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 March 31, ~~2022~~2023


☐			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.)

8701 East 116th Street Fishers, IN						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 May ~~6, 2022,~~5, 2023, the registrant had ~~9,655,480~~8,905,477 shares of common stock issued and outstanding.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains 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 (the “Company,” “we,” “our,” or “us”) regarding ~~its~~our business strategies, intended results and future 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 “acquire”, “anticipate,” “attempt,” “believe,” “can,” “continue,” “could,” “differentiate,” “diversify,” “driving,” “effort,” “emerging,” “estimate,” “expect,” “grow,” “increase,” “intend,” “likely,” “may,” “objective,” “optimistic,” “pending,” “plan,” “position,” “potential,” “preliminary,” “remain,” “retain,” “should,” “succeed,” “will,” “win,” “would” or other similar expressions. Such statements are subject to certain risks and uncertainties including: changes in market rates and prices that may adversely impact the ~~continued or potential effects~~value of ~~the COVID-19 global pandemic and related variants and mutations~~securities, loans, deposits and other ~~adverse public health developments on the economy, our business and operations~~financial instruments and the ~~business and operations~~interest rate sensitivity of our ~~vendors and customers; the war~~balance sheet; 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 First Internet Bank (the “Bank”) in ~~Ukraine and potential adverse global economic effects;~~particular; more restrictive regulatory capital requirements; increased costs, including deposit insurance premiums; 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~~credit losses, and the value and salability of the real estate ~~that we own or~~ that is the collateral for our loans; failures or breaches of or interruptions in the communication and information systems on which we rely to conduct our business that could reduce our revenues, increase our costs or lead to disruptions in our business; our plans to continue originating and growing our commercial real estate, commercial and industrial, public finance, U.S. Small Business Administration (“SBA”), healthcare finance and franchise finance loan portfolios, which may carry greater risks of non-payment or other unfavorable consequences; our dependence on capital distributions from ~~First Internet Bank of Indiana (“~~the ~~Bank”);~~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~~credit 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; ~~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. 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)


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(Unaudited)					(Unaudited)
Assets	Assets					Assets
Cash and due from banks	Cash and due from banks	$	20,976	$	7,492	Cash and due from banks	$	27,741	$	17,426
Interest-bearing deposits	Interest-bearing deposits	496,573		435,468		Interest-bearing deposits	276,231		239,126
Total cash and cash equivalents	Total cash and cash equivalents	517,549		442,960		Total cash and cash equivalents	303,972		256,552

Securities available-for-sale, at fair value (amortized cost of $486,632 and $606,507 in 2022 and 2021, respectively)		465,288		603,044
Securities held-to-maturity, at amortized cost (fair value of $159,971 and $61,468 in 2022 and 2021, respectively)		163,370		59,565
Loans held-for-sale (includes $17,364 and $23,233 at fair value in 2022 and 2021, respectively)		33,991		47,745
Securities available-for-sale, at fair value (amortized cost of $436,520 and $436,183 in 2023 and 2022, respectively)						Securities available-for-sale, at fair value (amortized cost of $436,520 and $436,183 in 2023 and 2022, respectively)	395,833		390,384
Securities held-to-maturity, at amortized cost, net of allowance for credit losses (fair value of $192,463 and $168,483 in 2023 and 2022, respectively)						Securities held-to-maturity, at amortized cost, net of allowance for credit losses (fair value of $192,463 and $168,483 in 2023 and 2022, respectively)	210,761		189,168
Loans held-for-sale (includes $2,209 and $9,110 at fair value in 2023 and 2022, respectively)						Loans held-for-sale (includes $2,209 and $9,110 at fair value in 2023 and 2022, respectively)	18,144		21,511
Loans	Loans	2,880,780		2,887,662		Loans	3,607,242		3,499,401
Allowance for loan losses		(28,251)		(27,841)
Allowance for credit losses - loans						Allowance for credit losses - loans	(36,879)		(31,737)
Net loans	Net loans	2,852,529		2,859,821		Net loans	3,570,363		3,467,664
Accrued interest receivable	Accrued interest receivable	15,263		16,037		Accrued interest receivable	22,322		21,069
Federal Home Loan Bank of Indianapolis stock	Federal Home Loan Bank of Indianapolis stock	25,219		25,650		Federal Home Loan Bank of Indianapolis stock	28,350		28,350
Cash surrender value of bank-owned life insurance	Cash surrender value of bank-owned life insurance	39,133		38,900		Cash surrender value of bank-owned life insurance	40,105		39,859
Premises and equipment, net	Premises and equipment, net	68,632		59,842		Premises and equipment, net	74,248		72,711
Goodwill	Goodwill	4,687		4,687		Goodwill	4,687		4,687
Servicing asset, at fair value	Servicing asset, at fair value	5,249		4,702		Servicing asset, at fair value	7,312		6,255
Other real estate owned	Other real estate owned	—		1,188		Other real estate owned	106		—
Accrued income and other assets	Accrued income and other assets	34,487		46,853		Accrued income and other assets	45,116		44,894
Total assets	Total assets	$	4,225,397	$	4,210,994	Total assets	$	4,721,319	$	4,543,104
Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Liabilities	Liabilities					Liabilities
Noninterest-bearing deposits	Noninterest-bearing deposits	$	119,196	$	117,531	Noninterest-bearing deposits	$	140,449	$	175,315
Interest-bearing deposits	Interest-bearing deposits	3,098,783		3,061,428		Interest-bearing deposits	3,481,841		3,265,930
Total deposits	Total deposits	3,217,979		3,178,959		Total deposits	3,622,290		3,441,245
Advances from Federal Home Loan Bank	Advances from Federal Home Loan Bank	514,923		514,922		Advances from Federal Home Loan Bank	614,929		614,928
Subordinated debt, net of unamortized debt issuance costs of $2,694 and $2,769 in 2022 and 2021, respectively		104,306		104,231
Subordinated debt, net of unamortized debt issuance costs of $2,392 and $2,468 in 2023 and 2022, respectively						Subordinated debt, net of unamortized debt issuance costs of $2,392 and $2,468 in 2023 and 2022, respectively	104,608		104,532
Accrued interest payable	Accrued interest payable	1,532		2,018		Accrued interest payable	2,592		2,913
Accrued expenses and other liabilities	Accrued expenses and other liabilities	12,002		30,526		Accrued expenses and other liabilities	21,328		14,512
Total liabilities	Total liabilities	3,850,742		3,830,656		Total liabilities	4,365,747		4,178,130
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; 9,683,727 and 9,754,455 shares issued and outstanding in 2022 and 2021, respectively		214,473		218,946
Voting common stock, no par value; 45,000,000 shares authorized; 8,943,477 and 9,065,883 shares issued and outstanding in 2023 and 2022, respectively						Voting common stock, no par value; 45,000,000 shares authorized; 8,943,477 and 9,065,883 shares issued and outstanding in 2023 and 2022, respectively	189,202		192,935
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	183,043		172,431		Retained earnings	197,623		205,675
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(22,861)		(11,039)		Accumulated other comprehensive loss	(31,253)		(33,636)
Total shareholders’ equity	Total shareholders’ equity	374,655		380,338		Total shareholders’ equity	355,572		364,974
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	4,225,397	$	4,210,994	Total liabilities and shareholders’ equity	$	4,721,319	$	4,543,104

See Notes to Condensed Consolidated Financial Statements

First Internet Bancorp

Condensed Consolidated Statements of ~~Income~~Operations – Unaudited

(Amounts in thousands except share and per share data)


		Three Months Ended				Three Months Ended
		March 31, 2022		March 31, 2021				March 31, 2023		March 31, 2022
Interest Income	Interest Income						Interest Income
Loans	Loans	$	33,188	$	30,885		Loans	$	43,843	$	33,188
Securities – taxable	Securities – taxable	2,221		1,779			Securities – taxable	3,606		2,221
Securities – non-taxable	Securities – non-taxable	249		281			Securities – non-taxable	798		249
Other earning assets	Other earning assets	376		335			Other earning assets	3,786		376
Total interest income	Total interest income	36,034		33,280			Total interest income	52,033		36,034
Interest Expense	Interest Expense						Interest Expense
Deposits	Deposits	6,097		8,628			Deposits	27,270		6,097
Other borrowed funds	Other borrowed funds	4,187		4,127			Other borrowed funds	5,189		4,187
Total interest expense	Total interest expense	10,284		12,755			Total interest expense	32,459		10,284
Net Interest Income	Net Interest Income	25,750		20,525			Net Interest Income	19,574		25,750
Provision for Loan Losses		791		1,276
Net Interest Income After Provision for Loan Losses		24,959		19,249
Provision for Credit Losses 1							Provision for Credit Losses 1	9,415		791
Net Interest Income After Provision for Credit Losses							Net Interest Income After Provision for Credit Losses	10,159		24,959
Noninterest Income	Noninterest Income						Noninterest Income
Service charges and fees	Service charges and fees	316		266			Service charges and fees	209		316
Loan servicing revenue	Loan servicing revenue	585		422			Loan servicing revenue	785		585
Loan servicing asset revaluation	Loan servicing asset revaluation	(297)		(155)			Loan servicing asset revaluation	(55)		(297)
Mortgage banking activities	Mortgage banking activities	1,873		5,750			Mortgage banking activities	76		1,873

Gain on sale of loans	Gain on sale of loans	3,845		1,723			Gain on sale of loans	4,061		3,845

Other	Other	498		369			Other	370		498
Total noninterest income	Total noninterest income	6,820		8,375			Total noninterest income	5,446		6,820
Noninterest Expense	Noninterest Expense						Noninterest Expense
Salaries and employee benefits	Salaries and employee benefits	9,878		9,492			Salaries and employee benefits	11,794		9,878
Marketing, advertising and promotion	Marketing, advertising and promotion	756		680			Marketing, advertising and promotion	844		756
Consulting and professional services	Consulting and professional services	1,925		986			Consulting and professional services	926		1,925
Data processing	Data processing	449		462			Data processing	659		449
Loan expenses	Loan expenses	1,582		534			Loan expenses	1,977		1,582
Premises and equipment	Premises and equipment	2,540		1,601			Premises and equipment	2,777		2,540
Deposit insurance premium	Deposit insurance premium	281		425			Deposit insurance premium	543		281

Other	Other	1,369		1,137			Other	1,434		1,369
Total noninterest expense	Total noninterest expense	18,780		15,317			Total noninterest expense	20,954		18,780
Income Before Income Taxes		12,999		12,307
Income Tax Provision		1,790		1,857
Net Income		$	11,209	$	10,450
Income Per Share of Common Stock
(Loss) Income Before Income Taxes							(Loss) Income Before Income Taxes	(5,349)		12,999
Income Tax (Benefit) Provision							Income Tax (Benefit) Provision	(2,332)		1,790
Net (Loss) Income							Net (Loss) Income	$	(3,017)	$	11,209
(Loss) Income Per Share of Common Stock							(Loss) Income Per Share of Common Stock
Basic	Basic	$	1.14	$	1.06		Basic	$	(0.33)	$	1.14
Diluted	Diluted	$	1.14	$	1.05		Diluted	$	(0.33)	$	1.14
Weighted-Average Number of Common Shares Outstanding	Weighted-Average Number of Common Shares Outstanding						Weighted-Average Number of Common Shares Outstanding
Basic	Basic	9,790,122		9,899,230			Basic	9,024,072		9,790,122
Diluted	Diluted	9,870,394		9,963,036			Diluted	9,024,072		9,870,394
Dividends Declared Per Share	Dividends Declared Per Share	$	0.06	$	0.06		Dividends Declared Per Share	$	0.06	$	0.06

1Beginning January 1, 2023, the allowance calculation is based on the CECL methodology. Prior to January 1, 2023, the allowance calculation was based on the incurred loss methodology.

See Notes to Condensed Consolidated Financial Statements

First Internet Bancorp

Condensed Consolidated Statements of Comprehensive ~~Income~~Loss – Unaudited

(Amounts in thousands except per share data)

Three Months Ended March 31,
2022 2021
Net income $ 11,209 $ 10,450
Other comprehensive (loss) income
Securities available-for-sale
Net unrealized holding losses recorded within other comprehensive income before income tax (17,881) (2,195)
Income tax benefit (4,077) (508)
Net effect on other comprehensive (loss) income (13,804) (1,687)
Securities held-to-maturity
Reclassification of securities from available-for-sale to held-to-maturity (5,402) —
Amortization of net unrealized holding losses on securities transferred from available-for-sale to held-to-maturity 119 —
Income tax benefit (1,249) —
Net effect on other comprehensive (loss) income (4,034) —
Cash flow hedges
Net unrealized holding gains on cash flow hedging derivatives recorded within other comprehensive income before income tax 9,334 6,280
Income tax provision 3,318 1,317
Net effect on other comprehensive (loss) income 6,016 4,963
Total other comprehensive (loss) income (11,822) 3,276
Comprehensive (loss) income $ (613) $ 13,726


	Three Months Ended March 31,
	2023		2022
Net (loss) income	$	(3,017)	$	11,209
Other comprehensive income (loss)
Securities available-for-sale
Net unrealized holding gain (losses) recorded within other comprehensive income (loss) before income tax	5,112		(17,881)

Income tax provision (benefit)	1,170		(4,077)
Net effect on other comprehensive income (loss)	3,942		(13,804)

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	158		119
Income tax provision (benefit)	46		(1,249)
Net effect on other comprehensive income (loss)	112		(4,034)

Cash flow hedges
Net unrealized holding (losses) gains on cash flow hedging derivatives recorded within other comprehensive income before income tax	(2,170)		9,334
Income tax (benefit) provision	(499)		3,318
Net effect on other comprehensive (loss) income	(1,671)		6,016

Total other comprehensive income (loss)	2,383		(11,822)
Comprehensive loss	$	(634)	$	(613)

See Notes to Condensed Consolidated Financial Statements

First Internet Bancorp

Condensed Consolidated Statements of Changes in Shareholders’ Equity - Unaudited

Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022

(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, January 1, 2023										Balance, January 1, 2023	$	192,935	$	205,675	$	(33,636)	$	364,974
Impact of adoption of new accounting standards 1										Impact of adoption of new accounting standards 1	—		(4,491)		—		(4,491)
Net loss										Net loss	—		(3,017)		—		(3,017)

Other comprehensive income										Other comprehensive income	—		—		2,383		2,383
Dividends declared ($0.06 per share)										Dividends declared ($0.06 per share)	—		(544)		—		(544)

Recognition of the fair value of share-based compensation										Recognition of the fair value of share-based compensation	372		—		—		372
Repurchased shares of common stock (161,691)										Repurchased shares of common stock (161,691)	(4,002)		—		—		(4,002)

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	3		—		—		3
Common stock redeemed for the net settlement of share-based awards										Common stock redeemed for the net settlement of share-based awards	(106)		—		—		(106)

Balance, March 31, 2023										Balance, March 31, 2023	$	189,202	$	197,623	$	(31,253)	$	355,572

Balance, January 1, 2022	Balance, January 1, 2022	$	218,946	$	172,431	$	(11,039)	$	380,338	Balance, January 1, 2022	$	218,946	$	172,431	$	(11,039)	$	380,338

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

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

Recognition of the fair value of share-based compensation	Recognition of the fair value of share-based compensation	640		—		—		640		Recognition of the fair value of share-based compensation	640		—		—		640
Repurchase of common stock		(5,118)		—		—		(5,118)
Repurchase of common stock (103,703)										Repurchase of common stock (103,703)	(5,118)		—		—		(5,118)
Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units	Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units	5		—		—		5		Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units	5		—		—		5

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

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

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

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

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

Balance, March 31, 2021		$	221,911	$	136,575	$	(13,920)	$	344,566

1Reflects the impact of adopting Accounting Standards Update (“ASU”) 2016-13.

See Notes to Condensed Consolidated Financial Statements

First Internet Bancorp

Condensed Consolidated Statements of Cash Flows – Unaudited

(Amounts in thousands except per share data)


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
Operating Activities	Operating Activities					Operating Activities
Net income		$	11,209	$	10,450
Net (loss) income						Net (loss) income	$	(3,017)	$	11,209
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	7,721		283		Depreciation and amortization	1,058		2,328
Increase in cash surrender value of bank-owned life insurance	Increase in cash surrender value of bank-owned life insurance	(233)		(233)		Increase in cash surrender value of bank-owned life insurance	(246)		(233)
Provision for loan losses		791		1,276
Provision for credit losses 1						Provision for credit losses 1	9,415		791
Share-based compensation expense	Share-based compensation expense	640		692		Share-based compensation expense	372		640

Loans originated for sale	Loans originated for sale	(184,067)		(223,880)		Loans originated for sale	(91,789)		(184,067)
Proceeds from sale of loans	Proceeds from sale of loans	202,011		241,589		Proceeds from sale of loans	98,433		202,011
Gain on loans sold	Gain on loans sold	(5,907)		(9,222)		Gain on loans sold	(4,525)		(5,907)

Decrease in fair value of loans held-for-sale	Decrease in fair value of loans held-for-sale	489		862		Decrease in fair value of loans held-for-sale	136		489
(Gain) loss on derivatives		(2,565)		881
Gain (loss) on derivatives						Gain (loss) on derivatives	536		(2,565)

Loan servicing asset revaluation	Loan servicing asset revaluation	297		(248)		Loan servicing asset revaluation	55		297

Net change in accrued income and other assets	Net change in accrued income and other assets	10,399		10,695		Net change in accrued income and other assets	(2,444)		13,867
Net change in accrued expenses and other liabilities	Net change in accrued expenses and other liabilities	(7,999)		(2,012)		Net change in accrued expenses and other liabilities	(2,086)		(7,999)
Net cash provided by operating activities	Net cash provided by operating activities	32,786		31,133		Net cash provided by operating activities	5,898		30,861
Investing Activities	Investing Activities					Investing Activities
Net loan activity, excluding purchases	Net loan activity, excluding purchases	32,510		47,653		Net loan activity, excluding purchases	(25,111)		32,510
Proceeds from sale of other real estate owned	Proceeds from sale of other real estate owned	1,188		—		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	27,848		55,901		Maturities and calls of securities available-for-sale	9,448		29,008

Purchase of securities available-for-sale	Purchase of securities available-for-sale	(16,453)		(21,279)		Purchase of securities available-for-sale	(1,411)		(10,133)
Maturities and calls of securities held-to-maturity						Maturities and calls of securities held-to-maturity	5,129		765
Purchase of securities held-to-maturity						Purchase of securities held-to-maturity	(26,572)		(8,320)
Redemption of Federal Home Loan Bank of Indianapolis stock						Redemption of Federal Home Loan Bank of Indianapolis stock	—		431

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

Redemption of Federal Home Loan Bank of Indianapolis stock		431		—

Purchase of premises and equipment	Purchase of premises and equipment	(9,808)		(5,697)		Purchase of premises and equipment	(2,704)		(9,808)

Loans purchased	Loans purchased	(40,059)		(47,234)		Loans purchased	(90,029)		(40,059)
Net proceeds from sale of portfolio loans	Net proceeds from sale of portfolio loans	14,466		—		Net proceeds from sale of portfolio loans	—		14,466
Other investing activities	Other investing activities	374		—		Other investing activities	(1,315)		374
Net cash provided by investing activities		8,497		29,344
Net cash (used in) provided by investing activities						Net cash (used in) provided by investing activities	(132,565)		10,422
Financing Activities	Financing Activities					Financing Activities
Net increase (decrease) in deposits		39,020		(53,282)
Net increase in deposits						Net increase in deposits	178,743		39,020

Cash dividends paid	Cash dividends paid	(596)		(601)		Cash dividends paid	(548)		(596)
Repayment of subordinated debt		—		(10,000)

Repurchase of common stock	Repurchase of common stock	(5,118)		—		Repurchase of common stock	(4,002)		(5,118)
Proceeds from advances from Federal Home Loan Bank	Proceeds from advances from Federal Home Loan Bank	110,000		110,000		Proceeds from advances from Federal Home Loan Bank	110,000		110,000
Repayment of advances from Federal Home Loan Bank	Repayment of advances from Federal Home Loan Bank	(110,000)		(110,000)		Repayment of advances from Federal Home Loan Bank	(110,000)		(110,000)

Other, net	Other, net	—		(195)		Other, net	(106)		—
Net cash provided by (used in) financing activities		33,306		(64,078)
Net Increase (Decrease) in Cash and Cash Equivalents		74,589		(3,601)
Net cash provided by financing activities						Net cash provided by financing activities	174,087		33,306
Net Increase in Cash and Cash Equivalents						Net Increase in Cash and Cash Equivalents	47,420		74,589
Cash and Cash Equivalents, Beginning of Period	Cash and Cash Equivalents, Beginning of Period	442,960		419,806		Cash and Cash Equivalents, Beginning of Period	256,552		442,960
Cash and Cash Equivalents, End of Period	Cash and Cash Equivalents, End of Period	$	517,549	$	416,205	Cash and Cash Equivalents, End of Period	$	303,972	$	517,549
Supplemental Disclosures	Supplemental Disclosures					Supplemental Disclosures

Cash paid during the period for interest	Cash paid during the period for interest	10,770		12,777		Cash paid during the period for interest	32,782		10,770
Cash paid during the period for taxes	Cash paid during the period for taxes	50		10		Cash paid during the period for taxes	285		50

Loans transferred to other real estate owned						Loans transferred to other real estate owned	106		—
Loans transferred to held-for-sale from portfolio	Loans transferred to held-for-sale from portfolio	14,049		—		Loans transferred to held-for-sale from portfolio	—		14,049
Cash dividends declared, paid in subsequent period	Cash dividends declared, paid in subsequent period	581		592		Cash dividends declared, paid in subsequent period	537		581
Securities purchased during the period, settled in subsequent period	Securities purchased during the period, settled in subsequent period	—		2,035		Securities purchased during the period, settled in subsequent period	8,344		—
Transfer of available-for-sale mortgage-backed securities to held-to-maturity mortgage-backed securities		107,168		—
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

1Beginning January 1, 2023, the allowance calculation is based on the CECL methodology. Prior to January 1, 2023, the allowance calculation was based on the incurred loss methodology.

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 months ended March 31, ~~2022~~2023 are not necessarily indicative of the results expected for the year ending December 31, ~~2022~~2023 or any other period. The March 31, ~~2022~~2023 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, ~~2021.~~2022.

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~~credit losses, income taxes, valuations and impairments of investment securities ~~valuation~~and goodwill, as well as fair value measurements of ~~the servicing asset~~derivatives and ~~the accounting for income tax expense~~loans held-for-sale 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.

Other than the adoption of new accounting standards, the Company has not changed its significant accounting and reporting policies from those disclosed in the Company’s Form 10-K for the year ended December 31, 2022.

Adoption of new accounting standards

ASU 2016 - 13

On January 1, 2023, the Company adopted ASU 2016-03 Financial Instruments - Credit losses (“ASC 326”): Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with an expected credit loss (“CECL”) methodology. The CECL estimate is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures, including loan commitments, standby letters of credit, financial guarantees and other similar instruments. Additionally, ASC 326 resulted in changes to the accounting for available-for-sale and held-to-maturity debt securities.

The Company adopted ASC 326 for all financial assets measured at amortized cost, available for sale securities and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP. The Company recorded a net decrease to retained earnings of $4.5 million as of January 1, 2023 for the cumulative effect of adopting ASC 326. The net adjustment to allowance for credit losses (“ACL”) includes $2.3 million related to loans, $1.9 million related to off-balance sheet credit exposures and $0.3 million related to held-to-maturity debt securities.

ACL - Available-For-Sale (“AFS”) Debt Securities

For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the

criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors, such as interest rates or market conditions. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded. Changes in the ACL are recorded as a provision for, or recovery of, credit loss expense. Losses are charged against the allowance when management believes that uncollectibility of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on AFS debt securities totaled $2.0 million at March 31, 2023 and is excluded from the estimate of credit losses. The Company made the policy election to exclude accrued interest from the amortized cost basis of AFS debt securities and report accrued interest separately on the condensed consolidated balance sheet.

ACL - Held-To-Maturity (“HTM”) Debt Securities

Management measures expected credit losses on HTM debt securities on a collective basis by major security type. Accrued interest receivable on HTM debt securities totaled $0.8 million at March 31, 2023 and is excluded from the estimate of credit losses. The Company made the accounting policy election to not measure an ACL for accrued interest. Accrued interest deemed uncollectible will be written off through interest income. The HTM securities portfolio includes municipal securities, residential mortgage-backed-securities, commercial mortgage-backed securities and corporate securities. All residential and commercial mortgage-backed securities are U.S. government issued or sponsored and substantially all municipal and corporate securities are rated investment grade or above.

The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. At the time of adoption, the estimated reserve was $0.3 million.

ACL - Loans

The ACL for loans represents management's estimate of all expected credit losses over the expected life of the Company’s existing loan portfolio. Management estimates the ACL balance using relevant available information about the collectability of cash flows, from internal and external sources, including historical information relating to past events, current conditions, and reasonable and supportable forecasts of future economic conditions. When the Company is unable to forecast future economic events, management may revert to historical information.

Accrued interest receivable on loans totaled $17.7 million and is excluded from the estimate of credit losses. The Company made the accounting policy election to not measure an ACL for accrued interest receivable. Accrued interest deemed uncollectible will be written off through interest income.

ACL - Loans - Collectively Evaluated

The ACL is measured on a collective pool basis when similar risk characteristics exist. The Company has identified the following portfolio segments in the table below.

The Company utilized a discounted cash flow (“DCF”) method to estimate the quantitative portion of the allowance for credit losses for loans evaluated on a collective pooled basis. For each segment, a loss driver analysis was performed in order to identify loss drivers and create a regression model for use in forecasting cash flows.

In creating the DCF model, the Company has established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average. Due to its minimal loss history, the Company elected to use peer data for a more reasonable calculation.

Key inputs into the DCF model include loan-level detail, including the amortized cost basis of individual loans, payment structure, loss history, and forecasted loss drivers. The Company utilizes a third party to provide economic forecasts under various scenarios, which are assessed quarterly considering the scenarios in the context of the current economic environment and loss risk.

Expected credit losses are estimated over the contractual term of the loans and adjusted for prepayments when appropriate. The contractual term excludes extensions, renewals, and modifications unless the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

Additional key assumptions in the DCF model include the probability of default (“PD”), loss given default (“LGD”), and prepayment/curtailment rates. The Company utilizes the model-driven PD and a LGD derived from a method referred to as Frye Jacobs. The Frye Jacobs method is a mathematical formula that traces the relationship between LGD and PD over time and projects the LGD based on the level of PD forecasted. In all cases, the Frye Jacobs method is utilized to calculate LGDs during the forecast period, reversion period and long-term historical average. Prepayment and curtailment rates were calculated through third party analysis of the Company’s own data.

Qualitative factors for the DCF and weighted-average remaining maturity methodologies include the following:

•Changes in lending policies and procedures, including changes in underwriting standards and collections, charge-offs and recovery practices

•Changes in international, national, regional and local conditions

•Changes in the nature and volume of the portfolio and terms of loans

•Changes in the experience, depth and ability of lending management

•Changes in the volume and severity of past due loans and other similar conditions

•Changes in the quality of the organization’s loan review system

•Changes in the value of underlying collateral for collateral dependent loans

•The existence and effect of any concentrations of credit and changes in the levels of such concentrations

•The effect of other external factors (i.e. competition, legal and regulatory requirements) on the level of estimated credit losses

ACL - Loans - Individually Evaluated

Loans that do not share risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation. The Company has determined that any loans which have been placed on nonaccrual status will be individually evaluated. Individual analysis will establish a specific reserve for loans, if necessary. Specific reserves on nonaccrual loans are typically based on management’s best estimate of the fair value of collateral securing these loans, adjusted for selling costs as necessary.

ACL - Off-Balance Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance on off-balance sheet credit exposure is recorded as a liability and adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Funding rates are based on a historical analysis of the Company’s portfolio, while estimates of credit losses are determined using the same loss rates as funded loans.

Regulatory Capital

As permitted by the federal banking regulatory agencies, the Company has elected the option to delay the impact of the day one adoption of ASC 326. Refer to “Item 2. Regulatory Capital Requirements” for details of the phase-in transition adjustments.

Modified Loans to Borrowers Experiencing Financial Difficulty

Concurrent with the adoption of ASU 2016-03, the Company adopted ASU 2022-02 “Financial Instruments-Credit Losses (ASC 326): Troubled Debt restructurings and Vintage Disclosures,” as amended. The update eliminated the accounting guidance for troubled debt restructurings (“TDRs”) by creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.

Revision of Previously Issued Financial Statements

The Company has revised amounts reported in previously issued financial statements for the periods presented in this Quarterly Report on Form 10-Q due to immaterial clerical errors. The clerical errors caused certain amounts related to

the transfer of available-for-sale mortgage-backed securities to held-to-maturity mortgage-backed securities to be reclassified to different line items within the statement of cash flows for the period ended March 31, 2022. The reclassifications were between the purchases, maturities and amortization, and depreciation line items related to securities and had no impact on the ending cash balance, consolidated balance sheet or statement of operations. 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 Quarterly Report on Form 10-Q for the three months ended March 31, 2022.

Note 2: (Loss) Earnings Per Share

~~Earnings~~(Loss) 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 (loss) earnings per share computations for the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022.

(dollars in thousands, except per share data) Three Months Ended March 31,
2022 2021
Basic earnings per share
Net income $ 11,209 $ 10,450
Weighted-average common shares 9,790,122 9,899,230
Basic earnings per common share $ 1.14 $ 1.06
Diluted earnings per share
Net income $ 11,209 $ 10,450
Weighted-average common shares 9,790,122 9,899,230
Dilutive effect of equity compensation 80,272 63,806
Weighted-average common and incremental shares 9,870,394 9,963,036
Diluted earnings per common share (1)
$ 1.14 $ 1.05


(dollars in thousands, except per share data)	Three Months Ended March 31,
	2023		2022
Basic (loss) earnings per share
Net (loss) income	$	(3,017)	$	11,209
Weighted-average common shares	9,024,072		9,790,122
Basic (loss) earnings per common share	$	(0.33)	$	1.14
Diluted (loss) earnings per share
Net (loss) income	$	(3,017)	$	11,209
Weighted-average common shares	9,024,072		9,790,122

Dilutive effect of equity compensation	—		80,272
Weighted-average common and incremental shares	9,024,072		9,870,394
Diluted (loss) earnings per common share 1	$	(0.33)	$	1.14

~~(1)~~1 Potential dilutive common shares are excluded from the computation of diluted EPS in the periods where the effect would be antidilutive. Since the Company was in a loss position for the three months ended March 31, 2023, basic net loss is the same as diluted net loss per share, as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive. Excluded from the computation of diluted EPS were weighted-average antidilutive shares totaling 661 for the three months ended March 31, 2022. ~~There were 0 weighted-average antidilutive shares for the three months ended March 31, 2021.~~

Note 3: Securities

The following tables summarize securities available-for-sale and securities held-to-maturity as of March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.


		March 31, 2022									March 31, 2023
		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	$	45,335	$	—	$	(1,488)	$	43,847	U.S. Government-sponsored agencies	$	38,675	$	49	$	(1,677)	$	37,047
Municipal securities	Municipal securities	72,420		557		(173)		72,804		Municipal securities	69,243		602		(1,209)		68,636
Agency mortgage-backed securities - residential		276,392		88		(18,798)		257,682
Agency mortgage-backed securities - residential 1										Agency mortgage-backed securities - residential 1	249,795		7		(33,050)		216,752
Agency mortgage-backed securities - commercial	Agency mortgage-backed securities - commercial	24,815		6		(665)		24,156		Agency mortgage-backed securities - commercial	16,739		—		(1,209)		15,530
Private label mortgage-backed securities - residential	Private label mortgage-backed securities - residential	15,090		6		(278)		14,818		Private label mortgage-backed securities - residential	11,445		—		(1,170)		10,275
Asset-backed securities	Asset-backed securities	5,000		—		(14)		4,986		Asset-backed securities	5,000		—		(2)		4,998
Corporate securities	Corporate securities	47,580		299		(884)		46,995		Corporate securities	45,623		2		(3,030)		42,595

Total available-for-sale	Total available-for-sale	$	486,632	$	956	$	(22,300)	$	465,288	Total available-for-sale	$	436,520	$	660	$	(41,347)	$	395,833


		March 31, 2022									March 31, 2023
		Amortized		Gross Unrealized				Fair			Amortized Cost			Gross Unrealized					Fair Value		Allowance for Credit Losses		Net Carrying Value
(in thousands)	(in thousands)	Cost		Gains		Losses		Value		(in thousands)			Gains			Losses
Securities held-to-maturity	Securities held-to-maturity									Securities held-to-maturity
Municipal securities	Municipal securities	$	13,981	$	157	$	(45)	$	14,093	Municipal securities	$	13,935		$	10		$	(801)	$	13,144	$	(3)	$	13,932
Mortgage-backed securities - residential	Mortgage-backed securities - residential	95,982		—		(3,043)		92,939		Mortgage-backed securities - residential	146,809			11			(13,553)		133,267		—		146,809
Mortgage-backed securities - commercial	Mortgage-backed securities - commercial	5,847		—		(427)		5,420		Mortgage-backed securities - commercial	5,806			—			(1,103)		4,703		—		5,806
Corporate securities	Corporate securities	47,560		338		(379)		47,519		Corporate securities	44,547			—			(3,198)		41,349		(333)		44,214
Total held-to-maturity	Total held-to-maturity	$	163,370	$	495	$	(3,894)	$	159,971	Total held-to-maturity	$	211,097		$	21		$	(18,655)	$	192,463	$	(336)	$	210,761

1 Includes $0.5 million of additional premium related to terminated interest rate swaps associated with agency mortgage-backed securities - residential as of March 31, 2023.

Accrued interest receivable on AFS and HTM securities at March 31, 2023 was $2.0 million and $0.8 million, respectively, and is included in accrued interest receivable on the condensed consolidated balance sheet. The Company elected to exclude all accrued interest receivable from securities when estimating credit losses.

Over 97% of mortgage-backed securities (including both AFS and HTM) held by the Company are issued by U.S. government-sponsored entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government and have a long history of no credit losses; therefore, the Company did not record an ACL on these securities.

Additionally, the Company evaluated credit impairment for individual AFS securities that are in an unrealized loss position and determined that the unrealized losses are unrelated to credit quality and are primarily attributable to changes in interest rates and volatility in the financial markets. As the Company does not intend to sell the AFS securities that are in an unrealized loss position and it is unlikely that it will be required to sell these securities before recovery of their amortized cost basis, the Company did not record an ACL on these securities.

In accordance with the adoption of ASC 326, the Company also evaluated its HTM securities that are in an unrealized loss position and considered issuer bond ratings, historical loss rates for bond ratings and economic forecasts. As a result, the Company recorded in an initial ACL in retained earnings of $0.3 million on January 1, 2023. The Company reevaluated these securities at March 31, 2023 and determined no additional ACL was necessary.

711


		December 31, 2021									December 31, 2022
		Amortized		Gross Unrealized				Fair			Amortized		Gross Unrealized				Fair
(in thousands)	(in thousands)	Cost		Gains		Losses		Value		(in thousands)	Cost		Gains		Losses		Value
Securities available-for-sale	Securities available-for-sale									Securities available-for-sale
U.S. Government-sponsored agencies	U.S. Government-sponsored agencies	$	50,013	$	164	$	(1,137)	$	49,040	U.S. Government-sponsored agencies	$	35,606	$	—	$	(1,797)	$	33,809
Municipal securities	Municipal securities	75,158		1,940		(65)		77,033		Municipal securities	68,958		458		(2,140)		67,276
Agency mortgage-backed securities - residential		377,928		960		(5,652)		373,236
Agency mortgage-backed securities - residential 1										Agency mortgage-backed securities - residential 1	252,066		—		(36,974)		215,092
Agency mortgage-backed securities - commercial	Agency mortgage-backed securities - commercial	36,024		441		(139)		36,326		Agency mortgage-backed securities - commercial	17,142		—		(1,302)		15,840
Private label mortgage-backed securities - residential	Private label mortgage-backed securities - residential	15,902		122		(3)		16,021		Private label mortgage-backed securities - residential	11,777		—		(1,322)		10,455
Asset-backed securities	Asset-backed securities	5,000		4		—		5,004		Asset-backed securities	5,000		—		(40)		4,960
Corporate securities	Corporate securities	46,482		597		(695)		46,384		Corporate securities	45,634		35		(2,717)		42,952

Total available-for-sale	Total available-for-sale	$	606,507	$	4,228	$	(7,691)	$	603,044	Total available-for-sale	$	436,183	$	493	$	(46,292)	$	390,384


		December 31, 2021									December 31, 2022
		Amortized		Gross Unrealized				Fair			Amortized		Gross Unrealized				Fair
(in thousands)	(in thousands)	Cost		Gains		Losses		Value		(in thousands)	Cost		Gains		Losses		Value
Securities held-to-maturity	Securities held-to-maturity									Securities held-to-maturity
Municipal securities	Municipal securities	$	13,992	$	717	$	—	$	14,709	Municipal securities	$	13,946	$	—	$	(1,114)	$	12,832
Agency mortgage-backed securities - residential										Agency mortgage-backed securities - residential	121,853		—		(15,112)		106,741
Agency mortgage-backed securities - commercial										Agency mortgage-backed securities - commercial	5,818		—		(1,266)		4,552
Corporate securities	Corporate securities	45,573		1,186		—		46,759		Corporate securities	47,551		—		(3,193)		44,358
Total held-to-maturity	Total held-to-maturity	$	59,565	$	1,903	$	—	$	61,468	Total held-to-maturity	$	189,168	$	—	$	(20,685)	$	168,483

1 Includes $0.5 million of additional premium related to terminated interest rate swaps associated with agency mortgage-backed securities - residential as of December 31, 2022.

The carrying value of securities at March 31, ~~2022~~2023 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						Within one year	$	269	$	263
One to five years	One to five years	$	34,545	$	34,808	One to five years	34,401		35,141
Five to ten years	Five to ten years	56,269		55,141		Five to ten years	45,784		43,291
After ten years	After ten years	74,521		73,697		After ten years	73,087		69,583
		165,335		163,646			153,541		148,278
Agency mortgage-backed securities - residential	Agency mortgage-backed securities - residential	276,392		257,682		Agency mortgage-backed securities - residential	249,795		216,752
Agency mortgage-backed securities - commercial	Agency mortgage-backed securities - commercial	24,815		24,156		Agency mortgage-backed securities - commercial	16,739		15,530
Private label mortgage-backed securities - residential	Private label mortgage-backed securities - residential	15,090		14,818		Private label mortgage-backed securities - residential	11,445		10,275
Asset-backed securities	Asset-backed securities	5,000		4,986		Asset-backed securities	5,000		4,998

Total	Total	$	486,632	$	465,288	Total	$	436,520	$	395,833

Held-to-Maturity
(in thousands) Amortized
Cost Fair
Value
One to five years $ 11,172 $ 11,149
Five to ten years 39,233 39,553
After ten years 11,136 10,910
61,541 61,612
Agency mortgage-backed securities - residential 95,982 92,939
Agency mortgage-backed securities - commercial 5,847 5,420
Total $ 163,370 $ 159,971


	Held-to-Maturity
(in thousands)	Amortized Cost		Fair Value
Within one year	$	495	$	484
One to five years	8,304		8,107
Five to ten years	44,208		40,910
After ten years	5,475		4,992
	58,482		54,493
Agency mortgage-backed securities - residential	146,809		133,267
Agency mortgage-backed securities - commercial	5,806		4,703
Total	$	211,097	$	192,463

There were 0no gross gains or losses resulting from the sale of available-for-sale securities during the three months ended March 31, ~~2022~~2023 and March 31, ~~2021,~~2022, 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 March 31, ~~2022~~2023 and December 31, ~~2021~~2022 was ~~$493.4~~$573.4 million and ~~$403.2~~$527.4 million, which was approximately ~~79%~~97% and ~~61%~~94%, respectively, of the Company’s AFS and HTM securities portfolios. As of March 31, 2023, the Company’s security portfolio consisted of 459 securities, of which 431 were in an unrealized loss position. As of December 31, 2022, the Company’s security portfolio consisted of ~~437~~445 securities, of which ~~326~~434 were in an unrealized loss position. The unrealized losses are related to the categories noted below. These declines resulted primarily from fluctuations in market interest rates after purchase. Management believes the declines in fair value for these securities are temporary. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced, with the resulting loss recognized in net income in the period the other-than-temporary impairment (“OTTI”) is identified.

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

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

The unrealized losses on the Company’s investments in securities issued by U.S. Government-sponsored agencies, municipal organizations and corporate entities were caused primarily by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost ~~bases~~basis of the investments. ~~Because the~~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,~~basis, which may be upon ~~maturity, the Company does not consider those investments to be other-than-temporarily impaired at~~maturity. As of March 31, ~~2022.~~2023, the unrealized losses occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase.

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~~basis over the terms of the securities. ~~Because the~~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,~~basis, which may be upon ~~maturity, the Company does not consider those investments to be other-than-temporarily impaired at~~maturity. As of March 31, ~~2022.~~2023, the unrealized losses occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase.

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 March 31, ~~2022~~2023 and December 31, ~~2021.~~

March 31, 2022
Less Than 12 Months 12 Months or Longer Total
(in thousands) Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses
Securities available-for-sale
U.S. Government-sponsored agencies $ 4,620 $ (64) $ 39,632 $ (1,424) $ 44,252 $ (1,488)
Municipal securities 25,045 (173) — — 25,045 (173)
Agency mortgage-backed securities- residential 210,766 (15,256) 36,680 (3,542) 247,446 (18,798)
Agency mortgage-backed securities- commercial 19,916 (414) 2,653 (251) 22,569 (665)
Private label mortgage-backed securities - residential 13,885 (278) — — 13,885 (278)
Asset-backed securities 4,986 (14) — — 4,986 (14)
Corporate securities 11,770 (230) 9,346 (654) 21,116 (884)
Total $ 290,988 $ (16,429) $ 88,311 $ (5,871) $ 379,299 $ (22,300)

2022.

913


		March 31, 2022													March 31, 2023
		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 held-to-maturity
Securities available-for-sale														Securities available-for-sale
U.S. Government-sponsored agencies														U.S. Government-sponsored agencies	$	11,764	$	(413)	$	20,681	$	(1,264)	$	32,445	$	(1,677)
Municipal securities	Municipal securities	$	4,599	$	(45)	$	—	$	—	$	4,599	$	(45)	Municipal securities	32,847		(155)		43,485		(1,054)		76,332		(1,209)
Agency mortgage-backed securities - residential		64,135		(2,115)		28,778		(928)		92,913		(3,043)
Agency mortgage-backed securities - commercial		5,420		(427)		—		—		5,420		(427)
Agency mortgage-backed securities- residential														Agency mortgage-backed securities- residential	29,536		(3,708)		185,093		(29,342)		214,629		(33,050)
Agency mortgage-backed securities- commercial														Agency mortgage-backed securities- commercial	—		—		15,530		(1,209)		15,530		(1,209)
Private label mortgage-backed securities - residential														Private label mortgage-backed securities - residential	127		(15)		10,148		(1,155)		10,275		(1,170)
Asset-backed securities														Asset-backed securities	—		—		4,998		(2)		4,998		(2)
Corporate securities	Corporate securities	11,129		(379)		—		—		11,129		(379)		Corporate securities	25,769		(857)		14,828		(2,173)		40,597		(3,030)

Total	Total	$	85,283	$	(2,966)	$	28,778	$	(928)	$	114,061	$	(3,894)	Total	$	100,043	$	(5,148)	$	294,763	$	(36,199)	$	394,806	$	(41,347)

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)


	December 31, 2022
	Less Than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities available-for-sale
U.S. Government-sponsored agencies	$	29,668	$	(1,008)	$	4,141	$	(789)	$	33,809	$	(1,797)
Municipal securities	39,557		(1,766)		4,778		(374)		44,335		(2,140)
Agency mortgage-backed securities - residential	170,026		(29,690)		45,066		(7,284)		215,092		(36,974)
Agency mortgage-backed securities - commercial	10,560		(926)		5,280		(376)		15,840		(1,302)
Private label mortgage-backed securities	2,445		(330)		8,010		(992)		10,455		(1,322)
Asset-backed securities	4,960		(40)		—		—		4,960		(40)
Corporate securities	21,568		(1,452)		13,239		(1,265)		34,807		(2,717)

Total	$	278,784	$	(35,212)	$	80,514	$	(11,080)	$	359,298	$	(46,292)


	December 31, 2022
	Less Than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities held-to-maturity
Municipal securities	$	8,160	$	(661)	$	4,258	$	(453)	$	12,418	$	(1,114)
Agency mortgage-backed securities - residential	68,408		(8,848)		38,332		(6,264)		106,740		(15,112)
Agency mortgage-backed securities - commercial	4,552		(1,266)		—		—		4,552		(1,266)
Corporate securities	36,866		(2,685)		7,492		(508)		44,358		(3,193)

Total	$	117,986	$	(13,460)	$	50,082	$	(7,225)	$	168,068	$	(20,685)

The following table summarizes ratings for the Company’s HTM portfolio issued by state and political subdivisions and other securities as of March 31, 2023.


	Held-to-Maturity
(in thousands)	State and Municipal		Other		Total
Aaa/AAA	$	8,684	$	—	$	8,684
Aa1/AA+	1,271		—		1,271
Aa2/AA	1,540		—		1,540
A1/A+	1,794		—		1,794
A2/A	646		—		646
A3/A-	—		9,517		9,517
Baa1/BBB+	—		9,500		9,500
Baa2/BBB	—		11,000		11,000
Baa3/BBB-	—		14,530		14,530
Not Rated 1	—		152,615		152,615
Total	$	13,935	$	197,162	$	211,097

1 HTM agency mortgage-backed securities - commercial and residential are listed under Other securities as not rated.

There were no amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statements of ~~income~~operations during the three months ended March 31, ~~2022 and March 31, 2021, respectively.~~2023.

1015

Note 4: Loans

Loan balances as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 are summarized in the table below. Categories of loans include:


(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022
Commercial loans	Commercial loans					Commercial loans
Commercial and industrial	Commercial and industrial	$	99,808	$	96,008	Commercial and industrial	$	113,198	$	126,108
Owner-occupied commercial real estate	Owner-occupied commercial real estate	56,752		66,732		Owner-occupied commercial real estate	59,643		61,836
Investor commercial real estate	Investor commercial real estate	34,627		28,019		Investor commercial real estate	142,174		93,121
Construction	Construction	149,662		136,619		Construction	158,147		181,966
Single tenant lease financing	Single tenant lease financing	852,519		865,854		Single tenant lease financing	952,533		939,240
Public finance	Public finance	587,817		592,665		Public finance	604,898		621,032
Healthcare finance	Healthcare finance	354,574		387,852		Healthcare finance	256,670		272,461
Small business lending	Small business lending	97,040		108,666		Small business lending	136,382		123,750
Franchise finance	Franchise finance	107,246		81,448		Franchise finance	382,161		299,835

Total commercial loans	Total commercial loans	2,340,045		2,363,863		Total commercial loans	2,805,806		2,719,349
Consumer loans	Consumer loans					Consumer loans
Residential mortgage	Residential mortgage	191,153		186,770		Residential mortgage	392,062		383,948
Home equity	Home equity	18,100		17,665		Home equity	26,160		24,712
Other consumer loans	Other consumer loans	270,330		265,478		Other consumer loans	338,133		324,598
Tax refund advance loans		9,177		—

Total consumer loans	Total consumer loans	488,760		469,913		Total consumer loans	756,355		733,258
Total commercial and consumer loans	Total commercial and consumer loans	2,828,805		2,833,776		Total commercial and consumer loans	3,562,161		3,452,607
Net deferred loan origination fees/costs and premiums/discounts on purchased loans and other(1)		51,975		53,886
Net deferred loan origination fees/costs and premiums/discounts on purchased loans and other1						Net deferred loan origination fees/costs and premiums/discounts on purchased loans and other1	45,081		46,794
Total loans	Total loans	2,880,780		2,887,662		Total loans	3,607,242		3,499,401
Allowance for loan losses		(28,251)		(27,841)
Allowance for credit losses						Allowance for credit losses	(36,879)		(31,737)
Net loans	Net loans	$	2,852,529	$	2,859,821	Net loans	$	3,570,363	$	3,467,664

~~(1)~~1 Includes carrying value adjustments of ~~$36.4~~$31.5 million and ~~$37.5~~$32.5 million related to terminated interest rate swaps associated with public finance loans as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

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.

1116

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 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 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, land development for residential 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 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 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 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”) 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 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.

1217

Residential Mortgage: With respect to residential loans that are secured by 1-to-4 family residences and are generally owner occupied, the ~~Company~~Bank typically establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Repayment of these loans is primarily dependent on the financial circumstances of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in residential property values. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers in geographically diverse locations throughout the country.

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

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

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

~~Allowance~~The ACL for ~~Loan Losses Methodology~~

loans represents management's estimate of all expected credit losses over the expected life of the Company’s existing loan portfolio. Management estimates the ACL balance using relevant available information about the collectability of cash flows, from internal and external sources, including historical information relating to past events, current conditions, and reasonable and supportable forecasts of future economic conditions. When the Company is unable to forecast future economic events, management may revert to historical information.

~~Company policy is designed~~

The Company's methodologies incorporate a one-year reasonable and supportable forecast period with a one-year straight line reversion to ~~maintain an adequate allowance for loan losses (“ALLL”).~~ the long-term historical average.

The ~~portfolio is segmented by loan type,~~ACL methodology may also consider other adjustments to address changes in conditions, trends, and ~~the required ALLL for types of performing homogeneous loans which do not~~circumstances such as local industry changes that could have a ~~specific reserve is determined by applying a factor~~significant impact on the risk profile of the loan portfolio and provide for adjustments that may not be reflected and/or captured in the historical loss data. These factors include: lending policies, imprecision in forecasting future economic conditions, loan profile, lending staff, problem loan trends, loan review, collateral, credit concentration, or other internal and external factors.

The Company also includes qualitative adjustments to the allowance based on ~~average historical losses, adjusted for current economic~~ factors and ~~portfolio trends. Management adds qualitative factors for observable trends,~~considerations that have not otherwise been fully accounted for. Qualitative adjustments include, but are not limited to:

•Changes in lending policies and procedures, including changes in ~~internal~~underwriting standards and collections, charge-offs and recovery practices ~~changes~~

•Changes in ~~delinquencies~~international, national, regional and ~~impairments, and external factors. Observable factors include changes~~local conditions

•Changes in the ~~composition~~nature and ~~size~~volume of ~~portfolios, as well as loan~~the portfolio and terms ~~or concentration levels. The Company evaluates~~of loans

•Changes in the ~~impact~~experience, depth and ability of ~~internal changes such as~~lending management ~~and staff experience levels or modification to loan underwriting processes. Delinquency trends are scrutinized for both~~

•Changes in the volume and severity of past due ~~nonaccrual, or classified~~ loans ~~as well as any changes~~and other similar conditions

•Changes in the quality of the organization’s loan review system

•Changes in the value of underlying ~~collateral. Finally,~~collateral for collateral dependent loans

•The existence and effect of any concentrations of credit and changes in the ~~Company considers the~~levels of such concentrations

•The effect of other external factors ~~such as national, regional, and local economic and business conditions, as well as competitive,~~(i.e. competition, legal and regulatory ~~requirements.~~ requirements) on the level of estimated credit losses

The ACL is measured on a collective or pool basis when similar risk characteristics exist. The Company segments its portfolio generally by Federal Financial Institutions Examination Council ("FFIEC") Call Report codes that align with its lines of business. Additional sub-segmentation may be utilized to identify groups of loans with unique risk characteristics relative to the rest of the portfolio.

Loans that ~~are considered to be impaired~~do not share similar risk characteristics are evaluated ~~to determine~~on an individual basis. These evaluations are typically performed on loans with a deteriorated internal risk rating. The allowance for credit loss is determined based on several methods, including estimating the ~~need for a specific allowance by applying at least one of three methodologies: present value of future cash flows;~~ fair value of the underlying 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~~flows.

The Company relies on a third-party platform that offers multiple methodologies to measure historical life-of-loan losses.

Modified Loans to Borrowers Experiencing Financial Difficulty

The Company may make modifications to certain loans in order to alleviate temporary difficulties in the ~~loans’ effective~~borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize potential losses to the Company. Modifications may include changes in the amortization terms of the loan, reductions in interest rates, acceptance of interest only payments, and/or reductions to the outstanding loan balance. Such loans are typically placed on nonaccrual status when there is doubt concerning the full repayment of principal and interest or the loan has been in default for a period of 90 days or more. These loans may be returned to accrual status when all contractual amounts past due have been brought current, and the borrower’s performance under the modified terms of the loan agreement and the ultimate collectability of all contractual amounts due under the modified terms is no longer in doubt. The Company typically measures the ACL on modified loans to borrowers experiencing financial difficulty on an individual basis when the loans are deemed to no longer share risk characteristics that are similar with other loans in the portfolio. The determination of the ACL for these loans is based on a discounted cash flow approach for both those measured collectively and individually, unless the loan is deemed collateral dependent, which requires measurement of the ACL based on the estimated expected fair value of the underlying collateral, less costs to ~~sell and allows existing methods for recognizing interest income.~~sell. GAAP requires the Company to make certain disclosures related to these loans, including certain types of modifications, as well as how such loans have performed since their modifications.

Provision for ~~Loan~~Credit Losses

A provision for estimated losses on loans is charged to income based upon management’s evaluation of the potential losses. Such an evaluation, which includes a review of all loans for which full repayment may not be reasonably assured, considers, among other matters, the estimated net realizable value of the underlying collateral, as applicable, economic conditions, loan loss experience, and other factors that are particularly susceptible to changes that could result in a material adjustment in the near term. While management attempts to use the best information available in making its evaluations, future allowance adjustments may be necessary if economic conditions change substantially from the assumptions used in making the evaluations.

Policy for Charging Off Loans

The Company’s policy is to charge off a loan at any point in time when it no longer can be considered a bankable asset, meaning collectible within the parameters of policy. A secured loan is generally charged down to the estimated fair value of the collateral, less costs to sell, no later than when it is 120 days past due as to principal or interest. An unsecured loan generally is charged off no later than when it is 180 days past due as to principal or interest. A home improvement loan generally is charged off no later than when it is 90 days past due as to principal or interest.

The following tables present changes in the balance of the ~~ALLL~~ACL during the three months ended March 31, ~~2022 and 2021.~~2023.

(in thousands) Three Months Ended March 31, 2022
Allowance for loan losses: Balance, Beginning of Period (Credit) Provision Charged to Expense Losses
Charged Off Recoveries Balance,
End of Period
Commercial and industrial $ 1,891 $ 88 $ — $ — $ 1,979
Owner-occupied commercial real estate 742 (116) — — 626
Investor commercial real estate 328 77 — — 405
Construction 1,612 154 — — 1,766
Single tenant lease financing 10,385 (1,645) — 1,231 9,971
Public finance 1,776 7 — — 1,783
Healthcare finance 5,940 (430) — — 5,510
Small business lending 1,387 111 (80) 17 1,435
Franchise finance 1,083 354 — 0 1,437
Residential mortgage 643 87 — 1 731
Home equity 64 (1) — 2 65
Other consumer loans 1,990 263 (163) 99 2,189
Tax refund advance loans — 1842 (1488) — 354
Total $ 27,841 $ 791 $ (1,731) $ 1,350 $ 28,251
(in thousands) Three Months Ended March 31, 2021
Allowance for loan losses: Balance, Beginning of Period (Credit) Provision Charged to Expense Losses
Charged Off Recoveries Balance,
End of Period
Commercial and industrial $ 1,146 $ 434 $ — $ 82 $ 1,662
Owner-occupied commercial real estate 1,082 (53) — — 1,029
Investor commercial real estate 155 14 — — 169
Construction 1,192 228 — — 1,420
Single tenant lease financing 12,990 188 — — 13,178
Public finance 1,732 16 — — 1,748
Healthcare finance 7,485 270 — — 7,755
Small business lending 628 147 (79) 4 700
Residential mortgage 519 77 — 5 601
Home equity 48 58 (51) 2 57
Other consumer loans 2,507 (103) (181) 100 2,323
Total $ 29,484 $ 1,276 $ (311) $ 193 $ 30,642


(in thousands)	Three Months Ended March 31, 2023
Allowance for credit losses:	Balance, Beginning of Period		Adoption of CECL		(Credit) Provision Charged to Expense		Losses Charged Off		Recoveries		Balance, End of Period
Commercial and industrial	$	1,711	$	(120)	$	6,810	$	(6,965)	$	1	$	1,437
Owner-occupied commercial real estate	651		62		(1)		—		—		712
Investor commercial real estate	1,099		(191)		368		—		—		1,276
Construction	2,074		(435)		(88)		—		—		1,551
Single tenant lease financing	10,519		(346)		100		—		—		10,273
Public finance	1,753		(135)		(48)		—		—		1,570
Healthcare finance	2,997		1,034		(336)		—		—		3,695
Small business lending	2,168		334		(105)		(60)		3		2,340
Franchise finance	3,988		(313)		997		—		—		4,672

Residential mortgage	1,559		406		594		—		2		2,561
Home equity	69		133		51		—		1		254
Other consumer loans	3,149		2,533		1,031		(232)		57		6,538

Total	$	31,737	$	2,962	$	9,373	$	(7,257)	$	64	$	36,879

Prior to the adoption of ASU 2016-13 on January 1, 2023, the Company calculated the allowance for loan losses using the incurred loss methodology. The following table presents the activity in the allowance for loan losses by segment for the three months ended March 31, 2022.


(in thousands)	Three Months Ended March 31, 2022
Allowance for loan losses:	Balance, Beginning of Period		(Credit) Provision Charged to Expense		Losses Charged Off		Recoveries		Balance, End of Period
Commercial and industrial	$	1,891	$	88	$	—	$	—	$	1,979
Owner-occupied commercial real estate	742		(116)		—		—		626
Investor commercial real estate	328		77		—		—		405
Construction	1,612		154		—		—		1,766
Single tenant lease financing	10,385		(1,645)		—		1,231		9,971
Public finance	1,776		7		—		—		1,783
Healthcare finance	5,940		(430)		—		—		5,510
Small business lending	1,387		111		(80)		17		1,435
Franchise finance	1,083		354		—		—		1,437

Residential mortgage	643		87		—		1		731
Home equity	64		(1)		—		2		65
Other consumer loans	1,990		263		(163)		99		2,189
Tax refund advance loans	—		1,842		(1,488)		—		354
Total	$	27,841	$	791	$	(1,731)	$	1,350	$	28,251

In addition to the ACL, the Company established a reserve for off-balance sheet commitments, classified in other liabilities, as required by the adoption of the CECL methodology for measuring credit losses. This reserve is maintained at a level management believes to be sufficient to absorb losses arising from unfunded loan commitments. The day one entry for off-balance sheet commitments resulted in a reserve of $2.5 million. The adequacy of the reserve for unfunded

commitments is determined quarterly based on methodology similar to the methodology for determining the ACL. The following table details activity in the provision for credit losses on off-balance sheet commitments through March 31, 2023.



(dollars in thousands)	Pre-ASC 326 Adoption		Impact of ASC 326 Adoption		Provision for credit losses		Balance, March 31, 2023
Off-balance sheet commitments
Commercial loans
Commercial and industrial	$	—	$	110	$	39	$	149
Owner-occupied commercial real estate	—		—		8		8
Investor commercial real estate	—		9		39		48
Construction	—		2,193		(39)		2,154


Healthcare finance	—		2		—		2



Total commercial loans	—		2,314		47		2,361
Consumer loans
Residential mortgage	—		127		(14)		113
Home equity	—		52		10		62
Other consumer	—		11		(1)		10
Total consumer loans	—		190		(5)		185
Total allowance for off-balance sheet commitments	$	—	$	2,504	$	42	$	2,546

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

(in thousands) Loans Allowance for Loan Losses
March 31, 2022 Ending Balance:
Collectively Evaluated for Impairment Ending Balance:
Individually Evaluated for Impairment Ending Balance Ending Balance:
Collectively Evaluated for Impairment Ending Balance:
Individually Evaluated for Impairment Ending Balance
Commercial and industrial $ 99,198 $ 610 $ 99,808 $ 1,529 $ 450 $ 1,979
Owner-occupied commercial real estate 53,485 3,267 56,752 626 — 626
Investor commercial real estate 34,627 — 34,627 405 — 405
Construction 149,662 — 149,662 1,766 — 1,766
Single tenant lease financing 851,427 1,092 852,519 9,876 95 9,971
Public finance 587,817 — 587,817 1,783 — 1,783
Healthcare finance 353,666 908 354,574 4,987 523 5,510
Small business lending(1)
94,525 2,515 97,040 1,042 393 1,435
Franchise finance 107,246 — 107,246 1,437 — 1,437
Residential mortgage 187,528 3,625 191,153 731 — 731
Home equity 18,086 14 18,100 65 — 65
Other consumer 270,317 13 270,330 2,189 — 2,189
Tax refund advance loans 9,177 — 9,177 354 — 354
Total $ 2,816,761 $ 12,044 $ 2,828,805 $ 26,790 $ 1,461 $ 28,251


(in thousands)	Loans						Allowance for Loan Losses
December 31, 2022	Ending Balance: Collectively Evaluated for Impairment		Ending Balance: Individually Evaluated for Impairment		Ending Balance		Ending Balance: Collectively Evaluated for Impairment		Ending Balance: Individually Evaluated for Impairment		Ending Balance
Commercial and industrial	$	116,307	$	9,801	$	126,108	$	1,660	$	51	$	1,711
Owner-occupied commercial real estate	60,266		1,570		61,836		651		—		651
Investor commercial real estate	93,121		—		93,121		1,099		—		1,099
Construction	181,966		—		181,966		2,074		—		2,074
Single tenant lease financing	939,240		—		939,240		10,519		—		10,519
Public finance	621,032		—		621,032		1,753		—		1,753
Healthcare finance	272,461		—		272,461		2,997		—		2,997
Small business lending1	113,699		10,051		123,750		1,465		703		2,168
Franchise finance	299,835		—		299,835		3,988		—		3,988

Residential mortgage	380,272		3,676		383,948		1,559		—		1,559
Home equity	24,683		29		24,712		69		—		69
Other consumer	324,581		17		324,598		3,149		—		3,149

Total	$	3,427,463	$	25,144	$	3,452,607	$	30,983	$	754	$	31,737

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

(in thousands) Loans Allowance for Loan Losses
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 $ 95,364 $ 644 $ 96,008 $ 1,441 $ 450 $ 1,891
Owner-occupied commercial real estate 63,387 3,345 66,732 742 — 742
Investor commercial real estate 28,019 — 28,019 328 — 328
Construction 136,619 — 136,619 1,612 — 1,612
Single tenant lease financing 864,754 1,100 865,854 10,290 95 10,385
Public finance 592,665 — 592,665 1,776 — 1,776
Healthcare finance 386,926 926 387,852 5,417 523 5,940
Small business lending(1)
106,682 1,984 108,666 994 393 1,387
Franchise finance 81,448 — 81,448 1,083 — 1,083
Residential mortgage 183,852 2,918 186,770 643 — 643
Home equity 17,651 14 17,665 64 — 64
Other consumer 265,469 9 265,478 1,990 — 1,990
Total $ 2,822,836 $ 10,940 $ 2,833,776 $ 26,380 $ 1,461 $ 27,841

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

1522

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~~The Company does not risk grade its consumer loans. It classifies them as either performing or nonperforming. Below is a description of those classifications:

•“Performing” - Loans that are accruing and full collection of principal and interest is expected.

~~Any loan which becomes~~•“Nonperforming” - Loans that are 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.doubt.

1623

The following tables present the credit risk profile of the Company’s commercial and consumer loan portfolios by loan class and by year of origination for the years indicated based on rating category and payment activity as of March 31, 2023 and December 31, 2022.


	March 31, 2023
	Term Loans (amortized cost basis by origination year)												Revolving loans amortized cost basis		Revolving loans converted to term
(in thousands)	2023		2022		2021		2020		2019		Prior						Total
Commercial and industrial
Pass	$	2,393	$	33,609	$	15,988	$	2,648	$	12,826	$	12,471	$	29,091	$	—	$	109,026
Special Mention	—		36		918		—		—		—		382		—		1,336
Substandard	—		—		2,836		—		—		—		—		—		2,836
Doubtful	—		—		—		—		—		—		—		—		—
Total Commercial and industrial	2,393		33,645		19,742		2,648		12,826		12,471		29,473		—		113,198
Gross charge-offs	—		—		6,914		—		51		—		—		—		6,965

Owner-occupied commercial real estate
Pass	411		11,447		9,251		6,748		6,132		14,753		—		—		48,742
Special Mention	—		—		—		8,568		—		892		—		—		9,460
Substandard	—		—		—		—		—		1,441		—		—		1,441
Doubtful	—		—		—		—		—		—		—		—		—
Total owner-occupied commercial real estate	411		11,447		9,251		15,316		6,132		17,086		—		—		59,643
Investor commercial real estate
Pass	4,878		40,758		23,893		10,049		48,544		6,169		—		—		134,291
Special Mention	—		—		—		—		—		7,883		—		—		7,883
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total investor commercial real estate	4,878		40,758		23,893		10,049		48,544		14,052		—		—		142,174
Construction
Pass	785		80,984		34,384		38,905		—		640		973		—		156,671
Special Mention	—		—		1,476		—		—		—		—		—		1,476
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total construction	785		80,984		35,860		38,905		—		640		973		—		158,147
Single tenant lease financing
Pass	25,137		230,780		98,253		71,375		147,335		376,515		—		—		949,395
Special Mention	—		—		—		—		—		3,138		—		—		3,138
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total single tenant lease financing	25,137		230,780		98,253		71,375		147,335		379,653		—		—		952,533
Public finance
Pass	861		79,566		31,950		7,722		48,759		433,760		—		—		602,618
Special Mention	—		—		—		—		—		2,280		—		—		2,280
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total public finance	861		79,566		31,950		7,722		48,759		436,040		—		—		604,898


	March 31, 2023
	Term Loans (amortized cost basis by origination year)												Revolving loans amortized cost basis		Revolving loans converted to term
(in thousands)	2023		2022		2021		2020		2019		Prior						Total
Healthcare finance
Pass	—		—		11,609		143,651		72,756		27,327		—		—		255,343
Special Mention	—		—		—		—		1,327		—		—		—		1,327
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total healthcare finance	—		—		11,609		143,651		74,083		27,327		—		—		256,670
Small business lending 1
Pass	19,718		49,970		17,396		16,991		5,369		14,320		2,470		—		126,234
Special Mention	—		343		123		1,717		714		2,078		150		—		5,125
Substandard	—		780		716		1,445		800		1,185		97		—		5,023
Doubtful	—		—		—		—		—		—		—		—		—
Total small business lending	19,718		51,093		18,235		20,153		6,883		17,583		2,717		—		136,382
Gross charge-offs	—		—		—		60		—		—		—		—		60
Franchise finance
Pass	78,796		237,658		65,129		—		—		—		—		—		381,583
Special Mention	—		—		578		—		—		—		—		—		578
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total franchise finance	78,796		237,658		65,707		—		—		—		—		—		382,161
Consumer loans
Residential mortgage
Payment performance
Performing	4,207		191,584		98,095		34,312		12,303		50,555		—		—		391,056
Nonperforming	—		235		—		76		—		695		—		—		1,006
Total residential mortgage	4,207		191,819		98,095		34,388		12,303		51,250		—		—		392,062
Home equity
Payment performance
Performing	2,463		10,080		3,903		3,518		780		3,709		1,707		—		26,160
Nonperforming	—		—		—		—		—		—		—		—		—
Total home equity	2,463		10,080		3,903		3,518		780		3,709		1,707		—		26,160
Other consumer
Payment performance
Performing	29,138		120,846		49,726		31,542		32,736		73,230		774		—		337,992
Nonperforming	—		54		—		—		54		33		—		—		141
Total other consumer	29,138		120,900		49,726		31,542		32,790		73,263		774		—		338,133
Gross charge-offs	—		35		7		8		107		75		—		—		232
Total Loans	$	168,787	$	1,088,730	$	466,224	$	379,267	$	390,435	$	1,033,074	$	35,644	$	—	$	3,562,161
Total gross charge-offs	$	—	$	35	$	6,921	$	68	$	158	$	75	$	—	$	—	$	7,257

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

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 ~~March 31, 2022 and~~ December 31, ~~2021.~~2022.

March 31, 2022
(in thousands) Pass Special Mention Substandard Total
Commercial and industrial $ 85,340 $ 13,858 $ 610 $ 99,808
Owner-occupied commercial real estate 49,520 3,965 3,267 56,752
Investor commercial real estate 34,627 — — 34,627
Construction 136,466 13,196 — 149,662
Single tenant lease financing 846,543 4,884 1,092 852,519
Public finance 585,387 2,430 — 587,817
Healthcare finance 353,090 576 908 354,574
Small business lending(1)
87,358 7,167 2,515 97,040
Franchise finance 107,246 — — 107,246
Total commercial loans $ 2,285,577 $ 46,076 $ 8,392 $ 2,340,045


	December 31, 2022
(in thousands)	Pass		Special Mention		Substandard		Total
Commercial and industrial	$	114,934	1,373		$	9,801	$	126,108
Owner-occupied commercial real estate	50,721		9,546		1,569		61,836
Investor commercial real estate	93,121		—		—		93,121
Construction	180,768		1,198		—		181,966
Single tenant lease financing	936,207		3,033		—		939,240
Public finance	618,752		2,280		—		621,032
Healthcare finance	271,085		1,376		—		272,461
Small business lending 1	107,885		5,814		$	10,051	123,750
Franchise finance	299,241		594		$	—	299,835
Wealth advisory lending	—		—		—		—
Total loans	$	2,672,714	$	25,214	$	21,421	$	2,719,349

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


	December 31, 2022
(in thousands)	Performing		Nonaccrual		Total
Residential mortgage	$	382,900	$	1,048	$	383,948
Home equity	24,712		—		24,712
Other consumer	324,581		17		324,598

Total consumer loans	$	732,193	$	1,065	$	733,258

March 31, 2022
(in thousands) Performing Nonaccrual Total
Residential mortgage $ 189,946 $ 1,207 $ 191,153
Home equity 18,086 14 18,100
Other consumer 270,317 13 270,330
Tax refund advance loans 9,177 — 9,177
Total consumer loans $ 487,526 $ 1,234 $ 488,760

December 31, 2021
(in thousands) Pass Special Mention Substandard Total
Commercial and industrial $ 82,412 $ 12,952 $ 644 $ 96,008
Owner-occupied commercial real estate 59,369 4,018 3,345 66,732
Investor commercial real estate 28,019 — — 28,019
Construction 124,578 12,041 — 136,619
Single tenant lease financing 859,612 5,142 1,100 865,854
Public finance 591,630 1,035 — 592,665
Healthcare finance 386,337 589 926 387,852
Small business lending(1)
99,250 7,432 1,983 108,666
Franchise finance 81,448 — — 81,448
Total commercial loans $ 2,312,655 $ 43,209 $ 7,998 $ 2,363,863

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

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

The following tables present the Company’s loan portfolio delinquency analysis as of March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.


		March 31, 2022																	March 31, 2023
(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
Commercial and industrial	Commercial and industrial	$	—	$	—	$	—	$	—	$	99,808	$	99,808	$	610	$	—	Commercial and industrial	$	—	$	—	$	—	$	—	$	113,198	$	113,198
Owner-occupied commercial real estate	Owner-occupied commercial real estate	—		—		—		—		56,752		56,752		—		—		Owner-occupied commercial real estate	—		—		—		—		59,643		59,643
Investor commercial real estate	Investor commercial real estate	—		—		—		—		34,627		34,627		3,267		—		Investor commercial real estate	—		—		—		—		142,174		142,174
Construction	Construction	—		—		—		—		149,662		149,662		—		—		Construction	—		—		—		—		158,147		158,147
Single tenant lease financing	Single tenant lease financing	—		—		—		—		852,519		852,519		1,092		—		Single tenant lease financing	—		—		—		—		952,533		952,533
Public finance	Public finance	—		—		—		—		587,817		587,817		—		—		Public finance	—		—		—		—		604,898		604,898
Healthcare finance	Healthcare finance	—		—		—		—		354,574		354,574		—		—		Healthcare finance	—		—		—		—		256,670		256,670
Small business lending(1)		515		—		129		644		96,396		97,040		881		—
Small business lending1																		Small business lending1	55		1,426		2,354		3,835		132,547		136,382
Franchise finance	Franchise finance	—		—		—		—		107,246		107,246		—		—		Franchise finance	—		—		—		—		382,161		382,161

Residential mortgage	Residential mortgage	—		77		106		183		190,970		191,153		1,207		—		Residential mortgage	301		234		235		770		391,292		392,062
Home equity	Home equity	—		—		—		—		18,100		18,100		14		—		Home equity	—		—		—		—		26,160		26,160
Other consumer	Other consumer	69		64		—		133		270,197		270,330		13		—		Other consumer	78		38		35		151		337,982		338,133
Tax refund advance loans		—		—		—		—		9,177		9,177		—		—

Total	Total	$	584	$	141	$	235	$	960	$	2,827,845	$	2,828,805	$	7,084	$	—	Total	$	434	$	1,698	$	2,624	$	4,756	$	3,557,405	$	3,562,161

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

December 31, 2021
(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 $ — $ — $ — $ — $ 96,008 $ 96,008 $ 674 $ —
Owner-occupied commercial real estate — — — — 66,732 66,732 — —
Investor commercial real estate — — — — 28,019 28,019 3,419 —
Construction — — — — 136,619 136,619 — —
Single tenant lease financing — — — — 865,854 865,854 1,100 —
Public finance — — — — 592,665 592,665 — —
Healthcare finance — — — — 387,852 387,852 — —
Small business lending(1)
— — 657 657 108,009 108,666 959 —
Franchising Finance — — — — 81,448 81,448 — —
Residential mortgage 51 226 106 383 186,387 186,770 1,226 —
Home equity — — — — 17,665 17,665 14 —
Other consumer 68 18 — 86 265,392 265,478 9 —
Total $ 119 $ 244 $ 763 $ 1,126 $ 2,832,650 $ 2,833,776 $ 7,401 $ —


	December 31, 2022
(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans
Commercial and industrial	$	81	$	—	$	51	$	132	$	125,976	$	126,108
Owner-occupied commercial real estate	—		—		—		—		61,836		61,836
Investor commercial real estate	—		—		—		—		93,121		93,121
Construction	—		1,198		—		1,198		180,768		181,966
Single tenant lease financing	—		—		—		—		939,240		939,240
Public finance	—		—		—		—		621,032		621,032
Healthcare finance	—		—		—		—		272,461		272,461
Small business lending1	57		—		3,485		3,542		120,208		123,750
Franchise Finance	313		—		—		313		299,522		299,835

Residential mortgage	—		283		185		468		383,480		383,948
Home equity	—		—		—		—		24,712		24,712
Other consumer	91		10		—		101		324,497		324,598
Total	$	542	$	1,491	$	3,721	$	5,754	$	3,446,853	$	3,452,607

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

~~Impaired~~ Loans

are reclassified to a non-accruing status when, in management’s judgment, the collateral value and financial condition of the borrower do not justify accruing interest. At the time the accrual is discontinued, all unpaid accrued interest is reversed against earnings. Interest income accrued in prior years, if any, is charged to the allowance for credit losses. Payments subsequently received on nonaccrual loans are applied to principal. A loan is ~~designated as impaired,~~returned to accrual status when principal and interest are no longer past due and collectability is probable, typically after a minimum of six consecutive months of performance.

The following table summarizes the Company’s nonaccrual loans and loans past due 90 days or more and still accruing by loan class for the periods indicated:


	March 31, 2023						December 31, 2022
(in thousands)	Nonaccrual Loans		Nonaccrual Loans with no Allowance for Credit Losses		Total Loans 90 Days or More Past Due and Accruing		Nonaccrual Loans		Nonaccrual Loans with no Allowance for Credit Losses		Total Loans 90 Days or More Past Due and Accruing
Commercial and industrial	$	2,836	$	2,836	$	—	$	51	$	—	$	—
Owner-occupied commercial real estate	1,441		1,441		—		1,570		1,570		—





Small business lending1	3,797		2,354		—		4,764		2,766		—


Residential mortgage	1,006		1,006		—		1,048		1,048		79

Other consumer	141		141		—		17		17		—
Total loans	$	9,221	$	7,778	$	—	$	7,450	$	5,401	$	—

1 Balance is partially guaranteed by the U.S. government.

There was no interest income recognized on nonaccrual loans for the three months ended March 31, 2023 and $25 thousand in ~~accordance with~~interest income recognized on nonaccrual loans for the ~~impairment accounting guidance, when,~~three months ended March 31, 2022.

Determining fair value for collateral dependent loans requires obtaining a current independent appraisal of the collateral and applying a discount factor, which includes selling costs if applicable, to the value. The fair value of real estate is generally based on ~~current information or events, it is probable that~~appraisals by qualified licensed appraisers. The appraisers typically determine the ~~Company will be unable to collect all amounts due (principal and interest) according to the contractual terms~~value of the ~~loan agreement. Payments with delays generally~~real estate by utilizing an income or market valuation approach. If an appraisal is not ~~exceeding 90 days~~available, the fair value may be determined by using a cash flow analysis. Fair value on other collateral such as business assets is typically ascertained by assessing, either singularly or some combination of, asset appraisals, accounts receivable aging reports, inventory listings and or customer financial statements. Both appraised values and values based on borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions.

1827

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses as of March 31, 2023,

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.


	March 31, 2023
(in thousands)	Commercial Real Estate		Residential Real Estate		Other		Total		Allowance on Collateral Dependent Loans
Commercial and industrial	$	—	$	—	$	2,836	$	2,836	$	—
Owner-occupied commercial real estate	—		—		1,441		1,441		—





Small business lending1	2,147		395		877		3,419		603


Residential mortgage	—		1,006		—		1,006		—

Other consumer loans	—		—		141		141		—
Total loans	$	2,147	$	1,401	$	5,295	$	8,843	$	603

~~ASC Topic 310,~~1 ~~Receivables, requires that impaired loans be measured based on~~Balance is partially guaranteed by 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.U.S. government.

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

March 31, 2022 December 31, 2021
(in thousands) Recorded
Balance Unpaid
Principal
Balance Specific
Allowance Recorded
Balance Unpaid
Principal
Balance Specific
Allowance
Loans without a specific valuation allowance
Owner-occupied commercial real estate $ 3,267 $ 3,453 $ — $ 3,345 $ 3,466 $ —
Small business lending(1)
881 1,079 — 959 1,193 —
Residential mortgage 3,625 3,780 — 2,918 3,063 —
Home equity 14 15 — 14 15 —
Other consumer loans 13 55 — 9 44 —
Total 7,800 8,382 — 7,245 7,781 —
Loans with a specific valuation allowance
Commercial and industrial 610 652 450 644 677 450
Single tenant lease financing 1,092 1,116 95 1,100 1,123 95
Healthcare finance 908 908 523 926 926 523
Small business lending(1)
1,634 1,634 393 1,025 1,025 393
Total 4,244 4,310 1,461 3,695 3,751 1,461
Total impaired loans $ 12,044 $ 12,692 $ 1,461 $ 10,940 $ 11,532 $ 1,461


	December 31, 2022
(in thousands)	Recorded Balance		Unpaid Principal Balance		Specific Allowance
Loans without a specific valuation allowance
Commercial and industrial	$	9,750	$	9,750	$	—
Owner-occupied commercial real estate	1,570		1,779		—





Small business lending	8,184		8,705		—


Residential mortgage	3,676		3,835		—
Home equity	29		29		—
Other consumer loans	17		36		—

Total	23,226		24,134		—
Loans with a specific valuation allowance
Commercial and industrial	51		51		51






Small business lending 1	1,867		1,867		703



Total	1,918		1,918		754
Total impaired loans	$	25,144	$	26,052	$	754

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

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

Three Months Ended
March 31, 2022 March 31, 2021
(in thousands) Average
Balance Interest
Income Average
Balance Interest
Income
Loans without a specific valuation allowance
Commercial and industrial $ — $ — $ 517 $ 9
Owner-occupied commercial real estate 3,307 — 2,440 —
Single tenant lease financing — — 151 5
Healthcare finance — — 1,008 —
Small business lending(1)
830 — 577 —
Residential mortgage 3,273 8 1,736 4
Home equity 14 — 11 —
Other consumer 10 — 37 —
Total 7,434 8 6,477 18
Loans with a specific valuation allowance
Commercial and industrial 627 — 501 —
Single tenant lease financing 1,094 — 7,148 —
Healthcare finance 918 17 494 12
Small business lending(1)
1,333 — — —
Total 3,972 17 8,143 12
Total impaired loans $ 11,406 $ 25 $ 14,620 $ 30


	Three Months Ended
	March 31, 2022
(in thousands)	Average Balance		Interest Income
Loans without a specific valuation allowance

Owner-occupied commercial real estate	3,307		—





Small business lending	830		—


Residential mortgage	3,273		8
Home equity	14		—
Other consumer loans	10		—
Total	7,434		8
Loans with a specific valuation allowance
Commercial and industrial	627		—



Single tenant lease financing	1,094		—

Healthcare finance	918		17
Small business lending 1	1,333		—



Total	3,972		17
Total impaired loans	$	11,406	$	25

1 Balance is partially guaranteed by the U.S. government.

The Company ~~did not have any~~had $0.1 million in other real estate owned (“OREO”) as of March 31, ~~2022.~~2023, which consisted of one residential mortgage property. The Company ~~had $1.2 million in~~did not have any OREO as of December 31, ~~2021, which consisted of one commercial property.~~2022. There were 2two loans totaling ~~$0.2~~$0.4 million and 1one loan totaling $0.1 million in the process of foreclosure at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

~~Troubled Debt Restructurings~~

~~The loan portfolio includes TDRs, which are loans that have been modified~~Loan Modifications 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.Borrowers Experiencing Financial Difficulty

In ~~the course of working with troubled borrowers,~~January 2023, the Company ~~may choose~~adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt restructurings and Vintage Disclosures” (“ASU 2022-02”), which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis. Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications to ~~restructure~~borrowers experiencing financial difficulty. Instead, these modifications are included in their respective loan pool and a historical loss rate is applied to the ~~contractual terms of certain loans in an effort~~current loan balance to ~~work out an alternative payment schedule with~~arrive at the ~~borrower in order to optimize the collectability~~quantitative baseline portion of the ~~loan. Any~~ACL.

Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions and other actions intended to minimize loss and to avoid foreclosure or repossession of collateral. The Company did not have any loan ~~modification is reviewed by~~modifications made to borrowers experiencing financial difficulty during 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.quarter ended March 31, 2023.

There was 1one portfolio residential mortgage loan classified as a new TDR during the three months ended March 31, 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 March 31, 2022. The modifications consisted of interest-only payments for a period of time. There was 1 residential mortgage loan classified as a new TDR during the three months ended March 31, 2021 with a pre-modification and post-modification outstanding recorded investment of $0.8 million. The Company did not allocate a specific allowance for that loan as of March 31, 2021. The modifications consisted of interest-only payments for a period of time. There were no performing TDRs that had payment defaults within the twelve months following modification during the three months ended March 31, 2022 and 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 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 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 March 31, 2022, the Company had seven loans totaling $9.8 million in non-TDR loan modifications due to COVID-19.

Note 5: Premises and Equipment

The following table summarizes premises and equipment at March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.


(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022
Land	Land	$	5,598	$	—	Land	$	5,598	$	5,598
Construction in process	Construction in process	—		57,469		Construction in process	177		714
Right of use leased asset	Right of use leased asset	160		208		Right of use leased asset	160		206
Building and improvements	Building and improvements	51,902		1,090		Building and improvements	60,199		57,505
Furniture and equipment	Furniture and equipment	18,666		7,800		Furniture and equipment	19,995		19,585

Less: accumulated depreciation	Less: accumulated depreciation	(7,694)		(6,725)		Less: accumulated depreciation	(11,881)		(10,897)
Total	Total	$	68,632	$	59,842	Total	$	74,248	$	72,711

On February 16, 2021, the Company entered into an agreement to sell its then headquarters (the “Prior Headquarters”) and certain equipment located in the Prior Headquarters to a third party. The sale was completed on April 16, 2021, and the Company recorded a gain on sale of $2.5 million. As a part of the sale agreement, the buyer agreed to lease the Prior Headquarters back to the Company through December 31, 2021. The Company vacated the Prior Headquarters at the end of the lease, on or prior to December 31, 2021.

Note 6: Goodwill

As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the carrying amount of goodwill was $4.7 million. There have been no changes in the carrying amount of goodwill for the three months ended March 31, 2023 or March 31, 2022. Goodwill is assessed for impairment annually as of August 31, or more frequently if events occur or circumstances change that indicate an impairment may exist. When assessing goodwill for impairment, first, a qualitative assessment can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment.

Goodwill was assessed for impairment using a 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 months ended March ~~31,~~2023 and 2022 ~~and 2021~~ are shown in the table below.


		Three Months Ended				Three Months Ended
(in thousands)	(in thousands)	March 31, 2022		March 31, 2021			(in thousands)	March 31, 2023		March 31, 2022
Balance, beginning of period	Balance, beginning of period	$	4,702	$	3,569		Balance, beginning of period	$	6,255	$	4,702
Additions:	Additions:						Additions:
Originated and purchased servicing	Originated and purchased servicing	844		403			Originated and purchased servicing	1,112		844
Subtractions	Subtractions						Subtractions
Paydowns:	Paydowns:	(256)		(170)			Paydowns:	(339)		(256)
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	(41)		15			Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model	284		(41)
Loan servicing asset revaluation	Loan servicing asset revaluation	$	(297)	$	(155)		Loan servicing asset revaluation	$	(55)	$	(297)
Balance, end of period	Balance, end of period	$	5,249	$	3,817		Balance, end of period	$	7,312	$	5,249

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 March 31, ~~2022~~2023 and December 31, ~~2021~~2022 are shown in the table below.


(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022
Loan portfolios serviced for:	Loan portfolios serviced for:					Loan portfolios serviced for:
SBA guaranteed loans	SBA guaranteed loans	$	254,545	$	230,514	SBA guaranteed loans	$	356,808	$	318,194

Total	Total	$	254,545	$	230,514	Total	$	356,808	$	318,194

Loan servicing revenue totaled ~~$0.6~~$0.8 million and ~~$0.4~~$0.6 million for the three months ended March 31, ~~2022~~2023 and March 31, ~~2021,~~2022, respectively. Loan servicing asset revaluation, which represents the change in fair value of the servicing asset, resulted in a ~~$0.3~~$0.1 million and ~~$0.2~~$0.3 million downward valuation for the three months ended March 31, ~~2022~~2023 and ~~2021,~~March 31, 2022, 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 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) plus 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 note due 2030 (the “2030 Note”). The 2030 Note initially bears a fixed interest rate of 6.0% per year to, but excluding, November 1, 2025 and thereafter at a floating rate equal to the then-current benchmark rate (initially the then current three-month term ~~secured overnight financing rate (“Term SOFR”)~~SOFR plus 5.795%). The 2030 Note is scheduled to mature on November 1, 2030. The 2030 Note is an unsecured subordinated obligation of the Company and may be repaid, without penalty, on any interest payment date on or after November 1, 2025. The 2030 Note is intended to qualify as Tier 2 capital under regulatory guidelines. The Company used the net proceeds from the issuance of the 2030 Note to redeem a subordinated term note that had been entered into in October 2015.

In August 2021, the Company issued $60.0 million aggregate principal amount of 3.75% Fixed-to-Floating Rate Subordinated Notes due 2031 (the “2031 Notes”) in a private placement. The 2031 Notes initially bear a fixed interest rate of 3.75% per year to, but excluding, September 1, 2026, and thereafter a floating rate equal to the then-current benchmark rate (initially three-month Term SOFR plus 3.11%). The 2031 Notes are scheduled to mature on September 1, 2031. The 2031 Notes are unsecured subordinated obligations of the Company and may be repaid, without penalty, on any interest payment date on or after September 1, 2026. The 2031 Notes are intended to qualify as Tier 2 capital under regulatory guidelines. The Company used a portion of the net proceeds from the issuance of the 2031 Notes to redeem subordinated notes issued by the ~~2026 Notes.~~Company in 2016. Pursuant to the terms of a Registration Rights Agreement between the Company and the initial purchasers of the 2031 Notes, the Company offered to exchange the 2031 Notes for subordinated notes that are registered under the Securities Act of 1933, as amended, and have substantially the same terms as the 2031 Notes. On December 30, 2021, we completed an exchange of $59.3 million principal amount of the unregistered 2031 Notes for registered 2031 Notes in satisfaction of our obligations under the registration rights agreement. Holders of $0.7 million of unregistered 2031 Notes did not participate in the exchange.

The following table presents the principal balance and unamortized debt issuance costs for the 2029 Notes, the 2030 ~~Notes,~~Note, and the 2031 Notes as of March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.


		March 31, 2022				December 31, 2021					March 31, 2023				December 31, 2022
(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

2029 Notes	2029 Notes	$	37,000	$	(1,139)	$	37,000	$	(1,178)	2029 Notes	$	37,000	$	(981)	$	37,000	$	(1,020)
2030 Notes	2030 Notes	10,000		(201)		10,000		(208)		2030 Notes	10,000		(178)		10,000		(184)
2031 Notes	2031 Notes	60,000		(1,354)		60,000		(1,383)		2031 Notes	60,000		(1,233)		60,000		(1,264)

Total	Total	$	107,000	$	(2,694)	$	107,000	$	(2,769)	Total	$	107,000	$	(2,392)	$	107,000	$	(2,468)

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~~reason,” 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 2022 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 the three months ended March 31, 2023, related to stock-based awards under the 2022 Plan.

The following table summarizes the stock-based award activity under the 2022 Plan for the three months ended March 31, 2023.


	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, 2022	—	$	—	3,558	$	36.84	—	$	—
Granted	71,660	24.75		—	—		—	—



Unvested at March 31, 2023	71,660	$	24.75	3,558	$	36.84	—	$	—

At March 31, 2023, the total unrecognized compensation cost related to unvested stock-based awards under the 2022 Plan was $1.7 million with a weighted-average expense recognition period of 2.8 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 of share-based compensation expense for the three months ended March 31, 2023, related to stock-based awards under the 2013 Plan. The Company recorded $0.6 million of share-based compensation expense for the three months ended March 31, 2022, related to stock-based awards ~~made under the 2013 Plan. The Company recorded~~ ~~$0.7 million~~ ~~of share-based compensation expense for the three months ended March 31, 2021, 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 March 31, 2022, and activity~~ for the three months ended March 31, ~~2022.~~2023.


		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
Unvested at December 31, 2021		112,822	$	28.18	—	$	—	—	$	—
Unvested at December 31, 2022											Unvested at December 31, 2022	101,734	$	35.93	—	$	—	—	$	—
Granted	Granted	41,381	46.71		9,954	52.64		1	52.64		Granted	—	—		—	—		—	—

Cancelled/Forfeited											Cancelled/Forfeited	(278)	27.56		—	—		—	—
Vested	Vested	(23,256)	24.62		(2,502)	52.64		(1)	52.64		Vested	(35,808)	31.87		—	—		—	—

Unvested at March 31, 2022		130,947	$	34.67	7,452	$	52.64	—	$	—
Unvested at March 31, 2023											Unvested at March 31, 2023	65,648	$	38.18	—	$	—	—	$	—

At March 31, ~~2022,~~ 2023, the total unrecognized compensation cost related to unvested stock-based awards under the 2013 Plan was ~~$3.8~~$1.2 million with a weighted-average expense recognition period of ~~2.0~~1.6 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~~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 three months ended March 31, ~~2022.~~2023.

Deferred Stock Rights

Outstanding, beginning of period

~~84,536~~40,414

Granted

~~107~~100

~~Exercised~~

—

Outstanding, end of period

~~84,643~~40,514

All deferred stock rights granted during the ~~2022~~2023 period were additional rights issued in lieu of cash dividends payable on outstanding deferred stock rights.

2433

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 March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had outstanding loan commitments totaling approximately ~~$325.7~~$501.7 million and ~~$324.3~~$485.4 million, respectively.

Capital Commitments

Capital expenditures ~~contracted for at the balance sheet date but not yet recognized~~were made in ~~the financial statements are associated~~connection with the construction of the building where our corporate headquarters is located, along with an attached parking garage. The Company ~~has~~ entered into construction-related ~~contracts in the amount of $68.7 million.~~contracts. As of March 31, ~~2022, $8.3 million~~2023, the project was completed at a total cost of ~~such contract~~$67.2 million. There are no remaining capital commitments ~~had not yet been incurred. These commitments are due within one year.~~left at March 31, 2023.

Note 11: Fair Value of Financial Instruments

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

Level 1 Quoted prices in active markets for identical assets or liabilities

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

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

Available-for-Sale Securities

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

Level 2 securities include U.S. Government-sponsored agencies, municipal securities, ~~mortgage-~~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 March 31, ~~2022~~2023 or December 31, ~~2021.~~2022.

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).

2534

Servicing Asset

Fair value is based on a loan-by-loan basis taking into consideration the ~~original~~origination to maturity dates of the loans, the current age of the loans and the remaining term to maturity. The valuation methodology utilized for the servicing ~~assets~~asset 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~~values of interest rate swap agreements isare 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”)~~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 March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.

March 31, 2022
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 $ 43,847 $ — $ 43,847 $ —
Municipal securities 72,804 — 72,804 —
Agency mortgage-backed securities - residential 257,682 — 257,682 —
Agency mortgage-backed securities - commercial 24,156 — 24,156 —
Private label mortgage-backed securities - residential 14,818 — 14,818 —
Asset-backed securities 4,986 — 4,986 —
Corporate securities 46,995 — 46,995 —
Total available-for-sale securities $ 465,288 $ — $ 465,288 $ —
Loans held-for-sale (mandatory pricing agreements) 17,364 — 17,364 —
Servicing asset 5,249 — — 5,249
Interest rate swap agreements (2,917) — (2,917) —
Forward contracts 1,072 1,072 — —
IRLCs (88) — — (88)


			March 31, 2023 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	$	37,047	$	—	$	37,047	$	—
Municipal securities	68,636		—		68,636		—
Agency mortgage-backed securities - residential	216,752		—		216,752		—
Agency mortgage-backed securities - commercial	15,530		—		15,530		—
Private label mortgage-backed securities - residential	10,275		—		10,275		—
Asset-backed securities	4,998		—		4,998		—
Corporate securities	42,595		—		42,595		—

Total available-for-sale securities	$	395,833	$	—	$	395,833	$	—
Loans held-for-sale (mandatory pricing agreements)	2,209		—		2,209		—
Servicing asset	7,312		—		—		7,312
Interest rate swap assets	6,089		—		6,089		—

Forward contracts	(22)		(22)		—		—
IRLCs	—		—		—		—

2635


				December 31, 2021 Fair Value Measurements Using									December 31, 2022 Fair Value Measurements Using
(in thousands)	(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government-sponsored agencies	U.S. Government-sponsored agencies	$	49,040	$	—	$	49,040	$	—	U.S. Government-sponsored agencies	$	33,809	$	—	$	33,809	$	—
Municipal securities	Municipal securities	77,033		—		77,033		—		Municipal securities	67,276		—		67,276		—
Agency mortgage-backed securities - residential	Agency mortgage-backed securities - residential	373,236		—		373,236		—		Agency mortgage-backed securities - residential	215,092		—		215,092		—
Agency mortgage-backed securities - commercial	Agency mortgage-backed securities - commercial	36,326		0		36,326		0		Agency mortgage-backed securities - commercial	15,840		—		15,840		—
Private label mortgage-backed securities - residential	Private label mortgage-backed securities - residential	16,021		—		16,021		—		Private label mortgage-backed securities - residential	10,455		—		10,455		—
Asset-backed securities	Asset-backed securities	5,004		—		5,004		—		Asset-backed securities	4,960		—		4,960		—
Corporate securities	Corporate securities	46,384		—		46,384		—		Corporate securities	42,952		—		42,952		—

Total available-for-sale securities	Total available-for-sale securities	$	603,044	$	—	$	603,044	$	—	Total available-for-sale securities	$	390,384	$	—	$	390,384	$	—
Loans held-for-sale (mandatory pricing agreements)	Loans held-for-sale (mandatory pricing agreements)	23,233		—		23,233		—		Loans held-for-sale (mandatory pricing agreements)	9,110		—		9,110		—
Servicing asset	Servicing asset	4,702		—		—		4,702		Servicing asset	6,255		—		—		6,255

Interest rate swap agreements	Interest rate swap agreements	(14,271)		—		(14,271)		—		Interest rate swap agreements	8,645		—		8,645		—
Forward contracts	Forward contracts	(30)		(30)		—		—		Forward contracts	97		97		—		—
IRLCs	IRLCs	718		—		—		718		IRLCs	133		—		—		133

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 months ended March 31, ~~2022~~2023 and ~~2021.~~2022.


		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, January 1, 2022		$	4,702	$	718
Balance, January 1, 2023						Balance, January 1, 2023	$	6,255	$	133
Total realized gains	Total realized gains					Total realized gains
Additions		844		—
Additions:						Additions:
Originated and purchased servicing						Originated and purchased servicing	1,112		—
Subtractions:						Subtractions:
Paydowns	Paydowns	(256)		—		Paydowns	(339)		—
Change in fair value	Change in fair value	(41)		(806)		Change in fair value	284		(133)

Balance, March 31, 2022		$	5,249	$	(88)
Balance, March 31, 2023						Balance, March 31, 2023	$	7,312	$	—

Balance as of January 1, 2021		$	3,569	$	3,361
Balance as of January 1, 2022						Balance as of January 1, 2022	$	4,702	$	718
Total realized gains	Total realized gains					Total realized gains
Additions		403		—
Additions:						Additions:
Originated and purchased servicing						Originated and purchased servicing	844		—
Subtractions:						Subtractions:
Paydowns	Paydowns	(170)		—		Paydowns	(256)		—
Change in fair value	Change in fair value	15		(2,251)		Change in fair value	(41)		(806)

Balance, March 31, 2021		$	3,817	$	1,110
Balance, March 31, 2022						Balance, March 31, 2022	$	5,249	$	(88)

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~~Collateral Dependent 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 March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.


			March 31, 2023
(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)
Collateral dependent loans	$	3,676	$	—	$	—	$	3,676


				December 31, 2021									December 31, 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	$	1,228	$	—	$	—	$	1,228	Impaired loans	$	1,164	$	—	$	—	$	1,164

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
March 31, 2022

Valuation
Technique

Significant Unobservable
Inputs

Range

Weighted-Average Range

(dollars in thousands)

Fair Value at
March 31, 2023

Valuation
Technique

Significant Unobservable
Inputs

Range

Weighted-Average Range

Impaired loans

2,164

Fair value of collateral

Discount for type of property and current market conditions

10%

IRLCs

(88)

Discounted cash flow

Loan closing rates

45% - 100%

87%

Collateral dependent loans

3,676

Fair value of collateral

Discount for type of property and current market conditions

4% - 25%

12%

Servicing asset

5,249

Discounted cash flow

Prepayment speeds
Discount rate

0% - 25%

10%

13.3%

10%

Servicing asset

7,312

Discounted cash flow

Prepayment speeds

Discount rate

0% - 25%

14%

11.5%

14%

(dollars in thousands) Fair Value at
December 31, 2021 Valuation
Technique Significant Unobservable
Inputs Range Weighted-Average Range
Impaired loans $ 1,228 Fair value of collateral Discount for type of property and current market conditions 0% - 35% 10.1%
IRLCs 718 Discounted cash flow Loan closing rates 42% - 100% 89%
Servicing asset 4,702

Discounted cash flow Prepayment speeds

Discount rate
0% - 25%

10%
12.5%

10%


(dollars in thousands)	Fair Value at December 31, 2022		Valuation Technique	Significant Unobservable Inputs	Range	Weighted-Average Range
Impaired loans	$	1,164	Fair value of collateral	Discount for type of property and current market conditions	0% - 25%	20%

IRLCs	133		Discounted cash flow	Loan closing rates	31% - 100%	89%
Servicing asset	6,255		Discounted cash flow	Prepayment speeds Discount rate	0% - 25% 14%	14.6% 14%

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 agency mortgage-backed securities - residential, 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 of this financial instrument 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 March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.

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 March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.


		March 31, 2022 Fair Value Measurements Using											March 31, 2023 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	$	517,549	$	517,549	$	517,549	$	—	$	—	Cash and cash equivalents	$	303,972	$	303,972	$	303,972	$	—	$	—

Securities held-to-maturity		163,370		159,971		—		159,971		—
Securities held-to-maturity, net												Securities held-to-maturity, net	210,761		192,463		—		192,463		—
Loans held-for-sale (best efforts pricing agreements)	Loans held-for-sale (best efforts pricing agreements)	16,627		16,627		—		16,627		—		Loans held-for-sale (best efforts pricing agreements)	15,935		15,935		—		15,935		—
Net loans	Net loans	2,852,529		2,750,399		—		—		2,750,399		Net loans	3,570,363		3,378,228		—		—		3,378,228
Accrued interest receivable	Accrued interest receivable	15,263		15,263		15,263		—		—		Accrued interest receivable	22,322		22,322		22,322		—		—
Federal Home Loan Bank of Indianapolis stock	Federal Home Loan Bank of Indianapolis stock	25,219		25,219		—		25,219		—		Federal Home Loan Bank of Indianapolis stock	28,350		28,350		—		28,350		—
Deposits	Deposits	3,217,979		3,164,027		1,996,097		—		1,167,930		Deposits	3,622,290		3,589,180		1,778,865		—		1,810,315
Advances from Federal Home Loan Bank	Advances from Federal Home Loan Bank	514,923		512,307		—		512,307		—		Advances from Federal Home Loan Bank	614,929		601,563		—		601,563		—
Subordinated debt	Subordinated debt	104,306		108,320		38,184		70,136		—		Subordinated debt	104,608		101,550		31,450		70,100		—
Accrued interest payable	Accrued interest payable	1,532		1,532		1,532		—		—		Accrued interest payable	2,592		2,592		2,592		—		—

December 31, 2021
Fair Value Measurements Using
(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 $ 442,960 $ 442,960 $ 442,960 $ — $ —
Securities held-to-maturity 59,565 61,468 — 61,468 —
Loans held-for-sale (best efforts pricing agreements) 24,512 24,512 — 24,512 —
Net loans 2,859,821 2,880,024 — — 2,880,024
Accrued interest receivable 16,037 16,037 16,037 — —
Federal Home Loan Bank of Indianapolis stock 25,650 25,650 — 25,650 —
Deposits 3,178,959 3,190,000 1,909,432 — 1,280,568
Advances from Federal Home Loan Bank 514,922 526,143 — 526,143 —
Subordinated debt 104,231 108,788 38,643 70,145 —
Accrued interest payable 2,018 2,018 2,018 — —


	December 31, 2022 Fair Value Measurements Using
(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	$	256,552	$	256,552	$	256,552	$	—	$	—

Securities held-to-maturity	189,168		168,483		—		168,483		—
Loans held-for-sale (best efforts pricing agreements)	12,401		12,401		—		12,401		—
Net loans	3,467,664		3,225,845		—		—		3,225,845
Accrued interest receivable	21,069		21,069		21,069		—		—
Federal Home Loan Bank of Indianapolis stock	28,350		28,350		—		28,350		—
Deposits	3,441,245		3,415,390		1,974,344		—		1,441,046
Advances from Federal Home Loan Bank	614,928		596,455		—		596,455		—
Subordinated debt	104,532		102,669		32,560		70,109		—
Accrued interest payable	2,913		2,913		2,913		—		—

Note 12: Mortgage Banking Activities

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

the ~~Company hedges~~Bank hedged 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~~would be sold into the secondary market. To facilitate the hedging of the loans, the ~~Company has~~Bank 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 March 31, ~~2022~~2023 and ~~2021,~~2022, the Company originated mortgage loans held-for-sale of ~~$152.4~~$36.3 million and ~~$223.9~~$152.4 million, respectively, and sold ~~$162.4~~$43.5 million and ~~$241.6~~$162.4 million of mortgage loans, respectively, into the secondary market.

The following table presents the components of income from mortgage banking activities for the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022.


		Three Months Ended March 31,				Three Months Ended March 31,
(in thousands)	(in thousands)	2022		2021			(in thousands)	2023		2022
Gain on loans sold	Gain on loans sold	$	2,062	$	7,499		Gain on loans sold	$	464	$	2,062
Gain (loss) resulting from the change in fair value of loans held-for-sale		(489)		(862)
Gain (loss) resulting from the change in fair value of derivatives		300		(887)
Loss resulting from the change in fair value of loans held-for-sale							Loss resulting from the change in fair value of loans held-for-sale	(136)		(489)
(Loss) gain resulting from the change in fair value of derivatives							(Loss) gain resulting from the change in fair value of derivatives	(252)		300
Net revenue from mortgage banking activities	Net revenue from mortgage banking activities	$	1,873	$	5,750		Net revenue from mortgage banking activities	$	76	$	1,873

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~~entered into forward contracts for the future delivery of mortgage loans to third-party investors and ~~enters~~entered into IRLCs with potential borrowers to fund specific mortgage loans that ~~will be~~were sold into the secondary market. The forward contracts ~~are~~were 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 March 31, ~~2022~~2023 and December 31, ~~2021.~~ 2022.


(in thousands)	(in thousands)	Carrying amount of the hedged asset				Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets				(in thousands)	Carrying amount of the hedged asset				Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets
Line item in the condensed consolidated balance sheets in which the hedged item is included	Line item in the condensed consolidated balance sheets in which the hedged item is included	March 31, 2022		December 31, 2021		March 31, 2022		December 31, 2021		Line item in the condensed consolidated balance sheets in which the hedged item is included	March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022

Securities available-for-sale (1)		$	72,416	$	75,156	$	(292)	$	1,729
Securities available-for-sale 1										Securities available-for-sale 1	$	69,243	$	68,963	$	(1,707)	$	(2,088)

~~(1)~~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 at both March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.

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 March 31,~~, 2022~~ 2023 and December 31, ~~2021,~~2022, identified by the underlying interest rate-sensitive instruments.


(dollars in thousands) March 31, 2022		Notional Value			Weighted- Average Remaining Maturity (years)				Weighted-Average Ratio
(dollars in thousands) March 31, 2023											(dollars in thousands) March 31, 2023		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			2.6			$	288		3-month LIBOR			2.33	%	Securities available-for-sale		$	50,000	1.6			$	1,707		3-month LIBOR			2.33	%
Total at March 31, 2022		$	50,000		2.6		$	288	3-month LIBOR			2.33		%
Total at March 31, 2023														Total at March 31, 2023		$	50,000		1.6		$	1,707		3-month LIBOR			2.33	%

(dollars in thousands)

December 31, 2021
Notional Value Weighted- Average Remaining Maturity (years) Weighted-Average Ratio
Instruments Associated With Fair Value Receive Pay
Securities available-for-sale $ 50,000 2.8 $ (1,731) 3-month LIBOR 2.33 %
Total at December 31, 2021 $ 50,000 2.8 $ (1,731) 3-month LIBOR 2.33 %


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

Securities available-for-sale	$	50,000	1.8	$	2,093	3-month LIBOR	2.33	%
Total swap portfolio at December 31, 2022	$	50,000	1.8	$	2,093	3-month LIBOR	2.33	%

In March 2021, the Company terminated the last layer of interest rate swaps associated with available-for-sale agency mortgage-backed securities - residential, which resulted in swap termination payments to counterparties totaling $1.9 million. The corresponding fair value hedging adjustment was allocated pro-rata to the underlying hedged securities and is being amortized over the remaining lives of the designated securities. ~~During the three months ended March 31, 2022, amortization~~Amortization expense totaling less than $0.1 million was recognized as a reduction to interest income on ~~securities.~~securities for the three months ended March 31, 2023 and 2022, respectively.

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 ~~12.0~~11.1 years as of March 31, ~~2022. During~~2023. Amortization expense totaling $1.0 million and $1.0 million for the three months ended March 31, ~~2022~~2023 and ~~2021, amortization expense totaling $1.0 million and $1.1 million,~~2022, 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 March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.


(dollars in thousands) March 31, 2022		Notional		Weighted- Average Remaining Maturity			Weighted-Average Ratio
(dollars in thousands) March 31, 2023										(dollars in thousands) March 31, 2023	Notional Value			Weighted- Average Remaining Maturity (years)					Weighted-Average Ratio
Cash Flow Hedges	Cash Flow Hedges	Value		(years)	Fair Value		Receive	Pay		Cash Flow Hedges					Fair Value		Receive			Pay
Interest rate swaps	Interest rate swaps	$	110,000	4.8	$	(2,132)	3-month LIBOR	2.88	%	Interest rate swaps		$	110,000		3.8		$	3,126		3-month LIBOR			2.88	%
Interest rate swaps	Interest rate swaps	60,000		1.4	(648)		1-month LIBOR	2.88	%	Interest rate swaps	60,000			0.4		473			1-month LIBOR		2.88	%
Interest rate swaps	Interest rate swaps	40,000		2.2	(425)		Fed Funds Effective	2.78	%	Interest rate swaps	40,000			1.2		783			Fed Funds Effective		2.78	%


(dollars in thousands) December 31, 2021		Notional		Weighted- Average Remaining Maturity			Weighted-Average Ratio
(dollars in thousands) December 31, 2022										(dollars in thousands) December 31, 2022	Notional Value			Weighted- Average Remaining Maturity (years)					Weighted-Average Ratio
Cash Flow Hedges	Cash Flow Hedges	Value		(years)	Fair Value		Receive	Pay		Cash Flow Hedges					Fair Value		Receive			Pay
Interest rate swaps										Interest rate swaps		$	110,000		4.1		$	4,787		3-month LIBOR			2.88	%
Interest rate swaps	Interest rate swaps	$	110,000	5.1	$	(8,560)	3-month LIBOR	2.88	%	Interest rate swaps	60,000			0.6		735			1-month LIBOR		2.88	%
Interest rate swaps	Interest rate swaps	100,000		2.0	(3,980)		1-month LIBOR	2.88	%	Interest rate swaps	40,000			1.4		1,030			Fed Funds Effective		2.78	%

These derivative financial instruments were entered into for the purpose of managing the interest rate risk of certain assets and liabilities. The Company ~~pledged $2.7~~received $6.6 million and ~~$15.7~~$7.7 million of cash collateral from counterparties as security for their obligations related to these swap transactions at March 31, 2023 and December 31, 2022. The Company had no pledged cash collateral as of March 31, 2023 and December 31, 2022 to counterparties on interest rate swap agreements as security for its obligations related to these ~~interest rate swap transactions at March 31, 2022 and December 31, 2021, 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 March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.


		March 31, 2022				December 31, 2021					March 31, 2023				December 31, 2022
(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	$	1,707	$	50,000	$	2,093
Interest rate swaps associated with liabilities										Interest rate swaps associated with liabilities	210,000		4,382		210,000		6,552

Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments									Derivatives not designated as hedging instruments
IRLCs	IRLCs	$	—	$	—	$	62,789	$	718	IRLCs	—		—		14,862		133
Forward contracts	Forward contracts	56,750		1,072		—		—		Forward contracts	—		—		17,000		97
Total contracts	Total contracts	$	56,750	$	1,072	$	62,789	$	718	Total contracts	$	260,000	$	6,089	$	291,862	$	8,875
Liability Derivatives	Liability Derivatives									Liability Derivatives
Derivatives designated as hedging instruments

Interest rate swaps associated with securities available-for-sale		$	50,000	$	288	$	50,000	$	(1,731)
Interest rate swaps associated with liabilities		210,000		(3,205)		210,000		(12,540)

Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments									Derivatives not designated as hedging instruments
Forward contracts	Forward contracts	—		—		72,750		(30)		Forward contracts	$	1,750	$	(22)	$	—	$	—
IRLCs		63,378		(88)		—		—

Total contracts	Total contracts	$	323,378	$	(3,005)	$	332,750	$	(14,301)	Total contracts	$	1,750	$	(22)	$	—	$	—

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 months ended March 31, ~~2022~~2023 and ~~2021.~~2022.


		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 Three Months Ended
(in thousands)	(in thousands)	March 31, 2022		March 31, 2021			(in thousands)	March 31, 2023		March 31, 2022

Interest rate swap agreements	Interest rate swap agreements	$	9,334	$	6,280		Interest rate swap agreements	$	(2,170)	$	9,334

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 months ended March 31, ~~2022~~2023 and ~~2021.~~2022.


	Amount of Gain / (Loss) Recognized in the Three Months Ended
(in thousands)	March 31, 2023		March 31, 2022
Asset Derivatives
Derivatives not designated as hedging instruments
IRLCs	$	—	$	—
Forward contracts	—		1,102

Liability Derivatives
Derivatives not designated as hedging instruments
IRLCs	$	(133)	$	(802)
Forward contracts	(119)		—

Amount of Gain / (Loss) Recognized in the Three Months Ended
(in thousands) March 31, 2022 March 31, 2021
Asset Derivatives
Derivatives not designated as hedging instruments
Forward contracts 1,102 1,361
Liability Derivatives
Derivatives not designated as hedging instruments
IRLCs $ (802) $ (2,251)

The following table presents the effects of the Company’s interest rate swap agreements on the condensed consolidated statements of ~~income~~operations during the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022.


(in thousands) Line item in the condensed consolidated statements of income		Three Months Ended
		March 31, 2022		March 31, 2021
(in thousands) Line item in the condensed consolidated statements of operations						(in thousands) Line item in the condensed consolidated statements of operations	Three Months Ended
							March 31, 2023		March 31, 2022
Interest income	Interest income					Interest income

Securities - taxable	Securities - taxable	—		(253)		Securities - taxable	$	—	$	—
Securities - non-taxable	Securities - non-taxable	(260)		(266)		Securities - non-taxable	294		(260)
Total interest income	Total interest income	(260)		(519)		Total interest income	294		(260)
Interest expense	Interest expense					Interest expense
Deposits	Deposits	670		678		Deposits	(418)		670
Other borrowed funds	Other borrowed funds	696		730		Other borrowed funds	(522)		696
Total interest expense	Total interest expense	1,366		1,408		Total interest expense	(940)		1,366
Net interest income	Net interest income	$	(1,626)	$	(1,927)	Net interest income	$	1,234	$	(1,626)

3444

Note 14: Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, included in shareholders' equity, for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively, are presented in the table below.


(in thousands)	(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		(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, 2023										Balance, January 1, 2023	$	(35,831)	$	(3,519)	$	5,714	$	(33,636)
Other comprehensive income (loss) before reclassifications from accumulated other comprehensive loss before tax										Other comprehensive income (loss) before reclassifications from accumulated other comprehensive loss before tax	5,112		—		(2,170)		2,942
Reclassifications from accumulated other comprehensive loss to earnings before tax										Reclassifications from accumulated other comprehensive loss to earnings before tax	—		158		—		158

Other comprehensive gain (loss) before tax										Other comprehensive gain (loss) before tax	5,112		158		(2,170)		3,100
Income tax provision (benefit)										Income tax provision (benefit)	1,170		46		(499)		717
Other comprehensive income (loss) - net of tax										Other comprehensive income (loss) - net of tax	3,942		112		(1,671)		2,383
Balance, March 31, 2023										Balance, March 31, 2023	$	(31,889)	$	(3,407)	$	4,043	$	(31,253)

Balance, January 1, 2022	Balance, January 1, 2022	$	(2,555)	$	—	$	(8,484)	$	(11,039)	Balance, January 1, 2022	$	(2,555)	$	—	$	(8,484)	$	(11,039)
Other comprehensive (loss) income before reclassifications from accumulated other comprehensive loss before tax	Other comprehensive (loss) income before reclassifications from accumulated other comprehensive loss before tax	(17,881)		(5,402)		9,334		(13,949)		Other comprehensive (loss) income before reclassifications from accumulated other comprehensive loss before tax	(17,881)		(5,402)		9,334		(13,949)
Reclassifications from accumulated other comprehensive (loss) income to earnings before tax		—		119		—		119

Reclassifications from accumulated other comprehensive loss to earnings before tax										Reclassifications from accumulated other comprehensive loss to earnings before tax	—		119		—		119
Other comprehensive (loss) gain before tax	Other comprehensive (loss) gain before tax	(17,881)		(5,283)		9,334		(13,830)		Other comprehensive (loss) gain before tax	(17,881)		(5,283)		9,334		(13,830)
Income tax (benefit) provision	Income tax (benefit) provision	(4,077)		(1,249)		3,318		(2,008)		Income tax (benefit) provision	(4,077)		(1,249)		3,318		(2,008)
Other comprehensive (loss) income - net of tax	Other comprehensive (loss) income - net of tax	(13,804)		(4,034)		6,016		(11,822)		Other comprehensive (loss) income - net of tax	(13,804)		(4,034)		6,016		(11,822)
Balance, March 31, 2022	Balance, March 31, 2022	$	(16,359)	$	(4,034)	$	(2,468)	$	(22,861)	Balance, March 31, 2022	$	(16,359)	$	(4,034)	$	(2,468)	$	(22,861)

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

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

~~Details About Accumulated Other Comprehensive Income (Loss) Components~~

Amounts Reclassified from
Accumulated Other Comprehensive Income (Loss) for the

Affected Line Item in the
Statements of Income

~~Three Months Ended March 31, 2022~~

~~Three Months Ended March 31, 2021~~

~~Reclassifications from accumulated other comprehensive loss to earnings before tax~~

~~(119)~~

—

~~Interest income~~

~~Total amount reclassified before tax~~

~~(119)~~

—

~~Income before income taxes~~

~~Tax benefit~~

~~(27)~~

—

~~Income tax provision~~

~~Total reclassifications from accumulated other comprehensive loss~~

~~(92)~~

—

~~Net income~~


Details About Accumulated Other Comprehensive Loss Components	Amounts Reclassified from Accumulated Other Comprehensive Loss for the				Affected Line Item in the Statements of Operations
	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
Reclassifications from accumulated other comprehensive loss to earnings before tax	$	(158)	(119)			Interest income
Total amount reclassified before tax	(158)		(119)			(Loss) income before income taxes
Tax benefit	(46)		(27)			Income tax (benefit) provision
Total reclassifications from accumulated other comprehensive loss	$	(112)	$	(92)		Net (loss) income

3545

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.

The Company formed a current expected credit losses (“CECL”) working group that discussed implementation matters related to the completeness and accuracy of historical data, model development and corporate governance documentation. The new allowance model estimates credit losses over the expected life of the portfolio and includes a qualitative framework to account for drivers of losses that the quantitative model does not capture. The CECL working group discussed results from parallel model runs for each portfolio segment, assumptions related to unfunded commitments and economic forecast factors. Model validation was completed by an independent third party in the fourth quarter 2022.

~~For public business entities that are SEC filers,~~The ASU allows for several different methods of calculating the ~~amendments in this update are effective~~Allowance for ~~fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All entities may early adopt~~Credit Losses (“ACL”) and based on its analysis of observable data, the ~~amendments in this update as of~~Company determined the ~~fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In October 2019,~~discounted cash flow method to be the ~~FASB voted to delay the effective date~~most appropriate 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.all its loan segments.

The Company ~~expects to adopt~~adopted this guidance on January 1, 2023 and recorded a $3.0 million pre-tax one-time cumulative effect adjustment to the ACL in retained earnings on the consolidated balance sheet as of the beginning of 2023, as is ~~currently evaluating~~required in the guidance. In addition, the Company recorded a one-time $2.5 million pre-tax cumulative effect adjustment to the allowance for unfunded commitments in retained earnings on the consolidated balance sheet.

The qualitative impact of the ~~amendments on~~new accounting standard is directed by many of the ~~Company’s condensed consolidated financial statements.~~ same factors that impacted the previous methodology for calculating the ACL, including but not limited to, quality and experience of staff, changes in the value of collateral, concentrations of credit in loan types or industries and changes to lending policies. In addition, the Company also uses reasonable and supportable forecasts. Examples of this are regression analyses of data from the Federal Open Market Committee quarterly economic projections for change in real GDP, housing price index and national unemployment.

The ~~Company currently cannot determine or reasonably quantify~~following table presents 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.ASC 326 as of January 1, 2023:

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


	January 1, 2023
(dollars in thousands)	Pre-ASC 326 Adoption		Impact of ASC 326 Adoption		As Reported Under ASC 326
Assets:
Commercial loans
Commercial and industrial	$	1,711	$	(120)	$	1,591
Owner-occupied commercial real estate	651		62		713
Investor commercial real estate	1,099		(191)		908
Construction	2,074		(435)		1,639
Single tenant lease financing	10,519		(346)		10,173
Public finance	1,753		(135)		1,618
Healthcare finance	2,997		1,034		4,031
Small business lending	2,168		334		2,502
Franchise finance	3,988		(313)		3,675

Total commercial loans	26,960		(110)		26,850
Consumer loans
Residential mortgage	1,559		406		1,965
Home equity	69		133		202
Other consumer	3,149		2,533		5,682
Total consumer loans	4,777		3,072		7,849
Total allowance for credit losses	$	31,737	$	2,962	$	34,699

Liabilities:
Liability for off-balance sheet credit exposures	$	—	$	2,504	$	2,504

~~In March 2020~~

The Company also performed an assessment to determine if an allowance for credit loss was needed for available-for-sale and held-to-maturity securities. The Company analyzed available-for-sale securities investment securities that were 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 classifiedan unrealized loss position 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~~2023 and determined the ~~date on which the national emergency~~decline in fair value for those securities was not related to credit, but rather related to changes in interest rates and general market conditions. As such, no ACL was recorded for available-for-sale securities. The Company analyzed held-to-maturity securities and recorded a $0.3 million one-time cumulative adjustment 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.allowance in retained earnings.

ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (March 2020) and ASU 2022-06 - Deferral of sunset Date of Topic 848

In March 2020, FASB issued ASU 2020-04 to ease the potential burden in accounting for the transition away from the ~~LIBORon~~LIBOR on 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.~~2024. The Company believes the adoption of this guidance will not have a material impact on the condensed consolidated financial statements.

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

In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the separate recognition and measurement guidance for Troubled Debt Restructurings ("TDRs") by creditors. The elimination of the TDR guidance may be adopted prospectively for loan modifications after adoption or on a modified retrospective basis, which would also apply to loans previously modified, resulting in a cumulative effect adjustment to retained earnings in the period of adoption for changes in the allowance for credit losses. 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~~Using a prospective approach, the Company ~~is currently assessing~~adopted this guidance on January 1, 2023 and it did not have a material impact on the ~~impact of the adoption of this guidance.~~condensed consolidated financial statements.

~~Note 16: Subsequent Event~~

On May 1, 2022, First Century Bancorp. (“First Century”) terminated the previously announced Agreement and Plan of Merger dated November 1, 2021 (the “Merger Agreement”), by and among the Company, FC Subsidiary, Inc. and First Century. Under the Merger Agreement, the consummation of the merger was to have occurred on or before April 30, 2022. The Board of Governors of the Federal Reserve approved the merger on April 29, 2022, but the parties were

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

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, ~~2021~~2022 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 $4.2 billion~~headquartered in ~~total assets as of March 31, 2022,~~Fishers, Indiana that conducts its primary business activities through its ~~wholly owned~~wholly-owned subsidiary, First Internet Bank of Indiana, an Indiana chartered ~~bank (the “Bank”).~~bank. The Bank was the first state-chartered, Federal Deposit Insurance Corporation (“FDIC”) insured Internet bank and commenced banking operations in 1999. ~~The Company~~First Internet Bancorp was incorporated under the laws of the State of Indiana on September 15, 2005. On March 21, 2006, we consummated a plan of exchange by which we acquired all of the outstanding shares of the Bank.

~~The Company has two wholly-owned subsidiaries: the Bank and FC Subsidiary, Inc., a Georgia corporation, formed in connection with our potential acquisition of First Century Bancorp.~~ The Bank has three wholly-owned subsidiaries: 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, a Delaware limited liability company that manages other real estate owned ~~(“OREO”)~~ properties as needed; and SPF15, Inc., an Indiana corporation that owns real 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. ~~Within CRE banking, we offer single tenant lease financing on a nationwide basis in addition to traditional investor CRE and construction loans primarily within Central Indiana or 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 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 established in conjunction with our strategic partnership with Provide, Inc. (formerly known as Lendeavor, Inc.), a San Francisco-based technology-enabled lender to healthcare practices, which provided lending on a nationwide basis for healthcare practice finance or acquisition, acquisition or refinancing of owner-occupied ~~CRE~~commercial real estate and equipment purchases. In the third quarter 2021, Provide ~~Inc.~~ was acquired by a super-regional financial institution. ~~It is our expectation that~~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 ~~will decline.~~have declined. Our franchise finance business was established in July 2021 in conjunction with our business relationship with ApplePie Capital, a financial technology (“fintech”) company that specializes in providing financing to franchisees in various industry segments. Our commercial deposits and treasury management team works with the other commercial teams to provide deposit products and treasury management services to our commercial and municipal lending customers as well as pursues commercial deposit opportunities in business segments where we have no credit relationships.

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~~are one of the fastest-growing lenders in the Small Business Administration (“SBA”) 7(a) program, closing more than $155.4 million in SBA 7(a) loans during 2022 and ~~continue to recruit experienced~~ranking in the top 30 SBA 7(a) lenders for the SBA’s 2022 fiscal year. During the three months ended March 31, 2023, we closed more than $73.5 million in SBA 7(a) loans, ranking in the top 10 SBA 7(a) lenders for 2023. We also offer a top-ranked small business ~~sales, credit and operations personnel~~checking account product to ~~expand~~ our ~~capabilities in small business lending and U.S. government~~

~~guaranteed lending programs.~~country’s entrepreneurs. We continue to scale up this business with the goal of driving increased earnings and profitability in future periods.

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

~~Merger Transaction~~

~~On May 1, 2022, First Century Bancorp. (“First Century”) terminated the previously announced Agreement and Plan~~As of ~~Merger dated November 1, 2021 (the “Merger Agreement”), by and among~~March 31, 2023, the Company ~~FC Subsidiary, Inc.~~had consolidated assets of $4.7 billion, consolidated deposits of $3.6 billion and ~~First Century. Under the Merger Agreement, the consummation~~stockholders’ equity of the merger was to have occurred on or before April 30, 2022. The Board of Governors of the Federal Reserve approved the merger on April 29, 2022, but the parties were precluded from closing immediately thereafter due to statutory waiting periods. The parties were unable to agree on extension terms, and First Century exercised its option to terminate the Merger Agreement.$355.6 million.

3949

Results of Operations

During the first quarter 2023, there was a net loss of $3.0 million, or $0.33 diluted loss per share, compared to first quarter 2022 net income ~~was~~of $11.2 million, or $1.14 per diluted share, ~~compared to first quarter 2021 net income of $10.5 million, or $1.05 per diluted share,~~ representing ~~an increase~~a decrease in net income of ~~$0.8~~$14.2 million, or ~~7.3%~~126.9%, and ~~an increase~~a decrease in diluted earnings per share of ~~$0.09,~~$1.47, or ~~8.6%~~129.0%.

The ~~$0.8~~$14.2 million ~~increase~~decrease in net income for the first quarter ~~2022~~2023 compared to the first quarter ~~2021~~2022 was due primarily to an increase of ~~$5.2~~$8.6 million, or ~~25.5%~~1,090.3%, in provision for credit losses, a decrease of $6.2 million, or 24.0%, in net interest income, ~~a decrease~~an increase of ~~$0.5~~$2.2 million, or ~~38.0%~~11.6%, ~~in provision for loan losses and a decrease of $0.1 million, or 3.6%, in income tax expense, partially offset by a $3.5 million, or 22.6%, increase~~ in noninterest expense and a decrease of ~~$1.6~~$1.4 million, or ~~18.6%~~20.1%, in noninterest ~~income.~~income, partially offset by a decrease of $4.1 million, or 230.3%, in income tax expense.

Due to the steep decline in consumer mortgage volumes and the negative outlook for consumer mortgage lending over the next several years, the Company decided to exit its consumer mortgage business during the first quarter 2023. This included its nationwide digital direct-to-consumer mortgage platform that originated residential loans for sale in the secondary market, as well as its local traditional consumer mortgage and construction-to-permanent business. In connection with this decision, the Company recognized $3.1 million of mortgage operations and exit costs during the first quarter 2023, which primarily drove the increase in noninterest expense compared to the first quarter 2022.

The Company also recognized $0.1 million of mortgage banking revenue during the first quarter 2023, down from $1.8 million in the first quarter 2022, as it immediately began winding down its existing pipeline following the decision to exit the business.

Additionally during the first quarter 2023, the Company recognized a partial charge-off of $6.9 million related to a commercial and industrial participation loan with a balance of $9.8 million, prior to the partial charge-off, that was moved to nonaccrual status late in the quarter. This action contributed to the increase in the provision for credit losses as compared to first quarter 2022. The Company expects that it will receive payment for the remaining balance of the participation loan during May 2023.

During the first quarter ~~2022,~~2023, return on average assets (“ROAA”), return on average shareholders’ equity (“ROAE”), and return on average tangible common equity (“ROATCE”) were (0.26%), (3.37%), and (3.41%), respectively, compared to 1.08%, 11.94%, and 12.09%, respectively, ~~compared to 1.02%, 12.61%, and 12.79%, respectively,~~ for the first quarter ~~2021.~~2022.

Excluding the impact of exiting consumer mortgage and the partial charge-off, adjusted net income for the first quarter 2023 was $4.8 million and adjusted diluted earnings per share was $0.53. Additionally, for the first quarter 2023, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 0.43%, 5.36% and 5.44%, respectively.

During the first quarter 2022, the Company had a nonrecurring consulting fee associated with a special project of $0.9 million, as well as acquisition-related expenses of $0.2 million. Excluding these items, adjusted net income for the first quarter 2022 was $12.0 million and adjusted diluted earnings per share was $1.22. Additionally, for the first quarter 2022, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 1.16%, 12.82% and 12.98%, respectively.

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

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

4050

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.


		Three Months Ended																			Three Months Ended
		March 31, 2022						December 31, 2021						March 31, 2021							March 31, 2023						December 31, 2022						March 31, 2022
(in thousands)		Average Balance		Interest /Dividends		Yield /Cost		Average Balance		Interest /Dividends		Yield /Cost		Average Balance		Interest /Dividends		Yield /Cost
(dollars in thousands)																				(dollars 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	$	2,976,037	$	33,188	4.52	%	$	2,947,053	$	31,621	4.26	%	$	3,079,130	$	30,885	4.07	%	Loans, including loans held-for-sale	$	3,583,242	$	43,843	4.96	%	$	3,391,379	$	40,354	4.72	%	$	2,976,037	$	33,188	4.52	%
Securities - taxable	Securities - taxable	567,776		2,221		1.59	%	595,024		1,973		1.32	%	461,300		1,779		1.56	%	Securities - taxable	511,923		3,606		2.86	%	508,725		3,222		2.51	%	567,776		2,221		1.59	%
Securities - non-taxable	Securities - non-taxable	80,952		249		1.25	%	82,556		236		1.13	%	87,129		281		1.31	%	Securities - non-taxable	73,347		798		4.41	%	69,883		699		3.97	%	80,952		249		1.25	%
Other earning assets	Other earning assets	455,960		376		0.33	%	431,621		362		0.33	%	446,045		335		0.30	%	Other earning assets	331,294		3,786		4.63	%	149,910		1,394		3.69	%	455,960		376		0.33	%
Total interest-earning assets	Total interest-earning assets	4,080,725		36,034		3.58	%	4,056,254		34,192		3.34	%	4,073,604		33,280		3.31	%	Total interest-earning assets	4,499,782		52,033		4.69	%	4,119,897		45,669		4.40	%	4,080,725		36,034		3.58	%

Allowance for loan losses		(27,974)						(27,946)						(29,884)
Allowance for credit losses - loans																				Allowance for credit losses - loans	(35,075)						(30,543)						(27,974)
Noninterest-earning assets	Noninterest-earning assets	162,167						149,270						129,553						Noninterest-earning assets	182,449						173,892						162,167
Total assets	Total assets	$	4,214,918					$	4,177,578					$	4,173,273					Total assets	$	4,647,156					$	4,263,246					$	4,214,918

Liabilities	Liabilities																			Liabilities
Interest-bearing liabilities	Interest-bearing liabilities																			Interest-bearing liabilities
Interest-bearing demand deposits	Interest-bearing demand deposits	$	318,281	$	412	0.52	%	$	210,283	$	158	0.30	%	$	180,746	$	133	0.30	%	Interest-bearing demand deposits	$	333,642	$	900	1.09	%	$	326,102	$	628	0.76	%	$	318,281	$	412	0.52	%
Savings accounts	Savings accounts	60,616		53		0.35	%	63,575		58		0.36	%	46,035		40		0.35	%	Savings accounts	38,482		82		0.86	%	47,799		104		0.86	%	60,616		53		0.35	%
Money market accounts	Money market accounts	1,454,436		1,503		0.42	%	1,453,447		1,507		0.41	%	1,369,626		1,391		0.41	%	Money market accounts	1,377,600		12,300		3.62	%	1,441,583		10,508		2.89	%	1,454,436		1,503		0.42	%
BaaS - brokered deposits	BaaS - brokered deposits	12,111		6		0.20	%	—		—		0.00	%	—		—		0.00	%	BaaS - brokered deposits	14,741		138		3.80	%	4,563		13		1.13	%	12,111		6		0.20	%
Certificates and brokered deposits	Certificates and brokered deposits	1,225,976		4,123		1.36	%	1,305,130		4,676		1.42	%	1,519,580		7,064		1.89	%	Certificates and brokered deposits	1,647,504		13,850		3.41	%	1,220,975		7,554		2.45	%	1,225,976		4,123		1.36	%
Total interest-bearing deposits	Total interest-bearing deposits	3,071,420		6,097		0.81	%	3,032,435		6,399		0.84	%	3,115,987		8,628		1.12	%	Total interest-bearing deposits	3,411,969		27,270		3.24	%	3,041,022		18,807		2.45	%	3,071,420		6,097		0.81	%
Other borrowed funds	Other borrowed funds	619,191		4,187		2.74	%	619,115		4,288		2.75	%	583,780		4,127		2.87	%	Other borrowed funds	719,499		5,189		2.92	%	712,465		5,193		2.89	%	619,191		4,187		2.74	%
Total interest-bearing liabilities	Total interest-bearing liabilities	3,690,611		10,284		1.13	%	3,651,550		10,687		1.16	%	3,699,767		12,755		1.40	%	Total interest-bearing liabilities	4,131,468		32,459		3.19	%	3,753,487		24,000		2.54	%	3,690,611		10,284		1.13	%
Noninterest-bearing deposits	Noninterest-bearing deposits	112,248						113,887						90,764						Noninterest-bearing deposits	134,988						135,702						112,248
Other noninterest-bearing liabilities	Other noninterest-bearing liabilities	31,292						35,309						46,774						Other noninterest-bearing liabilities	17,427						9,400						31,292
Total liabilities	Total liabilities	3,834,151						3,800,746						3,837,305						Total liabilities	4,283,883						3,898,589						3,834,151

Shareholders’ equity	Shareholders’ equity	380,767						376,832						335,968						Shareholders’ equity	363,273						364,657						380,767
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	4,214,918					$	4,177,578					$	4,173,273					Total liabilities and shareholders’ equity	$	4,647,156					$	4,263,246					$	4,214,918

Net interest income	Net interest income			$	25,750					$	23,505					$	20,525			Net interest income			$	19,574					$	21,669					$	25,750

Interest rate spread 1	Interest rate spread 1					2.45%						2.18%						1.91	%	Interest rate spread 1					1.50%						1.86%						2.45	%
Net interest margin 2	Net interest margin 2					2.56%						2.30%						2.04	%	Net interest margin 2					1.76%						2.09%						2.56	%
Net interest margin - FTE 3	Net interest margin - FTE 3					2.69%						2.43%						2.18	%	Net interest margin - FTE 3					1.89%						2.22%						2.69	%

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.

Rate/Volume Analysis

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


		Three Months Ended March 31, 2022 vs. December 31, 2021 Due to Changes in						Three Months Ended March 31, 2022 vs. March 31, 2021 Due to Changes in						Three Months Ended March 31, 2023 vs. December 31, 2022 Due to Changes in				Three Months Ended March 31, 2023 vs. March 31, 2022 Due to Changes in
(in thousands)	(in thousands)	Volume		Rate		Net		Volume		Rate		Net			(in thousands)	Volume		Rate		Net		Volume		Rate		Net
Interest income	Interest income														Interest income
Loans, including loans held-for-sale	Loans, including loans held-for-sale	$	218	$	1,349	$	1,567	$	(5,906)	$	8,209	$	2,303		Loans, including loans held-for-sale	$	1,837	$	1,652	$	3,489	$	7,213	$	3,442	$	10,655
Securities – taxable	Securities – taxable	(543)		791		248		408		34		442			Securities – taxable	17		367		384		(1,429)		2,814		1,385
Securities – non-taxable	Securities – non-taxable	(28)		41		13		(19)		(13)		(32)			Securities – non-taxable	31		68		99		(164)		713		549
Other earning assets	Other earning assets	14		—		14		7		33		40			Other earning assets	1,976		416		2,392		(735)		4,145		3,410
Total	Total	(339)		2,181		1,842		(5,510)		8,263		2,753			Total	3,861		2,503		6,364		4,885		11,114		15,999

Interest expense	Interest expense														Interest expense
Interest-bearing deposits	Interest-bearing deposits	401		(703)		(302)		(124)		(2,407)		(2,531)			Interest-bearing deposits	2,323		6,140		8,463		755		20,418		21,173
Other borrowed funds	Other borrowed funds	1		(102)		(101)		903		(843)		60			Other borrowed funds	(2)		(2)		(4)		713		289		1,002
Total	Total	402		(805)		(403)		779		(3,250)		(2,471)			Total	2,321		6,138		8,459		1,468		20,707		22,175

(Decrease) increase in net interest income		$	(741)	$	2,986	$	2,245	$	(6,289)	$	11,513	$	5,224
Increase (decrease) in net interest income															Increase (decrease) in net interest income	$	1,540	$	(3,635)	$	(2,095)	$	3,417	$	(9,593)	$	(6,176)

Net interest income for the first quarter ~~2022~~2023 was ~~$25.8~~$19.6 million, ~~an increase~~a decrease of ~~$5.2~~$6.2 million, or ~~25.5%~~24.0%, compared to ~~$20.5~~$25.8 million for the first quarter ~~2021.~~2022. The ~~increase~~decrease in net interest income was the result of a ~~$2.8~~$22.2 million, or ~~8.3%~~215.6%, increase in total interest ~~income~~expense to ~~$36.0~~$32.5 million for the first quarter ~~2022~~2023 from ~~$33.3 million for the first quarter 2021, as well as a $2.5 million, or 19.4%, decrease in total interest expense to~~ $10.3 million for the first quarter 2022, ~~from $12.8~~partially offset by a $16.0 million, or 44.4%, increase in total interest income to $52.0 million for the first quarter ~~2021.~~2023 from $36.0 million for the first quarter 2022.

The increase in total interest income for the first quarter ~~2022~~2023 compared to ~~the~~ first quarter ~~2021~~2022 was due primarily to ana $10.7 million, or 32.1%, increase in interest earned on loans, ~~securities and~~$3.4 million, or 906.9%, increase in income from other earning ~~assets. Interest income~~assets and a $1.9 million, or 78.3%, increase in interest earned on loans increased $2.3 million, or 7.5%, due primarily to an increase of 45 basis points (“bps”) in the yield earned on average loan balances, partially offset by a decrease of $103.1 million, or 3.3%, in average loan balances.securities. The increase in ~~interest income was driven primarily by the recognition of $2.9 million of~~ income from ~~tax refund advance~~ loans ~~partially offset by lower loan fees. The decrease in average loan balances~~ was due primarily to decreases in the average balance of healthcare finance, single tenant lease financing, public finance, owner-occupied CRE and small business lending portfolios, driven in part by prepayment activity, partially offset by increases in the average balance of tax refund advance loans, construction, commercial and industrial, and investor CRE loan portfolios. The increase in loan yield was due to the income received from tax refund advance loans discussed above, as well as a shift in the loan mix towards higher-yielding commercial loans, partially offset by lower average loan balances. Interest earned on securities increased due primarily to an increase of $100.3 million, or 18.3%, in the average balance of securities and an increase of 2 bps in the yield earned on securities. Interest income earned on other earning assets increased by less than $0.1 million, or 12.2%, due mainly to a 344 bp increase in the yield earned on ~~these assets,~~loans, as well as an increase of ~~$9.9~~$607.2 million, or ~~2.2%~~20.4%, in the average balance of loans compared to the first quarter 2022. The yield earned on other earning assets increased 430 bps, partially offset by a decrease in the average balance of other earning ~~assets.~~assets of $124.7 million, or 27.3%. The ~~increase~~decrease in the average balance of other earning assets was due primarily to ~~higher~~lower cash balances.

The average balance of securities decreased $63.5 million, or 9.8%, while the yield earned on the securities portfolio increased 151 bps for the first quarter 2023 compared to the first quarter 2022. The increase in the yields earned on loans, other earning assets and securities was due to the rise in interest rates throughout 2022 that continued during the first quarter 2023. The yield on funded portfolio originations was 7.76% in the first quarter 2023, an increase of 292 bps compared to the first quarter 2022.

4252

The ~~decrease~~increase in total interest expense for the first quarter ~~2022~~2023 compared to the first quarter ~~2021~~2022 was due primarily to ~~a decrease~~increases of $10.8 million, or 718.4%, in interest expense ~~related to~~associated with money market accounts, $9.7 million, or 235.9%, in interest expense associated with certificates and brokered deposits ~~partially offset by increases~~and $0.5 million, or 118.5%, in interest expense associated with interest-bearing demand deposits. Additionally, the Company had a full quarter of Banking-as-a-Service (“BaaS”) deposits ~~money market accounts and other borrowed funds. Interest expense on certificates and brokered deposits decreased $2.9 million, or 41.6%, due to a decline of 53 bps~~ in the cost of these deposits, as well as a $293.6 million, or 19.3%, decrease in the average balance of these deposits. The decrease in certificates and brokered deposit balances was driven by the Company’s pricing strategy to reduce the level of these higher cost deposits. The increase in2023, which increased 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.by $0.1 million. The ~~$0.1 million, or 8.1%,~~ increase in interest expense related to money market accounts was driven primarily by an increase of ~~$84.8~~320 bps in the cost of these deposits, partially offset by a decrease in the average balance of these deposits of $76.8 million, or ~~6.2%~~5.3%. The increase in interest expense related to certificates and brokered deposits was driven by an increase of 205 bps in the cost of these deposits, as well as an increase of $421.5 million, or 34.4%, in the average balance of these deposits. ~~Average money market balances increased from~~The increase in the ~~prior year period due primarily to targeted digital marketing efforts to grow~~average balance of these deposits was driven by strong certificates of deposit production in the first quarter 2023, as the Company took advantage of consumer and small business ~~accounts, as well as consumers, small businesses~~demand and ~~commercial clients increasing their cash balances due in part~~pulled forward budgeted growth to ~~the economic uncertainty resulting from COVID-19.~~build liquidity at rates beneficial to projected Federal Funds rates. The increase in interest expense ~~associated with other borrowed funds~~related to interest-bearing demand deposits was due primarily to a 57 bp increase in the cost of these deposits, as well as an increase of ~~$34.2~~$15.4 million, or ~~48.8%~~4.8%, in the average balance of ~~subordinated debt, partially offset by a 213 bp decrease~~these deposits. The increase in the overall cost of ~~subordinated debt resulting from~~deposits was due primarily to the ~~issuance~~rise in interest rates throughout 2022 that continued during the first quarter 2023. Beginning in March 2022, the Federal Reserve has increased the Fed Funds rate 4.75% through March 31, 2023, which has impacted pricing of the ~~2031 Notes and the redemption of the 2026 Notes.~~Company’s deposit products.

Overall, the cost of total interest-bearing liabilities for the first quarter ~~2022 declined 27~~2023 increased 206 bps to ~~1.13%~~3.19% from ~~1.40%~~1.13% for the first quarter ~~2021. Declines~~2022. The increase in the cost of funds ~~were due mainly to higher cost certificates and brokered deposits maturing without renewal or being renewed at lower rates. Furthermore, a shift~~for the first quarter 2023 reflects the rapid rise in ~~the deposit composition from certificates and brokered deposits to lower cost non-maturity deposit accounts also contributed to the decline in the cost of deposit funding.~~interest rates throughout 2022 that continued into 2023.

Net interest margin (“NIM”) was 1.76% for the first quarter 2023 compared to 2.56% for the first quarter 2022, ~~compared to 2.04% for the first quarter 2021, an increase~~a decrease of 5280 bps. On a fully-taxable equivalent (“FTE”) basis, NIM was 1.89% for the first quarter 2023 compared to 2.69% for the first quarter 2022, ~~compared to 2.18% for the first quarter 2021, an increase~~a decrease of 5180 bps.

The ~~increase~~decrease in first quarter ~~2022~~2023 NIM and FTE NIM compared to the first quarter ~~2021~~2022 reflects the ~~decrease~~increase in the cost of ~~funds and~~interest-bearing liabilities, partially offset by the increase in earning asset yields noted above.

The Company expects deposit costs to remain relatively stable for most of 2022. Given the significant on-balance sheet liquidity across the industry, we don’t believe increases in market interest rates will have a significant impact on our deposit pricing in the near term.

Noninterest Income

The following table presents noninterest income for the last five completed fiscal quarters.


		Three Months Ended										Three Months Ended
(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		September 30, 2021		June 30, 2021		March 31, 2021			(in thousands)	March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022		March 31, 2022
Service charges and fees	Service charges and fees	$	316	$	292	$	276	$	280	$	266		Service charges and fees	$	209	$	226	$	248	$	281	$	316
Loan servicing revenue	Loan servicing revenue	585		544		511		457		422			Loan servicing revenue	785		715		653		620		585
Loan servicing asset revaluation	Loan servicing asset revaluation	(297)		(400)		(274)		(240)		(155)			Loan servicing asset revaluation	(55)		(539)		(333)		(470)		(297)
Mortgage banking activities	Mortgage banking activities	1,873		2,776		3,850		2,674		5,750			Mortgage banking activities	76		1,010		871		1,710		1,873
Gain on sale of loans	Gain on sale of loans	3,845		4,137		2,719		3,019		1,723			Gain on sale of loans	4,061		2,862		2,713		1,952		3,845

Gain on sale of premises and equipment		—		—		—		2,523		—

Other	Other	498		345		731		249		369			Other	370		1,533		164		221		498
Total noninterest income	Total noninterest income	$	6,820	$	7,694	$	7,813	$	8,962	$	8,375		Total noninterest income	$	5,446	$	5,807	$	4,316	$	4,314	$	6,820

During the first quarter ~~2022,~~2023, noninterest income was ~~$6.8~~$5.4 million, representing a decrease of ~~$1.6~~$1.4 million, or ~~18.6%~~20.1%, compared to ~~$8.4~~$6.8 million for the first quarter ~~2021.~~2022. The decrease in noninterest income was due primarily to ~~a decrease~~decreases in revenue from mortgage banking activities and other noninterest income, partially offset by ~~an increase~~increases in gain on sale of ~~loans.~~loans, loan servicing revenue and loan servicing asset revaluation. The decline in mortgage banking revenue was due to the Company only recording $0.1 million of revenue, as it immediately began winding down its existing pipeline following the decision to exit mortgage in the first quarter ~~2022 compared~~2023. The decrease in other noninterest income is due primarily to a distribution from the Company’s investment in a Small Business Investment Company fund that occurred during the first quarter ~~2021~~2022. The increase in loan servicing revenue was due ~~primarily~~ to ~~decreases~~growth in ~~interest rate locks, sold~~the balance of the Company’s SBA 7(a) servicing portfolio. The increase in loan ~~volumes and gain on sale margins.~~servicing asset revaluation was due to slower prepayment speeds in the first quarter 2023 compared to first quarter 2022. The increase in gain on sale of loans was due to ~~an increase in~~ the gain on sale of U.S. Small Business Administration guaranteed loans, which increased due to higher volume of ~~U.S. SBA 7(a) guaranteed loan~~loans sales, as well as ~~a $0.4 million gain on sale on the sale of $14.4 million of single tenant lease financing loans.~~ higher net premiums.

4353

Noninterest Expense

The following table presents noninterest expense for the last five completed fiscal quarters.


		Three Months Ended										Three Months Ended
(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		September 30, 2021		June 30, 2021		March 31, 2021			(in thousands)	March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022		March 31, 2022
Salaries and employee benefits	Salaries and employee benefits	$	9,878	$	10,183	$	9,316	$	9,232	$	9,492		Salaries and employee benefits	$	11,794	$	10,404	$	10,439	$	10,832	$	9,878
Marketing, advertising and promotion	Marketing, advertising and promotion	756		896		813		872		680			Marketing, advertising and promotion	844		837		1,041		920		756
Consulting and professional services	Consulting and professional services	1,925		1,262		728		1,078		986			Consulting and professional services	926		914		790		1,197		1,925
Data processing	Data processing	449		425		380		382		462			Data processing	659		567		483		490		449
Loan expenses	Loan expenses	1,582		654		383		541		534			Loan expenses	1,977		1,018		1,142		693		1,582
Premises and equipment	Premises and equipment	2,540		2,188		1,687		1,587		1,601			Premises and equipment	2,777		2,921		2,808		2,419		2,540
Deposit insurance premium	Deposit insurance premium	281		283		230		275		425			Deposit insurance premium	543		355		229		287		281

Other	Other	1,369		1,064		914		1,108		1,137			Other	1,434		1,497		1,063		1,147		1,369
Total noninterest expense	Total noninterest expense	$	18,780	$	16,955	$	14,451	$	15,075	$	15,317		Total noninterest expense	$	20,954	$	18,513	$	17,995	$	17,985	$	18,780

Noninterest expense for the first quarter ~~2022~~2023 was ~~$18.8~~$21.0 million, compared to ~~$15.3~~$18.8 million for the first quarter ~~2021.~~2022. The increase of ~~$3.5~~$2.2 million, or ~~22.6%~~11.6%, was due primarily to increases of ~~$1.0~~$1.9 million, or 19.41%, in salaries and employee benefits, $0.4 million, or 25%, in loan expenses, ~~$0.9~~$0.3 million, or 93.2%, in ~~premises~~deposit insurance premium, and ~~equipment, $0.9~~$0.2 million, or 46.8%, in data processing, partially offset by decrease of $1.0 million, or 51.9% in consulting and professional ~~services, $0.4 million~~fees. The increases in salaries and employee benefits and ~~$0.2 million in~~loan expenses were due primarily to mortgage exit costs, such as severance, and other ~~expense.~~employee-related expenses, as well as accrued contract expenses. The increase in ~~loan expenses~~deposit insurance premium was ~~driven primarily by servicing fees related~~due to ~~tax refund advance loans.~~mainly to asset growth, as well as the composition of loans and deposits. The increase in ~~premises and equipment~~data processing was due primarily ~~related~~ to ~~costs~~implementation fees associated with ~~the Company’s new corporate headquarters.~~small business technology initiatives. The ~~increase~~decrease in consulting and professional ~~services~~fees was due primarily to consulting fees related to a ~~nonrecurring consulting fee and acquisition-related expenses. The increase~~special project that occurred in salaries and employee benefits was due mainly to increased headcount and small business lending incentive compensation, partially offset by a decrease in mortgage banking incentive compensation and lower employee benefits costs.the first quarter 2022.

~~Income~~The Company recorded an income tax benefit for the first quarter 2023, compared to an income tax provision ~~was~~of $1.8 million for the first quarter 2022 ~~resulting in~~and an effective tax rate of 13.8%~~, compared to a tax provision of $1.9 million for the first quarter 2021 and an effective tax rate of 15.1%~~.

Financial Condition

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


(in thousands)	(in thousands)											(in thousands)
Balance Sheet Data:	Balance Sheet Data:	March 31, 2022		December 31, 2021		September 30, 2021		June 30, 2021		March 31, 2021		Balance Sheet Data:	March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022		March 31, 2022
Total assets	Total assets	$	4,225,397	$	4,210,994	$	4,252,292	$	4,204,642	$	4,188,570	Total assets	$	4,721,319	$	4,543,104	$	4,264,424	$	4,099,806	$	4,225,397
Loans	Loans	2,880,780		2,887,662		2,936,148		2,957,608		3,058,694		Loans	3,607,242		3,499,401		3,255,906		3,082,127		2,880,780
Total securities	Total securities	628,658		662,609		696,136		729,178		530,566		Total securities	606,594		579,552		584,622		610,602		628,658

Loans held-for-sale	Loans held-for-sale	33,991		47,745		43,970		27,587		30,235		Loans held-for-sale	18,144		21,511		23,103		31,580		33,991
Noninterest-bearing deposits	Noninterest-bearing deposits	119,196		117,531		110,117		113,996		100,700		Noninterest-bearing deposits	140,449		175,315		142,875		126,153		119,196
Interest-bearing deposits	Interest-bearing deposits	3,098,783		3,061,428		3,114,478		3,092,151		3,116,903		Interest-bearing deposits	3,481,841		3,265,930		3,049,769		3,025,948		3,098,783
Total deposits	Total deposits	3,217,979		3,178,959		3,224,595		3,206,147		3,217,603		Total deposits	3,622,290		3,441,245		3,192,644		3,152,101		3,217,979
Advances from Federal Home Loan Bank	Advances from Federal Home Loan Bank	514,923		514,922		514,920		514,919		514,917		Advances from Federal Home Loan Bank	614,929		614,928		589,926		464,925		514,923
Total shareholders’ equity	Total shareholders’ equity	374,655		380,338		370,442		358,641		344,566		Total shareholders’ equity	355,572		364,974		360,857		365,332		374,655

Total assets increased ~~$14.4~~$178.2 million, or ~~0.3%~~3.9%, to ~~$4.2~~$4.7 billion at March 31, ~~2022~~2023 compared to ~~$4.2~~$4.5 billion at December 31, ~~2021.~~2022. The increase was due primarily to increases in loan, cash and securities balances, and was funded by growth in deposit balances of $181.0 million, or 5.3%.

As of March 31, ~~2022,~~2023, total shareholders’ equity was ~~$374.7~~$355.6 million, a decrease of ~~$5.7~~$9.4 million, or ~~1.5%~~2.6%, compared to December 31, ~~2021,~~2022. The decrease in retained earnings was due primarily to ~~an increase~~stock repurchase activity, the day 1 CECL adjustment and the net loss during the quarter, partially offset by a decrease in accumulated other comprehensive loss resulting from a decline in the value of the available-for-sale securities portfolio following the rapid rise in interest rates during the quarter, as well as stock repurchase activity during the quarter. This was partially offset by the net income earned during the quarter and an increase in the value of interest rate swaps classified as cash flow hedges.loss. Tangible common equity totaled ~~$370.0~~$350.9 million as of March 31, ~~2022,~~2023, representing a decrease of ~~$5.7~~$9.4 million, or ~~1.5%~~2.6%, compared to December 31, ~~2021.~~2022. The ratio of total shareholders’ equity to total assets decreased to ~~8.87%~~7.53% as of March 31, ~~2022~~2023 from ~~9.03%~~8.03% as of December 31, ~~2021,~~2022, and the ratio of tangible common equity to tangible assets decreased to ~~8.77%~~7.44% as of March 31, ~~2022~~2023 from ~~8.93%~~7.94% as of December 31, ~~2021.~~2022.

4454

Book value per common share decreased ~~0.8%~~1.2% to ~~$38.69~~$39.76 as of March 31, ~~2022~~2023 from ~~$38.99~~$40.26 as of December 31, ~~2021.~~2022. Tangible book value per share decreased ~~0.8%~~1.3% to ~~$38.21~~$39.23 as of March 31, ~~2022~~2023 from ~~$38.51~~$39.74 as of December 31, ~~2021.~~2022. The slight decline in both book value per common share and tangible book value per share reflects the ~~decline~~declines in total shareholders’ equity and tangible common ~~equity.~~equity, partially offset by the effect of stock repurchase activity during the quarter. 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)	March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021				March 31, 2021					(dollars in thousands)		March 31, 2023							December 31, 2022							September 30, 2022							June 30, 2022							March 31, 2022
Commercial loans	Commercial loans																						Commercial loans
Commercial and industrial	Commercial and industrial	$	99,808	3.5	%	$	96,008	3.3	%	$	107,142	3.6	%	$	96,203	3.3	%	$	71,835	2.3	%		Commercial and industrial		$	113,198		3.1		%		$	126,108		3.6		%		$	104,780		3.2		%		$	110,540		3.6		%		$	99,808		3.5		%
Owner-occupied commercial real estate	Owner-occupied commercial real estate	56,752		2.0	%	66,732		2.3	%	84,819		2.9	%	87,136		2.9	%	87,930		2.9	%		Owner-occupied commercial real estate		59,643			1.7		%		61,836			1.8		%		58,615			1.8		%		61,277			2.0		%		56,752			2.0		%
Investor commercial real estate	Investor commercial real estate	34,627		1.2	%	28,019		1.0	%	28,505		1.0	%	28,871		1.0	%	14,832		0.5	%		Investor commercial real estate		142,174			3.9		%		93,121			2.7		%		91,021			2.8		%		52,648			1.7		%		34,627			1.2		%
Construction	Construction	149,662		5.2	%	136,619		4.7	%	115,414		3.9	%	117,970		4.0	%	123,483		4.0	%		Construction		158,147			4.4		%		181,966			5.2		%		139,509			4.3		%		143,475			4.7		%		149,662			5.2		%
Single tenant lease financing	Single tenant lease financing	852,519		29.6	%	865,854		30.0	%	921,998		31.5	%	913,115		30.9	%	941,322		30.8	%		Single tenant lease financing		952,533			26.3		%		939,240			26.8		%		895,302			27.4		%		867,181			28.1		%		852,519			29.6		%
Public finance	Public finance	587,817		20.4	%	592,665		20.5	%	601,738		20.5	%	612,138		20.7	%	637,600		20.8	%		Public finance		604,898			16.8		%		621,032			17.7		%		614,139			18.9		%		613,759			19.9		%		587,817			20.4		%
Healthcare finance	Healthcare finance	354,574		12.3	%	387,852		13.4	%	417,388		14.2	%	455,890		15.3	%	510,237		16.8	%		Healthcare finance		256,670			7.1		%		272,461			7.8		%		293,686			9.0		%		317,180			10.3		%		354,574			12.3		%
Small business lending	Small business lending	97,040		3.4	%	108,666		3.8	%	102,889		3.5	%	123,293		4.2	%	132,490		4.3	%		Small business lending		136,382			3.8		%		123,750			3.5		%		113,001			3.5		%		102,724			3.3		%		97,040			3.4		%
Franchise finance	Franchise finance	107,246		3.7	%	81,448		2.8	%	25,598		0.9	%	—		0.0	%	—		0.0	%		Franchise finance		382,161			10.6		%		299,835			8.6		%		225,012			6.8		%		168,942			5.5		%		107,246			3.7		%

Total commercial loans	Total commercial loans	2,340,045		81.3	%	2,363,863		81.8	%	2,405,491		82.0	%	2,434,616		82.3	%	2,519,729		82.4	%		Total commercial loans		2,805,806			77.7		%		2,719,349			77.7		%		2,535,065			77.7		%		2,437,726			79.1		%		2,340,045			81.3		%
Consumer loans	Consumer loans																						Consumer loans
Residential mortgage	Residential mortgage	191,153		6.6	%	186,770		6.5	%	188,750		6.4	%	177,148		6.0	%	190,148		6.2	%		Residential mortgage		392,062			10.9		%		383,948			11.0		%		337,565			10.4		%		281,124			9.1		%		191,153			6.6		%
Home equity	Home equity	18,100		0.6	%	17,665		0.6	%	17,960		0.6	%	17,510		0.6	%	17,949		0.6	%		Home equity		26,160			0.7		%		24,712			0.7		%		22,114			0.7		%		19,928			0.6		%		18,100			0.6		%
Other consumer	Other consumer	270,330		9.4	%	265,478		9.2	%	268,396		9.1	%	271,796		9.2	%	270,209		8.8	%		Other consumer		338,133			9.4		%		324,598			9.3		%		312,512			9.7		%		292,955			9.6		%		270,330			9.4		%
Tax refund advance loans	Tax refund advance loans	9,177		0.3	%	—		0.0	%	—		0.0	%	—		0.0	%	—		0.0	%		Tax refund advance loans		—			0.0		%		—			0.0		%		—			0.0		%		—			0.0		%		9,177			0.3		%
Total consumer loans	Total consumer loans	488,760		16.9	%	469,913		16.3	%	475,106		16.1	%	466,454		15.8	%	478,306		15.6	%		Total consumer loans		756,355			21.0		%		733,258			21.0		%		672,191			20.8		%		594,007			19.3		%		488,760			16.9		%
Net deferred loan origination costs, premiums and discounts on purchased loans and other (1)		51,975		1.8	%	53,886		1.9	%	55,551		1.9	%	56,538		1.9	%	60,659		2.0	%
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		45,081			1.2		%		46,794			1.3		%		48,650			1.5		%		50,394			1.6		%		51,975			1.8		%
Total loans	Total loans	2,880,780		100.0	%	2,887,662		100.0	%	2,936,148		100.0	%	2,957,608		100.0	%	3,058,694		100.0	%		Total loans		3,607,242			99.9		%		3,499,401			100.0		%		3,255,906			100.0		%		3,082,127			100.0		%		2,880,780			100.0		%
Allowance for loan losses		(28,251)				(27,841)				(28,000)				(28,066)				(30,642)
Allowance for credit losses 2																						Allowance for credit losses 2		(36,879)							(31,737)							(29,866)							(29,153)							(28,251)
Net loans	Net loans	$	2,852,529			$	2,859,821			$	2,908,148			$	2,929,542			$	3,028,052				Net loans		$	3,570,363						$	3,467,664						$	3,226,040						$	3,052,974						$	2,852,529

~~(1)~~1 Includes carrying value adjustments of ~~$36.4~~$31.5 million, ~~$37.5~~$32.5 million, ~~$38.9~~$33.9 million, ~~$40.4~~$35.4 million and ~~$41.6~~$36.4 million related to terminated interest rate swaps associated with public finance loans as of March 31, ~~2022,~~2023, December 31, ~~2021,~~2022, September 30, ~~2021,~~2022, June 30, ~~2021,~~2022 and March 31, ~~2021,~~2022, respectively.

2 Beginning January 1, 2023, the allowance calculation is based on the CECL methodology. Prior to January 1, 2023, the allowance calculation was based on the incurred loss methodology.

Total loans were ~~$2.9~~$3.6 billion as of March 31, ~~2022, a decrease~~2023, an increase of ~~$6.9~~$107.8 million, or ~~0.2%~~3.1%, compared to December 31, ~~2021.~~2022. Total commercial loan balances were ~~$2.3~~$2.8 billion as of March 31, ~~2022, down $23.8~~2023, up $86.5 million, or ~~1.0%~~3.1%, from December 31, ~~2021.~~2022. Total consumer loan balances were ~~$488.8~~$756.4 million as of March 31, ~~2022,~~2023, an increase of ~~$18.8~~$23.1 million, or ~~4.0%~~3.2%, compared to December 31, ~~2021.~~2022. Compared to December 31, ~~2021,~~2022, the ~~decline~~increase in commercial loan balances was driven largely by net payoffs in healthcare finance, small business lending, which included PPP repayment as well as some prepayments and sales of seasoned loans, owner-occupied commercial real estate and public finance loans, as well as the sale of $14.4 million of single tenant lease financing loans. This decline was partially offset by growth in franchise finance, ~~construction,~~single tenant lease financing and small business lending, as well as combined growth in investor commercial real estate and ~~commercial and industrial loan~~construction balances. The increase was partially offset by a decrease in public finance, as well as continued runoff in healthcare finance. The increase in consumer loans was due to higher balances in the ~~residential mortgage,~~ recreational vehicles and trailers loan portfolios, ~~as well as~~in addition to funded residential mortgages that were in the ~~remaining outstanding balance of tax refund advance loans originated during~~pipeline prior to exiting the ~~first quarter 2022.~~business.

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

Asset Quality

Nonperforming loans are comprised of nonaccrual loans and loans 90 days past due and accruing. Nonperforming assets include nonperforming loans, 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) March 31,
2022 December 31,
2021 September 30,
2021 June 30,
2021 March 31,
2021
Nonaccrual loans
Commercial loans:
Commercial and industrial $ 610 $ 674 $ 678 $ 692 $ 1,002
Owner-occupied commercial real estate 3,267 3,419 3,429 3,487 4,266
Single tenant lease financing 1,092 1,100 1,100 2,373 7,080
Small business lending (1)
881 959 1,351 1,209 865
Total commercial loans 5,850 6,152 6,558 7,761 13,213
Consumer loans:
Residential mortgage 1,207 1,226 1,253 1,253 1,120
Home equity 14 14 14 14 15
Other consumer 13 9 26 10 23
Total consumer loans 1,234 1,249 1,293 1,277 1,158
Total nonaccrual loans 7,084 7,401 7,851 9,038 14,371
Past Due 90 days and accruing loans
Commercial loans:
Commercial and industrial — — — — 278
Total commercial loans — — — — 278
Total past due 90 days and accruing loans — — — — 278
Total nonperforming loans 7,084 7,401 7,851 9,038 14,649
Other real estate owned
Single tenant lease financing — 1,188 1,188 1,188 —
Residential mortgage — — — 112 —
Total other real estate owned — 1,188 1,188 1,300 —
Other nonperforming assets 1 29 — — 29
Total nonperforming assets $ 7,085 $ 8,618 $ 9,039 $ 10,338 $ 14,678
Total nonperforming loans to total loans(2)
0.25 % 0.26 % 0.27 % 0.31 % 0.48 %
Total nonperforming assets to total assets(2)
0.17 % 0.20 % 0.21 % 0.25 % 0.35 %
Allowance for loan losses to total loans 0.98 % 0.96 % 0.95 % 0.95 % 1.00 %
Nonaccrual loans to total loans 0.25 % 0.26 % 0.27 % 0.31 % 0.47 %
Allowance for loan losses to nonperforming loans(2)
398.8 % 376.2 % 356.6 % 310.5 % 209.2 %


(dollars in thousands)	March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022			March 31, 2022
Nonaccrual loans
Commercial loans:
Commercial and industrial	$	2,836		$	51		$	350		$	350		$	610
Owner-occupied commercial real estate	1,441			1,570			1,622			1,661			3,267


Single tenant lease financing	—			—			—			—			1,092
Small business lending 1	3,797			4,764			2,958			1,297			881


Total commercial loans	8,074			6,385			4,930			3,308			5,850
Consumer loans:
Residential mortgage	1,006			1,048			1,073			1,201			1,207
Home equity	—			—			—			14			14
Other consumer	141			17			3			4			13
Total consumer loans	1,147			1,065			1,076			1,219			1,234
Total nonaccrual loans	9,221			7,450			6,006			4,527			7,084

Past Due 90 days and accruing loans







Consumer loans:
Residential mortgage	—			79			—			—			—


Total consumer loans	—			79			—			—			—
Total past due 90 days and accruing loans	—			79			—			—			—

Total nonperforming loans	9,221			7,529			6,006			4,527			7,084

Other real estate owned

Residential mortgage	106			—			—			—			—
Total other real estate owned	106			—			—			—			—

Other nonperforming assets	19			42			—			23			1

Total nonperforming assets	$	9,346		$	7,571		$	6,006		$	4,550		$	7,085

Total nonperforming loans to total loans 2	0.26		%	0.22		%	0.18		%	0.15		%	0.25		%
Total nonperforming assets to total assets 2	0.20		%	0.17		%	0.14		%	0.11		%	0.17		%
Allowance for credit losses to total loans	1.02		%	0.91		%	0.92		%	0.95		%	0.98		%
Nonaccrual loans to total loans	0.26		%	0.22		%	0.18		%	0.15		%	0.25		%
Allowance for credit losses to nonperforming loans 2	400.0		%	426.0		%	497.3		%	644.0		%	398.8		%

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.

Total nonperforming loans increased $1.7 million, or 22.5%, to $9.2 million as of March 31, 2023 compared to $7.5 million as of December 31, 2022 due primarily to a commercial and industrial participation loan that was placed on nonaccrual status during the quarter, partially offset by upgrades and payoffs in owner-occupied commercial real estate and small business loans. Total nonperforming assets increased $1.8 million, or 23.4%, to $9.3 million as of March 31, 2023, compared to $7.6 million as of December 31, 2022, due primarily to the nonperforming loan activity discussed above, as well as an increase in OREO. As of March 31, 2023, the Company had one residential mortgage property in OREO with a carrying value of $0.1 million. As of December 31, 2022, the Company did not own any OREO.

Troubled Debt Restructurings

With the adoption ASU 2022-02, effective January 1, 2023, TDR accounting was eliminated. Total TDRs as of December 31, 2022 was $5.5 million. There were two portfolio residential mortgage loans and one small business lending loan classified as new TDRs during the twelve months ended December 31, 2022 with pre-modification and post-modification balances totaling $1.6 million. The following table provides a summary of troubled debt ~~restructurings for the last five completed fiscal quarters.~~

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

The decline in nonperforming loans of $0.3 million, or 4.3%, to $7.1 million as of March 31, 2022 compared to $7.4 million as of December 31, 2021 was due primarily to repayment activity in the small business lending, owner-occupied commercial real estate and commercial and industrial loan portfolios.restructurings.

Total nonperforming assets decreased $1.5 million, or 17.8%, as of March 31, 2022 compared to December 31, 2021, due primarily to the $0.3 million decrease in nonperforming loans discussed above, as well as the decline in other real estate owned (“OREO”) discussed below. The ratio of nonperforming loans to total loans decreased to 0.25% as of March 31, 2022 compared to 0.26% as of December 31, 2021, and the ratio of nonperforming assets to total assets decreased to 0.17% as of March 31, 2022 compared to 0.20% as of December 31, 2021.


(in thousands)	March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022		March 31, 2022
Troubled debt restructurings – nonaccrual	$	—	$	2,864	$	2,342	$	2,389	$	2,440
Troubled debt restructurings – performing	—		2,658		2,410		2,425		2,418
Total troubled debt restructurings	$	—	$	5,522	$	4,752	$	4,814	$	4,858

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

As of December 31, 2021, the Company had one single tenant lease financing property in OREO with a carrying value of $1.2 million. During the first quarter 2022, the Company reached a settlement agreement with the guarantor, which resulted in the Company recovering $1.2 million in excess of the carrying value of OREO. As of March 31, 2022, the Company did not own any 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 were in effect from the period beginning March 1, 2020 until January 1, 2022.

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

~~U.S. Small Business Administration Paycheck Protection Program~~

Section 1102 of the CARES Act created the PPP, which is jointly administered by the U.S. Small Business Administration (“SBA”) and the Department of the Treasury. The PPP is designed to provide a direct incentive to small businesses to retain employees on their payroll during COVID-19 as well as to help cover certain utility costs and rent payments. These loans may be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA. In 2020, as a preferred SBA lender, we assisted our clients in participating in the PPP to help them maintain their workforce in an uncertain and challenging environment. The loans originated in 2020 bear an interest rate of 1.00%, and we received gross origination fees of approximately $2.3 million. The Company received this fee revenue from the SBA in late June 2020, and it was deferred over the life of the PPP loans and recognized as interest income. The Company began processing applications for forgiveness from this round beginning in December 2020 and 100% of loan balances have been forgiven as of December 31, 2021.

On December 27, 2020, $285 billion in additional funding was allocated to the PPP through the passage of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act. The 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

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

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

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

(in thousands) Number of Loans Principal Balance Net Deferred Fees
Originated 447 $ 58,336 $ 1,851
Principal repaid (71) (7,184)
Net deferred fees recognized (1,253)
Balance, December 31, 2020 376 51,152 598
Originated 281 27,377 1,125
Principal repaid (634) (75,377)
Net deferred fees recognized (1,624)
Balance, December 31, 2021 23 3,152 99
Originated — — —
Principal repaid (18) (2,149)
Net deferred fees recognized — (75)
Balance, March 31, 2022 5 $ 1,003 $ 24

Allowance for ~~Loan~~Credit Losses - Loans

The following table provides a rollforward of the allowance for ~~loan~~credit losses for the last five completed fiscal quarters.


		Three Months Ended															Three Months Ended
(in thousands)		March 31, 2022			December 31, 2021			September 30, 2021			June 30, 2021			March 31, 2021
(dollars in thousands)																		(dollars in thousands)	March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022			March 31, 2022
Balance, beginning of period, December 31, 2022																		Balance, beginning of period, December 31, 2022	$	31,737		$	29,866		$	29,153		$	28,251		$	27,841
Adoption of ASU 2016-13 (CECL)																		Adoption of ASU 2016-13 (CECL)	2,962			—			—			—			—
Balance, beginning of period	Balance, beginning of period	$	27,841		$	28,000		$	28,066		$	30,642		$	29,484			Balance, beginning of period	34,699			29,866			29,153			28,251			27,841
Provision (credit) charged to expense		791			(238)			(29)			21			1,276
Provision charged to expense																		Provision charged to expense	9,373			2,109			892			1,185			791
Losses charged off	Losses charged off																	Losses charged off
Commercial and industrial	Commercial and industrial	—			—			—			28			—				Commercial and industrial	6,965			—			—			—			—

Single tenant lease financing		—			—			—			2,392			—

Small business lending	Small business lending	80			—			10			133			79				Small business lending	60			192			130			—			80

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

Other consumer	Other consumer	163			106			110			131			181				Other consumer	232			101			106			128			163
Tax refund advance loans	Tax refund advance loans	1,488			—			—			—			—				Tax refund advance loans	—			—			—			372			1,488
Total losses charged off	Total losses charged off	1,731			106			120			2,690			311				Total losses charged off	7,257			293			236			500			1,731
Recoveries	Recoveries																	Recoveries
Commercial and industrial	Commercial and industrial	—			3			2			2			82				Commercial and industrial	1			3			2			—			—

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

Small business lending	Small business lending	17			48			26			2			4				Small business lending	3			7			3			2			17
Residential mortgage	Residential mortgage	1			51			3			4			5				Residential mortgage	2			2			1			1			1
Home equity	Home equity	2			2			2			1			2				Home equity	1			2			1			134			2
Other consumer	Other consumer	99			81			50			84			100				Other consumer	57			41			50			80			99
Total losses charged off	Total losses charged off	1,350			185			83			93			193				Total losses charged off	64			55			57			217			1,350
Balance, end of period	Balance, end of period	$	28,251		$	27,841		$	28,000		$	28,066		$	30,642			Balance, end of period	$	36,879		$	31,737		$	29,866		$	29,153		$	28,251

Net charge-offs (recoveries)		$	381		$	(79)		$	37		$	2,597		$	118
Net charge-offs																		Net charge-offs	$	7,193		$	238		$	179		$	283		$	381

Net charge-offs (recoveries) to average loans (annualized)	Net charge-offs (recoveries) to average loans (annualized)																	Net charge-offs (recoveries) to average loans (annualized)
Commercial and industrial	Commercial and industrial	0.00		%	(0.01		%)	(0.01		%)	0.14		%	(0.49		%)		Commercial and industrial	27.16		%	0.00		%	0.00		%	0.00		%	0.00		%

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

Small business lending	Small business lending	0.23		%	(0.17		%)	(0.05		%)	0.35		%	0.20		%		Small business lending	0.15		%	0.14		%	0.14		%	0.00		%	0.23		%

Total commercial net charge-offs (recoveries)	Total commercial net charge-offs (recoveries)	(0.20		%)	(0.01		%)	0.00		%	0.42		%	0.00		%		Total commercial net charge-offs (recoveries)	1.02		%	0.01		%	0.01		%	0.00		%	(0.20		%)
Residential mortgage	Residential mortgage	0.00		%	(0.11		%)	(0.01		%)	0.00		%	(0.01		%)		Residential mortgage	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%
Home equity	Home equity	(0.04		%)	(0.04		%)	(0.05		%)	(0.02		%)	1.04		%		Home equity	(0.02		%)	(0.01		%)	(0.01		%)	(1.42		%)	(0.04		%)
Other consumer	Other consumer	0.40		%	0.28		%	0.24		%	0.32		%	0.42		%		Other consumer	0.36		%	0.18		%	0.20		%	0.30		%	0.40		%
Tax refund advance loans	Tax refund advance loans	9.97		%	0.00		%	0.00		%	0.00		%	0.00		%		Tax refund advance loans	0.00		%	0.00		%	0.00		%	23.55		%	9.97		%
Total consumer net charge-offs (recoveries)		0.05		%	(0.01		%)	0.01		%	0.35		%	0.02		%
Total consumer net charge-offs																		Total consumer net charge-offs	0.09		%	0.01		%	0.01		%	0.11		%	1.18		%
Total net charge-offs to average loans																		Total net charge-offs to average loans	0.82		%	0.03		%	0.02		%	0.04		%	0.05		%
Total net charge-offs (recoveries), excluding tax refund advance loans	Total net charge-offs (recoveries), excluding tax refund advance loans	(0.16		%)	(0.01		%)	0.01		%	0.35		%	0.02		%		Total net charge-offs (recoveries), excluding tax refund advance loans	0.82		%	0.03		%	0.02		%	(0.01		%)	(0.16		%)

The allowance for ~~loan~~credit losses (“ACL”) was ~~$28.3~~$36.9 million as of March 31, ~~2022,~~2023, compared to ~~$27.8~~$31.7 million as of December 31, ~~2021.~~2022. The ~~allowance~~increase in the ACL reflects the day one current expected credit losses (“CECL”) adjustment of $3.0 million, as well as overall growth in the loan portfolio and changes in certain economic forecasts that impacted quantitative factors for ~~loan losses~~certain portfolios. The ACL as a percentage of total loans ~~including and excluding PPP loans,~~ was ~~0.98%~~1.02% at March 31, ~~2022,~~2023, compared to ~~0.96%~~0.91%, ~~or 0.97% when excluding PPP loans,~~ at December 31, ~~2021.~~2022. The ~~allowance for loan losses~~ACL as a percentage of nonperforming loans ~~increased~~decreased to ~~398.8%~~400.0% as of March 31, ~~2022,~~2023, compared to ~~376.2%~~426.0% as of December 31, ~~2021.~~2022.

Net charge-offs of ~~$0.4~~$7.2 million were recognized during the first quarter ~~2022,~~2023, resulting in net charge-offs to average loans of ~~0.05%~~0.82%, compared to net charge-offs to average loans of ~~0.02%~~0.05% for the first quarter ~~2021. Excluding $1.5~~2022. The increase in net charge-

offs was due mainly to the $6.9 million partial charge-off of ~~net charge-offs related to tax refund advance loans, net recoveries of $1.1 million were recognized~~a C&I participation loan that was placed on nonaccrual status during the ~~first quarter 2022, resulting in net recoveries to average loans of 0.16%.~~quarter.

The provision for ~~loan~~credit losses in the first quarter ~~2022~~2023 was ~~$0.8~~$9.4 million, compared to ~~$1.3~~$0.8 million for the first quarter ~~2021.~~2022. The increase in provision for the first quarter ~~2022~~2023 was driven primarily by the ~~provision related to tax refund advance loans, which totaled $1.8 million,~~partial charge-off of the C&I participation loan mentioned above, as well as growth in the loan portfolio and ~~to a lesser extent, adjustments to qualitative factors that increased~~ the ~~overall allowance as a percentage~~impact of

~~loans. This was partially offset by a $1.2 million recovery~~ economic forecasts on ~~a single tenant lease financing relationship that previously had been partially charged-off with the remaining balance transferred to other real estate owned.~~

certain portfolios.

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	March 31, 2022		December 31, 2021		September 30, 2021		June 30, 2021		March 31, 2021		Amortized Cost	March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022		March 31, 2022
Securities available-for-sale	Securities available-for-sale											Securities available-for-sale
U.S. Government-sponsored agencies	U.S. Government-sponsored agencies	$	45,335	$	50,013	$	53,380	$	57,984	$	60,815	U.S. Government-sponsored agencies	$	38,675	$	35,606	$	38,197	$	41,542	$	45,335
Municipal securities	Municipal securities	72,420		75,158		76,528		77,364		79,168		Municipal securities	69,243		68,958		71,156		71,264		72,420
Agency mortgage-backed securities - residential	Agency mortgage-backed securities - residential	276,392		377,928		398,504		410,971		197,326		Agency mortgage-backed securities - residential	249,795		252,066		259,568		265,196		276,392
Agency mortgage-backed securities - commercial	Agency mortgage-backed securities - commercial	24,815		36,024		34,109		34,924		32,655		Agency mortgage-backed securities - commercial	16,739		17,142		17,825		23,312		24,815
Private label mortgage-backed securities - residential	Private label mortgage-backed securities - residential	15,090		15,902		19,997		29,003		40,550		Private label mortgage-backed securities - residential	11,445		11,777		12,320		13,259		15,090
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	47,580		46,482		48,460		48,447		48,433		Corporate securities	45,623		45,634		44,644		42,655		47,580

Total available-for-sale	Total available-for-sale	486,632		606,507		635,978		663,693		463,947		Total available-for-sale	436,520		436,183		448,710		462,228		486,632
Securities held-to-maturity
Securities held-to-maturity, net												Securities held-to-maturity, net
Municipal securities	Municipal securities	13,981		13,992		14,538		14,549		14,560		Municipal securities	13,932		13,946		13,957		13,969		13,981
Agency mortgage-backed securities - residential	Agency mortgage-backed securities - residential	95,982		—		—		—		—		Agency mortgage-backed securities - residential	146,809		121,853		123,718		117,749		95,982
Agency mortgage-backed securities - commercial	Agency mortgage-backed securities - commercial	5,847		—		—		—		—		Agency mortgage-backed securities - commercial	5,806		5,818		5,828		5,838		5,847
Corporate securities	Corporate securities	47,560		45,573		47,591		51,110		53,630		Corporate securities	44,214		47,551		47,554		47,557		47,560
Total held-to-maturity		163,370		59,565		62,129		65,659		68,190
Total held-to-maturity, net												Total held-to-maturity, net	210,761		189,168		191,057		185,113		163,370
Total securities	Total securities	$	650,002	$	666,072	$	698,107	$	729,352	$	532,137	Total securities	$	647,281	$	625,351	$	639,767	$	647,341	$	650,002


(in thousands)	(in thousands)											(in thousands)
Approximate Fair Value	Approximate Fair Value	March 31, 2022		December 31, 2021		September 30, 2021		June 30, 2021		March 31, 2021		Approximate Fair Value	March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022		March 31, 2022
Securities available-for-sale	Securities available-for-sale											Securities available-for-sale
U.S. Government-sponsored agencies	U.S. Government-sponsored agencies	$	43,847	$	49,040	$	52,455	$	57,135	$	59,478	U.S. Government-sponsored agencies	$	37,047	$	33,809	$	36,329	$	40,003	$	43,847
Municipal securities	Municipal securities	72,804		77,033		77,450		78,438		79,208		Municipal securities	68,636		67,276		63,537		67,923		72,804
Agency mortgage-backed securities - residential	Agency mortgage-backed securities - residential	257,682		373,236		395,105		408,710		195,514		Agency mortgage-backed securities - residential	216,752		215,092		219,191		237,546		257,682
Agency mortgage-backed securities - commercial	Agency mortgage-backed securities - commercial	24,156		36,326		34,780		35,784		33,304		Agency mortgage-backed securities - commercial	15,530		15,840		16,522		22,207		24,156
Private label mortgage-backed securities - residential	Private label mortgage-backed securities - residential	14,818		16,021		20,235		29,363		41,106		Private label mortgage-backed securities - residential	10,275		10,455		11,041		12,479		14,818
Asset-backed securities	Asset-backed securities	4,986		5,004		5,005		5,005		5,006		Asset-backed securities	4,998		4,960		4,884		4,897		4,986
Corporate securities	Corporate securities	46,995		46,384		48,977		49,084		48,760		Corporate securities	42,595		42,952		42,061		40,434		46,995

Total available-for-sale	Total available-for-sale	465,288		603,044		634,007		663,519		462,376		Total available-for-sale	395,833		390,384		393,565		425,489		465,288
Securities held-to-maturity	Securities held-to-maturity											Securities held-to-maturity
Municipal securities	Municipal securities	14,093		14,709		15,319		15,373		15,109		Municipal securities	13,144		12,832		12,668		13,356		14,093
Agency mortgage-backed securities - residential	Agency mortgage-backed securities - residential	92,939		—		—		—		—		Agency mortgage-backed securities - residential	133,267		106,741		107,570		109,054		92,939
Agency mortgage-backed securities - commercial	Agency mortgage-backed securities - commercial	5,420		—		—		—		—		Agency mortgage-backed securities - commercial	4,703		4,552		4,686		5,048		5,420
Corporate securities	Corporate securities	47,519		46,759		49,018		52,685		54,274		Corporate securities	41,349		44,358		45,053		46,561		47,519
Total held-to-maturity	Total held-to-maturity	159,971		61,468		64,337		68,058		69,383		Total held-to-maturity	192,463		168,483		169,977		174,019		159,971
Total securities	Total securities	$	625,259	$	664,512	$	698,344	$	731,577	$	531,759	Total securities	$	588,296	$	558,867	$	563,542	$	599,508	$	625,259

The approximate fair value of available-for-sale investment securities ~~decreased $137.8~~increased $5.4 million, or ~~22.8%~~1.4%, to ~~$465.3~~$395.8 million as of March 31, ~~2022,~~2023, compared to ~~$603.0~~$390.4 million as of December 31, ~~2021.~~2022. The ~~decrease~~increase was due primarily to ~~a decrease~~increases of ~~$115.6~~$3.2 million in U.S. Government-sponsored agencies, $1.7 million in agency mortgage-backed securities - residential ~~a decrease of $12.2~~and $1.4 million in ~~agency mortgage-~~

municipal securities. The increases were due primarily to variable rate securities resetting higher, slower prepayment speeds and purchases in the portfolio.

backed securities - commercial and a decrease of $5.2 million in U.S. Government-sponsored agencies. The 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 rapid rise in interest rates during the quarter. The decreases in other securities types were also driven by a decline in value resulting from the rapid rise in interest rates.

Accrued Income and Other Assets

Accrued income and other assets ~~decreased $12.4~~increased $0.2 million, or ~~26.4%~~0.5%, to ~~$34.5~~$45.1 million at March 31, ~~2022~~2023 compared to ~~$46.9~~$44.9 million at December 31, ~~2021.~~2022. The ~~decrease~~increase was primarily related to ~~a decrease~~an increase of ~~$12.9~~$2.7 million in ~~cash pledged as collateral. As~~deferred tax assets and $1.2 million in fund investments, partially offset by decreases of ~~these dates, the Company pledged $2.7~~$2.8 million in derivative assets and ~~$15.7~~$0.9 million respectively, of cash collateral to counterparties on interest rate swap agreements as security for its obligations related to these agreements. Collateral posted and received is dependent on the fair value of the underlying agreements as of the respective date.in prepaid assets.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities ~~were $12.0~~increased $6.8 million, or 47.0%, to $21.3 million at March 31, ~~2022~~2023, compared to ~~$30.5~~$14.5 million at December 31, ~~2021.~~2022. The ~~decrease in accrued expenses and other liabilities~~increase was due primarily to increases of $8.4 million in other accrued expenses, $2.5 million in unfunded commitments related to the day 1 CECL entry and $0.2 million in accrued property taxes, partially offset by decreases of ~~$11.4~~$2.1 million ~~or 79.6%,~~ in ~~derivative~~other liabilities, ~~a $3.8~~$1.6 million ~~decrease~~ in accrued ~~taxes payable~~salary and ~~a $2.3~~benefits and $0.6 million ~~decrease~~ in accrued ~~bonuses.~~taxes.

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)	March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021				March 31, 2021				(dollars in thousands)	March 31, 2023				December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022
Noninterest-bearing deposits	Noninterest-bearing deposits	$	119,197	3.7	%	$	117,531	3.7	%	$	110,117	3.4	%	$	113,996	3.6	%	$	100,700	3.1	%	Noninterest-bearing deposits	$	140,449	3.9	%	$	175,315	5.1	%	$	142,635	4.5	%	$	126,153	4.0	%	$	119,197	3.7	%
Interest-bearing demand deposits	Interest-bearing demand deposits	334,723		10.4	%	247,967		7.8	%	201,557		6.3	%	196,841		6.1	%	186,015		5.8	%	Interest-bearing demand deposits	351,641		9.7	%	335,611		9.8	%	337,765		10.6	%	350,551		11.1	%	334,723		10.4	%
Savings accounts	Savings accounts	66,320		2.1	%	59,998		1.9	%	66,762		2.1	%	56,298		1.8	%	51,251		1.6	%	Savings accounts	32,762		0.9	%	44,819		1.3	%	52,228		1.6	%	65,365		2.1	%	66,320		2.1	%
Money market accounts	Money market accounts	1,475,857		45.8	%	1,483,936		46.7	%	1,479,358		45.8	%	1,432,355		44.6	%	1,397,449		43.4	%	Money market accounts	1,254,013		34.6	%	1,418,599		41.2	%	1,378,087		43.2	%	1,363,424		43.3	%	1,475,857		45.8	%
BaaS - brokered deposits	BaaS - brokered deposits	50,006		1.6	%	—		0.0	%	—		0.0	%	—		0.0	%	—		0.0	%	BaaS - brokered deposits	25,725		0.7	%	13,607		0.4	%	96,287		3.0	%	194,133		6.2	%	50,006		1.6	%
Certificates of deposits	Certificates of deposits	889,789		27.6	%	970,107		30.5	%	1,043,898		32.4	%	1,087,350		33.9	%	1,174,764		36.5	%	Certificates of deposits	1,170,094		32.3	%	874,490		25.4	%	773,040		24.2	%	800,598		25.3	%	889,789		27.6	%
Brokered deposits	Brokered deposits	282,087		8.8	%	299,420		9.4	%	322,903		10.0	%	319,307		10.0	%	307,424		9.6	%	Brokered deposits	647,606		17.9	%	578,804		16.8	%	412,602		12.9	%	251,877		8.0	%	282,087		8.8	%
Total deposits	Total deposits	$	3,217,979	100.0	%	$	3,178,959	100.0	%	$	3,224,595	100.0	%	$	3,206,147	100.0	%	$	3,217,603	100.0	%	Total deposits	$	3,622,290	100.0	%	$	3,441,245	100.0	%	$	3,192,644	100.0	%	$	3,152,101	100.0	%	$	3,217,979	100.0	%

Total deposits increased ~~$39.0~~$181.0 million, or ~~1.2%~~5.3%, to ~~$3.2~~$3.6 billion as of March 31, ~~2022,~~2023, compared to ~~$3.2~~$3.4 billion as of December 31, ~~2021.~~2022. This increase was due primarily to ~~an increase~~increases of ~~$86.8~~$295.6 million, or ~~35.0%~~33.8%, in certificates of deposits, $68.8 million, or 11.9% in brokered deposits, $16.0 million, or 4.8%, in interest-bearing demand deposits ~~$50.0~~and $12.1 million, or 89.1% in BaaS - brokered deposits, ~~and $6.3 million, or 10.5%, in savings accounts,~~ partially offset by decreases of ~~$80.3~~$164.6 million, or ~~8.3%~~11.6%, in money market accounts, $34.9 million, or 19.9%, in noninterest-bearing deposits and $12.1 million, or 26.9%, in savings accounts. The increase in certificates of deposits ~~$17.3 million, or 5.8%, in~~and brokered deposits was due primarily to strong consumer and ~~$8.1 million, or 0.5%,~~small business demand during the quarter that allowed the Company to pull forward origination activity planned for later in the year. The decrease in money market ~~accounts. The increase~~accounts was due primarily to certain customer activity that can be periodically volatile, as well as some outflow of uninsured deposits late in the ~~balance of~~quarter. The decline in noninterest-bearing deposits was due primarily to drawdowns from commercial real estate development and construction clients contributing to equity projects the Company is financing. The decrease in interest-bearing demand deposits was due ~~primarily~~ to ~~approximately $100 million in deposits~~normal activity associated with a municipal deposit relationship.

Uninsured deposit balances represented 26.2% of total deposits at March 31, 2023, down from 33.1% at December 31, 2022. These balances include Indiana-based municipal deposits, which are insured by the Indiana Board for Depositories, as well as larger balance collateralized public funds and accounts under contractual term of five years and a fixed rate of 1.15% pursuant to a new customer relationship. Additionally, the Company generated $50.0 million of new BaaS deposits during the quarter at a cost of 0.20%. Aside fromagreements that only allow withdrawal under certain conditions. After subtracting these ~~two new deposit relationships, the balance and cost of non-maturity deposits remained relatively stable from the end of 2021. The decrease in the balance of certificates~~types of deposits, ~~was due~~the adjusted uninsured deposit balance decreases to ~~the maturity~~19.2%, down from 24.2% as of ~~higher cost balances and reduced pricing strategies designed to limit the volume of new production.~~December 31, 2022.

5260

Recent Debt Offerings

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.~~ Pursuant to the terms of a Registration Rights Agreement between the Company and the initial purchasers of the 2031 Notes, the Company offered to exchange the 2031 Notes for subordinated notes that are registered under the Securities Act of 1933, as amended, and have substantially the same terms as the 2031 Notes. ~~The offering period to~~On December 30, 2021, the Company completed an exchange of $59.3 million principal amount of the unregistered 2031 Notes for registered 2031 Notes ~~expired on December 30, 2021.~~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.

5361

The following tables present actual and required capital ratios as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 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 March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, 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
(dollars in thousands) Capital Amount Ratio Capital Amount Ratio Capital Amount Ratio
As of March 31, 2022:
Common equity tier 1 capital to risk-weighted assets
Consolidated $ 390,255 13.16 % $ 207,661 7.00 % N/A N/A
Bank 445,240 15.03 % 207,347 7.00 % $ 192,537 6.50 %
Tier 1 capital to risk-weighted assets
Consolidated 390,255 13.16 % 252,160 8.50 % N/A N/A
Bank 445,240 15.03 % 251,779 8.50 % 236,968 8.00 %
Total capital to risk-weighted assets
Consolidated 522,812 17.62 % 311,492 10.50 % N/A N/A
Bank 473,491 15.99 % 311,021 10.50 % 296,210 10.00 %
Leverage ratio
Consolidated 390,255 9.26 % 168,584 4.00 % N/A N/A
Bank 445,240 10.57 % 168,420 4.00 % 210,524 5.00 %
As permitted by the federal banking regulatory agencies, the Company has elected the option to delay the impact of the day one adoption of ASC 326. The transition adjustments of $4.5 million will be phased into the regulatory capital calculations over a three-year period, with 25% of the adjustment recognized in 2023, 50% of the adjustment recognized in 2024, 75% of the adjustment recognized in 2025 and 100% of the adjustment recognized in 2026.


	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 March 31, 2023:
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	379,210	10.30	%		$	257,714	7.00	%	N/A		N/A
Bank	462,360		12.59	%		257,095		7.00	%	$	238,731	6.50	%
Tier 1 capital to risk-weighted assets
Consolidated	379,210		10.30	%		312,938		8.50	%	N/A		N/A
Bank	462,360		12.59	%		312,187		8.50	%	293,823		8.00	%
Total capital to risk-weighted assets
Consolidated	520,211		14.13	%		386,571		10.50	%	N/A		N/A
Bank	498,753		13.58	%		385,643		10.50	%	367,279		10.00	%
Leverage ratio
Consolidated	379,210		8.10	%		187,371		4.00	%	N/A		N/A
Bank	462,360		9.88	%		187,120		4.00	%	233,900		5.00	%


		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 December 31, 2021:
As of December 31, 2022:																As of December 31, 2022:
Common equity tier 1 capital to risk-weighted assets	Common equity tier 1 capital to risk-weighted assets															Common equity tier 1 capital to risk-weighted assets
Consolidated	Consolidated	$	384,499	12.93	%		$	208,202	7.00	%	N/A			N/A		Consolidated	$	390,150	10.93	%		$	249,795	7.00	%	N/A		N/A
Bank	Bank	432,181		14.55	%		207,913		7.00	%	$	193,062		6.50	%	Bank	466,257		13.10	%		249,191		7.00	%	$	231,392	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	384,499		12.93	%		252,817		8.50	%	N/A			N/A		Consolidated	390,150		10.93	%		303,323		8.50	%	N/A		N/A
Bank	Bank	432,181		14.55	%		252,466		8.50	%	237,615			8.00	%	Bank	466,257		13.10	%		302,590		8.50	%	284,790		8.00	%
Total capital to risk-weighted assets	Total capital to risk-weighted assets															Total capital to risk-weighted assets
Consolidated	Consolidated	516,571		17.37	%		312,303		10.50	%	N/A			N/A		Consolidated	526,419		14.75	%		374,693		10.50	%	N/A		N/A
Bank	Bank	460,022		15.49	%		311,870		10.50	%	297,019			10.00	%	Bank	497,994		13.99	%		373,787		10.50	%	355,988		10.00	%
Leverage ratio	Leverage ratio															Leverage ratio
Consolidated	Consolidated	384,499		9.22	%		166,824		4.00	%	N/A			N/A		Consolidated	390,150		9.06	%		172,330		4.00	%	N/A		N/A
Bank	Bank	432,181		10.37	%		166,693		4.00	%	208,366			5.00	%	Bank	466,257		10.84	%		172,093		4.00	%	215,116		5.00	%

5462

Shareholders’ Dividends

The Company’s Board of Directors declared a cash dividend of $0.06 per share of common stock payable April ~~18, 2022~~17, 2023 to shareholders of record as of March 31, ~~2022.~~2023. 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.

As of March 31, ~~2022,~~2023, the Company had $107.0 million principal amount of subordinated debt outstanding evidenced by ~~its~~the 2029 Notes, 2030 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.

OnIn October ~~20,~~ 2021, the Company’s Board of Directors approved a stock repurchase program authorizing the repurchase of up to ~~$30~~$30.0 million, which was subsequently increased to $35.0 million, of ~~the Company’s~~our outstanding common stock from time to time on the open market or in privately negotiated transactions. The stock repurchase authorization was scheduled to expire on December 31, 2022. Under this program, the Company repurchased ~~100,000~~855,956 shares ~~under this~~of common stock through December 19, 2022, at an average price of $36.31, for a total investment of $31.1 million.

In December 2022, the Company’s Board of Directors approved a new stock repurchase program ~~during 2021 and 103,703 shares under this program during~~authorizing the ~~first quarter 2022.~~repurchase of up to $25.0 million of the Company’s outstanding stock from time to time on the open market or in privately negotiated transactions. The stock repurchase ~~authorization~~program is scheduled to expire on December 31, ~~2022.~~ 2023, and replaces the stock repurchase program mentioned above. Under this program, the Company has repurchased 266,188 shares of common stock through May 5, 2023, at an average price of $22.35, for a total investment of $5.9 million.

Various factors determine the amount and timing of our share repurchases, including our capital requirements, ~~the number of shares we expect to issue in the future,~~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 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. At March 31, ~~2022,~~2023, on a consolidated basis, the Company had ~~$982.8~~$699.8 million in cash and cash equivalents and investment securities available-for-sale and ~~$34.0~~$18.1 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 March 31, ~~2022,~~2023, the Bank had the ability to borrow an additional ~~$526.5~~$627.7 million from the FHLB, the Federal Reserve and correspondent bank Fed Funds lines of ~~credit.~~credit, which when combined with cash balances, totaled $931.7 million and represented 134.1% of adjusted uninsured deposit balances.

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 March 31, ~~2022,~~2023, the Company, on an unconsolidated basis, had ~~$44.3~~$14.0 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 March 31, ~~2022,~~2023, approved outstanding loan commitments, including unused lines of credit and standby letters of credit, amounted to ~~$304.8~~$501.7 million. Certificates of deposits and brokered deposits scheduled to mature in one year or less at March 31, ~~2022~~2023 totaled ~~$623.9~~$936.2 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.

5664

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, 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,~~total revenue, adjusted net interest margin - FTE, (benefit) provision for loan losses, excluding tax refund advance loans, average loans, excluding tax refund advance loans, net (recoveries) charge-offs to average loans, excluding tax refund advance loans, loans, excluding PPP loans, allowance for loan losses to loans, excluding PPP loans,noninterest income, adjusted noninterest expense, adjusted income before income taxes, adjusted income tax (benefit) provision, adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average shareholders’ equity and adjusted return on average tangible common equity 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.

(dollars in thousands, except share and per share data) Three Months Ended
March 31,
2022 December 31,
2021 September 30,
2021 June 30,
2021 March 31,
2021
Total equity - GAAP $ 374,655 $ 380,338 $ 370,442 $ 358,641 $ 344,566
Adjustments:
     Goodwill (4,687) (4,687) (4,687) (4,687) (4,687)
Tangible common equity $ 369,968 $ 375,651 $ 365,755 $ 353,954 $ 339,879
Total assets - GAAP $ 4,225,397 $ 4,210,994 $ 4,252,292 $ 4,204,642 $ 4,188,570
Adjustments:
     Goodwill (4,687) (4,687) (4,687) (4,687) (4,687)
Tangible assets $ 4,220,710 $ 4,206,307 $ 4,247,605 $ 4,199,955 $ 4,183,883
Common shares outstanding 9,683,727 9,754,455 9,854,153 9,854,153 9,823,831
Book value per common share $ 38.69 $ 38.99 $ 37.59 $ 36.39 $ 35.07
Effect of goodwill (0.48) (0.48) (0.47) (0.47) (0.47)
Tangible book value per common share $ 38.21 $ 38.51 $ 37.12 $ 35.92 $ 34.60
Total shareholders’ equity to assets 8.87 % 9.03 % 8.71 % 8.53 % 8.23 %
Effect of goodwill (0.10 %) (0.10 %) (0.10 %) (0.10 %) (0.11 %)
Tangible common equity to tangible assets 8.77 % 8.93 % 8.61 % 8.43 % 8.12 %
Total average equity - GAAP $ 380,767 $ 376,832 $ 366,187 $ 352,894 $ 335,968
Adjustments:
     Average goodwill (4,687) (4,687) (4,687) (4,687) (4,687)
Average tangible common equity $ 376,080 $ 372,145 $ 361,500 $ 348,207 $ 331,281
Return on average shareholders’ equity 11.94 % 13.14 % 13.10 % 14.88 % 12.61 %
Effect of goodwill 0.15 % 0.16 % 0.17 % 0.21 % 0.18 %
Return on average tangible common equity 12.09 % 13.30 % 13.27 % 15.09 % 12.79 %


(dollars in thousands, except share and per share data)	Three Months Ended
	March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022			March 31, 2022
Total equity - GAAP	$	355,572		$	364,974		$	360,857		$	365,332		$	374,655
Adjustments:
Goodwill	(4,687)			(4,687)			(4,687)			(4,687)			(4,687)
Tangible common equity	$	350,885		$	360,287		$	356,170		$	360,645		$	369,968

Total assets - GAAP	$	4,721,319		$	4,543,104		$	4,264,424		$	4,099,806		$	4,225,397
Adjustments:
Goodwill	(4,687)			(4,687)			(4,687)			(4,687)			(4,687)
Tangible assets	$	4,716,632		$	4,538,417		$	4,259,737		$	4,095,119		$	4,220,710

Common shares outstanding	8,943,477			9,065,883			9,290,885			9,404,000			9,683,727

Book value per common share	$	39.76		$	40.26		$	38.84		$	38.85		$	38.69
Effect of goodwill	(0.53)			(0.52)			(0.50)			(0.50)			(0.48)
Tangible book value per common share	$	39.23		$	39.74		$	38.34		$	38.35		$	38.21

Total shareholders’ equity to assets	7.53		%	8.03		%	8.46		%	8.91		%	8.87		%
Effect of goodwill	(0.09		%)	(0.09		%)	(0.10		%)	(0.10		%)	(0.10		%)
Tangible common equity to tangible assets	7.44		%	7.94		%	8.36		%	8.81		%	8.77		%

Total average equity - GAAP	$	363,273		$	364,657		$	371,303		$	374,274		$	380,767
Adjustments:
Average goodwill	(4,687)			(4,687)			(4,687)			(4,687)			(4,687)
Average tangible common equity	$	358,586		$	359,970		$	366,616		$	369,587		$	376,080

Return on average shareholders’ equity	(3.37)		%	6.91		%	9.01		%	10.23		%	11.94		%
Effect of goodwill	(0.04)		%	0.09		%	0.12		%	0.13		%	0.15		%
Return on average tangible common equity	(3.41)		%	7.00		%	9.13		%	10.36		%	12.09		%

5765


(dollars in thousands, except share and per share data)	Three Months Ended
	March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022			March 31, 2022
Total interest income	$	52,033		$	45,669		$	36,034		$	111,239		$	36,034
Adjustments:
Fully-taxable equivalent adjustments 1	1,383			1,384			1,314			3,971			1,314
Total interest income - FTE	$	53,416		$	47,053		$	37,348		$	115,210		$	37,348






Net interest income	$	19,574		$	21,669		$	25,750		$	75,424		$	25,750
Adjustments:
Fully-taxable equivalent adjustments 1	1,383			1,384			1,314			3,971			1,314
Net interest income - FTE	$	20,957		$	23,053		$	27,064		$	79,395		$	27,064














Net interest margin	1.76		%	2.09		%	2.40		%	2.60		%	2.56		%
Effect of fully-taxable equivalent adjustments 1	0.13		%	0.13		%	0.13		%	0.14		%	0.13		%
Net interest margin - FTE	1.89		%	2.22		%	2.53		%	2.74		%	2.69		%
1 Assuming a 21% tax rate

(dollars in thousands) Three Months Ended
March 31,
2022 December 31,
2021 September 30,
2021 June 30,
2021 March 31,
2021
Total interest income $ 36,034 $ 34,192 $ 33,034 $ 33,377 $ 33,280
Adjustments:
     Fully-taxable equivalent adjustments 1
1,314 1,348 1,356 1,394 1,356
Total interest income - FTE $ 37,348 $ 35,540 $ 34,390 $ 34,771 $ 34,636
Total interest income - FTE $ 37,348 $ 35,540 $ 34,390 $ 34,771 $ 34,636
Adjustments:
     Income from tax refund advance loans (2,864) — — — —
Adjusted total interest income - FTE $ 34,484 $ 35,540 $ 34,390 $ 34,771 $ 34,636
Net interest income $ 25,750 $ 23,505 $ 20,919 $ 21,607 $ 20,525
Adjustments:
     Fully-taxable equivalent adjustments 1
1,314 1,348 1,356 1,394 1,356
Net interest income - FTE $ 27,064 $ 24,853 $ 22,275 $ 23,001 $ 21,881
Net interest income $ 25,750 $ 23,505 $ 20,919 $ 21,607 $ 20,525
Adjustments:
     Subordinated debt redemption cost — — 810 — —
     Income from tax refund advance loans (2,864) — — — —
Adjusted net interest income $ 22,886 $ 23,505 $ 20,919 $ 21,607 $ 20,525
Net interest income $ 25,750 $ 23,505 $ 20,919 $ 21,607 $ 20,525
Adjustments:
     Fully-taxable equivalent adjustments 1
1,314 1,348 1,356 1,394 1,356
     Subordinated debt redemption cost — — 810 — —
     Income from tax refund advance loans (2,864) — — — —
Adjusted net interest income - FTE $ 24,200 $ 24,853 $ 22,275 $ 23,001 $ 21,881
1 Assuming a 21% tax rate

5866

(dollars in thousands) Three Months Ended
March 31,
2022 December 31,
2021 September 30,
2021 June 30,
2021 March 31,
2021
Net interest margin 2.56 % 2.30 % 2.00 % 2.11 % 2.04 %
     Effect of fully-taxable equivalent adjustments 1
0.13 % 0.13 % 0.13 % 0.14 % 0.14 %
Net interest margin - FTE 2.69 % 2.43 % 2.13 % 2.25 % 2.18 %
Net interest margin 2.56 % 2.30 % 2.00 % 2.11 % 2.04 %
     Effect of subordinated debt redemption cost 0.00 % 0.00 % 0.08 % 0.00 % 0.00 %
     Effect of income from tax refund advance loans (0.28 %) 0.00 % 0.00 % 0.00 % 0.00 %
Adjusted net interest margin 2.28 % 2.30 % 2.08 % 2.11 % 2.04 %
Net interest margin 2.56 % 2.30 % 2.00 % 2.11 % 2.04 %
     Effect of fully-taxable equivalent adjustments 0.13 % 0.13 % 0.13 % 0.14 % 0.14 %
     Effect of subordinated debt redemption cost 0.00 % 0.00 % 0.08 % 0.00 % 0.00 %
     Effect of income from tax refund advance loans (0.28 %) 0.00 % 0.00 % 0.00 % 0.00 %
Adjusted net interest margin - FTE 2.41 % 2.43 % 2.21 % 2.25 % 2.18 %
Provision (benefit) for loan losses $ 791 $ (238) $ (29) $ 21 $ 1,276
Adjustments:
     Provision for tax refund advance loans losses (1,842) — — — —
(Benefit) provision for loan losses, excluding tax refund advance loans $ (1,051) $ (238) $ (29) $ 21 $ 1,276
Average loans $ 2,947,924 $ 2,914,858 $ 2,933,654 $ 2,994,850 $ 3,047,915
Adjustments:
    Average tax refund advance loans (60,499) — — — —
Average loans, excluding tax refund advance loans $ 2,887,425 $ 2,914,858 $ 2,933,654 $ 2,994,850 $ 3,047,915
Net charge-offs (recoveries) to average loans 0.05 % (0.01 %) 0.01 % 0.35 % 0.02 %
Adjustments:
     Effect of tax refund advance lending net charge-offs to average loans (0.21 %) 0.00 % 0.00 % 0.00 % 0.00 %
Net (recoveries) charge-offs to average loans, excluding tax refund advance loans (0.16 %) (0.01 %) 0.01 % 0.35 % 0.02 %
Allowance for loan losses $ 28,251 $ 27,841 $ 28,000 $ 28,066 $ 30,642
Loans $ 2,880,780 $ 2,887,662 $ 2,936,148 $ 2,957,608 $ 3,058,694
Adjustments:
     PPP loans (1,003) (3,152) (14,981) (39,682) (53,365)
Loans, excluding PPP loans $ 2,879,777 $ 2,884,510 $ 2,921,167 $ 2,917,926 $ 3,005,329
Allowance for loan losses to loans 0.98 % 0.96 % 0.95 % 0.95 % 1.00 %
Effect of PPP loans 0.00 % 0.01 % 0.01 % 0.01 % 0.02 %
Allowance for loan losses to loans, excluding PPP loans 0.98 % 0.97 % 0.96 % 0.96 % 1.02 %

1 ~~Assuming a 21% tax rate~~


(dollars in thousands, except share and per share data)	Three Months Ended
	March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022		March 31, 2022
Total Revenue- GAAP	$	25,020	$	27,476	$	28,310	$	29,994	$	32,570
Adjustments:
Mortgage-related revenue	(65)		—		—		—		—



Adjusted total revenue	$	24,955	$	27,476	$	28,310	$	29,994	$	32,570

Noninterest income - GAAP	$	5,446	$	5,807	$	4,316	$	4,314	$	6,820
Adjustments:
Mortgage-related revenue	(65)		—		—		—		—

Adjusted noninterest income	$	5,381	$	5,807	$	4,316	$	4,314	$	6,820

Noninterest expense - GAAP	$	20,954	$	18,513	$	17,995	$	17,985	$	18,780
Adjustments:
Mortgage-related costs	(3,052)
Acquisition-related expenses	—		—		—		(103)		(170)
Nonrecurring consulting fee	—		—		—		—		(875)
Write-down of Software	—		—		(125)		—		—
Discretionary inflation bonus	—		—		—		(531)		—
Accelerated equity compensation	—		—		—		(289)		—
Adjusted noninterest expense	$	17,902	$	18,513	$	17,870	$	17,062	$	17,735

(Loss) income before income taxes - GAAP	$	(5,349)	$	6,854	$	9,423	$	10,824	$	12,999
Adjustments:1
Mortgage-related revenue	(65)		—		—		—		—
Mortgage-related costs	3,052		—		—		—		—

Acquisition-related expenses	—		—		—		103		170
Nonrecurring consulting fee	—		—		—		—		875
Write-down of Software	—		—		125		—		—

Discretionary inflation bonus	—		—		—		531		—
Accelerated equity compensation	—		—		—		289		—
Partial charge-off of C&I participation loan	6,914		—		—		—		—
Adjusted income before income taxes	$	4,552	$	6,854	$	9,548	$	11,747	$	14,044

Income tax (benefit) provision - GAAP	$	(2,332)	$	503	$	987	$	1,279	$	1,790
Adjustments:1
Mortgage-related revenue	(14)		—		—		—		—
Mortgage-related costs	641		—		—		—		—

Acquisition-related expenses	—		—		—		21		36
Nonrecurring consulting fee	—		—		—		—		184
Write-down of Software	—		—		26		—		—

Discretionary inflation bonus	—		—		—		112		—
Accelerated equity compensation	—		—		—		61		—
Partial charge-off of C&I participation loan	1,452		—		—		—		—
Adjusted income tax (benefit) provision	$	(253)	$	503	$	1,013	$	1,473	$	2,010

1 Assuming a 21% tax rate

5967

(dollars in thousands, except share and per share data) Three Months Ended
March 31,
2022 December 31,
2021 September 30,
2021 June 30,
2021 March 31,
2021
Noninterest expense - GAAP $ 18,780 $ 16,955 $ 14,451 $ 15,075 $ 15,317
Adjustments:
     Acquisition-related expenses (170) (163) — — —
     IT termination fee — (475) — — —
     Nonrecurring consulting fee (875) — — — —
Adjusted noninterest expense $ 17,735 $ 16,317 $ 14,451 $ 15,075 $ 15,317
Income before income taxes - GAAP $ 12,999 $ 14,482 $ 14,310 $ 15,473 $ 12,307
Adjustments:
      Acquisition-related expenses 170 163 — — —
      IT termination fee — 475 — — —
      Gain on sale of premises and equipment — — — (2,523) —
       Subordinated debt redemption cost — — 810 — —
       Nonrecurring consulting fee 875 — — — —
Adjusted income before income taxes $ 14,044 $ 15,120 $ 15,120 $ 12,950 $ 12,307
Income tax provision - GAAP $ 1,790 $ 2,004 $ 2,220 $ 2,377 $ 1,857
Adjustments:
     Acquisition-related expenses 36 34 — — —
     IT termination fee — 100 — — —
     Gain on sale of premises and equipment — — — (530) —
     Subordinated debt redemption cost — — 170 — —
     Nonrecurring consulting fee 184 — — — —
Adjusted income tax provision $ 2,010 $ 2,138 $ 2,390 $ 1,847 $ 1,857
Net income - GAAP $ 11,209 $ 12,478 $ 12,090 $ 13,096 $ 10,450
Adjustments:
     Acquisition-related expenses 134 129 — — —
     IT termination fee — 375 — — —
     Gain on sale of premises and equipment — — — (1,993) —
     Subordinated debt redemption cost — — 640 — —
     Nonrecurring consulting fee 691 — — — —
Adjusted net income $ 12,034 $ 12,982 $ 12,730 $ 11,103 $ 10,450
Diluted average common shares outstanding 9,870,394 9,989,951 9,988,102 9,981,422 9,963,036
Diluted earnings per share - GAAP $ 1.14 $ 1.25 $ 1.21 $ 1.31 $ 1.05
Adjustments:
     Effect of acquisition-related expenses 0.01 0.01 — — —
     Effect of IT termination fee — 0.04 — — —
     Effect of gain on sale of premises and equipment — — — (0.20) —
     Effect of subordinated debt redemption cost — — 0.06 — —
     Effect of nonrecurring consulting fee 0.07 — — — —
Adjusted diluted earnings per share $ 1.22 $ 1.30 $ 1.27 $ 1.11 $ 1.05
Return on average assets 1.08 % 1.19 % 1.12 % 1.25 % 1.02 %
     Effect of acquisition-related expenses 0.01 % 0.01 % 0.00 % 0.00 % 0.00 %
     Effect of IT termination fee 0.00 % 0.04 % 0.00 % 0.00 % 0.00 %
     Effect of gain on sale of premises and equipment 0.00 % 0.00 % 0.00 % (0.19 %) 0.00 %
     Effect of subordinated debt redemption cost 0.00 % 0.00 % 0.06 % 0.00 % 0.00 %
     Effect of nonrecurring consulting fee 0.07 % 0.00 % 0.00 % 0.00 % 0.00 %
Adjusted return on average assets 1.16 % 1.24 % 1.18 % 1.06 % 1.02 %


(dollars in thousands, except share and per share data)	Three Months Ended
	March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022			March 31, 2022
Net (loss) income - GAAP	$	(3,017)		$	6,351		$	8,436		$	9,545		$	11,209
Adjustments:
Mortgage-related revenue	(51)			—			—			—			—
Mortgage-related costs	2,411			—			—			—			—

Acquisition-related expenses	—			—			—			82			134
Nonrecurring consulting fee	—			—			—			—			691
Write-down of Software	—			—			99			—			—

Discretionary inflation bonus	—			—			—			419			—
Accelerated equity compensation	—			—			—			228			—
Partial charge-off of C&I participation loan	5,462			—			—			—			—
Adjusted net income	$	4,805		$	6,351		$	8,535		$	10,274		$	12,034






Diluted average common shares outstanding	9,024,072			9,343,533			9,525,855			9,658,689			9,870,394

Diluted (loss) earnings per share - GAAP	$	(0.33)		$	0.68		$	0.89		$	0.99		$	1.14
Adjustments:
Mortgage-related revenue	(0.01)			—			—			—			—
Mortgage-related costs	0.27			—			—			—			—

Effect of acquisition-related expenses	—			—			—			0.01			0.01
Effect of nonrecurring consulting fee	—			—			—			—			0.07
Effect of write-down of software	—			—			0.01			—			—

Effect of discretionary inflation bonus	—			—			—			0.04			—
Effect of accelerated equity compensation	—			—			—			0.02			—
Effect of partial charge-off of C&I participation loan	0.60			—			—			—			—
Adjusted diluted earnings per share	$	0.53		$	0.68		$	0.90		$	1.06		$	1.22

Return on average assets	(0.26		%)	0.59		%	0.82		%	0.93		%	1.08		%
Effect of mortgage-related revenue	0.00		%	0.00		%	0.00		%	0.00		%	0.00		%
Effect of mortgage-related costs	0.21		%	0.00		%	0.00		%	0.00		%	0.00		%

Effect of acquisition-related expenses	0.00		%	0.00		%	0.00		%	0.01		%	0.01		%
Effect of nonrecurring consulting fee	0.00		%	0.00		%	0.00		%	0.00		%	0.07		%
Effect of write-down of software	0.00		%	0.00		%	0.01		%	0.00		%	0.00		%

Effect of discretionary inflation bonus	0.00		%	0.00		%	0.00		%	0.04		%	0.00		%
Effect of accelerated equity compensation	0.00		%	0.00		%	0.00		%	0.02		%	0.00		%
Effect of partial charge-off of C&I participation loan	0.48		%	0.00		%	0.00		%	0.00		%	0.00		%
Adjusted return on average assets	0.43		%	0.59		%	0.83		%	1.00		%	1.16		%

Return on average shareholders' equity	(3.37		%)	6.91		%	9.01		%	10.23		%	11.94		%
Effect of mortgage-related revenue	(0.06		%)	0.00		%	0.00		%	0.00		%	0.00		%
Effect of mortgage-related costs	2.69		%	0.00		%	0.00		%	0.00		%	0.00		%

Effect of acquisition-related expenses	0.00		%	0.00		%	0.00		%	0.09		%	0.14		%
Effect of nonrecurring consulting fee	0.00		%	0.00		%	0.00		%	0.00		%	0.74		%
Effect of write-down of software	0.00		%	0.00		%	0.11		%	0.00		%	0.00		%

Effect of discretionary inflation bonus	0.00		%	0.00		%	0.00		%	0.45		%	0.00		%
Effect of accelerated equity compensation	0.00		%	0.00		%	0.00		%	0.24		%	0.00		%
Effect of partial charge-off of C&I participation loan	6.10		%	0.00		%	0.00		%	0.00		%	0.00		%
Adjusted return on average shareholders' equity	5.36		%	6.91		%	9.12		%	11.01		%	12.82		%

6068

(dollars in thousands) Three Months Ended
March 31,
2022 December 31,
2021 September 30,
2021 June 30,
2021 March 31,
2021
Return on average shareholders' equity 11.94 % 13.14 % 13.10 % 14.88 % 12.61 %
    Effect of acquisition-related expenses 0.14 % 0.14 % 0.00 % 0.00 % 0.00 %
    Effect of IT termination fee 0.00 % 0.39 % 0.00 % 0.00 % 0.00 %
    Effect of gain on sale of premises and equipment 0.00 % 0.00 % 0.00 % (2.26 %) 0.00 %
    Effect of subordinated debt redemption cost 0.00 % 0.00 % 0.69 % 0.00 % 0.00 %
    Effect of nonrecurring consulting fee 0.74 % 0.00 % 0.00 % 0.00 % 0.00 %
Adjusted return on average shareholders' equity 12.82 % 13.67 % 13.79 % 12.62 % 12.61 %
Return on average tangible common equity 12.09 % 13.30 % 13.27 % 15.09 % 12.79 %
     Effect of acquisition-related expenses 0.14 % 0.14 % 0.00 % 0.00 % 0.00 %
     Effect of IT termination fee 0.00 % 0.40 % 0.00 % 0.00 % 0.00 %
     Effect of gain on sale of premises and equipment 0.00 % 0.00 % 0.00 % (2.30 %) 0.00 %
     Effect of subordinated debt redemption cost 0.00 % 0.00 % 0.70 % 0.00 % 0.00 %
     Effect of nonrecurring consulting fee 0.75 % 0.00 % 0.00 % 0.00 % 0.00 %
Adjusted return on average tangible common equity 12.98 % 13.84 % 13.97 % 12.79 % 12.79 %
Effective income tax rate 13.8 % 13.8 % 15.5 % 15.4 % 15.1 %
     Effect of acquisition-related expenses 0.3 % 0.1 % 0.0 % 0.0 % 0.0 %
     Effect of IT termination fee 0.0 % 0.2 % 0.0 % 0.0 % 0.0 %
     Effect of gain on sale of premises and equipment 0.0 % 0.0 % 0.0 % (1.1 %) 0.0 %
     Effect of subordinated debt redemption cost 0.0 % 0.0 % 0.3 % 0.0 % 0.0 %
     Effect of nonrecurring consulting fee 1.3 % 0.0 % 0.0 % 0.0 % 0.0 %
Adjusted effective income tax rate 15.4 % 14.1 % 15.8 % 14.3 % 15.1 %
Income before income taxes - GAAP $ 12,999 $ 14,482 $ 14,310 $ 15,473 $ 12,307
Adjustments:
     Income from tax refund advance lending (2,864) — — — —
     Provision for tax refund advance loans losses 1,842 — — — —
     Tax refund advance lending servicing fee 921 — — — —
Income before income taxes, excluding tax refund advance loans $ 12,898 $ 14,482 $ 14,310 $ 15,473 12,307
Income tax provision - GAAP $ 1,790 $ 2,004 $ 2,220 $ 2,377 $ 1,857
Adjustments:
     Income from tax refund advance lending (601) — — — —
     Provision for tax refund advance loans losses 387 — — — —
     Tax refund advance lending servicing fee 193 — — — —
Income tax provision, excluding tax refund advance loans $ 1,769 $ 2,004 $ 2,220 $ 2,377 $ 1,857
Net income - GAAP $ 11,209 $ 12,478 $ 12,090 $ 13,096 $ 10,450
Adjustments:
     Income from tax refund advance lending (2,263) — — — —
     Provision for tax refund advance loans losses 1,455 — — — —
     Tax refund advance lending servicing fee 728 — — — —
Net income, excluding tax refund advance loans $ 11,129 $ 12,478 $ 12,090 $ 13,096 $ 10,450


(dollars in thousands, except share and per share data)	Three Months Ended
	March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022		March 31, 2022

Return on average tangible common equity	(3.41	%)	7.00	%	9.13	%	10.36	%	12.09	%
Effect of mortgage-related revenue	(0.06	%)	0.00	%	0.00	%	0.00	%	0.00	%
Effect of mortgage-related costs	2.73	%	0.00	%	0.00	%	0.00	%	0.00	%

Effect of acquisition-related expenses	0.00	%	0.00	%	0.00	%	0.09	%	0.14	%
Effect of nonrecurring consulting fee	0.00	%	0.00	%	0.00	%	0.00	%	0.75	%
Effect of write-down of software	0.00	%	0.00	%	0.11	%	0.00	%	0.00	%

Effect of discretionary inflation bonus	0.00	%	0.00	%	0.00	%	0.45	%	0.00	%
Effect of accelerated equity compensation	0.00	%	0.00	%	0.00	%	0.25	%	0.00	%
Effect of partial charge-off of C&I participation loan	6.18	%	0.00	%	0.00	%	0.00	%	0.00	%
Adjusted return on average tangible common equity	5.44	%	7.00	%	9.24	%	11.15	%	12.98	%

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, ~~2021.~~2022. Refer to Note 1 Basis of Presentation for further details.

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. At both March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had interest rate swaps with notional amounts of $260.0 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 March 31, ~~2022 and~~2023, the company did not have any commitments to sell residential real estate loans. At December 31, ~~2021,~~2022, the Company had commitments to sell residential real estate loans of ~~$56.8 million and $72.8 million, respectively.~~$17.0 million. 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.

6269

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~~our 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~~We seek to achieve consistent growth in net interest income and equity while managing volatility arising from shifts in market interest rates.

~~The Company monitors its~~We monitor the Company’s 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~~We use EVE sensitivity analysis to understand the impact of changes in interest rates on long-term cash flows, income and capital. EVE is calculated by discounting the cash flows for all balance sheet instruments under different interest-rate scenarios. Modeling the sensitivity of NII and EVE to changes in market interest rates is highly dependent on the assumptions incorporated into the modeling process, especially those pertaining to non-maturity deposit accounts. These assumptions are reviewed and refined on an ongoing basis by the Company. ~~The Company~~We continually ~~models its~~model our NII and EVE positions with various interest rate scenarios and assumptions of future balance sheet composition. ~~The Company utilizes~~We utilize implied forward rates as its base case scenario which reflects market expectations for ~~interest rates~~rate increases over the next 24 months. Presented below is the estimated impact on ~~the Company’s~~our NII and EVE position as of March 31, ~~2022,~~2023, 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 1.59 % N/A (3.25 %) (5.55 %)
NII - Year 2 2.19 % 0.54 % (2.61 %) (4.63 %)
EVE 0.73 % N/A (4.33 %) (9.99 %)


	% 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 +50 Basis Points		Implied Forward Curve +100 Basis Points
NII - Year 1	19.44	%	10.33	%	N/A		(3.93	%)	(8.06	%)
NII - Year 2	46.18	%	36.25	%	21.70	%	16.04	%	9.91	%
EVE	29.38	%	18.92	%	N/A		(8.45	%)	(17.00	%)

To supplement the instantaneous rate shocks required by regulatory guidance, ~~the Company~~we also ~~calculates its~~calculate our 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 March 31, ~~2022,~~2023, 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 +50 Basis Points		Implied Forward Curve +100 Basis Points
NII - Year 1	NII - Year 1	0.25	%	N/A		(1.51	%)	(2.05	%)	NII - Year 1	8.20	%	4.40	%	N/A		(2.31	%)	(4.67	%)
NII - Year 2	NII - Year 2	1.19	%	0.54	%	(2.52	%)	(4.36	%)	NII - Year 2	45.56	%	35.95	%	21.70	%	15.11	%	8.10	%
EVE	EVE	0.56	%	N/A		(4.46	%)	(10.41	%)	EVE	25.51	%	16.73	%	N/A		(8.63	%)	(17.25	%)

6370

In the Company’s supplementary model, it incorporates deposit betas ranging from 10% to 98% in up-rate scenarios related to its savings and money market non-maturity deposit products, which approximates actual deposit pricing experience in 2022. Presented below are the estimated impacts on the Company’s NII and EVE position as of March 31, 2023, 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 +50 Basis Points		Implied Forward Curve +100 Basis Points
NII - Year 1	19.42	%	10.32	%	N/A		(3.64	%)	(7.49	%)
NII - Year 2	46.16	%	36.24	%	21.70	%	16.36	%	10.57	%
EVE	29.24	%	18.90	%	N/A		(8.07	%)	(16.26	%)


	% 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 +50 Basis Points		Implied Forward Curve +100 Basis Points
NII - Year 1	8.12	%	4.36	%	N/A		(2.21	%)	(4.47	%)
NII - Year 2	45.46	%	35.89	%	21.70	%	15.29	%	8.49	%
EVE	25.33	%	16.64	%	N/A		(8.44	%)	(16.87	%)

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 contraction, 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,~~small business, construction or C&I lending, and declines in longer-term loan portfolios

•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, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of March 31, ~~2022.~~2023.

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 March 31, ~~2022~~2023 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

6472

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~~The following represents a material ~~changes to the~~change in our risk factors from those previously disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, ~~2021 (“2021 Form 10-K”)~~2022.

Recent negative developments in the banking industry could adversely affect our current and future business operations and financial condition.

The recent bank failures and related negative media attention have caused significant market trading volatility among publicly traded bank and financial holding companies, particularly for regional and community banks. These developments have negatively impacted customer confidence in smaller banks, which could prompt customers to move their deposits to larger financial institutions. Further, competition for and costs of deposits has similarly increased, putting pressure on net interest margin. While we have taken actions to improve our costs of funds, there is no guarantee that such actions will be successful or sufficient in the current or future market.

We also anticipate increased regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks of similar size to the Bank designed to respond to recent negative developments in the banking industry, all of which may increase our costs of doing business and reduce our profitability. Among other things, there may be increased focus by both regulators and investors on deposit composition, the level of uninsured deposits, brokered deposits, unrealized losses in securities portfolios, liquidity, CRE composition and concentration, capital and general oversight and control of the foregoing. The Bank could face increased scrutiny or be viewed as higher risk by regulators and/or the investor community, which could negatively affect our future results of operations and financial condition.

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

Repurchases of Common Stock

~~On October 20, 2021,~~In December 2022, the ~~Company's~~Company’s Board of Directors approved a stock repurchase program authorizing the repurchase of up to ~~$30.0~~$25.0 million of ~~our~~the Company’s outstanding ~~common~~ stock from time to time on the open market or in privately negotiated transactions.The stock repurchase ~~authorization~~program is scheduled to expire on December 31, ~~2022.~~2023. Under this program, the Company has repurchased ~~103,703~~266,188 shares of common stock ~~during the first quarter of 2022~~through May 5, 2023, at an average price of ~~$49.35 per share. The Company has repurchased~~$22.35, for a total investment of 203,703 shares at an average price of $46.90 per share under the program through March 31, 2022. Subsequent to March 31, 2022, the Company repurchased 76,171 shares at an average price of $39.69 per share, resulting in a total amount of $12.6 million repurchased thus far with $17.4 million of remaining authority under the program.$5.9 million.

The following table presents information with respect to purchases of the Company’s common stock made by or on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3), during the first quarter ~~2022.~~2023.

Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased As Part of Publicly Announced Programs Approximate Dollar Value Of Shares That May Yet Be Purchased Under The Program
January 1, 2022 - January 31, 2022 71,185 $ 49.32 71,185 $ 22,053
February 1, 2022 - February 28, 2022 28,815 50.22 28,815 20,605
March 1 2022 - March 31, 2022 3,703 43.02 3,703 20,446
Total 103,703 103,703


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






January 1, 2023 - January 31, 2023	77,691	$	25.12	77,691	$	21,913
February 1, 2023 - February 28, 2023	38,000	$	27.39	38,000	$	20,872
March 1, 2023 - March 31, 2023	46,000	$	21.08	46,000	$	19,902
Total	161,691			161,691

Limitations on the Payment of Dividends

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit No.

Description

Method of Filing

3.1

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

Incorporated by Reference

3.2

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

Incorporated by Reference

10.1

Form of ~~Non-Employee Director~~Management Incentive Award Agreement – Restricted Stock ~~Award Agreement~~Units under ~~2013~~2022 Equity Incentive Plan*Plan *

Filed Electronically

~~10.2~~

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

~~Filed Electronically~~

31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

Filed Electronically

31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

Filed Electronically

32.1

Section 1350 Certifications

Filed Electronically

101

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

Filed Electronically

101.SCH

Inline XBRL Taxonomy Extension Schema

Filed Electronically

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase

Filed Electronically

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase

Filed Electronically

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase

Filed Electronically

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase

Filed Electronically

104

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

Filed Electronically

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

6674

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

5/~~9/2022~~10/2023	By	/s/ David B. Becker
		David B. Becker, Chairman and Chief Executive Officer (on behalf of Registrant)

5/~~9/2022~~10/2023	By	/s/ Kenneth J. Lovik
		Kenneth J. Lovik, Executive Vice President and Chief Financial Officer (principal financial officer)

6775


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

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


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

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



(in thousands)	Number of Loans	Principal Balance		Net Deferred Fees
Originated	447	$	58,336	$	1,851
Principal repaid	(71)	(7,184)
Net deferred fees recognized				(1,253)
Balance, December 31, 2020	376	51,152		598
Originated	281	27,377		1,125
Principal repaid	(634)	(75,377)
Net deferred fees recognized				(1,624)
Balance, December 31, 2021	23	3,152		99
Originated	—	—		—
Principal repaid	(18)	(2,149)
Net deferred fees recognized		—		(75)
Balance, March 31, 2022	5	$	1,003	$	24