		2021
Operating Activities	Operating Activities					Operating Activities
Net income	Net income	$	23,546	$	9,951	Net income	$	11,209	$	10,450
Adjustments to reconcile net income to net cash used in operating activities:	Adjustments to reconcile net income to net cash used in operating activities:					Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	Depreciation and amortization	4,038		3,515		Depreciation and amortization	7,721		283
Increase in cash surrender value of bank-owned life insurance	Increase in cash surrender value of bank-owned life insurance	(469)		(472)		Increase in cash surrender value of bank-owned life insurance	(233)		(233)
Provision for loan losses	Provision for loan losses	1,297		3,952		Provision for loan losses	791		1,276
Share-based compensation expense	Share-based compensation expense	1,262		1,073		Share-based compensation expense	640		692

Loss on sale of available-for-sale securities		0		(41)

Loans originated for sale	Loans originated for sale	(421,012)		(427,323)		Loans originated for sale	(184,067)		(223,880)
Proceeds from sale of loans	Proceeds from sale of loans	448,093		454,737		Proceeds from sale of loans	202,011		241,589
Gain on loans sold	Gain on loans sold	(16,774)		(11,069)		Gain on loans sold	(5,907)		(9,222)

Decrease in fair value of loans held-for-sale	Decrease in fair value of loans held-for-sale	744		939		Decrease in fair value of loans held-for-sale	489		862
Loss on derivatives		(1,384)		377
Settlement of derivatives		(1,859)		(46,109)
(Gain) loss on derivatives						(Gain) loss on derivatives	(2,565)		881

Loan servicing asset revaluation	Loan servicing asset revaluation	395		(41)		Loan servicing asset revaluation	297		(248)
Amortization of operating lease right-of-use assets		0		360

Net change in accrued income and other assets	Net change in accrued income and other assets	1,631		(2,221)		Net change in accrued income and other assets	10,399		10,695
Net change in accrued expenses and other liabilities	Net change in accrued expenses and other liabilities	1,984		(1,840)		Net change in accrued expenses and other liabilities	(7,999)		(2,012)
Net cash provided by (used in) operating activities		41,492		(14,212)
Net cash provided by operating activities						Net cash provided by operating activities	32,786		31,133
Investing Activities	Investing Activities					Investing Activities
Net loan activity, excluding purchases	Net loan activity, excluding purchases	120,219		(18,907)		Net loan activity, excluding purchases	32,510		47,653

Proceeds from sale of other real estate owned						Proceeds from sale of other real estate owned	1,188		—

Maturities and calls of securities available-for-sale	Maturities and calls of securities available-for-sale	94,643		74,828		Maturities and calls of securities available-for-sale	27,848		55,901
Proceeds from sale of securities available-for-sale		0		795

Purchase of securities available-for-sale	Purchase of securities available-for-sale	(247,791)		(116,993)		Purchase of securities available-for-sale	(16,453)		(21,279)
Maturities and calls of securities held-to-maturity		2,500		0

Purchase of securities held-to-maturity	Purchase of securities held-to-maturity	0		(2,000)		Purchase of securities held-to-maturity	(2,000)		—

Redemption of Federal Home Loan Bank of Indianapolis stock						Redemption of Federal Home Loan Bank of Indianapolis stock	431		—

Net proceeds from sale of premises and equipment		8,116		0
Purchase of premises and equipment	Purchase of premises and equipment	(13,707)		(10,580)		Purchase of premises and equipment	(9,808)		(5,697)

Loans purchased	Loans purchased	(22,611)		(172,250)		Loans purchased	(40,059)		(47,234)
Net proceeds from sale of portfolio loans	Net proceeds from sale of portfolio loans	0		205,023		Net proceeds from sale of portfolio loans	14,466		—
Other investing activities	Other investing activities	2,264		0		Other investing activities	374		—
Net cash used in investing activities		(56,367)		(40,084)
Net cash provided by investing activities						Net cash provided by investing activities	8,497		29,344
Financing Activities	Financing Activities					Financing Activities
Net increase (decrease) in deposits	Net increase (decrease) in deposits	(64,738)		226,826		Net increase (decrease) in deposits	39,020		(53,282)

Cash dividends paid	Cash dividends paid	(1,201)		(1,179)		Cash dividends paid	(596)		(601)
Repayment of subordinated debt	Repayment of subordinated debt	(10,000)		0		Repayment of subordinated debt	—		(10,000)

Repurchase of common stock						Repurchase of common stock	(5,118)		—
Proceeds from advances from Federal Home Loan Bank	Proceeds from advances from Federal Home Loan Bank	110,000		220,000		Proceeds from advances from Federal Home Loan Bank	110,000		110,000
Repayment of advances from Federal Home Loan Bank	Repayment of advances from Federal Home Loan Bank	(110,000)		(220,000)		Repayment of advances from Federal Home Loan Bank	(110,000)		(110,000)

Other, net	Other, net	(195)		(93)		Other, net	—		(195)
Net cash (used in) provided by financing activities		(76,134)		225,554
Net (Decrease) Increase in Cash and Cash Equivalents		(91,009)		171,258
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	33,306		(64,078)
Net Increase (Decrease) in Cash and Cash Equivalents						Net Increase (Decrease) in Cash and Cash Equivalents	74,589		(3,601)
Cash and Cash Equivalents, Beginning of Period	Cash and Cash Equivalents, Beginning of Period	419,806		327,361		Cash and Cash Equivalents, Beginning of Period	442,960		419,806
Cash and Cash Equivalents, End of Period	Cash and Cash Equivalents, End of Period	$	328,797	$	498,619	Cash and Cash Equivalents, End of Period	$	517,549	$	416,205
Supplemental Disclosures	Supplemental Disclosures					Supplemental Disclosures

Cash paid during the period for interest	Cash paid during the period for interest	24,832		43,716		Cash paid during the period for interest	10,770		12,777
Cash paid during the period for taxes	Cash paid during the period for taxes	2,905		91		Cash paid during the period for taxes	50		10
Loans transferred to other real estate owned		1,300		0

Loans transferred to held-for-sale from portfolio	Loans transferred to held-for-sale from portfolio	0		204,258		Loans transferred to held-for-sale from portfolio	14,049		—
Cash dividends declared, paid in subsequent period	Cash dividends declared, paid in subsequent period	592		588		Cash dividends declared, paid in subsequent period	581		592
Securities purchased during the period, settled in subsequent period	Securities purchased during the period, settled in subsequent period	13,590		0		Securities purchased during the period, settled in subsequent period	—		2,035
Transfer of available-for-sale municipal securities to held-to-maturity municipal securities		0		4,479
Transfer of available-for-sale mortgage-backed securities to held-to-maturity mortgage-backed securities						Transfer of available-for-sale mortgage-backed securities to held-to-maturity mortgage-backed securities	107,168		—

See Notes to Condensed Consolidated Financial Statements

First Internet Bancorp

Notes to Condensed Consolidated Financial Statements – Unaudited

(Table amounts in thousands except share and per share data)

Note 1: Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information or footnotes necessary for a complete presentation of financial condition, results of operations, changes in shareholders’ equity, or cash flows in accordance with GAAP. In our opinion, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation have been included. The results of operations for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 are not necessarily indicative of the results expected for the year ending December 31, ~~2021~~2022 or any other period. The ~~June 30, 2021~~March 31, 2022 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the First Internet Bancorp Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments, or assumptions that could have a material effect on the carrying value of certain assets and liabilities. These estimates, judgments, and assumptions affect the amounts reported in the condensed consolidated financial statements and the disclosures provided. The determination of the allowance for loan losses, valuations and impairments of investment securities, valuation of the servicing asset and the accounting for income tax expense are highly dependent upon management’s estimates, judgments, and assumptions, and changes in any of these could have a significant impact on the condensed consolidated financial statements.

The condensed consolidated financial statements include the accounts of First Internet Bancorp (the “Company”), its wholly owned subsidiary, First Internet Bank of Indiana (the “Bank”), and the Bank’s 3 wholly owned subsidiaries, First Internet Public Finance Corp., JKH Realty Services, LLC and SPF15, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations, and cash flows of the Company.

~~Certain reclassifications have been made to the 2020 financial statements to conform to the presentation of the 2021 financial statements. These reclassifications had no effect on net income.~~

Note 2: Earnings Per Share

Earnings per share of common stock are based on the weighted-average number of basic shares and dilutive shares outstanding during the period.

The following is a reconciliation of the weighted-average common shares for the basic and diluted earnings per share computations for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.


(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	Three Months Ended June 30,				Six Months Ended June 30,				(dollars in thousands, except per share data)	Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Basic earnings per share	Basic earnings per share									Basic earnings per share
Net income	Net income	$	13,096	$	3,932	$	23,546	$	9,951	Net income	$	11,209	$	10,450
Weighted-average common shares	Weighted-average common shares	9,932,761		9,768,227		9,916,087		9,798,528		Weighted-average common shares	9,790,122		9,899,230
Basic earnings per common share	Basic earnings per common share	$	1.32	$	0.40	$	2.37	$	1.02	Basic earnings per common share	$	1.14	$	1.06
Diluted earnings per share	Diluted earnings per share									Diluted earnings per share
Net income	Net income	$	13,096	$	3,932	$	23,546	$	9,951	Net income	$	11,209	$	10,450
Weighted-average common shares	Weighted-average common shares	9,932,761		9,768,227		9,916,087		9,798,528		Weighted-average common shares	9,790,122		9,899,230

Dilutive effect of equity compensation	Dilutive effect of equity compensation	48,661		0		54,060		3,899		Dilutive effect of equity compensation	80,272		63,806
Weighted-average common and incremental shares	Weighted-average common and incremental shares	9,981,422		9,768,227		9,970,147		9,802,427		Weighted-average common and incremental shares	9,870,394		9,963,036
Diluted earnings per common share (1)	Diluted earnings per common share (1)	$	1.31	$	0.40	$	2.36	$	1.02	Diluted earnings per common share (1)	$	1.14	$	1.05

(1) Potential dilutive common shares are excluded from the computation of diluted EPS in the periods where the effect would be antidilutive. Excluded from the computation of diluted EPS were weighted-average antidilutive shares totaling ~~6 and 3~~661 for the three ~~and six~~ months ended ~~June 30, 2021, respectively, and 79,893 and 29,606~~March 31, 2022. There were 0 weighted-average antidilutive shares for the three ~~and six~~ months ended ~~June 30, 2020, respectively.~~March 31, 2021.

Note 3: Securities

The following tables summarize securities available-for-sale and securities held-to-maturity as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.


		June 30, 2021									March 31, 2022
		Amortized		Gross Unrealized				Fair			Amortized		Gross Unrealized				Fair
(in thousands)	(in thousands)	Cost		Gains		Losses		Value		(in thousands)	Cost		Gains		Losses		Value
Securities available-for-sale	Securities available-for-sale									Securities available-for-sale
U.S. Government-sponsored agencies	U.S. Government-sponsored agencies	$	57,984	$	337	$	(1,186)	$	57,135	U.S. Government-sponsored agencies	$	45,335	$	—	$	(1,488)	$	43,847
Municipal securities	Municipal securities	77,364		1,229		(155)		78,438		Municipal securities	72,420		557		(173)		72,804
Agency mortgage-backed securities		445,895		2,734		(4,135)		444,494
Private label mortgage-backed securities		29,003		360		0		29,363
Agency mortgage-backed securities - residential										Agency mortgage-backed securities - residential	276,392		88		(18,798)		257,682
Agency mortgage-backed securities - commercial										Agency mortgage-backed securities - commercial	24,815		6		(665)		24,156
Private label mortgage-backed securities - residential										Private label mortgage-backed securities - residential	15,090		6		(278)		14,818
Asset-backed securities	Asset-backed securities	5,000		5		0		5,005		Asset-backed securities	5,000		—		(14)		4,986
Corporate securities	Corporate securities	48,447		855		(218)		49,084		Corporate securities	47,580		299		(884)		46,995

Total available-for-sale	Total available-for-sale	$	663,693	$	5,520	$	(5,694)	$	663,519	Total available-for-sale	$	486,632	$	956	$	(22,300)	$	465,288


		June 30, 2021									March 31, 2022
		Amortized		Gross Unrealized				Fair			Amortized		Gross Unrealized				Fair
(in thousands)	(in thousands)	Cost		Gains		Losses		Value		(in thousands)	Cost		Gains		Losses		Value
Securities held-to-maturity	Securities held-to-maturity									Securities held-to-maturity
Municipal securities	Municipal securities	$	14,549	$	824	$	0	$	15,373	Municipal securities	$	13,981	$	157	$	(45)	$	14,093
Mortgage-backed securities - residential										Mortgage-backed securities - residential	95,982		—		(3,043)		92,939
Mortgage-backed securities - commercial										Mortgage-backed securities - commercial	5,847		—		(427)		5,420
Corporate securities	Corporate securities	51,110		1,575		0		52,685		Corporate securities	47,560		338		(379)		47,519
Total held-to-maturity	Total held-to-maturity	$	65,659	$	2,399	$	0	$	68,058	Total held-to-maturity	$	163,370	$	495	$	(3,894)	$	159,971


		December 31, 2020									December 31, 2021
		Amortized		Gross Unrealized				Fair			Amortized		Gross Unrealized				Fair
(in thousands)	(in thousands)	Cost		Gains		Losses		Value		(in thousands)	Cost		Gains		Losses		Value
Securities available-for-sale	Securities available-for-sale									Securities available-for-sale
U.S. Government-sponsored agencies	U.S. Government-sponsored agencies	$	61,765	$	432	$	(1,652)	$	60,545	U.S. Government-sponsored agencies	$	50,013	$	164	$	(1,137)	$	49,040
Municipal securities	Municipal securities	82,757		463		(731)		82,489		Municipal securities	75,158		1,940		(65)		77,033
Agency mortgage-backed securities		241,795		4,591		(2,465)		243,921
Private label mortgage-backed securities		57,268		850		(2)		58,116
Agency mortgage-backed securities - residential										Agency mortgage-backed securities - residential	377,928		960		(5,652)		373,236
Agency mortgage-backed securities - commercial										Agency mortgage-backed securities - commercial	36,024		441		(139)		36,326
Private label mortgage-backed securities - residential										Private label mortgage-backed securities - residential	15,902		122		(3)		16,021
Asset-backed securities	Asset-backed securities	5,000		0		(39)		4,961		Asset-backed securities	5,000		4		—		5,004
Corporate securities	Corporate securities	48,419		771		(1,594)		47,596		Corporate securities	46,482		597		(695)		46,384

Total available-for-sale	Total available-for-sale	$	497,004	$	7,107	$	(6,483)	$	497,628	Total available-for-sale	$	606,507	$	4,228	$	(7,691)	$	603,044


		December 31, 2020									December 31, 2021
		Amortized		Gross Unrealized				Fair			Amortized		Gross Unrealized				Fair
(in thousands)	(in thousands)	Cost		Gains		Losses		Value		(in thousands)	Cost		Gains		Losses		Value
Securities held-to-maturity	Securities held-to-maturity									Securities held-to-maturity
Municipal securities	Municipal securities	$	14,571	$	746	$	0	$	15,317	Municipal securities	$	13,992	$	717	$	—	$	14,709
Corporate securities	Corporate securities	53,652		610		(127)		54,135		Corporate securities	45,573		1,186		—		46,759
Total held-to-maturity	Total held-to-maturity	$	68,223	$	1,356	$	(127)	$	69,452	Total held-to-maturity	$	59,565	$	1,903	$	—	$	61,468

The carrying value of securities at ~~June 30, 2021~~March 31, 2022 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					Available-for-Sale
(in thousands)	(in thousands)	Amortized Cost		Fair Value		(in thousands)	Amortized Cost		Fair Value
Within one year		$	0	$	0

One to five years	One to five years	29,686		27,234		One to five years	$	34,545	$	34,808
Five to ten years	Five to ten years	72,226		72,380		Five to ten years	56,269		55,141
After ten years	After ten years	81,883		85,043		After ten years	74,521		73,697
		183,795		184,657			165,335		163,646
Agency mortgage-backed securities		445,895		444,494
Private label mortgage-backed securities		29,003		29,363
Agency mortgage-backed securities - residential						Agency mortgage-backed securities - residential	276,392		257,682
Agency mortgage-backed securities - commercial						Agency mortgage-backed securities - commercial	24,815		24,156
Private label mortgage-backed securities - residential						Private label mortgage-backed securities - residential	15,090		14,818
Asset-backed securities	Asset-backed securities	5,000		5,005		Asset-backed securities	5,000		4,986

Total	Total	$	663,693	$	663,519	Total	$	486,632	$	465,288


		Held-to-Maturity					Held-to-Maturity
(in thousands)	(in thousands)	Amortized Cost		Fair Value		(in thousands)	Amortized Cost		Fair Value

One to five years	One to five years	$	3,375	$	3,556	One to five years	$	11,172	$	11,149
Five to ten years	Five to ten years	50,096		51,908		Five to ten years	39,233		39,553
After ten years	After ten years	12,188		12,594		After ten years	11,136		10,910
							61,541		61,612
Agency mortgage-backed securities - residential						Agency mortgage-backed securities - residential	95,982		92,939
Agency mortgage-backed securities - commercial						Agency mortgage-backed securities - commercial	5,847		5,420
Total	Total	$	65,659	$	68,058	Total	$	163,370	$	159,971

There were 0 gross gains or losses resulting from ~~sale of available-for-sale securities during~~ the ~~three and six months ended June 30, 2021. There were 0 gross gains or losses resulting from~~ sale of available-for-sale securities during the three months ended ~~June 30, 2020~~March 31, 2022 and ~~gross gains of less than $0.1 million resulting from sales of available-for-sale securities during the six months ended June 30, 2020.~~

March 31, 2021, respectively.

Certain investments in debt securities are reported in the condensed consolidated financial statements at an amount less than their historical cost. The total fair value of these investments at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was ~~$451.8~~$493.4 million and ~~$226.5~~$403.2 million, which was approximately ~~62%~~79% and ~~40%~~61%, respectively, of the Company’s AFS and HTM securities portfolios. As of ~~June 30, 2021,~~March 31, 2022, the Company’s security portfolio consisted of ~~448~~437 securities, of which ~~152~~326 were in an unrealized loss position. The unrealized losses are related to the categories noted below. These declines resulted primarily from fluctuations in market interest rates after purchase. Management believes the declines in fair value for these securities are temporary. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced, with the resulting loss recognized in net income in the period the other-than-temporary impairment (“OTTI”) is identified.

In the first quarter 2022, the Company transferred certain available-for-sale mortgage backed securities with a fair value of $96.2 million to held-to-maturity. The transfer occurred at fair value and involved residential mortgage-backed securities that qualify for credit under the Community Reinvestment Act that the Company intends to hold until maturity. The related after-tax unrealized loss of $4.1 million remained in accumulated other comprehensive loss and will be amortized to interest income over the remaining life of the securities using the interest method. There were no gains or losses recognized as a result of this transfer.

U. S. Government-Sponsored Agencies, Municipal Securities and Corporate Securities

The unrealized losses on the Company’s investments in securities issued by U.S. Government-sponsored agencies, municipal organizations and corporate entities were caused primarily 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 likely that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be upon maturity, the Company does not consider those investments to be other-than-temporarily impaired at ~~June 30, 2021.~~March 31, 2022.

Agency Mortgage-Backed, Private Label Mortgage-Backed and Asset-Backed Securities

The unrealized losses on the Company’s investments in agency mortgage-backed, private label mortgage-backed and asset-backed securities were caused primarily by interest rate changes. The Company expects to recover the amortized cost bases over the terms of the securities. Because the Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be upon maturity, the Company does not consider those investments to be other-than-temporarily impaired at ~~June 30, 2021.~~March 31, 2022.

The following tables show the 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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.


		June 30, 2021													March 31, 2022
		Less Than 12 Months				12 Months or Longer				Total					Less Than 12 Months				12 Months or Longer				Total
(in thousands)	(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities available-for-sale	Securities available-for-sale													Securities available-for-sale
U.S. Government-sponsored agencies	U.S. Government-sponsored agencies	$	2,969	$	(31)	$	47,281	$	(1,155)	$	50,250	$	(1,186)	U.S. Government-sponsored agencies	$	4,620	$	(64)	$	39,632	$	(1,424)	$	44,252	$	(1,488)
Municipal securities	Municipal securities	61,658		(155)		0		0		61,658		(155)		Municipal securities	25,045		(173)		—		—		25,045		(173)
Agency mortgage-backed securities		316,123		(3,543)		8,956		(592)		325,079		(4,135)

Agency mortgage-backed securities- residential														Agency mortgage-backed securities- residential	210,766		(15,256)		36,680		(3,542)		247,446		(18,798)
Agency mortgage-backed securities- commercial														Agency mortgage-backed securities- commercial	19,916		(414)		2,653		(251)		22,569		(665)
Private label mortgage-backed securities - residential														Private label mortgage-backed securities - residential	13,885		(278)		—		—		13,885		(278)
Asset-backed securities														Asset-backed securities	4,986		(14)		—		—		4,986		(14)
Corporate securities	Corporate securities	4,984		(16)		9,799		(202)		14,783		(218)		Corporate securities	11,770		(230)		9,346		(654)		21,116		(884)

Total	Total	$	385,734	$	(3,745)	$	66,036	$	(1,949)	$	451,770	$	(5,694)	Total	$	290,988	$	(16,429)	$	88,311	$	(5,871)	$	379,299	$	(22,300)

~~There were no securities held-to-maturity with gross unrealized losses at June 30, 2021.~~

December 31, 2020
Less Than 12 Months 12 Months or Longer Total
(in thousands) Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses
Securities available-for-sale
U.S. Government-sponsored agencies $ 0 $ 0 $ 52,351 $ (1,652) $ 52,351 $ (1,652)
Municipal securities 18,731 (114) 23,519 (617) 42,250 (731)
Agency mortgage-backed securities 38,987 (276) 45,297 (2,189) 84,284 (2,465)
Private label mortgage-backed securities 1,277 (1) 558 (1) 1,835 (2)
Asset-backed securities 0 0 4,961 (39) 4,961 (39)
Corporate securities 0 0 20,406 (1,594) 20,406 (1,594)
Total $ 58,995 $ (391) $ 147,092 $ (6,092) $ 206,087 $ (6,483)


	March 31, 2022
	Less Than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities held-to-maturity
Municipal securities	$	4,599	$	(45)	$	—	$	—	$	4,599	$	(45)
Agency mortgage-backed securities - residential	64,135		(2,115)		28,778		(928)		92,913		(3,043)
Agency mortgage-backed securities - commercial	5,420		(427)		—		—		5,420		(427)
Corporate securities	11,129		(379)		—		—		11,129		(379)

Total	$	85,283	$	(2,966)	$	28,778	$	(928)	$	114,061	$	(3,894)


	December 31, 2021
	Less Than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities available-for-sale
U.S. Government-sponsored agencies	$	2,921	$	(79)	$	40,305	$	(1,058)	$	43,226	$	(1,137)
Municipal securities	5,721		(65)		—		—		5,721		(65)
Agency mortgage-backed securities - residential	287,820		(3,694)		40,840		(1,958)		328,660		(5,652)
Agency mortgage-backed securities - commercial	3,944		(139)		—		—		3,944		(139)
Private label mortgage-backed securities	374		(3)		—		—		374		(3)
Asset-backed securities	—		—		—		—		—		—
Corporate securities	11,813		(187)		9,491		(508)		21,304		(695)

Total	$	312,593	$	(4,167)	$	90,636	$	(3,524)	$	403,229	$	(7,691)

There were no amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statements of income during the three ~~and six~~ months ended ~~June 30, 2021. Amounts reclassified from accumulated other comprehensive loss~~March 31, 2022 and ~~the affected line items in the condensed consolidated statements of income during the three and six months ended June 30, 2020 were as follows:~~March 31, 2021, respectively.

(in thousands)

Details About Accumulated Other Comprehensive Loss Components
Affected Line Item in the
Statements of Income
Three Months Ended June 30, 2021 Six Months Ended June 30, 2021 Three Months Ended
June 30, 2020 Six Months Ended June 30, 2020
Realized gains on securities available-for-sale
Gain realized in earnings $ 0 $ 0 $ 0 $ 41 Gain on sale of securities
Total reclassified amount before tax 0 0 0 41 Income Before Income Taxes
Tax expense 0 0 0 11 Income Tax Provision
Total reclassifications out of accumulated other comprehensive loss $ 0 $ 0 $ 0 $ 30 Net Income

Note 4: Loans

Loan balances as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 are summarized in the table below. Categories of loans include:


(in thousands)	(in thousands)	June 30, 2021		December 31, 2020		(in thousands)	March 31, 2022		December 31, 2021
Commercial loans	Commercial loans					Commercial loans
Commercial and industrial	Commercial and industrial	$	96,203	$	75,387	Commercial and industrial	$	99,808	$	96,008
Owner-occupied commercial real estate	Owner-occupied commercial real estate	87,136		89,785		Owner-occupied commercial real estate	56,752		66,732
Investor commercial real estate	Investor commercial real estate	28,871		13,902		Investor commercial real estate	34,627		28,019
Construction	Construction	117,970		110,385		Construction	149,662		136,619
Single tenant lease financing	Single tenant lease financing	913,115		950,172		Single tenant lease financing	852,519		865,854
Public finance	Public finance	612,138		622,257		Public finance	587,817		592,665
Healthcare finance	Healthcare finance	455,890		528,154		Healthcare finance	354,574		387,852
Small business lending	Small business lending	123,293		125,589		Small business lending	97,040		108,666

Franchise finance						Franchise finance	107,246		81,448
Total commercial loans	Total commercial loans	2,434,616		2,515,631		Total commercial loans	2,340,045		2,363,863
Consumer loans	Consumer loans					Consumer loans
Residential mortgage	Residential mortgage	177,148		186,787		Residential mortgage	191,153		186,770
Home equity	Home equity	17,510		19,857		Home equity	18,100		17,665
Other consumer		271,796		275,692
Other consumer loans						Other consumer loans	270,330		265,478
Tax refund advance loans						Tax refund advance loans	9,177		—
Total consumer loans	Total consumer loans	466,454		482,336		Total consumer loans	488,760		469,913
Total commercial and consumer loans	Total commercial and consumer loans	2,901,070		2,997,967		Total commercial and consumer loans	2,828,805		2,833,776
Net deferred loan origination fees/costs and premiums/discounts on purchased loans and other(1)	Net deferred loan origination fees/costs and premiums/discounts on purchased loans and other(1)	56,538		61,264		Net deferred loan origination fees/costs and premiums/discounts on purchased loans and other(1)	51,975		53,886
Total loans	Total loans	2,957,608		3,059,231		Total loans	2,880,780		2,887,662
Allowance for loan losses	Allowance for loan losses	(28,066)		(29,484)		Allowance for loan losses	(28,251)		(27,841)
Net loans	Net loans	$	2,929,542	$	3,029,747	Net loans	$	2,852,529	$	2,859,821

(1) Includes carrying value adjustments of ~~$40.4~~$36.4 million and ~~$42.7~~$37.5 million related to terminated interest rate swaps associated with public finance loans as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

~~The risk~~Risk characteristics of each loan portfolio segment are as follows:

Commercial and Industrial: Commercial and industrial loans’ sources of repayment 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 and may incorporate a personal guarantee. This portfolio segment is generally concentrated in ~~Central Indiana~~the Midwest and ~~adjacent markets and~~Southwest regions of the ~~greater Phoenix, Arizona market.~~United States.

Owner-Occupied Commercial Real Estate: The primary source of repayment is the cash flow from the ongoing operations and activities conducted by the borrower, or an affiliate of the borrower, who owns the property. This portfolio segment is generally concentrated in ~~Central Indiana~~the Midwest and ~~adjacent markets and~~Southwest regions of the ~~greater Phoenix, Arizona market~~United States and its loans are often secured by manufacturing and service facilities, as well as office buildings.

Investor Commercial Real Estate: These loans are underwritten primarily based on the cash flow expected to be generated from the property and are secondarily supported by the value of the real estate. These loans typically incorporate a personal guarantee from the primary sponsor or sponsors. This portfolio segment generally involves larger loan amounts with repayment primarily dependent on the successful leasing and 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 changing economic conditions in the real estate markets, industry dynamics or the overall health of the local economy where the property is located. The properties securing the Company’s investor commercial real estate portfolio tend to be diverse in terms of property type and are generally located in the ~~state~~Midwest and Southwest regions of ~~Indiana or markets immediately adjacent to Indiana.~~the United States. Management monitors and evaluates commercial real estate loans based on property financial performance, collateral value, guarantor strength, economic and industry conditions together with 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 mitigate these additional risks.

Construction: Construction loans are secured by land and related improvements and are made to assist in the construction of new structures, which may include commercial (retail, industrial, office, and multi-family) properties or single family residential properties offered for sale by the builder. These loans generally finance a variety of project costs, including land, site preparation, architectural services, construction, closing and soft costs and interim financing needs. The cash flows of builders, while initially predictable, may fluctuate with market conditions, and the value of the collateral securing these loans may be subject to fluctuations based on general economic changes. This portfolio segment is generally concentrated in ~~Central Indiana.~~the Midwest and Southwest regions of the United States.

Single Tenant Lease Financing: These loans are made on a nationwide basis to property owners of real estate subject to long-term lease arrangements with single tenant operators. The real estate is typically operated by regionally, nationally or globally branded businesses. The loans are underwritten based on the financial strength of the borrower, characteristics of the real estate, cash flows generated from the lease arrangements and the financial strength of the tenant. Similar to the other loan portfolio segments, management monitors and evaluates these loans based on borrower and tenant financial performance, collateral value, industry trends and other risk grade criteria.

Public Finance: These loans are made on a nationwide basis to governmental and not-for-profit entities to provide both tax-exempt and taxable loans for a variety of purposes including: short-term cash-flow needs; debt refinancing; economic development; quality of life projects; infrastructure improvements; renewable energy projects; and equipment financing. The primary sources of repayment for public finance loans include pledged revenue sources including but not limited to: general obligations; property taxes; income taxes; tax increment revenue; utility revenue; gaming revenues; sales tax; and pledged general revenue. Certain loans may also include an additional collateral pledge of mortgaged property or a security interest in financed equipment. ~~Public finance lending has been conducted primarily in the Midwest, but continues to expand nationwide.~~

Healthcare Finance: These loans are made on a nationwide basis to healthcare providers, primarily dentists, for practice acquisition financing or refinancing that occasionally includes owner-occupied commercial real estate and equipment purchases. The sources of repayment are primarily based on the identified cash flows from operations of the borrower and related entities ~~if the real estate is held in a separate entity~~ and secondarily on the underlying collateral provided by the borrower. ~~This portfolio segment was initially concentrated in the Western United States but has since expanded throughout the rest of the country.~~

Small Business Lending: These loans are made on a nationwide basis to small businesses and generally carry a partial guaranty from the U.S. Small Business Administration ~~("SBA"~~(“SBA”) under its 7(a) loan program. We generally sell the government guaranteed portion of SBA loans into the secondary market while retaining the non-guaranteed portion of the loan and the servicing rights. Loans in the small business lending portfolio have sources of repayment that are primarily based on the identified cash flows of the borrower and secondarily on any underlying collateral provided by the borrower. Loans may, but do not always, have a collateral shortfall. For SBA loans where the guaranteed portion is retained, the SBA guaranty provides a tertiary source of repayment to the Bank in event of borrower default. Cash flows of borrowers, however, may not be as expected and collateral securing these loans may fluctuate in value. Loans are made for a broad array of purposes including, but not limited to, providing operating cash flow, funding ownership changes, and facilitating equipment purchases. These loans also include loans originated by the Bank under the SBA’s Paycheck Protection Program, which are fully guaranteed by the SBA. ~~This portfolio segment has an emerging geography, with a nationwide focus.~~

Franchise Finance: These loans are made on a nationwide basis through our partnership with ApplePie Capital, which through their deep relationships with franchise brands provides franchisees with financing options for new franchise units, recapitalization, expansion, equipment and working capital. The sources of repayment are either based on identified cash flows from existing operations of the borrower or pro forma cash flow for new franchise locations.

Residential Mortgage: With respect to residential loans that are secured by 1-to-4 family residences and are generally owner occupied, the Company typically establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Repayment of these loans is primarily dependent on the financial 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. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers in geographically diverse locations throughout the country.

Home Equity: Home equity loans and lines of credit are typically secured by a subordinate interest in 1-to-4 family residences. The properties securing the home equity portfolio segment are generally geographically diverse as the Company offers these products on a nationwide basis. Repayment of these loans and lines of credit is primarily dependent on the financial circumstances of the borrowers and may be impacted by changes in unemployment levels and property values on residential properties, among other economic conditions in the market.

Other Consumer: These loans primarily consist of consumer loans and credit cards. Consumer loans may be secured by consumer assets such as horse trailers or recreational vehicles. Some consumer loans are unsecured, such as small installment loans, home improvement loans and certain lines of credit. Repayment of consumer loans is primarily dependent upon the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers in geographically diverse locations throughout the country.

Tax Refund Advance Loans: These loans provide short-term tax refund advance loans to eligible individual taxpayers. Due to the nature of tax refund advance loans, it typically takes no more than three weeks from when the return is accepted by the IRS to collect from the borrower. In the event of default, the Bank has no recourse against the tax consumer. The Bank will charge off the balance of a tax refund advance loan if there is a balance at the end of the program year, or when collection of principal becomes doubtful.

Allowance for Loan Losses Methodology

Company policy is designed to maintain an adequate allowance for loan losses (“ALLL”). The portfolio is segmented by loan type, and the required ALLL for types of performing homogeneous loans which do not have a specific reserve is determined by applying a factor based on average historical losses, adjusted for current economic factors and portfolio trends. Management adds qualitative factors for observable trends, changes in internal practices, changes in delinquencies and impairments, and external factors. Observable factors include changes in the composition and size of portfolios, as well as loan terms or concentration levels. The Company evaluates the impact of internal changes such as management and staff experience levels or modification to loan underwriting processes. Delinquency trends are scrutinized for both volume and severity of past due, nonaccrual, or classified loans, as well as any changes in the value of underlying collateral. Finally, the Company considers the effect of other external factors such as national, regional, and local economic and business conditions, as well as competitive, legal, and regulatory requirements. Loans that are considered to be impaired are evaluated to determine the need for a specific allowance by applying at least one of three methodologies: present value of future cash flows; fair value of collateral less costs to sell; or the loan’s observable market price. All troubled debt restructurings (“TDR”) are considered impaired loans. Loans evaluated for impairment are removed from other pools to prevent double-counting. Accounting Standards Codification (“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 less costs to sell and allows existing methods for recognizing interest income.

Provision for Loan Losses

A provision for estimated losses on loans is charged to income based upon management’s evaluation of the potential losses. Such an evaluation, which includes a review of all loans for which full repayment 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 attempts 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.

Policy for Charging Off Loans

The Company’s policy is to charge off a loan at any point in time when it no longer can be considered a bankable asset, meaning collectible within the parameters of policy. A secured loan is generally charged down 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 is charged off no later than when it is 180 days past due as to principal or interest. A home improvement loan generally is charged off no later than when it is 90 days past due as to principal or interest.

The following tables present changes in the balance of the ALLL during the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

(in thousands) Three Months Ended June 30, 2021
Allowance for loan losses: Balance, Beginning of Period Provision (Credit) Charged to Expense Losses
Charged Off Recoveries Balance,
End of Period
Commercial and industrial $ 1,662 $ 267 $ (28) $ 2 $ 1,903
Owner-occupied commercial real estate 1,029 (8) 0 0 1,021
Investor commercial real estate 169 160 0 0 329
Construction 1,420 (63) 0 0 1,357
Single tenant lease financing 13,178 418 (2,391) 0 11,205
Public finance 1,748 (48) 0 0 1,700
Healthcare finance 7,755 (817) 0 0 6,938
Small business lending 700 214 (133) 2 783
Residential mortgage 601 (5) (6) 4 594
Home equity 57 4 0 2 63
Other consumer 2,323 (101) (131) 82 2,173
Total $ 30,642 $ 21 $ (2,689) $ 92 $ 28,066

Six Months Ended June 30, 2021
Allowance for loan losses: Balance, Beginning of Period Provision (Credit) Charged to Expense Losses
Charged Off Recoveries Balance,
End of Period
Commercial and industrial $ 1,146 $ 701 $ (28) $ 84 $ 1,903
Owner-occupied commercial real estate 1,082 (61) 0 0 1,021
Investor commercial real estate 155 174 0 0 329
Construction 1,192 165 0 0 1,357
Single tenant lease financing 12,990 606 (2,391) 0 11,205
Public finance 1,732 (32) 0 0 1,700
Healthcare finance 7,485 (547) 0 0 6,938
Small business lending 628 361 (212) 6 783
Residential mortgage 519 72 (6) 9 594
Home equity 48 63 (51) 3 63
Other consumer 2,507 (205) (313) 184 2,173
Total $ 29,484 $ 1,297 $ (3,001) $ 286 $ 28,066


(in thousands)	Three Months Ended March 31, 2022
Allowance for loan losses:	Balance, Beginning of Period		(Credit) Provision Charged to Expense		Losses Charged Off		Recoveries		Balance, End of Period
Commercial and industrial	$	1,891	$	88	$	—	$	—	$	1,979
Owner-occupied commercial real estate	742		(116)		—		—		626
Investor commercial real estate	328		77		—		—		405
Construction	1,612		154		—		—		1,766
Single tenant lease financing	10,385		(1,645)		—		1,231		9,971
Public finance	1,776		7		—		—		1,783
Healthcare finance	5,940		(430)		—		—		5,510
Small business lending	1,387		111		(80)		17		1,435
Franchise finance	1,083		354		—		0		1,437
Residential mortgage	643		87		—		1		731
Home equity	64		(1)		—		2		65
Other consumer loans	1,990		263		(163)		99		2,189
Tax refund advance loans	—		1842		(1488)		—		354
Total	$	27,841	$	791	$	(1,731)	$	1,350	$	28,251


(in thousands)	Three Months Ended March 31, 2021
Allowance for loan losses:	Balance, Beginning of Period		(Credit) Provision Charged to Expense		Losses Charged Off		Recoveries		Balance, End of Period
Commercial and industrial	$	1,146	$	434	$	—	$	82	$	1,662
Owner-occupied commercial real estate	1,082		(53)		—		—		1,029
Investor commercial real estate	155		14		—		—		169
Construction	1,192		228		—		—		1,420
Single tenant lease financing	12,990		188		—		—		13,178
Public finance	1,732		16		—		—		1,748
Healthcare finance	7,485		270		—		—		7,755
Small business lending	628		147		(79)		4		700

Residential mortgage	519		77		—		5		601
Home equity	48		58		(51)		2		57
Other consumer loans	2,507		(103)		(181)		100		2,323
Total	$	29,484	$	1,276	$	(311)	$	193	$	30,642

Three Months Ended June 30, 2020
Allowance for loan losses: Balance, Beginning of Period Provision (Credit) Charged to Expense Losses
Charged Off Recoveries Balance,
End of Period
Commercial and industrial $ 1,670 $ (141) $ (57) $ 5 $ 1,477
Owner-occupied commercial real estate 645 201 0 0 846
Investor commercial real estate 128 2 0 0 130
Construction 460 261 0 0 721
Single tenant lease financing 10,755 563 0 0 11,318
Public finance 1,483 59 0 0 1,542
Healthcare finance 4,318 1,187 (743) 0 4,762
Small business lending 265 (20) 0 6 251
Residential mortgage 500 36 0 3 539
Home equity 53 (4) 0 2 51
Other consumer 2,580 347 (216) 117 2,828
Total $ 22,857 $ 2,491 $ (1,016) $ 133 $ 24,465

Six Months Ended June 30, 2020
Allowance for loan losses: Balance, Beginning of Period Provision (Credit) Charged to Expense Losses
Charged Off Recoveries Balance,
End of Period
Commercial and industrial $ 1,521 $ 205 $ (254) $ 5 $ 1,477
Owner-occupied commercial real estate 561 285 0 0 846
Investor commercial real estate 109 21 0 0 130
Construction 380 341 0 0 721
Single tenant lease financing 11,175 143 0 0 11,318
Public finance 1,580 (38) 0 0 1,542
Healthcare finance 3,247 2,258 (743) 0 4,762
Small business lending 54 183 0 14 251
Residential mortgage 657 (107) (15) 4 539
Home equity 46 0 0 5 51
Other consumer 2,510 661 (502) 159 2,828
Total $ 21,840 $ 3,952 $ (1,514) $ 187 $ 24,465

The following tables present the recorded investment in loans based on portfolio segment and impairment method as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.


(in thousands)	(in thousands)	Loans						Allowance for Loan Losses						(in thousands)	Loans						Allowance for Loan Losses
June 30, 2021		Ending Balance: Collectively Evaluated for Impairment		Ending Balance: Individually Evaluated for Impairment		Ending Balance		Ending Balance: Collectively Evaluated for Impairment		Ending Balance: Individually Evaluated for Impairment		Ending Balance
March 31, 2022														March 31, 2022	Ending Balance: Collectively Evaluated for Impairment		Ending Balance: Individually Evaluated for Impairment		Ending Balance		Ending Balance: Collectively Evaluated for Impairment		Ending Balance: Individually Evaluated for Impairment		Ending Balance
Commercial and industrial	Commercial and industrial	$	95,511	$	692	$	96,203	$	1,453	$	450	$	1,903	Commercial and industrial	$	99,198	$	610	$	99,808	$	1,529	$	450	$	1,979
Owner-occupied commercial real estate	Owner-occupied commercial real estate	83,649		3,487		87,136		1,021		0		1,021		Owner-occupied commercial real estate	53,485		3,267		56,752		626		—		626
Investor commercial real estate	Investor commercial real estate	28,871		0		28,871		329		0		329		Investor commercial real estate	34,627		—		34,627		405		—		405
Construction	Construction	117,970		0		117,970		1,357		0		1,357		Construction	149,662		—		149,662		1,766		—		1,766
Single tenant lease financing	Single tenant lease financing	910,742		2,373		913,115		10,838		367		11,205		Single tenant lease financing	851,427		1,092		852,519		9,876		95		9,971
Public finance	Public finance	612,138		0		612,138		1,700		0		1,700		Public finance	587,817		—		587,817		1,783		—		1,783
Healthcare finance	Healthcare finance	454,919		971		455,890		6,415		523		6,938		Healthcare finance	353,666		908		354,574		4,987		523		5,510
Small business lending(1)	Small business lending(1)	122,084		1,209		123,293		783		0		783		Small business lending(1)	94,525		2,515		97,040		1,042		393		1,435

Franchise finance														Franchise finance	107,246		—		107,246		1,437		—		1,437
Residential mortgage	Residential mortgage	174,717		2,431		177,148		594		0		594		Residential mortgage	187,528		3,625		191,153		731		—		731
Home equity	Home equity	17,496		14		17,510		63		0		63		Home equity	18,086		14		18,100		65		—		65
Other consumer	Other consumer	271,786		10		271,796		2,173		0		2,173		Other consumer	270,317		13		270,330		2,189		—		2,189
Tax refund advance loans														Tax refund advance loans	9,177		—		9,177		354		—		354
Total	Total	$	2,889,883	$	11,187	$	2,901,070	$	26,726	$	1,340	$	28,066	Total	$	2,816,761	$	12,044	$	2,828,805	$	26,790	$	1,461	$	28,251

1 Balance of loans individually evaluated for impairment are guaranteed by the U.S. government.


(in thousands)	(in thousands)	Loans						Allowance for Loan Losses						(in thousands)	Loans						Allowance for Loan Losses
December 31, 2020		Ending Balance: Collectively Evaluated for Impairment		Ending Balance: Individually Evaluated for Impairment		Ending Balance		Ending Balance: Collectively Evaluated for Impairment		Ending Balance: Individually Evaluated for Impairment		Ending Balance
December 31, 2021														December 31, 2021	Ending Balance: Collectively Evaluated for Impairment		Ending Balance: Individually Evaluated for Impairment		Ending Balance		Ending Balance: Collectively Evaluated for Impairment		Ending Balance: Individually Evaluated for Impairment		Ending Balance
Commercial and industrial	Commercial and industrial	$	74,870	$	517	$	75,387	$	1,146	$	0	$	1,146	Commercial and industrial	$	95,364	$	644	$	96,008	$	1,441	$	450	$	1,891
Owner-occupied commercial real estate	Owner-occupied commercial real estate	87,947		1,838		89,785		1,082		0		1,082		Owner-occupied commercial real estate	63,387		3,345		66,732		742		—		742
Investor commercial real estate	Investor commercial real estate	13,902		0		13,902		155		0		155		Investor commercial real estate	28,019		—		28,019		328		—		328
Construction	Construction	110,385		0		110,385		1,192		0		1,192		Construction	136,619		—		136,619		1,612		—		1,612
Single tenant lease financing	Single tenant lease financing	942,848		7,324		950,172		9,900		3,090		12,990		Single tenant lease financing	864,754		1,100		865,854		10,290		95		10,385
Public finance	Public finance	622,257		0		622,257		1,732		0		1,732		Public finance	592,665		—		592,665		1,776		—		1,776
Healthcare finance	Healthcare finance	527,144		1,010		528,154		7,485		0		7,485		Healthcare finance	386,926		926		387,852		5,417		523		5,940
Small business lending(1)	Small business lending(1)	125,589		0		125,589		628		0		628		Small business lending(1)	106,682		1,984		108,666		994		393		1,387

Franchise finance														Franchise finance	81,448		—		81,448		1,083		—		1,083
Residential mortgage	Residential mortgage	185,241		1,546		186,787		519		0		519		Residential mortgage	183,852		2,918		186,770		643		—		643
Home equity	Home equity	19,857		0		19,857		48		0		48		Home equity	17,651		14		17,665		64		—		64
Other consumer	Other consumer	275,642		50		275,692		2,507		0		2,507		Other consumer	265,469		9		265,478		1,990		—		1,990

Total	Total	$	2,985,682	$	12,285	$	2,997,967	$	26,394	$	3,090	$	29,484	Total	$	2,822,836	$	10,940	$	2,833,776	$	26,380	$	1,461	$	27,841

1 Balance of loans individually evaluated for impairment are guaranteed by the U.S. government.

1615

The Company utilizes a risk grading matrix to assign a risk grade to each of its commercial loans. A description of the general characteristics of the risk grades is as follows:

•“Pass” - Higher quality loans that do not fit any of the other categories described below.

•“Special Mention” - Loans that possess some credit deficiency or potential weakness, which deserve close attention.

•“Substandard” - Loans that possess a defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

•“Doubtful” - 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 that 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.

•“Loss” - Loans that are considered uncollectible and of such little value that continuing to carry them as assets is not warranted.

Nonaccrual Loans

Any loan which becomes 90 days delinquent or for 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.

1716

The following tables present the credit risk profile of the Company’s commercial and consumer loan portfolios based on rating category and payment activity as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.


		June 30, 2021						March 31, 2022
(in thousands)	(in thousands)	Pass		Special Mention		Substandard			Total		(in thousands)	Pass		Special Mention		Substandard		Total
Commercial and industrial	Commercial and industrial	$	79,928	$	15,563	$	712		$	96,203	Commercial and industrial	$	85,340	$	13,858	$	610	$	99,808
Owner-occupied commercial real estate	Owner-occupied commercial real estate	79,730		3,919		3,487			87,136		Owner-occupied commercial real estate	49,520		3,965		3,267		56,752
Investor commercial real estate	Investor commercial real estate	28,871		0		0			28,871		Investor commercial real estate	34,627		—		—		34,627
Construction	Construction	117,970		0		0			117,970		Construction	136,466		13,196		—		149,662
Single tenant lease financing	Single tenant lease financing	901,505		9,237		2,373			913,115		Single tenant lease financing	846,543		4,884		1,092		852,519
Public finance	Public finance	612,138		0		0			612,138		Public finance	585,387		2,430		—		587,817
Healthcare finance	Healthcare finance	454,312		615		963			455,890		Healthcare finance	353,090		576		908		354,574
Small business lending(1)	Small business lending(1)	112,864		8,718		1,711			123,293		Small business lending(1)	87,358		7,167		2,515		97,040

Franchise finance											Franchise finance	107,246		—		—		107,246
Total commercial loans	Total commercial loans	$	2,387,318	$	38,052	$	9,246		$	2,434,616	Total commercial loans	$	2,285,577	$	46,076	$	8,392	$	2,340,045

1 Balance in “Substandard” is guaranteed by the U.S. government.


		June 30, 2021							March 31, 2022
(in thousands)	(in thousands)	Performing		Nonaccrual		Total		(in thousands)	Performing		Nonaccrual		Total
Residential mortgage	Residential mortgage	$	175,895	$	1,253	$	177,148	Residential mortgage	$	189,946	$	1,207	$	191,153
Home equity	Home equity	17,496		14		17,510		Home equity	18,086		14		18,100
Other consumer	Other consumer	271,786		10		271,796		Other consumer	270,317		13		270,330
Tax refund advance loans								Tax refund advance loans	9,177		—		9,177
Total consumer loans	Total consumer loans	$	465,177	$	1,277	$	466,454	Total consumer loans	$	487,526	$	1,234	$	488,760


		December 31, 2020						December 31, 2021
(in thousands)	(in thousands)	Pass		Special Mention		Substandard			Total		(in thousands)	Pass		Special Mention		Substandard		Total
Commercial and industrial	Commercial and industrial	$	74,138	$	732	$	517		$	75,387	Commercial and industrial	$	82,412	$	12,952	$	644	$	96,008
Owner-occupied commercial real estate	Owner-occupied commercial real estate	84,292		3,655		1,838			89,785		Owner-occupied commercial real estate	59,369		4,018		3,345		66,732
Investor commercial real estate	Investor commercial real estate	13,902		0		0			13,902		Investor commercial real estate	28,019		—		—		28,019
Construction	Construction	110,385		0		0			110,385		Construction	124,578		12,041		—		136,619
Single tenant lease financing	Single tenant lease financing	932,830		10,018		7,324			950,172		Single tenant lease financing	859,612		5,142		1,100		865,854
Public finance	Public finance	622,257		0		0			622,257		Public finance	591,630		1,035		—		592,665
Healthcare finance	Healthcare finance	526,517		627		1,010			528,154		Healthcare finance	386,337		589		926		387,852
Small business lending(1)	Small business lending(1)	117,474		2,930		5,185			125,589		Small business lending(1)	99,250		7,432		1,983		108,666

Franchise finance											Franchise finance	81,448		—		—		81,448
Total commercial loans	Total commercial loans	$	2,481,795	$	17,962	$	15,874		$	2,515,631	Total commercial loans	$	2,312,655	$	43,209	$	7,998	$	2,363,863

December 31, 2020
(in thousands) Performing Nonaccrual Total
Residential mortgage $ 185,604 $ 1,183 $ 186,787
Home equity 19,857 0 19,857
Other consumer 275,646 46 275,692
Total consumer loans $ 481,107 $ 1,229 $ 482,336
1 Balance in “Substandard” is guaranteed by the U.S. government.


	December 31, 2021
(in thousands)	Performing		Nonaccrual		Total
Residential mortgage	$	185,544	$	1,226	$	186,770
Home equity	17,651		14		17,665
Other consumer	265,469		9		265,478
Total consumer loans	$	468,664	$	1,249	$	469,913

1817

The following tables present the Company’s loan portfolio delinquency analysis as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.


		June 30, 2021																	March 31, 2022
(in thousands)	(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		Non- accrual Loans		Total Loans 90 Days or More Past Due and Accruing		(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		Non- accrual Loans		Total Loans 90 Days or More Past Due and Accruing
Commercial and industrial	Commercial and industrial	$	2	$	0	$	0	$	2	$	96,201	$	96,203	$	692	$	0	Commercial and industrial	$	—	$	—	$	—	$	—	$	99,808	$	99,808	$	610	$	—
Owner-occupied commercial real estate	Owner-occupied commercial real estate	0		0		0		0		87,136		87,136		0		0		Owner-occupied commercial real estate	—		—		—		—		56,752		56,752		—		—
Investor commercial real estate	Investor commercial real estate	0		0		0		0		28,871		28,871		3,487		0		Investor commercial real estate	—		—		—		—		34,627		34,627		3,267		—
Construction	Construction	0		0		0		0		117,970		117,970		0		0		Construction	—		—		—		—		149,662		149,662		—		—
Single tenant lease financing	Single tenant lease financing	0		0		0		0		913,115		913,115		2,373		0		Single tenant lease financing	—		—		—		—		852,519		852,519		1,092		—
Public finance	Public finance	0		0		0		0		612,138		612,138		0		0		Public finance	—		—		—		—		587,817		587,817		—		—
Healthcare finance	Healthcare finance	0		0		0		0		455,890		455,890		0		0		Healthcare finance	—		—		—		—		354,574		354,574		—		—
Small business lending(1)	Small business lending(1)	0		0		1,209		1,209		122,084		123,293		1,209		0		Small business lending(1)	515		—		129		644		96,396		97,040		881		—

Franchise finance																		Franchise finance	—		—		—		—		107,246		107,246		—		—
Residential mortgage	Residential mortgage	0		0		364		364		176,784		177,148		1,253		0		Residential mortgage	—		77		106		183		190,970		191,153		1,207		—
Home equity	Home equity	0		0		0		0		17,510		17,510		14		0		Home equity	—		—		—		—		18,100		18,100		14		—
Other consumer	Other consumer	89		9		0		98		271,698		271,796		10		0		Other consumer	69		64		—		133		270,197		270,330		13		—
Tax refund advance loans																		Tax refund advance loans	—		—		—		—		9,177		9,177		—		—
Total	Total	$	91	$	9	$	1,573	$	1,673	$	2,899,397	$	2,901,070	$	9,038	$	0	Total	$	584	$	141	$	235	$	960	$	2,827,845	$	2,828,805	$	7,084	$	—

1 Balance in ~~“90 Days or More~~“Total Past Due” is guaranteed by the U.S. government.


		December 31, 2020																	December 31, 2021
(in thousands)	(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		Non- accrual Loans		Total Loans 90 Days or More Past Due and Accruing		(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		Non- accrual Loans		Total Loans 90 Days or More Past Due and Accruing
Commercial and industrial	Commercial and industrial	$	0	$	0	$	0	$	0	$	75,387	$	75,387	$	0	$	0	Commercial and industrial	$	—	$	—	$	—	$	—	$	96,008	$	96,008	$	674	$	—
Owner-occupied commercial real estate	Owner-occupied commercial real estate	0		0		0		0		89,785		89,785		1,838		0		Owner-occupied commercial real estate	—		—		—		—		66,732		66,732		—		—
Investor commercial real estate	Investor commercial real estate	0		0		0		0		13,902		13,902		0		0		Investor commercial real estate	—		—		—		—		28,019		28,019		3,419		—
Construction	Construction	0		0		0		0		110,385		110,385		0		0		Construction	—		—		—		—		136,619		136,619		—		—
Single tenant lease financing	Single tenant lease financing	0		0		4,680		4,680		945,492		950,172		7,116		0		Single tenant lease financing	—		—		—		—		865,854		865,854		1,100		—
Public finance	Public finance	0		0		0		0		622,257		622,257		0		0		Public finance	—		—		—		—		592,665		592,665		—		—
Healthcare finance	Healthcare finance	0		0		0		0		528,154		528,154		0		0		Healthcare finance	—		—		—		—		387,852		387,852		—		—
Small business lending(1)	Small business lending(1)	0		0		0		0		125,589		125,589		0		0		Small business lending(1)	—		—		657		657		108,009		108,666		959		—

Franchising Finance																		Franchising Finance	—		—		—		—		81,448		81,448		—		—
Residential mortgage	Residential mortgage	49		0		269		318		186,469		186,787		1,183		0		Residential mortgage	51		226		106		383		186,387		186,770		1,226		—
Home equity	Home equity	0		15		0		15		19,842		19,857		0		0		Home equity	—		—		—		—		17,665		17,665		14		—
Other consumer	Other consumer	176		51		5		232		275,460		275,692		46		0		Other consumer	68		18		—		86		265,392		265,478		9		—
Total	Total	$	225	$	66	$	4,954	$	5,245	$	2,992,722	$	2,997,967	$	10,183	$	0	Total	$	119	$	244	$	763	$	1,126	$	2,832,650	$	2,833,776	$	7,401	$	—

1 Balance in “Total Past Due” is guaranteed by the U.S. government.

Impaired Loans

A loan is designated as impaired, in accordance with the impairment 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 loan 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.

Impaired loans include nonperforming loans as well as loans modified in TDRs 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.

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, less costs to sell, and allows existing methods for recognizing interest income.

The following table presents the Company’s impaired loans as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.


		June 30, 2021						December 31, 2020							March 31, 2022						December 31, 2021
(in thousands)	(in thousands)	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Recorded Balance		Unpaid Principal Balance		Specific Allowance		(in thousands)	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Recorded Balance		Unpaid Principal Balance		Specific Allowance
Loans without a specific valuation allowance	Loans without a specific valuation allowance													Loans without a specific valuation allowance
Commercial and industrial		$	3,487	$	3,513	$	0	$	517	$	517	$	0

Owner-occupied commercial real estate	Owner-occupied commercial real estate	0		0		0		1,838		1,850		0		Owner-occupied commercial real estate	$	3,267	$	3,453	$	—	$	3,345	$	3,466	$	—

Single tenant lease financing		0		0		0		1,315		1,334		0

Healthcare finance		0		0		0		1,010		1,010		0

Small business lending(1)	Small business lending(1)	1,209		1,209		0		0		0		0		Small business lending(1)	881		1,079		—		959		1,193		—

Residential mortgage	Residential mortgage	2,431		2,566		0		1,546		1,652		0		Residential mortgage	3,625		3,780		—		2,918		3,063		—
Home equity	Home equity	14		15		0		0		0		0		Home equity	14		15		—		14		15		—
Other consumer		10		47		0		50		120		0
Other consumer loans														Other consumer loans	13		55		—		9		44		—
Total	Total	7,151		7,350		0		6,276		6,483		0		Total	7,800		8,382		—		7,245		7,781		—
Loans with a specific valuation allowance	Loans with a specific valuation allowance													Loans with a specific valuation allowance
Commercial and industrial	Commercial and industrial	692		723		450		0		0		0		Commercial and industrial	610		652		450		644		677		450

Single tenant lease financing	Single tenant lease financing	2,373		2,463		367		6,009		6,036		3,090		Single tenant lease financing	1,092		1,116		95		1,100		1,123		95

Healthcare Finance		971		971		523		0		0		0

Healthcare finance														Healthcare finance	908		908		523		926		926		523
Small business lending(1)														Small business lending(1)	1,634		1,634		393		1,025		1,025		393

Total	Total	4,036		4,157		1,340		6,009		6,036		3,090		Total	4,244		4,310		1,461		3,695		3,751		1,461
Total impaired loans	Total impaired loans	$	11,187	$	11,507	$	1,340	$	12,285	$	12,519	$	3,090	Total impaired loans	$	12,044	$	12,692	$	1,461	$	10,940	$	11,532	$	1,461

1 ~~Entire balance is~~Balance of loans individually evaluated for impairment are guaranteed by the U.S. government.

2019

The table below presents average balances and interest income recognized for impaired loans during the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.


		Three Months Ended								Six Months Ended										Three Months Ended
		June 30, 2021				June 30, 2020				June 30, 2021				June 30, 2020						March 31, 2022				March 31, 2021
(in thousands)	(in thousands)	Average Balance		Interest Income		Average Balance		Interest Income		Average Balance		Interest Income		Average Balance			Interest Income		(in thousands)	Average Balance		Interest Income		Average Balance		Interest Income
Loans without a specific valuation allowance	Loans without a specific valuation allowance																		Loans without a specific valuation allowance
Commercial and industrial	Commercial and industrial	$	259	$	0	$	594	$	18	$	259	$	9	$	1,330	237	$	36	Commercial and industrial	$	—	$	—	$	517	$	9
Owner-occupied commercial real estate	Owner-occupied commercial real estate	3,994		0		3,923		29		3,307		0		4,573		145	31		Owner-occupied commercial real estate	3,307		—		2,440		—

Single tenant lease financing	Single tenant lease financing	148		0		0		0		100		5		0			0		Single tenant lease financing	—		—		151		5

Healthcare finance	Healthcare finance	0		0		0		0		336		0		0			0		Healthcare finance	—		—		1,008		—
Small business lending(1)	Small business lending(1)	1,123		0		0		0		970		0		0			0		Small business lending(1)	830		—		577		—

Residential mortgage	Residential mortgage	2,410		9		1,352		0		2,192		13		1,313			0		Residential mortgage	3,273		8		1,736		4
Home equity	Home equity	15		0		0		0		13		0		0			0		Home equity	14		—		11		—
Other consumer	Other consumer	21		0		75		0		23		0		60			0		Other consumer	10		—		37		—
Total	Total	7,970		9		5,944		47		7,200		27		7,276			67		Total	7,434		8		6,477		18
Loans with a specific valuation allowance	Loans with a specific valuation allowance																		Loans with a specific valuation allowance
Commercial and industrial	Commercial and industrial	839		0		204		0		677		0		204			0		Commercial and industrial	627		—		501		—
Owner-occupied commercial real estate		1,420		—		—		—		473		—		—			—

Single tenant lease financing	Single tenant lease financing	5,430		0		4,680		0		4,984		0		4,680			0		Single tenant lease financing	1,094		—		7,148		—

Healthcare Finance		979		24		—		—		815		36		—			—

Healthcare finance																			Healthcare finance	918		17		494		12
Small business lending(1)																			Small business lending(1)	1,333		—		—		—

Total	Total	8,668		24		4,884		0		6,949		36		4,884			0		Total	3,972		17		8,143		12
Total impaired loans	Total impaired loans	$	16,638	$	33	$	10,828	$	47	$	14,149	$	63	$	12,160		$	67	Total impaired loans	$	11,406	$	25	$	14,620	$	30

1 ~~Entire balance~~Balance is guaranteed by the U.S. government.

The Company ~~had $1.3 million in~~did not have any other real estate owned (“OREO”) as of ~~June 30, 2021, which consisted of 1 commercial property with a carrying value of~~March 31, 2022. The Company had $1.2 million ~~and 1 residential mortgage with a carrying value of $0.1 million. The Company did not have any~~in OREO as of December 31, ~~2020.~~2021, which consisted of one commercial property. There were 2 loans totaling ~~$0.4~~$0.2 million and ~~0 loans~~1 loan totaling $0.1 million in the process of foreclosure at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

Troubled Debt Restructurings

The loan portfolio includes TDRs, which are loans that have been modified to grant economic concessions to borrowers who have experienced financial difficulties. These concessions typically result from loss mitigation efforts and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructuring and typically are returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally not less than six consecutive months.

When loans are modified in a TDR, any possible impairment similar to other impaired loans is evaluated based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, or using 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 allowance or charge-off to the allowance. 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.

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 modification is reviewed by the Company to identify whether a TDR has occurred 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~~obtain additional collateral and/or guarantees to support the debt, or a combination of the two.

There was 1 portfolio residential mortgage loan classified as a new TDR during the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 with a pre-modification and post-modification outstanding recorded investment of ~~$0.8~~$0.7 million. The Company did

2120

~~did~~ not allocate a specific allowance for that loan as of ~~June 30, 2021.~~March 31, 2022. The modifications consisted of interest-only payments for a period of time. There was 1 ~~portfolio~~ residential mortgage loan classified as a new TDR during the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021 with a pre-modification and post-modification outstanding recorded investment of $0.8 million. The Company did not allocate a specific allowance for that loan as of ~~June 30, 2020.~~March 31, 2021. The ~~modification~~modifications consisted of ~~an extension~~interest-only payments for a period of ~~the maturity date.~~time. There were no performing TDRs that had payment defaults within the twelve months following modification during the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively.

Non-TDR Loan Modifications due to COVID-19

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

Additionally, Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) provides that loan modifications due to the impact of COVID-19 that would otherwise be classified as TDRs under GAAP will not be so classified. Modifications within the scope of this relief ~~are~~were in effect from the period beginning March 1, 2020 until the earlier of January 1, 2022 or 60 days after the date on which the national emergency related to the COVID-19 pandemic formally terminates. As of ~~June 30, 2021,~~March 31, 2022, the Company had ~~eight~~seven loans totaling ~~$7.9~~$9.8 million in non-TDR loan modifications due to COVID-19.

Note 5: Premises and Equipment

The following table summarizes premises and equipment at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.


(in thousands)	(in thousands)	June 30, 2021		December 31, 2020		(in thousands)	March 31, 2022		December 31, 2021
Land	Land	$	0	$	2,500	Land	$	5,598	$	—
Construction in process						Construction in process	—		57,469
Right of use leased asset	Right of use leased asset	304		819		Right of use leased asset	160		208
Construction in process		42,106		28,754
Building and improvements	Building and improvements	439		5,819		Building and improvements	51,902		1,090
Furniture and equipment	Furniture and equipment	7,636		10,671		Furniture and equipment	18,666		7,800
Less: accumulated depreciation	Less: accumulated depreciation	(6,236)		(10,973)		Less: accumulated depreciation	(7,694)		(6,725)
Total	Total	$	44,249	$	37,590	Total	$	68,632	$	59,842

In December 2018, the Bank’s subsidiary, SPF15, Inc., entered into a project agreement with the City of Fishers, Indiana (the “City”), and its Redevelopment Commission, among others, to construct an office building to include the Company’s future headquarters and associated parking garage on property the Bank had acquired in 2018. Construction began on the project in the fourth quarter 2019 and is expected to be substantially complete in the fourth quarter 2021. The Company anticipates fully occupying the new headquarters building by the end of 2021.

On February 16, 2021, the Company entered into an agreement to sell its ~~current~~then headquarters (the “Prior Headquarters”) and certain equipment ~~currently~~ located in the ~~building~~Prior Headquarters to a third party. The sale was completed on April 16, 2021, and asthe Company recorded a gain on sale of $2.5 million. As a part of the sale agreement, the buyer agreed to lease the ~~office building~~Prior Headquarters back to the Company through December 31, ~~2021, with an option to extend up to 90 days beyond that date. The sale price was $8.9 million in cash paid in full at closing.~~2021. The Company ~~is expected to continue to lease substantially all~~vacated the Prior Headquarters at the end of the ~~office space for the duration of the primary leaseback period.~~lease, on or prior to December 31, 2021.

Note 6: Goodwill

As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the carrying amount of goodwill was $4.7 million. There have been no changes in the carrying amount of goodwill for the three ~~and six~~ months ended ~~June 30, 2021.~~March 31, 2022. Goodwill is assessed for impairment annually as of August 31, or more frequently if events occur or circumstances change that indicate an impairment may exist. When assessing goodwill for impairment, first, a qualitative assessment can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment.

Goodwill was assessed for impairment using a ~~quantitative~~qualitative test performed as of August 31, ~~2020.~~2021. The estimated fair value of the reporting unit exceeded the net carrying value, and therefore no goodwill impairment existed as of that date.

Note 7: Servicing Asset

Activity for the servicing asset and the related changes in fair value for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ are shown in the table below.


									Three Months Ended
(in thousands)	(in thousands)	Three Months Ended				(in thousands)	March 31, 2022		March 31, 2021
		June 30, 2021		June 30, 2020
Balance, beginning of period	Balance, beginning of period	$	3,817	$	2,415			Balance, beginning of period	$	4,702	$	3,569
Additions
Additions:								Additions:
Originated and purchased servicing	Originated and purchased servicing	543		197				Originated and purchased servicing	844		403
Subtractions	Subtractions							Subtractions
Paydowns		(154)		(90)
Paydowns:								Paydowns:	(256)		(170)
Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model	Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model	(86)		0				Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model	(41)		15
Loan servicing asset revaluation								Loan servicing asset revaluation	$	(297)	$	(155)
Balance, end of period	Balance, end of period	$	4,120	$	2,522			Balance, end of period	$	5,249	$	3,817

(in thousands) Six Months Ended
June 30, 2021 June 30, 2020
Balance, beginning of period $ 3,569 $ 2,481
  Additions
     Originated and purchased servicing 946 310
  Subtractions
     Paydowns (324) (269)
  Changes in fair value due to changes in valuation inputs or assumptions used in the
  valuation model (71) 0
Balance, end of period $ 4,120 $ 2,522

Loans serviced for others are not included in the condensed consolidated balance sheets. The unpaid principal balances of these loans serviced for others as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 are shown in the table below.


(in thousands)	(in thousands)					(in thousands)	March 31, 2022	December 31, 2021
		June 30, 2021		December 31, 2020
Loan portfolios serviced for:	Loan portfolios serviced for:								Loan portfolios serviced for:
SBA guaranteed loans	SBA guaranteed loans	$	196,869	$	165,961				SBA guaranteed loans	$	254,545	$	230,514

Total	Total	$	196,869	$	165,961				Total	$	254,545	$	230,514

Loan servicing revenue totaled ~~$0.5~~$0.6 million and ~~$0.9~~$0.4 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and March 31, 2021, ~~and $0.3 million and $0.5 million for the three and six months ended June 30, 2020,~~ respectively. Loan servicing asset revaluation, which represents the change in fair value of the servicing asset, resulted in a ~~$0.2~~$0.3 million and ~~$0.4 million~~

~~downward valuation for the three and six months ended June 30, 2021, respectively, and a $0.1 and $0.3~~$0.2 million downward valuation for the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2022 and 2021, respectively.

The fair value of servicing rights is highly sensitive to changes in underlying assumptions. Though fluctuations in prepayment speeds and changes in secondary market premiums generally have the most substantial impact on the fair value of servicing rights, other influencing factors include changing economic conditions, changes to the discount rate assumption and the weighted average life of the servicing portfolio. Measurement of fair value is limited to the conditions existing and the assumptions used as of a particular point in time; however, those assumptions may change over time. Refer to Note 11 - Fair Value of Financial Instruments for further details.

Note 8: Subordinated Debt

In October 2015, the Company entered into a term loan in the principal amount of $10.0 million, evidenced by a term note due 2025 (the “2025 Note”). The 2025 Note had a fixed interest rate of 6.4375% per year, payable quarterly, and was scheduled to mature on October 1, 2025. The 2025 Note was an unsecured subordinated obligation of the Company and was eligible to be repaid, without penalty, on any interest payment date on or after October 15, 2020. The 2025 Note was intended to qualify as Tier 2 capital under regulatory guidelines. The Company redeemed the 2025 Note on January 4, 2021.

In September 2016, the Company issued $25.0 million aggregate principal amount of 6.0% Fixed-to-Floating Rate Subordinated Notes due 2026 (the “2026 Notes”) in a public offering. The 2026 Notes initially ~~bear~~had a fixed interest rate of 6.0% per year to, but excluding September 30, 2021, and thereafter a floating rate equal to the then-current three-month LIBOR rate plus 485 basis points. All interest on the 2026 Notes iswas payable quarterly. The 2026 Notes ~~are~~were scheduled to mature on September 30, 2026. The 2026 Notes ~~are~~were unsecured subordinated obligations of the Company ~~and may~~eligible to be repaid, without penalty, on any interest payment date on or after September 30, 2021. The 2026 Notes ~~are~~were intended to qualify as Tier 2 capital under regulatory guidelines. The Company redeemed the 2026 Notes in full on September 30, 2021.

In June 2019, the Company issued $37.0 million aggregate principal amount of 6.0% Fixed-to-Floating Rate Subordinated Notes due 2029 (the “2029 Notes”) in a public offering. The 2029 Notes initially bear a fixed interest rate of 6.0% per year to, but excluding, June 30, 2024, and thereafter a floating rate equal to the then-current benchmark rate (initially three-month LIBOR rate) plus ~~411 basis points.~~4.11%. All interest on the 2029 Notes is payable quarterly. The 2029 Notes are scheduled to mature on June 30, 2029. The 2029 Notes are unsecured subordinated obligations of the Company and may be repaid, without penalty, on any interest payment date on or after June 30, 2024. The 2029 Notes are intended to qualify as Tier 2 capital under regulatory guidelines.

In October 2020, the Company entered into a term loan in the principal amount of $10.0 million evidenced by a term ~~notes~~note due 2030 (the “2030 ~~Notes”~~Note”). The 2030 ~~Notes~~Note initially bears a fixed interest rate of 6.0% per year to, but excluding, November 1, 2025 and thereafter at a floating rate equal to the then-current benchmark rate (initially the then current three-month term secured overnight financing rate (“Term ~~SOFR~~SOFR”) plus 5.795%). The 2030 ~~Notes are~~Note is an unsecured subordinated obligation of the Company and may be repaid, without penalty, on any interest payment date on or after November 1, 2025. The 2030 ~~Notes are~~Note is intended to qualify as Tier 2 capital under regulatory guidelines. The Company used the net proceeds from the issuance of the 2030 Note to redeem a subordinated term note that had been entered into in October 2015.

In August 2021, the Company issued $60.0 million aggregate principal amount of 3.75% Fixed-to-Floating Rate Subordinated Notes due 2031 (the “2031 Notes”) in a private placement. The 2031 Notes initially bear a fixed interest rate of 3.75% per year to, but excluding, September 1, 2026, and thereafter a floating rate equal to the then-current benchmark rate (initially three-month Term SOFR plus 3.11%). The 2031 Notes are scheduled to mature on September 1, 2031. The 2031 Notes are unsecured subordinated obligations of the Company and may be repaid, without penalty, on any interest payment date on or after September 1, 2026. The 2031 Notes are intended to qualify as Tier 2 capital under regulatory guidelines. The Company used a portion of the net proceeds from the issuance of the 2031 Notes to redeem the ~~2025 Note~~2026 Notes. Pursuant to the terms of a Registration Rights Agreement between the Company and the initial purchasers of the 2031 Notes, the Company offered to exchange the 2031 Notes for subordinated notes that are registered under the Securities Act of 1933, as ~~discussed above.~~amended, and have substantially the same terms as the 2031 Notes. On December 30, 2021, we completed an exchange of $59.3 million principal amount of the unregistered 2031 Notes for registered 2031 Notes in satisfaction of our obligations under the registration rights agreement. Holders of $0.7 million of unregistered 2031 Notes did not participate in the exchange.

The following table presents the principal balance and unamortized debt issuance costs for the ~~2025 Note, the 2026~~2029 Notes, the ~~2029~~2030 Notes, and the ~~2030~~2031 Notes as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.


		June 30, 2021				December 31, 2020					March 31, 2022				December 31, 2021
(in thousands)	(in thousands)	Principal		Unamortized Debt Issuance Costs		Principal		Unamortized Debt Issuance Costs		(in thousands)	Principal		Unamortized Debt Issuance Costs		Principal		Unamortized Debt Issuance Costs

2025 Note		0		0		10,000		(114)
2026 Notes		25,000		(652)		25,000		(715)
2029 Notes	2029 Notes	37,000		(1,258)		37,000		(1,337)		2029 Notes	$	37,000	$	(1,139)	$	37,000	$	(1,178)
2030 Notes	2030 Notes	$	10,000	$	(219)	$	10,000	$	(231)	2030 Notes	10,000		(201)		10,000		(208)
2031 Notes										2031 Notes	60,000		(1,354)		60,000		(1,383)

Total	Total	$	72,000	$	(2,129)	$	82,000	$	(2,397)	Total	$	107,000	$	(2,694)	$	107,000	$	(2,769)

Note 9: Benefit Plans

Employment Agreement

The Company is party to an employment agreement with its Chief Executive Officer that provides for an annual base salary and an annual bonus, if any, as determined from time to time by the Compensation Committee of our 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 the Chief Executive Officer and other senior officers. The agreement also provides that the Chief Executive Officer may be awarded additional compensation, benefits, or consideration as the Compensation Committee may determine.

The agreement provides for the continuation of salary and certain other benefits for a specified period of time upon termination of his employment under certain circumstances, including his resignation for “good reason” or termination

by the Company without “cause” at any time or any termination of his employment for any reason within twelve months following a “change in control,” along with other specific conditions.

2013 Equity Incentive Plan

The 2013 Equity Incentive Plan (the “2013 Plan”) authorizes the issuance of 750,000 shares of the Company’s common stock in 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 issuance 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 other share-based awards. All employees, consultants, and advisors of the Company or any subsidiary, as well as all non-employee directors of the Company, are eligible to receive awards under the 2013 Plan.

The Company recorded $0.6 million ~~and $1.3 million~~ of share-based compensation expense for the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022, related to awards made under the 2013 Plan. The Company recorded $~~0.5~~0.7 million ~~and $1.1 million~~ of share-based compensation expense for the three ~~and six~~ months ended ~~June 30, 2020, respectively,~~March 31, 2021, related to awards made under the 2013 Plan.

The following table summarizes the status of the 2013 Plan awards as of ~~June 30, 2021~~March 31, 2022, and activity for the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022.

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 Share
Nonvested at December 31, 2020 112,985 $ 27.76 0 $ 0 0 $ 0
   Granted 60,111 30.42 13,878 30.27 4 32.53
   Cancelled/Forfeited — — (1,057) 30.13 — —
   Vested (35,745) 30.12 (6,479) 30.20 (4) 32.53
Nonvested at June 30, 2021 137,351 $ 28.32 6,342 $ 30.36 0 $ 0


	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 Share
Unvested at December 31, 2021	112,822	$	28.18	—	$	—	—	$	—
Granted	41,381	46.71		9,954	52.64		1	52.64

Vested	(23,256)	24.62		(2,502)	52.64		(1)	52.64

Unvested at March 31, 2022	130,947	$	34.67	7,452	$	52.64	—	$	—

At ~~June 30, 2021,~~March 31, 2022, the total unrecognized compensation cost related to ~~nonvested~~unvested awards was ~~$3.1~~$3.8 million with a weighted-average expense recognition period of ~~1.8~~2.0 years.

Directors Deferred Stock Plan

Until January 1, 2014, the Company had a practice of granting awards under a stock compensation plan for members of the Board of Directors (“Directors Deferred Stock Plan”). The Company reserved 180,000 shares of common stock that could have been issued pursuant to the Directors Deferred Stock Plan. The Directors Deferred Stock Plan provided directors the option to elect to receive up to 100% of their annual retainer in either common stock or deferred stock rights. Deferred stock rights were to be settled in common stock following the end of the deferral period payable on the basis of one share of common stock for each deferred stock right.

The following table summarizes the status of deferred stock rights related to the Directors Deferred Stock Plan for the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022.


						Deferred Stock Rights
Outstanding, beginning of period						~~83,835~~84,536
Granted						~~350~~107
Exercised						0—
Outstanding, end of period						~~84,185~~84,643

All deferred stock rights granted during the ~~2021~~2022 period were additional rights issued in lieu of cash dividends payable on outstanding deferred stock rights.

Note 10: Commitments and Credit Risk

In the normal course of business, the Company makes various commitments to extend credit which are not reflected in the accompanying condensed consolidated financial statements. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company had outstanding loan commitments totaling approximately ~~$293.1~~$325.7 million and ~~$263.9~~$324.3 million, respectively.

~~In addition, the Company had unfunded commitments to provide capital contributions for on-balance-sheet investments in the amount of $4.8 million as of June 30, 2021.~~

The Company is also a limited partner in a Small Business Investment Company fund (the “SBIC Fund”). As of June 30, 2021, the Company has committed to contribute up to $1.1 million of capital to the SBIC Fund.

Capital Commitments

Capital expenditures contracted tofor at the balance sheet date but not yet recognized in the financial statements are associated with the construction of ~~premises intended to house~~the building where our ~~future~~ corporate ~~headquarters.~~headquarters is located, along with an attached parking garage. The Company has entered into construction-related contracts ~~and change orders~~ in the amount of ~~$66.4~~$68.7 million. As of ~~June 30, 2021, $25.4~~March 31, 2022, $8.3 million of such contract commitments had not yet been incurred. These commitments are due within ~~twelve months.~~one year.

Note 11: Fair Value of Financial Instruments

ASC Topic 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 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

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

Available-for-Sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid mutual funds. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.

Level 2 securities include U.S. Government-sponsored agencies, municipal securities, mortgage- and asset-backed securities and 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 also on the investment securities’ relationship to other benchmark quoted investment securities.

In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the 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. Rating agency and industry research reports as well as default and deferral activity are reviewed and incorporated into the calculation. The Company did not own any securities classified within Level 3 of the hierarchy as of ~~June 30, 2021~~March 31, 2022 or December 31, ~~2020.~~2021.

Loans Held-for-Sale (mandatory pricing agreements)

The fair value of loans held-for-sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan (Level 2).

Servicing Asset

Fair value is based on a loan-by-loan basis taking into consideration the original maturity of the loans, the current age of the loans and the remaining term to maturity. The valuation methodology utilized for the servicing assets begins with generating estimated future cash flows for each servicing asset, based on their unique characteristics and market-based assumptions for prepayment speeds and costs to service. The present value of the future cash flows is then calculated utilizing market-based discount rate assumptions (Level 3).

Interest Rate Swap Agreements

The fair value of interest rate swap agreements is estimated using current market interest rates as of the balance sheet date and calculated using discounted cash flows that are observable or that can be corroborated by observable market data (Level 2).

Forward Contracts

The fair values of forward contracts on to-be-announced securities are determined using quoted prices in active markets or benchmarked thereto (Level 1).

Interest Rate Lock Commitments

The fair values of interest rate lock commitments (“IRLCs”) are determined using the projected sale price of individual loans based on changes in market interest rates, projected pull-through rates (the probability that an IRLC will ultimately result in an originated loan), the reduction in the value of the applicant’s option due to the passage of time, and the remaining origination costs to be incurred based on management’s estimate of market costs (Level 3).

The following tables present the fair value measurements of assets and liabilities recognized in the accompanying condensed 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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.


				June 30, 2021 Fair Value Measurements Using									March 31, 2022 Fair Value Measurements Using
(in thousands)	(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government-sponsored agencies	U.S. Government-sponsored agencies	$	57,135	$	0	$	57,135	$	0	U.S. Government-sponsored agencies	$	43,847	$	—	$	43,847	$	—
Municipal securities	Municipal securities	78,438		0		78,438		0		Municipal securities	72,804		—		72,804		—
Agency mortgage-backed securities		444,494		0		444,494		0
Private label mortgage-backed securities		29,363		0		29,363		0
Agency mortgage-backed securities - residential										Agency mortgage-backed securities - residential	257,682		—		257,682		—
Agency mortgage-backed securities - commercial										Agency mortgage-backed securities - commercial	24,156		—		24,156		—
Private label mortgage-backed securities - residential										Private label mortgage-backed securities - residential	14,818		—		14,818		—
Asset-backed securities	Asset-backed securities	5,005		0		5,005		0		Asset-backed securities	4,986		—		4,986		—
Corporate securities	Corporate securities	49,084		0		49,084		0		Corporate securities	46,995		—		46,995		—

Total available-for-sale securities	Total available-for-sale securities	663,519		0		663,519		0		Total available-for-sale securities	$	465,288	$	—	$	465,288	$	—
Loans held-for-sale (mandatory pricing agreements)	Loans held-for-sale (mandatory pricing agreements)	16,870		0		16,870		0		Loans held-for-sale (mandatory pricing agreements)	17,364		—		17,364		—
Servicing asset	Servicing asset	4,120		0		0		4,120		Servicing asset	5,249		—		—		5,249

Interest rate swap agreements	Interest rate swap agreements	(20,286)		0		(20,286)		0		Interest rate swap agreements	(2,917)		—		(2,917)		—
Forward contracts	Forward contracts	(17)		(17)		0		0		Forward contracts	1,072		1,072		—		—
IRLCs	IRLCs	818		0		0		818		IRLCs	(88)		—		—		(88)

December 31, 2020
Fair Value Measurements Using
(in thousands) Fair
Value Quoted Prices
in Active Markets for Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
U.S. Government-sponsored agencies $ 60,545 $ 0 $ 60,545 $ 0
Municipal securities 82,489 0 82,489 0
Agency mortgage-backed securities 243,921 0 243,921 0
Private label mortgage-backed securities 58,116 0 58,116 0
Asset-backed securities 4,961 0 4,961 0
Corporate securities 47,596 0 47,596 0
Total available-for-sale securities 497,628 0 497,628 0
Loans held-for-sale (mandatory pricing agreements) 26,341 0 26,341 0
Servicing asset 3,569 0 0 3,569
Interest rate swap agreements (17,606) 0 (17,606) 0
Forward contracts (640) (640) 0 0
IRLCs 3,361 0 0 3,361


			December 31, 2021 Fair Value Measurements Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government-sponsored agencies	$	49,040	$	—	$	49,040	$	—
Municipal securities	77,033		—		77,033		—
Agency mortgage-backed securities - residential	373,236		—		373,236		—
Agency mortgage-backed securities - commercial	36,326		0		36,326		0
Private label mortgage-backed securities - residential	16,021		—		16,021		—
Asset-backed securities	5,004		—		5,004		—
Corporate securities	46,384		—		46,384		—

Total available-for-sale securities	$	603,044	$	—	$	603,044	$	—
Loans held-for-sale (mandatory pricing agreements)	23,233		—		23,233		—
Servicing asset	4,702		—		—		4,702

Interest rate swap agreements	(14,271)		—		(14,271)		—
Forward contracts	(30)		(30)		—		—
IRLCs	718		—		—		718

The following tables reconcile the beginning and ending balances of recurring fair value measurements recognized in the accompanying condensed consolidated balance sheets using significant unobservable (Level 3) inputs for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

Three Months Ended
(in thousands) Servicing Asset Interest Rate Lock
Commitments
Balance, April 1, 2021 $ 3,817 $ 1,110
Total realized gains
Additions 543 0
Paydowns (154) 0
Change in fair value (86) (292)
Balance, June 30, 2021 4,120 818
Balance as of April 1, 2020 $ 2,415 $ 2,064
Total realized gains
Additions 197 0
Paydowns 0 0
Change in fair value (90) (1,782)
Balance, June 30, 2020 $ 2,522 $ 282

Six Months Ended
(in thousands) Servicing Asset Interest Rate Lock
Commitments
Balance, January 1, 2021 $ 3,569 $ 3,361
Total realized gains
Additions 946 0
Paydowns (324) 0
Change in fair value (71) (2,543)
Balance, June 30, 2021 4,120 818
Balance as of January 1, 2020 $ 2,481 $ 910
Total realized gains
Additions 310 0
Paydowns 0 0
Change in fair value (269) (628)
Balance, June 30, 2020 $ 2,522 $ 282


	Three Months Ended
(in thousands)	Servicing Asset		Interest Rate Lock Commitments
Balance, January 1, 2022	$	4,702	$	718
Total realized gains
Additions	844		—
Paydowns	(256)		—
Change in fair value	(41)		(806)

Balance, March 31, 2022	$	5,249	$	(88)

Balance as of January 1, 2021	$	3,569	$	3,361
Total realized gains
Additions	403		—
Paydowns	(170)		—
Change in fair value	15		(2,251)

Balance, March 31, 2021	$	3,817	$	1,110

The following describes the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis, as well as the general classification of such assets pursuant to the valuation hierarchy.

Impaired Loans (Collateral Dependent)

Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. The amount of impairment may be determined based on the fair value of the underlying collateral, less costs to sell, the estimated present value of future cash flows or the loan’s observable market price.

If the impaired loan is identified as collateral dependent, the fair value of the underlying collateral, less costs to sell, is used to measure impairment. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. If the impaired loan is not collateral dependent, the Company utilizes a discounted cash flow analysis to measure impairment.

Impaired loans with a specific valuation allowance based on the value of the underlying collateral or a discounted cash flow analysis are classified as Level 3 assets.

The following table presents the fair value measurements of assets and liabilities recognized in the accompanying condensed consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurement falls at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

June 30, 2021
(in thousands) Fair Value Measurements Using
Fair
Value Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Impaired loans 4,035 — — 4,035


				December 31, 2020									December 31, 2021
(in thousands)	(in thousands)			Fair Value Measurements Using						(in thousands)			Fair Value Measurements Using
		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	Impaired loans	$	4,026	$	—	$	—	$	4,026	Impaired loans	$	1,228	$	—	$	—	$	1,228

Significant Unobservable (Level 3) Inputs

The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.

(dollars in thousands)

Fair Value at
June 30, 2021

Valuation
Technique

Significant Unobservable
Inputs

Range

Weighted-Average Range

(dollars in thousands)

Fair Value at
March 31, 2022

Valuation
Technique

Significant Unobservable
Inputs

Range

Weighted-Average Range

Impaired loans

4,035

Fair value of collateral

Discount for type of property and current market conditions

10%

Impaired loans

2,164

Fair value of collateral

Discount for type of property and current market conditions

10%

IRLCs

818

Discounted cash flow

Loan closing rates

63% - 100%

92%

IRLCs

(88)

Discounted cash flow

Loan closing rates

45% - 100%

87%

Servicing asset

3,817

Discounted cash flow

Prepayment speeds

Discount rate

0% - 25%

10%

12.6%

10%

Servicing asset

5,249

Discounted cash flow

Prepayment speeds
Discount rate

0% - 25%

10%

13.3%

10%

(dollars in thousands) Fair Value at
December 31, 2020 Valuation
Technique Significant Unobservable
Inputs Range Weighted-Average Range
Impaired loans $ 4,026 Fair value of collateral Discount for type of property and current market conditions 10% 10%
IRLCs 3,361 Discounted cash flow Loan closing rates 44% - 100% 87%
Servicing asset 3,569

Discounted cash flow Prepayment speeds

Discount rate
0% - 25%

10%
12.1%

10%


(dollars in thousands)	Fair Value at December 31, 2021		Valuation Technique	Significant Unobservable Inputs	Range	Weighted-Average Range
Impaired loans	$	1,228	Fair value of collateral	Discount for type of property and current market conditions	0% - 35%	10.1%

IRLCs	718		Discounted cash flow	Loan closing rates	42% - 100%	89%
Servicing asset	4,702		Discounted cash flow	Prepayment speeds Discount rate	0% - 25% 10%	12.5% 10%

3028

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying condensed consolidated balance sheets at amounts other than fair value.

Cash and Cash Equivalents

For these instruments, the carrying amount is a reasonable estimate of fair value.

Securities Held-to-Maturity

Level 2 securities include municipal securities and 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 also on the investment securities’ relationship to other benchmark quoted investment securities.

Loans Held-for-Sale (best efforts pricing agreements)

The fair value of these loans approximates carrying value.

Loans

The fair value of loans is estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.

Accrued Interest Receivable

The fair value of these financial instruments approximates carrying value.

Federal Home Loan Bank of Indianapolis Stock

The fair value approximates carrying value.

Deposits

The fair value of noninterest-bearing and interest-bearing demand deposits, savings and money market accounts approximates carrying value. The fair value of fixed maturity certificates of deposit and brokered deposits are estimated using rates currently offered for deposits of similar remaining maturities.

Advances from Federal Home Loan Bank

The fair value of fixed rate advances is estimated using rates currently available for advances with similar remaining maturities. The carrying value of variable rate advances approximates fair value.

Subordinated Debt

The fair value of the Company’s publicly traded subordinated debt is obtained from quoted market prices. The fair value of the Company’s remaining subordinated debt is estimated using discounted cash flow analysis, based on current borrowing rates for similar types of debt instruments.

3129

Accrued Interest Payable

The fair value of these financial instruments approximates carrying value.

Commitments

The fair value of commitments to extend credit are based on fees currently charged to enter into similar agreements with similar maturities and interest rates. The Company determined that the fair value of commitments was zero based on the contractual value of outstanding commitments at each of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

The following tables present the carrying value and estimated fair value of all financial assets and liabilities that are not measured at ~~June 30, 2021~~fair value on a recurring basis at March 31, 2022 and December 31, ~~2020.~~2021.


		June 30, 2021 Fair Value Measurements Using											March 31, 2022 Fair Value Measurements Using
(in thousands)	(in thousands)	Carrying Amount		Fair Value		Quoted Prices In Active Market for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		(in thousands)	Carrying Amount		Fair Value		Quoted Prices In Active Market for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	Cash and cash equivalents	$	328,797	$	328,797	$	328,797	$	0	$	0	Cash and cash equivalents	$	517,549	$	517,549	$	517,549	$	—	$	—

Securities held-to-maturity	Securities held-to-maturity	65,659		68,058		0		68,058		0		Securities held-to-maturity	163,370		159,971		—		159,971		—
Loans held-for-sale (best efforts pricing agreements)	Loans held-for-sale (best efforts pricing agreements)	10,717		10,717		0		10,717		0		Loans held-for-sale (best efforts pricing agreements)	16,627		16,627		—		16,627		—
Net loans	Net loans	2,929,542		2,975,406		0		0		2,975,406		Net loans	2,852,529		2,750,399		—		—		2,750,399
Accrued interest receivable	Accrued interest receivable	16,345		16,345		16,345		0		0		Accrued interest receivable	15,263		15,263		15,263		—		—
Federal Home Loan Bank of Indianapolis stock	Federal Home Loan Bank of Indianapolis stock	25,650		25,650		0		25,650		0		Federal Home Loan Bank of Indianapolis stock	25,219		25,219		—		25,219		—
Deposits	Deposits	3,206,147		3,229,241		1,799,490		0		1,429,751		Deposits	3,217,979		3,164,027		1,996,097		—		1,167,930
Advances from Federal Home Loan Bank	Advances from Federal Home Loan Bank	514,919		533,237		0		533,237		0		Advances from Federal Home Loan Bank	514,923		512,307		—		512,307		—
Subordinated debt	Subordinated debt	69,871		75,456		65,294		10,162		0		Subordinated debt	104,306		108,320		38,184		70,136		—
Accrued interest payable	Accrued interest payable	1,132		1,132		1,132		0		0		Accrued interest payable	1,532		1,532		1,532		—		—


		December 31, 2020 Fair Value Measurements Using											December 31, 2021 Fair Value Measurements Using
(in thousands)	(in thousands)	Carrying Amount		Fair Value		Quoted Prices In Active Market for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		(in thousands)	Carrying Amount		Fair Value		Quoted Prices In Active Market for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	Cash and cash equivalents	$	419,806	$	419,806	$	419,806	$	0	$	0	Cash and cash equivalents	$	442,960	$	442,960	$	442,960	$	—	$	—

Securities held-to-maturity	Securities held-to-maturity	68,223		69,452		0		69,452		0		Securities held-to-maturity	59,565		61,468		—		61,468		—
Loans held-for-sale (best efforts pricing agreements)	Loans held-for-sale (best efforts pricing agreements)	13,243		13,243		0		13,243		0		Loans held-for-sale (best efforts pricing agreements)	24,512		24,512		—		24,512		—
Net loans	Net loans	3,029,747		3,084,375		0		0		3,084,375		Net loans	2,859,821		2,880,024		—		—		2,880,024
Accrued interest receivable	Accrued interest receivable	17,416		17,416		17,416		0		0		Accrued interest receivable	16,037		16,037		16,037		—		—
Federal Home Loan Bank of Indianapolis stock	Federal Home Loan Bank of Indianapolis stock	25,650		25,650		0		25,650		0		Federal Home Loan Bank of Indianapolis stock	25,650		25,650		—		25,650		—
Deposits	Deposits	3,270,885		3,307,038		1,679,164		0		1,627,874		Deposits	3,178,959		3,190,000		1,909,432		—		1,280,568
Advances from Federal Home Loan Bank	Advances from Federal Home Loan Bank	514,916		541,945		0		541,945		0		Advances from Federal Home Loan Bank	514,922		526,143		—		526,143		—
Subordinated debt	Subordinated debt	79,603		83,682		63,325		20,357		0		Subordinated debt	104,231		108,788		38,643		70,145		—
Accrued interest payable	Accrued interest payable	1,439		1,439		1,439		0		0		Accrued interest payable	2,018		2,018		2,018		—		—

Note 12: Mortgage Banking Activities

The Company’s residential real estate lending business originates mortgage loans for customers and typically sells a majority of the originated loans into the secondary market. For most of the mortgages it sells in the secondary market,

the Company hedges its mortgage banking pipeline by entering into forward contracts for the future delivery of mortgage

loans to third party investors and entering into IRLCs with potential borrowers to fund specific mortgage loans that will be sold into the secondary market. To facilitate the hedging of the loans, the Company has elected the fair value option for loans originated and intended for sale in the secondary market under mandatory pricing agreements. Changes in the fair value of loans held-for-sale, IRLCs and forward contracts are recorded in the mortgage banking activities line item within noninterest income. Refer to Note 13 for further information on derivative financial instruments.

During the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Company originated mortgage loans held-for-sale of ~~$163.3~~$152.4 million and ~~$211.9~~$223.9 million, respectively, and sold ~~$151.5~~$162.4 million and $229.2 million of mortgage loans, respectively, into the secondary market. During the six months ended June 30, 2021 and 2020, the Company originated mortgage loans held-for-sale of $387.2 million and $427.3 million, respectively, and sold $393.1 million and $454.7$241.6 million of mortgage loans, respectively, into the secondary market.

The following table presents the components of income from mortgage banking activities for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021
Gain on loans sold	Gain on loans sold	$	3,587	$	4,164	$	11,086	$	8,507	Gain on loans sold	$	2,062	$	7,499
(Loss) gain resulting from the change in fair value of loans held-for-sale		118		(1,255)		(744)		(939)
(Loss) gain resulting from the change in fair value of derivatives		(1,031)		499		(1,918)		(492)
Gain (loss) resulting from the change in fair value of loans held-for-sale										Gain (loss) resulting from the change in fair value of loans held-for-sale	(489)		(862)
Gain (loss) resulting from the change in fair value of derivatives										Gain (loss) resulting from the change in fair value of derivatives	300		(887)
Net revenue from mortgage banking activities	Net revenue from mortgage banking activities	$	2,674	$	3,408	$	8,424	$	7,076	Net revenue from mortgage banking activities	$	1,873	$	5,750

Fluctuations in interest rates and changes in IRLC and loan volume within the mortgage banking pipeline may cause volatility in the fair value of loans held-for-sale and the fair value of derivatives used to hedge the mortgage banking pipeline.

Note 13: Derivative Financial Instruments

The Company uses derivative financial instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income and the fair value of assets and liabilities. The Company enters into interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. Additionally, the Company enters into forward contracts for the future delivery of mortgage loans to third-party investors and enters into IRLCs with potential borrowers to fund specific mortgage loans that will be sold into the secondary market. The forward contracts are entered into in order to economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans.

The Company had various interest rate swap agreements designated and qualifying as accounting hedges during the reported periods. Designating an interest rate swap as an accounting hedge allows the Company to recognize gains and losses, in the condensed consolidated statements of income within the same period that the hedged item affects earnings. The Company includes the gain or loss on the hedged items in the same line item as the offsetting loss or gain on the related interest rate swaps. For derivative instruments that are designated and qualify as cash flow hedges, any gains or losses related to changes in fair value are recorded in accumulated other comprehensive loss, net of tax. The fair value of interest rate swaps with a positive fair value are reported in accrued income and other assets in the condensed consolidated balance sheets, while interest rate swaps with a negative fair value are reported in accrued expenses and other liabilities in the condensed consolidated balance sheets.

The IRLCs and forward contracts are not designated as accounting hedges and are recorded at fair value with changes in fair value reflected in noninterest income on the condensed consolidated statements of income. The fair value of derivative instruments with a positive fair value are reported in accrued income and other assets in the condensed consolidated balance sheets, while derivative instruments with a negative fair value are reported in accrued expenses and other liabilities in the condensed consolidated balance sheets.

The following table presents amounts that were recorded on the condensed consolidated balance sheets related to cumulative basis adjustments for interest rate swap derivatives designated as fair value accounting hedges as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

3331

(in thousands)

Carrying amount of the hedged asset

Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets

(in thousands)

Carrying amount of the hedged asset

Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets

Line item in the condensed consolidated balance sheets in which the hedged item is included

June 30, 2021

December 31, 2020

June 30, 2021

December 31, 2020

Line item in the condensed consolidated balance sheets in which the hedged item is included

March 31, 2022

December 31, 2021

March 31, 2022

December 31, 2021

Securities available-for-sale (1)

77,363

124,210

2,834

6,064

Securities available-for-sale (1)

72,416

75,156

(292)

1,729

(1) These amounts include the amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. The designated hedged items were $50.0 million ~~and $88.2 million,~~ at ~~June 30, 2021~~both March 31, 2022 and December 31, ~~2020.~~2021.

The following tables present a summary of interest rate swap derivatives designated as fair value accounting hedges of fixed-rate receivables used in the Company’s asset/liability management activities at ~~June~~March 31 ~~30, 2021~~, 2022 and December 31, ~~2020,~~2021, identified by the underlying interest rate-sensitive instruments.


(dollars in thousands) June 30, 2021		Notional Value			Weighted- Average Remaining Maturity (years)				Weighted-Average Ratio
(dollars in thousands) March 31, 2022											(dollars in thousands) March 31, 2022		Notional Value			Weighted- Average Remaining Maturity (years)					Weighted-Average Ratio
Instruments Associated With	Instruments Associated With			Notional Value			Weighted- Average Remaining Maturity (years)		Fair Value			Receive						Pay	Instruments Associated With				Fair Value			Receive			Pay

Securities available-for-sale	Securities available-for-sale	$	50,000			3.3			$	(2,835)		3-month LIBOR			2.33	%	Securities available-for-sale		$	50,000	2.6			$	288		3-month LIBOR			2.33	%
Total at June 30, 2021		$	50,000		3.3		$	(2,835)	3-month LIBOR			2.33		%
Total at March 31, 2022														Total at March 31, 2022		$	50,000		2.6		$	288		3-month LIBOR			2.33	%


(dollars in thousands) December 31, 2021	Notional Value		Weighted- Average Remaining Maturity (years)			Weighted-Average Ratio
Instruments Associated With				Fair Value		Receive	Pay

Securities available-for-sale	$	50,000	2.8	$	(1,731)	3-month LIBOR	2.33	%
Total at December 31, 2021	$	50,000	2.8	$	(1,731)	3-month LIBOR	2.33	%

In March 2021, the Company terminated ~~fair value hedging relationships~~the last layer of interest rate swaps associated with ~~a notional value of $38.2 million associated with~~available-for-sale agency mortgage-backed securities ~~available-for-sale,~~- residential, which resulted in swap termination payments to counterparties totaling $1.9 million. The corresponding ~~securities~~ fair value hedging adjustment ~~as of~~was allocated pro-rata to the ~~date of termination~~underlying hedged securities and is being amortized over the remaining lives of the designated securities.

(dollars in thousands)

December 31, 2020
Notional Value Weighted- Average Remaining Maturity (years) Weighted-Average Ratio
Instruments Associated With Fair Value Receive Pay
Securities available-for-sale 88,200 3.1 (6,072) 3-month LIBOR 2.54 %
Total at December 31, 2020 $ 88,200 3.1 $ (6,072) 3-month LIBOR 2.54 %
During the three months ended March 31, 2022, amortization expense totaling $0.1 million was recognized as a reduction to interest income on securities.

In June 2020, the Company terminated all fair value hedging relationships associated with loans, which resulted in swap termination payments to counterparties totaling $46.1 million. The corresponding loan fair value hedging adjustment as of the date of termination is being amortized over the remaining lives of the designated loans, which have a weighted average term to maturity of ~~12.61~~12.0 years as of ~~June 30, 2021.~~March 31, 2022. During the three months ended March 31, 2022 and 2021, amortization expense totaling $1.0 million and $1.1 million, respectively, related to these previously terminated fair value hedges was recognized as a reduction to interest income on loans.

The following tables present a summary of interest rate swap derivatives designated as cash flow accounting hedges of variable-rate liabilities used in the Company’s asset/liability management activities at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.


(dollars in thousands) June 30, 2021		Notional		Weighted- Average Remaining Maturity			Weighted-Average Ratio
(dollars in thousands) March 31, 2022										(dollars in thousands) March 31, 2022	Notional		Weighted- Average Remaining Maturity			Weighted-Average Ratio
Cash Flow Hedges	Cash Flow Hedges	Value		(years)	Fair Value		Receive	Pay		Cash Flow Hedges	Value		(years)	Fair Value		Receive	Pay
Interest rate swaps										Interest rate swaps	$	110,000	4.8	$	(2,132)	3-month LIBOR	2.88	%
Interest rate swaps	Interest rate swaps	$	110,000	5.6	$	(11,349)	3-month LIBOR	2.88	%	Interest rate swaps	60,000		1.4	(648)		1-month LIBOR	2.88	%
Interest rate swaps	Interest rate swaps	100,000		2.5	(6,103)		1-month LIBOR	2.88	%	Interest rate swaps	40,000		2.2	(425)		Fed Funds Effective	2.78	%

3432


(dollars in thousands) December 31, 2020		Notional		Weighted- Average Remaining Maturity			Weighted-Average Ratio
(dollars in thousands) December 31, 2021										(dollars in thousands) December 31, 2021	Notional		Weighted- Average Remaining Maturity			Weighted-Average Ratio
Cash Flow Hedges	Cash Flow Hedges	Value		(years)	Fair Value		Receive	Pay		Cash Flow Hedges	Value		(years)	Fair Value		Receive	Pay
Interest rate swaps	Interest rate swaps	$	110,000	6.1	$	(15,727)	3-month LIBOR	2.88	%	Interest rate swaps	$	110,000	5.1	$	(8,560)	3-month LIBOR	2.88	%
Interest rate swaps	Interest rate swaps	100,000		3.0	(7,951)		1-month LIBOR	2.88	%	Interest rate swaps	100,000		2.0	(3,980)		1-month LIBOR	2.88	%

These derivative financial instruments were entered into for the purpose of managing the interest rate risk of certain assets and liabilities. The Company pledged ~~$21.0~~$2.7 million and ~~$30.6~~$15.7 million of cash collateral to counterparties as security for its obligations related to these interest rate swap transactions at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. Collateral posted and received is dependent on the market valuation of the underlying hedges.

The following table presents the notional amount and fair value of interest rate swaps, IRLCs and forward contracts utilized by the Company at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.


		June 30, 2021				December 31, 2020					March 31, 2022				December 31, 2021
(in thousands)	(in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value		(in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Asset Derivatives	Asset Derivatives									Asset Derivatives

Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments									Derivatives not designated as hedging instruments
IRLCs	IRLCs	$	47,493	$	818	$	108,095	$	3,361	IRLCs	$	—	$	—	$	62,789	$	718

Forward contracts										Forward contracts	56,750		1,072		—		—
Total contracts	Total contracts	$	47,493	$	818	$	108,095	$	3,361	Total contracts	$	56,750	$	1,072	$	62,789	$	718
Liability Derivatives	Liability Derivatives									Liability Derivatives
Derivatives designated as hedging instruments	Derivatives designated as hedging instruments									Derivatives designated as hedging instruments
Interest rate swaps associated with loans		$	0	$	0	$	0	$	0

Interest rate swaps associated with securities available-for-sale	Interest rate swaps associated with securities available-for-sale	50,000		(2,835)		88,200		(6,072)		Interest rate swaps associated with securities available-for-sale	$	50,000	$	288	$	50,000	$	(1,731)
Interest rate swaps associated with liabilities	Interest rate swaps associated with liabilities	210,000		(17,451)		210,000		(23,678)		Interest rate swaps associated with liabilities	210,000		(3,205)		210,000		(12,540)
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments									Derivatives not designated as hedging instruments
Forward contracts	Forward contracts	46,750		(17)		107,500		(640)		Forward contracts	—		—		72,750		(30)

IRLCs										IRLCs	63,378		(88)		—		—
Total contracts	Total contracts	$	306,750	$	(20,303)	$	405,700	$	(30,390)	Total contracts	$	323,378	$	(3,005)	$	332,750	$	(14,301)

The fair value of interest rate swaps was estimated using a discounted cash flow method that incorporates current market interest rates as of the balance sheet date. Fair values of IRLCs and forward contracts were estimated using changes in mortgage interest rates from the date the Company entered into the IRLC and the balance sheet date.

The following table presents the effects of the Company’s cash flow hedge relationships on the condensed consolidated statements of comprehensive income during the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.


		Amount of Gain (Loss )Recognized in Other Comprehensive Income Loss in The Three Months Ended				Amount of Loss Recognized in Other Comprehensive Income Gain (Loss) in The Six Months Ended					Amount of Gain Recognized in Other Comprehensive Income (Loss) in The Three Months Ended
(in thousands)	(in thousands)	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020		(in thousands)	March 31, 2022		March 31, 2021

Interest rate swap agreements	Interest rate swap agreements	$	(54)	$	(509)	$	6,226	$	(13,967)	Interest rate swap agreements	$	9,334	$	6,280

The following table summarizes the periodic changes in the fair value of derivatives not designated as hedging instruments on the condensed consolidated statements of income for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

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		Amount of Gain / (Loss) Recognized in the Three Months Ended				Amount of Gain / (Loss) Recognized in the Six Months Ended					Amount of Gain / (Loss) Recognized in the Three Months Ended
(in thousands)	(in thousands)	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020		(in thousands)	March 31, 2022		March 31, 2021
Asset Derivatives	Asset Derivatives									Asset Derivatives
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments									Derivatives not designated as hedging instruments
IRLCs		$	(292)	$	(1,781)	$	(2,541)	$	(628)

Forward contracts										Forward contracts	1,102		1,361

Liability Derivatives	Liability Derivatives									Liability Derivatives
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments									Derivatives not designated as hedging instruments
IRLCs	IRLCs	0		0		0		0		IRLCs	$	(802)	$	(2,251)
Forward contracts		$	(738)	$	2,281	$	623	$	136

The following table presents the effects of the Company’s interest rate swap agreements on the condensed consolidated statements of income during the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.


(in thousands) Line item in the condensed consolidated statements of income	(in thousands) Line item in the condensed consolidated statements of income	Three Months Ended				Six Months Ended				(in thousands) Line item in the condensed consolidated statements of income	Three Months Ended
		June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020			March 31, 2022		March 31, 2021
Interest income	Interest income									Interest income
Loans		$	0	$	(1,221)	$	0	$	(2,445)

Securities - taxable	Securities - taxable	0		(159)		(253)		(250)		Securities - taxable	—		(253)
Securities - non-taxable	Securities - non-taxable	(271)		(164)		(537)		(230)		Securities - non-taxable	(260)		(266)
Total interest income	Total interest income	(271)		(1,544)		(790)		(2,925)		Total interest income	(260)		(519)
Interest expense	Interest expense									Interest expense
Deposits	Deposits	692		593		1,370		899		Deposits	670		678
Other borrowed funds	Other borrowed funds	753		589		1,483		911		Other borrowed funds	696		730
Total interest expense	Total interest expense	1,445		1,182		2,853		1,810		Total interest expense	1,366		1,408
Net interest income	Net interest income	$	(1,716)	$	(2,726)	$	(3,643)	$	(4,735)	Net interest income	$	(1,626)	$	(1,927)

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Note 14: Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, included in ~~stockholders'~~shareholders' equity, for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, are presented in the table below.

(in thousands) Available-For-Sale Securities Cash Flow Hedges Total
Balance, January 1, 2021 $ 468 $ (17,664) $ (17,196)
Net unrealized holding (losses) gains recorded within other comprehensive income before income tax (807) 6,226 5,419
Other comprehensive (loss) gain before tax (807) 6,226 5,419
Income tax (benefit) provision (175) 1,309 1,134
Other comprehensive (loss) income - net of tax $ (632) $ 4,917 $ 4,285
Balance, June 30, 2021 $ (164) $ (12,747) $ (12,911)
Balance, January 1, 2020 $ (4,388) $ (9,803) $ (14,191)
Net unrealized holding gains (losses) recorded within other comprehensive income before income tax 4,801 (13,967) (9,166)
Reclassification of net loss realized and included in earnings (41) 0 (41)
Other comprehensive income (loss) before tax 4,760 (13,967) (9,207)
Income tax provision (benefit) 1,760 (4,020) (2,260)
Other comprehensive income (loss) - net of tax 3,000 (9,947) (6,947)
Balance, June 30, 2020 $ (1,388) $ (19,750) $ (21,138)

~~The components of accumulated other comprehensive loss, included in stockholders' equity, for the three months ended June 30, 2021 and 2020, respectively, are presented in the table below.~~

(in thousands) Available-For-Sale Securities Cash Flow Hedges Total
Balance, April 1, 2021 $ (1,219) $ (12,701) $ (13,920)
Net unrealized holding gains (losses) recorded within other comprehensive income before income tax 1,388 (54) 1,334
Other comprehensive gain (loss) before tax 1,388 (54) 1,334
Income tax (benefit) provision (333) 8 (325)
Other comprehensive (loss) income - net of tax $ 1,055 $ (46) $ 1,009
Balance, June 30, 2021 $ (164) $ (12,747) $ (12,911)
Balance, April 1, 2020 $ (239) $ (19,627) $ (19,866)
Net change in unrealized loss (1,498) (509) (2,007)
Other comprehensive loss before tax (1,498) (509) (2,007)
Income tax benefit (349) (386) (735)
Other comprehensive income (loss) - net of tax (1,149) (123) (1,272)
Balance, June 30, 2020 $ (1,388) $ (19,750) $ (21,138)


(in thousands)	Unrealized Losses On Debt Securities		Unrealized Losses On Debt Securities Transferred From Available-For-Sale To Held-To-Maturity		Cash Flow Hedges		Total
Balance, January 1, 2022	$	(2,555)	$	—	$	(8,484)	$	(11,039)
Other comprehensive (loss) income before reclassifications from accumulated other comprehensive loss before tax	(17,881)		(5,402)		9,334		(13,949)
Reclassifications from accumulated other comprehensive (loss) income to earnings before tax	—		119		—		119

Other comprehensive (loss) gain before tax	(17,881)		(5,283)		9,334		(13,830)
Income tax (benefit) provision	(4,077)		(1,249)		3,318		(2,008)
Other comprehensive (loss) income - net of tax	(13,804)		(4,034)		6,016		(11,822)
Balance, March 31, 2022	$	(16,359)	$	(4,034)	$	(2,468)	$	(22,861)

Balance, January 1, 2021	$	468	$	—	$	(17,664)	$	(17,196)
Other comprehensive (loss) income before reclassifications from accumulated other comprehensive loss before tax	(2,195)		—		6,280		4,085

Other comprehensive (loss) gain before tax	(2,195)		—		6,280		4,085
Income tax (benefit) provision	(508)		—		1,317		809
Other comprehensive (loss) income - net of tax	(1,687)		—		4,963		3,276
Balance, March 31, 2021	$	(1,219)	$	—	$	(12,701)	$	(13,920)


Details About Accumulated Other Comprehensive Income (Loss) Components	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) for the				Affected Line Item in the Statements of Income
	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Reclassifications from accumulated other comprehensive loss to earnings before tax	$	(119)	—		Interest income
Total amount reclassified before tax	(119)		—		Income before income taxes
Tax benefit	(27)		—		Income tax provision
Total reclassifications from accumulated other comprehensive loss	$	(92)	$	—	Net income

Note 15: Recent Accounting Pronouncements

ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (June 2016)

The main objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The amendments affect entities holding financial assets that are not accounted for at fair value through net income. The amendments affect loans, debt securities, off-balance-sheet credit exposures, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update affect an entity to varying degrees depending on the credit quality of the assets held by the entity, their duration, and how the entity applies current GAAP. There is diversity in practice in applying the incurred loss methodology, which means that before transition some entities may be more aligned under current GAAP than others to the new measure of expected credit losses. The following describes the main provisions of this update.

•Assets Measured at Amortized Cost: The amendments in this update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The statements of income reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increase or decrease of credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances.

•Available-for-Sale Debt Securities: Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. Available-for-sale accounting recognizes that value may be realized either through collection of contractual cash flows or through sale of the security. Therefore, the amendments limit the amount of the allowance for credit losses to the amount by which fair value is below amortized cost because the classification as available-for-sale is premised on an investment strategy that recognizes that the investment could be sold at fair value if cash collection would result in the realization of an amount less than fair value.

•In May 2019, the FASB issued ASU 2019-05 - Financial Instruments - Credit Losses (Topic 326) - Targeted Transition Relief. This ASU allows an option for preparers to irrevocably elect the fair value option, on an instrument-by-instrument basis, for eligible financial assets measured at amortized cost basis upon adoption of the credit losses standard. This increases the comparability of financial statement information provided by institutions that otherwise would have reported similar financial instruments using different measurement methodologies, potentially decreasing costs for financial statement preparers while providing more useful information to investors and other users.

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For public business entities that are SEC filers, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All entities may early adopt the amendments in this update as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In October 2019, the FASB voted to delay the effective date for smaller reporting companies to fiscal years beginning after December 15, 2022. An entity will apply the amendments in this update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). A prospective transition approach is required for debt securities for which an OTTI had been recognized before the effective date. The effect of a prospective transition approach is to maintain the same amortized cost basis before and after the effective date of this update.

The Company expects to adopt this guidance on January 1, 2023 and is currently evaluating the impact of the amendments on the Company’s condensed consolidated financial statements. The Company currently cannot determine or reasonably quantify the impact of the adoption of the amendments due to the complexity and extensive changes. The Company intends to develop processes and procedures prior to the effective date to ensure it is fully compliant with the amendments at the adoption date. The Company has formed an implementation committee and has engaged a third-party consultant to assist in developing current expected credit losses (“CECL”) models using appropriate methodologies.

Coronavirus Aid, Relief and Economic Security Act (“CARES Act”)

In March 2020 in connection with the implementation of the CARES Act and related provisions, the Company adopted the temporary relief issued under the CARES Act, thereby suspending the guidance in ASC 310-40 on accounting for TDRs to loan modifications related to COVID-19. Section 4013 of the CARES Act specifies that loan modifications due to the impact of COVID-19 that would otherwise be classified as TDRs under GAAP will not be so classified. Modifications within the scope of this relief are in effect from the period beginning March 1, 2020 until the earlier of January 1, 2022 or 60 days after the date on which the national emergency related to the COVID-19 pandemic formally terminates. See the “Non-TDR Loan Modifications due to COVID-19” section of Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information.

ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (March 2020)

In March 2020, FASB issued ASU 2020-04 to ease the potential burden in accounting for the transition away from the LIBORon financial reporting. The ASU provides optional expedients and exceptions for applying GAAP to contract modification and hedge accounting relationships. The guidance is effective March 12, 2020 through December 31, 2022. The Company believes the adoption of this guidance will not have a material impact on the condensed consolidated financial statements.

ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (March 2022)

In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the separate recognition and measurement guidance for Troubled Debt Restructurings ("TDRs") by creditors. The elimination of the TDR guidance may be adopted prospectively for loan modifications after adoption or on a modified retrospective basis, which would also apply to loans previously modified, resulting in a cumulative effect adjustment to retained earnings in the period of adoption for changes in the allowance for credit losses. This guidance is effective on January 1, 2023, with early adoption permitted. The Company is currently assessing the impact of the adoption of this guidance.

Note 16: Subsequent Event

precluded from closing immediately thereafter due to statutory waiting periods. The parties were unable to agree on extension terms, and First Century exercised its option to terminate the Merger Agreement.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this report. This discussion and analysis includes certain forward-looking statements that involve risks, uncertainties, and assumptions. You should review the “Risk Factors” sections of this report and our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by such forward-looking statements. See also “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report.

Overview

First Internet Bancorp (“we,” “our,” “us,” or the “Company”) is a bank holding company with $4.2 billion in total assets as of March 31, 2022, that conducts its primary business activities through its wholly owned subsidiary, First Internet Bank of Indiana, an Indiana chartered bank (the “Bank”). The Bank was the first state-chartered, Federal Deposit Insurance Corporation (“FDIC”) insured Internet bank and commenced banking operations in 1999. The Company was incorporated under the laws of the State of Indiana on September 15, 2005. On March 21, 2006, we consummated a plan of exchange by which we acquired all of the outstanding shares of the Bank.

The Company has two wholly-owned subsidiaries: the Bank and FC Subsidiary, Inc., a Georgia corporation, formed in connection with our potential acquisition of First Century Bancorp. The Bank has three ~~wholly owned subsidiaries.~~wholly-owned subsidiaries: First Internet Public Finance Corp., an Indiana corporation that provides a range of public and municipal finance lending and leasing products to governmental entities throughout the United States and acquires securities issued by state and local governments and other municipalities; JKH Realty Services, LLC, ~~which~~a Delaware limited liability company that manages other real estate owned (“OREO”) properties as needed; and SPF15, Inc., ~~which was established to acquire and hold~~an Indiana corporation that owns real ~~estate.~~estate used primarily for the Bank’s principal office.

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

Our commercial banking products and services are delivered through a relationship banking model and include commercial real estate (“CRE”) banking, commercial and industrial (“C&I”) banking, public finance, healthcare finance, small business lending, franchise finance and commercial deposits and treasury management. ~~Through our~~Within CRE ~~team,~~banking, we offer single tenant lease financing on a nationwide basis in addition to traditional investor CRE and construction loans primarily within Central Indiana ~~and adjacent markets.~~or on a regional basis. Our C&I banking team provides credit solutions such as lines of credit, term loans, owner-occupied CRE loans and corporate credit cards on a regional basis to commercial borrowers ~~located~~ primarily in ~~Central Indiana, Phoenix, Arizona~~the Midwest and ~~adjacent markets.~~Southwest regions of the United States. Our public finance team provides a range of public and municipal lending and leasing products to government entities on a nationwide basis. Our healthcare finance team was ~~originally~~ established in conjunction with our strategic partnership with Provide, Inc. (formerly known as Lendeavor, Inc.), a San Francisco-based technology-enabled lender to healthcare practices, which provided lending on a nationwide basis for healthcare practice finance or acquisition, acquisition or refinancing of owner-occupied CRE and equipment purchases. ~~During~~In the ~~second~~third quarter 2021, Provide ~~announced that it had entered into an agreement to be~~Inc. was acquired by a super-regional financial ~~institution, which~~institution. It is ~~expected to close in the third quarter 2021. Subsequent to closing, we expect~~our expectation that the acquiring institution will retain most, if not all, of Provide’s loan origination activity and that our healthcare finance loan balances ~~may~~will decline. Our franchise finance business was established in July 2021 in conjunction with our business relationship with ApplePie Capital, a financial technology (“fintech”) company that specializes in providing financing to ~~decline.~~franchisees in various industry segments. Our commercial deposits and treasury management team works with the other commercial teams to provide deposit products and treasury management services to our commercial and municipal lending customers as well as pursues commercial deposit opportunities in business segments where we have no credit relationships.

~~In 2018, we identified small business as an area for potential growth in revenue, loans and deposits.~~ We believe that we can differentiate ourselves from larger financial institutions by providing a full suite of services to emerging small businesses and entrepreneurs on a nationwide basis. We have hired and continue to recruit experienced small business sales, credit and operations personnel to expand our capabilities in small business lending and U.S. government ~~guaranteed lending programs. As this business scales up, we expect it will drive increased earnings and profitability in future periods.~~

In connection with our commitment to small businesses, during the second quarter 2021 we entered into a relationship with a fintech-oriented specialty lender that provides financing to franchisees in various industry segments. Through this relationship, we expect to begin funding portfolio loans in the third quarter 2021 and expect to fund up to $100.0 million of loans over the next twelve months. We also expect this relationship to provide SBA 7(a) loan opportunities to supplement our own origination efforts.

~~COVID-19 Pandemic~~

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

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

During 2021, federal, state and local governments have continued to take additional steps to reopen and stimulate economies. We are optimistic that the combination of vaccinations and government stimulus programs will help mitigate any significant negative effects from the pandemic on our business and credit quality; however, there is still significant uncertainty concerning the ongoing trajectory of the pandemic and the speed at which the national and local economies will recover. The

4038

~~extent to which COVID-19 will~~guaranteed lending programs. We continue to ~~impact our~~scale up this business ~~will depend on numerous evolving factors~~with the goal of driving increased earnings and profitability in future developments that we are not able to predict, including the new Delta variant of COVID-19 (which appears to be the most transmissible variant to date), the effectiveness of continuing containment measures, including the speed of the ongoing vaccine distribution effort, the efficacy of the various vaccines, and how quickly and to what extent normal economic and operating conditions can resume. Should economic conditions worsen to levels experienced in 2020, our business and credit quality could be adversely affected.periods.

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

Merger Transaction

On May 1, 2022, First Century Bancorp. (“First Century”) terminated the previously announced Agreement and Plan of Merger dated November 1, 2021 (the “Merger Agreement”), by and among the Company, FC Subsidiary, Inc. and First Century. Under the Merger Agreement, the consummation of the merger was to have occurred on or before April 30, 2022. The Board of Governors of the Federal Reserve approved the merger on April 29, 2022, but the parties were precluded from closing immediately thereafter due to statutory waiting periods. The parties were unable to agree on extension terms, and First Century exercised its option to terminate the Merger Agreement.

Results of Operations

During the ~~second~~first quarter ~~2021,~~2022, net income was ~~$13.1~~$11.2 million, or ~~$1.31~~$1.14 per diluted share, compared to ~~the second~~first quarter ~~2020~~2021 net income of ~~$3.9~~$10.5 million, or ~~$0.40~~$1.05 per diluted share, representing an increase in net income of ~~$9.2~~$0.8 million, or 233.1%. During the six months ended June 30, 2021, net income was $23.5 million, or $2.36 per diluted share, compared to the six months ended June 30, 2020 net income of $10.0 million, or $1.02 per diluted share, representing7.3%, and an increase in ~~net income~~diluted earnings per share of ~~$13.6 million,~~$0.09, or ~~136.6%~~8.6%.

The ~~$9.2~~$0.8 million increase in net income for the ~~second~~first quarter ~~2021~~2022 compared to the ~~second~~first quarter ~~2020~~2021 was due primarily to an increase of ~~$7.2~~$5.2 million, or ~~49.8%~~25.5%, in net interest income, ~~an increase of $4.0 million, or 80.2%, in noninterest income and~~ a decrease of ~~$2.5~~$0.5 million, or ~~99.2%~~38.0%, in provision for loan losses ~~partially offset by increases~~and a decrease of ~~$2.6~~$0.1 million, or 3.6%, in income tax expense, ~~and $1.8~~partially offset by a $3.5 million, or ~~13.8%~~22.6%, increase in noninterest ~~expense.~~

The $13.6 million increase in net income for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was due primarily to an increase of $12.7 million, or 43.1%, in net interest income, an increase of $6.2 million, or 55.0%, in noninterest incomeexpense and a decrease of ~~$2.7~~$1.6 million, or ~~67.2%~~18.6%, in ~~provision for loan losses, partially offset by a $4.2 million increase in income tax expense and a $3.7 million, or 13.7%, increase in~~ noninterest ~~expense.~~income.

During the ~~second~~first quarter ~~2021,~~2022, return on average assets (“ROAA”), return on average shareholders’ equity (“ROAE”), and return on average tangible common equity (“ROATCE”) were ~~1.25%~~1.08%, ~~14.88%~~11.94%, and ~~15.09%~~12.09%, respectively, compared to ~~0.37%~~1.02%, ~~5.15%~~12.61%, and ~~5.23%~~12.79%, respectively, for the ~~second~~first quarter 2020. During the six months ended June 30, 2021, ROAA, ROAE, and ROATCE were 1.13%, 13.78%, and 13.97%, respectively, compared to 0.47%, 6.48%, and 6.58%, respectively, for the six months ended June 30, 2020.2021.

During the ~~second~~first quarter ~~of 2021,~~2022, the Company ~~recognized~~had a ~~$2.5~~nonrecurring consulting fee associated with a special project of $0.9 million, ~~pre-tax gain~~as well as acquisition-related expenses of ~~sale of its corporate headquarters.~~$0.2 million. Excluding ~~this item,~~these items, adjusted net income for the ~~second~~first quarter ~~of 2021~~2022 was ~~$11.1~~$12.0 million ~~or $1.11 per diluted share,~~ and adjusted ~~net income for the six months ended June 30, 2021~~diluted earnings per share was ~~$21.6 million, or $2.16 per diluted share.~~$1.22. Additionally, for the ~~second~~first quarter ~~of 2021,~~2022, adjusted ROAA, adjusted ROAE and adjusted ROATCE were ~~1.06%~~1.16%, ~~12.62%~~12.82% and ~~12.79, respectively, while for the six months ended June 30, 2021 adjusted ROAA, adjusted ROAE and adjusted ROATCE were 1.04%~~12.98%, ~~12.62% and 12.79,~~ respectively.

These adjusted profitability ratios improved in the ~~2021 periods~~2022 period compared to the ~~2020 periods,~~2021 period, as increases in net income and adjusted net income outpaced average asset ~~growth, which was relatively flat.~~growth.

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

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Consolidated Average Balance Sheets and Net Interest Income Analyses

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


(dollars in thousands)		Three Months Ended
		June 30, 2021						March 31, 2021						June 30, 2020
		Average Balance		Interest /Dividends		Yield /Cost		Average Balance		Interest /Dividends		Yield /Cost		Average Balance		Interest /Dividends		Yield /Cost			Three Months Ended
																					March 31, 2022						December 31, 2021						March 31, 2021
(in thousands)																				(in thousands)	Average Balance		Interest /Dividends		Yield /Cost		Average Balance		Interest /Dividends		Yield /Cost		Average Balance		Interest /Dividends		Yield /Cost
Assets	Assets																			Assets
Interest-earning assets	Interest-earning assets																			Interest-earning assets
Loans, including loans held-for-sale	Loans, including loans held-for-sale	$	3,016,330	$	30,835	4.10	%	$	3,079,130	$	30,885	4.07	%	$	2,989,772	$	29,730	4.00	%	Loans, including loans held-for-sale	$	2,976,037	$	33,188	4.52	%	$	2,947,053	$	31,621	4.26	%	$	3,079,130	$	30,885	4.07	%
Securities - taxable	Securities - taxable	490,634		1,921		1.57	%	461,300		1,779		1.56	%	560,947		3,276		2.35	%	Securities - taxable	567,776		2,221		1.59	%	595,024		1,973		1.32	%	461,300		1,779		1.56	%
Securities - non-taxable	Securities - non-taxable	84,050		259		1.24	%	87,129		281		1.31	%	96,675		457		1.90	%	Securities - non-taxable	80,952		249		1.25	%	82,556		236		1.13	%	87,129		281		1.31	%
Other earning assets	Other earning assets	509,735		362		0.28	%	446,045		335		0.30	%	594,296		759		0.51	%	Other earning assets	455,960		376		0.33	%	431,621		362		0.33	%	446,045		335		0.30	%
Total interest-earning assets	Total interest-earning assets	4,100,749		33,377		3.26	%	4,073,604		33,280		3.31	%	4,241,690		34,222		3.24	%	Total interest-earning assets	4,080,725		36,034		3.58	%	4,056,254		34,192		3.34	%	4,073,604		33,280		3.31	%

Allowance for loan losses	Allowance for loan losses	(30,348)						(29,884)						(23,388)						Allowance for loan losses	(27,974)						(27,946)						(29,884)
Noninterest-earning assets	Noninterest-earning assets	136,565						129,553						111,872						Noninterest-earning assets	162,167						149,270						129,553
Total assets	Total assets	$	4,206,966					$	4,173,273					$	4,330,174					Total assets	$	4,214,918					$	4,177,578					$	4,173,273

Liabilities	Liabilities																			Liabilities
Interest-bearing liabilities	Interest-bearing liabilities																			Interest-bearing liabilities
Interest-bearing demand deposits	Interest-bearing demand deposits	$	192,777	$	143	0.30	%	$	180,746	$	133	0.30	%	$	137,487	$	237	0.69	%	Interest-bearing demand deposits	$	318,281	$	412	0.52	%	$	210,283	$	158	0.30	%	$	180,746	$	133	0.30	%
Regular savings accounts		55,811		49		0.35	%	46,035		40		0.35	%	37,204		92		0.99	%
Savings accounts																				Savings accounts	60,616		53		0.35	%	63,575		58		0.36	%	46,035		40		0.35	%
Money market accounts	Money market accounts	1,416,406		1,462		0.41	%	1,369,626		1,391		0.41	%	1,089,063		3,541		1.31	%	Money market accounts	1,454,436		1,503		0.42	%	1,453,447		1,507		0.41	%	1,369,626		1,391		0.41	%
BaaS - brokered deposits																				BaaS - brokered deposits	12,111		6		0.20	%	—		—		0.00	%	—		—		0.00	%
Certificates and brokered deposits	Certificates and brokered deposits	1,444,171		6,051		1.68	%	1,519,580		7,064		1.89	%	2,006,966		11,893		2.38	%	Certificates and brokered deposits	1,225,976		4,123		1.36	%	1,305,130		4,676		1.42	%	1,519,580		7,064		1.89	%
Total interest-bearing deposits	Total interest-bearing deposits	3,109,165		7,705		0.99	%	3,115,987		8,628		1.12	%	3,270,720		15,763		1.94	%	Total interest-bearing deposits	3,071,420		6,097		0.81	%	3,032,435		6,399		0.84	%	3,115,987		8,628		1.12	%
Other borrowed funds	Other borrowed funds	584,751		4,065		2.79	%	583,780		4,127		2.87	%	584,543		4,033		2.77	%	Other borrowed funds	619,191		4,187		2.74	%	619,115		4,288		2.75	%	583,780		4,127		2.87	%
Total interest-bearing liabilities	Total interest-bearing liabilities	3,693,916		11,770		1.28	%	3,699,767		12,755		1.40	%	3,855,263		19,796		2.07	%	Total interest-bearing liabilities	3,690,611		10,284		1.13	%	3,651,550		10,687		1.16	%	3,699,767		12,755		1.40	%
Noninterest-bearing deposits	Noninterest-bearing deposits	98,207						90,764						73,758						Noninterest-bearing deposits	112,248						113,887						90,764
Other noninterest-bearing liabilities	Other noninterest-bearing liabilities	61,949						46,774						94,285						Other noninterest-bearing liabilities	31,292						35,309						46,774
Total liabilities	Total liabilities	3,854,072						3,837,305						4,023,306						Total liabilities	3,834,151						3,800,746						3,837,305

Shareholders’ equity	Shareholders’ equity	352,894						335,968						306,868						Shareholders’ equity	380,767						376,832						335,968
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	4,206,966					$	4,173,273					$	4,330,174					Total liabilities and shareholders’ equity	$	4,214,918					$	4,177,578					$	4,173,273

Net interest income	Net interest income			$	21,607					$	20,525					$	14,426			Net interest income			$	25,750					$	23,505					$	20,525

Interest rate spread 1	Interest rate spread 1					1.98%						1.91%						1.17	%	Interest rate spread 1					2.45%						2.18%						1.91	%
Net interest margin 2	Net interest margin 2					2.11%						2.04%						1.37	%	Net interest margin 2					2.56%						2.30%						2.04	%
Net interest margin - FTE 3	Net interest margin - FTE 3					2.25%						2.18%						1.50	%	Net interest margin - FTE 3					2.69%						2.43%						2.18	%

1 Yield on total interest-earning assets minus cost of total interest-bearing liabilities.

2 Net interest income divided by total average interest-earning assets (annualized).

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

(dollars in thousands) Six Months Ended
June 30, 2021 June 30, 2020
Average Balance Interest /Dividends Yield /Cost Average Balance Interest /Dividends Yield /Cost
Assets
Interest-earning assets
Loans, including loans held-for-sale $ 3,047,560 $ 61,720 4.08 % $ 2,983,883 $ 60,138 4.05 %
Securities - taxable 476,049 3,700 1.57 % 545,997 6,895 2.54 %
Securities - non-taxable 85,581 540 1.27 % 98,254 1,029 2.11 %
Other earning assets 478,065 697 0.29 % 505,111 2,404 0.96 %
Total interest-earning assets 4,087,255 66,657 3.29 % 4,133,245 70,466 3.43 %
Allowance for loan losses (30,117) (22,724)
Noninterest-earning assets 133,074 104,532
Total assets $ 4,190,212 $ 4,215,053
Liabilities
Interest-bearing liabilities
Interest-bearing demand deposits $ 186,795 $ 276 0.30 % $ 130,206 $ 456 0.70 %
Regular savings accounts 50,950 89 0.35 % 33,774 170 1.01 %
Money market accounts 1,393,145 2,853 0.41 % 977,834 7,284 1.50 %
Certificates and brokered deposits 1,481,667 13,115 1.78 % 2,038,068 25,061 2.47 %
Total interest-bearing deposits 3,112,557 16,333 1.06 % 3,179,882 32,971 2.09 %
Other borrowed funds 584,268 8,192 2.83 % 584,504 8,051 2.77 %
Total interest-bearing liabilities 3,696,825 24,525 1.34 % 3,764,386 41,022 2.19 %
Noninterest-bearing deposits 94,506 67,107
Other noninterest-bearing liabilities 54,403 74,623
Total liabilities 3,845,734 3,906,116
Shareholders’ equity 344,478 308,937
Total liabilities and shareholders’ equity $ 4,190,212 $ 4,215,053
Net interest income $ 42,132 $ 29,444
Interest rate spread 1
1.95 % 1.24 %
Net interest margin 2
2.08 % 1.43 %
Net interest margin - FTE 3
2.21 % 1.58 %

1 ~~Yield on total interest-earning assets minus cost of total interest-bearing liabilities.~~

2 ~~Net interest income divided by total average interest-earning assets (annualized).~~

4441

Rate/Volume Analysis

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


(dollars in thousands)		Three Months Ended June 30, 2021 vs. March 31, 2021 Due to Changes in						Three Months Ended June 30, 2021 vs. June 30, 2020 Due to Changes in						Six Months Ended June 30, 2021 vs. June 30, 2020 Due to Changes in
		Volume		Rate		Net		Volume		Rate		Net		Volume		Rate		Net			Three Months Ended March 31, 2022 vs. December 31, 2021 Due to Changes in						Three Months Ended March 31, 2022 vs. March 31, 2021 Due to Changes in
(in thousands)																				(in thousands)	Volume		Rate		Net		Volume		Rate		Net
Interest income	Interest income																			Interest income
Loans, including loans held-for-sale	Loans, including loans held-for-sale	$	(1,394)	$	1,344	$	(50)	$	290	$	815	$	1,105	$	1,174	$	408	$	1,582	Loans, including loans held-for-sale	$	218	$	1,349	$	1,567	$	(5,906)	$	8,209	$	2,303
Securities – taxable	Securities – taxable	129		13		142		(371)		(984)		(1,355)		(803)		(2,392)		(3,195)		Securities – taxable	(543)		791		248		408		34		442
Securities – non-taxable	Securities – non-taxable	(9)		(13)		(22)		(54)		(144)		(198)		(120)		(369)		(489)		Securities – non-taxable	(28)		41		13		(19)		(13)		(32)
Other earning assets	Other earning assets	140		(113)		27		(95)		(302)		(397)		(122)		(1,585)		(1,707)		Other earning assets	14		—		14		7		33		40
Total	Total	(1,134)		1,231		97		(230)		(615)		(845)		129		(3,938)		(3,809)		Total	(339)		2,181		1,842		(5,510)		8,263		2,753

Interest expense	Interest expense																			Interest expense
Interest-bearing deposits	Interest-bearing deposits	(17)		(906)		(923)		(738)		(7,320)		(8,058)		(685)		(15,953)		(16,638)		Interest-bearing deposits	401		(703)		(302)		(124)		(2,407)		(2,531)
Other borrowed funds	Other borrowed funds	49		(111)		(62)		2		30		32		(11)		152		141		Other borrowed funds	1		(102)		(101)		903		(843)		60
Total	Total	32		(1,017)		(985)		(736)		(7,290)		(8,026)		(696)		(15,801)		(16,497)		Total	402		(805)		(403)		779		(3,250)		(2,471)

(Decrease) increase in net interest income	(Decrease) increase in net interest income	$	(1,166)	$	2,248	$	1,082	$	506	$	6,675	$	7,181	$	825	$	11,863	$	12,688	(Decrease) increase in net interest income	$	(741)	$	2,986	$	2,245	$	(6,289)	$	11,513	$	5,224

Net interest income for the ~~second~~first quarter ~~2021~~2022 was ~~$21.6~~$25.8 million, an increase of ~~$7.2~~$5.2 million, or ~~49.8%~~25.5%, compared to ~~$14.4~~$20.5 million for the ~~second~~first quarter 2020. The increase in net interest income was the result of an $8.0 million, or 40.5%, decrease in total interest expense to $11.8 million for the second quarter 2021 from $19.8 million for the second quarter 2020. The decrease in total interest expense was partially offset by a $0.8 million, or 2.5%, decrease in total interest income to $33.4 million for the second quarter 2021 from $34.2 million for the second quarter 2020.

~~Net interest income for the six months ended June 30, 2021 was $42.1 million, an increase of $12.7 million, or 43.1%, compared to $29.4 million for the six months ended June 30, 2020.~~2021. The increase in net interest income was the result of a ~~$16.5~~$2.8 million, or ~~40.2%~~8.3% increase in total interest income to $36.0 million for the first quarter 2022 from $33.3 million for the first quarter 2021, as well as a $2.5 million, or 19.4%, decrease in total interest expense to ~~$24.5~~$10.3 million for the ~~six months ended June 30, 2021~~first quarter 2022 from ~~$41.0~~$12.8 million for the six months ended June 30, 2020, partially offset by a $3.8 million, or 5.4%, decrease in total interest income to $66.7 million for the six months ended June 30, 2021 from $70.5 million for the six months ended June 30, 2020.first quarter 2021.

The ~~decrease~~increase in total interest income for the ~~second~~first quarter ~~2021~~2022 compared to the ~~second~~first quarter ~~2020~~2021 was due to ~~decreases in interest earned on securities and other earning assets, partially offset by~~ an increase in interest earned on ~~loans.~~loans, securities and other earning assets. Interest income earned on ~~securities decreased $1.6~~loans increased $2.3 million, or ~~41.6%~~7.5%, due primarily to ~~a decline~~an increase of 7645 basis points (“bps”) in the yield earned on ~~securities,~~average loan balances, partially offset by a decrease of $103.1 million, or 3.3%, in average loan balances. The increase in interest income was driven primarily by the recognition of $2.9 million of income from tax refund advance loans, partially offset by lower loan fees. The decrease in average loan balances was due primarily to decreases in the average balance of healthcare finance, single tenant lease financing, public finance, owner-occupied CRE and small business lending portfolios, driven in part by prepayment activity, partially offset by increases in the average balance of tax refund advance loans, construction, commercial and industrial, and investor CRE loan portfolios. The increase in loan yield was due to the income received from tax refund advance loans discussed above, as well as a ~~decrease~~shift in the loan mix towards higher-yielding commercial loans, partially offset by lower average loan balances. Interest earned on securities increased due primarily to an increase of ~~$82.9~~$100.3 million, or ~~12.6%~~18.3%, in the average balance of ~~securities. The decrease~~securities and an increase of 2 bps in the average balance of securities was driven primarily by prepayments and maturities in private label mortgage-backed securities and agency mortgage-backed securities and early redemptions and maturities in municipalyield earned on securities. Interest income earned on other earning assets ~~declined $0.4~~increased by less than $0.1 million, or ~~52.3%~~12.2%, due mainly to a 233 bp ~~decline~~increase in the yield earned on these assets, as well as ~~a decrease~~an increase of ~~$84.6~~$9.9 million, or ~~14.2%~~2.2%, in the average balance of other earning assets. The ~~decrease~~increase in the average balance of other earning assets was due primarily to ~~lower~~higher cash balances. Interest income earned on loans increased $1.1 million, or 3.7%, due primarily to an increase of 10 bps in the yield earned on average loan balances, as well as an increase of $26.6 million, or 0.9%, in average loan balances. The increase in average loan balances was due primarily to growth in the healthcare finance, construction and small business lending portfolios, which included loans originated through the Paycheck Protection Program (“PPP”), partially offset by a decrease in the average balance of residential mortgage, single tenant lease financing, public finance and commercial, and industrial loan balances.

The decrease in total interest ~~income~~expense for the ~~six months ended June 30, 2021~~first quarter 2022 compared to the ~~six months ended June 30, 2020~~first quarter 2021 was due primarily to a decrease of $82.6 million, or 12.8%, in the average balance of securities and the yield earned on the securities portfolio decreased 95 bps for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The decrease in the average balance of securities was driven primarily by prepayments and maturities in private label mortgage-backed securities and agency mortgage-backed securities and early redemptions and maturities in municipal securities, as well as a decrease in purchases of securities. The average balance in other earning assets also decreased $27.0 million, or 5.4%, due primarily to lower cash balances. These decreases were partially offset by an increase of $63.7 million, or 2.1%, in the average balance of loans, as well as an increase of 3 bps in the yield on loans. The increase in average loan balances was due primarily to growth in the healthcare finance, construction and small business lending portfolios, which included loans originated through the Paycheck Protection Program (“PPP”), partially offset by a decrease in the average balance of residential mortgage, single tenant lease financing, public finance and commercial, and industrial loan balances.

Overall, the yield on interest-earning assets for the second quarter 2021 increased 2 bps to 3.26% from 3.24% for the second quarter 2020. The yield on interest-earning assets for the six months ended June 30, 2021 declined 14 bps to 3.29% from 3.43% for the six months ended June 30, 2020. The increase in the yield earned on interest-earning assets for the second quarter 2021 compared to the second quarter 2020 was due to a 10 bp increase in the yield earned on loans, partially offset by decreases of 76 bps in the yield earned on securities and 23 bps in other earning assets. The decrease in the yield earned on interest-earning assets for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was due to decreases of 95 bps in the yield earned on securities and 67 bps in other earning assets, partially offset by a 3 bp increase in the yield earned on loans. Interest rates began declining in 2020 following Federal Reserve interest rate cuts in March 2020 in response to the economic effects of COVID-19. The decline in market interest rates negatively impacted the yields earned on securities and cash balances during both the quarter and the six months ended June 30, 2021, in comparison to the same time periods in 2020.

~~The decrease in total interest expense for the second quarter 2021 compared to the second quarter 2020 was due~~ to a decrease in interest expense related to certificates and brokered deposits, partially offset by increases in interest expense associated with interest-bearing ~~deposits.~~demand deposits, money market accounts and other borrowed funds. Interest expense on certificates and brokered deposits decreased ~~$5.8~~$2.9 million, or ~~49.1%~~41.6%, due to a decline of 7053 bps in the cost of these deposits, as well as a ~~$562.8~~$293.6 million, or ~~28.0%~~19.3%, decrease in the average balance of these deposits. The decrease in certificates and brokered deposit balances was driven by the Company’s pricing strategy to reduce the level of these higher cost deposits. The ~~decrease~~increase in interest expense related to interest-bearing demand deposits was due primarily to approximately $100.0 million in deposits with a contractual term of five years and a fixed rate of 1.15% pursuant to a new customer relationship. The $0.1 million, or 8.1%, increase in interest expense related to money market accounts ~~of $2.1 million, or 58.7%,~~ was driven ~~by a decline of 90 bps in the cost of these deposits, partially offset~~primarily by an increase of ~~$327.3~~$84.8 million, or ~~30.1%~~6.2%, in the average balance of these deposits. Average money market balances increased from the prior year period due primarily to targeted digital marketing efforts to grow small business accounts, as well as consumers, small businesses and commercial clients increasing their cash balances due in part to the economic uncertainty resulting from COVID-19. The ~~decrease~~increase in interest expense ~~related to interest-bearing demand deposits and savings accounts~~associated with other borrowed funds was due primarily to ~~decreases~~an increase of ~~39 bps and 64 bps, respectively, partially offset by increases of $55.3~~$34.2 million, or ~~40.2%, and $18.6 million, or 50.0%, respectively, in the average balance of these deposits.~~

The decrease in total interest expense for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, was driven primarily by a 103 bp decline in the cost of funds related to interest-bearing deposits and a decrease of $67.3 million, or 2.1%48.8%, in the average balance of ~~interest-bearing deposits. The~~subordinated debt, partially offset by a 213 bp decrease in the cost of ~~interest-bearing deposits was due primarily to a $556.4 million, or 27.3%, decrease in average certificates~~subordinated debt resulting from the issuance of the 2031 Notes and ~~brokered deposits balances and a 69 bp decrease in~~ the ~~related cost~~redemption of ~~these deposits. The decrease in interest expense related to money market accounts of $4.4 million, or 60.8%, was driven by a decline of 109 bps in~~ the ~~cost of these deposits, partially offset by an increase of $415.3 million, or 42.5%, in the average balance of these deposits.~~2026 Notes.

Overall, the cost of total interest-bearing liabilities for the ~~second~~first quarter ~~2021~~2022 declined 7927 bps to ~~1.28%~~1.13% from ~~2.07%~~1.40% for the ~~second~~first quarter 2020. Additionally, the cost of total interest-bearing liabilities for the six months ended June 30, 2021 declined 85 bps to 1.34% from 2.19% for the six months ended June 30, 2020. Similar to asset yields, declines2021. Declines in the cost of funds were due mainly to ~~the continued decrease in market interest rates from the prior year periods. The sharp declines in both short-~~higher cost certificates and ~~long-term interest rates due to COVID-19 have allowed the Company to reprice all of its deposit products~~brokered deposits maturing without renewal or being renewed at lower rates. Furthermore, a shift in the deposit composition from ~~higher cost~~ certificates and brokered deposits to lower cost non-maturity deposit accounts also contributed to the decline in the cost of deposit funding.

Net interest margin (“NIM”) was ~~2.11%~~2.56% for the ~~second~~first quarter ~~2021~~2022 compared to ~~1.37%~~2.04% for the ~~second~~first quarter ~~2020;~~2021, an increase of 7452 bps. On a fully-taxable equivalent (“FTE”) basis, NIM was ~~2.25%~~2.69% for the ~~second~~first quarter ~~2021~~2022 compared to ~~1.50%~~2.18% for the ~~second~~first quarter ~~2020;~~2021, an increase of ~~75 bps.~~

NIM was 2.08% for the six months ended June 30, 2021 compared to 1.43% for the six months ended June 30, 2020; an increase of 65 bps. FTE NIM was 2.21% for the six months ended June 30, 2021 compared to 1.58% for the six months ended June 30, 2020; an increase of 6351 bps.

The increase in ~~second~~first quarter ~~2021~~2022 NIM and FTE NIM compared to the ~~second~~first quarter ~~2020~~2021 reflects athe decrease in the cost of funds ~~while~~and increase in earning asset yields ~~were up modestly.~~ noted above.

The ~~reductions in~~Company expects deposit costs to remain relatively stable for most of 2022. Given the ~~cost of interest-bearing liabilities was due primarily to~~significant on-balance sheet liquidity across the ~~continued decrease~~industry, we don’t believe increases in market interest rates ~~from the prior year period. Interest rates declined significantly in 2020 following Federal Reserve interest rate cuts in March 2020 in response to the economic effects of COVID-19.~~

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

As the pace of the decline in short-term market interest rates has slowed, the Company believes that yields on interest-earning assets have largely stabilized. Furthermore, the Company has approximately $779.0 million of certificates and brokered deposits with a weighted average cost of 1.35% that mature over the next twelve months. As the weighted average of cost of these deposits is significantly higher than current new production costs, the Company expects the cost of deposit funding to continue to decline during the second half of 2021.near term.

Noninterest Income

The following table presents noninterest income for the last five completed fiscal ~~quarters and the six months ended June 30, 2021 and 2020.~~quarters.


																	Three Months Ended
(in thousands)	(in thousands)	Three Months Ended										Six Months Ended				(in thousands)	March 31, 2022		December 31, 2021		September 30, 2021		June 30, 2021		March 31, 2021
		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020		June 30, 2021		June 30, 2020
Service charges and fees	Service charges and fees	$	280	$	266	$	206	$	224	$	182	$	546	$	394	Service charges and fees	$	316	$	292	$	276	$	280	$	266
Loan servicing revenue	Loan servicing revenue	457		422		379		274		255		879		506		Loan servicing revenue	585		544		511		457		422
Loan servicing asset revaluation	Loan servicing asset revaluation	(240)		(155)		(60)		(103)		(90)		(395)		(269)		Loan servicing asset revaluation	(297)		(400)		(274)		(240)		(155)
Mortgage banking activities	Mortgage banking activities	2,674		5,750		7,987		9,630		3,408		8,424		7,076		Mortgage banking activities	1,873		2,776		3,850		2,674		5,750
Gain on sale of loans	Gain on sale of loans	3,019		1,723		3,702		2,033		762		4,742		2,563		Gain on sale of loans	3,845		4,137		2,719		3,019		1,723
Gain on sale of securities		—		—		—		98		—		—		41

Gain on sale of premises and equipment	Gain on sale of premises and equipment	2,523		—		—		—		—		2,523		—		Gain on sale of premises and equipment	—		—		—		2,523		—
Other	Other	249		369		443		339		456		618		873		Other	498		345		731		249		369
Total noninterest income	Total noninterest income	$	8,962	$	8,375	$	12,657	$	12,495	$	4,973	$	17,337	$	11,184	Total noninterest income	$	6,820	$	7,694	$	7,813	$	8,962	$	8,375

During the ~~second~~first quarter ~~2021,~~2022, noninterest income was ~~$9.0~~$6.8 million, representing ~~an increase~~a decrease of ~~$4.0~~$1.6 million, or ~~80.2%~~18.6%, compared to ~~$5.0~~$8.4 million for the ~~second~~first quarter ~~2020.~~2021. The ~~increase~~decrease in noninterest income was due primarily to ~~increases~~a decrease in revenue from ~~gain on sale of premises and equipment and gain on sale of loans,~~mortgage banking activities, partially offset by ~~decreases in mortgage banking activities and other noninterest income. The~~an increase in gain on sale of premises and equipment was due to the Company completing the sale of its current headquarters. The increase in gain on sale of loans was due an increase in the volume of U.S. Small Business Administration 7(a) guaranteed loan sales and an increase in secondary market premiums during the second quarter 2021.loans. The decline in mortgage banking revenue in the ~~second~~first quarter of2022 compared to the first quarter 2021 ~~versus the second quarter of 2020~~ was due primarily to decreases in interest rate locks, sold loan ~~volume~~volumes and ~~gain-on-sale margins. The decrease in other noninterest income was due to various items, none of which were individually deemed significant.~~

During the six months ended June 30, 2021, noninterest income was $17.3 million, an increase of $6.2 million, or 55.0%, compared to $11.2 million for the six months ended June 30, 2020. The increase in noninterest income was due primarily to increases in revenue from gain on sale of premises and equipment, gain on sale of loans, mortgage banking activities, and loan servicing revenue, which was partially offset by a decrease in other income. The increase in gain on sale of premises and equipment was due to the Company completing the sale of its current headquarters.margins. The increase in gain on sale of loans was due to an increase in the volume of U.S. SBA 7(a) guaranteed loan sales, ~~and an increase in secondary market premiums during~~as well as a $0.4 million gain on sale on the ~~six months ended June 30, 2021. The increase in mortgage banking revenue was due mainly to higher gain-on-sale margins. The increase in loan servicing revenue was due to growth in the balance~~sale of ~~the Company’s SBA 7(a) servicing~~$14.4 million of single tenant lease financing loans.

4743

~~portfolio due to origination activity over the last twelve months. The decrease in other noninterest income was due to various items, none of which were individually deemed significant.~~

Noninterest Expense

The following table presents noninterest expense for the last five completed fiscal ~~quarters and the six months ended June 30, 2021 and 2020.~~

(in thousands) Three Months Ended Six Months Ended
June 30,
2021 March 31,
2021 December 31,
2020 September 30,
2020 June 30,
2020 June 30,
2021 June 30,
2020
Salaries and employee benefits $ 9,232 $ 9,492 $ 9,135 $ 9,533 $ 7,789 $ 18,724 $ 15,563
Marketing, advertising and promotion 872 680 443 426 411 1,552 786
Consulting and professional services 1,078 986 788 614 932 2,064 2,109
Data processing 382 462 426 388 339 844 714
Loan expenses 541 534 630 408 399 1,075 998
Premises and equipment 1,587 1,601 1,601 1,568 1,602 3,188 3,227
Deposit insurance premium 275 425 450 440 435 700 920
Write-down of other real estate owned — — — 2,065 — — —
Other 1,108 1,137 1,040 970 1,337 2,245 2,413
Total noninterest expense $ 15,075 $ 15,317 $ 14,513 $ 16,412 $ 13,244 $ 30,392 $ 26,730
quarters.


	Three Months Ended
(in thousands)	March 31, 2022		December 31, 2021		September 30, 2021		June 30, 2021		March 31, 2021
Salaries and employee benefits	$	9,878	$	10,183	$	9,316	$	9,232	$	9,492
Marketing, advertising and promotion	756		896		813		872		680
Consulting and professional services	1,925		1,262		728		1,078		986
Data processing	449		425		380		382		462
Loan expenses	1,582		654		383		541		534
Premises and equipment	2,540		2,188		1,687		1,587		1,601
Deposit insurance premium	281		283		230		275		425

Other	1,369		1,064		914		1,108		1,137
Total noninterest expense	$	18,780	$	16,955	$	14,451	$	15,075	$	15,317

Noninterest expense for the ~~second~~first quarter ~~2021~~2022 was ~~$15.1~~$18.8 million, compared to ~~$13.2~~$15.3 million for the ~~second~~first quarter ~~2020.~~2021. The increase of ~~$1.8~~$3.5 million, or ~~13.8%~~22.6%, ~~compared to the second quarter 2020~~ was due primarily to increases of ~~$1.4~~$1.0 million in loan expenses, $0.9 million in premises and equipment, $0.9 million in consulting and professional services, $0.4 million in salaries and employee benefits and ~~$0.5 million in marketing, advertising and promotion, partially offset by decreases of $0.2 million and~~ $0.2 million in ~~deposit insurance premium~~other expense. The increase in loan expenses was driven primarily by servicing fees related to tax refund advance loans. The increase in premises and ~~other noninterest expense, respectively.~~equipment was primarily related to costs associated with the Company’s new corporate headquarters. The increase in consulting and professional services was due primarily to a nonrecurring consulting fee and acquisition-related expenses. The increase in salaries and employee benefits was due mainly to ~~an increase in~~increased headcount ~~which includes the impact of personnel growth associated with the Company’s small business lending platform, as well as increased~~and small business lending incentive compensation, for the second quarter 2021. The increase in marketing, advertising and promotion was due primarily to higher mortgage lead generation costs and sponsorship initiatives. The decrease in other expenses was due primarily to a $0.3 million charitable contribution the Company made in the second quarter 2020 to assist small businesses and nonprofits in addressing the economic challenges of the COVID-19 pandemic. The decrease in deposit insurance premium is due primarily topartially offset by a decrease in ~~the balance of brokered deposits~~mortgage banking incentive compensation and ~~a decrease in the overall size of the balance sheet, both of which positively impact the formula used to calculate deposit insurance expense.~~

Noninterest expense for the six months ended June 30, 2021 was $30.4 million, compared to $26.7 million for the six months ended June 30, 2020. The increase of $3.7 million, or 13.7%, compared to the six months ended June 30, 2020 was due primarily to increases of $3.2 million in salaries andlower employee benefits and $0.8 million in marketing, advertising and promotion, partially offset by decreases of $0.2 million and $0.2 million in deposit insurance premium and other noninterest expense, respectively. The increase in salaries and employee benefits was due mainly to an increase in headcount, which includes the impact of personnel growth associated with the Company’s small business lending platform, as well as increased small business lending incentive compensation. The increase in marketing, advertising and promotion was due primarily to higher mortgage lead generation costs and digital marketing initiatives. The decrease in deposit insurance premium was due primarily to a decrease in the balance of brokered deposits and a decrease in the overall size of the balance sheet, both of which positively impact the formula used to calculate deposit insurance expense. The decrease in other expenses was due primarily to a $0.3 million charitable contribution the Company made in the second quarter 2020 to assist small businesses and nonprofits in addressing the economic challenges of the COVID-19 pandemic.costs.

Income tax provision was ~~$2.4~~$1.8 million for the ~~second~~first quarter ~~2021,~~2022, resulting in an effective tax rate of ~~15.4%~~13.8%, compared to a tax ~~benefit~~provision of ~~$0.3~~$1.9 million for the ~~second~~first quarter ~~2020. Income tax provision was $4.2 million for the six months ended June 30,~~ 2021 ~~resulting in~~and an effective tax rate of 15.2%, compared to an income tax benefit of less than $0.1 million for the six months ended June 30, 2020. The increase in income tax provision for both the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020, was due primarily to the increase in pre-tax earnings driven by increased net interest income and noninterest income, partially offset by higher noninterest expenses. Additionally, the lower income tax provision and effective tax rate during the six months ended June 30, 2020, was impacted by the passage of the

~~CARES Act, which was signed into law on March 27, 2020, and provided the Company the ability to carryback certain federal net operating losses.~~

15.1%.

Financial Condition

The following table presents summary balance sheet data for the last five completed fiscal quarters.


(in thousands)	(in thousands)											(in thousands)
Balance Sheet Data:	Balance Sheet Data:	June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020		Balance Sheet Data:	March 31, 2022		December 31, 2021		September 30, 2021		June 30, 2021		March 31, 2021
Total assets	Total assets	$	4,204,642	$	4,188,570	$	4,246,156	$	4,333,624	$	4,324,600	Total assets	$	4,225,397	$	4,210,994	$	4,252,292	$	4,204,642	$	4,188,570
Loans	Loans	2,957,608		3,058,694		3,059,231		3,012,914		2,973,674		Loans	2,880,780		2,887,662		2,936,148		2,957,608		3,058,694
Total securities	Total securities	729,178		530,566		565,851		596,565		657,312		Total securities	628,658		662,609		696,136		729,178		530,566

Loans held-for-sale	Loans held-for-sale	27,587		30,235		39,584		76,208		38,813		Loans held-for-sale	33,991		47,745		43,970		27,587		30,235
Noninterest-bearing deposits	Noninterest-bearing deposits	113,996		100,700		96,753		86,088		82,864		Noninterest-bearing deposits	119,196		117,531		110,117		113,996		100,700
Interest-bearing deposits	Interest-bearing deposits	3,092,151		3,116,903		3,174,132		3,286,303		3,297,925		Interest-bearing deposits	3,098,783		3,061,428		3,114,478		3,092,151		3,116,903
Total deposits	Total deposits	3,206,147		3,217,603		3,270,885		3,372,391		3,380,789		Total deposits	3,217,979		3,178,959		3,224,595		3,206,147		3,217,603
Advances from Federal Home Loan Bank	Advances from Federal Home Loan Bank	514,919		514,917		514,916		514,914		514,913		Advances from Federal Home Loan Bank	514,923		514,922		514,920		514,919		514,917
Total shareholders’ equity	Total shareholders’ equity	358,641		344,566		330,944		318,102		307,711		Total shareholders’ equity	374,655		380,338		370,442		358,641		344,566

Total assets ~~decreased $41.5~~increased $14.4 million, or ~~1.0%~~0.3%, to $4.2 billion at ~~June 30, 2021~~March 31, 2022 compared to $4.2 billion at December 31, 2020. This decrease was driven by a $64.7 million, or 2.0%, decrease in deposit balances, which includes a $202.0 million, or 15.7%, decrease in certificates of deposits and an $81.8 million, or 6.1%, increase in money market account balances.2021.

As of ~~June 30, 2021,~~March 31, 2022, total shareholders’ equity was ~~$358.6~~$374.7 million, ~~an increase~~a decrease of ~~$27.7~~$5.7 million, or ~~8.4%~~1.5%, compared to December 31, ~~2020,~~2021, due primarily to an increase in accumulated other comprehensive loss resulting from a decline in the value of the available-for-sale securities portfolio following the rapid rise in interest rates during the quarter, as well as stock repurchase activity during the quarter. This was partially offset by the net income earned during the ~~period,~~quarter and an increase in the value of interest rate swaps classified as ~~well as a decrease in accumulated other comprehensive loss.~~cash flow hedges. Tangible common equity totaled ~~$354.0~~$370.0 million as of ~~June 30, 2021,~~March 31, 2022, representing ~~an increase~~a decrease of ~~$27.7~~$5.7 million, or ~~8.5%~~1.5%, compared to December 31, ~~2020. As both total shareholders’ equity and tangible common equity increased, while both total assets and tangible assets decreased 1.0%, respectively, the~~2021. The ratio of total shareholders’ equity to total assets ~~increased~~decreased to ~~8.53%~~8.87% as of ~~June 30, 2021~~March 31, 2022 from ~~7.79%~~9.03% as of December 31, ~~2020,~~2021, and the ratio of tangible common equity to tangible assets ~~increased~~decreased to ~~8.43%~~8.77% as of ~~June 30, 2021~~March 31, 2022 from ~~7.69%~~8.93% as of December 31, ~~2020.~~2021.

Book value per common share ~~increased 7.8%~~decreased 0.8% to ~~$36.39~~$38.69 as of ~~June 30, 2021~~March 31, 2022 from ~~$33.77~~$38.99 as of December 31, ~~2020.~~2021. Tangible book value per share ~~increased 7.9%~~decreased 0.8% to ~~$35.92~~$38.21 as of ~~June~~March 31, ~~2021~~2022 from ~~$33.29~~$38.51 as of December 31, ~~2020.~~2021. The ~~growth~~decline in both book value per common share and tangible book value per share reflects the ~~growth~~decline in total shareholders’ equity and tangible common ~~equity while total common shares outstanding increased slightly from December 31, 2020.~~equity. Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Part I, Item 2 of this report, Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information.

Loan Portfolio Analysis

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


(dollars in thousands)	(dollars in thousands)	June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020					(dollars in thousands)		March 31, 2022							December 31, 2021							September 30, 2021							June 30, 2021							March 31, 2021
Commercial loans	Commercial loans																						Commercial loans
Commercial and industrial	Commercial and industrial	$	96,203	3.3	%	$	71,835	2.3	%	$	75,387	2.5	%	$	77,116	2.6	%	$	81,687	2.7	%		Commercial and industrial		$	99,808		3.5		%		$	96,008		3.3		%		$	107,142		3.6		%		$	96,203		3.3		%		$	71,835		2.3		%
Owner-occupied commercial real estate	Owner-occupied commercial real estate	87,136		2.9	%	87,930		2.9	%	89,785		2.9	%	89,095		3.0	%	86,897		2.9	%		Owner-occupied commercial real estate		56,752			2.0		%		66,732			2.3		%		84,819			2.9		%		87,136			2.9		%		87,930			2.9		%
Investor commercial real estate	Investor commercial real estate	28,871		1.0	%	14,832		0.5	%	13,902		0.5	%	13,084		0.4	%	13,286		0.4	%		Investor commercial real estate		34,627			1.2		%		28,019			1.0		%		28,505			1.0		%		28,871			1.0		%		14,832			0.5		%
Construction	Construction	117,970		4.0	%	123,483		4.0	%	110,385		3.6	%	92,154		3.1	%	77,591		2.6	%		Construction		149,662			5.2		%		136,619			4.7		%		115,414			3.9		%		117,970			4.0		%		123,483			4.0		%
Single tenant lease financing	Single tenant lease financing	913,115		30.9	%	941,322		30.8	%	950,172		31.1	%	960,505		31.9	%	980,292		33.0	%		Single tenant lease financing		852,519			29.6		%		865,854			30.0		%		921,998			31.5		%		913,115			30.9		%		941,322			30.8		%
Public finance	Public finance	612,138		20.7	%	637,600		20.8	%	622,257		20.3	%	625,638		20.8	%	647,107		21.8	%		Public finance		587,817			20.4		%		592,665			20.5		%		601,738			20.5		%		612,138			20.7		%		637,600			20.8		%
Healthcare finance	Healthcare finance	455,890		15.3	%	510,237		16.8	%	528,154		17.3	%	461,740		15.3	%	380,956		12.8	%		Healthcare finance		354,574			12.3		%		387,852			13.4		%		417,388			14.2		%		455,890			15.3		%		510,237			16.8		%
Small business lending	Small business lending	123,293		4.2	%	132,490		4.3	%	125,589		4.1	%	123,168		4.1	%	118,526		4.0	%		Small business lending		97,040			3.4		%		108,666			3.8		%		102,889			3.5		%		123,293			4.2		%		132,490			4.3		%

Franchise finance																						Franchise finance		107,246			3.7		%		81,448			2.8		%		25,598			0.9		%		—			0.0		%		—			0.0		%
Total commercial loans	Total commercial loans	2,434,616		82.3	%	2,519,729		82.4	%	2,515,631		82.3	%	2,442,500		81.2	%	2,386,342		80.2	%		Total commercial loans		2,340,045			81.3		%		2,363,863			81.8		%		2,405,491			82.0		%		2,434,616			82.3		%		2,519,729			82.4		%
Consumer loans	Consumer loans																						Consumer loans
Residential mortgage	Residential mortgage	177,148		6.0	%	190,148		6.2	%	186,787		6.1	%	203,041		6.7	%	208,728		7.0	%		Residential mortgage		191,153			6.6		%		186,770			6.5		%		188,750			6.4		%		177,148			6.0		%		190,148			6.2		%
Home equity	Home equity	17,510		0.6	%	17,949		0.6	%	19,857		0.6	%	22,169		0.7	%	22,640		0.8	%		Home equity		18,100			0.6		%		17,665			0.6		%		17,960			0.6		%		17,510			0.6		%		17,949			0.6		%
Other consumer	Other consumer	271,796		9.2	%	270,209		8.8	%	275,692		9.0	%	282,450		9.3	%	291,632		9.8	%		Other consumer		270,330			9.4		%		265,478			9.2		%		268,396			9.1		%		271,796			9.2		%		270,209			8.8		%
Tax refund advance loans																						Tax refund advance loans		9,177			0.3		%		—			0.0		%		—			0.0		%		—			0.0		%		—			0.0		%
Total consumer loans	Total consumer loans	466,454		15.8	%	478,306		15.6	%	482,336		15.7	%	507,660		16.7	%	523,000		17.6	%		Total consumer loans		488,760			16.9		%		469,913			16.3		%		475,106			16.1		%		466,454			15.8		%		478,306			15.6		%
Net deferred loan origination costs, premiums and discounts on purchased loans and other (1)	Net deferred loan origination costs, premiums and discounts on purchased loans and other (1)	56,538		1.9	%	60,659		2.0	%	61,264		2.0	%	62,754		2.1	%	64,332		2.2	%		Net deferred loan origination costs, premiums and discounts on purchased loans and other (1)		51,975			1.8		%		53,886			1.9		%		55,551			1.9		%		56,538			1.9		%		60,659			2.0		%
Total loans	Total loans	2,957,608		100.0	%	3,058,694		100.0	%	3,059,231		100.0	%	3,012,914		100.0	%	2,973,674		100.0	%		Total loans		2,880,780			100.0		%		2,887,662			100.0		%		2,936,148			100.0		%		2,957,608			100.0		%		3,058,694			100.0		%
Allowance for loan losses	Allowance for loan losses	(28,066)				(30,642)				(29,484)				(26,917)				(24,465)					Allowance for loan losses		(28,251)							(27,841)							(28,000)							(28,066)							(30,642)
Net loans	Net loans	$	2,929,542			$	3,028,052			$	3,029,747			$	2,985,997			$	2,949,209				Net loans		$	2,852,529						$	2,859,821						$	2,908,148						$	2,929,542						$	3,028,052

(1) Includes carrying value adjustments of $36.4 million, $37.5 million, $38.9 million, $40.4 million ~~$41.6 million, $42.7 million, $44.3 million~~ and ~~$46.0~~$41.6 million related to terminated interest rate swaps associated with public finance loans as of March 31, 2022, December 31, 2021, September 30, 2021, June 30, 2021, and March 31, 2021, ~~December 31, 2020, September 30, 2020 and June 30, 2020,~~ respectively.

Total loans were ~~$3.0~~$2.9 billion as of ~~June 30, 2021,~~March 31, 2022, a decrease of ~~$101.6~~$6.9 million, or ~~3.3%~~0.2%, compared to December 31, ~~2020.~~2021. Total commercial loan balances were ~~$2.4~~$2.3 billion as of ~~June 30, 2021,~~March 31, 2022, down ~~$81.0~~$23.8 million, or ~~3.2%~~1.0%, from December 31, ~~2020.~~2021. Total consumer loan balances were $488.8 million as of March 31, 2022, an increase of $18.8 million, or 4.0%, compared to December 31, 2021. Compared to December 31, ~~2020,~~2021, the decline in commercial loan balances was driven largely by net payoffs in healthcare finance, small business lending, which included PPP repayment as well as some prepayments and sales of seasoned loans, owner-occupied commercial real estate and public finance loans, as well as the sale of $14.4 million of single tenant lease financing ~~and public finance loans, which were~~loans. This decline was partially offset by ~~increases~~growth in ~~commercial and industrial,~~franchise finance, construction, ~~and~~ investor commercial real estate and commercial and industrial loan balances.

The ~~net payoffs~~increase in consumer loans was due to higher balances in the ~~healthcare finance portfolio were driven primarily by elevated prepayment activity combined with a lower level of new originations, as heightened competition~~residential mortgage, recreational vehicles and ~~the low interest rate environment has driven~~trailers loan ~~pricing to unattractively low levels. Going forward, we expect the balance of healthcare finance loans may decline as a result of Provide’s acquisition by a super-regional financial institution,~~portfolios, as well as ~~potential prepayment activity.~~

~~Total consumer loan balances were $466.5 million as~~the remaining outstanding balance of June 30, 2021, a decrease of $15.9 million, or 3.3%, compared to December 31, 2020. The decline in consumer loan balances from December 31, 2020 was due primarily to increased prepayment activity acrosstax refund advance loans originated during the ~~consumer portfolio.~~first quarter 2022.

5045

Franchise finance was established in July 2021 in partnership with ApplePie Capital, a leading provider of growth financing to franchisees in various industry segments across the country. Through this relationship, we began funding portfolio loans in 2021 and as of March 31, 2022, we have funded a total of $107.4 million in loans. Also, the Company funded $184.2 million of tax refund advance loans during the first quarter of 2022 and received repayments of $173.6 million. At quarter end, $9.2 million of balances remained outstanding on the tax refund advance loans.

Asset Quality

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


(dollars in thousands)	(dollars in thousands)	June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			(dollars in thousands)	March 31, 2022			December 31, 2021			September 30, 2021			June 30, 2021			March 31, 2021
Nonaccrual loans	Nonaccrual loans																Nonaccrual loans
Commercial loans:	Commercial loans:																Commercial loans:
Commercial and industrial	Commercial and industrial	$	692		$	1,002		$	—		$	117		$	299		Commercial and industrial	$	610		$	674		$	678		$	692		$	1,002
Owner-occupied commercial real estate	Owner-occupied commercial real estate	3,487			4,266			1,838			1,390			2,066			Owner-occupied commercial real estate	3,267			3,419			3,429			3,487			4,266

Single tenant lease financing	Single tenant lease financing	2,373			7,080			7,116			7,148			4,680			Single tenant lease financing	1,092			1,100			1,100			2,373			7,080
Small business lending (1)	Small business lending (1)	1,209			865			—			—			—			Small business lending (1)	881			959			1,351			1,209			865

Total commercial loans	Total commercial loans	7,761			13,213			8,954			8,655			7,045			Total commercial loans	5,850			6,152			6,558			7,761			13,213
Consumer loans:	Consumer loans:																Consumer loans:
Residential mortgage	Residential mortgage	1,253			1,120			1,183			1,085			1,042			Residential mortgage	1,207			1,226			1,253			1,253			1,120
Home equity	Home equity	14			15			—			—			—			Home equity	14			14			14			14			15
Other consumer	Other consumer	10			23			46			34			108			Other consumer	13			9			26			10			23
Total consumer loans	Total consumer loans	1,277			1,158			1,229			1,119			1,150			Total consumer loans	1,234			1,249			1,293			1,277			1,158
Total nonaccrual loans	Total nonaccrual loans	9,038			14,371			10,183			9,774			8,195			Total nonaccrual loans	7,084			7,401			7,851			9,038			14,371

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

Total commercial loans	Total commercial loans	—			278			—			—			—			Total commercial loans	—			—			—			—			278

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

Total nonperforming loans	Total nonperforming loans	9,038			14,649			10,183			9,774			8,195			Total nonperforming loans	7,084			7,401			7,851			9,038			14,649

Other real estate owned	Other real estate owned																Other real estate owned
Investor commercial real estate		1,188			—			—			—			2,065
Single tenant lease financing																	Single tenant lease financing	—			1,188			1,188			1,188			—
Residential mortgage	Residential mortgage	112			—			—			—			—			Residential mortgage	—			—			—			112			—
Total other real estate owned	Total other real estate owned	1,300			—			—			—			2,065			Total other real estate owned	—			1,188			1,188			1,300			—

Other nonperforming assets	Other nonperforming assets	—			29			35			8			44			Other nonperforming assets	1			29			—			—			29

Total nonperforming assets	Total nonperforming assets	$	10,338		$	14,678		$	10,218		$	9,782		$	10,304		Total nonperforming assets	$	7,085		$	8,618		$	9,039		$	10,338		$	14,678

Total nonperforming loans to total loans(2)	Total nonperforming loans to total loans(2)	0.31		%	0.48		%	0.33		%	0.32		%	0.28		%	Total nonperforming loans to total loans(2)	0.25		%	0.26		%	0.27		%	0.31		%	0.48		%
Total nonperforming assets to total assets(2)	Total nonperforming assets to total assets(2)	0.25		%	0.35		%	0.24		%	0.23		%	0.24		%	Total nonperforming assets to total assets(2)	0.17		%	0.20		%	0.21		%	0.25		%	0.35		%
Allowance for loan losses to total loans	Allowance for loan losses to total loans	0.95		%	1.00		%	0.96		%	0.89		%	0.82		%	Allowance for loan losses to total loans	0.98		%	0.96		%	0.95		%	0.95		%	1.00		%
Allowance for loan losses to total loans, excluding PPP loans(3)		0.96		%	1.02		%	0.98		%	0.91		%	0.84		%
Nonaccrual loans to total loans																	Nonaccrual loans to total loans	0.25		%	0.26		%	0.27		%	0.31		%	0.47		%
Allowance for loan losses to nonperforming loans(2)	Allowance for loan losses to nonperforming loans(2)	310.5		%	209.2		%	289.5		%	275.4		%	298.5		%	Allowance for loan losses to nonperforming loans(2)	398.8		%	376.2		%	356.6		%	310.5		%	209.2		%

1 Balance represents U.S. government guaranteed loans.

2 Includes the impact of nonperforming small business lending loans, which are guaranteed by the U.S. government.

3 ~~This information represents a non-GAAP financial measure. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of this measure to its most directly comparable GAAP measure.~~

5147

Troubled Debt Restructurings

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


(in thousands)	(in thousands)	June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020		(in thousands)	March 31, 2022		December 31, 2021		September 30, 2021		June 30, 2021		March 31, 2021
Troubled debt restructurings – nonaccrual	Troubled debt restructurings – nonaccrual	$	2,581	$	2,606	$	2,637	$	811	$	854	Troubled debt restructurings – nonaccrual	$	2,440	$	2,492	$	2,550	$	2,581	$	2,606
Troubled debt restructurings – performing	Troubled debt restructurings – performing	1,179		1,187		367		365		372		Troubled debt restructurings – performing	2,418		1,693		843		1,179		1,187
Total troubled debt restructurings	Total troubled debt restructurings	$	3,760	$	3,793	$	3,004	$	1,176	$	1,226	Total troubled debt restructurings	$	4,858	$	4,185	$	3,393	$	3,760	$	3,793

The decline in nonperforming loans of ~~$1.2~~$0.3 million, or ~~9.0%~~4.3%, to ~~$9.0~~$7.1 million as of ~~June 30, 2021~~March 31, 2022 compared to ~~$10.2~~$7.4 million as of December 31, ~~2020~~2021 was due primarily to ~~a decrease~~repayment activity in ~~nonaccrual single tenant lease financing balances, which was partially offset by an increase in nonperforming~~the small business lending, owner-occupied commercial real estate and commercial and industrial loans. The decrease in nonaccrual single tenant lease financing balances was due to positive developments related to a relationship which included two loans, one of which was paid off at net book value (unpaid principal balance less specific reserves) and the other was transferred to OREO.loan portfolios.

Total nonperforming assets ~~increased $0.1~~decreased $1.5 million, or ~~1.2%~~17.8%, as of ~~June 30, 2021~~March 31, 2022 compared to December 31, ~~2020,~~2021, due primarily to ~~a $1.3 million increase in OREO, partially offset by~~ the ~~$1.2~~$0.3 million decrease in nonperforming loans discussed ~~above.~~above, as well as the decline in other real estate owned (“OREO”) discussed below. The ratio of nonperforming loans to total loans decreased to ~~0.31%~~0.25% as of ~~June 30, 2021~~March 31, 2022 compared to ~~0.33%~~0.26% as of December 31, ~~2020~~2021, and the ratio of nonperforming assets to total assets ~~increased~~decreased to ~~0.25%~~0.17% as of ~~June 30, 2021~~March 31, 2022 compared to ~~0.24%~~0.20% as of December 31, ~~2020, also due primarily to the loans and OREO mentioned above.~~2021.

Total TDRs as of ~~June 30, 2021~~March 31, 2022 were ~~$3.8~~$4.9 million, up ~~$0.8~~$0.7 million from December 31, ~~2020.~~2021. The increase was driven by one residential mortgage loan that became a TDR during the first quarter ~~2021.~~2022.

As of ~~June 30,~~December 31, 2021, the Company had ~~two properties~~one single tenant lease financing property in OREO ~~one commercial property~~ with a carrying value of $1.2 million. During the first quarter 2022, the Company reached a settlement agreement with the guarantor, which resulted in the Company recovering $1.2 million ~~and one residential mortgage with a~~in excess of the carrying value of ~~$0.1 million. The~~OREO. As of March 31, 2022, the Company did not ~~have~~own any ~~OREO as of December 31, 2020.~~

OREO.

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

Non-TDR Loan Modifications due to COVID-19

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

Additionally, Section 4013 of the CARES Act further provides that loan modifications due to the impact of COVID-19 that would otherwise be classified as TDRs under GAAP will not be so classified. Modifications within the scope of this relief ~~are~~were in effect from the period beginning March 1, 2020 until ~~the earlier of~~ January 1, ~~2022, or 60 days after the date on which the national emergency related to the COVID-19 pandemic formally terminates.~~2022.

In accordance with this guidance, the Company ~~has~~ offered modifications to borrowers who were both impacted by COVID-19 and current on all principal and interest payments. As of ~~June 30, 2021,~~March 31, 2022, the Company had ~~eight~~seven loans totaling ~~$7.9~~$9.8 million in non-TDR loan modifications due to COVID-19.

U.S. Small Business Administration Paycheck Protection Program

Section 1102 of the CARES Act created the PPP, which is jointly administered by the U.S. Small Business Administration (“SBA”) and the Department of the Treasury. The PPP is designed to provide a direct incentive to small businesses to retain employees on their payroll during COVID-19 as well as to help cover certain utility costs and rent payments. These loans may be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA. In 2020, as a preferred SBA lender, we assisted our clients in participating in the PPP to help them maintain their ~~workforces~~workforce in an uncertain

and challenging environment. The loans originated in 2020 bear an interest rate of 1.00%, and we received gross origination fees of approximately $2.3 million. The Company received this fee revenue from the SBA in late June 2020, and it was deferred over the life of the PPP loans and recognized as interest income. The Company began processing applications for forgiveness from this round beginning in December 2020 and 100% of loan balances have been forgiven as of December 31, 2021.

On December 27, 2020, $285 billion in additional funding was allocated to the PPP through the passage of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act. The ~~additional funding was used to fund PPP loans for small businesses, as well as certain small businesses who were eligible to receive a second PPP loan. The~~ Company began offering PPP loans again in 2021 and continued until the program’s funds were depleted. These loans may be forgiven if certain conditions are satisfied and

are fully guaranteed by the SBA. The loans originated during 2021 bear an interest rate of 1.00% and the Company received gross origination fees of approximately $1.3 million. The Company received this fee revenue from the SBA during ~~the six month period ended June 30,~~ 2021, and it is being deferred over the life of the PPP loans and recognized as interest income. The Company began processing applications for forgiveness from this round beginning in May ~~2021.~~ 2021 and 99% of loan balances have been forgiven as of March 31, 2022.

The Company anticipates that the majority of the PPP loans will ultimately be forgiven, in whole or in part, by the SBA in accordance with the terms of the program. Management anticipates that loan forgiveness applications will continue throughout ~~2021.~~2022.

The following table provides a rollforward of the activity of PPP loans through ~~June 30, 2021.~~March 31, 2022.


(dollars in thousands)
		Number of Loans	Principal Balance		Net Deferred Fees
(in thousands)							(in thousands)	Number of Loans	Principal Balance		Net Deferred Fees
Originated	Originated	447	$	58,336	$	1,851	Originated	447	$	58,336	$	1,851
Principal repaid	Principal repaid	(71)	(7,184)				Principal repaid	(71)	(7,184)
Net deferred fees recognized	Net deferred fees recognized				(1,253)		Net deferred fees recognized				(1,253)
Balance, December 31, 2020	Balance, December 31, 2020	376	51,152		598		Balance, December 31, 2020	376	51,152		598
Originated	Originated	278	27,201		1,118		Originated	281	27,377		1,125
Principal repaid	Principal repaid	(348)	(38,671)				Principal repaid	(634)	(75,377)
Net deferred fees recognized	Net deferred fees recognized				(768)		Net deferred fees recognized				(1,624)
Balance, June 30, 2021		306	39,682		948
Balance, December 31, 2021							Balance, December 31, 2021	23	3,152		99
Originated							Originated	—	—		—
Principal repaid							Principal repaid	(18)	(2,149)
Net deferred fees recognized							Net deferred fees recognized		—		(75)
Balance, March 31, 2022							Balance, March 31, 2022	5	$	1,003	$	24

Allowance for Loan Losses

The following table provides a rollforward of the allowance for loan losses for the last five completed fiscal ~~quarters and the six months ended June 30, 2021 and 2020.~~quarters.


(dollars in thousands)		Three Months Ended															Six Months Ended
		June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			June 30, 2021			June 30, 2020				Three Months Ended
(in thousands)																							(in thousands)	March 31, 2022			December 31, 2021			September 30, 2021			June 30, 2021			March 31, 2021
Balance, beginning of period	Balance, beginning of period	$	30,642		$	29,484		$	26,917		$	24,465		$	22,857		$	29,484		$	21,840		Balance, beginning of period	$	27,841		$	28,000		$	28,066		$	30,642		$	29,484
Provision charged to expense		21			1,276			2,865			2,509			2,491			1,297			3,952
Provision (credit) charged to expense																							Provision (credit) charged to expense	791			(238)			(29)			21			1,276
Losses charged off	Losses charged off	(2,689)			(311)			(408)			(241)			(1,016)			(3,001)			(1,514)			Losses charged off
Commercial and industrial																							Commercial and industrial	—			—			—			28			—

Single tenant lease financing																							Single tenant lease financing	—			—			—			2,392			—

Small business lending																							Small business lending	80			—			10			133			79
Residential mortgage																							Residential mortgage	—			—			—			6			—
Home equity																							Home equity	—			—			—			—			51

Other consumer																							Other consumer	163			106			110			131			181
Tax refund advance loans																							Tax refund advance loans	1,488			—			—			—			—
Total losses charged off																							Total losses charged off	1,731			106			120			2,690			311
Recoveries	Recoveries	92			193			110			184			133			286			187			Recoveries
Commercial and industrial																							Commercial and industrial	—			3			2			2			82

Single tenant lease financing																							Single tenant lease financing	1,231			—			—			—			—

Small business lending																							Small business lending	17			48			26			2			4
Residential mortgage																							Residential mortgage	1			51			3			4			5
Home equity																							Home equity	2			2			2			1			2
Other consumer																							Other consumer	99			81			50			84			100
Total losses charged off																							Total losses charged off	1,350			185			83			93			193
Balance, end of period	Balance, end of period	$	28,066		$	30,642		$	29,484		$	26,917		$	24,465		$	28,066		$	24,465		Balance, end of period	$	28,251		$	27,841		$	28,000		$	28,066		$	30,642

Net charge-offs to average loans		0.35		%	0.02		%	0.04		%	0.01		%	0.12		%	0.06		%	0.06		%
Net charge-offs (recoveries)																							Net charge-offs (recoveries)	$	381		$	(79)		$	37		$	2,597		$	118

Net charge-offs (recoveries) to average loans (annualized)																							Net charge-offs (recoveries) to average loans (annualized)
Commercial and industrial																							Commercial and industrial	0.00		%	(0.01		%)	(0.01		%)	0.14		%	(0.49		%)

Single tenant lease financing																							Single tenant lease financing	(0.58		%)	0.00		%	0.00		%	1.04		%	0.00		%

Small business lending																							Small business lending	0.23		%	(0.17		%)	(0.05		%)	0.35		%	0.20		%

Total commercial net charge-offs (recoveries)																							Total commercial net charge-offs (recoveries)	(0.20		%)	(0.01		%)	0.00		%	0.42		%	0.00		%
Residential mortgage																							Residential mortgage	0.00		%	(0.11		%)	(0.01		%)	0.00		%	(0.01		%)
Home equity																							Home equity	(0.04		%)	(0.04		%)	(0.05		%)	(0.02		%)	1.04		%
Other consumer																							Other consumer	0.40		%	0.28		%	0.24		%	0.32		%	0.42		%
Tax refund advance loans																							Tax refund advance loans	9.97		%	0.00		%	0.00		%	0.00		%	0.00		%
Total consumer net charge-offs (recoveries)																							Total consumer net charge-offs (recoveries)	0.05		%	(0.01		%)	0.01		%	0.35		%	0.02		%
Total net charge-offs (recoveries), excluding tax refund advance loans																							Total net charge-offs (recoveries), excluding tax refund advance loans	(0.16		%)	(0.01		%)	0.01		%	0.35		%	0.02		%

The allowance for loan losses was ~~$28.1~~$28.3 million as of ~~June 30, 2021,~~March 31, 2022, compared to ~~$29.5~~$27.8 million as of December 31, 2020. The decrease in the allowance for loan losses compared to December 31, 2020 was due primarily to the elimination of $2.9 million of specific reserves related to a single tenant lease financing relationship and a commercial and industrial relationship, both of which had been classified as nonaccrual. The single tenant lease financing relationship included two loans, one of which was paid off at net book value (unpaid principal balance less specific reserves) and the other was transferred to OREO. The commercial and industrial relationship included four loans, two of which were paid off during the quarter. The decrease in the allowance for loan losses was partially offset by additional adjustments to the qualitative factors in the Company’s allowance model.

2021. The allowance for loan losses as a percentage of total loans, ~~was 0.95% at June 30, 2021, or 0.96%, when~~including and excluding PPP loans, was 0.98% at March 31, 2022, compared to 0.96%, or ~~0.98%,~~0.97% when excluding PPP loans, at December 31, ~~2020.~~2021. The allowance for loan losses as a percentage of nonperforming loans increased to ~~310.5%~~398.8% as of ~~June 30, 2021,~~March 31, 2022, compared to ~~289.5%~~376.2% as of December 31, ~~2020, due~~2021.

Net charge-offs of $0.4 million were recognized during the first quarter 2022, resulting in net charge-offs to ~~a decrease in nonperforming~~average loans of 0.05%, compared to net charge-offs to average loans of 0.02% for the first quarter 2021. Excluding $1.5 million of net charge-offs related to tax refund advance loans, net recoveries of $1.1 million were recognized during the ~~single tenant lease financing relationship and commercial and industrial relationship discussed above.~~ first quarter 2022, resulting in net recoveries to average loans of 0.16%.

The provision for loan losses in the ~~second~~first quarter ~~2021~~2022 was ~~$21 thousand,~~$0.8 million, compared to ~~$2.5~~$1.3 million for the ~~second~~first quarter ~~2020.~~2021. The ~~decrease in~~provision for the first quarter 2022 was driven by the provision ~~for loan losses was due primarily~~related to ~~the decline in loan balances. During the second quarter 2021, the Company recorded net charge-offs of $2.6~~tax refund advance loans, which totaled $1.8 million, ~~compared to net charge-offs of $0.9 million for the second quarter 2020. The increase in net charge-offs was due primarily~~and, to a ~~charge-off~~lesser extent, adjustments to qualitative factors that increased the overall allowance as a percentage of ~~$2.4~~

loans. This was partially offset by a $1.2 million ~~related to the~~recovery on a single tenant lease financing relationship ~~discussed above, as~~that previously had been partially charged-off with the ~~loan payoff and the transfer~~remaining balance transferred to ~~the OREO were recorded at net book value.~~other real estate owned.

Investment Securities Portfolio

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


(in thousands)	(in thousands)											(in thousands)
Amortized Cost	Amortized Cost	June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020		Amortized Cost	March 31, 2022		December 31, 2021		September 30, 2021		June 30, 2021		March 31, 2021
Securities available-for-sale	Securities available-for-sale											Securities available-for-sale
U.S. Government-sponsored agencies	U.S. Government-sponsored agencies	$	57,984	$	60,815	$	61,765	$	65,007	$	68,203	U.S. Government-sponsored agencies	$	45,335	$	50,013	$	53,380	$	57,984	$	60,815
Municipal securities	Municipal securities	77,364		79,168		82,757		87,365		91,906		Municipal securities	72,420		75,158		76,528		77,364		79,168
Agency mortgage-backed securities		445,895		229,981		241,795		250,755		275,433
Private label mortgage-backed securities		29,003		40,550		57,268		71,519		101,110
Agency mortgage-backed securities - residential												Agency mortgage-backed securities - residential	276,392		377,928		398,504		410,971		197,326
Agency mortgage-backed securities - commercial												Agency mortgage-backed securities - commercial	24,815		36,024		34,109		34,924		32,655
Private label mortgage-backed securities - residential												Private label mortgage-backed securities - residential	15,090		15,902		19,997		29,003		40,550
Asset-backed securities	Asset-backed securities	5,000		5,000		5,000		5,000		5,000		Asset-backed securities	5,000		5,000		5,000		5,000		5,000
Corporate securities	Corporate securities	48,447		48,433		48,419		48,406		48,394		Corporate securities	47,580		46,482		48,460		48,447		48,433

Total available-for-sale	Total available-for-sale	663,693		463,947		497,004		528,052		590,046		Total available-for-sale	486,632		606,507		635,978		663,693		463,947
Securities held-to-maturity	Securities held-to-maturity											Securities held-to-maturity
Municipal securities	Municipal securities	14,549		14,560		14,571		14,582		14,603		Municipal securities	13,981		13,992		14,538		14,549		14,560
Agency mortgage-backed securities - residential												Agency mortgage-backed securities - residential	95,982		—		—		—		—
Agency mortgage-backed securities - commercial												Agency mortgage-backed securities - commercial	5,847		—		—		—		—
Corporate securities	Corporate securities	51,110		53,630		53,652		53,672		53,692		Corporate securities	47,560		45,573		47,591		51,110		53,630
Total held-to-maturity	Total held-to-maturity	65,659		68,190		68,223		68,254		68,295		Total held-to-maturity	163,370		59,565		62,129		65,659		68,190
Total securities	Total securities	$	729,352	$	532,137	$	565,227	$	596,306	$	658,341	Total securities	$	650,002	$	666,072	$	698,107	$	729,352	$	532,137


(in thousands)	(in thousands)											(in thousands)
Approximate Fair Value	Approximate Fair Value	June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020		Approximate Fair Value	March 31, 2022		December 31, 2021		September 30, 2021		June 30, 2021		March 31, 2021
Securities available-for-sale	Securities available-for-sale											Securities available-for-sale
U.S. Government-sponsored agencies	U.S. Government-sponsored agencies	$	57,135	$	59,478	$	60,545	$	63,682	$	66,544	U.S. Government-sponsored agencies	$	43,847	$	49,040	$	52,455	$	57,135	$	59,478
Municipal securities	Municipal securities	78,438		79,208		82,489		86,421		90,562		Municipal securities	72,804		77,033		77,450		78,438		79,208
Agency mortgage-backed securities		444,494		228,818		243,921		253,292		278,530
Private label mortgage-backed securities		29,363		41,106		58,116		72,626		101,925
Agency mortgage-backed securities - residential												Agency mortgage-backed securities - residential	257,682		373,236		395,105		408,710		195,514
Agency mortgage-backed securities - commercial												Agency mortgage-backed securities - commercial	24,156		36,326		34,780		35,784		33,304
Private label mortgage-backed securities - residential												Private label mortgage-backed securities - residential	14,818		16,021		20,235		29,363		41,106
Asset-backed securities	Asset-backed securities	5,005		5,006		4,961		4,921		4,837		Asset-backed securities	4,986		5,004		5,005		5,005		5,006
Corporate securities	Corporate securities	49,084		48,760		47,596		47,369		46,619		Corporate securities	46,995		46,384		48,977		49,084		48,760

Total available-for-sale	Total available-for-sale	663,519		462,376		497,628		528,311		589,017		Total available-for-sale	465,288		603,044		634,007		663,519		462,376
Securities held-to-maturity	Securities held-to-maturity											Securities held-to-maturity
Municipal securities	Municipal securities	15,373		15,109		15,317		15,328		15,274		Municipal securities	14,093		14,709		15,319		15,373		15,109
Agency mortgage-backed securities - residential												Agency mortgage-backed securities - residential	92,939		—		—		—		—
Agency mortgage-backed securities - commercial												Agency mortgage-backed securities - commercial	5,420		—		—		—		—
Corporate securities	Corporate securities	52,685		54,274		54,135		53,848		53,878		Corporate securities	47,519		46,759		49,018		52,685		54,274
Total held-to-maturity	Total held-to-maturity	68,058		69,383		69,452		69,176		69,152		Total held-to-maturity	159,971		61,468		64,337		68,058		69,383
Total securities	Total securities	$	731,577	$	531,759	$	567,080	$	597,487	$	658,169	Total securities	$	625,259	$	664,512	$	698,344	$	731,577	$	531,759

The approximate fair value of available-for-sale investment securities ~~increased $165.9~~decreased $137.8 million, or ~~33.3%~~22.8%, to ~~$663.5~~$465.3 million as of ~~June 30, 2021,~~March 31, 2022, compared to ~~$497.6~~$603.0 million as of December 31, ~~2020.~~2021. The ~~increase~~decrease was due primarily to ~~an increase~~a decrease of ~~$200.6~~$115.6 million in agency mortgage-backed securities ~~partially offset by~~- residential, a ~~$28.8~~decrease of $12.2 million ~~decrease in private label mortgage-backed securities and a $4.1 million decrease in municipal securities. The increase~~ in agency ~~mortgage-backed securities was driven primarily by increased purchases during the six months ended June 30, 2021, partially offset by~~mortgage-

5451

~~prepayments~~backed securities - commercial and ~~maturities~~a decrease of $5.2 million in U.S. Government-sponsored agencies. The decrease in agency ~~and private label~~ mortgage-backed securities - residential and agency mortgage-backed securities - commercial was due primarily to the transfer of $96.2 million of these securities from available-for-sale to held-to-maturity in the first quarter 2022, as well as ~~early redemptions and maturities~~a decline in ~~municipal securities.~~fair value resulting from the rapid rise in interest rates during the quarter. The decreases in other securities types were also driven by a decline in value resulting from the rapid rise in interest rates.

Accrued Income and Other Assets

Accrued income and other assets decreased ~~$9.5~~$12.4 million, or ~~14.8%~~26.4%, to ~~$54.8~~$34.5 million at ~~June 30, 2021~~March 31, 2022 compared to ~~$64.3~~$46.9 million at December 31, ~~2020.~~2021. The decrease was primarily related to ~~decreases~~a decrease of ~~$9.5~~$12.9 million in cash pledged as ~~collateral, $3.5 million in deferred tax assets and $2.5 million in derivative assets.~~collateral. As of these dates, the Company pledged ~~$21.0~~$2.7 million and ~~$30.6~~$15.7 million, respectively, of cash collateral to counterparties on interest rate swap agreements as security for its obligations related to these agreements. Collateral posted and received is dependent on the fair value of the underlying agreements as of the respective date.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities were ~~$53.9~~$12.0 million at ~~June 30, 2021~~March 31, 2022 compared to ~~$48.4~~$30.5 million at December 31, ~~2020.~~2021. The decrease in accrued expenses and other liabilities was due primarily to decreases of $11.4 million, or 79.6%, in derivative liabilities, a $3.8 million decrease in accrued taxes payable and a $2.3 million decrease in accrued bonuses.

Deposits

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


(dollars in thousands)	(dollars in thousands)	June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020				(dollars in thousands)	March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021				March 31, 2021
Noninterest-bearing deposits	Noninterest-bearing deposits	$	113,996	3.6	%	$	100,700	3.1	%	$	96,753	3.0	%	$	86,088	2.6	%	$	82,864	2.5	%	Noninterest-bearing deposits	$	119,197	3.7	%	$	117,531	3.7	%	$	110,117	3.4	%	$	113,996	3.6	%	$	100,700	3.1	%
Interest-bearing demand deposits	Interest-bearing demand deposits	196,841		6.1	%	186,015		5.8	%	188,645		5.8	%	155,054		4.6	%	152,391		4.5	%	Interest-bearing demand deposits	334,723		10.4	%	247,967		7.8	%	201,557		6.3	%	196,841		6.1	%	186,015		5.8	%
Savings accounts	Savings accounts	56,298		1.8	%	51,251		1.6	%	43,200		1.3	%	49,890		1.5	%	43,366		1.3	%	Savings accounts	66,320		2.1	%	59,998		1.9	%	66,762		2.1	%	56,298		1.8	%	51,251		1.6	%
Money market accounts	Money market accounts	1,432,355		44.6	%	1,397,449		43.4	%	1,350,566		41.3	%	1,359,178		40.3	%	1,241,874		36.7	%	Money market accounts	1,475,857		45.8	%	1,483,936		46.7	%	1,479,358		45.8	%	1,432,355		44.6	%	1,397,449		43.4	%
BaaS - brokered deposits																						BaaS - brokered deposits	50,006		1.6	%	—		0.0	%	—		0.0	%	—		0.0	%	—		0.0	%
Certificates of deposits	Certificates of deposits	1,087,350		33.9	%	1,174,764		36.5	%	1,289,319		39.4	%	1,360,575		40.3	%	1,470,905		43.5	%	Certificates of deposits	889,789		27.6	%	970,107		30.5	%	1,043,898		32.4	%	1,087,350		33.9	%	1,174,764		36.5	%
Brokered deposits	Brokered deposits	319,307		10.0	%	307,424		9.6	%	302,402		9.2	%	361,606		10.7	%	389,389		11.5	%	Brokered deposits	282,087		8.8	%	299,420		9.4	%	322,903		10.0	%	319,307		10.0	%	307,424		9.6	%
Total deposits	Total deposits	$	3,206,147	100.0	%	$	3,217,603	100.0	%	$	3,270,885	100.0	%	$	3,372,391	100.0	%	$	3,380,789	100.0	%	Total deposits	$	3,217,979	100.0	%	$	3,178,959	100.0	%	$	3,224,595	100.0	%	$	3,206,147	100.0	%	$	3,217,603	100.0	%

Total deposits ~~decreased $64.7~~increased $39.0 million, or ~~2.0%~~1.2%, to $3.2 billion as of ~~June 30, 2021,~~March 31, 2022, compared to ~~$3.3~~$3.2 billion as of December 31, ~~2020.~~2021. This ~~decrease~~increase was due primarily to ~~a decline~~an increase of ~~$202.0~~$86.8 million, or ~~15.7%~~35.0%, in interest-bearing demand deposits, $50.0 million in BaaS brokered deposits, and $6.3 million, or 10.5%, in savings accounts, partially offset by decreases of $80.3 million, or 8.3%, in certificates of deposits, ~~partially offset by increases of $81.8~~$17.3 million, or ~~6.1%~~5.8%, in brokered deposits, and $8.1 million, or 0.5%, in money market ~~accounts, $17.2 million, or 17.8%,~~accounts. The increase in ~~noninterest-bearing deposits, $16.9 million, or 5.6%, in brokered deposits, $13.1 million, or 30.3%, in savings accounts, and $8.2 million, or 4.3%, in~~the balance of interest-bearing demand ~~deposits. The~~deposits was due primarily to approximately $100 million in deposits with a contractual term of five years and a fixed rate of 1.15% pursuant to a new customer relationship. Additionally, the Company ~~experienced strong growth in money market~~generated $50.0 million of new BaaS deposits during the quarter at a cost of 0.20%. Aside from these two new deposit ~~accounts due to targeted digital marketing efforts to grow small business accounts as well as consumers, small business~~relationships, the balance and ~~commercial clients increasing their cash balances in part due to the economic uncertainty resulting~~cost of non-maturity deposits remained relatively stable from the ~~COVID-19 pandemic.~~end of 2021. The decrease in the balance of certificates of deposits ~~were~~was due to the maturity of higher cost balances and reduced pricing strategies designed to limit the volume of new production.

Recent Debt Offerings

~~On October 26, 2020,~~In August 2021, the Company issued ~~$10.0~~$60.0 million in aggregate principal amount of ~~6.0%~~3.75% Fixed-to-Floating Rate Subordinated Notes due ~~2030~~2031 (the ~~“2030~~“2031 Notes”)~~. The Notes were offered and sold by the Company~~ in a private ~~placement~~placement. The 2031 Notes initially bear a fixed interest rate of 3.75% per year to, but excluding, September 1, 2026, and thereafter a floating rate equal to the then-current benchmark rate (initially three-month Term SOFR plus 3.11%). The 2031 Notes are scheduled to mature on ~~November~~September 1, ~~2030.~~2031. The 2030 Notes bear interest at a fixed rate of 6.0% per annum from and including October 26, 2020, to, but excluding, November 1, 2025, and thereafter at a floating interest rate initially equal to the three-month term SOFR plus 5.795%. The 20302031 Notes are unsecured subordinated obligations of the Company and may be repaid, without penalty, on any interest payment date on or after ~~November~~September 1, ~~2025.~~2026. The ~~2030~~2031 Notes are intended to qualify as Tier 2 capital under regulatory guidelines. The Company used a portion of the net proceeds ~~were used~~from the issuance of the 2031 Notes to redeem the ~~2025 Note in January~~2026 Notes. Pursuant to the terms of a Registration Rights Agreement between the Company and the initial purchasers of the 2031 Notes, the Company offered to exchange the 2031 Notes for subordinated notes that are registered under the Securities Act of 1933, as amended, and have substantially the same terms as the 2031 Notes. The offering period to exchange the unregistered 2031 Notes for registered 2031 Notes expired on December 30, 2021.

Regulatory Capital Requirements

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

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

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

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

The following tables present actual and required capital ratios as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 for the Company and the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021, which are based on the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.


		Actual				Minimum Capital Required - Basel III			Minimum Required to be Considered Well Capitalized				Actual								Minimum Capital Required - Basel III	Minimum Required to be Considered Well Capitalized
(dollars in thousands)	(dollars in thousands)	Capital Amount		Ratio			Capital Amount		Ratio		Capital Amount			Ratio		(dollars in thousands)	Capital Amount		Ratio			Capital Amount		Ratio		Capital Amount		Ratio
As of June 30, 2021:
As of March 31, 2022:																As of March 31, 2022:
Common equity tier 1 capital to risk-weighted assets	Common equity tier 1 capital to risk-weighted assets															Common equity tier 1 capital to risk-weighted assets
Consolidated	Consolidated	$	364,991	12.23	%		$	208,989	7.00	%	N/A			N/A		Consolidated	$	390,255	13.16	%		$	207,661	7.00	%	N/A		N/A
Bank	Bank	402,948		13.53	%		208,451		7.00	%	$	193,562		6.50	%	Bank	445,240		15.03	%		207,347		7.00	%	$	192,537	6.50	%
Tier 1 capital to risk-weighted assets	Tier 1 capital to risk-weighted assets															Tier 1 capital to risk-weighted assets
Consolidated	Consolidated	364,991		12.23	%		253,773		8.50	%	N/A			N/A		Consolidated	390,255		13.16	%		252,160		8.50	%	N/A		N/A
Bank	Bank	402,948		13.53	%		253,120		8.50	%	238,230			8.00	%	Bank	445,240		15.03	%		251,779		8.50	%	236,968		8.00	%
Total capital to risk-weighted assets	Total capital to risk-weighted assets															Total capital to risk-weighted assets
Consolidated	Consolidated	462,928		15.51	%		313,484		10.50	%	N/A			N/A		Consolidated	522,812		17.62	%		311,492		10.50	%	N/A		N/A
Bank	Bank	431,014		14.47	%		312,677		10.50	%	297,788			10.00	%	Bank	473,491		15.99	%		311,021		10.50	%	296,210		10.00	%
Leverage ratio	Leverage ratio															Leverage ratio
Consolidated	Consolidated	364,991		8.70	%		167,907		4.00	%	N/A			N/A		Consolidated	390,255		9.26	%		168,584		4.00	%	N/A		N/A
Bank	Bank	402,948		9.61	%		167,663		4.00	%	209,579			5.00	%	Bank	445,240		10.57	%		168,420		4.00	%	210,524		5.00	%


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

5654

Actual Minimum Capital Required - Basel III Minimum Required to be Considered Well Capitalized
(dollars in thousands) Capital Amount Ratio Capital Amount Ratio Capital Amount Ratio
As of December 31, 2020:
Common equity tier 1 capital to risk-weighted assets
Consolidated $ 342,159 11.31 % $ 211,828 7.00 % N/A N/A
Bank 377,678 12.49 % 211,612 7.00 % $ 196,497 6.50 %
Tier 1 capital to risk-weighted assets
Consolidated 342,159 11.31 % 257,220 8.50 % N/A N/A
Bank 377,678 12.49 % 256,957 8.50 % 241,842 8.00 %
Total capital to risk-weighted assets
Consolidated 451,246 14.91 % 317,742 10.50 % N/A N/A
Bank 407,162 13.47 % 317,418 10.50 % 302,303 10.00 %
Leverage ratio
Consolidated 342,159 7.95 % 172,154 4.00 % N/A N/A
Bank 377,678 8.78 % 172,036 4.00 % 215,045 5.00 %

Shareholders’ Dividends

The Company’s Board of Directors declared a cash dividend of $0.06 per share of common stock payable ~~July 15, 2021~~April 18, 2022 to shareholders of record as of ~~July 1, 2021.~~March 31, 2022. The Company expects to continue to pay cash dividends on a quarterly basis; however, the declaration and amount of any future cash dividends will be subject to the sole discretion of the Board of Directors and will depend upon many factors, including its results of operations, financial condition, capital requirements, regulatory and contractual restrictions (including with respect to the Company’s outstanding subordinated debt), business strategy and other factors deemed relevant by the Board of ~~Directors, including any potential impact resulting from COVID-19.~~Directors.

As of ~~June 30, 2021,~~March 31, 2022, the Company had ~~$72.0~~$107.0 million principal amount of subordinated debt outstanding evidenced by its ~~6.0% Fixed-to-Floating Rate Subordinated Notes due 2026, the~~ 2029 Notes, 2030 Note and ~~the 2030~~2031 Notes. The agreements that govern our outstanding subordinated debt prohibit the Company from paying any dividends on its common stock or making any other distributions to shareholders at any time when there shall have occurred, and be continuing to occur, an event of default under the applicable agreement. If an event of default were to occur and the Company did not cure it, the Company would be prohibited from paying any dividends or making any other distributions to shareholders or from redeeming or repurchasing any common stock.

Capital Resources

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

On October 20, 2021, the Company’s Board of Directors approved a stock repurchase program authorizing the repurchase of up to $30 million of the Company’s outstanding common stock from time to time on the open market or in privately negotiated transactions. The Company repurchased 100,000 shares under this program during 2021 and 103,703 shares under this program during the first quarter 2022. The stock repurchase authorization is scheduled to expire on December 31, 2022. Various factors determine the amount and timing of our share repurchases, including our capital requirements, the number of shares we expect to issue in the future, economic and market conditions (including the trading price of our stock), and regulatory and legal considerations. See Part II, Item 2, of this report for information regarding recent repurchase activity and our remaining authority under the program.

Liquidity

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

The Company holds cash and investment securities that qualify as liquid assets to maintain adequate liquidity to ensure safe and sound operations and meet its financial commitments. Given the uncertainty regarding the duration and ultimate economic effect of COVID-19, we believe it will be prudent to maintain higher levels of cash on the balance sheet than we have historically maintained until the crisis passes. We believe we have sufficient on-balance sheet liquidity, supplemented by access to additional funding sources, to manage the potential economic impact of COVID-19. At ~~June 30, 2021,~~March 31, 2022, on a consolidated basis, the Company had ~~$992.3~~$982.8 million in cash and cash equivalents and investment securities available-for-sale and ~~$27.6~~$34.0 million in loans held-for-sale that were generally available for its cash needs. The Company can also generate funds from wholesale funding sources and collateralized borrowings. At ~~June 30, 2021,~~March 31, 2022, the Bank had the ability to borrow an additional ~~$636.9~~$526.5 million from the FHLB, the Federal Reserve and correspondent bank Fed Funds lines of credit.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its common shareholders and interest and principal on outstanding debt. The Company’s primary sources of funds are cash maintained at the holding company level and dividends from the Bank, the payment of which is subject to regulatory limits. At ~~June 30, 2021,~~March 31, 2022, the Company, on an unconsolidated basis, had ~~$27.7~~$44.3 million in cash generally available for its cash needs, which is in excess of its current annual regular shareholder dividend and operating expenses.

The Company uses its sources of funds primarily to meet ongoing financial commitments, including withdrawals by depositors, credit commitments to borrowers, operating expenses and capital expenditures. At ~~June 30, 2021,~~March 31, 2022, approved outstanding loan commitments, including unused lines of credit and standby letters of credit, amounted to ~~$293.1~~$304.8 million. Certificates of deposits and brokered deposits scheduled to mature in one year or less at ~~June 30, 2021~~March 31, 2022 totaled ~~$779.0~~$623.9 million.

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

5856

Reconciliation of Non-GAAP Financial Measures

This Management’s Discussion and Analysis contains financial information determined by methods other than in accordance with GAAP. Non-GAAP financial measures, specifically tangible common equity, tangible assets, tangible book value per common share, tangible common equity to tangible assets, ~~ratio,~~ average tangible common equity, return on average tangible common equity, total interest income - FTE, adjusted total interest income - FTE, net interest income - FTE, adjusted net interest income, adjusted net interest income - FTE, net interest margin - FTE, adjusted net interest margin, adjusted net interest margin - FTE, (benefit) provision for loan losses, excluding tax refund advance loans, average loans, excluding tax refund advance loans, net (recoveries) charge-offs to average loans, excluding tax refund advance loans, loans, excluding PPP loans, allowance for loan losses to loans, excluding PPP loans, adjusted ~~revenue,~~noninterest expense, adjusted income before income taxes, adjusted income tax provision, adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average shareholders’ equity, adjusted return on average tangible common equity, ~~and~~ adjusted effective income tax rate, income before income taxes, excluding tax refund advance loans, income tax provision, excluding tax refund advance loans, and net income, excluding tax refund advance loans are used by the Company’s management to measure the strength of its capital and analyze profitability, including its ability to generate earnings on tangible capital invested by its shareholders. The Company also believes that it is a standard practice in the banking industry to present total interest income, net interest income and net interest margin on a fully-taxable equivalent basis, as those measures provide useful information for peer comparisons. Although the Company believes these non-GAAP financial measures provide a greater understanding of its business, they should not be considered a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP financial measures that may be presented by other companies. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the following table for the last five completed fiscal ~~quarters and the six months ended June 30, 2021 and 2020.~~quarters.


(dollars in thousands, except share and per share data)	(dollars in thousands, except share and per share data)	Three Months Ended															Six Months Ended						(dollars in thousands, except share and per share data)	Three Months Ended
		June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			June 30, 2021			June 30, 2020				March 31, 2022			December 31, 2021			September 30, 2021			June 30, 2021			March 31, 2021
Total equity - GAAP	Total equity - GAAP	$	358,641		$	344,566		$	330,944		$	318,102		$	307,711		$	358,641		$	307,711		Total equity - GAAP	$	374,655		$	380,338		$	370,442		$	358,641		$	344,566
Adjustments:	Adjustments:																						Adjustments:
Goodwill	Goodwill	(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			Goodwill	(4,687)			(4,687)			(4,687)			(4,687)			(4,687)
Tangible common equity	Tangible common equity	$	353,954		$	339,879		$	326,257		$	313,415		$	303,024		$	353,954		$	303,024		Tangible common equity	$	369,968		$	375,651		$	365,755		$	353,954		$	339,879

Total assets - GAAP	Total assets - GAAP	$	4,204,642		$	4,188,570		$	4,246,156		$	4,333,624		$	4,324,600		$	4,204,642		$	4,324,600		Total assets - GAAP	$	4,225,397		$	4,210,994		$	4,252,292		$	4,204,642		$	4,188,570
Adjustments:	Adjustments:																						Adjustments:
Goodwill	Goodwill	(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			Goodwill	(4,687)			(4,687)			(4,687)			(4,687)			(4,687)
Tangible assets	Tangible assets	$	4,199,955		$	4,183,883		$	4,241,469		$	4,328,937		$	4,319,913		$	4,199,955		$	4,319,913		Tangible assets	$	4,220,710		$	4,206,307		$	4,247,605		$	4,199,955		$	4,183,883

Total common shares outstanding		9,854,153			9,823,831			9,800,569			9,800,569			9,799,047			9,854,153			9,799,047
Common shares outstanding																							Common shares outstanding	9,683,727			9,754,455			9,854,153			9,854,153			9,823,831

Book value per common share	Book value per common share	$	36.39		$	35.07		$	33.77		$	32.46		$	31.40		$	36.39		$	31.40		Book value per common share	$	38.69		$	38.99		$	37.59		$	36.39		$	35.07
Effect of goodwill	Effect of goodwill	(0.47)			(0.47)			(0.48)			(0.48)			(0.48)			(0.47)			(0.48)			Effect of goodwill	(0.48)			(0.48)			(0.47)			(0.47)			(0.47)
Tangible book value per common share	Tangible book value per common share	$	35.92		$	34.60		$	33.29		$	31.98		$	30.92		$	35.92		$	30.92		Tangible book value per common share	$	38.21		$	38.51		$	37.12		$	35.92		$	34.60

Total shareholders’ equity to assets	Total shareholders’ equity to assets	8.53		%	8.23		%	7.79		%	7.34		%	7.12		%	8.53		%	7.12		%	Total shareholders’ equity to assets	8.87		%	9.03		%	8.71		%	8.53		%	8.23		%
Effect of goodwill	Effect of goodwill	(0.10)		%	(0.11)		%	(0.10)		%	(0.10)		%	(0.11)		%	(0.10)		%	(0.11)		%	Effect of goodwill	(0.10		%)	(0.10		%)	(0.10		%)	(0.10		%)	(0.11		%)
Tangible common equity to tangible assets ratio		8.43		%	8.12		%	7.69		%	7.24		%	7.01		%	8.43		%	7.01		%
Tangible common equity to tangible assets																							Tangible common equity to tangible assets	8.77		%	8.93		%	8.61		%	8.43		%	8.12		%

Total average equity - GAAP	Total average equity - GAAP	$	352,894		$	335,968		$	323,464		$	313,611		$	306,868		$	344,478		$	308,937		Total average equity - GAAP	$	380,767		$	376,832		$	366,187		$	352,894		$	335,968
Adjustments:	Adjustments:																						Adjustments:
Average goodwill	Average goodwill	(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			Average goodwill	(4,687)			(4,687)			(4,687)			(4,687)			(4,687)
Average tangible common equity	Average tangible common equity	$	348,207		$	331,281		$	318,777		$	308,924		$	302,181		$	339,791		$	304,250		Average tangible common equity	$	376,080		$	372,145		$	361,500		$	348,207		$	331,281

Return on average shareholders’ equity	Return on average shareholders’ equity	14.88		%	12.61		%	13.64		%	10.67		%	5.15		%	13.78		%	6.48		%	Return on average shareholders’ equity	11.94		%	13.14		%	13.10		%	14.88		%	12.61		%
Effect of goodwill	Effect of goodwill	0.21		%	0.18		%	0.20		%	0.16		%	0.08		%	0.19		%	0.10		%	Effect of goodwill	0.15		%	0.16		%	0.17		%	0.21		%	0.18		%
Return on average tangible common equity	Return on average tangible common equity	15.09		%	12.79		%	13.84		%	10.83		%	5.23		%	13.97		%	6.58		%	Return on average tangible common equity	12.09		%	13.30		%	13.27		%	15.09		%	12.79		%

5957

(dollars in thousands, except share and per share data) Three Months Ended Six Months Ended
June 30,
2021 March 31,
2021 December 31,
2020 September 30,
2020 June 30,
2020 June 30,
2021 June 30,
2020
Total interest income $ 33,377 $ 33,280 $ 33,643 $ 32,750 $ 34,222 $ 66,657 $ 70,466
Adjustments:
Fully-taxable equivalent adjustments 1
1,394 1,356 1,400 1,424 1,437 2,750 2,972
Total interest income - FTE $ 34,771 $ 34,636 $ 35,043 $ 34,174 $ 35,659 $ 69,407 $ 73,438
Net interest income $ 21,607 $ 20,525 $ 18,865 $ 16,232 $ 14,426 $ 42,132 $ 29,444
Adjustments:
Fully-taxable equivalent adjustments 1
1,394 1,356 1,400 1,424 1,437 2,750 2,972
Net interest income - FTE $ 23,001 $ 21,881 $ 20,265 $ 17,656 $ 15,863 $ 44,882 $ 32,416
Net interest margin 2.11 % 2.04 % 1.78 % 1.53 % 1.37 % 2.08 % 1.43 %
Effect of fully-taxable equivalent adjustments 1
0.14 % 0.14 % 0.13 % 0.14 % 0.13 % 0.13 % 0.15 %
Net interest margin - FTE 2.25 % 2.18 % 1.91 % 1.67 % 1.50 % 2.21 % 1.58 %
Allowance for loan losses $ 28,066 $ 30,642 $ 29,484 $ 26,917 $ 24,465 $ 28,066 $ 24,465
Loans $ 2,957,608 $ 3,058,694 $ 3,059,231 $ 3,012,914 $ 2,973,674 $ 2,957,608 $ 2,973,674
Adjustments:
PPP loans (39,682) (53,365) (50,554) (58,337) (58,948) (39,682) (58,948)
Loans, excluding PPP loans $ 2,917,926 $ 3,005,329 $ 3,008,677 $ 2,954,577 $ 2,914,726 $ 2,917,926 $ 2,914,726
Allowance for loan losses to loans 0.95 % 1.00 % 0.96 % 0.89 % 0.82 % 0.95 % 0.82 %
Effect of PPP loans 0.01 % 0.02 % 0.02 % 0.02 % 0.02 % 0.01 % 0.02 %
Allowance for loan losses to loans, excluding PPP loans 0.96 % 1.02 % 0.98 % 0.91 % 0.84 % 0.96 % 0.84 %


(dollars in thousands)	Three Months Ended
	March 31, 2022		December 31, 2021		September 30, 2021		June 30, 2021		March 31, 2021
Total interest income	$	36,034	$	34,192	$	33,034	$	33,377	$	33,280
Adjustments:
Fully-taxable equivalent adjustments 1	1,314		1,348		1,356		1,394		1,356
Total interest income - FTE	$	37,348	$	35,540	$	34,390	$	34,771	$	34,636

Total interest income - FTE	$	37,348	$	35,540	$	34,390	$	34,771	$	34,636
Adjustments:
Income from tax refund advance loans	(2,864)		—		—		—		—
Adjusted total interest income - FTE	$	34,484	$	35,540	$	34,390	$	34,771	$	34,636

Net interest income	$	25,750	$	23,505	$	20,919	$	21,607	$	20,525
Adjustments:
Fully-taxable equivalent adjustments 1	1,314		1,348		1,356		1,394		1,356
Net interest income - FTE	$	27,064	$	24,853	$	22,275	$	23,001	$	21,881

Net interest income	$	25,750	$	23,505	$	20,919	$	21,607	$	20,525
Adjustments:
Subordinated debt redemption cost	—		—		810		—		—
Income from tax refund advance loans	(2,864)		—		—		—		—
Adjusted net interest income	$	22,886	$	23,505	$	20,919	$	21,607	$	20,525

Net interest income	$	25,750	$	23,505	$	20,919	$	21,607	$	20,525
Adjustments:
Fully-taxable equivalent adjustments 1	1,314		1,348		1,356		1,394		1,356
Subordinated debt redemption cost	—		—		810		—		—
Income from tax refund advance loans	(2,864)		—		—		—		—
Adjusted net interest income - FTE	$	24,200	$	24,853	$	22,275	$	23,001	$	21,881
1 Assuming a 21% tax rate


(dollars in thousands)	Three Months Ended
	March 31, 2022			December 31, 2021			September 30, 2021			June 30, 2021			March 31, 2021
Net interest margin	2.56		%	2.30		%	2.00		%	2.11		%	2.04		%
Effect of fully-taxable equivalent adjustments 1	0.13		%	0.13		%	0.13		%	0.14		%	0.14		%
Net interest margin - FTE	2.69		%	2.43		%	2.13		%	2.25		%	2.18		%

Net interest margin	2.56		%	2.30		%	2.00		%	2.11		%	2.04		%
Effect of subordinated debt redemption cost	0.00		%	0.00		%	0.08		%	0.00		%	0.00		%
Effect of income from tax refund advance loans	(0.28		%)	0.00		%	0.00		%	0.00		%	0.00		%
Adjusted net interest margin	2.28		%	2.30		%	2.08		%	2.11		%	2.04		%

Net interest margin	2.56		%	2.30		%	2.00		%	2.11		%	2.04		%
Effect of fully-taxable equivalent adjustments	0.13		%	0.13		%	0.13		%	0.14		%	0.14		%
Effect of subordinated debt redemption cost	0.00		%	0.00		%	0.08		%	0.00		%	0.00		%
Effect of income from tax refund advance loans	(0.28		%)	0.00		%	0.00		%	0.00		%	0.00		%
Adjusted net interest margin - FTE	2.41		%	2.43		%	2.21		%	2.25		%	2.18		%

Provision (benefit) for loan losses	$	791		$	(238)		$	(29)		$	21		$	1,276
Adjustments:
Provision for tax refund advance loans losses	(1,842)			—			—			—			—
(Benefit) provision for loan losses, excluding tax refund advance loans	$	(1,051)		$	(238)		$	(29)		$	21		$	1,276

Average loans	$	2,947,924		$	2,914,858		$	2,933,654		$	2,994,850		$	3,047,915
Adjustments:
Average tax refund advance loans	(60,499)			—			—			—			—
Average loans, excluding tax refund advance loans	$	2,887,425		$	2,914,858		$	2,933,654		$	2,994,850		$	3,047,915

Net charge-offs (recoveries) to average loans	0.05		%	(0.01		%)	0.01		%	0.35		%	0.02		%
Adjustments:
Effect of tax refund advance lending net charge-offs to average loans	(0.21		%)	0.00		%	0.00		%	0.00		%	0.00		%
Net (recoveries) charge-offs to average loans, excluding tax refund advance loans	(0.16		%)	(0.01		%)	0.01		%	0.35		%	0.02		%

Allowance for loan losses	$	28,251		$	27,841		$	28,000		$	28,066		$	30,642




Loans	$	2,880,780		$	2,887,662		$	2,936,148		$	2,957,608		$	3,058,694
Adjustments:
PPP loans	(1,003)			(3,152)			(14,981)			(39,682)			(53,365)
Loans, excluding PPP loans	$	2,879,777		$	2,884,510		$	2,921,167		$	2,917,926		$	3,005,329

Allowance for loan losses to loans	0.98		%	0.96		%	0.95		%	0.95		%	1.00		%
Effect of PPP loans	0.00		%	0.01		%	0.01		%	0.01		%	0.02		%
Allowance for loan losses to loans, excluding PPP loans	0.98		%	0.97		%	0.96		%	0.96		%	1.02		%

1 Assuming a 21% tax rate

(dollars in thousands, except share and per share data) Three Months Ended Six Months Ended
June 30,
2021 March 31,
2021 December 31,
2020 September 30,
2020 June 30,
2020 June 30, 2021 June 30,
2020
Total Revenue- GAAP $ 30,569 $ 28,900 $ 31,522 $ 28,727 $ 19,399 $ 59,469 $ 40,628
Adjustments:
Gain on sale of premises and equipment (2,523) — — — — (2,523) —
Adjusted revenue $ 28,046 $ 28,900 $ 31,522 $ 28,727 $ 19,399 $ 56,946 $ 40,628
Income before income taxes - GAAP $ 15,473 $ 12,307 $ 14,145 $ 9,806 $ 3,664 $ 27,780 $ 9,946
Adjustments:
Gain on sale of premises and equipment (2,523) — — — — (2,523) —
Adjusted income before income taxes $ 12,950 $ 12,307 $ 14,145 $ 9,806 $ 3,664 $ 25,257 $ 9,946
Income tax provision (benefit) - GAAP $ 2,377 $ 1,857 $ 3,055 $ 1,395 $ (268) $ 4,234 $ (5)
Adjustments:
Gain on sale of premises and equipment (530) — — — — (530) —
Adjusted income tax provision (benefit) $ 1,847 $ 1,857 $ 3,055 $ 1,395 $ (268) $ 3,704 $ (5)


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












Noninterest expense - GAAP	$	18,780		$	16,955		$	14,451		$	15,075		$	15,317
Adjustments:
Acquisition-related expenses	(170)			(163)			—			—			—
IT termination fee	—			(475)			—			—			—
Nonrecurring consulting fee	(875)			—			—			—			—
Adjusted noninterest expense	$	17,735		$	16,317		$	14,451		$	15,075		$	15,317

Income before income taxes - GAAP	$	12,999		$	14,482		$	14,310		$	15,473		$	12,307
Adjustments:
Acquisition-related expenses	170			163			—			—			—
IT termination fee	—			475			—			—			—
Gain on sale of premises and equipment	—			—			—			(2,523)			—
Subordinated debt redemption cost	—			—			810			—			—
Nonrecurring consulting fee	875			—			—			—			—
Adjusted income before income taxes	$	14,044		$	15,120		$	15,120		$	12,950		$	12,307

Income tax provision - GAAP	$	1,790		$	2,004		$	2,220		$	2,377		$	1,857
Adjustments:
Acquisition-related expenses	36			34			—			—			—
IT termination fee	—			100			—			—			—
Gain on sale of premises and equipment	—			—			—			(530)			—
Subordinated debt redemption cost	—			—			170			—			—
Nonrecurring consulting fee	184			—			—			—			—
Adjusted income tax provision	$	2,010		$	2,138		$	2,390		$	1,847		$	1,857


Net income - GAAP	$	11,209		$	12,478		$	12,090		$	13,096		$	10,450
Adjustments:
Acquisition-related expenses	134			129			—			—			—
IT termination fee	—			375			—			—			—
Gain on sale of premises and equipment	—			—			—			(1,993)			—

Subordinated debt redemption cost	—			—			640			—			—
Nonrecurring consulting fee	691			—			—			—			—
Adjusted net income	$	12,034		$	12,982		$	12,730		$	11,103		$	10,450

Diluted average common shares outstanding	9,870,394			9,989,951			9,988,102			9,981,422			9,963,036

Diluted earnings per share - GAAP	$	1.14		$	1.25		$	1.21		$	1.31		$	1.05
Adjustments:
Effect of acquisition-related expenses	0.01			0.01			—			—			—
Effect of IT termination fee	—			0.04			—			—			—
Effect of gain on sale of premises and equipment	—			—			—			(0.20)			—
Effect of subordinated debt redemption cost	—			—			0.06			—			—
Effect of nonrecurring consulting fee	0.07			—			—			—			—
Adjusted diluted earnings per share	$	1.22		$	1.30		$	1.27		$	1.11		$	1.05

Return on average assets	1.08		%	1.19		%	1.12		%	1.25		%	1.02		%
Effect of acquisition-related expenses	0.01		%	0.01		%	0.00		%	0.00		%	0.00		%
Effect of IT termination fee	0.00		%	0.04		%	0.00		%	0.00		%	0.00		%
Effect of gain on sale of premises and equipment	0.00		%	0.00		%	0.00		%	(0.19		%)	0.00		%
Effect of subordinated debt redemption cost	0.00		%	0.00		%	0.06		%	0.00		%	0.00		%
Effect of nonrecurring consulting fee	0.07		%	0.00		%	0.00		%	0.00		%	0.00		%
Adjusted return on average assets	1.16		%	1.24		%	1.18		%	1.06		%	1.02		%


(dollars in thousands)																							(dollars in thousands)	Three Months Ended
																								March 31, 2022			December 31, 2021			September 30, 2021			June 30, 2021			March 31, 2021
Return on average shareholders' equity																							Return on average shareholders' equity	11.94		%	13.14		%	13.10		%	14.88		%	12.61		%
Effect of acquisition-related expenses																							Effect of acquisition-related expenses	0.14		%	0.14		%	0.00		%	0.00		%	0.00		%
Effect of IT termination fee																							Effect of IT termination fee	0.00		%	0.39		%	0.00		%	0.00		%	0.00		%
Effect of gain on sale of premises and equipment																							Effect of gain on sale of premises and equipment	0.00		%	0.00		%	0.00		%	(2.26		%)	0.00		%
Effect of subordinated debt redemption cost																							Effect of subordinated debt redemption cost	0.00		%	0.00		%	0.69		%	0.00		%	0.00		%
Effect of nonrecurring consulting fee																							Effect of nonrecurring consulting fee	0.74		%	0.00		%	0.00		%	0.00		%	0.00		%
Adjusted return on average shareholders' equity																							Adjusted return on average shareholders' equity	12.82		%	13.67		%	13.79		%	12.62		%	12.61		%

Return on average tangible common equity																							Return on average tangible common equity	12.09		%	13.30		%	13.27		%	15.09		%	12.79		%
Effect of acquisition-related expenses																							Effect of acquisition-related expenses	0.14		%	0.14		%	0.00		%	0.00		%	0.00		%
Effect of IT termination fee																							Effect of IT termination fee	0.00		%	0.40		%	0.00		%	0.00		%	0.00		%
Effect of gain on sale of premises and equipment																							Effect of gain on sale of premises and equipment	0.00		%	0.00		%	0.00		%	(2.30		%)	0.00		%
Effect of subordinated debt redemption cost																							Effect of subordinated debt redemption cost	0.00		%	0.00		%	0.70		%	0.00		%	0.00		%
Effect of nonrecurring consulting fee																							Effect of nonrecurring consulting fee	0.75		%	0.00		%	0.00		%	0.00		%	0.00		%
Adjusted return on average tangible common equity																							Adjusted return on average tangible common equity	12.98		%	13.84		%	13.97		%	12.79		%	12.79		%

Effective income tax rate																							Effective income tax rate	13.8		%	13.8		%	15.5		%	15.4		%	15.1		%
Effect of acquisition-related expenses																							Effect of acquisition-related expenses	0.3		%	0.1		%	0.0		%	0.0		%	0.0		%
Effect of IT termination fee																							Effect of IT termination fee	0.0		%	0.2		%	0.0		%	0.0		%	0.0		%
Effect of gain on sale of premises and equipment																							Effect of gain on sale of premises and equipment	0.0		%	0.0		%	0.0		%	(1.1		%)	0.0		%
Effect of subordinated debt redemption cost																							Effect of subordinated debt redemption cost	0.0		%	0.0		%	0.3		%	0.0		%	0.0		%
Effect of nonrecurring consulting fee																							Effect of nonrecurring consulting fee	1.3		%	0.0		%	0.0		%	0.0		%	0.0		%
Adjusted effective income tax rate																							Adjusted effective income tax rate	15.4		%	14.1		%	15.8		%	14.3		%	15.1		%

Income before income taxes - GAAP																							Income before income taxes - GAAP	$	12,999		$	14,482		$	14,310		$	15,473		$	12,307
Adjustments:																							Adjustments:
Income from tax refund advance lending																							Income from tax refund advance lending	(2,864)			—			—			—			—
Provision for tax refund advance loans losses																							Provision for tax refund advance loans losses	1,842			—			—			—			—
Tax refund advance lending servicing fee																							Tax refund advance lending servicing fee	921			—			—			—			—
Income before income taxes, excluding tax refund advance loans																							Income before income taxes, excluding tax refund advance loans	$	12,898		$	14,482		$	14,310		$	15,473		12,307

Income tax provision - GAAP																							Income tax provision - GAAP	$	1,790		$	2,004		$	2,220		$	2,377		$	1,857
Adjustments:																							Adjustments:
Income from tax refund advance lending																							Income from tax refund advance lending	(601)			—			—			—			—
Provision for tax refund advance loans losses																							Provision for tax refund advance loans losses	387			—			—			—			—
Tax refund advance lending servicing fee																							Tax refund advance lending servicing fee	193			—			—			—			—
Income tax provision, excluding tax refund advance loans																							Income tax provision, excluding tax refund advance loans	$	1,769		$	2,004		$	2,220		$	2,377		$	1,857

Net income - GAAP	Net income - GAAP	$	13,096		$	10,450		$	11,090		$	8,411		$	3,932		$	23,546		$	9,951		Net income - GAAP	$	11,209		$	12,478		$	12,090		$	13,096		$	10,450
Adjustments:	Adjustments:																						Adjustments:
Gain on sale of premises and equipment		$	(1,993)		—			—			—			—			$	(1,993)		—
Adjusted net income		$	11,103		$	10,450		$	11,090		$	8,411		$	3,932		$	21,553		$	9,951

Diluted average common shares outstanding		9,981,422			9,963,036			9,914,022			9,773,224			9,768,227			9,970,147			9,802,427

Diluted earnings per share - GAAP		$	1.31		$	1.05		$	1.12		$	0.86		$	0.40		$	2.36		$	1.02
Adjustments:
Effect of gain on sale of premises and equipment		(0.20)			—			—			—			—			(0.20)			—
Adjusted diluted earnings per share		$	1.11		$	1.05		$	1.12		$	0.86		$	0.40		$	2.16		$	1.02

Return on average assets		1.25		%	1.02		%	1.02		%	0.78		%	0.37		%	1.13		%	0.47		%
Effect of gain on sale of premises and equipment		(0.19)		%	0.00		%	0.00		%	0.00		%	0.00		%	(0.09)		%	0.00		%
Adjusted return on average assets		1.06		%	1.02		%	1.02		%	0.78		%	0.37		%	1.04		%	0.47		%

Return on average shareholders' equity		14.88		%	12.61		%	13.64		%	10.67		%	5.15		%	13.78		%	6.48		%
Effect of gain on sale of premises and equipment		(2.26)		%	0.00		%	0.00		%	0.00		%	0.00		%	(1.16)		%	0.00		%
Adjusted return on average shareholders' equity		12.62		%	12.61		%	13.64		%	10.67		%	5.15		%	12.62		%	6.48		%

Return on average tangible common equity		15.09		%	12.79		%	13.84		%	10.83		%	5.23		%	13.97		%	6.58		%
Effect of gain on sale of premises and equipment		(2.30)		%	0.00		%	0.00		%	0.00		%	0.00		%	(1.18)		%	0.00		%
Adjusted return on average tangible common equity		12.79		%	12.79		%	13.84		%	10.83		%	5.23		%	12.79		%	6.58		%

Effective income tax rate		15.4		%	15.1		%	21.6		%	14.2		%	(7.3)		%	15.2		%	(0.1)		%
Effect of gain on sale of premises and equipment		(1.1)		%	0.0		%	0.0		%	0.0		%	0.0		%	(0.5)		%	0.0		%
Adjusted effective income tax rate		14.3		%	15.1		%	21.6		%	14.2		%	(7.3)		%	14.7		%	(0.1)		%
Income from tax refund advance lending																							Income from tax refund advance lending	(2,263)			—			—			—			—
Provision for tax refund advance loans losses																							Provision for tax refund advance loans losses	1,455			—			—			—			—
Tax refund advance lending servicing fee																							Tax refund advance lending servicing fee	728			—			—			—			—
Net income, excluding tax refund advance loans																							Net income, excluding tax refund advance loans	$	11,129		$	12,478		$	12,090		$	13,096		$	10,450

Critical Accounting Policies and Estimates

There have been no material changes in the Company’s critical accounting policies or estimates from those disclosed in its Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Recent Accounting Pronouncements

Refer to Note 15 to the condensed consolidated financial statements.

Off-Balance Sheet Arrangements

In the ordinary course of business, the Company enters into financial transactions to extend credit, interest rate swap agreements and forms of commitments that may be considered off-balance sheet arrangements. Interest rate swaps are arranged to receive hedge accounting treatment and are classified as either fair value or cash flow hedges. Fair value hedges are purchased to convert certain fixed rate assets to floating rate. Cash flow hedges are used to convert certain variable rate liabilities into fixed rate liabilities. ~~In June 2020, the Company terminated all fair value hedging instruments associated with loans.~~ At ~~June 30, 2021~~both March 31, 2022 and December 31, ~~2020,~~2021, the Company had interest rate swaps with notional amounts of $260.0 ~~million and $298.2 million, respectively.~~million. Additionally, we enter into forward contracts related to our mortgage banking business to hedge the exposures we have from commitments to extend new residential mortgage loans to our customers and from our mortgage loans held-for-sale. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company had commitments to sell residential real estate loans of ~~$46.8~~$56.8 million and ~~$107.5~~$72.8 million, respectively. These contracts mature in less than one year. Refer to Note 13 to the condensed consolidated financial statements for additional information about derivative financial instruments.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, foreign exchange rates and equity prices. The primary source of market risk for the Company is interest rate risk, which can be defined as the risk to earnings and the value of the Company’s equity resulting from changes in market interest rates. Interest rate risk arises in the normal course of business to the extent that there are timing and volume differences between the amount of interest-earning assets and the amount of interest-bearing liabilities that are prepaid, withdrawn, re-priced or mature in specified periods. The Company seeks to achieve consistent growth in net interest income and equity while managing volatility arising from shifts in market interest rates.

The Company monitors its interest rate risk position using income simulation models and economic value of equity (“EVE”) sensitivity analysis that capture both short-term and long-term interest rate risk exposure. Income simulation involves forecasting net interest income (“NII”) under a variety of interest rate scenarios. The Company uses EVE sensitivity analysis to understand the impact of changes in interest rates on long-term cash flows, income and capital. EVE is calculated by discounting the cash flows for all balance sheet instruments under different interest-rate scenarios. Modeling the sensitivity of NII and EVE to changes in market interest rates is highly dependent on the assumptions incorporated into the modeling process, especially those pertaining to non-maturity deposit accounts. These assumptions are reviewed and refined on an ongoing basis by the Company. The Company continually models its NII and EVE positions with various interest rate scenarios and assumptions of future balance sheet composition. The Company utilizes implied forward rates as its base case scenario which reflects market expectations for ~~rate increases~~interest rates over the next 24 months. Presented below is the estimated impact on the Company’s NII and EVE position as of ~~June 30, 2021,~~March 31, 2022, assuming a static balance sheet and instantaneous parallel shifts in interest rates:


		% Change from Base Case for Instantaneous Parallel Changes in Rates									% Change from Base Case for Instantaneous Parallel Changes in Rates
		Implied Forward Curve -25 Basis Points		Base Implied Forward Curve		Implied Forward Curve +100 Basis Points		Implied Forward Curve +200 Basis Points			Implied Forward Curve -25 Basis Points		Base Implied Forward Curve		Implied Forward Curve +100 Basis Points		Implied Forward Curve +200 Basis Points
NII - Year 1	NII - Year 1	0.52	%	N/A		(2.77)	%	(7.00)	%	NII - Year 1	1.59	%	N/A		(3.25	%)	(5.55	%)
NII - Year 2	NII - Year 2	4.92	%	2.69	%	(0.01)	%	(5.53)	%	NII - Year 2	2.19	%	0.54	%	(2.61	%)	(4.63	%)
EVE	EVE	1.72	%	N/A		(7.10)	%	(16.58)	%	EVE	0.73	%	N/A		(4.33	%)	(9.99	%)

To supplement the instantaneous rate shocks required by regulatory guidance, the Company also calculates its interest rate risk position assuming a gradual change in market interest rates. This gradual change is commonly referred to as a “rate ramp” and evenly allocates a change in interest rates over a specified time period.

Presented below is the estimated impact on the Company’s NII and EVE position as of ~~June 30, 2021,~~March 31, 2022, assuming a static balance sheet and gradual parallel shifts in interest rates over a twelve month period:


		% Change from Base Case for Gradual Parallel Changes in Rates									% Change from Base Case for Gradual Parallel Changes in Rates
		Implied Forward Curve -25 Basis Points		Base Implied Forward Curve		Implied Forward Curve +100 Basis Points		Implied Forward Curve +200 Basis Points			Implied Forward Curve -25 Basis Points		Base Implied Forward Curve		Implied Forward Curve +100 Basis Points		Implied Forward Curve +200 Basis Points
NII - Year 1	NII - Year 1	(0.10)	%	N/A		(0.54)	%	(2.07)	%	NII - Year 1	0.25	%	N/A		(1.51	%)	(2.05	%)
NII - Year 2	NII - Year 2	4.45	%	2.69	%	0.27	%	(4.76)	%	NII - Year 2	1.19	%	0.54	%	(2.52	%)	(4.36	%)
EVE	EVE	1.48	%	N/A		(7.00)	%	(16.10)	%	EVE	0.56	%	N/A		(4.46	%)	(10.41	%)

The NII and EVE figures presented in both tables above are reflective of a static balance sheet, and do not incorporate either balance sheet growth or strategies to increase net interest income while managing volatility arising from shifts in market interest rates. As such, it is likely that actual results will differ from what is presented in the tables above. Balance sheet strategies to achieve such objectives may include:

•Increasing the proportion of low-duration or variable-rate loans to total loans, including organic growth in SBA, construction or C&I lending

•Selling longer-term fixed rate loans

•Increasing the proportion of lower cost non-maturity deposits to total deposits

•Extending the duration of wholesale funding

•Executing derivative strategies to synthetically extend ~~liability~~liabilities or shorten asset duration

•Repositioning the investment portfolio to manage its duration

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. These controls and procedures are also designed to provide reasonable assurance that such information is accumulated and communicated to management, including the principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating disclosure controls and procedures, the 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.

The Company performed an evaluation under the supervision and with the participation of management, including the principal executive and principal financial officers, to assess the effectiveness of the design and operation of its disclosure controls and procedures under the Exchange Act. Based on that evaluation, ~~the~~our management, including our principal executive officer and principal financial ~~officers~~officer, concluded that ~~the~~our disclosure controls and procedures were effective at a reasonable assurance level as of ~~June 30, 2021.~~March 31, 2022.

Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the quarter ended ~~June 30, 2021~~March 31, 2022 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

Neither we nor any of our subsidiaries are party to any material legal proceedings. From time to time, the Bank is a party to legal actions arising from its normal business activities.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021 (“2021 Form 10-K”).

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None.~~Repurchases of Common Stock

On October 20, 2021, the Company's Board of Directors approved a stock repurchase program authorizing the repurchase of up to $30.0 million of our outstanding common stock from time to time on the open market or in privately negotiated transactions.The stock repurchase authorization is scheduled to expire on December 31, 2022. Under this program, the Company repurchased 103,703 shares of common stock during the first quarter of 2022 at an average price of $49.35 per share. The Company has repurchased a total of 203,703 shares at an average price of $46.90 per share under the program through March 31, 2022. Subsequent to March 31, 2022, the Company repurchased 76,171 shares at an average price of $39.69 per share, resulting in a total amount of $12.6 million repurchased thus far with $17.4 million of remaining authority under the program.

The following table presents information with respect to purchases of the Company’s common stock made by or on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3), during the first quarter 2022.


	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased As Part of Publicly Announced Programs	Approximate Dollar Value Of Shares That May Yet Be Purchased Under The Program



January 1, 2022 - January 31, 2022	71,185	$	49.32	71,185	$	22,053
February 1, 2022 - February 28, 2022	28,815	50.22		28,815	20,605
March 1 2022 - March 31, 2022	3,703	43.02		3,703	20,446
Total	103,703			103,703

Limitations on the Payment of Dividends

The ability of the Company to make capital distributions, including paying dividends and repurchasing shares, depends upon our receipt of dividends from the Bank. The ability of the Bank to pay dividends is limited by state and federal laws and regulations, including the requirement for the Bank to obtain the prior approval of the Indiana Department of Financial Institutions (“DFI”) before paying a dividend that, together with other dividends it has paid during a calendar year, would exceed the sum of its net income for the year to date combined with its retained net income for the previous two years. The ability of the Bank to pay dividends is further affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and it is generally prohibited from paying any dividends if, following payment thereof, it would be undercapitalized. Notwithstanding the availability of funds for dividends, the FDIC and the DFI may prohibit the payment of dividends by the Bank if either or both determine such payment would constitute an unsafe or unsound practice. In addition, under the Basel III Capital Rules, institutions that seek the freedom to pay dividends have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit No.

Description

Method of Filing

3.1

Amended and Restated Articles of Incorporation of First Internet Bancorp (incorporated by reference to Exhibit 3.1 to current report on Form 8-K filed May 21, 2020)

Incorporated by Reference

3.2

Amended and Restated Bylaws of First Internet Bancorp (incorporated by reference to Exhibit 3.2 to current report on Form 8-K filed May 21, 2020)

Incorporated by Reference

10.1

Form of Non-Employee Director Restricted Stock Award Agreement under 2013 Equity Incentive Plan*

Filed Electronically

10.2

Form of Management Incentive Award Agreement - Restricted Stock Units under 2013 Equity Incentive Plan*

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

Inline XBRL Instance Document (does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document)

Filed Electronically

101.SCH

Inline XBRL Taxonomy Extension Schema

Filed Electronically

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase

Filed Electronically

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase

Filed Electronically

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase

Filed Electronically

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase

Filed Electronically

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Filed Electronically

*Management contract, compensatory plan or arrangement required to be filed as an exhibit.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		FIRST INTERNET BANCORP

8/5/9/~~2021~~2022	By	/s/ David B. Becker
		David B. Becker, Chairman and Chief Executive Officer (on behalf of Registrant)

8/5/9/~~2021~~2022	By	/s/ Kenneth J. Lovik
		Kenneth J. Lovik, Executive Vice President and Chief Financial Officer (principal financial officer)

6667


(in thousands) Details About Accumulated Other Comprehensive Loss Components									Affected Line Item in the Statements of Income
	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021		Three Months Ended June 30, 2020		Six Months Ended June 30, 2020
Realized gains on securities available-for-sale
Gain realized in earnings	$	0	$	0	$	0	$	41	Gain on sale of securities

Total reclassified amount before tax	0		0		0		41		Income Before Income Taxes
Tax expense	0		0		0		11		Income Tax Provision
Total reclassifications out of accumulated other comprehensive loss	$	0	$	0	$	0	$	30	Net Income


	Three Months Ended June 30, 2020
Allowance for loan losses:	Balance, Beginning of Period		Provision (Credit) Charged to Expense		Losses Charged Off		Recoveries		Balance, End of Period
Commercial and industrial	$	1,670	$	(141)	$	(57)	$	5	$	1,477
Owner-occupied commercial real estate	645		201		0		0		846
Investor commercial real estate	128		2		0		0		130
Construction	460		261		0		0		721
Single tenant lease financing	10,755		563		0		0		11,318
Public finance	1,483		59		0		0		1,542
Healthcare finance	4,318		1,187		(743)		0		4,762
Small business lending	265		(20)		0		6		251

Residential mortgage	500		36		0		3		539
Home equity	53		(4)		0		2		51
Other consumer	2,580		347		(216)		117		2,828
Total	$	22,857	$	2,491	$	(1,016)	$	133	$	24,465


(dollars in thousands)	Fair Value at December 31, 2020		Valuation Technique	Significant Unobservable Inputs	Range	Weighted-Average Range
Impaired loans	$	4,026	Fair value of collateral	Discount for type of property and current market conditions	10%	10%

IRLCs	3,361		Discounted cash flow	Loan closing rates	44% - 100%	87%
Servicing asset	3,569		Discounted cash flow	Prepayment speeds Discount rate	0% - 25% 10%	12.1% 10%