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 September 30, ~~2021~~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 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 November ~~5, 2021,~~4, 2022, the registrant had ~~9,854,153~~9,240,151 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~~ our 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~~a 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; the conflict 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 ~~grow our commercial real estate, commercial and industrial, public finance, U.S. Small Business Administration (“SBA”), healthcare finance and franchise finance~~growing loan ~~portfolios,~~portfolio, 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; delays in completing our pending merger with First Century Bancorp, the failure to obtain necessary regulatory approvals and shareholder approvals or to satisfy any of the other conditions to the merger on a timely basis or at all, the possibility that the anticipated benefits of the merger are not realized when expected or at all, corporate strategies or objectives, including the impact of certain actions and initiatives, anticipated trends in our business, regulatory developments, estimated synergies, cost savings and financial benefits of completed transactions, growth strategies, and the inability to realize cost savings or improved revenues or to implement integration plans and other consequences associated with the proposed merger; 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)


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
		(Unaudited)					(Unaudited)
Assets	Assets					Assets
Cash and due from banks	Cash and due from banks	$	4,932	$	7,367	Cash and due from banks	$	14,743	$	7,492
Interest-bearing deposits	Interest-bearing deposits	402,583		412,439		Interest-bearing deposits	206,309		435,468
Total cash and cash equivalents	Total cash and cash equivalents	407,515		419,806		Total cash and cash equivalents	221,052		442,960

Securities available-for-sale, at fair value (amortized cost of $635,978 and $497,004 in 2021 and 2020, respectively)		634,007		497,628
Securities held-to-maturity, at amortized cost (fair value of $64,337 and $69,452 in 2021 and 2020, respectively)		62,129		68,223
Loans held-for-sale (includes $19,181 and $26,341 at fair value in 2021 and 2020, respectively)		43,970		39,584
Securities available-for-sale, at fair value (amortized cost of $448,710 and $606,507 in 2022 and 2021, respectively)						Securities available-for-sale, at fair value (amortized cost of $448,710 and $606,507 in 2022 and 2021, respectively)	393,565		603,044
Securities held-to-maturity, at amortized cost (fair value of $169,977 and $61,468 in 2022 and 2021, respectively)						Securities held-to-maturity, at amortized cost (fair value of $169,977 and $61,468 in 2022 and 2021, respectively)	191,057		59,565
Loans held-for-sale (includes $9,677 and $23,233 at fair value in 2022 and 2021, respectively)						Loans held-for-sale (includes $9,677 and $23,233 at fair value in 2022 and 2021, respectively)	23,103		47,745
Loans	Loans	2,936,148		3,059,231		Loans	3,255,906		2,887,662
Allowance for loan losses	Allowance for loan losses	(28,000)		(29,484)		Allowance for loan losses	(29,866)		(27,841)
Net loans	Net loans	2,908,148		3,029,747		Net loans	3,226,040		2,859,821
Accrued interest receivable	Accrued interest receivable	14,866		17,416		Accrued interest receivable	16,918		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	28,350		25,650
Cash surrender value of bank-owned life insurance	Cash surrender value of bank-owned life insurance	38,660		37,952		Cash surrender value of bank-owned life insurance	39,612		38,900
Premises and equipment, net	Premises and equipment, net	52,700		37,590		Premises and equipment, net	70,747		59,842
Goodwill	Goodwill	4,687		4,687		Goodwill	4,687		4,687
Servicing asset, at fair value	Servicing asset, at fair value	4,412		3,569		Servicing asset, at fair value	5,795		4,702
Other real estate owned	Other real estate owned	1,188		—		Other real estate owned	—		1,188
Accrued income and other assets	Accrued income and other assets	54,360		64,304		Accrued income and other assets	43,498		46,853
Total assets	Total assets	$	4,252,292	$	4,246,156	Total assets	$	4,264,424	$	4,210,994
Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Liabilities	Liabilities					Liabilities
Noninterest-bearing deposits	Noninterest-bearing deposits	$	110,117	$	96,753	Noninterest-bearing deposits	$	142,875	$	117,531
Interest-bearing deposits	Interest-bearing deposits	3,114,478		3,174,132		Interest-bearing deposits	3,049,769		3,061,428
Total deposits	Total deposits	3,224,595		3,270,885		Total deposits	3,192,644		3,178,959
Advances from Federal Home Loan Bank	Advances from Federal Home Loan Bank	514,920		514,916		Advances from Federal Home Loan Bank	589,926		514,922
Subordinated debt, net of unamortized debt issuance costs of $2,844 and $2,397 in 2021 and 2020, respectively		104,156		79,603
Subordinated debt, net of unamortized debt issuance costs of $2,544 and $2,769 in 2022 and 2021, respectively						Subordinated debt, net of unamortized debt issuance costs of $2,544 and $2,769 in 2022 and 2021, respectively	104,456		104,231
Accrued interest payable	Accrued interest payable	1,568		1,439		Accrued interest payable	1,887		2,018
Accrued expenses and other liabilities	Accrued expenses and other liabilities	36,611		48,369		Accrued expenses and other liabilities	14,654		30,526
Total liabilities	Total liabilities	3,881,850		3,915,212		Total liabilities	3,903,567		3,830,656
Commitments and Contingencies	Commitments and Contingencies	0		0		Commitments and Contingencies
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	—		—		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		223,059		221,408
Voting common stock, no par value; 45,000,000 shares authorized; 9,290,885 and 9,754,455 shares issued and outstanding in 2022 and 2021, respectively						Voting common stock, no par value; 45,000,000 shares authorized; 9,290,885 and 9,754,455 shares issued and outstanding in 2022 and 2021, respectively	200,123		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	—		—		Nonvoting common stock, no par value; 86,221 shares authorized; issued and outstanding - none	—		—
Retained earnings	Retained earnings	160,551		126,732		Retained earnings	199,877		172,431
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(13,168)		(17,196)		Accumulated other comprehensive loss	(39,143)		(11,039)
Total shareholders’ equity	Total shareholders’ equity	370,442		330,944		Total shareholders’ equity	360,857		380,338
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	4,252,292	$	4,246,156	Total liabilities and shareholders’ equity	$	4,264,424	$	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				Nine Months Ended					Three Months Ended				Nine Months Ended
		September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020			September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Interest Income	Interest Income									Interest Income
Loans	Loans	$	30,126	$	29,560	$	91,846	$	89,698	Loans	$	34,643	$	30,126	$	100,246	$	91,846
Securities – taxable	Securities – taxable	2,297		2,240		5,997		9,135		Securities – taxable	2,701		2,297		7,489		5,997
Securities – non-taxable	Securities – non-taxable	241		381		781		1,410		Securities – non-taxable	491		241		1,068		781
Other earning assets	Other earning assets	370		569		1,067		2,973		Other earning assets	1,264		370		2,436		1,067
Total interest income	Total interest income	33,034		32,750		99,691		103,216		Total interest income	39,099		33,034		111,239		99,691
Interest Expense	Interest Expense									Interest Expense
Deposits	Deposits	7,090		12,428		23,423		45,399		Deposits	10,520		7,090		23,025		23,423
Other borrowed funds	Other borrowed funds	5,025		4,090		13,217		12,141		Other borrowed funds	4,585		5,025		12,790		13,217
Total interest expense	Total interest expense	12,115		16,518		36,640		57,540		Total interest expense	15,105		12,115		35,815		36,640
Net Interest Income	Net Interest Income	20,919		16,232		63,051		45,676		Net Interest Income	23,994		20,919		75,424		63,051
(Benefit) Provision for Loan Losses		(29)		2,509		$	1,268	6,461
Provision for Loan Losses										Provision for Loan Losses	892		(29)		2,868		1,268
Net Interest Income After Provision for Loan Losses	Net Interest Income After Provision for Loan Losses	20,948		13,723		61,783		39,215		Net Interest Income After Provision for Loan Losses	23,102		20,948		72,556		61,783
Noninterest Income	Noninterest Income									Noninterest Income
Service charges and fees	Service charges and fees	276		224		822		618		Service charges and fees	248		276		845		822
Loan servicing revenue	Loan servicing revenue	511		274		1,390		780		Loan servicing revenue	653		511		1,858		1,390
Loan servicing asset revaluation	Loan servicing asset revaluation	(274)		(103)		(669)		(372)		Loan servicing asset revaluation	(333)		(274)		(1,100)		(669)
Mortgage banking activities	Mortgage banking activities	3,850		9,630		12,274		16,706		Mortgage banking activities	871		3,850		4,454		12,274

Gain on sale of loans	Gain on sale of loans	2,719		2,033		7,461		4,596		Gain on sale of loans	2,713		2,719		8,510		7,461
Gain on sale of securities		—		98		—		139

Gain on sale of premises and equipment	Gain on sale of premises and equipment	—		—		2,523		—		Gain on sale of premises and equipment	—		—		—		2,523
Other	Other	731		339		1,349		1,212		Other	164		731		883		1,349
Total noninterest income	Total noninterest income	7,813		12,495		25,150		23,679		Total noninterest income	4,316		7,813		15,450		25,150
Noninterest Expense	Noninterest Expense									Noninterest Expense
Salaries and employee benefits	Salaries and employee benefits	9,316		9,533		28,040		25,096		Salaries and employee benefits	10,439		9,316		31,149		28,040
Marketing, advertising and promotion	Marketing, advertising and promotion	813		426		2,365		1,212		Marketing, advertising and promotion	1,041		813		2,717		2,365
Consulting and professional services	Consulting and professional services	728		614		2,792		2,723		Consulting and professional services	790		728		3,912		2,792
Data processing	Data processing	380		388		1,224		1,102		Data processing	483		380		1,422		1,224
Loan expenses	Loan expenses	383		408		1,458		1,406		Loan expenses	1,142		383		3,417		1,458
Premises and equipment	Premises and equipment	1,687		1,568		4,875		4,795		Premises and equipment	2,808		1,687		7,767		4,875
Deposit insurance premium	Deposit insurance premium	230		440		930		1,360		Deposit insurance premium	229		230		797		930
Write-down of other real estate owned		—		2,065		—		2,065

Other	Other	914		970		3,159		3,383		Other	1,063		914		3,579		3,159
Total noninterest expense	Total noninterest expense	14,451		16,412		44,843		43,142		Total noninterest expense	17,995		14,451		54,760		44,843
Income Before Income Taxes	Income Before Income Taxes	14,310		9,806		42,090		19,752		Income Before Income Taxes	9,423		14,310		33,246		42,090
Income Tax Provision	Income Tax Provision	2,220		1,395		$	6,454	1,390		Income Tax Provision	987		2,220		4,056		6,454
Net Income	Net Income	$	12,090	$	8,411	$	35,636	$	18,362	Net Income	$	8,436	$	12,090	$	29,190	$	35,636
Income Per Share of Common Stock	Income Per Share of Common Stock									Income Per Share of Common Stock
Basic	Basic	$	1.22	$	0.86	$	3.59	$	1.87	Basic	$	0.89	$	1.22	$	3.04	$	3.59
Diluted	Diluted	$	1.21	$	0.86	$	3.57	$	1.87	Diluted	$	0.89	$	1.21	$	3.01	$	3.57
Weighted-Average Number of Common Shares Outstanding	Weighted-Average Number of Common Shares Outstanding									Weighted-Average Number of Common Shares Outstanding
Basic	Basic	9,936,237		9,773,175		9,922,877		9,825,683		Basic	9,458,259		9,936,237		9,615,039		9,922,877
Diluted	Diluted	9,988,102		9,773,224		9,974,071		9,827,182		Diluted	9,525,855		9,988,102		9,681,742		9,974,071
Dividends Declared Per Share	Dividends Declared Per Share	$	0.06	$	0.06	$	0.18	$	0.18	Dividends Declared Per Share	$	0.06	$	0.06	$	0.18	$	0.18

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 September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net income $ 12,090 $ 8,411 $ 35,636 $ 18,362
Other comprehensive (loss) income
Net unrealized holding (losses) gains on securities available-for-sale recorded within other comprehensive (loss) income before income tax (1,789) 1,386 (2,596) 6,187
Reclassification adjustment for gains realized — (98) — (139)
Net unrealized holding gains (losses) on cash flow hedging derivatives recorded within other comprehensive income (loss) before income tax 1,439 1,514 7,665 (12,453)
Other comprehensive (loss) income before income tax (350) 2,802 5,069 (6,405)
Income tax (benefit) provision (93) 754 1,041 (1,506)
Other comprehensive (loss) income (257) 2,048 4,028 (4,899)
Comprehensive income $ 11,833 $ 10,459 $ 39,664 $ 13,463


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	8,436	$	12,090	$	29,190	$	35,636
Other comprehensive (loss) income
Securities available-for-sale
Net unrealized holding losses recorded within other comprehensive income before income tax	(18,406)		(1,789)		(51,682)		(2,596)

Income tax benefit	(5,121)		(441)		(13,384)		(616)
Net effect on other comprehensive (loss) income	(13,285)		(1,348)		(38,298)		(1,980)

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	296		—		608		—
Income tax provision (benefit)	69		—		(1,203)		—
Net effect on other comprehensive (loss) income	227		—		(3,591)		—

Cash flow hedges
Net unrealized holding gains on cash flow hedging derivatives recorded within other comprehensive income before income tax	6,058		1,439		19,424		7,665
Income tax provision	1,393		348		5,639		1,657
Net effect on other comprehensive (loss) income	4,665		1,091		13,785		6,008

Total other comprehensive (loss) income	(8,393)		(257)		(28,104)		4,028
Comprehensive income	$	43	$	11,833	$	1,086	$	39,664

See Notes to Condensed Consolidated Financial Statements

First Internet Bancorp

Condensed Consolidated Statements of Changes in Shareholders’ Equity - Unaudited

Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021

(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 — 35,636 — 35,636
Other comprehensive income — — 4,028 4,028
Dividends declared ($0.18 per share) — (1,817) — (1,817)
Recognition of the fair value of share-based compensation 1,830 — — 1,830
Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units 16 — — 16
Common stock redeemed for the net settlement of share-based awards (195) — — (195)
Balance, September 30, 2021 $ 223,059 $ 160,551 $ (13,168) $ 370,442
Balance, January 1, 2020 $ 219,423 $ 99,681 $ (14,191) $ 304,913
Net income — 18,362 — 18,362
Other comprehensive loss — — (4,899) (4,899)
Dividends declared ($0.18 per share) — (1,802) — (1,802)
Recognition of the fair value of share-based compensation 1,600 — — 1,600
Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units 21 — — 21
Common stock redeemed for the net settlement of share-based awards (93) — — (93)
Balance, September 30, 2020 $ 220,951 $ 116,241 $ (19,090) $ 318,102


	Voting and Nonvoting Common Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
Balance, January 1, 2022	$	218,946	$	172,431	$	(11,039)	$	380,338

Net income	—		29,190		—		29,190

Other comprehensive loss	—		—		(28,104)		(28,104)
Dividends declared ($0.18 per share)	—		(1,744)		—		(1,744)

Recognition of the fair value of share-based compensation	1,967		—		—		1,967
Repurchased shares of common stock (518,167)	(20,626)		—		—		(20,626)
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	(179)		—		—		(179)

Balance, September 30, 2022	$	200,123	$	199,877	$	(39,143)	$	360,857

Balance, January 1, 2021	$	221,408	$	126,732	$	(17,196)	$	330,944
Net income	—		35,636		—		35,636

Other comprehensive income	—		—		4,028		4,028
Dividends declared ($0.18 per share)	—		(1,817)		—		(1,817)

Recognition of the fair value of share-based compensation	1,830		—		—		1,830

Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units	16		—		—		16
Common stock redeemed for the net settlement of share-based awards	(195)		—		—		(195)

Balance, September 30, 2021	$	223,059	$	160,551	$	(13,168)	$	370,442

See Notes to Condensed Consolidated Financial Statements

First Internet Bancorp

Condensed Consolidated Statements of Changes in Shareholders’ Equity - Unaudited

Three Months Ended September 30, ~~2021~~2022 and ~~2020~~2021

(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, July 1, 2021		$	222,486	$	149,066	$	(12,911)	$	358,641
Balance July 1, 2022										Balance July 1, 2022	$	204,071	$	192,011	$	(30,750)	$	365,332

Net income										Net income	—		8,436		—		8,436

Other comprehensive loss										Other comprehensive loss	—		—		(8,393)		(8,393)
Dividends declared ($0.06 per share)										Dividends declared ($0.06 per share)	—		(570)		—		(570)

Recognition of the fair value of share-based compensation										Recognition of the fair value of share-based compensation	434		—		—		434
Repurchased shares of common stock (120,000)										Repurchased shares of common stock (120,000)	(4,387)		—		—		(4,387)
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, September 30, 2022										Balance, September 30, 2022	$	200,123	$	199,877	$	(39,143)	$	360,857

Balance July 1, 2021										Balance July 1, 2021	$	222,486	$	149,066	$	(12,911)	$	358,641

Net income	Net income	—		12,090		—		12,090		Net income	—		12,090		—		12,090

Other comprehensive loss	Other comprehensive loss	—		—		(257)		(257)		Other comprehensive loss	—		—		(257)		(257)
Dividends declared ($0.06 per share)	Dividends declared ($0.06 per share)	—		(605)		—		(605)		Dividends declared ($0.06 per share)	—		(605)		—		(605)

Recognition of the fair value of share-based compensation	Recognition of the fair value of share-based compensation	568		—		—		568		Recognition of the fair value of share-based compensation	568		—		—		568

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	5		—		—		5

Balance, September 30, 2021	Balance, September 30, 2021	$	223,059	$	160,551	$	(13,168)	$	370,442	Balance, September 30, 2021	$	223,059	$	160,551	$	(13,168)	$	370,442

Balance, July 1, 2020		$	220,418	$	108,431	$	(21,138)	$	307,711
Net income		—		8,411		—		8,411

Other comprehensive income		—		—		2,048		2,048
Dividends declared ($0.06 per share)		—		(601)		—		(601)

Recognition of the fair value of share-based compensation		527		—		—		527

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

Balance, September 30, 2020		$	220,951	$	116,241	$	(19,090)	$	318,102

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)


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2021		2020			2022		2021
Operating Activities	Operating Activities					Operating Activities
Net income	Net income	$	35,636	$	18,362	Net income	$	29,190	$	35,636
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	6,649		5,699		Depreciation and amortization	6,745		6,649
Increase in cash surrender value of bank-owned life insurance	Increase in cash surrender value of bank-owned life insurance	(708)		(712)		Increase in cash surrender value of bank-owned life insurance	(712)		(708)
Provision for loan losses	Provision for loan losses	1,268		6,461		Provision for loan losses	2,868		1,268
Share-based compensation expense	Share-based compensation expense	1,830		1,600		Share-based compensation expense	1,967		1,830
Write-down of other real estate owned		—		2,065
Loss on sale of available-for-sale securities		—		(139)

Loans originated for sale	Loans originated for sale	(645,620)		(431,384)		Loans originated for sale	(431,053)		(645,620)
Proceeds from sale of loans	Proceeds from sale of loans	662,390		429,284		Proceeds from sale of loans	466,148		662,390
Gain on loans sold	Gain on loans sold	(23,522)		(19,544)		Gain on loans sold	(13,629)		(23,522)

Decrease in fair value of loans held-for-sale	Decrease in fair value of loans held-for-sale	854		116		Decrease in fair value of loans held-for-sale	599		854
Loss on derivatives		1,870		(1,974)
(Gain) loss on derivatives						(Gain) loss on derivatives	(3,625)		1,870
Settlement of derivatives	Settlement of derivatives	(1,859)		(46,109)		Settlement of derivatives	—		(1,859)
Loan servicing asset revaluation	Loan servicing asset revaluation	669		(337)		Loan servicing asset revaluation	1,100		669

Net change in accrued income and other assets	Net change in accrued income and other assets	3,114		491		Net change in accrued income and other assets	19,262		3,114
Net change in accrued expenses and other liabilities	Net change in accrued expenses and other liabilities	372		1,098		Net change in accrued expenses and other liabilities	(5,084)		372
Net cash provided by (used in) operating activities		42,943		(35,023)
Net cash provided by operating activities						Net cash provided by operating activities	73,776		42,943
Investing Activities	Investing Activities					Investing Activities
Net loan activity, excluding purchases	Net loan activity, excluding purchases	156,670		2,284		Net loan activity, excluding purchases	(87,883)		156,670

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	129,183		142,432		Maturities and calls of securities available-for-sale	69,798		129,183
Proceeds from sale of securities available-for-sale		—		893

Purchase of securities available-for-sale	Purchase of securities available-for-sale	(272,845)		(119,263)		Purchase of securities available-for-sale	(12,133)		(272,845)
Maturities and calls of securities held-to-maturity	Maturities and calls of securities held-to-maturity	6,000		—		Maturities and calls of securities held-to-maturity	5,927		6,000
Purchase of securities held-to-maturity	Purchase of securities held-to-maturity	—		(2,000)		Purchase of securities held-to-maturity	(41,246)		—

Redemption of Federal Home Loan Bank of Indianapolis stock						Redemption of Federal Home Loan Bank of Indianapolis stock	431		—
Purchase of Federal Home Loan Bank of Indianapolis stock						Purchase of Federal Home Loan Bank of Indianapolis stock	(3,131)		—
Net proceeds from sale of premises and equipment	Net proceeds from sale of premises and equipment	8,116		—		Net proceeds from sale of premises and equipment	—		8,116
Purchase of premises and equipment	Purchase of premises and equipment	(22,467)		(18,571)		Purchase of premises and equipment	(14,368)		(22,467)

Loans purchased	Loans purchased	(37,527)		(260,841)		Loans purchased	(295,254)		(37,527)
Net proceeds from sale of portfolio loans	Net proceeds from sale of portfolio loans	—		234,619		Net proceeds from sale of portfolio loans	14,466		—
Other investing activities	Other investing activities	2,264		—		Other investing activities	374		2,264
Net cash used in investing activities	Net cash used in investing activities	(30,606)		(20,447)		Net cash used in investing activities	(361,831)		(30,606)
Financing Activities	Financing Activities					Financing Activities
Net (decrease) increase in deposits		(46,290)		218,428
Net increase (decrease) in deposits						Net increase (decrease) in deposits	13,685		(46,290)

Cash dividends paid	Cash dividends paid	(1,802)		(1,773)		Cash dividends paid	(1,733)		(1,802)
Repayment of subordinated debt	Repayment of subordinated debt	(35,000)		—		Repayment of subordinated debt	—		(35,000)
Net proceeds from issuance of subordinated debt	Net proceeds from issuance of subordinated debt	58,658		—		Net proceeds from issuance of subordinated debt	—		58,658

Repurchase of common stock						Repurchase of common stock	(20,626)		—
Proceeds from advances from Federal Home Loan Bank	Proceeds from advances from Federal Home Loan Bank	110,000		330,000		Proceeds from advances from Federal Home Loan Bank	455,000		110,000
Repayment of advances from Federal Home Loan Bank	Repayment of advances from Federal Home Loan Bank	(110,000)		(330,000)		Repayment of advances from Federal Home Loan Bank	(380,000)		(110,000)

Other, net	Other, net	(194)		(93)		Other, net	(179)		(194)
Net cash (used in) provided by financing activities		(24,628)		216,562
Net (Decrease) Increase in Cash and Cash Equivalents		(12,291)		161,092
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	66,147		(24,628)
Net Decrease in Cash and Cash Equivalents						Net Decrease in Cash and Cash Equivalents	(221,908)		(12,291)
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	$	407,515	$	488,453	Cash and Cash Equivalents, End of Period	$	221,052	$	407,515
Supplemental Disclosures	Supplemental Disclosures					Supplemental Disclosures

Cash paid during the period for interest	Cash paid during the period for interest	36,511		60,058		Cash paid during the period for interest	35,946		36,511
Cash paid during the period for taxes	Cash paid during the period for taxes	4,995		2,516		Cash paid during the period for taxes	1,893		4,995
Loans transferred to other real estate owned	Loans transferred to other real estate owned	1,188		—		Loans transferred to other real estate owned	—		1,188
Loans transferred to held-for-sale from portfolio	Loans transferred to held-for-sale from portfolio	—		185,797		Loans transferred to held-for-sale from portfolio	14,049		—
Cash dividends declared, paid in subsequent period	Cash dividends declared, paid in subsequent period	591		588		Cash dividends declared, paid in subsequent period	557		591
Securities purchased during the period, settled in subsequent period	Securities purchased during the period, settled in subsequent period	—		5,547		Securities purchased during the period, settled in subsequent period	2,997		—
Transfer of available-for-sale municipal securities to held-to-maturity municipal securities		—		4,479
Transfer of available-for-sale mortgage-backed securities to held-to-maturity mortgage-backed securities at fair value						Transfer of available-for-sale mortgage-backed securities to held-to-maturity mortgage-backed securities at fair value	96,220		—

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 nine months ended September 30, ~~2021~~2022 are not necessarily indicative of the results expected for the year ending December 31, ~~2021~~2022 or any other period. The September 30, ~~2021~~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 3three 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~~2021 financial statements to conform to the presentation of the ~~2021~~2022 financial statements. These reclassifications had no effect on net income.

~~Revision of Previously Issued Financial Statements~~

The Company has revised amounts reported in previously issued notes to financial statements for the periods presented in this Quarterly Report on Form 10-Q due to immaterial clerical errors. The clerical errors caused the fair value associated with interest rate swap liabilities to be understated in the notes to financial statements for the period ended December 31, 2020 and had no impact on the consolidated balance sheet, income statement or statement of cash flows. The Company evaluated the impact of the clerical errors to our previously issued financial statements in accordance with SEC Staff Accounting Bulletins No. 99 and No. 108 and, based upon quantitative and qualitative factors, determined that the clerical errors were not material to the previously issued financial statements and disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2020.

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 nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021.


(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	Three Months Ended September 30,				Nine Months Ended September 30,				(dollars in thousands, except per share data)	Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Basic earnings per share	Basic earnings per share									Basic earnings per share
Net income	Net income	$	12,090	$	8,411	$	35,636	$	18,362	Net income	$	8,436	$	12,090	$	29,190	$	35,636
Weighted-average common shares	Weighted-average common shares	9,936,237		9,773,175		9,922,877		9,825,683		Weighted-average common shares	9,458,259		9,936,237		9,615,039		9,922,877
Basic earnings per common share	Basic earnings per common share	$	1.22	$	0.86	$	3.59	$	1.87	Basic earnings per common share	$	0.89	$	1.22	$	3.04	$	3.59
Diluted earnings per share	Diluted earnings per share									Diluted earnings per share
Net income	Net income	$	12,090	$	8,411	$	35,636	$	18,362	Net income	$	8,436	$	12,090	$	29,190	$	35,636
Weighted-average common shares	Weighted-average common shares	9,936,237		9,773,175		9,922,877		9,825,683		Weighted-average common shares	9,458,259		9,936,237		9,615,039		9,922,877

Dilutive effect of equity compensation	Dilutive effect of equity compensation	51,865		49		51,194		1,499		Dilutive effect of equity compensation	67,596		51,865		66,703		51,194
Weighted-average common and incremental shares	Weighted-average common and incremental shares	9,988,102		9,773,224		9,974,071		9,827,182		Weighted-average common and incremental shares	9,525,855		9,988,102		9,681,742		9,974,071
Diluted earnings per common share (1)	Diluted earnings per common share (1)	$	1.21	$	0.86	$	3.57	$	1.87	Diluted earnings per common share (1)	$	0.89	$	1.21	$	3.01	$	3.57

(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 0426 and 281,616 for the three and nine months ended September 30, ~~2021, respectively,~~2022, respectively. There were 0 and ~~55,309 and 38,212~~28 weighted-average antidilutive shares for the three and nine months ended September 30, ~~2020,~~2021, respectively.

Note 3: Securities

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


		September 30, 2021									September 30, 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	$	53,380	$	234	$	(1,159)	$	52,455	U.S. Government-sponsored agencies	$	38,197	$	—	$	(1,868)	$	36,329
Municipal securities	Municipal securities	76,528		1,086		(164)		77,450		Municipal securities	71,156		181		(7,800)		63,537
Agency mortgage-backed securities		432,613		2,364		(5,092)		429,885
Private label mortgage-backed securities		19,997		238		—		20,235
Agency mortgage-backed securities - residential										Agency mortgage-backed securities - residential	259,568		—		(40,377)		219,191
Agency mortgage-backed securities - commercial										Agency mortgage-backed securities - commercial	17,825		—		(1,303)		16,522
Private label mortgage-backed securities - residential										Private label mortgage-backed securities - residential	12,320		—		(1,279)		11,041
Asset-backed securities	Asset-backed securities	5,000		5		—		5,005		Asset-backed securities	5,000		—		(116)		4,884
Corporate securities	Corporate securities	48,460		965		(448)		48,977		Corporate securities	44,644		25		(2,608)		42,061

Total available-for-sale	Total available-for-sale	$	635,978	$	4,892	$	(6,863)	$	634,007	Total available-for-sale	$	448,710	$	206	$	(55,351)	$	393,565


		September 30, 2021									September 30, 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	$	14,538	$	781	$	—	$	15,319	Municipal securities	$	13,957	$	—	$	(1,289)	$	12,668
Mortgage-backed securities - residential										Mortgage-backed securities - residential	123,718		—		(16,148)		107,570
Mortgage-backed securities - commercial										Mortgage-backed securities - commercial	5,828		—		(1,142)		4,686
Corporate securities	Corporate securities	47,591		1,427		—		49,018		Corporate securities	47,554		9		(2,510)		45,053
Total held-to-maturity	Total held-to-maturity	$	62,129	$	2,208	$	—	$	64,337	Total held-to-maturity	$	191,057	$	9	$	(21,089)	$	169,977


		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		—		(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	$	—	$	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 September 30, ~~2021~~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		$	—	$	—

One to five years	One to five years	34,855		32,935		One to five years	$	32,743	$	31,812
Five to ten years	Five to ten years	64,591		64,429		Five to ten years	50,888		48,261
After ten years	After ten years	78,922		81,518		After ten years	70,366		61,854
		178,368		178,882			153,997		141,927
Agency mortgage-backed securities		432,613		429,885
Private label mortgage-backed securities		19,997		20,235
Agency mortgage-backed securities - residential						Agency mortgage-backed securities - residential	259,568		219,191
Agency mortgage-backed securities - commercial						Agency mortgage-backed securities - commercial	17,825		16,522
Private label mortgage-backed securities - residential						Private label mortgage-backed securities - residential	12,320		11,041
Asset-backed securities	Asset-backed securities	5,000		5,005		Asset-backed securities	5,000		4,884

Total	Total	$	635,978	$	634,007	Total	$	448,710	$	393,565


		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	$	5,793	$	5,976	One to five years	$	11,163	$	10,915
Five to ten years	Five to ten years	44,655		46,320		Five to ten years	44,865		42,091
After ten years	After ten years	11,681		12,041		After ten years	5,483		4,715
							61,511		57,721
Agency mortgage-backed securities - residential						Agency mortgage-backed securities - residential	123,718		107,570
Agency mortgage-backed securities - commercial						Agency mortgage-backed securities - commercial	5,828		4,686
Total	Total	$	62,129	$	64,337	Total	$	191,057	$	169,977

There were 0no gross gains or losses resulting from the sale of available-for-sale securities during the three and nine months ended September 30, ~~2021. There were $0.1 million of gross gains resulting from the sale of available-for-sale securities during the three~~2022 and ~~nine months ended~~ September 30, ~~2020.~~

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 September 30, ~~2021~~2022 and December 31, ~~2020~~2021 was ~~$462.4~~$541.0 million and ~~$226.5~~$403.2 million, which was approximately ~~66%~~96% and ~~40%~~61%, respectively, of the Company’s AFS and HTM securities portfolios. As of September 30, ~~2021,~~2022, the Company’s security portfolio consisted of ~~441~~447 securities, of which ~~167~~438 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.

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 September 30, ~~2021.~~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 September 30, ~~2021.~~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 September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.


		September 30, 2021													September 30, 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	$	2,931	$	(69)	$	44,034	$	(1,090)	$	46,965	$	(1,159)	U.S. Government-sponsored agencies	$	33,956	$	(1,092)	$	2,223	$	(776)	$	36,179	$	(1,868)
Municipal securities	Municipal securities	61,658		(164)		—		—		61,658		(164)		Municipal securities	52,815		(7,800)		—		—		52,815		(7,800)
Agency mortgage-backed securities		320,805		(4,085)		18,818		(1,007)		339,623		(5,092)

Agency mortgage-backed securities- residential														Agency mortgage-backed securities- residential	186,134		(34,577)		30,061		(5,800)		216,195		(40,377)
Agency mortgage-backed securities- commercial														Agency mortgage-backed securities- commercial	11,072		(849)		5,442		(454)		16,514		(1,303)
Private label mortgage-backed securities - residential														Private label mortgage-backed securities - residential	3,352		(418)		7,689		(861)		11,041		(1,279)
Asset-backed securities														Asset-backed securities	4,884		(116)		—		—		4,884		(116)
Corporate securities	Corporate securities	4,998		(2)		9,552		(446)		14,550		(448)		Corporate securities	27,595		(1,478)		11,376		(1,130)		38,971		(2,608)

Total	Total	$	390,392	$	(4,320)	$	72,404	$	(2,543)	$	462,796	$	(6,863)	Total	$	319,808	$	(46,330)	$	56,791	$	(9,021)	$	376,599	$	(55,351)

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

910

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 $ — $ — $ 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 — — 4,961 (39) 4,961 (39)
Corporate securities — — 20,406 (1,594) 20,406 (1,594)
Total $ 58,995 $ (391) $ 147,092 $ (6,092) $ 206,087 $ (6,483)


	September 30, 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	$	12,167	$	(1,256)	$	388	$	(33)	$	12,555	$	(1,289)
Agency mortgage-backed securities - residential	75,251		(10,583)		32,319		(5,565)		107,570		(16,148)
Agency mortgage-backed securities - commercial	4,686		(1,142)		—		—		4,686		(1,142)
Corporate securities	33,712		(2,342)		5,831		(168)		39,543		(2,510)

Total	$	125,816	$	(15,323)	$	38,538	$	(5,766)	$	164,354	$	(21,089)


	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 nine months ended September 30, ~~2021. Amounts reclassified from accumulated other comprehensive loss~~2022 and ~~the affected line items in the condensed consolidated statements of income during the three and nine months ended~~ September 30, ~~2020 were as follows:~~2021, respectively.

(in thousands)

Details About Accumulated Other Comprehensive Loss Components
Affected Line Item in the
Statements of Income
Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021 Three Months Ended
September 30, 2020 Nine Months Ended September 30, 2020
Realized gains on securities available-for-sale
Gain realized in earnings $ — $ — $ 98 $ 139 Gain on sale of securities
Total reclassified amount before tax — — 98 139 Income Before Income Taxes
Tax expense — — 26 38 Income Tax Provision
Total reclassifications out of accumulated other comprehensive loss $ — $ — $ 72 $ 101 Net Income

1011

Note 4: Loans

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


(in thousands)	(in thousands)	September 30, 2021		December 31, 2020		(in thousands)	September 30, 2022		December 31, 2021
Commercial loans	Commercial loans					Commercial loans
Commercial and industrial	Commercial and industrial	$	107,142	$	75,387	Commercial and industrial	$	104,780	$	96,008
Owner-occupied commercial real estate	Owner-occupied commercial real estate	84,819		89,785		Owner-occupied commercial real estate	58,615		66,732
Investor commercial real estate	Investor commercial real estate	28,505		13,902		Investor commercial real estate	91,021		28,019
Construction	Construction	115,414		110,385		Construction	139,509		136,619
Single tenant lease financing	Single tenant lease financing	921,998		950,172		Single tenant lease financing	895,302		865,854
Public finance	Public finance	601,738		622,257		Public finance	614,139		592,665
Healthcare finance	Healthcare finance	417,388		528,154		Healthcare finance	293,686		387,852
Small business lending	Small business lending	102,889		125,589		Small business lending	113,001		108,666
Franchise finance	Franchise finance	25,598		—		Franchise finance	225,012		81,448

Total commercial loans	Total commercial loans	2,405,491		2,515,631		Total commercial loans	2,535,065		2,363,863
Consumer loans	Consumer loans					Consumer loans
Residential mortgage	Residential mortgage	188,750		186,787		Residential mortgage	337,565		186,770
Home equity	Home equity	17,960		19,857		Home equity	22,114		17,665
Other consumer		268,396		275,692
Other consumer loans						Other consumer loans	312,512		265,478

Total consumer loans	Total consumer loans	475,106		482,336		Total consumer loans	672,191		469,913
Total commercial and consumer loans	Total commercial and consumer loans	2,880,597		2,997,967		Total commercial and consumer loans	3,207,256		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)	55,551		61,264		Net deferred loan origination fees/costs and premiums/discounts on purchased loans and other(1)	48,650		53,886
Total loans	Total loans	2,936,148		3,059,231		Total loans	3,255,906		2,887,662
Allowance for loan losses	Allowance for loan losses	(28,000)		(29,484)		Allowance for loan losses	(29,866)		(27,841)
Net loans	Net loans	$	2,908,148	$	3,029,747	Net loans	$	3,226,040	$	2,859,821

(1) Includes carrying value adjustments of ~~$38.9~~$33.9 million and ~~$42.7~~$37.5 million related to terminated interest rate swaps associated with public finance loans as of September 30, ~~2021~~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 the Midwest and Southwest regions of the 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 the Midwest and Southwest regions of the United States and its loans are often secured by manufacturing and service facilities, as well as office buildings.

1112

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 Midwest ~~region~~and Southwest regions of 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 the Midwest ~~region~~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.

Healthcare Finance: These loans ~~are~~were 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.

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.

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 ~~asset-light~~ 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.

1213

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, in their market areas.~~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, in their market areas.~~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.

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.

1314

The following tables present changes in the balance of the ALLL during the three and nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021.

(in thousands) Three Months Ended September 30, 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 $ 1,902 $ 122 $ — $ 2 $ 2,026
Owner-occupied commercial real estate 1,021 (28) — — 993
Investor commercial real estate 329 (4) — — 325
Construction 1,357 (30) — — 1,327
Single tenant lease financing 11,205 (152) — — 11,053
Public finance 1,700 32 — — 1,732
Healthcare finance 6,938 (584) — — 6,354
Small business lending 783 415 (10) 26 1,214
Franchise finance — 310 — 0 310
Residential mortgage 594 19 — 3 616
Home equity 63 — — 2 65
Other consumer 2,174 (129) (110) 50 1,985
Total $ 28,066 $ (29) $ (120) $ 83 $ 28,000

Nine Months Ended September 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 $ 823 $ (28) $ 85 $ 2,026
Owner-occupied commercial real estate 1,082 (89) — — 993
Investor commercial real estate 155 170 — — 325
Construction 1,192 135 — — 1,327
Single tenant lease financing 12,990 454 (2,391) — 11,053
Public finance 1,732 — — — 1,732
Healthcare finance 7,485 (1,131) — — 6,354
Small business lending 628 776 (222) 32 1,214
Franchise finance — 310 — — 310
Residential mortgage 519 91 (6) 12 616
Home equity 48 63 (51) 5 65
Other consumer 2,507 (334) (423) 235 1,985
Total $ 29,484 $ 1,268 $ (3,121) $ 369 $ 28,000

Three Months Ended September 30, 2020
Allowance for loan losses: Balance, Beginning of Period (Credit) Provision Charged to Expense Losses
Charged Off Recoveries Balance,
End of Period
Commercial and industrial $ 1,477 $ (227) $ (99) $ — $ 1,151
Owner-occupied commercial real estate 846 167 — — 1,013
Investor commercial real estate 130 — — — 130
Construction 721 155 — — 876
Single tenant lease financing 11,318 717 — — 12,035
Public finance 1,542 191 — — 1,733
Healthcare finance 4,762 1,232 — 87 6,081
Small business lending 251 230 — 3 484
Residential mortgage 539 26 — — 565
Home equity 51 (1) — 3 53
Other consumer 2,828 19 (142) 91 2,796
Total $ 24,465 $ 2,509 $ (241) $ 184 $ 26,917

Nine Months Ended September 30, 2020
Allowance for loan losses: Balance, Beginning of Period (Credit) Provision Charged to Expense Losses
Charged Off Recoveries Balance,
End of Period
Commercial and industrial $ 1,521 $ (22) $ (353) $ 5 $ 1,151
Owner-occupied commercial real estate 561 452 — — 1,013
Investor commercial real estate 109 21 — — 130
Construction 380 496 — — 876
Single tenant lease financing 11,175 860 — — 12,035
Public finance 1,580 153 — — 1,733
Healthcare finance 3,247 3,490 (743) 87 6,081
Small business lending 54 413 — 17 484
Residential mortgage 657 (81) (15) 4 565
Home equity 46 (1) — 8 53
Other consumer 2,510 680 (644) 250 2,796
Total $ 21,840 $ 6,461 $ (1,755) $ 371 $ 26,917


(in thousands)	Three Months Ended September 30, 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	$	2,026	$	(301)	$	—	$	2	$	1,727
Owner-occupied commercial real estate	703		(87)		—		—		616
Investor commercial real estate	621		453		—		—		1,074
Construction	1,707		(117)		—		—		1,590
Single tenant lease financing	9,712		315		—		—		10,027
Public finance	1,850		(61)		—		—		1,789
Healthcare finance	4,762		(1,150)		—		—		3,612
Small business lending	1,956		217		(130)		3		2,046
Franchise finance	2,281		734		—		—		3,015

Residential mortgage	1,138		231		—		1		1,370
Home equity	54		7		—		1		62
Other consumer loans	2,343		651		(106)		50		2,938

Total	$	29,153	$	892	$	(236)	$	57	$	29,866


	Nine Months Ended September 30, 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	$	(166)	$	—	$	2	$	1,727
Owner-occupied commercial real estate	742		(126)		—		—		616
Investor commercial real estate	328		746		—		—		1,074
Construction	1,612		(22)		—		—		1,590
Single tenant lease financing	10,385		(1,589)		—		1,231		10,027
Public finance	1,776		13		—		—		1,789
Healthcare finance	5,940		(2,328)		—		—		3,612
Small business lending	1,387		847		(210)		22		2,046
Franchise finance	1,083		1,932		—		—		3,015

Residential mortgage	643		724		—		3		1,370
Home equity	64		(139)		—		137		62
Other consumer loans	1,990		1,116		(397)		229		2,938
Tax refund advance loans	—		1,860		(1,860)		—		—
Total	$	27,841	$	2,868	$	(2,467)	$	1,624	$	29,866


(in thousands)	Three Months Ended September 30, 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	$	1,902	$	122	$	—	$	2	$	2,026
Owner-occupied commercial real estate	1,021		(28)		—		—		993
Investor commercial real estate	329		(4)		—		—		325
Construction	1,357		(30)		—		—		1,327
Single tenant lease financing	11,205		(152)		—		—		11,053
Public finance	1,700		32		—		—		1,732
Healthcare finance	6,938		(584)		—		—		6,354
Small business lending	783		415		(10)		26		1,214
Franchise finance	—		310		—		—		310

Residential mortgage	594		19		—		3		616
Home equity	63		—		—		2		65
Other consumer loans	2,174		(129)		(110)		50		1,985
Total	$	28,066	$	(29)	$	(120)	$	83	$	28,000


	Nine Months Ended September 30, 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	$	823	$	(28)	$	85	$	2,026
Owner-occupied commercial real estate	1,082		(89)		—		—		993
Investor commercial real estate	155		170		—		—		325
Construction	1,192		135		—		—		1,327
Single tenant lease financing	12,990		454		(2,391)		—		11,053
Public finance	1,732		—		—		—		1,732
Healthcare finance	7,485		(1,131)		—		—		6,354
Small business lending	628		776		(222)		32		1,214
Franchise finance	—		310		—		—		310

Residential mortgage	519		91		(6)		12		616
Home equity	48		63		(51)		5		65
Other consumer loans	2,507		(334)		(423)		235		1,985
Total	$	29,484	$	1,268	$	(3,121)	$	369	$	28,000

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


(in thousands)	(in thousands)	Loans						Allowance for Loan Losses						(in thousands)	Loans						Allowance for Loan Losses
September 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
September 30, 2022														September 30, 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	$	106,464	$	678	$	107,142	$	1,576	$	450	$	2,026	Commercial and industrial	$	94,617	$	10,163	$	104,780	$	1,377	$	350	$	1,727
Owner-occupied commercial real estate	Owner-occupied commercial real estate	81,390		3,429		84,819		993		—		993		Owner-occupied commercial real estate	56,993		1,622		58,615		616		—		616
Investor commercial real estate	Investor commercial real estate	28,505		—		28,505		325		—		325		Investor commercial real estate	91,021		—		91,021		1,074		—		1,074
Construction	Construction	115,414		—		115,414		1,327		—		1,327		Construction	139,509		—		139,509		1,590		—		1,590
Single tenant lease financing	Single tenant lease financing	920,898		1,100		921,998		10,958		95		11,053		Single tenant lease financing	895,302		—		895,302		10,027		—		10,027
Public finance	Public finance	601,738		—		601,738		1,732		—		1,732		Public finance	614,139		—		614,139		1,789		—		1,789
Healthcare finance	Healthcare finance	416,447		941		417,388		5,831		523		6,354		Healthcare finance	293,686		—		293,686		3,612		—		3,612
Small business lending(1)	Small business lending(1)	100,483		2,406		102,889		822		393		1,214		Small business lending(1)	105,129		7,872		113,001		1,368		678		2,046
Franchise finance	Franchise finance	25,598		—		25,598		310		—		310		Franchise finance	225,012		—		225,012		3,015		—		3,015

Residential mortgage	Residential mortgage	186,654		2,096		188,750		616		—		616		Residential mortgage	334,082		3,483		337,565		1,370		—		1,370
Home equity	Home equity	17,946		14		17,960		65		—		65		Home equity	22,114		—		22,114		62		—		62
Other consumer	Other consumer	268,370		27		268,396		1,985		—		1,985		Other consumer	312,509		3		312,512		2,938		—		2,938

Total	Total	$	2,869,907	$	10,691	$	2,880,597	$	26,540	$	1,461	$	28,000	Total	$	3,184,113	$	23,143	$	3,207,256	$	28,838	$	1,028	$	29,866

1 Balance of loans individually evaluated for impairment are partially 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	$	—	$	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		—		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		—		13,902		155		—		155		Investor commercial real estate	28,019		—		28,019		328		—		328
Construction	Construction	110,385		—		110,385		1,192		—		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		—		622,257		1,732		—		1,732		Public finance	592,665		—		592,665		1,776		—		1,776
Healthcare finance	Healthcare finance	527,144		1,010		528,154		7,485		—		7,485		Healthcare finance	386,926		926		387,852		5,417		523		5,940
Small business lending(1)	Small business lending(1)	125,589		—		125,589		628		—		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		—		519		Residential mortgage	183,852		2,918		186,770		643		—		643
Home equity	Home equity	19,857		—		19,857		48		—		48		Home equity	17,651		14		17,665		64		—		64
Other consumer	Other consumer	275,642		50		275,692		2,507		—		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 partially guaranteed by the U.S. government.

1617

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.

1718

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 September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.


		September 30, 2021						September 30, 2022
(in thousands)	(in thousands)	Pass		Special Mention		Substandard			Total		(in thousands)	Pass		Special Mention		Substandard		Total
Commercial and industrial	Commercial and industrial	$	92,863	$	13,601	$	678		$	107,142	Commercial and industrial	$	93,262	$	1,355	$	10,163	$	104,780
Owner-occupied commercial real estate	Owner-occupied commercial real estate	76,547		4,843		3,429			84,819		Owner-occupied commercial real estate	46,423		10,570		1,622		58,615
Investor commercial real estate	Investor commercial real estate	28,505		—		—			28,505		Investor commercial real estate	91,021		—		—		91,021
Construction	Construction	104,656		10,758		—			115,414		Construction	139,509		—		—		139,509
Single tenant lease financing	Single tenant lease financing	915,702		5,196		1,100			921,998		Single tenant lease financing	894,208		1,094		—		895,302
Public finance	Public finance	600,658		1,080		—			601,738		Public finance	611,709		2,430		—		614,139
Healthcare finance	Healthcare finance	415,845		602		941			417,388		Healthcare finance	292,280		1,406		—		293,686
Small business lending(1)	Small business lending(1)	93,037		6,762		3,090			102,889		Small business lending(1)	99,722		5,407		7,872		113,001
Franchise finance	Franchise finance	25,598		—		—			25,598		Franchise finance	224,721		291		—		225,012

Total commercial loans	Total commercial loans	$	2,353,411	$	42,842	$	9,238		$	2,405,491	Total commercial loans	$	2,492,855	$	22,553	$	19,657	$	2,535,065

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


		September 30, 2021							September 30, 2022
(in thousands)	(in thousands)	Performing		Nonaccrual		Total		(in thousands)	Performing		Nonaccrual		Total
Residential mortgage	Residential mortgage	$	187,497	$	1,253	$	188,750	Residential mortgage	$	336,492	$	1,073	$	337,565
Home equity	Home equity	17,946		14		17,960		Home equity	22,114		—		22,114
Other consumer	Other consumer	268,370		26		268,396		Other consumer	312,509		3		312,512

Total consumer loans	Total consumer loans	$	473,813	$	1,293	$	475,106	Total consumer loans	$	671,115	$	1,076	$	672,191


		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		—		—			13,902		Investor commercial real estate	28,019		—		—		28,019
Construction	Construction	110,385		—		—			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		—		—			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		7,433		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	$	43,210	$	7,998	$	2,363,863

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


		December 31, 2020							December 31, 2021
(in thousands)	(in thousands)	Performing		Nonaccrual		Total		(in thousands)	Performing		Nonaccrual		Total
Residential mortgage	Residential mortgage	$	185,604	$	1,183	$	186,787	Residential mortgage	$	185,544	$	1,226	$	186,770
Home equity	Home equity	19,857		—		19,857		Home equity	17,651		14		17,665
Other consumer	Other consumer	275,646		46		275,692		Other consumer	265,469		9		265,478
Total consumer loans	Total consumer loans	$	481,107	$	1,229	$	482,336	Total consumer loans	$	468,664	$	1,249	$	469,913

1819

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


		September 30, 2021																	September 30, 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	$	—	$	—	$	—	$	—	$	107,142	$	107,142	$	678	$	—	Commercial and industrial	$	—	$	—	$	350	$	350	$	104,430	$	104,780	$	350	$	—
Owner-occupied commercial real estate	Owner-occupied commercial real estate	—		—		—		—		84,819		84,819		—		—		Owner-occupied commercial real estate	—		—		—		—		58,615		58,615		1,622		—
Investor commercial real estate	Investor commercial real estate	—		—		—		—		28,505		28,505		3,429		—		Investor commercial real estate	—		—		—		—		91,021		91,021		—		—
Construction	Construction	—		—		—		—		115,414		115,414		—		—		Construction	—		—		—		—		139,509		139,509		—		—
Single tenant lease financing	Single tenant lease financing	—		—		—		—		921,998		921,998		1,100		—		Single tenant lease financing	—		—		—		—		895,302		895,302		—		—
Public finance	Public finance	—		—		—		—		601,738		601,738		—		—		Public finance	—		—		—		—		614,139		614,139		—		—
Healthcare finance	Healthcare finance	—		—		—		—		417,388		417,388		—		—		Healthcare finance	—		—		—		—		293,686		293,686		—		—
Small business lending(1)	Small business lending(1)	—		—		1,351		1,351		101,538		102,889		1,351		—		Small business lending(1)	—		356		488		844		112,157		113,001		2,958		—
Franchise finance	Franchise finance	—		—		—		—		25,598		25,598		—		—		Franchise finance	—		—		—		—		225,012		225,012		—		—

Residential mortgage	Residential mortgage	—		—		378		378		188,372		188,750		1,253		—		Residential mortgage	171		71		353		595		336,970		337,565		1,073		—
Home equity	Home equity	—		—		—		—		17,960		17,960		14		—		Home equity	—		—		—		—		22,114		22,114		—		—
Other consumer	Other consumer	86		12		17		115		268,281		268,396		26		—		Other consumer	30		20		—		50		312,462		312,512		3		—

Total	Total	$	86	$	12	$	1,746	$	1,844	$	2,878,753	$	2,880,597	$	7,851	$	—	Total	$	201	$	447	$	1,191	$	1,839	$	3,205,417	$	3,207,256	$	6,006	$	—

1 Balance in ~~“90 Days or More~~“Total Past Due” is partially 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	$	—	$	—	$	—	$	—	$	75,387	$	75,387	$	—	$	—	Commercial and industrial	$	—	$	—	$	—	$	—	$	96,008	$	96,008	$	674	$	—
Owner-occupied commercial real estate	Owner-occupied commercial real estate	—		—		—		—		89,785		89,785		1,838		—		Owner-occupied commercial real estate	—		—		—		—		66,732		66,732		—		—
Investor commercial real estate	Investor commercial real estate	—		—		—		—		13,902		13,902		—		—		Investor commercial real estate	—		—		—		—		28,019		28,019		3,419		—
Construction	Construction	—		—		—		—		110,385		110,385		—		—		Construction	—		—		—		—		136,619		136,619		—		—
Single tenant lease financing	Single tenant lease financing	—		—		4,680		4,680		945,492		950,172		7,116		—		Single tenant lease financing	—		—		—		—		865,854		865,854		1,100		—
Public finance	Public finance	—		—		—		—		622,257		622,257		—		—		Public finance	—		—		—		—		592,665		592,665		—		—
Healthcare finance	Healthcare finance	—		—		—		—		528,154		528,154		—		—		Healthcare finance	—		—		—		—		387,852		387,852		—		—
Small business lending(1)	Small business lending(1)	—		—		—		—		125,589		125,589		—		—		Small business lending(1)	—		—		657		657		108,009		108,666		959		—
Franchising Finance																		Franchising Finance	—		—		—		—		81,448		81,448		—		—

Residential mortgage	Residential mortgage	49		—		269		318		186,469		186,787		1,183		—		Residential mortgage	51		226		106		383		186,387		186,770		1,226		—
Home equity	Home equity	—		15		—		15		19,842		19,857		—		—		Home equity	—		—		—		—		17,665		17,665		14		—
Other consumer	Other consumer	176		51		5		232		275,460		275,692		46		—		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	$	—	Total	$	119	$	244	$	763	$	1,126	$	2,832,650	$	2,833,776	$	7,401	$	—

1 Balance in “Total Past Due” is partially 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 September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.


		September 30, 2021						December 31, 2020							September 30, 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														Commercial and industrial	$	9,813	$	9,813	$	—	$	—	$	—	$	—
Owner-occupied commercial real estate														Owner-occupied commercial real estate	—		—		—		3,345		3,466		—

Small business lending(1)														Small business lending(1)	5,838		6,087		—		959		1,193		—

Residential mortgage														Residential mortgage	3,483		3,634		—		2,918		3,063		—
Home equity														Home equity	—		—		—		14		15		—
Other consumer loans														Other consumer loans	3		29		—		9		44		—
Total														Total	19,137		19,563		—		7,245		7,781		—
Loans with a specific valuation allowance														Loans with a specific valuation allowance
Commercial and industrial	Commercial and industrial	$	3,429	$	3,486	$	—	$	517	$	517	$	—	Commercial and industrial	350		350		350		644		677		450
Owner-occupied commercial real estate	Owner-occupied commercial real estate	—		—		—		1,838		1,850		—		Owner-occupied commercial real estate	1,622		1,779		—		—		—		—

Single tenant lease financing	Single tenant lease financing	—		—		—		1,315		1,334		—		Single tenant lease financing	—		—		—		1,100		1,123		95

Healthcare finance	Healthcare finance	—		—		—		1,010		1,010		—		Healthcare finance	—		—		—		926		926		523
Small business lending(1)	Small business lending(1)	1,377		1,486		—		—		—		—		Small business lending(1)	2,034		2,034		678		1,025		1,025		393

Residential mortgage		2,096		2,223		—		1,546		1,652		—
Home equity		14		15		—		—		—		—
Other consumer		27		82		—		50		120		—
Total		6,943		7,292		—		6,276		6,483		—
Loans with a specific valuation allowance
Commercial and industrial		678		701		450		—		—		—

Single tenant lease financing		1,100		1,123		95		6,009		6,036		3,090

Healthcare Finance		941		941		523		—		—		—
Small business lending		1,029		1,029		393		—		—		—

Total	Total	3,748		3,794		1,461		6,009		6,036		3,090		Total	4,006		4,163		1,028		3,695		3,751		1,461
Total impaired loans	Total impaired loans	$	10,691	$	11,086	$	1,461	$	12,285	$	12,519	$	3,090	Total impaired loans	$	23,143	$	23,726	$	1,028	$	10,940	$	11,532	$	1,461

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

2021

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


		Three Months Ended								Nine Months Ended									Three Months Ended								Nine Months Ended
		September 30, 2021				September 30, 2020				September 30, 2021				September 30, 2020					September 30, 2022				September 30, 2021				September 30, 2022				September 30, 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		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	$	—	$	—	$	971	$	18	$	259	$	9	$	1,210	$	54	Commercial and industrial	$	4,906	$	—	$	—	$	—	$	1,636	$	—	$	259	$	9
Owner-occupied commercial real estate	Owner-occupied commercial real estate	3,457		—		3,586		29		3,297		—		4,244		60		Owner-occupied commercial real estate	1,645		—		3,457		—		2,471		—		3,297		—

Single tenant lease financing	Single tenant lease financing	—		—		—		—		100		5		—		—		Single tenant lease financing	—		—		1,315		—		—		—		100		5

Healthcare finance	Healthcare finance	—		—		692		8		336		—		231		8		Healthcare finance	—		—		—		—		—		—		336		—
Small business lending(1)	Small business lending(1)	1,315		—		—		—		1,005		—		—		—		Small business lending(1)	2,167		—		—		—		1,288		—		1,005		—

Residential mortgage	Residential mortgage	2,267		15		1,233		—		2,138		28		1,286		—		Residential mortgage	3,711		9		2,267		15		3,550		26		2,138		28
Home equity	Home equity	14		—		—		—		13		—		—		—		Home equity	15		—		14		—		14		—		13		—
Other consumer	Other consumer	23		—		68		—		27		—		63		—		Other consumer	8		—		23		—		9		—		27		—
Total	Total	7,076		15		6,550		55		7,175		42		7,034		122		Total	12,452		9		7,076		15		8,968		26		7,175		42
Loans with a specific valuation allowance	Loans with a specific valuation allowance																	Loans with a specific valuation allowance
Commercial and industrial	Commercial and industrial	690		—		182		18		677		—		196		18		Commercial and industrial	350		—		690		—		456		—		677		—
Owner-occupied commercial real estate	Owner-occupied commercial real estate	—		—		—		29		473		—		—		29		Owner-occupied commercial real estate	—		—		—		—		—		—		473		—

Single tenant lease financing	Single tenant lease financing	2,048		—		5,978		4		4,875		—		5,113		4		Single tenant lease financing	—		—		2,048		—		547		—		4,875		—

Healthcare Finance		956		37		—		—		809		73		—		—
Small business lending		1,203		—		—		—		401		—		—		—
Healthcare finance																		Healthcare finance	660		—		956		37		826		45		809		73
Small business lending(1)																		Small business lending(1)	1,827		—		1,203		—		1,611		—		401		—

Other consumer																		Other consumer	199		—		—		—		66		—		—		—
Total	Total	4,897		37		6,160		51		7,235		73		5,309		51		Total	3,036		—		4,897		37		3,506		45		7,235		73
Total impaired loans	Total impaired loans	$	11,973	$	52	$	12,710	$	106	$	14,410	$	115	$	12,343	$	173	Total impaired loans	$	15,488	$	9	$	11,973	$	52	$	12,474	$	71	$	14,410	$	115

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

The Company ~~had $1.2 million in~~did not have any other real estate owned (“OREO”) as of September 30, ~~2021, which consisted of 1 commercial property.~~2022. The Company ~~did not have any~~had $1.2 million in OREO as of December 31, ~~2020.~~2021, which consisted of one commercial property. There were 2two loans totaling ~~$0.4~~$0.2 million and ~~no loans~~one loan totaling $0.1 million in the process of foreclosure at September 30, ~~2021~~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 obtain additional collateral and/or guarantees to support the debt, or a combination of the two.

There were no loans classified as new ~~TDR’s~~TDRs during the three months ended September 30, ~~2021 and 1~~2022. There was one portfolio residential mortgage loan classified as a new TDR during the nine months ended September 30, 2022 with a pre-modification and post-modification outstanding recorded investment of $0.7 million. The Company did not allocate a specific allowance for that loan as of September 30, 2022. The modifications consisted of interest-only payments for a period of time. There was one portfolio residential mortgage loan classified as a new TDR during the three and nine months ended September 30, 2021 with a pre-modification and ~~post-~~

~~modification~~post-modification outstanding recorded investment of $0.8 million. The Company did not allocate a specific allowance for that loan as of September 30, 2021. The modifications consisted of interest-only payments for a period of time. There were no loans classified as a new TDR during the three months ended September 30, 2020 and one portfolio residential mortgage loan classified as a new TDR during the nine months ended September 30, 2020 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 September 30, 2020. The modification consisted of an extension of the maturity date. There were no performing TDRs that had payment defaults within the twelve months following modification during the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, 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 September 30, ~~2021,~~2022, the Company had ~~thirteen~~no loans ~~totaling $3.0 million in~~as non-TDR loan modifications due to COVID-19.

Note 5: Premises and Equipment

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


(in thousands)	(in thousands)	September 30, 2021		December 31, 2020		(in thousands)	September 30, 2022		December 31, 2021
Land	Land	$	—	$	2,500	Land	$	5,598	$	—
Construction in process						Construction in process	5		57,469
Right of use leased asset	Right of use leased asset	256		819		Right of use leased asset	244		208
Construction in process		50,466		28,754
Building and improvements	Building and improvements	777		5,819		Building and improvements	55,226		1,090
Furniture and equipment	Furniture and equipment	7,692		10,671		Furniture and equipment	19,424		7,800

Less: accumulated depreciation	Less: accumulated depreciation	(6,491)		(10,973)		Less: accumulated depreciation	(9,750)		(6,725)
Total	Total	$	52,700	$	37,590	Total	$	70,747	$	59,842

In December 2018, the Bank’s subsidiary, SPF15, Inc., entered into a project agreement with the City of Fishers, Indiana, 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 September 30, ~~2021~~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 nine months ended September 30, ~~2021.~~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 qualitative test performed as of August 31, ~~2021.~~2022. 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 nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 are shown in the table below.


									Three Months Ended
(in thousands)	(in thousands)	Three Months Ended				(in thousands)	September 30, 2022		September 30, 2021
		September 30, 2021		September 30, 2020
Balance, beginning of period	Balance, beginning of period	$	4,120	$	2,522			Balance, beginning of period	$	5,345	$	4,120
Additions
Additions:								Additions:
Originated and purchased servicing	Originated and purchased servicing	566		399				Originated and purchased servicing	783		566
Subtractions	Subtractions							Subtractions
Paydowns		(176)		(103)
Paydowns:								Paydowns:	(279)		(176)
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	(98)		—				Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model	(54)		(98)
Loan servicing asset revaluation	Loan servicing asset revaluation	$	(274)	$	(103)			Loan servicing asset revaluation	$	(333)	$	(274)
Balance, end of period	Balance, end of period	$	4,412	$	2,818			Balance, end of period	$	5,795	$	4,412

(in thousands) Nine Months Ended
September 30, 2021 September 30, 2020
Balance, beginning of period $ 3,569 $ 2,481
  Additions
     Originated and purchased servicing 1,512 709
  Subtractions
     Paydowns (500) (372)
     Changes in fair value due to changes in valuation inputs or assumptions used in
     the valuation model (169) —
     Loan servicing asset revaluation $ (669) $ (372)
Balance, end of period $ 4,412 $ 2,818


	Nine Months Ended
(in thousands)	September 30, 2022		September 30, 2021
Balance, beginning of period	$	4,702	$	3,569
Additions:
Originated and purchased servicing	2,193		1,512
Subtractions
Paydowns:	(888)		(500)
Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model	(212)		(169)
Loan servicing asset revaluation	$	(1,100)	$	(669)
Balance, end of period	$	5,795	$	4,412

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 September 30, ~~2021~~2022 and December 31, ~~2020~~2021 are shown in the table below.


(in thousands)	(in thousands)					(in thousands)	September 30, 2022	December 31, 2021
		September 30, 2021		December 31, 2020
Loan portfolios serviced for:	Loan portfolios serviced for:								Loan portfolios serviced for:
SBA guaranteed loans	SBA guaranteed loans	$	213,378	$	165,961				SBA guaranteed loans	$	285,736	$	230,514

Total	Total	$	213,378	$	165,961				Total	$	285,736	$	230,514

Loan servicing revenue totaled $0.7 million and $1.9 million for the three and nine months ended September 30, 2022 and $0.5 million and $1.4 million for the three and nine months ended September 30, 2021, ~~and $0.3 million and $0.8 million for the three and nine months ended September 30, 2020,~~ respectively. Loan servicing asset revaluation, which represents the change in fair value of the servicing asset, resulted in a $0.3 million and $1.1 million downward valuation for the three and nine months ended September 30, 2022, respectively, and a $0.3 million and $0.7 million downward valuation for the three and nine months ended September 30, 2021, ~~respectively, and a $0.1 and $0.4 million downward valuation for the three and nine months ended September 30, 2020,~~ 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 in full 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 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 was payable quarterly. The 2026 Notes were scheduled to mature on September 30, 2026. The 2026 Notes were unsecured subordinated obligations of the Company eligible to be repaid, without penalty, on any interest payment date on or after September 30, 2021. The 2026 Notes 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)~~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 ~~bear~~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”) plus 5.795%). The 2030 ~~Notes are~~Note is an unsecured subordinated ~~obligations~~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 ~~Notes~~Note to redeem ~~the 2025 Note.~~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 2026 Notes. ~~Under~~Pursuant to the terms of a Registration Rights Agreement between the Company and the initial purchasers of the 2031 Notes, the Company ~~has agreed~~offered to ~~take certain actions to provide for the~~ exchange of the 2031 Notes for subordinated notes that are registered under the Securities Act of 1933, as amended, and have substantially the same terms as the 2031 Notes. 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.

2425

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


		September 30, 2021				December 31, 2020					September 30, 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		—		—		10,000		(114)
2026 Notes		—		—		25,000		(715)
2029 Notes	2029 Notes	37,000		(1,218)		37,000		(1,337)		2029 Notes	$	37,000	$	(1,060)	$	37,000	$	(1,178)
2030 Notes	2030 Notes	10,000		(213)		10,000		(231)		2030 Notes	10,000		(190)		10,000		(208)
2031 Notes	2031 Notes	$	60,000	$	(1,413)	$	—	$	—	2031 Notes	60,000		(1,294)		60,000		(1,383)

Total	Total	$	107,000	$	(2,844)	$	82,000	$	(2,397)	Total	$	107,000	$	(2,544)	$	107,000	$	(2,769)

Note 9: Benefit Plans

Employment ~~Agreement~~Agreements

The Company is party to ancertain employment ~~agreement~~agreements with each of its Chief Executive Officer, ~~that provides~~President and Chief Operating Officer and Executive Vice President and Chief Financial Officer. The employment agreements each provide for an annual base ~~salary~~salaries and an annual ~~bonus,~~bonuses, if any, as determined from time to time by the Compensation Committee of our Board of Directors. The annual ~~bonus is~~bonuses are to be determined with reference to the achievement of annual performance objectives established by the Compensation ~~Committee for~~Committee. The agreements also provide that each of the Chief Executive Officer, President and ~~other senior officers. The agreement also provides that the~~ Chief Operating Officer and Executive Vice President and Chief Financial Officer, may be awarded additional compensation, benefits, or consideration as the Compensation Committee may determine.

The ~~agreement provides~~agreements also provide 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~~2022 Equity Incentive Plan

The ~~2013~~First Internet Bancorp 2022 Equity Incentive Plan (the ~~“2013~~“2022 Plan”) ~~authorizes the issuance~~was approved by our Board of ~~750,000 shares~~Directors and ratified by our shareholders on May 16, 2022. The plan permits awards of ~~the Company’s common stock in the form of equity-based awards to employees, directors,~~incentive 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~~non-statutory stock options, stock appreciation rights, restricted stock awards, stock unit awards, performance awards and other ~~share-based~~stock-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 2022 Plan. The 2022 Plan initially authorized the issuance of 400,000 new shares of the Company’s common stock plus all shares of common stock that remained available for future grants under the First Internet Bancorp 2013 ~~Plan.~~Equity Incentive Plan (the “2013 Plan”).

Award Activity Under 2022 Plan

The Company recorded ~~$0.6~~less than $0.1 million of share-based compensation expense for both the three and nine months ended September 30, 2022, related to stock-based awards under the 2022 Plan.

The following table summarizes the stock-based award activity under the 2022 Plan for the nine months ended September 30, 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
Unvested at December 31, 2021	—	$	—	—	$	—	—	$	—
Granted	—	—		4,151	36.84		—	—



Unvested at September 30, 2022	—	$	—	4,151	$	36.84	—	$	—

At September 30, 2022, the total unrecognized compensation cost related to unvested stock-based awards was 0.1 million with a weighted-average expense recognition period of 0.6 years.

2013 Equity Incentive Plan

The 2013 Plan authorized the issuance of 750,000 shares of the Company’s common stock in the form of stock-based awards to employees, directors, and other eligible persons. Although outstanding stock-based awards under the 2013 Plan remain in place according to their terms, our authority to grant new awards under the 2013 Plan terminated upon shareholder approval of the 2022 Plan.

Award Activity Under 2013 Plan

The Company recorded $0.4 million and $2.0 million of share-based compensation expense for the three and nine months ended September 30, 2022, respectively, related to stock-based awards under the 2013 Plan. The Company recorded $0.6 million and $1.8 million of share-based compensation expense for the three and nine months ended September 30, 2021, ~~respectively,~~ related to stock-based awards ~~made under the 2013 Plan. The Company recorded~~ ~~$0.5 million~~ ~~and $1.6 million of share-based compensation expense for the three and nine months ended September 30, 2020, respectively, related to awards made~~ under the 2013 Plan.

The following table summarizes the ~~status of~~stock-based award activity under the 2013 Plan ~~awards as of September 30, 2021, and activity~~ for the nine months ended September 30, ~~2021.~~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			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	—	$	—	—	$	—
Unvested at December 31, 2021											Unvested at December 31, 2021	112,822	$	28.18	—	$	—	—	$	—
Granted	Granted	60,111	30.42		13,878	30.27		6	32.16		Granted	41,662	46.67		9,954	52.64		3	41.87
Cancelled/Forfeited	Cancelled/Forfeited	—	—		(1,057)	30.13		—	—		Cancelled/Forfeited	(5,441)	36.68		(644)	52.64		—	—
Vested	Vested	(35,745)	30.12		(9,650)	30.26		(6)	32.16		Vested	(23,256)	24.62		(7,378)	52.64		(3)	41.87

Nonvested at September 30, 2021		137,351	$	28.32	3,171	$	30.36	—	$	—
Unvested at September 30, 2022											Unvested at September 30, 2022	125,787	$	34.59	1,932	$	52.64	—	$	—

At September 30, ~~2021,~~2022, the total unrecognized compensation cost related to ~~nonvested~~unvested stock-based awards was ~~$2.5~~$2.1 million with a weighted-average expense recognition period of ~~1.7~~1.8 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 nine months ended September 30, ~~2021.~~2022.


						Deferred Stock Rights
Outstanding, beginning of period						~~83,835~~84,536
Granted						~~526~~322
Exercised						—
Outstanding, end of period						~~84,361~~84,858

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 September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had outstanding loan commitments totaling approximately ~~$276.9~~$508.6 million and ~~$263.9~~$324.3 million, respectively.

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 ~~$66.7~~$69.2 million. As of September 30, ~~2021, $20.4~~2022, $6.1 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��~~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 September 30, ~~2021~~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 September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

September 30, 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 $ 52,455 $ — $ 52,455 $ —
Municipal securities 77,450 — 77,450 —
Agency mortgage-backed securities 429,885 — 429,885 —
Private label mortgage-backed securities 20,235 0 20,235 —
Asset-backed securities 5,005 — 5,005 —
Corporate securities 48,977 — 48,977 —
Total available-for-sale securities 634,007 — 634,007 —
Loans held-for-sale (mandatory pricing agreements) 19,181 — 19,181 —
Servicing asset 4,412 — — 4,412
Interest rate swap agreements (18,710) — (18,710) —
Forward contracts 458 458 — —
IRLCs 840 — — 840


				December 31, 2020 Fair Value Measurements Using									September 30, 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	$	60,545	$	—	$	60,545	$	—	U.S. Government-sponsored agencies	$	36,329	$	—	$	36,329	$	—
Municipal securities	Municipal securities	82,489		—		82,489		—		Municipal securities	63,537		—		63,537		—
Agency mortgage-backed securities		243,921		—		243,921		—
Private label mortgage-backed securities		58,116		—		58,116		—
Agency mortgage-backed securities - residential										Agency mortgage-backed securities - residential	219,191		—		219,191		—
Agency mortgage-backed securities - commercial										Agency mortgage-backed securities - commercial	16,522		—		16,522		—
Private label mortgage-backed securities - residential										Private label mortgage-backed securities - residential	11,041		—		11,041		—
Asset-backed securities	Asset-backed securities	4,961		—		4,961		—		Asset-backed securities	4,884		—		4,884		—
Corporate securities	Corporate securities	47,596		—		47,596		—		Corporate securities	42,061		—		42,061		—

Total available-for-sale securities	Total available-for-sale securities	497,628		—		497,628		—		Total available-for-sale securities	$	393,565	$	—	$	393,565	$	—
Loans held-for-sale (mandatory pricing agreements)	Loans held-for-sale (mandatory pricing agreements)	26,341		—		26,341		—		Loans held-for-sale (mandatory pricing agreements)	9,677		—		9,677		—
Servicing asset	Servicing asset	3,569		—		—		3,569		Servicing asset	5,795		—		—		5,795
Interest rate swap assets										Interest rate swap assets	8,978		—		8,978		—

Interest rate swap agreements		(29,750)		—		(29,750)		—
Forward contracts	Forward contracts	(640)		(640)		—		—		Forward contracts	1,006		1,006		—		—
IRLCs	IRLCs	3,361		—		—		3,361		IRLCs	(388)		—		—		(388)

2829


			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		—		36,326		—
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 nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021.


		Three Months Ended					Three Months Ended
(in thousands)	(in thousands)	Servicing Asset		Interest Rate Lock Commitments		(in thousands)	Servicing Asset		Interest Rate Lock Commitments
Balance, July 1, 2021		$	4,120	$	818
Balance, July 1, 2022						Balance, July 1, 2022	$	5,345	$	462
Total realized gains	Total realized gains					Total realized gains
Additions		566		—
Additions:						Additions:
Originated and purchased servicing						Originated and purchased servicing	783		—
Subtractions:						Subtractions:
Paydowns	Paydowns	(176)		—		Paydowns	(279)		—
Change in fair value	Change in fair value	(98)		22		Change in fair value	(54)		(850)

Balance, September 30, 2021		4,412		840
Balance, September 30, 2022						Balance, September 30, 2022	$	5,795	$	(388)

Balance as of July 1, 2020		$	2,522	$	282
Balance as of July 1, 2021						Balance as of July 1, 2021	$	4,120	$	818
Total realized gains	Total realized gains					Total realized gains
Additions		399		—
Additions:						Additions:
Originated and purchased servicing						Originated and purchased servicing	566		—
Subtractions:						Subtractions:
Paydowns	Paydowns	(103)		—		Paydowns	(176)		—
Change in fair value	Change in fair value	—		2,834		Change in fair value	(98)		22

Balance, September 30, 2020		$	2,818	$	3,116
Balance, September 30, 2021						Balance, September 30, 2021	$	4,412	$	840

Nine Months Ended
(in thousands) Servicing Asset Interest Rate Lock
Commitments
Balance, January 1, 2021 $ 3,569 $ 3,361
Total realized gains
Additions 1,512 —
Paydowns (500) —
Change in fair value (169) (2,521)
Balance, September 30, 2021 4,412 840
Balance as of January 1, 2020 $ 2,481 $ 910
Total realized gains
Additions 709 —
Paydowns (372) —
Change in fair value — 2,206
Balance, September 30, 2020 $ 2,818 $ 3,116


	Nine Months Ended
(in thousands)	Servicing Asset		Interest Rate Lock Commitments
Balance, January 1, 2022	$	4,702	$	718
Total realized gains
Additions:
Originated and purchased servicing	2,193		—
Subtractions:
Paydowns	(888)		—
Change in fair value	(212)		(1,106)
Balance, September 30, 2022	$	5,795	$	(388)

Balance as of January 1, 2021	$	3,569	$	3,361
Total realized gains
Additions:
Originated and purchased servicing	1,512		—
Subtractions:
Paydowns	(500)		—
Change in fair value	(169)		(2,521)
Balance, September 30, 2021	$	4,412	$	840

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 September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.


				September 30, 2021									September 30, 2022
(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	$	3,747	$	—	$	—	$	3,747	Impaired loans	$	1,134	$	—	$	—	$	1,134

December 31, 2020
(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 $ 4,026 $ — $ — $ 4,026


			December 31, 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	$	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
September 30, 2021

Valuation
Technique

Significant Unobservable
Inputs

Range

Weighted-Average Range

(dollars in thousands)

Fair Value at
September 30, 2022

Valuation
Technique

Significant Unobservable
Inputs

Range

Weighted-Average Range

Impaired loans

3,747

Fair value of collateral

Discount for type of property and current market conditions

10%

Impaired loans

1,134

Fair value of collateral

Discount for type of property and current market conditions

10%

IRLCs

840

Discounted cash flow

Loan closing rates

51% - 100%

90%

IRLCs

(388)

Discounted cash flow

Loan closing rates

25% - 100%

81%

Servicing asset

4,412

Discounted cash flow

Prepayment speeds
Discount rate

0% - 25%

10%

12.8%

10%

Servicing asset

5,795

Discounted cash flow

Prepayment speeds

Discount rate

0% - 25%

12%

14.6%

12%

(dollars in thousands)

Fair Value at
December 31, 2020

Valuation
Technique

Significant Unobservable
Inputs

Range

Weighted-Average Range

(dollars in thousands)

Fair Value at
December 31, 2021

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%

Impaired loans

1,228

Fair value of collateral

Discount for type of property and current market conditions

0% - 35%

10.1%

IRLCs

3,361

Discounted cash flow

Loan closing rates

44% - 100%

87%

IRLCs

718

Discounted cash flow

Loan closing rates

42% - 100%

89%

Servicing asset

3,569

Discounted cash flow

Prepayment speeds

Discount rate

0% - 25%

10%

12.1%

10%

Servicing asset

4,702

Discounted cash flow

Prepayment speeds

Discount rate

0% - 25%

10%

12.5%

10%

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.

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 September 30, ~~2021~~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 fair value on a recurring basis at September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.


		September 30, 2021 Fair Value Measurements Using											September 30, 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	$	407,515	$	407,515	$	407,515	$	—	$	—	Cash and cash equivalents	$	221,052	$	221,052	$	221,052	$	—	$	—

Securities held-to-maturity	Securities held-to-maturity	62,129		64,337		—		64,337		—		Securities held-to-maturity	191,057		169,977		—		169,977		—
Loans held-for-sale (best efforts pricing agreements)	Loans held-for-sale (best efforts pricing agreements)	24,789		24,789		—		24,789		—		Loans held-for-sale (best efforts pricing agreements)	13,426		13,426		—		13,426		—
Net loans	Net loans	2,908,148		2,969,845		—		—		2,969,845		Net loans	3,226,040		3,027,916		—		—		3,027,916
Accrued interest receivable	Accrued interest receivable	14,866		14,866		14,866		—		—		Accrued interest receivable	16,918		16,918		16,918		—		—
Federal Home Loan Bank of Indianapolis stock	Federal Home Loan Bank of Indianapolis stock	25,650		25,650		—		25,650		—		Federal Home Loan Bank of Indianapolis stock	28,350		28,350		—		28,350		—
Deposits	Deposits	3,224,595		3,244,427		1,857,794		—		1,386,633		Deposits	3,192,644		3,056,730		1,910,715		—		1,146,015
Advances from Federal Home Loan Bank	Advances from Federal Home Loan Bank	514,920		532,605		—		532,605		—		Advances from Federal Home Loan Bank	589,926		545,824		—		545,824		—
Subordinated debt	Subordinated debt	104,156		110,114		39,960		70,154		—		Subordinated debt	104,456		104,544		34,425		70,119		—
Accrued interest payable	Accrued interest payable	1,568		1,568		1,568		—		—		Accrued interest payable	1,887		1,887		1,887		—		—


		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	$	—	$	—	Cash and cash equivalents	$	442,960	$	442,960	$	442,960	$	—	$	—

Securities held-to-maturity	Securities held-to-maturity	68,223		69,452		—		69,452		—		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		—		13,243		—		Loans held-for-sale (best efforts pricing agreements)	24,512		24,512		—		24,512		—
Net loans	Net loans	3,029,747		3,084,375		—		—		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		—		—		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		—		25,650		—		Federal Home Loan Bank of Indianapolis stock	25,650		25,650		—		25,650		—
Deposits	Deposits	3,270,885		3,307,038		1,679,164		—		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		—		541,945		—		Advances from Federal Home Loan Bank	514,922		526,143		—		526,143		—
Subordinated debt	Subordinated debt	79,603		83,682		63,325		20,357		—		Subordinated debt	104,231		108,788		38,643		70,145		—
Accrued interest payable	Accrued interest payable	1,439		1,439		1,439		—		—		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 September 30, ~~2021~~2022 and ~~2020,~~2021, the Company originated mortgage loans held-for-sale of ~~$198.3~~$85.1 million and ~~$216.0~~$198.3 million, respectively, and sold ~~$186.1~~$95.0 million and ~~$203.7~~$186.1 million of mortgage loans, respectively, into the secondary market. During the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the Company originated mortgage loans held-for-sale of ~~$585.5~~$343.3 million and ~~$431.4~~$585.5 million, respectively, and sold ~~$579.2~~$365.3 million and ~~$429.3~~$579.2 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 nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021		2022		2021
Gain on loans sold	Gain on loans sold	$	3,244	$	6,441	$	14,550	$	14,948	Gain on loans sold	$	1,178	$	3,244	$	5,119	$	14,550
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	110		823		(854)		(116)		Gain (loss) resulting from the change in fair value of loans held-for-sale	(450)		110		(599)		(854)
Gain (loss) resulting from the change in fair value of derivatives	Gain (loss) resulting from the change in fair value of derivatives	496		2,366		(1,422)		1,874		Gain (loss) resulting from the change in fair value of derivatives	143		496		(66)		(1,422)
Net revenue from mortgage banking activities	Net revenue from mortgage banking activities	$	3,850	$	9,630	$	12,274	$	16,706	Net revenue from mortgage banking activities	$	871	$	3,850	$	4,454	$	12,274

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 September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

(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 September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020
Securities available-for-sale (1)
$ 76,526 $ 124,210 $ 2,606 $ 6,064


(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	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021

Securities available-for-sale (1)	$	69,050	$	75,156	$	(2,106)	$	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 both September 30, ~~2021~~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 September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, identified by the underlying interest rate-sensitive instruments.


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

Securities available-for-sale	$	50,000	2.1	$	2,094	3-month LIBOR	2.33	%
Total at September 30, 2022	$	50,000	2.1	$	2,094	3-month LIBOR	2.33	%


(dollars in thousands) September 30, 2021		Notional Value			Weighted- Average Remaining Maturity (years)				Weighted-Average Ratio
(dollars in thousands) December 31, 2021											(dollars in thousands) December 31, 2021		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			3.1			$	(2,608)		3-month LIBOR			2.33	%	Securities available-for-sale		$	50,000	2.8			$	(1,731)		3-month LIBOR			2.33	%
Total at September 30, 2021		$	50,000		3.1		$	(2,608)	3-month LIBOR			2.33		%
Total at December 31, 2021														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 and nine months ended September 30, 2022, amortization expense totaling $0.1 million and $0.2 million, respectively, 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 ~~12.36~~11.5 years as of September 30, ~~2021.~~2022. Amortization expense totaling $1.5 million and $3.6 million, for the three and nine months ended September 30 2022, respectively, and $1.5 million and $3.8 million, for the three and nine months ended September 30, 2021 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 September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

(dollars in thousands)

September 30, 2021
Notional Weighted- Average Remaining Maturity Weighted-Average Ratio
Cash Flow Hedges Value (years) Fair Value Receive Pay
Interest rate swaps $ 110,000 5.3 $ (10,563) 3-month LIBOR 2.88 %
Interest rate swaps 100,000 2.2 (5,449) 1-month LIBOR 2.88 %


(dollars in thousands) September 30, 2022	Notional		Weighted- Average Remaining Maturity			Weighted-Average Ratio
Cash Flow Hedges	Value		(years)	Fair Value		Receive	Pay
Interest rate swaps	$	110,000	4.34	$	5,242	3-month LIBOR	2.88	%
Interest rate swaps	60,000		0.89	730		1-month LIBOR	2.88	%
Interest rate swaps	40,000		1.67	912		Fed Funds Effective	2.78	%


(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~~As of September 30, 2022 the Company had no pledged ~~$19.3 million and $30.6 million of~~ cash collateral compared to $15.7 million, as of December 31, 2021. Cash collateral is pledged to counterparties on interest rate swap agreements as security for its obligations related to these ~~interest rate swap transactions at September 30, 2021 and December 31, 2020, respectively.~~agreements. 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 September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.


		September 30, 2021				December 31, 2020					September 30, 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 designated as hedging instruments										Derivatives designated as hedging instruments
Interest rate swaps associated with securities available-for-sale										Interest rate swaps associated with securities available-for-sale	$	50,000	$	2,094	$	—	$	—
Interest rate swaps associated with variable-rate liabilities										Interest rate swaps associated with variable-rate liabilities	210,000		6,884		—		—

Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments									Derivatives not designated as hedging instruments
IRLCs	IRLCs	$	78,602	$	840	$	108,095	$	3,361	IRLCs	—		—		62,789		718
Forward contracts	Forward contracts	80,000		458		—		—		Forward contracts	27,750		1,006		—		—
Total contracts	Total contracts	$	158,602	$	1,298	$	108,095	$	3,361	Total contracts	$	287,750	$	9,984	$	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 securities available-for-sale	Interest rate swaps associated with securities available-for-sale	50,000		(2,608)		88,200		(6,072)		Interest rate swaps associated with securities available-for-sale	$	—	$	—	$	50,000	$	(1,731)
Interest rate swaps associated with liabilities		210,000		(16,102)		210,000		(23,678)
Interest rate swaps associated with variable-rate liabilities										Interest rate swaps associated with variable-rate liabilities	—		—		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	—		—		107,500		(640)		Forward contracts	—		—		72,750		(30)

IRLCs										IRLCs	31,202		(388)		—		—
Total contracts	Total contracts	$	260,000	$	(18,710)	$	405,700	$	(30,390)	Total contracts	$	31,202	$	(388)	$	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 nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021.


		Amount of Gain Recognized in Other Comprehensive Income (Loss) in The Three Months Ended				Amount of Gain/(Loss) Recognized in Other Comprehensive Income (Loss) in The Nine Months Ended					Amount of Gain Recognized in Other Comprehensive Income (Loss) in The Three Months Ended				Amount of Gain Recognized in Other Comprehensive Income (Loss) in The Nine Months Ended
(in thousands)	(in thousands)	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020		(in thousands)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021

Interest rate swap agreements	Interest rate swap agreements	$	1,439	$	1,514	$	7,665	$	(12,453)	Interest rate swap agreements	$	6,058	$	1,439	$	19,424	$	7,665

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 nine ~~months~~ ended September 30, ~~2021~~2022 and ~~2020.~~2021.


		Amount of Gain / (Loss) Recognized in the Three Months Ended				Amount of Gain / (Loss) Recognized in the Nine Months Ended					Amount of Gain / (Loss) Recognized in the Three Months Ended				Amount of Gain / (Loss) Recognized in the Nine Months Ended
(in thousands)	(in thousands)	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020		(in thousands)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 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	IRLCs	$	—	$	2,834	$	(2,519)	$	2,206	IRLCs	$	—	$	—	$	—	$	(2,519)

Forward contracts										Forward contracts	993		—		1,036		—

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	22		—		—		—		IRLCs	$	(850)	$	22	$	(1,102)	$	—
Forward contracts	Forward contracts	$	474	$	(468)	$	1,097	$	(332)	Forward contracts	—		474		—		1,097

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 nine months ended September 30, ~~2021~~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				Nine Months Ended				(in thousands) Line item in the condensed consolidated statements of income	Three Months Ended				Nine Months Ended
		September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020			September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Interest income	Interest income									Interest income
Loans		$	—	$	—	$	—	$	(2,445)

Securities - taxable	Securities - taxable	—		(229)		(253)		(479)		Securities - taxable	$	—	$	—	$	—	$	(253)
Securities - non-taxable	Securities - non-taxable	(280)		(242)		(817)		(472)		Securities - non-taxable	(7)		(280)		(442)		(817)
Total interest income	Total interest income	(280)		(471)		(1,070)		(3,396)		Total interest income	(7)		(280)		(442)		(1,070)
Interest expense	Interest expense									Interest expense
Deposits	Deposits	702		685		2,072		1,585		Deposits	159		702		1,338		2,072
Other borrowed funds	Other borrowed funds	774		721		2,258		1,632		Other borrowed funds	168		774		1,355		2,258
Total interest expense	Total interest expense	1,476		1,406		4,330		3,217		Total interest expense	327		1,476		2,693		4,330
Net interest income	Net interest income	$	(1,756)	$	(1,877)	$	(5,400)	$	(6,613)	Net interest income	$	(334)	$	(1,756)	$	(3,135)	$	(5,400)

Note 14: Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, included in shareholders' equity, for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, 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 (2,596) 7,665 5,069
Other comprehensive (loss) gain before tax (2,596) 7,665 5,069
Income tax (benefit) provision (616) 1,657 1,041
Other comprehensive (loss) income - net of tax (1,980) 6,008 4,028
Balance, September 30, 2021 $ (1,512) $ (11,656) $ (13,168)
Balance, January 1, 2020 $ (4,388) $ (9,803) $ (14,191)
Net unrealized holding gains (losses) recorded within other comprehensive income before income tax 6,187 (12,453) (6,266)
Reclassification of net loss realized and included in earnings (139) — (139)
Other comprehensive income (loss) before tax 6,048 (12,453) (6,405)
Income tax provision (benefit) 2,096 (3,602) (1,506)
Other comprehensive loss - net of tax 3,952 (8,851) (4,899)
Balance, September 30, 2020 $ (436) $ (18,654) $ (19,090)


(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	(51,682)		(5,402)		19,424		(37,660)
Reclassifications from accumulated other comprehensive (loss) income to earnings before tax	—		608		—		608

Other comprehensive (loss) gain before tax	(51,682)		(4,794)		19,424		(37,052)
Income tax (benefit) provision	(13,384)		(1,203)		5,639		(8,948)
Other comprehensive (loss) income - net of tax	(38,298)		(3,591)		13,785		(28,104)
Balance, September 30, 2022	$	(40,853)	$	(3,591)	$	5,301	$	(39,143)

Balance, January 1, 2021	$	468	$	—	$	(17,664)	$	(17,196)
Other comprehensive (loss) income before reclassifications from accumulated other comprehensive loss before tax	(2,596)		—		7,665		5,069

Other comprehensive (loss) gain before tax	(2,596)		—		7,665		5,069
Income tax (benefit) provision	(616)		—		1,657		1,041
Other comprehensive (loss) income - net of tax	(1,980)		—		6,008		4,028
Balance, September 30, 2021	$	(1,512)	$	—	$	(11,656)	$	(13,168)

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

(in thousands) Available-For-Sale Securities Cash Flow Hedges Total
Balance, July 1, 2021 $ (164) $ (12,747) $ (12,911)
Net unrealized holding (losses) gains recorded within other comprehensive income before income tax (1,789) 1,439 (350)
Other comprehensive (loss) income before tax (1,789) 1,439 (350)
Income tax (benefit) provision (441) 348 (93)
Other comprehensive (loss) income - net of tax (1,348) 1,091 (257)
Balance, September 30, 2021 $ (1,512) $ (11,656) $ (13,168)
Balance, July 1, 2020 $ (1,388) $ (19,750) $ (21,138)
Net unrealized holding gains recorded within other comprehensive income before income tax 1,386 1,514 2,900
Reclassification of net loss realized and included in earnings (98) — (98)
Other comprehensive loss before tax 1,288 1,514 2,802
Income tax provision 336 418 754
Other comprehensive loss - net of tax 952 1,096 2,048
Balance, September 30, 2020 $ (436) $ (18,654) $ (19,090)


(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, July 1, 2022	$	(27,568)	$	(3,818)	$	636	$	(30,750)
Other comprehensive (loss) income before reclassifications from accumulated other comprehensive loss before tax	(18,406)		—		6,058		(12,348)
Reclassifications from accumulated other comprehensive (loss) income to earnings before tax	—		296		—		296

Other comprehensive (loss) gain before tax	(18,406)		296		6,058		(12,052)
Income tax (benefit) provision	(5,121)		69		1,393		(3,659)
Other comprehensive (loss) income - net of tax	(13,285)		227		4,665		(8,393)
Balance, September 30, 2022	$	(40,853)	$	(3,591)	$	5,301	$	(39,143)

Balance, July 1, 2021	$	(164)	$	—	$	(12,747)	$	(12,911)
Other comprehensive (loss) income before reclassifications from accumulated other comprehensive loss before tax	(1,789)		—		1,439		(350)

Other comprehensive gain (loss) before tax	(1,789)		—		1,439		(350)
Income tax (benefit) provision	(441)		—		348		(93)
Other comprehensive income (loss) - net of tax	(1,348)		—		1,091		(257)
Balance, September 30, 2021	$	(1,512)	$	—	$	(11,656)	$	(13,168)

3839


Details About Accumulated Other Comprehensive Income (Loss) Components	Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) for the				Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) for the				Affected Line Item in the Statements of Income
	Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
Reclassifications from accumulated other comprehensive loss to earnings before tax	$	(296)	—		$	(608)	$	—	Interest income
Total amount reclassified before tax	(296)		—		(608)		—		Income before income taxes
Tax benefit	(68)		—		(139)		—		Income tax provision
Total reclassifications from accumulated other comprehensive loss	$	(228)	$	—	$	(469)	$	—	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.

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.~~working group that has been meeting to discuss implementation matters related to the completeness and accuracy of historical data, model development and corporate governance documentation. Specific to the model, the CECL working group has discussed results from parallel model runs for each portfolio segment, assumptions related to unfunded commitments and economic forecast factors. Model validation is expected to be completed in the fourth quarter 2022.

The Company expects to record a one-time cumulative effect adjustment to the ALLL in retained earnings on the consolidated balance sheet as of the beginning of the first reporting period in which the new standard is effective, as is required in the guidance. The Company believes there will be an increase in the ALLL as a result of the adoption of this new standard; however, it is waiting to provide an estimate until the completion of the model validation and analysis by the CECL working group. The Company will continue to evaluate and refine the ALLL throughout the remainder of 2022, considering changes in portfolio composition, economic conditions and the results from the model validation.

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 -

~~Note 16: Subsequent Event~~Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (March 2022)

~~On November 2, 2021,~~In March 2022, the ~~Company announced it has entered into a definitive agreement to acquire First Century Bancorp. (“First Century”),~~FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the ~~parent company of First Century Bank, N.A., headquartered in Roswell, GA. According to the terms~~separate recognition and measurement guidance for Troubled Debt Restructurings ("TDRs") by creditors. The elimination of the ~~definitive agreement, First Internet will acquire all of the outstanding shares of First Century common stock~~TDR guidance may be adopted prospectively for ~~$80 million~~loan modifications after adoption or on a modified retrospective basis, which would also apply to loans previously modified, resulting in cash, which First Internet will fund with available on-balance sheet cash. As of September 30, 2021, First Century had total assets of $408 million, total deposits of $330 million, and total loans of $32 million. The transaction, which remains subjecta cumulative effect adjustment to ~~regulatory approvals, is expected to close~~retained earnings in the ~~first quarter 2022.~~period of adoption for changes in the allowance for credit losses. The ASU requires an entity to disclose current-period gross write-offs by year of origination for financing receivables within the scope of Subtopic 326-20. This guidance is effective on January 1, 2023, with early adoption permitted. The Company believes the adoption of this guidance will not have a material impact on the condensed consolidated financial statements.

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~~financial holding company with $4.3 billion in total assets as of September 30, 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 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,~~, construction and investor commercial real estate, single tenant lease financing, public finance, healthcare finance, small business lending, franchise finance and commercial deposits and treasury management. ~~Through our CRE team, we offer single tenant lease financing on a nationwide basis in addition to traditional investor CRE and construction loans on a regional basis.~~ Our C&I ~~banking~~ team provides credit solutions such as lines of credit, term loans, owner-occupied ~~CRE~~commercial real estate loans and corporate credit cards ~~to commercial borrowers located primarily~~ on a regional basis to commercial borrowers primarily in the Midwest and Southwest regions of the United States. We primarily offer construction and investor commercial real estate loans within Central Indiana or on a regional basis and single tenant lease financing on a nationwide basis. Our public finance team provides a range of public and municipal lending and leasing products to government entities on a nationwide basis. Our healthcare finance team was ~~originally~~ established in conjunction with our strategic ~~business~~ partnership with Provide, Inc. (formerly known as Lendeavor, Inc.), a San Francisco-based technology-enabled lender to healthcare practices, which provided lending on a nationwide basis for healthcare practice finance or acquisition, acquisition or refinancing of owner-occupied ~~CRE~~commercial real estate and equipment purchases. ~~During~~In the ~~second~~third quarter 2021, Provide ~~announced that it had entered into an agreement to be~~was acquired by a super-regional financial ~~institution, which closed in the third quarter 2021. It is our expectation that~~institution. Subsequent to Provide being acquired, the acquiring institution ~~will retain~~has retained most, if not all, of Provide’s loan origination activity and ~~that~~ our healthcare finance loan balances ~~may decline.~~have declined. Our franchise finance business was established in July 2021 in conjunction with our business relationship with ApplePie Capital, a ~~leading provider of growth~~financial technology (“fintech”) company that specializes in providing financing to franchisees in various industry ~~segments across the country.~~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.

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~~recruited experienced small business sales, credit and operations personnel to expand our capabilities in small business lending and U.S. government guaranteed lending programs. We continue to scale up this business with the goal of driving increased earnings and profitability in future periods.

~~COVID-19 Pandemic~~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.

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

COVID-19 impacted our business during 2020 as the low interest rate environment following Federal Reserve rate cuts in the first quarter 2020 reduced the yield on interest-earning assets but also allowed us to reprice our interest-bearing

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deposits significantly lower, which provided an increase to net interest income. Additionally, the low interest rate environment has driven residential mortgage rates to historically low levels, which continued to benefit our mortgage business.

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

~~Pending Merger Transaction~~

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

Results of Operations

During the third quarter 2022, net income was $8.4 million, or $0.89 per diluted share, compared to third quarter 2021 net income ~~was~~of $12.1 million, or $1.21 per diluted share, ~~compared to the third quarter 2020 net income of $8.4 million, or $0.86 per diluted share,~~ representing ~~an increase~~a decrease in net income of $3.7 million, or ~~43.7%~~30.2%, and a decrease in diluted earnings per share of $0.32, or 26.4%. During the nine months ended September 30, ~~2021,~~2022, net income was ~~$35.6~~$29.2 million, or ~~$3.57~~$3.01 per diluted share, compared to the nine months ended September 30, ~~2020~~2021 net income of ~~$18.4~~$35.6 million, or ~~$1.87~~$3.57 per diluted share, ~~representing an increase~~resulting in a decrease in net income of ~~$17.3~~$6.4 million, or ~~94.1%~~18.1%, and a decrease in diluted earnings per share of $0.56, or 15.7%.

The $3.7 million ~~increase~~decrease in net income for the third quarter ~~2021~~2022 compared to the third quarter ~~2020~~2021 was due primarily to a decrease of $3.5 million, or 44.8%, in noninterest income, an increase of ~~$4.7~~$3.5 million, or ~~28.9%~~24.5%, in noninterest expense and an increase of $0.9 million, in provision for loan losses, partially offset by an increase of $3.1 million, or 14.7%, in net interest income, and a decrease of ~~$2.5~~$1.2 million, or 101.2%, in (benefit) provision for loan losses and a $2.0 million, or 11.9%, decrease in noninterest expense, partially offset by a decrease of $4.7 million, or 37.5%, in noninterest income and an increase of $0.8 million, or 59.1%55.5%, in income tax expense.

The ~~$17.3~~$6.4 million ~~increase~~decrease in net income for the nine months ended September 30, ~~2021~~2022 compared to the nine months ended September 30, ~~2020~~2021 was due primarily to an increase of ~~$17.4~~$9.9 million, or ~~38.0%,~~22.1% in ~~net interest income,~~noninterest expense, a decrease of ~~$5.2~~$9.7 million, or ~~80.4%~~38.6%, in noninterest income and an increase of $1.6 million, or 126.2%, in provision for loan losses, ~~and~~partially offset by an increase of ~~$1.5~~$12.4 million, or ~~6.2%~~19.6%, in ~~noninterest~~net interest income ~~partially offset by~~and a ~~$5.1~~decrease of $2.4 million, or ~~364.3%~~37.2%, ~~increase~~ in income tax ~~expense and a $1.7 million, or 3.9%, increase in noninterest~~ expense.

During the third quarter ~~2021,~~2022, return on average assets (“ROAA”), return on average shareholders’ equity (“ROAE”), and return on average tangible common equity (“ROATCE”) were 0.82%, 9.01%, and 9.13%, respectively, compared to 1.12%, 13.10%, and 13.27%, respectively, ~~compared to 0.78%, 10.67%, and 10.83%, respectively,~~ for the third quarter ~~2020.~~2021. During the nine months ended September 30, ~~2021,~~2022, ROAA, ROAE and ROATCE were 0.94%, 10.40%, and 10.53%, respectively, compared to 1.13%, 13.54%, and 13.73%~~, respectively, compared to 0.58%, 7.90%, and 8.02%~~, respectively, for the nine months ended September 30, ~~2020.~~2021.

During the third quarter 2022, the Company had a $0.1 million write-down of software. Excluding this item, adjusted net income for the third quarter 2022 was $8.5 million and adjusted diluted earnings per share was $0.90. Additionally, for the third quarter 2022, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 0.83%, 9.12% and 9.24%, respectively.

During the third quarter 2021, the Company fully redeemed its $25.0 million aggregate principal amount of 6.0%

fixed-to-floating rate subordinated notes due in 2026 and recognized $0.8 million of pre-tax costs related to this redemption.

Excluding this item, adjusted net income for the third quarter 2021 was $12.7 million and adjusted diluted earnings per share

was $1.27. During the second quarter 2021, the Company recognized a $2.5 million pre-tax gain on sale of its corporate headquarters. Excluding both the redemption costs associated with the subordinated notes due in 2026 and the gain on sale of the Company’s corporate headquarters, adjusted net income for the nine months ended September 30, 2021 was $34.3 million and adjusted diluted earnings per share was $3.44. Additionally, for the third quarter 2021, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 1.18%, 13.79% and 13.97%, ~~respectively,~~respectively.

During the nine months ended September 30, 2022, the Company recognized a nonrecurring consulting fee associated with a special project of $0.9 million, paid a $0.5 million discretionary inflation bonus to certain employees, recognized accelerated equity compensation expense of $0.3 million related to several retirements, incurred acquisition-related expenses of $0.3 million and expensed a write-down of software of $0.1 million. Excluding these items, adjusted net income for the nine months ended September 30, 2022 was $30.8 million and adjusted diluted earnings per share was $3.17. Additionally, for the nine months ended September 30, 2022, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 0.99%, 11.00% and 11.13%, respectively.

During the nine months ended September 30, 2021, the Company recognized a $2.5 million pre-tax gain on sale of its corporate headquarters and recognized $0.8 million of pre-tax costs related to the redemption of its $25.0 million aggregate principal amount of 6.0% fixed-to-floating rate subordinated notes due in 2026. Excluding these items, adjusted net income for the nine months ended September 30, 2021 was $34.3 million, or $3.44 per diluted share. Additionally, for the nine months ended September 30, 2021, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 1.09%, 13.03% and 13.21%, respectively.

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

Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Part I, 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
		September 30, 2021						June 30, 2021						September 30, 2020
		Average Balance		Interest /Dividends		Yield /Cost		Average Balance		Interest /Dividends		Yield /Cost		Average Balance		Interest /Dividends		Yield /Cost			Three Months Ended
																					September 30, 2022						June 30, 2022						September 30, 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	$	2,956,333	$	30,126	4.04	%	$	3,016,330	$	30,835	4.10	%	$	3,031,024	$	29,560	3.88	%	Loans, including loans held-for-sale	$	3,175,854	$	34,643	4.33	%	$	3,019,891	$	32,415	4.31	%	$	2,956,333	$	30,126	4.04	%
Securities - taxable	Securities - taxable	629,101		2,297		1.45	%	490,634		1,921		1.57	%	539,154		2,240		1.65	%	Securities - taxable	532,470		2,701		2.01	%	543,422		2,567		1.89	%	629,101		2,297		1.45	%
Securities - non-taxable	Securities - non-taxable	84,241		241		1.14	%	84,050		259		1.24	%	94,398		381		1.61	%	Securities - non-taxable	73,859		491		2.64	%	76,974		328		1.71	%	84,241		241		1.14	%
Other earning assets	Other earning assets	479,051		370		0.31	%	509,735		362		0.28	%	552,058		569		0.41	%	Other earning assets	188,467		1,264		2.66	%	322,302		796		0.99	%	479,051		370		0.31	%
Total interest-earning assets	Total interest-earning assets	4,148,726		33,034		3.16	%	4,100,749		33,377		3.26	%	4,216,634		32,750		3.09	%	Total interest-earning assets	3,970,650		39,099		3.91	%	3,962,589		36,106		3.65	%	4,148,726		33,034		3.16	%

Allowance for loan losses	Allowance for loan losses	(28,127)						(30,348)						(25,347)						Allowance for loan losses	(29,423)						(28,599)						(28,127)
Noninterest-earning assets	Noninterest-earning assets	144,590						136,565						116,532						Noninterest-earning assets	164,461						163,875						144,590
Total assets	Total assets	$	4,265,189					$	4,206,966					$	4,307,819					Total assets	$	4,105,688					$	4,097,865					$	4,265,189

Liabilities	Liabilities																			Liabilities
Interest-bearing liabilities	Interest-bearing liabilities																			Interest-bearing liabilities
Interest-bearing demand deposits	Interest-bearing demand deposits	$	198,637	$	150	0.30	%	$	192,777	$	143	0.30	%	$	154,275	$	228	0.59	%	Interest-bearing demand deposits	$	342,116	$	551	0.64	%	$	348,274	$	466	0.54	%	$	198,637	$	150	0.30	%
Regular savings accounts		62,195		56		0.36	%	55,811		49		0.35	%	45,466		79		0.69	%
Savings accounts																				Savings accounts	57,700		111		0.76	%	66,657		68		0.41	%	62,195		56		0.36	%
Money market accounts	Money market accounts	1,498,218		1,532		0.41	%	1,416,406		1,462		0.41	%	1,295,249		2,442		0.75	%	Money market accounts	1,369,783		4,581		1.33	%	1,427,665		1,921		0.54	%	1,498,218		1,532		0.41	%
BaaS - brokered deposits																				BaaS - brokered deposits	153,936		859		2.21	%	71,234		154		0.87	%	—		—		0.00	%
Certificates and brokered deposits	Certificates and brokered deposits	1,378,678		5,352		1.54	%	1,444,171		6,051		1.68	%	1,784,631		9,679		2.16	%	Certificates and brokered deposits	1,037,792		4,418		1.69	%	1,104,592		3,799		1.38	%	1,378,678		5,352		1.54	%
Total interest-bearing deposits	Total interest-bearing deposits	3,137,728		7,090		0.90	%	3,109,165		7,705		0.99	%	3,279,621		12,428		1.51	%	Total interest-bearing deposits	2,961,327		10,520		1.41	%	3,018,422		6,408		0.85	%	3,137,728		7,090		0.90	%
Other borrowed funds	Other borrowed funds	611,975		5,025		3.26	%	584,751		4,065		2.79	%	584,634		4,090		2.78	%	Other borrowed funds	637,877		4,585		2.85	%	583,553		4,018		2.76	%	611,975		5,025		3.26	%
Total interest-bearing liabilities	Total interest-bearing liabilities	3,749,703		12,115		1.28	%	3,693,916		11,770		1.28	%	3,864,255		16,518		1.70	%	Total interest-bearing liabilities	3,599,204		15,105		1.67	%	3,601,975		10,426		1.16	%	3,749,703		12,115		1.28	%
Noninterest-bearing deposits	Noninterest-bearing deposits	104,161						98,207						75,901						Noninterest-bearing deposits	124,067						108,980						104,161
Other noninterest-bearing liabilities	Other noninterest-bearing liabilities	45,138						61,949						54,052						Other noninterest-bearing liabilities	11,114						12,636						45,138
Total liabilities	Total liabilities	3,899,002						3,854,072						3,994,208						Total liabilities	3,734,385						3,723,591						3,899,002

Shareholders’ equity	Shareholders’ equity	366,187						352,894						313,611						Shareholders’ equity	371,303						374,274						366,187
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	4,265,189					$	4,206,966					$	4,307,819					Total liabilities and shareholders’ equity	$	4,105,688					$	4,097,865					$	4,265,189

Net interest income	Net interest income			$	20,919					$	21,607					$	16,232			Net interest income			$	23,994					$	25,680					$	20,919

Interest rate spread 1	Interest rate spread 1					1.88%						1.98%						1.39	%	Interest rate spread 1					2.24%						2.49%						1.88	%
Net interest margin 2	Net interest margin 2					2.00%						2.11%						1.53	%	Net interest margin 2					2.40%						2.60%						2.00	%
Net interest margin - FTE 3	Net interest margin - FTE 3					2.13%						2.25%						1.67	%	Net interest margin - FTE 3					2.53%						2.74%						2.13	%

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

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

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

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(dollars in thousands)		Nine Months Ended
		September 30, 2021						September 30, 2020
		Average Balance		Interest /Dividends		Yield /Cost		Average Balance		Interest /Dividends		Yield /Cost			Nine Months Ended
															September 30, 2022						September 30, 2021
(in thousands)														(in thousands)	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	$	3,016,817	$	91,846	4.07	%	$	2,999,711	$	89,698	3.99	%	Loans, including loans held-for-sale	$	3,057,768	$	100,246	4.38	%	$	3,016,817	$	91,846	4.07	%
Securities - taxable	Securities - taxable	527,625		5,997		1.52	%	543,699		9,135		2.24	%	Securities - taxable	547,759		7,489		1.83	%	527,625		5,997		1.52	%
Securities - non-taxable	Securities - non-taxable	85,130		781		1.23	%	96,960		1,410		1.94	%	Securities - non-taxable	77,236		1,068		1.85	%	85,130		781		1.23	%
Other earning assets	Other earning assets	478,399		1,067		0.30	%	520,875		2,973		0.76	%	Other earning assets	321,262		2,436		1.01	%	478,399		1,067		0.30	%
Total interest-earning assets	Total interest-earning assets	4,107,971		99,691		3.24	%	4,161,245		103,216		3.31	%	Total interest-earning assets	4,004,025		111,239		3.71	%	4,107,971		99,691		3.24	%

Allowance for loan losses	Allowance for loan losses	(29,446)						(23,605)						Allowance for loan losses	(28,671)						(29,446)
Noninterest-earning assets	Noninterest-earning assets	136,954						108,561						Noninterest-earning assets	163,512						136,954
Total assets	Total assets	$	4,215,479					$	4,246,201					Total assets	$	4,138,866					$	4,215,479

Liabilities	Liabilities													Liabilities
Interest-bearing liabilities	Interest-bearing liabilities													Interest-bearing liabilities
Interest-bearing demand deposits	Interest-bearing demand deposits	$	190,785	$	425	0.30	%	$	138,288	$	684	0.66	%	Interest-bearing demand deposits	$	336,311	$	1,429	0.57	%	$	190,785	$	425	0.30	%
Regular savings accounts		54,740		145		0.35	%	37,700		249		0.88	%
Savings accounts														Savings accounts	61,647		232		0.50	%	$	54,740	145		0.35	%
Money market accounts	Money market accounts	1,428,554		4,385		0.41	%	1,084,411		9,726		1.20	%	Money market accounts	1,416,984		8,006		0.76	%	1,428,554		4,385		0.41	%
BaaS - brokered deposits														BaaS - brokered deposits	79,613		1,019		1.71	%	—		—		0.00	%
Certificates and brokered deposits	Certificates and brokered deposits	1,446,960		18,468		1.71	%	1,952,973		34,740		2.38	%	Certificates and brokered deposits	1,122,097		12,339		1.47	%	1,446,960		18,468		1.71	%
Total interest-bearing deposits	Total interest-bearing deposits	3,121,039		23,423		1.00	%	3,213,372		45,399		1.89	%	Total interest-bearing deposits	3,016,652		23,025		1.02	%	3,121,039		23,423		1.00	%
Other borrowed funds	Other borrowed funds	593,605		13,217		2.98	%	584,547		12,141		2.77	%	Other borrowed funds	613,609		12,790		2.79	%	593,605		13,217		2.98	%
Total interest-bearing liabilities	Total interest-bearing liabilities	3,714,644		36,640		1.32	%	3,797,919		57,540		2.02	%	Total interest-bearing liabilities	3,630,261		35,815		1.32	%	3,714,644		36,640		1.32	%
Noninterest-bearing deposits	Noninterest-bearing deposits	97,760						70,060						Noninterest-bearing deposits	115,142						97,760
Other noninterest-bearing liabilities	Other noninterest-bearing liabilities	51,281						67,716						Other noninterest-bearing liabilities	18,273						51,281
Total liabilities	Total liabilities	3,863,685						3,935,695						Total liabilities	3,763,676						3,863,685

Shareholders’ equity	Shareholders’ equity	351,794						310,506						Shareholders’ equity	375,190						351,794
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	4,215,479					$	4,246,201					Total liabilities and shareholders’ equity	$	4,138,866					$	4,215,479

Net interest income	Net interest income			$	63,051					$	45,676			Net interest income			$	75,424					$	63,051

Interest rate spread 1	Interest rate spread 1					1.92	%					1.29	%	Interest rate spread 1					2.39%						1.92%
Net interest margin 2	Net interest margin 2					2.05	%					1.47	%	Net interest margin 2					2.52%						2.05%
Net interest margin - FTE 3	Net interest margin - FTE 3					2.19	%					1.61	%	Net interest margin - FTE 3					2.65%						2.19%

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).

4546

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 September 30, 2021 vs. June 30, 2021 Due to Changes in						Three Months Ended September 30, 2021 vs. September 30, 2020 Due to Changes in						Nine Months Ended September 30, 2021 vs. September 30, 2020 Due to Changes in
		Volume		Rate		Net		Volume		Rate		Net		Volume		Rate		Net			Three Months Ended September 30, 2022 vs. June 30, 2022 Due to Changes in						Three Months Ended September 30, 2022 vs. September 30, 2021 Due to Changes in						Nine Months Ended September 30, 2022 vs. September 30, 2021 Due to Changes in
(in thousands)																				(in thousands)	Volume		Rate		Net		Volume		Rate		Net		Volume		Rate		Net
Interest income	Interest income																			Interest income
Loans, including loans held-for-sale	Loans, including loans held-for-sale	$	(408)	$	(301)	$	(709)	$	(3,416)	$	3,982	$	566	$	476	$	1,672	$	2,148	Loans, including loans held-for-sale	$	2,044	$	184	$	2,228	$	2,297	$	2,220	$	4,517	$	1,271	$	7,129	$	8,400
Securities – taxable	Securities – taxable	1,223		(847)		376		1,282		(1,225)		57		(264)		(2,874)		(3,138)		Securities – taxable	(282)		416		134		(1,890)		2,294		404		235		1,257		1,492
Securities – non-taxable	Securities – non-taxable	3		(21)		(18)		(38)		(102)		(140)		(158)		(471)		(629)		Securities – non-taxable	(87)		250		163		(195)		445		250		(119)		406		287
Other earning assets	Other earning assets	(107)		115		8		(70)		(129)		(199)		(226)		(1,680)		(1,906)		Other earning assets	(2,034)		2,502		468		(1,602)		2,496		894		(661)		2,030		1,369
Total	Total	711		(1,054)		(343)		(2,242)		2,526		284		(172)		(3,353)		(3,525)		Total	(359)		3,352		2,993		(1,390)		7,455		6,065		726		10,822		11,548

Interest expense	Interest expense																			Interest expense
Interest-bearing deposits	Interest-bearing deposits	458		(1,073)		(615)		(516)		(4,822)		(5,338)		(1,264)		(20,712)		(21,976)		Interest-bearing deposits	(828)		4,940		4,112		(2,580)		6,010		3,430		(1,030)		632		(398)
Other borrowed funds	Other borrowed funds	208		752		960		199		736		935		183		893		1,076		Other borrowed funds	420		147		567		1,152		(1,592)		(440)		632		(1,059)		(427)
Total	Total	666		(321)		345		(317)		(4,086)		(4,403)		(1,081)		(19,819)		(20,900)		Total	(408)		5,087		4,679		(1,428)		4,418		2,990		(398)		(427)		(825)

Increase (decrease) in net interest income	Increase (decrease) in net interest income	$	45	$	(733)	$	(688)	$	(1,925)	$	6,612	$	4,687	$	909	$	16,466	$	17,375	Increase (decrease) in net interest income	$	49	$	(1,735)	$	(1,686)	$	38	$	3,037	$	3,075	$	1,124	$	11,249	$	12,373

Net interest income for the third quarter ~~2021~~2022 was ~~$20.9~~$24.0 million, an increase of ~~$4.7~~$3.1 million, or ~~28.9%~~14.7%, compared to ~~$16.2~~$20.9 million for the third quarter ~~2020.~~2021. The increase in net interest income was the result of a ~~$4.4~~$6.1 million, or ~~26.7%, decrease~~18.4% increase in total interest ~~expense~~income to ~~$12.1~~$39.1 million for the third quarter ~~2021~~2022 from ~~$16.5 million for the third quarter 2020, as well as a $0.3 million, or 0.9% increase in total interest income to~~ $33.0 million for the third quarter 2021, ~~from $32.8~~partially offset by a $3.0 million, or 24.7%, increase in total interest expense to $15.1 million for the third quarter ~~2020.~~2022 from $12.1 million for the third quarter 2021.

Net interest income for the nine months ended September 30, ~~2021~~2022 was ~~$63.1~~$75.4 million, an increase of ~~$17.4~~$12.4 million, or ~~38.0%~~19.6%, compared to ~~$45.7~~$63.1 million for the nine months ended September 30, ~~2020.~~2021. The increase in net interest income was the result of ~~a $20.9~~an $11.5 million, or ~~36.3%~~11.6%, ~~decrease~~increase in total interest ~~expense~~income to ~~$36.6~~$111.2 million for the nine months ended September 30, ~~2021~~2022 from ~~$57.5 million for the nine months ended September 30, 2020, partially offset by a $3.5 million, or 3.4%, decrease in total interest income to~~ $99.7 million for the nine months ended September 30, 2021, ~~from $103.2~~as well as a $0.8 million, or 2.3%, decrease in total interest expense to $35.8 million for the nine months ended September 30, ~~2020.~~2022 from $36.6 million for the nine months ended September 30, 2021.

The increase in total interest income for the third quarter ~~2021~~2022 compared to ~~the~~ third quarter ~~2020~~2021 was due primarily to ana $4.5 million, or 15.0%, increase in interest earned on loans, ~~partially offset by decreases~~$0.9 million, or 241.6%, increase in income from other earning assets and a $0.7 million, or 25.8%, increase in interest earned on securities. The increase in income from loans was due primarily to a 29 bp increase in the yield earned on loans, as well as an increase of $219.5 million, or 7.4%, in the average balance of loans compared to the third quarter 2021. The yield earned on other earning assets ~~and securities. Interest income earned on loans~~ increased ~~$0.6 million, or 1.9%, due primarily to an increase of 16 basis points (“bps”) in the yield earned on average loan balances,~~235 bps, partially offset by a decrease of $74.7 million, or 2.5%, in average loan balances. The decrease in average loan balances was due primarily to decreases in the average balance of single tenant lease financing, residential mortgage, public finance, consumer lending and small business lending portfolios, which included loans originated through the Paycheck Protection Program (“PPP”) that have since been forgiven, partially offset by increases in the average balance of commercial and industrial, construction and healthcare finance loan balances. Interest income earned on other earning assets declined $0.2 million, or 35.0%, due mainly to a 10 bp decline in the yield earned on these assets, as well as a decrease of $73.0 million, or 13.2%, in the average balance of other earning ~~assets.~~assets of $290.6 million, or 60.7%. The decrease in the average balance of other earning assets was due primarily to lower cash balances. ~~Interest earned on~~The average balance of securities decreased ~~$0.1~~$107.0 million, or ~~3.2%~~15.0%, ~~due to a decline of 23 bps in~~while the yield earned on the securities ~~partially offset by an increase of $79.8 million, or 12.6%, in~~portfolio increased 68 bps for the ~~average balance of securities.~~third quarter 2022 compared to the third quarter 2021. The increase in ~~loan yield was due mainly to an increase in prepayment fee income. The decrease in~~ the ~~yield~~yields earned on loans, other earning assets and securities was due ~~primarily~~ to ~~lower market~~the rise in interest ~~rates. The decrease in the yield earned on securities was driven primarily by lower yields earned on corporate securities as well as early redemptions and maturities in corporate securities.~~rates throughout 2022.

4647

The ~~decrease~~increase in total interest income for the nine months ended September 30, ~~2021~~2022 compared to the nine months ended September 30, ~~2020~~2021 was due primarily to ~~a $3.8~~an $8.4 million, or ~~35.7%~~9.2%, ~~decrease~~increase in interest earned on loans, a $1.8 million, or 26.3%, increase in interest earned on securities and a ~~$1.9~~$1.4 million, or ~~64.1%, decrease in interest earned on other earning assets, partially offset by a $2.1 million, or 2.4%~~128.3%, increase in income from ~~loans. The decrease in income from securities and~~ other earning ~~assets was primarily due to decreases of 72 bps and 46 bps, respectively, in the yield earned on these assets as well as a modest decrease in the average balance of these~~ assets. The decrease in the yield earned on securities was driven primarily by lower market interest rates following Federal Reserve interest rate cuts in March 2020 in response to the economic effects of COVID-19, which contributed to increased prepayment activity and lower yields earned on private label and agency mortgage-backed securities and U.S. Government agency securities as well as early redemptions and maturities in corporate and municipal securities. The decrease in the yield earned on other earning assets was primarily due to lower market interest rates, as described above. The increase in income from loans was ~~driven~~due primarily by an 8 bp increase in the yield on loans and a modest increase in average loan balances. The increase in loan yield was mostly due to an increase in prepayment fee income as well as a shift in the loan mix towards higher yielding commercial products.

Overall, the yield on interest-earning assets for the third quarter 2021 increased 7 bps to 3.16% from 3.09% for the third quarter 2020. The yield on interest-earning assets for the nine months ended September 30, 2021 declined 7 bps to 3.24% from 3.31% for the nine months ended September 30, 2020. The increase in the yield earned on interest-earning assets for the third quarter 2021 compared to the third quarter 2020 was due to a 1631 bp increase in the yield earned on loans, ~~partially offset by decreases~~as well as a $41.0 million, or 1.4%, increase in the average balance of ~~23 bps in~~loans. The average balance of securities increased $12.2 million, or 2.0%, and the yield earned on the securities ~~and 10~~portfolio increased 35 bps ~~in other earning assets. The decrease in the yield earned on interest-earning assets~~ for the nine months ended September 30, ~~2021~~2022 compared to the nine months ended September 30, ~~2020 was due to decreases of 72 bps in~~2021. In addition, the yield earned on ~~securities and 46 bps in~~ other earning assets increased 71 bps, but was partially offset by a decrease in the average balance of other earning assets of $157.1 million, or 32.9%. The decrease in the average balance of other earning assets was due primarily to lower cash balances. The increase in the yields earned on loans, securities and other earning assets was due to the rise in interest rates throughout 2022.

The increase in total interest expense for the third quarter 2022 compared to the third quarter 2021 was due primarily to an increase of $3.0 million, or 199.0%, in interest expense associated with money market accounts and a $0.4 million, or 267.3%, increase in interest expense associated with interest-bearing demand deposits, partially offset by a $0.9 million, or 17.5%, decrease in interest expense related to certificates and brokered deposits. Additionally, the Company added Banking-as-a-Service (“BaaS”) deposits in 2022, which increased interest expense by $0.9 million. The increase in interest expense related to money market accounts was driven primarily by an increase of 92 bps in the cost of these deposits, partially offset by a decrease in the average balance of these deposits of $128.4 million, or 8.6%. The 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 in 2022. Interest expense on certificates and brokered deposits decreased due to a $340.9 million, or 24.7%, decrease in the average balance of these deposits, partially offset by an ~~8 bp~~increase of 15 bps in the cost 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 increase in the ~~yield earned on loans. The decline~~cost of money market accounts and certificates and brokered deposits, as well as the cost of BaaS deposits, was due to the rise in ~~market~~ interest rates ~~negatively impacted the yields earned on securities and cash balances during both the quarter and the nine months ended September 30, 2021, in comparison to the same time periods in 2020.~~throughout 2022.

The decrease in total interest expense for the ~~third quarter 2021~~nine months ended September 30, 2022 compared to the ~~third quarter 2020~~nine months ended September 30, 2021 was ~~due to~~driven primarily by a $6.1 million, or 33.2%, decrease in interest expense related to ~~interest-bearing~~certificates and brokered deposits, partially offset by ana $3.6 million, or 82.6%, increase in interest expense associated with ~~other borrowed funds.~~money market accounts and a $1.0 million, or 236.2%, increase in interest expense associated with interest-bearing demand deposits. Additionally, the Company added BaaS deposits in 2022, which increased interest expense by $1.0 million. Interest expense on certificates and brokered deposits decreased ~~$4.3 million, or 44.7%,~~ due to a decline of 6224 bps in the cost of these deposits, as well as a ~~$406.0~~$324.9 million, or ~~22.8%~~22.5%, 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 money market accounts ~~of $0.9 million, or 37.3%,~~ was driven primarily by ~~a decline~~an increase of 3435 bps in the cost of these deposits, partially offset by ~~an increase of $203.0 million, or 15.7%,~~a decrease 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.deposits of $11.6 million, or 0.8%. The ~~decrease~~increase in interest expense related to interest-bearing demand deposits ~~and savings accounts~~ was due primarily to ~~decreases~~approximately $100.0 million in deposits with a contractual term of ~~29 bps~~five years and ~~33 bps, respectively, partially offset by increases~~a fixed rate of $44.4 million, or 28.8%, and $16.7 million, or 36.8%, respectively, in the average balance of these deposits. The increase in interest expense associated with other borrowed funds was due primarily to the recognition of $0.8 million of costs related to the Company redeeming the 2026 Notes on September 30, 2021.

~~The decrease in total interest expense for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was due~~1.15% pursuant to a ~~decrease~~new customer relationship in ~~interest expense related to interest-bearing deposits, partially offset by an~~2022. The increase ~~in interest expense associated with other borrowed funds. The decrease in deposit interest expense was driven primarily by an 89 bp decline~~ in the cost of funds related to interest-bearing deposits and a decrease of $92.3 million, or 2.9%, in the average balance of interest-bearing deposits. The average balance of certificates and brokered deposits decreased $506.0 million, or 25.9%, while the cost of these deposits decreased 67 bps. The decrease in certificates and brokered deposit balances was driven by the Company’s pricing strategy to reduce the level of these higher cost deposits. The decrease in interest expense related to money market accounts of $5.3 million, or 54.9%, was driven by a decline of 79 bps in the cost of these deposits, partially offset by an increase of $344.1 million, or 31.7%, in the average balance of these deposits. Average money market balances increased from the prior year period due primarily to targeted digital marketing efforts to grow small business accounts, as well as ~~consumers, small businesses and commercial clients increasing their cash balances due in part to~~ the ~~economic uncertainty resulting from COVID-19. The~~cost of BaaS deposits, reflects the increase in interest ~~expense associated with other borrowed funds was due primarily to to the recognition of $0.8 million of costs related to the Company redeeming the 2026 Notes on September 30, 2021.~~rates throughout 2022

Overall, the cost of total interest-bearing liabilities for the third quarter ~~2021 declined 42~~2022 increased 39 bps to ~~1.28%~~1.67% from ~~1.70%~~1.28% for the third quarter ~~2020. Additionally, the~~2021. The cost of total interest-bearing liabilities for the nine months ended September 30, ~~2021 declined 70 bps to 1.32% from 2.02% for~~2022 remained flat with the nine months ended September 30, ~~2020. Declines~~2021 at 1.32%. The increase in the cost of funds ~~were due to~~

for the ~~continued decrease~~third quarter 2022 reflects the rapid rise in ~~market~~ interest rates from the prior year periods. The sharp declines in both short- and long-term interest rates in response to the economic effects of COVID-19 allowed the Company to reprice all of its deposit products at lower rates. Furthermore, a shift in the deposit composition from higher cost certificates and brokered deposits to lower cost non-maturity deposit accounts also contributed to the decline in the cost of deposit funding.throughout 2022.

Net interest margin (“NIM”) was 2.40% for the third quarter 2022 compared to 2.00% for the third quarter 2021, ~~compared to 1.53% for the third quarter 2020,~~ an increase of 4740 bps. On a fully-taxable equivalent (“FTE”) basis, NIM was 2.53% for the third quarter 2022 compared to 2.13% for the third quarter 2021, an increase of 40 bps. The increase in third quarter 2022 NIM and FTE NIM compared to ~~1.67% for~~ the third quarter ~~2020, an~~2021 reflects the increase in earning asset yields noted above, partially offset by the increase in the cost of ~~46 bps.~~interest-bearing liabilities.

NIM was 2.52% for the nine months ended September 30, 2022 compared to 2.05% for the nine months ended September 30, 2021, ~~compared to 1.47%~~an increase of 47 bps. On a fully-taxable equivalent basis, NIM was 2.65% for the nine months ended September 30, ~~2020; an increase of 58 bps. FTE NIM was~~2022, compared to 2.19% for the nine months ended September 30, 2021, ~~compared to 1.61%~~an increase of 46 bps. The increase in NIM for the nine months ended September 30, ~~2020; an increase of 58 bps.~~

~~The increase in third quarter 2021 NIM and FTE NIM~~2022 compared to the ~~third quarter 2020~~nine months ended September 30, 2021 reflects ~~a decrease~~the increase in ~~the cost of funds while~~earning asset yields ~~were up modestly. The reduction in~~noted above, as the cost of interest-bearing liabilities ~~was due primarily to the continued decrease in market interest rates from the prior year period.~~remained stable.

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

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

Noninterest Income

The following table presents noninterest income for the last five completed fiscal quarters and the nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021.


																	Three Months Ended										Nine Months Ended
(in thousands)	(in thousands)	Three Months Ended										Nine Months Ended				(in thousands)	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021		September 30, 2022		September 30, 2021
		September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020		September 30, 2021		September 30, 2020
Service charges and fees	Service charges and fees	$	276	$	280	$	266	$	206	$	224	$	822	$	618	Service charges and fees	$	248	$	281	$	316	$	292	$	276	$	845	$	822
Loan servicing revenue	Loan servicing revenue	511		457		422		379		274		1,390		780		Loan servicing revenue	653		620		585		544		511		1,858		1,390
Loan servicing asset revaluation	Loan servicing asset revaluation	(274)		(240)		(155)		(60)		(103)		(669)		(372)		Loan servicing asset revaluation	(333)		(470)		(297)		(400)		(274)		(1,100)		(669)
Mortgage banking activities	Mortgage banking activities	3,850		2,674		5,750		7,987		9,630		12,274		16,706		Mortgage banking activities	871		1,710		1,873		2,776		3,850		4,454		12,274
Gain on sale of loans	Gain on sale of loans	2,719		3,019		1,723		3,702		2,033		7,461		4,596		Gain on sale of loans	2,713		1,952		3,845		4,137		2,719		8,510		7,461
Gain on sale of securities		—		—		—		—		98		—		139

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	731		249		369		443		339		1,349		1,212		Other	164		221		498		345		731		883		1,349
Total noninterest income	Total noninterest income	$	7,813	$	8.962	$	8,375	$	12,657	$	12,495	$	25,150	$	23,679	Total noninterest income	$	4,316	$	4,314	$	6,820	$	7,694	$	7,813	$	15,450	$	25,150

During the third quarter ~~2021,~~2022, noninterest income was ~~$7.8~~$4.3 million, representing a decrease of ~~$4.7~~$3.5 million, or ~~37.5%~~44.8%, compared to ~~$12.5~~$7.8 million for the third quarter ~~2020.~~2021. The decrease in noninterest income was due primarily to a decrease in revenue from mortgage banking activities and a decrease in other noninterest income, partially offset by ~~increases~~an increase in ~~gain on sale of loans and other noninterest income.~~loan servicing revenue. The decline in mortgage banking revenue ~~in the third quarter of 2021 versus the third quarter of 2020~~ was due primarily to decreases in interest rate locks, sold loan ~~volume~~volumes and gain-on-sale ~~margins. The~~margins driven by the increase in ~~gain on sale of loans was due an increase in the volume of SBA 7(a) guaranteed loan sales and an increase in secondary market premiums during the third quarter 2021.~~interest rates throughout 2022. The ~~increase~~decrease in other noninterest income ~~was~~is due primarily to a distribution from the Company’s investment in a Small Business Investment Company ~~fund.~~

During the nine months ended September 30, 2021, noninterest income was $25.2 million, an increase of $1.5 million, or 6.2%, compared to $23.7 million for the nine months ended September 30, 2020. The increase in noninterest income was due primarily to increases in revenue from gain on sale of loans, gain on sale of premises and equipment, and loan servicing revenue, which was partially offset by a decrease in mortgage banking activities. The increase in gain on sale of loans was due to an increase in the volume of SBA 7(a) guaranteed loan sales and an increase in secondary market premiumsfund that occurred during the ~~nine~~three months ended September 30, 2021. ~~The increase in gain on sale of premises and equipment was due to the Company completing the sale of its headquarters.~~The increase in loan servicing revenue was due to growth in the balance of the Company’s SBA 7(a) servicing ~~portfolio~~portfolio.

During the nine months ended September 30, 2022, noninterest income was $15.5 million, representing a decrease of $9.7 million, or 38.6%, compared to $25.2 million for the nine months ended September 30, 2021. The decrease in noninterest income was due primarily to ~~continued origination activity.~~a decrease in revenue from mortgage banking activities and a decrease of $2.5 million from the gain on sale of premises and equipment resulting from the sale of the Company’s former headquarters that occurred in the second quarter 2021, partially offset by a $1.0 million, or 14.1%, increase in gain on sale of loans. The decrease in mortgage banking ~~income~~activities was due ~~primarily~~mainly to decreases in interest rate locks, sold loan ~~volume~~volumes and gain-on-sale ~~margins.~~margins driven by the increase in interest rates throughout 2022. 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, as well as a gain on the sale of $14.4 million of single tenant lease financing loans in 2022.

Noninterest Expense

The following table presents noninterest expense for the last five completed fiscal quarters and the nine months ended September 30, ~~2021~~2022 and ~~2020.~~

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


	Three Months Ended										Nine Months Ended
(in thousands)	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021		September 30, 2022		September 30, 2021
Salaries and employee benefits	$	10,439	$	10,832	$	9,878	$	10,183	$	9,316	$	31,149	$	28,040
Marketing, advertising and promotion	1,041		920		756		896		813		2,717		2,365
Consulting and professional services	790		1,197		1,925		1,262		728		3,912		2,792
Data processing	483		490		449		425		380		1,422		1,224
Loan expenses	1,142		693		1,582		654		383		3,417		1,458
Premises and equipment	2,808		2,419		2,540		2,188		1,687		7,767		4,875
Deposit insurance premium	229		287		281		283		230		797		930

Other	1,063		1,147		1,369		1,064		914		3,579		3,159
Total noninterest expense	$	17,995	$	17,985	$	18,780	$	16,955	$	14,451	$	54,760	$	44,843

Noninterest expense for the third quarter ~~2021~~2022 was ~~$14.5~~$18.0 million, compared to ~~$16.4~~$14.5 million for the third quarter ~~2020.~~2021. The ~~decrease~~increase of ~~$2.0~~$3.5 million, or ~~11.9%~~24.5%, was due primarily to ~~a $2.1 million write-down~~increases of ~~a commercial other real estate owned (“OREO”) property during the third quarter 2020 as well as decreases of $0.2~~$1.1 million, or ~~2.3%~~12.1%, in salaries and employee benefits, ~~and $0.2~~$1.1 million, or ~~47.7%~~2.9%, in ~~deposit insurance premium during the third quarter 2021 compared to the third quarter 2020, partially offset by an increase of $0.4~~premises and equipment, and $0.8 million, or ~~90.8%~~2.0%, in ~~marketing, advertising and promotion.~~loan expenses. The ~~decrease in~~higher salaries and employee benefits was due primarily to a decrease in medical claims expense. The decrease in deposit insurance premium was due primarily to a decrease in asset growth and an increase in the Bank’s regulatory capital ratios, both of which positively impact the formula used to calculate deposit insurance expense. The increase in marketing, advertising and promotionexpense was due mainly to ~~higher mortgage lead generation~~an increase in headcount as well as an increase in medical claims expense.The increase in premises and equipment was primarily related to costs associated with the Company’s new corporate headquarters, as well as investments in technology, software maintenance and ~~digital marketing initiatives.~~a write-down of software. The increase in loan expenses was due mainly to servicing fees related to the growth in franchise finance loans.

Noninterest expense for the nine months ended September 30, ~~2021~~2022 was ~~$44.8~~$54.8 million, compared to ~~$43.1~~$44.8 million for the nine months ended September 30, ~~2020.~~2021. The increase of ~~$1.7~~$9.9 million, or ~~3.9%~~22.1%, was due primarily to increases of ~~$2.9~~$3.1 million in salaries and employee benefits, ~~and $1.2~~$2.9 million in ~~marketing, advertising~~premises and ~~promotion, partially offset by a decrease of $2.1~~equipment, $2.0 million in ~~write-down of OREO, a $0.4~~loan expenses and $1.1 million ~~decrease~~ in ~~deposit insurance premium~~consulting and ~~a $0.2 million decrease in other noninterest expense.~~professional fees. The ~~increase in~~higher salaries and employee benefits expense was due ~~mainly~~primarily to an increase in headcount, ~~which includes~~higher medical claims expense, a $0.5 million discretionary inflation bonus paid to certain employees and $0.3 million of accelerated equity compensation related to employees who retired during the ~~impact of personnel growth~~year. The increase in premises and equipment was due mainly to costs associated with the Company’s ~~small business lending platform.~~new corporate headquarters, as well as investments in technology, software maintenance and a write-down of software. The increase in ~~marketing, advertising and promotion~~loan expenses was due primarily to ~~higher mortgage lead generation costs~~servicing fees related to tax refund advance loans and ~~digital marketing initiatives.~~franchise finance loans. The ~~decrease~~increase in ~~write-down of OREO is due to a $2.1 million write-down of a commercial OREO property that occurred in 2020. The decrease in deposit insurance premium~~consulting and professional fees was due primarily to a decrease in asset growth and an increase in the Bank’s regulatory capital ratios, both of which positively impact the formula used to calculate deposit insurance expense. The decrease in other noninterest expense was due primarily to$0.9 million consulting fee associated with a ~~$0.3 million charitable contribution the Company made in 2020 to assist small businesses and nonprofits in addressing the economic challenges of the COVID-19 pandemic.~~special project.

Income tax provision was $1.0 million for the third quarter 2022, resulting in an effective tax rate of 10.5%, compared to a tax provision of $2.2 million for the third quarter 2021 ~~resulting in~~and an effective tax rate of 15.5%~~, compared to a tax provision of $1.4 million for the third quarter 2020 and an effective tax rate of 14.2%~~. Income tax provision was ~~$6.5~~

$4.1 million for the nine months ended September 30, ~~2021,~~2022, resulting in an effective tax rate of ~~15.3%~~12.2%, compared to an income tax provision of ~~$1.4~~$6.5 million, ~~and~~or an effective tax rate of ~~7.0%~~15.3%, for the nine months ended September 30, ~~2020.~~2021. The increase in income tax provision for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 was due primarily to the increase in pre-tax earnings driven primarily by the $2.1 million write-down of OREO that occurred in the third quarter 2020. The increase in income tax provision for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, was due primarily to the increase in pre-tax earnings driven primarily by an increase in revenue and a decrease in the provision for loan losses, partially offset by an increase in noninterest expenses. Additionally, the lower income tax provision and effective tax rate during the three and nine months ended September 30, ~~2020, was impacted by~~2022 is the ~~passage~~result of the ~~CARES Act, which was signed into law on March 27, 2020, and provided the Company the ability~~decline in noninterest income, resulting in a higher proportion of tax exempt income to ~~carryback certain federal net operating losses.~~total pre-tax income.

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:	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020		Balance Sheet Data:	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
Total assets	Total assets	$	4,252,292	$	4,204,642	$	4,188,570	$	4,246,156	$	4,333,624	Total assets	$	4,264,424	$	4,099,806	$	4,225,397	$	4,210,994	$	4,252,292
Loans	Loans	2,936,148		2,957,608		3,058,694		3,059,231		3,012,914		Loans	3,255,906		3,082,127		2,880,780		2,887,662		2,936,148
Total securities	Total securities	696,136		729,178		530,566		565,851		596,565		Total securities	584,622		610,602		628,658		662,609		696,136

Loans held-for-sale	Loans held-for-sale	43,970		27,587		30,235		39,584		76,208		Loans held-for-sale	23,103		31,580		33,991		47,745		43,970
Noninterest-bearing deposits	Noninterest-bearing deposits	110,117		113,996		101,700		96,753		86,088		Noninterest-bearing deposits	142,875		126,153		119,196		117,531		110,117
Interest-bearing deposits	Interest-bearing deposits	3,114,478		3,092,151		3,116,903		3,174,132		3,286,303		Interest-bearing deposits	3,049,769		3,025,948		3,098,783		3,061,428		3,114,478
Total deposits	Total deposits	3,224,595		3,206,147		3,217,603		3,270,885		3,372,391		Total deposits	3,192,644		3,152,101		3,217,979		3,178,959		3,224,595
Advances from Federal Home Loan Bank	Advances from Federal Home Loan Bank	514,920		514,919		514,917		514,916		514,914		Advances from Federal Home Loan Bank	589,926		464,925		514,923		514,922		514,920
Total shareholders’ equity	Total shareholders’ equity	370,442		358,641		344,566		330,944		318,102		Total shareholders’ equity	360,857		365,332		374,655		380,338		370,442

Total assets increased ~~$6.1~~$53.4 million, or ~~0.1%~~1.3%, to $4.3 billion at September 30, ~~2021~~2022 compared to $4.2 billion at December 31, ~~2020.~~2021. The increase was due primarily to increases in loan balances, partially offset by decreases in total securities balances and cash balances.

As of September 30, ~~2021,~~2022, total shareholders’ equity was ~~$370.4~~$360.9 million, ~~an increase~~a decrease of ~~$39.5~~$19.5 million, or ~~11.9%~~5.1%, compared to December 31, ~~2020,~~2021, due primarily to stock repurchase activity and an increase in accumulated other comprehensive loss resulting from a decline in the value of the available-for-sale securities portfolio caused by the continued rise in interest rates during the year. This was partially offset by the net income earned during the ~~period,~~year 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 ~~$365.8~~$356.2 million as of September 30, ~~2021,~~2022, representing ~~an increase~~a decrease of ~~$39.5~~$19.5 million, or ~~12.1%~~5.2%, compared to December 31, ~~2020. As both total shareholders’ equity and tangible common equity outpaced the growth in both total assets and tangible assets, the~~2021. The ratio of total shareholders’ equity to total assets ~~increased~~decreased to ~~8.71%~~8.46% as of September 30, ~~2021~~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 ~~8.61%~~8.36% as of September 30, ~~2021~~2022 from ~~7.69%~~8.93% as of December 31, ~~2020.~~2021.

Book value per common share ~~increased 11.3%~~decreased 0.4% to ~~$37.59~~$38.84 as of September 30, ~~2021~~2022 from ~~$33.77~~$38.99 as of December 31, ~~2020.~~2021. Tangible book value per share ~~increased 11.5%~~decreased 0.4% to ~~$37.12~~$38.34 as of September 30, ~~2021~~2022 from ~~$33.29~~$38.51 as of December 31, ~~2020.~~2021. The ~~growth~~slight decline in both book value per common share and tangible book value per share reflects the ~~growth~~declines in total

shareholders’ equity and tangible common equity, ~~while total common~~mostly offset by shares ~~outstanding increased slightly from December 31, 2020.~~repurchased throughout the year. 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)	September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020					(dollars in thousands)		September 30, 2022							June 30, 2022							March 31, 2022							December 31, 2021							September 30, 2021
Commercial loans	Commercial loans																						Commercial loans
Commercial and industrial	Commercial and industrial	$	107,142	3.6	%	$	96,203	3.3	%	$	71,835	2.3	%	$	75,387	2.5	%	$	77,116	2.6	%		Commercial and industrial		$	104,780		3.2		%		$	110,540		3.6		%		$	99,808		3.5		%		$	96,008		3.3		%		$	107,142		3.6		%
Owner-occupied commercial real estate	Owner-occupied commercial real estate	84,819		2.9	%	87,136		2.9	%	87,930		2.9	%	89,785		2.9	%	89,095		3.0	%		Owner-occupied commercial real estate		58,615			1.8		%		61,277			2.0		%		56,752			2.0		%		66,732			2.3		%		84,819			2.9		%
Investor commercial real estate	Investor commercial real estate	28,505		1.0	%	28,871		1.0	%	14,832		0.5	%	13,902		0.5	%	13,084		0.4	%		Investor commercial real estate		91,021			2.8		%		52,648			1.7		%		34,627			1.2		%		28,019			1.0		%		28,505			1.0		%
Construction	Construction	115,414		3.9	%	117,970		4.0	%	123,483		4.0	%	110,385		3.6	%	92,154		3.1	%		Construction		139,509			4.3		%		143,475			4.7		%		149,662			5.2		%		136,619			4.7		%		115,414			3.9		%
Single tenant lease financing	Single tenant lease financing	921,998		31.5	%	913,115		30.9	%	941,322		30.8	%	950,172		31.1	%	960,505		31.9	%		Single tenant lease financing		895,302			27.4		%		867,181			28.1		%		852,519			29.6		%		865,854			30.0		%		921,998			31.5		%
Public finance	Public finance	601,738		20.5	%	612,138		20.7	%	637,600		20.8	%	622,257		20.3	%	625,638		20.8	%		Public finance		614,139			18.9		%		613,759			19.9		%		587,817			20.4		%		592,665			20.5		%		601,738			20.5		%
Healthcare finance	Healthcare finance	417,388		14.2	%	455,890		15.3	%	510,237		16.8	%	528,154		17.3	%	461,740		15.3	%		Healthcare finance		293,686			9.0		%		317,180			10.3		%		354,574			12.3		%		387,852			13.4		%		417,388			14.2		%
Small business lending	Small business lending	102,889		3.5	%	123,293		4.2	%	132,490		4.3	%	125,589		4.1	%	123,168		4.1	%		Small business lending		113,001			3.5		%		102,724			3.3		%		97,040			3.4		%		108,666			3.8		%		102,889			3.5		%
Franchise finance	Franchise finance	25,598		0.9	%	—		—	%	—		—	%	—		—	%	—		—	%		Franchise finance		225,012			6.8		%		168,942			5.5		%		107,246			3.7		%		81,448			2.8		%		25,598			0.9		%

Total commercial loans	Total commercial loans	2,405,491		82.0	%	2,434,616		82.3	%	2,519,729		82.4	%	2,515,631		82.3	%	2,442,500		81.2	%		Total commercial loans		2,535,065			77.7		%		2,437,726			79.1		%		2,340,045			81.3		%		2,363,863			81.8		%		2,405,491			82.0		%
Consumer loans	Consumer loans																						Consumer loans
Residential mortgage	Residential mortgage	188,750		6.4	%	177,148		6.0	%	190,148		6.2	%	186,787		6.1	%	203,041		6.7	%		Residential mortgage		337,565			10.4		%		281,124			9.1		%		191,153			6.6		%		186,770			6.5		%		188,750			6.4		%
Home equity	Home equity	17,960		0.6	%	17,510		0.6	%	17,949		0.6	%	19,857		0.6	%	22,169		0.7	%		Home equity		22,114			0.7		%		19,928			0.6		%		18,100			0.6		%		17,665			0.6		%		17,960			0.6		%
Other consumer	Other consumer	268,396		9.1	%	271,796		9.2	%	270,209		8.8	%	275,692		9.0	%	282,450		9.3	%		Other consumer		312,512			9.7		%		292,955			9.6		%		270,330			9.4		%		265,478			9.2		%		268,396			9.1		%
Tax refund advance loans																						Tax refund advance loans		—			0.0		%		—			0.0		%		9,177			0.3		%		—			0.0		%		—			0.0		%
Total consumer loans	Total consumer loans	475,106		16.1	%	466,454		15.8	%	478,306		15.6	%	482,336		15.7	%	507,660		16.7	%		Total consumer loans		672,191			20.8		%		594,007			19.3		%		488,760			16.9		%		469,913			16.3		%		475,106			16.1		%
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)	55,551		1.9	%	56,538		1.9	%	60,659		2.0	%	61,264		2.0	%	62,754		2.1	%		Net deferred loan origination costs, premiums and discounts on purchased loans and other (1)		48,650			1.5		%		50,394			1.6		%		51,975			1.8		%		53,886			1.9		%		55,551			1.9		%
Total loans	Total loans	2,936,148		100.0	%	2,957,608		100.0	%	3,058,694		100.0	%	3,059,231		100.0	%	3,012,914		100.0	%		Total loans		3,255,906			100.0		%		3,082,127			100.0		%		2,880,780			100.0		%		2,887,662			100.0		%		2,936,148			100.0		%
Allowance for loan losses	Allowance for loan losses	(28,000)				(28,066)				(30,642)				(29,484)				(26,917)					Allowance for loan losses		(29,866)							(29,153)							(28,251)							(27,841)							(28,000)
Net loans	Net loans	$	2,908,148			$	2,929,542			$	3,028,052			$	3,029,747			$	2,985,997				Net loans		$	3,226,040						$	3,052,974						$	2,852,529						$	2,859,821						$	2,908,148

(1) Includes carrying value adjustments of ~~$38.9~~$33.9 million, ~~$40.4~~$35.4 million, ~~$41.6~~$36.4 million, ~~$42.7~~$37.5 million and ~~$44.3~~$38.9 million related to terminated interest rate swaps associated with public finance loans as of September 30, ~~2021,~~2022, June 30, ~~2021,~~2022, March 31, ~~2021,~~2022, December 31, ~~2020,~~2021, and September 30, ~~2020,~~2021, respectively.

Total loans were ~~$2.9~~$3.3 billion as of September 30, ~~2021, a decrease~~2022, an increase of ~~$123.1~~$368.2 million, or ~~4.0%~~12.8%, compared to December 31, ~~2020.~~2021. Total commercial loan balances were ~~$2.4~~$2.5 billion as of September 30, ~~2021, down $110.1~~2022, up $171.2 million, or ~~4.4%~~7.2%, from December 31, ~~2020.~~2021. Total consumer loan balances were ~~$475.1~~$672.2 million as of September 30, ~~2021, a decrease~~2022, an increase of ~~$7.2~~$202.3 million, or ~~1.5%~~43.1%, compared to December 31, ~~2020.~~2021. Compared to December 31, ~~2020,~~2021, the ~~decline~~increase in commercial loan balances was driven ~~largely~~by growth in franchise finance, investor commercial real estate, single tenant lease financing, public finance, commercial and industrial and small business lending. The increase was partially offset by net payoffs in healthcare finance ~~single tenant lease financing, small business lending~~ and ~~public finance loans, which were partially offset by increases in commercial and industrial, franchise finance and investor~~owner-occupied commercial real estate ~~loan balances.~~

loans. The ~~net payoffs~~increase in consumer loans was due to higher balances in the ~~healthcare finance portfolio were driven primarily by elevated prepayment activity~~residential mortgage, home equity, trailers, recreational vehicles and minimal origination activity. Going forward, we expect the balance of healthcare finance loans may continue to decline as a result of Provide’s acquisition by a super-regional financial institution, as well as potential prepayment activity. The net payoffs in small business lending were predominantly related to PPPother consumer loan ~~forgiveness, partially offset by new originations.~~portfolios.

Franchise finance was established in July 2021 in ~~conjunction with the Copmany’s business relationship~~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~~have funded $234.1 million in ~~the third quarter 2021 and expect to fund a~~ total ~~of up to $100.0 million of loans by the end of 2021 and up to an additional $150.0 million of loans during 2022.~~

originations since inception.

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)	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020			(dollars in thousands)	September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021
Nonaccrual loans	Nonaccrual loans																Nonaccrual loans
Commercial loans:	Commercial loans:																Commercial loans:
Commercial and industrial	Commercial and industrial	$	678		$	692		$	1,002		$	—		$	117		Commercial and industrial	$	350		$	350		$	610		$	674		$	678
Owner-occupied commercial real estate	Owner-occupied commercial real estate	3,429			3,487			4,266			1,838			1,390			Owner-occupied commercial real estate	1,622			1,661			3,267			3,419			3,429

Single tenant lease financing	Single tenant lease financing	1,100			2,373			7,080			7,116			7,148			Single tenant lease financing	—			—			1,092			1,100			1,100
Small business lending (1)	Small business lending (1)	1,351			1,209			865			—			—			Small business lending (1)	2,958			1,297			881			959			1,351

Total commercial loans	Total commercial loans	6,558			7,761			13,213			8,954			8,655			Total commercial loans	4,930			3,308			5,850			6,152			6,558
Consumer loans:	Consumer loans:																Consumer loans:
Residential mortgage	Residential mortgage	1,253			1,253			1,120			1,183			1,085			Residential mortgage	1,073			1,201			1,207			1,226			1,253
Home equity	Home equity	14			14			15			—			—			Home equity	—			14			14			14			14
Other consumer	Other consumer	26			10			23			46			34			Other consumer	3			4			13			9			26
Total consumer loans	Total consumer loans	1,293			1,277			1,158			1,229			1,119			Total consumer loans	1,076			1,219			1,234			1,249			1,293
Total nonaccrual loans	Total nonaccrual loans	7,851			9,038			14,371			10,183			9,774			Total nonaccrual loans	6,006			4,527			7,084			7,401			7,851

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

Total commercial loans		—			—			278			—			—

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

Total nonperforming loans	Total nonperforming loans	7,851			9,038			14,649			10,183			9,774			Total nonperforming loans	6,006			4,527			7,084			7,401			7,851

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

Other nonperforming assets	Other nonperforming assets	—			—			29			35			8			Other nonperforming assets	—			23			1			29			—

Total nonperforming assets	Total nonperforming assets	$	9,039		$	10,338		$	14,678		$	10,218		$	9,782		Total nonperforming assets	$	6,006		$	4,550		$	7,085		$	8,618		$	9,039

Total nonperforming loans to total loans(2)	Total nonperforming loans to total loans(2)	0.27		%	0.31		%	0.48		%	0.33		%	0.32		%	Total nonperforming loans to total loans(2)	0.18		%	0.15		%	0.25		%	0.26		%	0.27		%
Total nonperforming assets to total assets(2)	Total nonperforming assets to total assets(2)	0.21		%	0.25		%	0.35		%	0.24		%	0.23		%	Total nonperforming assets to total assets(2)	0.14		%	0.11		%	0.17		%	0.20		%	0.21		%
Allowance for loan losses to total loans	Allowance for loan losses to total loans	0.95		%	0.95		%	1.00		%	0.96		%	0.89		%	Allowance for loan losses to total loans	0.92		%	0.95		%	0.98		%	0.96		%	0.95		%
Allowance for loan losses to total loans, excluding PPP loans(3)		0.96		%	0.96		%	1.02		%	0.98		%	0.91		%
Nonaccrual loans to total loans																	Nonaccrual loans to total loans	0.18		%	0.15		%	0.25		%	0.26		%	0.27		%
Allowance for loan losses to nonperforming loans(2)	Allowance for loan losses to nonperforming loans(2)	356.6		%	310.5		%	209.2		%	289.5		%	275.4		%	Allowance for loan losses to nonperforming loans(2)	497.3		%	644.0		%	398.8		%	376.2		%	356.6		%

1 Balance ~~represents~~of loans are partially guaranteed by the U.S. ~~government guaranteed loans.~~government.

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

~~This information represents a non-GAAP financial measure. See “Reconciliation~~

Total nonperforming loans declined $1.4 million, or 18.9%, to $6.0 million as of ~~Non-GAAP Financial Measures” for a reconciliation~~September 30, 2022 compared to $7.4 million as of ~~this measure~~December 31, 2021 due primarily to ~~its most directly comparable GAAP measure.~~upgrades and payoffs in the owner-occupied commercial real estate and commercial and industrial loan portfolios, partially offset by SBA loans placed on nonaccrual during 2022. Total nonperforming assets declined $2.6 million, or 30.3%, as of September 30, 2022, compared to December 31, 2021, due primarily to the upgrades and payoffs discussed above, as well as the decline in other real estate owned (“OREO”) discussed below.

Troubled Debt Restructurings

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


(in thousands)	(in thousands)	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020		(in thousands)	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
Troubled debt restructurings – nonaccrual	Troubled debt restructurings – nonaccrual	$	2,550	$	2,581	$	2,606	$	2,637	$	811	Troubled debt restructurings – nonaccrual	$	2,342	$	2,389	$	2,440	$	2,492	$	2,550
Troubled debt restructurings – performing	Troubled debt restructurings – performing	843		1,179		1,187		367		365		Troubled debt restructurings – performing	2,410		2,425		2,418		1,693		843
Total troubled debt restructurings	Total troubled debt restructurings	$	3,393	$	3,760	$	3,793	$	3,004	$	1,176	Total troubled debt restructurings	$	4,752	$	4,814	$	4,858	$	4,185	$	3,393

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

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

Total TDRs as of September 30, ~~2021~~2022 were ~~$3.4~~$4.8 million, up ~~$0.4~~$0.6 million from December 31, ~~2020.~~2021. The increase was driven by one residential mortgage loan that became a TDR ~~during the first quarter 2021.~~in 2022.

As of September 30, 2022, the Company did not own any OREO. As of December 31, 2021, the Company had one ~~commercial~~single tenant lease financing property in OREO with a carrying value of $1.2 million. ~~The~~During the first quarter 2022, the Company ~~did not have any OREO as of December 31, 2020.~~

~~As of September 30, 2021, our financial results have reflected little impact on asset quality as~~reached a ~~result of COVID-19. We are optimistic that~~settlement agreement with the ~~combination of vaccinations, government stimulus programs and relief programs we have provided to our clients will continue to mitigate~~guarantor, which resulted in the ~~impact~~Company recovering $1.2 million in excess 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.~~ carrying value of OREO.

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 September 30, ~~2021,~~2022, the Company had ~~thirteen~~no loans ~~totaling $3.0 million in~~as 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”)~~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 ~~99.5%~~100% of loan balances ~~have~~had been forgiven as of ~~September 30,~~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 Company began offering PPP loans again in 2021 and continued until the program’s funds were depleted. These loans may be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA. The loans originated during 2021 bear an interest rate of 1.00% and the Company received gross origination fees of approximately $1.3 million. The Company received this fee revenue from the SBA during 2021, and it ~~is being~~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 May 2021 and ~~51.9%~~100% of loan balances ~~have~~had been forgiven as of September 30, ~~2021.~~ 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.

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


(dollars in thousands)
		Number of Loans	Principal Balance		Net Deferred Fees
(in thousands, except Number of Loans)							(in thousands, except Number of Loans)	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	281	27,377		1,125		Originated	281	27,377		1,125
Principal repaid	Principal repaid	(549)	(63,548)				Principal repaid	(634)	(75,377)
Net deferred fees recognized	Net deferred fees recognized				(1,242)		Net deferred fees recognized				(1,624)
Balance, September 30, 2021		108	14,981		481
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
Originated							Originated	—	—		—
Principal repaid							Principal repaid	(3)	(809)
Net deferred fees recognized							Net deferred fees recognized				(19)
Balance, June 30, 2022							Balance, June 30, 2022	2	$	194	$	5
Originated							Originated	—	—		—
Principal repaid							Principal repaid	(2)	(194)
Net deferred fees recognized							Net deferred fees recognized				(5)
Balance, September 30, 2022							Balance, September 30, 2022	—	$	—	$	—

Allowance for Loan Losses

The following table provides a rollforward of the allowance for loan losses for the last five completed fiscal quarters and the nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021.


(dollars in thousands)		Three Months Ended															Nine Months Ended
		September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020			September 30, 2021			September 30, 2020				Three Months Ended															Nine Months Ended
(in thousands)																							(in thousands)	September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021			September 30, 2022			September 30, 2021
Balance, beginning of period	Balance, beginning of period	$	28,066		$	30,642		$	29,484		$	26,917		$	24,465		$	29,484		$	21,840		Balance, beginning of period	$	29,153		$	28,251		$	27,841		$	28,000		$	28,066		$	27,841		$	29,484
Provision charged to expense		(29)			21			1,276			2,865			2,509			1,268			6,461
Provision (credit) charged to expense																							Provision (credit) charged to expense	892			1,185			791			(238)			(29)			2,868			1,268
Losses charged off	Losses charged off	(120)			(2,689)			(311)			(408)			(241)			(3,121)			(1,755)			Losses charged off
Commercial and industrial																							Commercial and industrial	—			—			—			—			—			—			28

Single tenant lease financing																							Single tenant lease financing	—			—			—			—			—			—			2,391

Small business lending																							Small business lending	130			—			80			—			10			210			222

Residential mortgage																							Residential mortgage	—			—			—			—			—			—			6
Home equity																							Home equity	—			—			—			—			—			—			51

Other consumer																							Other consumer	106			128			163			106			110			397			423
Tax refund advance loans																							Tax refund advance loans	—			372			1,488			—			—			1,860			—
Total losses charged off																							Total losses charged off	236			500			1,731			106			120			2,467			3,121
Recoveries	Recoveries	83			92			193			110			184			369			371			Recoveries
Commercial and industrial																							Commercial and industrial	2			—			—			3			2			2			85

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

Small business lending																							Small business lending	3			2			17			48			26			22			32
Residential mortgage																							Residential mortgage	1			1			1			51			3			3			12
Home equity																							Home equity	1			134			2			2			2			137			5
Other consumer																							Other consumer	50			80			99			81			50			229			235
Total losses charged off																							Total losses charged off	57			217			1,350			185			83			1,624			369
Balance, end of period	Balance, end of period	$	28,000		$	28,066		$	30,642		$	29,484		$	26,917		$	28,000		$	26,917		Balance, end of period	$	29,866		$	29,153		$	28,251		$	27,841		$	28,000		$	29,866		$	28,000

Net charge-offs to average loans		0.01		%	0.35		%	0.02		%	0.04		%	0.01		%	0.12		%	0.06		%
Net charge-offs (recoveries)																							Net charge-offs (recoveries)	$	179		$	283		$	381		$	(79)		$	37		$	843		$	2,752

Net charge-offs (recoveries) to average loans (annualized)																							Net charge-offs (recoveries) to average loans (annualized)
Commercial and industrial																							Commercial and industrial	0.00		%	0.00		%	0.00		%	(0.01		%)	(0.01		%)	0.00		%	(0.10		%)

Single tenant lease financing																							Single tenant lease financing	0.00		%	0.00		%	(0.58		%)	0.00		%	0.00		%	(0.19		%)	0.34		%

Small business lending																							Small business lending	0.14		%	0.00		%	0.23		%	(0.17		%)	(0.05		%)	0.22		%	0.20		%

Total commercial net charge-offs (recoveries)																							Total commercial net charge-offs (recoveries)	0.01		%	0.00		%	(0.20		%)	(0.01		%)	0.00		%	(0.06		%)	0.14		%
Residential mortgage																							Residential mortgage	0.00		%	0.00		%	0.00		%	(0.11		%)	(0.01		%)	0.00		%	0.00		%
Home equity																							Home equity	(0.01		%)	(1.42		%)	(0.04		%)	(0.04		%)	(0.05		%)	(0.94		%)	0.34		%
Other consumer																							Other consumer	0.20		%	0.30		%	0.40		%	0.28		%	0.24		%	0.30		%	0.32		%
Tax refund advance loans																							Tax refund advance loans	0.00		%	23.55		%	9.97		%	0.00		%	0.00		%	11.84		%	0.00		%
Total consumer net charge-offs (recoveries)																							Total consumer net charge-offs (recoveries)	0.01		%	0.11		%	1.18		%	(0.02		%)	0.05		%	0.44		%	0.06		%
Total net charge-offs (recoveries) to average loans																							Total net charge-offs (recoveries) to average loans	0.02		%	0.04		%	0.05		%	(0.01)		%	0.01		%	0.04		%	0.12		%
Total net (recoveries) charge-offs, excluding tax refund advance loans																							Total net (recoveries) charge-offs, excluding tax refund advance loans	0.02		%	(0.01		%)	(0.16		%)	(0.01)		%	0.01		%	(0.05)		%	0.12		%

The allowance for loan losses was ~~$28.0~~$29.9 million as of September 30, ~~2021,~~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 single tenant lease financing loans and a commercial and industrial relationship, all of which had been classified as nonaccrual. The single tenant lease financing loans included a nonaccrual loan that was paid off during the quarter and a single tenant lease financing relationship consisting of two loans, one of which was paid off at net book value (unpaid principal balance less specific reserves) and the other was transferred to OREO. The commercial and industrial relationship included four loans, two of which were paid off during the quarter. The decrease in the specific reserves

~~was partially offset by additional adjustments to the qualitative factors in the Company’s allowance model that increased the allowance for loan losses to total loans.~~

2021. The allowance for loan losses as a percentage of total loans, including and excluding PPP loans, was ~~0.95%~~0.92% at September 30, ~~2021, or 0.96%, when excluding PPP loans,~~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 ~~356.6%~~497.3% as of September 30, ~~2021,~~2022, compared to ~~289.5%~~376.2% as of December 31, ~~2020, due~~2021.

Net charge-offs of $0.2 million were recognized during the third quarter 2022, resulting in net charge-offs to average loans of 0.02%, compared to net recoveries to average loans of 0.01% for the ~~decrease in nonperforming loans related to single tenant lease financing loans and the commercial and industrial relationship discussed above.~~ third quarter 2021.

The provision for loan losses in the third quarter ~~2021~~2022 was ~~less than $0.1~~$0.9 million, compared to ~~$2.5 million~~a $29 thousand credit for the third quarter ~~2020.~~2021. The ~~decrease in the~~ provision for loan losses was due primarily to the decline in loan balances. During the third quarter 2021, the Company recorded net charge-offs of less than $0.1 million, compared to net charge-offs of $0.1 million for the third quarter ~~2020.~~

2022 was driven primarily by growth in the loan portfolio, partially offset by reductions in specific reserves due to positive developments on certain monitored loans.

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	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020		Amortized Cost	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
Securities available-for-sale	Securities available-for-sale											Securities available-for-sale
U.S. Government-sponsored agencies	U.S. Government-sponsored agencies	$	53,380	$	57,984	$	60,815	$	61,765	$	65,007	U.S. Government-sponsored agencies	$	38,197	$	41,542	$	45,335	$	50,013	$	53,380
Municipal securities	Municipal securities	76,528		77,364		79,168		82,757		87,365		Municipal securities	71,156		71,264		72,420		75,158		76,528
Agency mortgage-backed securities		432,613		445,895		229,981		241,795		250,755
Private label mortgage-backed securities		19,997		29,003		40,550		57,268		71,519
Agency mortgage-backed securities - residential												Agency mortgage-backed securities - residential	259,568		265,196		276,392		377,928		398,504
Agency mortgage-backed securities - commercial												Agency mortgage-backed securities - commercial	17,825		23,312		24,815		36,024		34,109
Private label mortgage-backed securities - residential												Private label mortgage-backed securities - residential	12,320		13,259		15,090		15,902		19,997
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	48,460		48,447		48,433		48,419		48,406		Corporate securities	44,644		42,655		47,580		46,482		48,460

Total available-for-sale	Total available-for-sale	635,978		663,693		463,947		497,004		528,052		Total available-for-sale	448,710		462,228		486,632		606,507		635,978
Securities held-to-maturity	Securities held-to-maturity											Securities held-to-maturity
Municipal securities	Municipal securities	14,538		14,549		14,560		14,571		14,582		Municipal securities	13,957		13,969		13,981		13,992		14,538
Agency mortgage-backed securities - residential												Agency mortgage-backed securities - residential	123,718		117,749		95,982		—		—
Agency mortgage-backed securities - commercial												Agency mortgage-backed securities - commercial	5,828		5,838		5,847		—		—
Corporate securities	Corporate securities	47,591		51,110		53,630		53,652		53,672		Corporate securities	47,554		47,557		47,560		45,573		47,591
Total held-to-maturity	Total held-to-maturity	62,129		65,659		68,190		68,223		68,254		Total held-to-maturity	191,057		185,113		163,370		59,565		62,129
Total securities	Total securities	$	698,107	$	729,352	$	532,137	$	565,227	$	596,306	Total securities	$	639,767	$	647,341	$	650,002	$	666,072	$	698,107

(in thousands)
Approximate Fair Value September 30,
2021 June 30,
2021 March 31,
2021 December 31,
2020 September 30,
2020
Securities available-for-sale
U.S. Government-sponsored agencies $ 52,455 $ 57,135 $ 59,478 $ 60,545 $ 63,682
Municipal securities 77,450 78,438 79,208 82,489 86,421
Agency mortgage-backed securities 429,885 444,494 228,818 243,921 253,292
Private label mortgage-backed securities 20,235 29,363 41,106 58,116 72,626
Asset-backed securities 5,005 5,005 5,006 4,961 4,921
Corporate securities 48,977 49,084 48,760 47,596 47,369
Total available-for-sale 634,007 663,519 462,376 497,628 528,311
Securities held-to-maturity
Municipal securities 15,319 15,373 15,109 15,317 15,328
Corporate securities 49,018 52,685 54,274 54,135 53,848
Total held-to-maturity 64,337 68,058 69,383 69,452 69,176
Total securities $ 698,344 $ 731,577 $ 531,759 $ 567,080 $ 597,487


(in thousands)
Approximate Fair Value	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
Securities available-for-sale
U.S. Government-sponsored agencies	$	36,329	$	40,003	$	43,847	$	49,040	$	52,455
Municipal securities	63,537		67,923		72,804		77,033		77,450
Agency mortgage-backed securities - residential	219,191		237,546		257,682		373,236		395,105
Agency mortgage-backed securities - commercial	16,522		22,207		24,156		36,326		34,780
Private label mortgage-backed securities - residential	11,041		12,479		14,818		16,021		20,235
Asset-backed securities	4,884		4,897		4,986		5,004		5,005
Corporate securities	42,061		40,434		46,995		46,384		48,977

Total available-for-sale	393,565		425,489		465,288		603,044		634,007
Securities held-to-maturity
Municipal securities	12,668		13,356		14,093		14,709		15,319
Agency mortgage-backed securities - residential	107,570		109,054		92,939		—		—
Agency mortgage-backed securities - commercial	4,686		5,048		5,420		—		—
Corporate securities	45,053		46,561		47,519		46,759		49,018
Total held-to-maturity	169,977		174,019		159,971		61,468		64,337
Total securities	$	563,542	$	599,508	$	625,259	$	664,512	$	698,344

The approximate fair value of available-for-sale investment securities ~~increased $136.4~~decreased $209.5 million, or ~~27.4%~~34.7%, to ~~$634.0~~$393.6 million as of September 30, ~~2021,~~2022, compared to ~~$497.6~~$603.0 million as of December 31, ~~2020.~~2021. The ~~increase~~decrease was due primarily to ~~an increase~~decreases of ~~$186.0~~$154.0 million in agency mortgage-backed securities ~~partially offset by a $38.1~~- residential, $19.8 million ~~decrease~~ in ~~private label~~agency mortgage-backed securities - commercial, $13.5 million in municipal securities, and ~~a $8.1~~$12.7 million ~~decrease~~ in U.S. Government-sponsored agencies. The ~~increase~~decrease in agency 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 a decline in fair value resulting from the continued rise in interest rates. The decreases in other securities types were also driven ~~primarily~~ by ~~purchases during~~a decline in value resulting from the ~~nine months ended September 30, 2021, partially~~

continued rise in interest rates, as well as net paydown activity.

~~offset by prepayments and maturities in agency and private label mortgage-backed securities, as well as early redemptions and maturities in municipal securities.~~

Accrued Income and Other Assets

Accrued income and other assets decreased ~~$9.9~~$3.4 million, or ~~15.4%~~7.2%, to ~~$54.4~~$43.5 million at September 30, ~~2021~~2022 compared to ~~$64.3~~$46.9 million at December 31, ~~2020.~~2021. The decrease was primarily related to a decrease of ~~$11.3~~$15.7 million in cash pledged as ~~collateral.~~collateral and $7.7 million in deferred tax assets, partially offset by increases of $9.3 million in derivative assets, $8.6 million in income tax receivable, and $2.1 million in investment fund partnerships. As of ~~these dates,~~September 30, 2022 the Company had no pledged ~~$19.3 million and $30.6 million, respectively, of~~ cash collateral compared to $15.7 million, as of December 31, 2021. Cash collateral is pledged 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 $36.6~~decreased $15.9 million, or 52.0%, to $14.7 million at September 30, ~~2021~~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 ~~an $11.8~~decreases of $13.9 million, or ~~38.7%~~97.3%, ~~decrease~~ in derivative liabilities ~~due to changes~~and $3.9 million in ~~fair value.~~accrued taxes, partially offset by increases of $1.8 million, or 0.3%, in other liabilities and $0.1 million in accrued salary and benefits.

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)	September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020				(dollars in thousands)	September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021
Noninterest-bearing deposits	Noninterest-bearing deposits	$	110,117	3.4	%	$	113,996	3.6	%	$	100,700	3.1	%	$	96,753	3.0	%	$	86,088	2.6	%	Noninterest-bearing deposits	$	142,635	4.5	%	$	126,153	4.0	%	$	119,197	3.7	%	$	117,531	3.7	%	$	110,117	3.4	%
Interest-bearing demand deposits	Interest-bearing demand deposits	201,557		6.3	%	196,841		6.1	%	186,015		5.8	%	188,645		5.8	%	155,054		4.6	%	Interest-bearing demand deposits	337,765		10.6	%	350,551		11.1	%	334,723		10.4	%	247,967		7.8	%	201,557		6.3	%
Savings accounts	Savings accounts	66,762		2.1	%	56,298		1.8	%	51,251		1.6	%	43,200		1.3	%	49,890		1.5	%	Savings accounts	52,228		1.6	%	65,365		2.1	%	66,320		2.1	%	59,998		1.9	%	66,762		2.1	%
Money market accounts	Money market accounts	1,479,358		45.8	%	1,432,355		44.6	%	1,397,449		43.4	%	1,350,566		41.3	%	1,359,178		40.3	%	Money market accounts	1,378,087		43.2	%	1,363,424		43.3	%	1,475,857		45.8	%	1,483,936		46.7	%	1,479,358		45.8	%
BaaS - brokered deposits																						BaaS - brokered deposits	96,287		3.0	%	194,133		6.2	%	50,006		1.6	%	—		0.0	%	—		0.0	%
Certificates of deposits	Certificates of deposits	1,043,898		32.4	%	1,087,350		33.9	%	1,174,764		36.5	%	1,289,319		39.4	%	1,360,575		40.3	%	Certificates of deposits	773,040		24.2	%	800,598		25.3	%	889,789		27.6	%	970,107		30.5	%	1,043,898		32.4	%
Brokered deposits	Brokered deposits	322,903		10.0	%	319,307		10.0	%	307,424		9.6	%	302,402		9.2	%	361,606		10.7	%	Brokered deposits	412,602		12.9	%	251,877		8.0	%	282,087		8.8	%	299,420		9.4	%	322,903		10.0	%
Total deposits	Total deposits	$	3,224,595	100.0	%	$	3,206,147	100.0	%	$	3,217,603	100.0	%	$	3,270,885	100.0	%	$	3,372,391	100.0	%	Total deposits	$	3,192,644	100.0	%	$	3,152,101	100.0	%	$	3,217,979	100.0	%	$	3,178,959	100.0	%	$	3,224,595	100.0	%

Total deposits ~~decreased $46.3~~increased $13.7 million, or ~~1.4%~~0.4%, to $3.2 billion as of September 30, ~~2021,~~2022, compared to ~~$3.3~~$3.2 billion as of December 31, ~~2020.~~2021. This ~~decrease~~increase was due primarily to increases of $113.2 million, or 37.8%, in brokered deposits, $96.3 million in BaaS - brokered deposits, $89.8 million, or 36.2%, in interest-bearing demand deposits and $25.1 million, or 21.4%, in noninterest-bearing deposits, partially offset by decreases of $197.1 million, or 20.3%, in certificates of deposits, $105.8 million, or 7.1% in money market accounts and $7.8 million, or 13.0%, in savings accounts. The increase in brokered deposits was due to accessing certain deposit channels during the third quarter 2022 to support balance sheet liquidity and manage interest rate risk. The increase in BaaS brokered deposits was due to a relationship established in the first quarter 2022. The increase in the balance of interest-bearing demand deposits was due primarily to a decline of $245.4 million, or 19.0%, in certificates of deposits, partially offset by increases of $128.8 million, or 9.6%, in money market accounts, $23.6 million, or 54.5%, in savings accounts, $20.5 million, or 6.8%, in brokered deposits, $13.4 million, or 13.8%, in noninterest-bearing deposits, and $12.9 million, or 6.8%, in interest-bearing demand deposits. The Company experienced strong growth in money market deposit accounts due to targeted digital marketing efforts to grow small business accounts as well as consumers, small business and commercial clients increasing their cash balances in part due to the economic uncertainty resultingnew customer relationship from the ~~COVID-19 pandemic.~~first quarter of 2022 with approximately $100.0 million in deposits with a contractual term of five years and a fixed rate of 1.15%. The decrease in the balance of certificates of deposits was due to the maturity of ~~higher cost~~higher-cost balances and reduced pricing strategies designed to limit the volume of new production. The decrease in money market accounts was due primarily to certain customer activity that can be periodically volatile.

Recent Debt Offerings

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

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~~then-current benchmark rate (initially three-month Term SOFR plus ~~311 basis points.~~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~~Pursuant to ~~redeem the 2026 Notes. Under~~ the terms of a Registration Rights Agreement between the Company and the initial purchasers of the 2031 Notes, the Company ~~has agreed~~offered to ~~take certain actions to provide for the~~ exchange of the 2031 Notes for subordinated notes that are registered under the Securities Act of 1933, as amended, and have substantially the same terms as the 2031 Notes. On December 30, 2021, the Company completed an exchange of $59.3 million principal amount of the unregistered 2031 Notes for registered 2031 Notes in satisfaction of its obligations under the registration rights agreement. Holders of $0.7 million of unregistered 2031 Notes did not participate in the exchange.

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 September 30, ~~2021~~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 September 30, ~~2021~~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 September 30, 2021:
As of September 30, 2022:																As of September 30, 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	$	376,903	12.62	%		$	209,119	7.00	%	N/A			N/A		Consolidated	$	392,281	11.72	%		$	234,271	7.00	%	N/A		N/A
Bank	Bank	417,612		13.99	%		208,885		7.00	%	$	193,964		6.50	%	Bank	462,999		13.87	%		233,603		7.00	%	$	216,917	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	376,903		12.62	%		253,930		8.50	%	N/A			N/A		Consolidated	392,281		11.72	%		284,472		8.50	%	N/A		N/A
Bank	Bank	417,612		13.99	%		253,646		8.50	%	238,725			8.00	%	Bank	462,999		13.87	%		283,661		8.50	%	266,975		8.00	%
Total capital to risk-weighted assets	Total capital to risk-weighted assets															Total capital to risk-weighted assets
Consolidated	Consolidated	509,059		17.04	%		313,679		10.50	%	N/A			N/A		Consolidated	526,603		15.73	%		351,406		10.50	%	N/A		N/A
Bank	Bank	445,612		14.93	%		313,327		10.50	%	298,407			10.00	%	Bank	492,865		14.77	%		350,404		10.50	%	333,719		10.00	%
Leverage ratio	Leverage ratio															Leverage ratio
Consolidated	Consolidated	376,903		8.86	%		170,169		4.00	%	N/A			N/A		Consolidated	392,281		9.49	%		165,323		4.00	%	N/A		N/A
Bank	Bank	417,612		9.83	%		169,865		4.00	%	212,332			5.00	%	Bank	462,999		11.22	%		165,096		4.00	%	206,370		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, 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 %


	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	%

5859

Shareholders’ Dividends

The Company’s Board of Directors declared a cash dividend of $0.06 per share of common stock payable October ~~15, 2021~~17, 2022 to shareholders of record as of September 30, ~~2021.~~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~~the Company’s 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 September 30, ~~2021,~~2022, the Company had $107.0 million principal amount of subordinated debt outstanding evidenced by ~~its 6.0% Fixed-to-Floating Rate Subordinated Notes due 2026,~~ the 2029 Notes, ~~the~~ 2030 ~~Notes, as well as its 3.75% Fixed-to-Floating Rate Subordinated Notes due 2031.~~Note and 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.~~months and longer. 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 $30.0 million of the Company’s outstanding common stock from time to time on the open market or in privately negotiated transactions. In October 2022, the Company’s Board of Directors increased the authorization to $35.0 million. Under this program, the Company repurchased 100,000 shares at a total cost of $4.4 million during 2021, 103,703 shares at a total cost of $5.1 million during the first quarter 2022, 294,464 shares at a total cost of $11.1 million during the second quarter 2022 and 120,000 shares at a total cost of $4.4 million during the third 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, organic growth and other strategic opportunities, 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~~Federal Home Loan Bank (“FHLB”) and brokered deposits.

The Company holds cash and investment securities that qualify as liquid assets to maintain adequate liquidity to ensure safe and sound operations and meet its financial commitments. ~~We believe we have sufficient on-balance sheet liquidity, supplemented by access to additional funding sources, to manage the potential economic impact of COVID-19.~~ At September 30, ~~2021,~~2022, on a consolidated basis, the Company had ~~$1.0 billion~~$614.6 million in cash and cash equivalents and investment securities available-for-sale and ~~$44.0~~$23.1 million in loans held-for-sale that were generally available for its cash needs. The Company can also generate funds from wholesale funding sources and collateralized borrowings. At September 30, ~~2021,~~2022, the Bank had the ability to borrow an additional ~~$597.9~~$473.7 million from the FHLB, the Federal Reserve and correspondent bank Fed Funds lines of credit.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its common shareholders and interest and principal on outstanding debt. The Company’s primary sources of funds are cash maintained at the holding company level and dividends from the Bank, the payment of which is subject to regulatory limits. At September 30, ~~2021,~~2022, the Company, on an unconsolidated basis, had ~~$58.8~~$25.7 million in cash generally available for its cash needs, which is in excess of its current annual regular shareholder dividend and operating expenses.

The Company uses its sources of funds primarily to meet ongoing financial commitments, including withdrawals by depositors, credit commitments to borrowers, operating expenses and capital expenditures. At September 30, ~~2021,~~2022, approved outstanding loan commitments, including unused lines of credit and standby letters of credit, amounted to ~~$278.3~~$508.6 million. Certificates of deposits and brokered deposits scheduled to mature in one year or less at September 30, ~~2021~~2022 totaled ~~$787.0~~$549.5 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.

6061

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, provision (benefit) 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 nine months ended September 30, ~~2021~~2022 and ~~2020.~~

(dollars in thousands, except share and per share data) Three Months Ended Nine Months Ended
September 30,
2021 June 30,
2021 March 31,
2021 December 31,
2020 September 30,
2020 September 30,
2021 September 30,
2020
Total equity - GAAP $ 370,442 $ 358,641 $ 344,566 $ 330,944 $ 318,102 $ 370,442 $ 318,102
Adjustments:
     Goodwill (4,687) (4,687) (4,687) (4,687) (4,687) (4,687) (4,687)
Tangible common equity $ 365,755 $ 353,954 $ 339,879 $ 326,257 $ 313,415 $ 365,765 $ 313,415
Total assets - GAAP $ 4,252,292 $ 4,204,642 $ 4,188,570 $ 4,246,156 $ 4,333,624 $ 4,252,292 $ 4,333,624
Adjustments:
     Goodwill (4,687) (4,687) (4,687) (4,687) (4,687) (4,687) (4,687)
Tangible assets $ 4,247,605 $ 4,199,955 $ 4,183,883 $ 4,241,469 $ 4,328,937 $ 4,247,605 $ 4,328,937
Common shares outstanding 9,854,153 9,854,153 9,823,831 9,800,569 9,800,569 9,854,153 9,800,569
Book value per common share $ 37.59 $ 36.39 $ 35.07 $ 33.77 $ 32.46 $ 37.59 $ 32.46
Effect of goodwill (0.47) (0.47) (0.47) (0.48) (0.48) (0.47) (0.48)
Tangible book value per common share $ 37.12 $ 35.92 $ 34.60 $ 33.29 $ 31.98 $ 37.12 $ 31.98
Total shareholders’ equity to assets 8.71 % 8.53 % 8.23 % 7.79 % 7.34 % 8.71 % 7.34 %
Effect of goodwill (0.10) % (0.10) % (0.11) % (0.10) % (0.10) % (0.10) % (0.10) %
Tangible common equity to tangible assets 8.61 % 8.43 % 8.12 % 7.69 % 7.24 % 8.61 % 7.24 %
Total average equity - GAAP $ 366,187 $ 352,894 $ 335,968 $ 323,464 $ 313,611 $ 351,794 $ 310,506
Adjustments:
     Average goodwill (4,687) (4,687) (4,687) (4,687) (4,687) (4,687) (4,687)
Average tangible common equity $ 361,500 $ 348,207 $ 331,281 $ 318,777 $ 308,924 $ 347,107 $ 305,819
Return on average shareholders’ equity 13.10 % 14.88 % 12.61 % 13.64 % 10.67 % 13.54 % 7.90 %
Effect of goodwill 0.17 % 0.21 % 0.18 % 0.20 % 0.16 % 0.19 % 0.12 %
Return on average tangible common equity 13.27 % 15.09 % 12.79 % 13.84 % 10.83 % 13.73 % 8.02 %
2021.

6162


(dollars in thousands, except share and per share data)	Three Months Ended															Nine Months Ended
	September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021			September 30, 2022			September 30, 2021
Total equity - GAAP	$	360,857		$	365,332		$	374,655		$	380,338		$	370,442		$	360,857		$	370,442
Adjustments:
Goodwill	(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			(4,687)
Tangible common equity	$	356,170		$	360,645		$	369,968		$	375,651		$	365,755		$	356,170		$	365,755

Total assets - GAAP	$	4,264,424		$	4,099,806		$	4,225,397		$	4,210,994		$	4,252,292		$	4,264,424		$	4,252,292
Adjustments:
Goodwill	(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			(4,687)
Tangible assets	$	4,259,737		$	4,095,119		$	4,220,710		$	4,206,307		$	4,247,605		$	4,259,737		$	4,247,605

Common shares outstanding	9,290,885			9,404,000			9,683,727			9,754,455			9,854,153			9,290,885			9,854,153

Book value per common share	$	38.84		$	38.85		$	38.69		$	38.99		$	37.59		$	38.84		$	37.59
Effect of goodwill	(0.50)			(0.50)			(0.48)			(0.48)			(0.47)			(0.50)			(0.47)
Tangible book value per common share	$	38.34		$	38.35		$	38.21		$	38.51		$	37.12		$	38.34		$	37.12

Total shareholders’ equity to assets	8.46		%	8.91		%	8.87		%	9.03		%	8.71		%	8.46		%	8.71		%
Effect of goodwill	(0.10		%)	(0.10		%)	(0.10		%)	(0.10		%)	(0.10		%)	(0.10)		%	(0.10)		%
Tangible common equity to tangible assets	8.36		%	8.81		%	8.77		%	8.93		%	8.61		%	8.36		%	8.61		%

Total average equity - GAAP	$	371,303		$	374,274		$	380,767		$	376,832		$	366,187		$	375,190		$	351,794
Adjustments:
Average goodwill	(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			(4,687)
Average tangible common equity	$	366,616		$	369,587		$	376,080		$	372,145		$	361,500		$	370,503		$	347,107

Return on average shareholders’ equity	9.01		%	10.23		%	11.94		%	13.14		%	13.10		%	10.40		%	13.54		%
Effect of goodwill	0.12		%	0.13		%	0.15		%	0.16		%	0.17		%	0.13		%	0.19		%
Return on average tangible common equity	9.13		%	10.36		%	12.09		%	13.30		%	13.27		%	10.53		%	13.73		%

(dollars in thousands, except share and per share data) Three Months Ended Nine Months Ended
September 30,
2021 June 30,
2021 March 31,
2021 December 31,
2020 September 30,
2020 September 30,
2021 September 30,
2020
Total interest income $ 33,034 $ 33,377 $ 33,280 $ 33,643 $ 32,750 $ 99,691 $ 103,216
Adjustments:
Fully-taxable equivalent adjustments 1
1,356 1,394 1,356 1,400 1,424 4,105 4,396
Total interest income - FTE $ 34,390 $ 34,771 $ 34,636 $ 35,043 $ 34,174 $ 103,796 $ 107,612
Net interest income $ 20,919 $ 21,607 $ 20,525 $ 18,865 $ 16,232 $ 63,051 $ 45,676
Adjustments:
Fully-taxable equivalent adjustments 1
1,356 1,394 1,356 1,424 1,424 4,105 4,396
Net interest income - FTE $ 22,275 $ 23,001 $ 21,881 $ 20,289 $ 17,656 $ 67,156 $ 50,072
Net interest income $ 20,919 $ 21,607 $ 20,525 $ 18,865 $ 16,232 $ 63,051 $ 45,676
Adjustments:
Subordinated debt redemption cost 810 — — — — 810 —
Adjusted net interest income $ 21,729 $ 21,607 $ 20,525 $ 18,865 $ 16,232 $ 63,861 $ 45,676
Net interest income $ 20,919 $ 21,607 $ 20,525 $ 18,865 $ 16,232 $ 63,051 $ 45,676
Adjustments:
Fully-taxable equivalent adjustments 1
1,356 1,394 1,356 1,400 1,424 4,105 4,396
Subordinated debt redemption cost 810 — — — — 810 —
Adjusted net interest income - FTE $ 23,085 $ 23,001 $ 21,881 $ 20,265 $ 17,656 $ 67,966 $ 50,072
Net interest margin 2.00 % 2.11 % 2.04 % 1.78 % 1.53 % 2.05 % 1.47 %
Effect of fully-taxable equivalent adjustments 1
0.13 % 0.14 % 0.14 % 0.13 % 0.14 % 0.14 % 0.15 %
Net interest margin - FTE 2.13 % 2.25 % 2.18 % 1.91 % 1.67 % 2.19 % 1.61 %
Net interest margin 2.00 % 2.11 % 2.04 % 1.78 % 1.53 % 2.05 % 1.47 %
Effect of subordinated debt redemption cost 0.08 % — % — % — % — % 0.02 % — %
Adjusted net interest margin 2.08 % 2.11 % 2.04 % 1.78 % 1.53 % 2.07 % 1.47 %
Net interest margin 2.00 % 2.11 % 2.04 % 1.78 % 1.53 % 2.05 % 1.47 %
Effect of fully-taxable equivalent adjustments 0.13 % 0.14 % 0.14 % 0.13 % 0.14 % 0.14 % 0.14 %
Effect of subordinated debt redemption cost 0.08 % — % — % — % — % 0.02 % — %
Adjusted net interest margin - FTE 2.21 % 2.25 % 2.18 % 1.91 % 1.67 % 2.21 % 1.61 %
Allowance for loan losses $ 28,000 $ 28,066 $ 30,642 $ 29,484 $ 26,917 $ 28,000 $ 26,917
Loans $ 2,936,148 $ 2,957,608 $ 3,058,694 $ 3,059,231 $ 3,012,914 $ 2,936,148 $ 3,012,914
Adjustments:
PPP loans (14,981) (39,682) (53,365) (50,554) (58,337) (14,981) (58,337)
Loans, excluding PPP loans $ 2,921,167 $ 2,917,926 $ 3,005,329 $ 3,008,677 $ 2,954,577 $ 2,921,167 $ 2,954,577
Allowance for loan losses to loans 0.95 % 0.95 % 1.00 % 0.96 % 0.89 % 0.95 % 0.89 %
Effect of PPP loans 0.01 % 0.01 % 0.02 % 0.02 % 0.02 % 0.01 % 0.02 %
Allowance for loan losses to loans, excluding PPP loans 0.96 % 0.96 % 1.02 % 0.98 % 0.91 % 0.96 % 0.91 %


(dollars in thousands)	Three Months Ended										Nine Months Ended
	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021		September 30, 2022		September 30, 2021
Total interest income	$	39,099	$	36,106	$	36,034	$	34,192	$	33,034	$	111,239	$	99,691
Adjustments:
Fully-taxable equivalent adjustments 1	1,280		1,377		1,314		1,348		1,356		3,971		4,105
Total interest income - FTE	$	40,379	$	37,483	$	37,348	$	35,540	$	34,390	$	115,210	$	103,796

Total interest income - FTE	$	40,379	$	37,483	$	37,348	$	35,540	$	34,390	$	115,210	$	103,796
Adjustments:
Income from tax refund advance loans	—		(149)		(2,864)		—		—		(3,013)		—
Adjusted total interest income - FTE	$	40,379	$	37,334	$	34,484	$	35,540	$	34,390	$	112,197	$	103,796

Net interest income	$	23,994	$	25,680	$	25,750	$	23,505	$	20,919	$	75,424	$	63,051
Adjustments:
Fully-taxable equivalent adjustments 1	1,280		1,377		1,314		1,348		1,356		3,971		4,105
Net interest income - FTE	$	25,274	$	27,057	$	27,064	$	24,853	$	22,275	$	79,395	$	67,156

Net interest income	$	23,994	$	25,680	$	25,750	$	23,505	$	20,919	$	75,424	$	63,051
Adjustments:
Subordinated debt redemption cost	—		—		—		—		810		—		810
Income from tax refund advance loans	—		(149)		(2,864)		—		—		(3,013)		—
Adjusted net interest income	$	23,994	$	25,531	$	22,886	$	23,505	$	21,729	$	72,411	$	63,861

Net interest income	$	23,994	$	25,680	$	25,750	$	23,505	$	20,919	$	75,424	$	63,051
Adjustments:
Fully-taxable equivalent adjustments 1	1,280		1,377		1,314		1,348		1,356		3,971		4,105
Subordinated debt redemption cost	—		—		—		—		810		—		810
Income from tax refund advance loans	—		(149)		(2,864)		—		—		(3,013)		—
Adjusted net interest income - FTE	$	25,274	$	26,908	$	24,200	$	24,853	$	23,085	$	76,382	$	67,966
1 Assuming a 21% tax rate


(dollars in thousands)	Three Months Ended															Nine Months Ended
	September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021			September 30, 2022			September 30, 2021
Net interest margin	2.40		%	2.60		%	2.56		%	2.30		%	2.00		%	2.52		%	2.05		%
Effect of fully-taxable equivalent adjustments 1	0.13		%	0.14		%	0.13		%	0.13		%	0.13		%	0.13		%	0.14		%
Net interest margin - FTE	2.53		%	2.74		%	2.69		%	2.43		%	2.13		%	2.65		%	2.19		%

Net interest margin	2.40		%	2.60		%	2.56		%	2.30		%	2.00		%	2.52		%	2.05		%
Effect of subordinated debt redemption cost	0.00		%	0.00		%	0.00		%	0.00		%	0.08		%	0.00		%	0.02		%
Effect of income from tax refund advance loans	0.00		%	(0.02		%)	(0.28		%)	0.00		%	0.00		%	(0.10		%)	0.00		%
Adjusted net interest margin	2.40		%	2.58		%	2.28		%	2.30		%	2.08		%	2.42		%	2.07		%

Net interest margin	2.40		%	2.60		%	2.56		%	2.30		%	2.00		%	2.52		%	2.05		%
Effect of fully-taxable equivalent adjustments	0.13		%	0.14		%	0.13		%	0.13		%	0.13		%	0.13		%	0.14		%
Effect of subordinated debt redemption cost	0.00		%	0.00		%	0.00		%	0.00		%	0.08		%	0.00		%	0.02		%
Effect of income from tax refund advance loans	0.00		%	(0.02		%)	(0.28		%)	0.00		%	0.00		%	(0.10		%)	0.00		%
Adjusted net interest margin - FTE	2.53		%	2.72		%	2.41		%	2.43		%	2.21		%	2.55		%	2.21		%

Provision (benefit) for loan losses	$	892		$	1,185		$	791		$	(238)		$	(29)		$	2,868		$	1,268
Adjustments:
Provision for tax refund advance loans losses	—			(18)			(1,842)			—			—			(1,860)			—
Provision (benefit) for loan losses, excluding tax refund advance loans	$	892		$	1,167		$	(1,051)		$	(238)		$	(29)		$	1,008		$	1,268

Average loans	$	3,161,850		$	2,998,144		$	2,947,924		$	2,914,858		$	2,933,654		$	3,036,532		$	2,991,556
Adjustments:
Average tax refund advance loans	—			(3,185)			(60,499)			—			—			(20,996)			—
Average loans, excluding tax refund advance loans	$	3,161,850		$	2,994,959		$	2,887,425		$	2,914,858		$	2,933,654		$	3,015,536		$	2,991,556

Net charge-offs (recoveries) to average loans	0.02		%	0.04		%	0.05		%	(0.01		%)	0.01		%	0.04		%	0.12		%
Adjustments:
Effect of tax refund advance lending net charge-offs to average loans	0.00		%	(0.05		%)	(0.21		%)	0.00		%	0.00		%	(0.08		%)	0.00		%
Net (recoveries) charge-offs to average loans, excluding tax refund advance loans	0.02		%	(0.01		%)	(0.16		%)	(0.01		%)	0.01		%	(0.04		%)	0.12		%

Allowance for loan losses	$	29,866		$	29,153		$	28,251		$	27,841		$	28,000		$	29,866		$	28,000




Loans	$	3,255,906		$	3,082,127		$	2,880,780		$	2,887,662		$	2,936,148		$	3,255,906		$	2,936,148
Adjustments:
PPP loans	—			(194)			(1,003)			(3,152)			(14,981)			—			(14,981)
Loans, excluding PPP loans	$	3,255,906		$	3,081,933		$	2,879,777		$	2,884,510		$	2,921,167		$	3,255,906		$	2,921,167

Allowance for loan losses to loans	0.92		%	0.95		%	0.98		%	0.96		%	0.95		%	0.92		%	0.95		%
Effect of PPP loans	0.00		%	0.00		%	0.00		%	0.01		%	0.01		%	0.00		%	0.01		%
Allowance for loan losses to loans, excluding PPP loans	0.92		%	0.95		%	0.98		%	0.97		%	0.96		%	0.92		%	0.96		%

1 Assuming a 21% tax rate

6265


(dollars in thousands, except share and per share data)	(dollars in thousands, except share and per share data)	Three Months Ended										Nine Months Ended				(dollars in thousands, except share and per share data)	Three Months Ended										Nine Months Ended
		September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020		September 30, 2021		September 30, 2020			September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021		September 30, 2022		September 30, 2021
Total Revenue- GAAP		$	28,732	$	30,569	$	28,900	$	31,522	$	28,727	$	88,201	$	69,355

Noninterest expense - GAAP																Noninterest expense - GAAP	$	17,995	$	17,985	$	18,780	$	16,955	$	14,451	$	54,760	$	44,843
Adjustments:	Adjustments:															Adjustments:
Gain on sale of premises and equipment		—		(2,523)		—		—		—		(2,523)		—
Subordinated debt redemption cost		810		—		—		—		—		810		—
Adjusted total revenue		$	27,922	$	28,046	$	28,900	$	31,522	$	28,727	$	86,488	$	69,355

Non-interest income - GAAP		$	7,813	$	8,962	$	8,375	$	12,657	$	12,495	$	25,150	$	23,679
Adjustments:
Gain on sale of premises and equipment		—		(2,523)		—		—		—		(2,523)		—
Adjusted non-interest income		$	7,813	$	6,439	$	8,375	$	12,657	$	12,495	$	22,627	$	23,679
Acquisition-related expenses																Acquisition-related expenses	—		(103)		(170)		(163)		—		(273)		—
Nonrecurring consulting fee																Nonrecurring consulting fee	—		—		(875)		—		—		(125)		—
Write-down of Software																Write-down of Software	(125)		—		—		(475)		—		(875)		—
Discretionary inflation bonus																Discretionary inflation bonus	—		(531)		—		—		—		(531)		—
Accelerated equity compensation																Accelerated equity compensation	—		(289)		—		—		—		(289)		—
Adjusted noninterest expense																Adjusted noninterest expense	$	17,870	$	17,062	$	17,735	$	16,317	$	14,451	$	52,667	$	44,843

Income before income taxes - GAAP	Income before income taxes - GAAP	$	14,310	$	15,473	$	12,307	$	14,145	$	9,806	$	42,090	$	19,752	Income before income taxes - GAAP	$	9,423	$	10,824	$	12,999	$	14,482	$	14,310	$	33,246	$	42,090
Adjustments:	Adjustments:															Adjustments:
Write-down of other real estate owned		—		—		—		—		2,065		—		2,065
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)
Acquisition-related expenses																Acquisition-related expenses	—		103		170		163		—		273		—
Nonrecurring consulting fee																Nonrecurring consulting fee	—		—		875		—		—		875		—
Write-down of Software																Write-down of Software	125		—		—		475		—		125		—
Subordinated debt redemption cost	Subordinated debt redemption cost	810		—		—		—		—		810		—		Subordinated debt redemption cost	—		—		—		—		810		—		810
Discretionary inflation bonus																Discretionary inflation bonus	—		531		—		—		—		531		—
Accelerated equity compensation																Accelerated equity compensation	—		289		—		—		—		289		—
Adjusted income before income taxes	Adjusted income before income taxes	$	15,120	$	12,950	$	12,307	$	14,145	$	11,871	$	40.377	$	21,817	Adjusted income before income taxes	$	9,548	$	11,747	$	14,044	$	15,120	$	15,120	$	35,339	$	40,377

Income tax provision - GAAP	Income tax provision - GAAP	$	2,220	$	2,377	$	1,857	$	3,055	$	1,395	$	6,454	$	1,390	Income tax provision - GAAP	$	987	$	1,279	$	1,790	$	2,004	$	2,220	$	4,056	$	6,454
Adjustments:
Write-down of other real estate owned		—		—		—		—		434		—		434
Adjustments:1																Adjustments:1
Gain on sale of premises and equipment	Gain on sale of premises and equipment	—		(530)		—		—		—		(530)		—		Gain on sale of premises and equipment	—		—		—		—		—		—		(530)
Acquisition-related expenses																Acquisition-related expenses	—		21		36		34		—		57		—
Nonrecurring consulting fee																Nonrecurring consulting fee	—		—		184		—		—		184		—
Write-down of Software																Write-down of Software	26		—		—		100		—		26		—
Subordinated debt redemption cost	Subordinated debt redemption cost	170		—		—		—		—		170		—		Subordinated debt redemption cost	—		—		—		—		170		—		170
Discretionary inflation bonus																Discretionary inflation bonus	—		112		—		—		—		112		—
Accelerated equity compensation																Accelerated equity compensation	—		61		—		—		—		61		—
Adjusted income tax provision	Adjusted income tax provision	$	2,390	$	1,847	$	1,857	$	3,055	$	1,829	$	6,094	$	1,824	Adjusted income tax provision	$	1,013	$	1,473	$	2,010	$	2,138	$	2,390	$	4,496	$	6,094

Net income - GAAP	Net income - GAAP	$	12,090	$	13,096	$	10,450	$	11,090	$	8,411	$	35,636	$	18,362	Net income - GAAP	$	8,436	$	9,545	$	11,209	$	12,478	$	12,090	$	29,190	$	35,636
Adjustments:	Adjustments:															Adjustments:
Write-down of other real estate owned		—		—		—		—		1,631		—		1,631
Gain on sale of premises and equipment	Gain on sale of premises and equipment	—		(1,993)		—		—		—		(1,993)		—		Gain on sale of premises and equipment	—		—		—		—		—		—		(1,993)
Acquisition-related expenses																Acquisition-related expenses	—		82		134		129		—		216		—
Nonrecurring consulting fee																Nonrecurring consulting fee	—		—		691		—		—		691		—
Write-down of Software																Write-down of Software	99		—		—		375		—		99		—
Subordinated debt redemption cost	Subordinated debt redemption cost	640		—		—		—		—		640		—		Subordinated debt redemption cost	—		—		—		—		640		—		640
Discretionary inflation bonus																Discretionary inflation bonus	—		419		—		—		—		419		—
Accelerated equity compensation																Accelerated equity compensation	—		228		—		—		—		228		—
Adjusted net income	Adjusted net income	$	12,730	$	11,103	$	10,450	$	11,090	$	10,042	$	34,283	$	19,993	Adjusted net income	$	8,535	$	10,274	$	12,034	$	12,982	$	12,730	$	30,843	$	34,283
1 Assuming a 21% tax rate																1 Assuming a 21% tax rate

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

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

6366


(dollars in thousands, except share and per share data)	Three Months Ended															Nine Months Ended
	September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021			September 30, 2022			September 30, 2021
Diluted average common shares outstanding	9,525,855			9,658,689			9,870,394			9,989,951			9,988,102			9,681,742			9,974,071

Diluted earnings per share - GAAP	$	0.89		$	0.99		$	1.14		$	1.25		$	1.21		$	3.01		$	3.57
Adjustments:
Effect of gain on sale of premises and equipment	—			—			—			—			—			—			(0.19)
Effect of acquisition-related expenses	—			0.01			0.01			0.01			—			0.02			—
Effect of nonrecurring consulting fee	—			—			0.07			—			—			0.07			—
Effect of write-down of software	0.01			—			—			0.04			—			0.01			—
Effect of subordinated debt redemption cost	—			—			—			—			0.06			—			0.06
Effect of discretionary inflation bonus	—			0.04			—			—			—			0.04			—
Effect of accelerated equity compensation	—			0.02			—			—			—			0.02			—
Adjusted diluted earnings per share	$	0.90		$	1.06		$	1.22		$	1.30		$	1.27		$	3.17		$	3.44

Return on average assets	0.82		%	0.93		%	1.08		%	1.19		%	1.12		%	0.94		%	1.13		%
Effect of gain on sale of premises and equipment	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%	(0.06		%)
Effect of acquisition-related expenses	0.00		%	0.01		%	0.01		%	0.01		%	0.00		%	0.01		%	0.00		%
Effect of nonrecurring consulting fee	0.00		%	0.00		%	0.07		%	0.00		%	0.00		%	0.02		%	0.00		%
Effect of write-down of software	0.01		%	0.00		%	0.00		%	0.04		%	0.00		%	0.00		%	0.00		%
Effect of subordinated debt redemption cost	0.00		%	0.00		%	0.00		%	0.00		%	0.06		%	0.00		%	0.02		%
Effect of discretionary inflation bonus	0.00		%	0.04		%	0.00		%	0.00		%	0.00		%	0.01		%	0.00		%
Effect of accelerated equity compensation	0.00		%	0.02		%	0.00		%	0.00		%	0.00		%	0.01		%	0.00		%
Adjusted return on average assets	0.83		%	1.00		%	1.16		%	1.24		%	1.18		%	0.99		%	1.09		%

Return on average shareholders' equity	9.01		%	10.23		%	11.94		%	13.14		%	13.10		%	10.40		%	13.54		%
Effect of gain on sale of premises and equipment	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%	(0.75		%)
Effect of acquisition-related expenses	0.00		%	0.09		%	0.14		%	0.14		%	0.00		%	0.08		%	0.00		%
Effect of nonrecurring consulting fee	0.00		%	0.00		%	0.74		%	0.00		%	0.00		%	0.25		%	0.00		%
Effect of write-down of software	0.11		%	0.00		%	0.00		%	0.39		%	0.00		%	0.04		%	0.00		%
Effect of subordinated debt redemption cost	0.00		%	0.00		%	0.00		%	0.00		%	0.69		%	0.00		%	0.24		%
Effect of discretionary inflation bonus	0.00		%	0.45		%	0.00		%	0.00		%	0.00		%	0.15		%	0.00		%
Effect of accelerated equity compensation	0.00		%	0.24		%	0.00		%	0.00		%	0.00		%	0.08		%	0.00		%
Adjusted return on average shareholders' equity	9.12		%	11.01		%	12.82		%	13.67		%	13.79		%	11.00		%	13.03		%


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

(dollars in thousands, except share and per share data)	(dollars in thousands, except share and per share data)	Three Months Ended															Nine Months Ended						(dollars in thousands, except share and per share data)	Three Months Ended															Nine Months Ended
		September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020			September 30, 2021			September 30, 2020				September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021			September 30, 2022			September 30, 2021
Return on average assets		1.12		%	1.25		%	1.02		%	1.02		%	0.78		%	1.13		%	0.58		%
Effect of write-down of other real estate owned		0.00		%	0.00		%	0.00		%	0.00		%	0.15		%	0.00		%	0.05		%
Return on average tangible common equity																							Return on average tangible common equity	9.13		%	10.36		%	12.09		%	13.30		%	13.27		%	10.53		%	13.73		%
Effect of gain on sale of premises and equipment	Effect of gain on sale of premises and equipment	0.00		%	(0.19)		%	0.00		%	0.00		%	0.00		%	(0.06)		%	0.00		%	Effect of gain on sale of premises and equipment	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%	(0.77		%)
Effect of acquisition-related expenses																							Effect of acquisition-related expenses	0.00		%	0.09		%	0.14		%	0.14		%	0.00		%	0.08		%	0.00		%
Effect of nonrecurring consulting fee																							Effect of nonrecurring consulting fee	0.00		%	0.00		%	0.75		%	0.00		%	0.00		%	0.25		%	0.00		%
Effect of write-down of software																							Effect of write-down of software	0.11		%	0.00		%	0.00		%	0.40		%	0.00		%	0.04		%	0.00		%
Effect of subordinated debt redemption cost	Effect of subordinated debt redemption cost	0.06		%	0.00		%	0.00		%	0.00		%	0.00		%	0.02		%	0.00		%	Effect of subordinated debt redemption cost	0.00		%	0.00		%	0.00		%	0.00		%	0.70		%	0.00		%	0.25		%
Adjusted return on average assets		1.18		%	1.06		%	1.02		%	1.02		%	0.93		%	1.09		%	0.63		%

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

Return on average tangible common equity		13.27		%	15.09		%	12.79		%	13.84		%	10.83		%	13.73		%	8.02		%
Effect of write-down of other real estate owned		0.00		%	0.00		%	0.00		%	0.00		%	2.10		%	0.00		%	0.71		%
Effect of gain on sale of premises and equipment		0.00		%	(2.30)		%	0.00		%	0.00		%	0.00		%	(0.77)		%	0.00		%
Effect of subordinated debt redemption cost		0.70		%	0.00		%	0.00		%	0.00		%	0.00		%	0.25		%	0.00		%
Effect of discretionary inflation bonus																							Effect of discretionary inflation bonus	0.00		%	0.45		%	0.00		%	0.00		%	0.00		%	0.15		%	0.00		%
Effect of accelerated equity compensation																							Effect of accelerated equity compensation	0.00		%	0.25		%	0.00		%	0.00		%	0.00		%	0.08		%	0.00		%
Adjusted return on average tangible common equity	Adjusted return on average tangible common equity	13.97		%	12.79		%	12.79		%	13.84		%	12.93		%	13.21		%	8.73		%	Adjusted return on average tangible common equity	9.24		%	11.15		%	12.98		%	13.84		%	13.97		%	11.13		%	13.21		%

Effective income tax rate	Effective income tax rate	15.5		%	15.4		%	15.1		%	21.6		%	14.2		%	15.3		%	7.0		%	Effective income tax rate	10.5		%	11.8		%	13.8		%	13.8		%	15.5		%	12.2		%	15.3		%
Effect of write-down of other real estate owned		0.0		%	0.0		%	0.0		%	0.0		%	1.2		%	0.0		%	1.4		%
Effect of gain on sale of premises and equipment	Effect of gain on sale of premises and equipment	0.0		%	(1.1)		%	0.0		%	0.0		%	0.0		%	(0.6)		%	0.0		%	Effect of gain on sale of premises and equipment	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%	(0.6		%)
Effect of acquisition-related expenses																							Effect of acquisition-related expenses	0.0		%	0.2		%	0.3		%	0.1		%	0.0		%	0.2		%	0.0		%
Effect of nonrecurring consulting fee																							Effect of nonrecurring consulting fee	0.0		%	0.0		%	1.3		%	0.0		%	0.0		%	0.5		%	0.0		%
Effect of write-down of software																							Effect of write-down of software	0.3		%	0.0		%	0.0		%	0.2		%	0.0		%	0.1		%	0.0		%
Effect of subordinated debt redemption cost	Effect of subordinated debt redemption cost	0.3		%	0.0		%	0.0		%	0.0		%	0.0		%	0.4		%	0.0		%	Effect of subordinated debt redemption cost	0.0		%	0.0		%	0.0		%	0.0		%	0.3		%	0.0		%	0.4		%
Effect of discretionary inflation bonus																							Effect of discretionary inflation bonus	0.0		%	1.0		%	0.0		%	0.0		%	0.0		%	0.3		%	0.0		%
Effect of accelerated equity compensation																							Effect of accelerated equity compensation	0.0		%	0.6		%	0.0		%	0.0		%	0.0		%	0.2		%	0.0		%
Adjusted effective income tax rate	Adjusted effective income tax rate	15.8		%	14.3		%	15.1		%	21.6		%	15.4		%	15.1		%	8.4		%	Adjusted effective income tax rate	10.8		%	13.6		%	15.4		%	14.1		%	15.8		%	13.5		%	15.1		%
Income before income taxes - GAAP																							Income before income taxes - GAAP	$	9,423		$	10,824		$	12,999		$	14,482		$	14,310		$	33,246		$	42,090
Adjustments:																							Adjustments:
Income from tax refund advance lending																							Income from tax refund advance lending	—			(149)			(2,864)			—			—			(3,013)			—
Provision for tax refund advance loans losses																							Provision for tax refund advance loans losses	—			18			1,842			—			—			1,860			—
Tax refund advance lending servicing fee																							Tax refund advance lending servicing fee	—			9			921			—			—			930			—
Income before income taxes, excluding tax refund advance loans																							Income before income taxes, excluding tax refund advance loans	$	9,423		$	10,702		$	12,898		$	14,482		$	14,310		$	33,023		$	42,090

Income tax provision - GAAP																							Income tax provision - GAAP	$	987		$	1,279		$	1,790		$	2,004		$	2,220		$	4,056		$	6,454
Adjustments:1																							Adjustments:1
Income from tax refund advance lending																							Income from tax refund advance lending	—			(31)			(601)			—			—			(632)			—
Provision for tax refund advance loans losses																							Provision for tax refund advance loans losses	—			4			387			—			—			391			—
Tax refund advance lending servicing fee																							Tax refund advance lending servicing fee	—			2			193			—			—			195			—
Income tax provision, excluding tax refund advance loans																							Income tax provision, excluding tax refund advance loans	$	987		$	1,254		$	1,769		$	2,004		$	2,220		$	4,010		$	6,454


(dollars in thousands, except share and per share data)	Three Months Ended										Nine Months Ended
	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021		September 30, 2022		September 30, 2021
Net income - GAAP	$	8,436	$	9,545	$	11,209	$	12,478	$	12,090	$	29,190	$	35,636
Adjustments:
Income from tax refund advance lending	—		(118)		(2,263)		—		—		(2,381)		—
Provision for tax refund advance loans losses	—		14		1,455		—		—		1,469		—
Tax refund advance lending servicing fee	—		7		728		—		—		735		—
Net income, excluding tax refund advance loans	$	8,436	$	9,448	$	11,129	$	12,478	$	12,090	$	29,013	$	35,636

1 Assuming a 21% tax rate

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 both September 30, ~~2021~~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 September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had commitments to sell residential real estate loans of ~~$78.6~~$27.8 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.

6569

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. In the Company’s standard model, it incorporates deposit betas ranging from 30% to 70% (100% for certain products) in up-rate scenarios related to its savings and money market non-maturity deposit products. 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 September 30, ~~2021,~~2022, assuming a static balance sheet and instantaneous parallel shifts in interest 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
NII - Year 1 0.73 % N/A (2.86) % (7.04) %
NII - Year 2 3.09 % 0.88 % (1.44) % (6.21) %
EVE 1.80 % N/A (7.16) % (16.44) %


	% Change from Base Case for Instantaneous Parallel Changes in Rates
	Implied Forward Curve -200 Basis Points		Implied Forward Curve -100 Basis Points		Base Implied Forward Curve		Implied Forward Curve +100 Basis Points		Implied Forward Curve +200 Basis Points
NII - Year 1	15.17	%	9.12	%	N/A		(6.61	%)	(13.46	%)
NII - Year 2	19.24	%	11.00	%	0.95	%	(6.65	%)	(14.96	%)
EVE	32.91	%	20.09	%	N/A		(18.06	%)	(35.55	%)

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 September 30, ~~2021,~~2022, assuming a static balance sheet and gradual parallel shifts in interest ~~rates over a twelve month period:~~rates:


		% Change from Base Case for Gradual Parallel Changes in Rates									% Change from Base Case for Gradual 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 -200 Basis Points		Implied Forward Curve -100 Basis Points		Base Implied Forward Curve		Implied Forward Curve +100 Basis Points		Implied Forward Curve +200 Basis Points
NII - Year 1	NII - Year 1	(0.02)	%	N/A		(0.65)	%	(2.28)	%	NII - Year 1	7.18	%	3.90	%	N/A		(3.03	%)	(6.10	%)
NII - Year 2	NII - Year 2	2.54	%	0.88	%	(0.80)	%	(4.77)	%	NII - Year 2	19.32	%	10.88	%	0.95	%	(7.05	%)	(15.45	%)
EVE	EVE	1.50	%	N/A		(6.84)	%	(15.67)	%	EVE	30.82	%	18.42	%	N/A		(17.13	%)	(33.68	%)

6670

In the Company’s supplementary model, it incorporates deposit betas ranging from 12% to 94% in up-rate scenarios related to its savings and money market non-maturity deposit products, which approximates actual deposit pricing experience thus far in 2022. Presented below are the estimated impacts on the Company’s NII and EVE position as of September 30, 2022, assuming a static balance sheet and instantaneous and gradual parallel shifts in interest rates:


	% Change from Base Case for Instantaneous Parallel Changes in Rates
	Implied Forward Curve -200 Basis Points		Implied Forward Curve -100 Basis Points		Base Implied Forward Curve		Implied Forward Curve +100 Basis Points		Implied Forward Curve +200 Basis Points
NII - Year 1	14.64	%	8.87	%	N/A		(5.16	%)	(10.55	%)
NII - Year 2	19.23	%	11.38	%	1.76	%	(4.40	%)	(11.17	%)
EVE	30.04	%	18.93	%	N/A		(16.11	%)	(31.78	%)


	% Change from Base Case for Gradual Changes in Rates
	Implied Forward Curve -200 Basis Points		Implied Forward Curve -100 Basis Points		Base Implied Forward Curve		Implied Forward Curve +100 Basis Points		Implied Forward Curve +200 Basis Points
NII - Year 1	6.93	%	3.73	%	N/A		(2.45	%)	(4.93	%)
NII - Year 2	18.90	%	11.02	%	1.76	%	(4.83	%)	(11.82	%)
EVE	27.93	%	17.05	%	N/A		(15.37	%)	(30.32	%)

The NII and EVE figures presented in ~~both~~the 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 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 September 30, ~~2021.~~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 September 30, ~~2021~~2022 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

6772

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 (“2020 Form 10-K”), except as described below. The risk factors set forth below update, and should be read together with, the risk factors described in our 2020 Form 10-K.~~

~~We have and expect to incur substantial costs related to the merger with First Century (the "merger") and integration.~~

We have incurred and expect to incur a number of non-recurring costs associated with the merger. These costs include legal, financial advisory, accounting, consulting and other advisory fees, retention, severance and employee benefit-related costs, regulatory fees, closing, integration and other related costs. Some of these costs are payable regardless of whether or not the merger is completed.

~~The merger may be more difficult, costly or time-consuming than expected, and we may not realize the anticipated benefits of the merger.~~

The anticipated benefits of the merger, including revenue diversification and growth, may not be realized fully or at all or may take longer to realize than expected and integration may result in additional and unforeseen expenses. An inability to realize the full extent of the anticipated benefits of the merger, as well as any delays encountered in the integration process, could have an adverse effect upon our operating results following the completion of the merger.

In addition, we and First Century have operated and, until the completion of the merger, must continue to operate, independently. It is possible that the integration process could result in the loss of key employees, including employees of First Century, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect each company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the merger. Integration efforts between the companies may also divert management attention and resources. These integration matters could have an adverse effect on the Company during this transition period and for an undetermined period after completion of the merger.

Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the Company following the merger.

Before the merger and the merger of First Century Bank, N.A. into the Bank (the “bank merger”) may be completed, various approvals, consents and non-objections must be obtained from the Indiana Department of Financial Institutions, the FDIC, the Federal Reserve Board and other regulatory authorities in the United States. In determining whether to grant these approvals, such regulatory authorities consider a variety of factors, including the regulatory standing of each party. These approvals could be delayed or not obtained at all, including due to an adverse development in either party’s regulatory standing or in any other factors considered by~~regulators when granting such approvals; governmental, political or community group inquiries, investigations or opposition; or changes in legislation or the political environment generally.~~

The approvals that are granted may impose terms and conditions, limitations, obligations or costs, or place restrictions on the conduct of our business or require changes to the terms of the transactions contemplated by the merger agreement. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions and that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the merger agreement, imposing additional material costs on or materially limiting our revenues following the merger or otherwise reducing the anticipated benefits of the merger if the merger were consummated successfully within the expected timeframe. In addition, there can be no assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the merger.

~~Failure to complete the merger could negatively impact the Company~~.

If the merger is not completed for any reason, including as a result of First Century shareholders failing to approve the merger, there may be various adverse consequences and we may experience negative reactions from the financial markets and from our customers and employees. Additionally, if the merger agreement is terminated, the market price of our common stock could decline to the extent that current market prices reflect a market assumption that the merger will be beneficial and will be completed. We also could be subject to litigation related to any failure to complete the merger or to perform our obligations under the merger agreement.

~~We will be subject to business uncertainties and contractual restrictions while the merger is pending.~~

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on the Company and/or First Century. These uncertainties may impair First Century and/or our ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with First Century and/or the Company to seek to change existing business relationships with First Century and/or the Company.

~~The merger agreement may be terminated in accordance with its terms and the merger may not be completed.~~

The merger agreement is subject to a number of conditions which must be fulfilled in order to complete the merger. Those conditions include: (i) approval by First Century shareholders; (ii) the receipt of required regulatory approvals, including the approval of the Indiana Department of Financial Institutions, the FDIC and the Federal Reserve; and (iii) the absence of any statute, rule, regulation, injunction, order, or decree, which shall have been enacted, entered, promulgated, or enforced, which prohibits, prevents, or makes illegal the completion of the merger, and no material claim, litigation or proceeding shall have been initiated and pending or threatened relating to the merger agreement or the merger or seeking to prevent the completion of the merger. Each party’s obligation to complete the merger is also subject to certain additional customary conditions. These conditions to the closing may not be fulfilled in a timely manner or at all, and, accordingly, the merger may not be completed.

~~We may not have discovered certain liabilities or other matters related to First Century, which may adversely affect the future financial performance of the combined company.~~

In the course of the due diligence review that we conducted prior to the execution of the merger agreement, we may not have discovered, or may have been unable to properly quantify, certain liabilities of First Century or other factors that may have an adverse effect on the business, results of operations, financial condition and cash flows of the combined company after the consummation of the merger.

~~Our estimates and judgments related to the acquisition accounting methods used to record the purchase price allocation related to the merger may be inaccurate.~~

Our management will make significant accounting judgments and estimates related to the application of acquisition accounting of the merger under GAAP, as well as the underlying valuation models. Our business, operating results and financial condition could be materially adversely impacted in future periods if the accounting judgments and estimates prove to be inaccurate.2021.

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

Repurchases of Common Stock

~~Subsequent to the end of the quarter, on~~On October 20, 2021, ~~we announced that our~~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. In October 2022, the Company’s Board of Directors increased the authorization to $35.0 million. The stock repurchase authorization is scheduled to expire on December 31, 2022. Under this program, the Company repurchased 120,000 shares of common stock during the third quarter 2022 at an average price of $36.56 per share. The Company has repurchased a total of 618,167 shares at an average price of $40.54 per share under the program through September 30, 2022, leaving $9.9 million of remaining authority under the program.

69The 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 third 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






July 1, 2022 - July 31, 2022	—	$	—	—	$	—
August 1, 2022 - August 31, 2022	44,533	$	37.92	44,533	$	12,636
September 1, 2022 - September 30, 2022	75,467	$	35.75	75,467	$	9,937
Total	120,000			120,000

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

~~4.1~~

~~Subordinated Indenture, dated as of September 30, 2016, between First Internet Bancorp and U.S. Bank National Association, as trustee~~ ~~(incorporated by reference to Exhibit 4.1 to current report on Form 8-K filed September 30, 2016)~~

~~Incorporated by Reference~~

~~4.2~~

~~Fourth Supplemental Indenture, dated as of August 16, 2021, between First Internet Bancorp and U.S. Bank National Association, as trustee~~ ~~(incorporated by reference to Exhibit 4.2 to current report on Form 8-K filed August 16, 2021)~~

~~Incorporated by Reference~~

~~4.3~~

~~Forms of 3.75% Fixed-to-Floating Rate Subordinated Note due September 1, 2031~~ ~~(included as Exhibit A-1 and Exhibit A-2 to the Fourth Supplemental Indenture filed as Exhibit 4.2 hereto)~~

~~Incorporated by Reference~~

~~10.1~~

Form of Subordinated Note Purchase Agreement, dated August 16,2021, by and among First Internet Bancorp and the Purchasers* ~~(incorporated by reference to Exhibit 10.1 to current report on Form 8-K filed August 15, 2021)~~

~~Incorporated by Reference~~

~~10.2~~

Form of Registration Rights Agreement, dated August 16, 2021, by and among First Internet Bancorp and the Purchasers (incorporated by reference to Exhibit 10.2 to current report on Form 8-K filed August 16, 2021)

~~Incorporated by Reference~~

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

* ~~Schedules and exhibits have been omitted pursuant~~Management contract, compensatory plan or arrangement required to ~~Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will~~ be ~~furnished to the SEC upon request; provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934,~~filed as ~~amended, for any document so furnished.~~an exhibit.

7174

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

11/9/~~2021~~2022	By	/s/ David B. Becker
		David B. Becker, Chairman and Chief Executive Officer (on behalf of Registrant)

11/9/~~2021~~2022	By	/s/ Kenneth J. Lovik
		Kenneth J. Lovik, Executive Vice President and Chief Financial Officer (principal financial officer)

7275


	Three Months Ended September 30, 2020
Allowance for loan losses:	Balance, Beginning of Period		(Credit) Provision Charged to Expense		Losses Charged Off		Recoveries		Balance, End of Period
Commercial and industrial	$	1,477	$	(227)	$	(99)	$	—	$	1,151
Owner-occupied commercial real estate	846		167		—		—		1,013
Investor commercial real estate	130		—		—		—		130
Construction	721		155		—		—		876
Single tenant lease financing	11,318		717		—		—		12,035
Public finance	1,542		191		—		—		1,733
Healthcare finance	4,762		1,232		—		87		6,081
Small business lending	251		230		—		3		484

Residential mortgage	539		26		—		—		565
Home equity	51		(1)		—		3		53
Other consumer	2,828		19		(142)		91		2,796
Total	$	24,465	$	2,509	$	(241)	$	184	$	26,917


	Nine Months Ended September 30, 2020
Allowance for loan losses:	Balance, Beginning of Period		(Credit) Provision Charged to Expense		Losses Charged Off		Recoveries		Balance, End of Period
Commercial and industrial	$	1,521	$	(22)	$	(353)	$	5	$	1,151
Owner-occupied commercial real estate	561		452		—		—		1,013
Investor commercial real estate	109		21		—		—		130
Construction	380		496		—		—		876
Single tenant lease financing	11,175		860		—		—		12,035
Public finance	1,580		153		—		—		1,733
Healthcare finance	3,247		3,490		(743)		87		6,081
Small business lending	54		413		—		17		484

Residential mortgage	657		(81)		(15)		4		565
Home equity	46		(1)		—		8		53
Other consumer	2,510		680		(644)		250		2,796
Total	$	21,840	$	6,461	$	(1,755)	$	371	$	26,917