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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
OR
☐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 classTrading SymbolsName of each exchange on which registered
Common Stock, without par valueINBKThe Nasdaq Stock Market LLC
6.0% Fixed to Floating Subordinated Notes due 2029INBKZThe 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, the registrant had 9,655,480 shares of common stock issued and outstanding.



Cautionary Note Regarding Forward-Looking Statements
  
This Quarterly Report on Form 10-Q contains forward-looking statements 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 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 “anticipate,” “attempt,” “believe,” “can,” “continue,” “could,” “effort,” “estimate,” “expect,” “intend,” “likely,” “may,” “objective,” “optimistic,” “pending,” “plan,” “position,” “potential,” “preliminary,” “remain,” “should,” “will,” “would” or other similar expressions. Such statements are subject to certain risks and uncertainties including: the continued or potential effects of the COVID-19 global pandemic and related variants and mutations and other adverse public health developments on the economy, our business and operations and the business and operations of our vendors and customers; the war in Ukraine and potential adverse global economic effects; other general economic conditions, whether national or regional, and conditions in the lending markets in which we participate that may have an adverse effect on the demand for our loans and other products; our credit quality and related levels of nonperforming assets and loan losses, and the value and salability of the real estate that we own or that is the collateral for our loans; failures or breaches of or interruptions in the communication and information systems on which we rely to conduct our business that could reduce our revenues, increase our costs or lead to disruptions in our business; our plans to continue originating and growing our commercial real estate, commercial and industrial, public finance, U.S. Small Business Administration (“SBA”), 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”); results of examinations of us by our regulators, including the possibility that our regulators may, among other things, require us to increase our allowance for loan losses or to write-down assets; changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, that could lead to restrictions on activities of banks generally, or the Bank in particular; more restrictive regulatory capital requirements; increased costs, including deposit insurance premiums; regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products; changes in market rates and prices that may adversely impact the value of securities, loans, deposits and other financial instruments and the interest rate sensitivity of our balance sheet; our liquidity requirements being adversely affected by changes in our assets and liabilities; the effect of legislative or regulatory developments, including changes in laws concerning taxes, banking, securities, insurance and other aspects of the financial services industry; competitive factors among financial services organizations, including product and pricing pressures and our ability to attract, develop and retain qualified banking professionals; 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.

i


PART I

ITEM 1.    FINANCIAL STATEMENTS 

First Internet Bancorp
Condensed Consolidated Balance Sheets
(Amounts in thousands except share data)
 March 31, 2022December 31, 2021
 (Unaudited) 
Assets  
Cash and due from banks$20,976 $7,492 
Interest-bearing deposits496,573 435,468 
Total cash and cash equivalents517,549 442,960 
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 
Loans2,880,780 2,887,662 
Allowance for loan losses(28,251)(27,841)
Net loans2,852,529 2,859,821 
Accrued interest receivable15,263 16,037 
Federal Home Loan Bank of Indianapolis stock25,219 25,650 
Cash surrender value of bank-owned life insurance39,133 38,900 
Premises and equipment, net68,632 59,842 
Goodwill4,687 4,687 
Servicing asset, at fair value5,249 4,702 
Other real estate owned— 1,188 
Accrued income and other assets34,487 46,853 
Total assets$4,225,397 $4,210,994 
Liabilities and Shareholders’ Equity  
Liabilities  
Noninterest-bearing deposits$119,196 $117,531 
Interest-bearing deposits3,098,783 3,061,428 
Total deposits3,217,979 3,178,959 
Advances from Federal Home Loan Bank514,923 514,922 
Subordinated debt, net of unamortized debt issuance costs of $2,694 and $2,769 in 2022 and 2021, respectively104,306 104,231 
Accrued interest payable1,532 2,018 
Accrued expenses and other liabilities12,002 30,526 
Total liabilities3,850,742 3,830,656 
Commitments and Contingencies
Shareholders’ Equity  
Preferred stock, no par value; 4,913,779 shares authorized; issued and outstanding - none— — 
Voting common stock, no par value; 45,000,000 shares authorized; 9,683,727 and 9,754,455 shares issued and outstanding in 2022 and 2021, respectively214,473 218,946 
Nonvoting common stock, no par value; 86,221 shares authorized; issued and outstanding - none— — 
Retained earnings183,043 172,431 
Accumulated other comprehensive loss(22,861)(11,039)
Total shareholders’ equity374,655 380,338 
Total liabilities and shareholders’ equity$4,225,397 $4,210,994 

See Notes to Condensed Consolidated Financial Statements
1


First Internet Bancorp
Condensed Consolidated Statements of Income – Unaudited
(Amounts in thousands except share and per share data)
 Three Months Ended
 March 31, 2022March 31, 2021
Interest Income  
Loans$33,188 $30,885 
Securities – taxable2,221 1,779 
Securities – non-taxable249 281 
Other earning assets376 335 
Total interest income36,034 33,280 
Interest Expense  
Deposits6,097 8,628 
Other borrowed funds4,187 4,127 
Total interest expense10,284 12,755 
Net Interest Income25,750 20,525 
Provision for Loan Losses791 1,276 
Net Interest Income After Provision for Loan Losses24,959 19,249 
Noninterest Income  
Service charges and fees316 266 
Loan servicing revenue585 422 
Loan servicing asset revaluation(297)(155)
Mortgage banking activities1,873 5,750 
Gain on sale of loans3,845 1,723 
Other498 369 
Total noninterest income6,820 8,375 
Noninterest Expense  
Salaries and employee benefits9,878 9,492 
Marketing, advertising and promotion756 680 
Consulting and professional services1,925 986 
Data processing449 462 
Loan expenses1,582 534 
Premises and equipment2,540 1,601 
Deposit insurance premium281 425 
Other1,369 1,137 
Total noninterest expense18,780 15,317 
Income Before Income Taxes12,999 12,307 
Income Tax Provision1,790 1,857 
Net Income$11,209 $10,450 
Income Per Share of Common Stock  
Basic$1.14 $1.06 
Diluted$1.14 $1.05 
Weighted-Average Number of Common Shares Outstanding  
Basic9,790,122 9,899,230 
Diluted9,870,394 9,963,036 
Dividends Declared Per Share$0.06 $0.06 

See Notes to Condensed Consolidated Financial Statements
2


First Internet Bancorp
Condensed Consolidated Statements of Comprehensive Income – Unaudited
(Amounts in thousands except per share data)
 Three Months Ended March 31,
 20222021
Net income$11,209 $10,450 
Other comprehensive (loss) income
Securities available-for-sale
Net unrealized holding losses recorded within other comprehensive income before income tax(17,881)(2,195)
Income tax benefit(4,077)(508)
Net effect on other comprehensive (loss) income(13,804)(1,687)
Securities held-to-maturity
Reclassification of securities from available-for-sale to held-to-maturity(5,402)— 
Amortization of net unrealized holding losses on securities transferred from available-for-sale to held-to-maturity119 — 
Income tax benefit(1,249)— 
Net effect on other comprehensive (loss) income(4,034)— 
Cash flow hedges
Net unrealized holding gains on cash flow hedging derivatives recorded within other comprehensive income before income tax9,334 6,280 
Income tax provision3,318 1,317 
Net effect on other comprehensive (loss) income6,016 4,963 
Total other comprehensive (loss) income(11,822)3,276 
Comprehensive (loss) income$(613)$13,726 
 
 See Notes to Condensed Consolidated Financial Statements

3


First Internet Bancorp
Condensed Consolidated Statements of Changes in Shareholders’ Equity - Unaudited
Three Months Ended March 31, 2022 and 2021
(Amounts in thousands except per share data)
Voting and
Nonvoting
Common
Stock		Retained
Earnings		Accumulated
Other
Comprehensive
Loss		Total
Shareholders’
Equity
Balance, January 1, 2022$218,946 $172,431 $(11,039)$380,338 
Net income— 11,209 — 11,209 
Other comprehensive loss— — (11,822)(11,822)
Dividends declared ($0.06 per share)
— (597)— (597)
Recognition of the fair value of share-based compensation640 — — 640 
Repurchase of common stock(5,118)— — (5,118)
Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units5 — — 5 
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 compensation692 — — 692 
Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units6 — — 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 


See Notes to Condensed Consolidated Financial Statements

4


First Internet Bancorp
Condensed Consolidated Statements of Cash Flows – Unaudited
(Amounts in thousands except per share data)
 Three Months Ended March 31,
 20222021
Operating Activities  
Net income$11,209 $10,450 
Adjustments to reconcile net income to net cash used in operating activities:  
Depreciation and amortization7,721 283 
Increase in cash surrender value of bank-owned life insurance(233)(233)
Provision for loan losses791 1,276 
Share-based compensation expense640 692 
Loans originated for sale(184,067)(223,880)
Proceeds from sale of loans202,011 241,589 
Gain on loans sold(5,907)(9,222)
Decrease in fair value of loans held-for-sale489 862 
(Gain) loss on derivatives(2,565)881 
Loan servicing asset revaluation297 (248)
Net change in accrued income and other assets10,399 10,695 
Net change in accrued expenses and other liabilities(7,999)(2,012)
Net cash provided by operating activities32,786 31,133 
Investing Activities
Net loan activity, excluding purchases32,510 47,653 
Proceeds from sale of other real estate owned1,188 — 
Maturities and calls of securities available-for-sale27,848 55,901 
Purchase of securities available-for-sale(16,453)(21,279)
Purchase of securities held-to-maturity(2,000)— 
Redemption of Federal Home Loan Bank of Indianapolis stock431 — 
Purchase of premises and equipment(9,808)(5,697)
Loans purchased(40,059)(47,234)
Net proceeds from sale of portfolio loans14,466 — 
Other investing activities374 — 
Net cash provided by investing activities8,497 29,344 
Financing Activities
Net increase (decrease) in deposits39,020 (53,282)
Cash dividends paid(596)(601)
Repayment of subordinated debt— (10,000)
Repurchase of common stock(5,118)— 
Proceeds from advances from Federal Home Loan Bank110,000 110,000 
Repayment of advances from Federal Home Loan Bank(110,000)(110,000)
Other, net— (195)
Net cash provided by (used in) financing activities33,306 (64,078)
Net Increase (Decrease) in Cash and Cash Equivalents74,589 (3,601)
Cash and Cash Equivalents, Beginning of Period442,960 419,806 
Cash and Cash Equivalents, End of Period$517,549 $416,205 
Supplemental Disclosures
Cash paid during the period for interest10,770 12,777 
Cash paid during the period for taxes50 10 
Loans transferred to held-for-sale from portfolio14,049 — 
Cash dividends declared, paid in subsequent period581 592 
Securities purchased during the period, settled in subsequent period— 2,035 
Transfer of available-for-sale mortgage-backed securities to held-to-maturity mortgage-backed securities107,168 — 
See Notes to Condensed Consolidated Financial Statements
5


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 are not necessarily indicative of the results expected for the year ending December 31, 2022 or any other period. The March 31, 2022 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the First Internet Bancorp Annual Report on Form 10-K for the year ended December 31, 2021.
 
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments, or assumptions that could have a material effect on the carrying value of certain assets and liabilities. These estimates, judgments, and assumptions affect the amounts reported in the condensed consolidated financial statements and the disclosures provided. The determination of the allowance for loan losses, valuations and impairments of investment securities, valuation of the servicing asset and the accounting for income tax expense are highly dependent upon management’s estimates, judgments, and assumptions, and changes in any of these could have a significant impact on the condensed consolidated financial statements.

The condensed consolidated financial statements include the accounts of First Internet Bancorp (the “Company”), its wholly owned subsidiary, First Internet Bank of Indiana (the “Bank”), and the Bank’s three 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.




    



6


Note 2:        Earnings Per Share
 
Earnings per share of common stock are based on the weighted-average number of basic shares and dilutive shares outstanding during the period.
 
The following is a reconciliation of the weighted-average common shares for the basic and diluted earnings per share computations for the three months ended March 31, 2022 and 2021. 
(dollars in thousands, except per share data)Three Months Ended March 31,
 20222021
Basic earnings per share  
Net income$11,209 $10,450 
Weighted-average common shares9,790,122 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 shares9,790,122 9,899,230 
Dilutive effect of equity compensation80,272 63,806 
     Weighted-average common and incremental shares9,870,394 9,963,036 
Diluted earnings per common share (1)
$1.14 $1.05 
(1) Potential dilutive common shares are excluded from the computation of diluted EPS in the periods where the effect would be antidilutive. Excluded from the computation of diluted EPS were weighted-average antidilutive shares totaling 661 for the three months ended March 31, 2022. There were no 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 and December 31, 2021.
 March 31, 2022
 AmortizedGross UnrealizedFair
(in thousands)CostGainsLossesValue
Securities available-for-sale    
U.S. Government-sponsored agencies$45,335 $— $(1,488)$43,847 
Municipal securities72,420 557 (173)72,804 
Agency mortgage-backed securities - residential276,392 88 (18,798)257,682 
Agency mortgage-backed securities - commercial24,815 6 (665)24,156 
Private label mortgage-backed securities - residential15,090 6 (278)14,818 
Asset-backed securities5,000 — (14)4,986 
Corporate securities47,580 299 (884)46,995 
Total available-for-sale$486,632 $956 $(22,300)$465,288 

 March 31, 2022
 AmortizedGross UnrealizedFair
(in thousands)CostGainsLossesValue
Securities held-to-maturity    
Municipal securities$13,981 $157 $(45)$14,093 
Mortgage-backed securities - residential95,982 — (3,043)92,939 
Mortgage-backed securities - commercial5,847 — (427)5,420 
Corporate securities47,560 338 (379)47,519 
Total held-to-maturity$163,370 $495 $(3,894)$159,971 
7


 December 31, 2021
 AmortizedGross UnrealizedFair
(in thousands)CostGainsLossesValue
Securities available-for-sale    
U.S. Government-sponsored agencies$50,013 $164 $(1,137)$49,040 
Municipal securities75,158 1,940 (65)77,033 
Agency mortgage-backed securities - residential377,928 960 (5,652)373,236 
Agency mortgage-backed securities - commercial36,024 441 (139)36,326 
Private label mortgage-backed securities - residential15,902 122 (3)16,021 
Asset-backed securities
5,000 4 — 5,004 
Corporate securities46,482 597 (695)46,384 
Total available-for-sale$606,507 $4,228 $(7,691)$603,044 

 December 31, 2021
 AmortizedGross UnrealizedFair
(in thousands)CostGainsLossesValue
Securities held-to-maturity    
Municipal securities$13,992 $717 $— $14,709 
Corporate securities45,573 1,186 — 46,759 
Total held-to-maturity$59,565 $1,903 $— $61,468 


The carrying value of securities at March 31, 2022 is shown below by their contractual maturity date. Actual maturities will differ because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 Available-for-Sale
(in thousands)Amortized
Cost		Fair
Value
One to five years$34,545 $34,808 
Five to ten years56,269 55,141 
After ten years74,521 73,697 
 165,335 163,646 
Agency mortgage-backed securities - residential276,392 257,682 
Agency mortgage-backed securities - commercial24,815 24,156 
Private label mortgage-backed securities - residential15,090 14,818 
Asset-backed securities5,000 4,986 
Total$486,632 $465,288 

 Held-to-Maturity
(in thousands)Amortized
Cost		Fair
Value
One to five years$11,172 $11,149 
Five to ten years39,233 39,553 
After ten years11,136 10,910 
61,541 61,612 
Agency mortgage-backed securities - residential95,982 92,939 
Agency mortgage-backed securities - commercial5,847 5,420 
Total$163,370 $159,971 

There were no gross gains or losses resulting from the sale of available-for-sale securities during the three months ended March 31, 2022 and March 31, 2021, respectively.
8



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 and December 31, 2021 was $493.4 million and $403.2 million, which was approximately 79% and 61%, respectively, of the Company’s AFS and HTM securities portfolios. As of March 31, 2022, the Company’s security portfolio consisted of 437 securities, of which 326 were in an unrealized loss position. The unrealized losses are related to the categories noted below. These declines resulted primarily from fluctuations in market interest rates after purchase. Management believes the declines in fair value for these securities are temporary. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced, with the resulting loss recognized in net income in the period the other-than-temporary impairment (“OTTI”) is identified.

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

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

The unrealized losses on the Company’s investments in securities issued by U.S. Government-sponsored agencies, municipal organizations and corporate entities were caused primarily by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be upon maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2022.
 
Agency Mortgage-Backed, Private Label Mortgage-Backed and Asset-Backed Securities
 
The unrealized losses on the Company’s investments in agency mortgage-backed, private label mortgage-backed and asset-backed securities were caused primarily by interest rate changes. The Company expects to recover the amortized cost bases over the terms of the securities. Because the Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be upon maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2022.

The following tables show the securities portfolio’s gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2022 and December 31, 2021.
 March 31, 2022
 Less Than 12 Months12 Months or LongerTotal
(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 securities25,045 (173)— — 25,045 (173)
Agency mortgage-backed securities- residential210,766 (15,256)36,680 (3,542)247,446 (18,798)
Agency mortgage-backed securities- commercial19,916 (414)2,653 (251)22,569 (665)
Private label mortgage-backed securities - residential13,885 (278)— — 13,885 (278)
     Asset-backed securities4,986 (14)— — 4,986 (14)
Corporate securities11,770 (230)9,346 (654)21,116 (884)
Total$290,988 $(16,429)$88,311 $(5,871)$379,299 $(22,300)

9



 March 31, 2022
 Less Than 12 Months12 Months or LongerTotal
(in thousands)Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses
Securities held-to-maturity      
Municipal securities$4,599 $(45)$— $— $4,599 $(45)
Agency mortgage-backed securities - residential64,135 (2,115)28,778 (928)92,913 (3,043)
Agency mortgage-backed securities - commercial5,420 (427)— — 5,420 (427)
Corporate securities11,129 (379)— — 11,129 (379)
Total$85,283 $(2,966)$28,778 $(928)$114,061 $(3,894)


 December 31, 2021
 Less Than 12 Months12 Months or LongerTotal
(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 securities5,721 (65)— — 5,721 (65)
Agency mortgage-backed securities - residential287,820 (3,694)40,840 (1,958)328,660 (5,652)
Agency mortgage-backed securities - commercial3,944 (139)— — 3,944 (139)
Private label mortgage-backed securities
374 (3)— — 374 (3)
Asset-backed securities
— — — — — — 
Corporate securities11,813 (187)9,491 (508)21,304 (695)
Total$312,593 $(4,167)$90,636 $(3,524)$403,229 $(7,691)



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

10


Note 4:        Loans
 
Loan balances as of March 31, 2022 and December 31, 2021 are summarized in the table below. Categories of loans include:

(in thousands)March 31, 2022December 31, 2021
Commercial loans  
Commercial and industrial$99,808 $96,008 
Owner-occupied commercial real estate56,752 66,732 
Investor commercial real estate34,627 28,019 
Construction149,662 136,619 
Single tenant lease financing852,519 865,854 
Public finance587,817 592,665 
Healthcare finance354,574 387,852 
Small business lending97,040 108,666 
Franchise finance107,246 81,448 
Total commercial loans2,340,045 2,363,863 
Consumer loans
Residential mortgage191,153 186,770 
Home equity18,100 17,665 
Other consumer loans270,330 265,478 
Tax refund advance loans9,177 — 
Total consumer loans488,760 469,913 
Total commercial and consumer loans2,828,805 2,833,776 
Net deferred loan origination fees/costs and premiums/discounts on purchased loans and other(1)
51,975 53,886 
Total loans2,880,780 2,887,662 
Allowance for loan losses(28,251)(27,841)
Net loans$2,852,529 $2,859,821 

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

11


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 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.

12


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

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

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

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

Allowance for Loan Losses Methodology
 
Company policy is designed to maintain an adequate allowance for loan losses (“ALLL”). The portfolio is segmented by loan type, and the required ALLL for types of performing homogeneous loans which do not have a specific reserve is determined by applying a factor based on average historical losses, adjusted for current economic factors and portfolio trends. Management adds qualitative factors for observable trends, changes in internal practices, changes in delinquencies and impairments, and external factors. Observable factors include changes in the composition and size of portfolios, as well as loan terms or concentration levels. The Company evaluates the impact of internal changes such as management and staff experience levels or modification to loan underwriting processes. Delinquency trends are scrutinized for both volume and severity of past due, nonaccrual, or classified loans, as well as any changes in the value of underlying collateral. Finally, the Company considers the effect of other external factors such as national, regional, and local economic and business conditions, as well as competitive, legal, and regulatory requirements. Loans that are considered to be impaired are evaluated to determine the need for a specific allowance by applying at least one of three methodologies: present value of future cash flows; fair value of collateral less costs to sell; or the loan’s observable market price. All troubled debt restructurings (“TDR”) are considered impaired loans. Loans evaluated for impairment are removed from other pools to prevent double-counting. Accounting Standards Codification (“ASC”) Topic 310, Receivables, requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loans’ effective interest rates or the fair value of the underlying collateral less costs to sell and allows existing methods for recognizing interest income.
 
Provision for Loan Losses
 
A provision for estimated losses on loans is charged to income based upon management’s evaluation of the potential losses. Such an evaluation, which includes a review of all loans for which full repayment may not be reasonably assured, considers, among other matters, the estimated net realizable value of the underlying collateral, as applicable, economic conditions, loan loss experience, and other factors that are particularly susceptible to changes that could result in a material adjustment in the near term. While management attempts to use the best information available in making its evaluations, future allowance adjustments may be necessary if economic conditions change substantially from the assumptions used in making the evaluations.
 
13


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

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

(in thousands)Three Months Ended March 31, 2022
Allowance for loan losses:Balance, Beginning of Period(Credit) Provision Charged to ExpenseLosses
Charged Off		RecoveriesBalance,
End of Period
Commercial and industrial$1,891 $88 $— $— $1,979 
Owner-occupied commercial real estate742 (116)— — 626 
Investor commercial real estate328 77 — — 405 
Construction1,612 154 — — 1,766 
Single tenant lease financing10,385 (1,645)— 1,231 9,971 
Public finance1,776 7 — — 1,783 
Healthcare finance5,940 (430)— — 5,510 
Small business lending1,387 111 (80)17 1,435 
Franchise finance1,083 354 — 1,437 
Residential mortgage643 87 — 1 731 
Home equity64 (1)— 2 65 
Other consumer loans1,990 263 (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 ExpenseLosses
Charged Off		RecoveriesBalance,
End of Period
Commercial and industrial$1,146 $434 $— $82 $1,662 
Owner-occupied commercial real estate1,082 (53)— — 1,029 
Investor commercial real estate155 14 — — 169 
Construction1,192 228 — — 1,420 
Single tenant lease financing12,990 188 — — 13,178 
Public finance1,732 16 — — 1,748 
Healthcare finance7,485 270 — — 7,755 
Small business lending628 147 (79)4 700 
Residential mortgage519 77 — 5 601 
Home equity48 58 (51)2 57 
Other consumer loans2,507 (103)(181)100 2,323 
Total$29,484 $1,276 $(311)$193 $30,642 


14



The following tables present the recorded investment in loans based on portfolio segment and impairment method as of March 31, 2022 and December 31, 2021. 
(in thousands)LoansAllowance for Loan Losses
March 31, 2022Ending Balance:  
Collectively Evaluated for Impairment		Ending Balance:  
Individually Evaluated for Impairment		Ending BalanceEnding 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 estate53,485 3,267 56,752 626 — 626 
Investor commercial real estate34,627 — 34,627 405 — 405 
Construction149,662 — 149,662 1,766 — 1,766 
Single tenant lease financing851,427 1,092 852,519 9,876 95 9,971 
Public finance587,817 — 587,817 1,783 — 1,783 
Healthcare finance353,666 908 354,574 4,987 523 5,510 
Small business lending(1)
94,525 2,515 97,040 1,042 393 1,435 
Franchise finance107,246 — 107,246 1,437 — 1,437 
Residential mortgage187,528 3,625 191,153 731 — 731 
Home equity18,086 14 18,100 65 — 65 
Other consumer270,317 13 270,330 2,189 — 2,189 
Tax refund advance loans9,177 — 9,177 354 — 354 
Total$2,816,761 $12,044 $2,828,805 $26,790 $1,461 $28,251 
1 Balance of loans individually evaluated for impairment are guaranteed by the U.S. government.


(in thousands)LoansAllowance for Loan Losses
December 31, 2021Ending Balance:  
Collectively Evaluated for Impairment		Ending Balance:  
Individually Evaluated for Impairment		Ending BalanceEnding 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 estate63,387 3,345 66,732 742 — 742 
Investor commercial real estate28,019 — 28,019 328 — 328 
Construction136,619 — 136,619 1,612 — 1,612 
Single tenant lease financing864,754 1,100 865,854 10,290 95 10,385 
Public finance592,665 — 592,665 1,776 — 1,776 
Healthcare finance386,926 926 387,852 5,417 523 5,940 
Small business lending(1)
106,682 1,984 108,666 994 393 1,387 
Franchise finance81,448 — 81,448 1,083 — 1,083 
Residential mortgage183,852 2,918 186,770 643 — 643 
Home equity17,651 14 17,665 64 — 64 
Other consumer265,469 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.


15


The Company utilizes a risk grading matrix to assign a risk grade to each of its commercial loans. A description of the general characteristics of the risk grades is as follows:
 
•“Pass” - Higher quality loans that do not fit any of the other categories described below.

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

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

•“Doubtful” - Such loans have been placed on nonaccrual status and may be heavily dependent upon collateral possessing a value that is difficult to determine or based upon some near-term event that lacks clear certainty. These loans have all of the weaknesses of those classified as Substandard; however, based on existing conditions, these weaknesses make full collection of the principal balance highly improbable.

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

Nonaccrual Loans
 
Any loan which becomes 90 days delinquent or for which the full collection of principal and interest may be in doubt will be considered for nonaccrual status. At the time a loan is placed on nonaccrual status, all accrued but unpaid interest will be reversed from interest income. Placing the loan on nonaccrual status does not relieve the borrower of the obligation to repay interest. A loan placed on nonaccrual status may be restored to accrual status when all delinquent principal and interest has been brought current, and the Company expects full payment of the remaining contractual principal and interest.
16



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. 
March 31, 2022
(in thousands)PassSpecial MentionSubstandardTotal
Commercial and industrial$85,340 $13,858 $610 $99,808 
Owner-occupied commercial real estate49,520 3,965 3,267 56,752 
Investor commercial real estate34,627 — — 34,627 
Construction136,466 13,196 — 149,662 
Single tenant lease financing846,543 4,884 1,092 852,519 
Public finance585,387 2,430 — 587,817 
Healthcare finance353,090 576 908 354,574 
Small business lending(1)
87,358 7,167 2,515 97,040 
Franchise finance107,246 — — 107,246 
Total commercial loans$2,285,577 $46,076 $8,392 $2,340,045 
1 Balance in “Substandard” is guaranteed by the U.S. government.



March 31, 2022
(in thousands)PerformingNonaccrualTotal
Residential mortgage$189,946 $1,207 $191,153 
Home equity18,086 14 18,100 
Other consumer270,317 13 270,330 
Tax refund advance loans9,177 — 9,177 
Total consumer loans$487,526 $1,234 $488,760 

December 31, 2021
(in thousands)PassSpecial MentionSubstandardTotal
Commercial and industrial$82,412 $12,952 $644 $96,008 
Owner-occupied commercial real estate59,369 4,018 3,345 66,732 
Investor commercial real estate28,019 — — 28,019 
Construction124,578 12,041 — 136,619 
Single tenant lease financing859,612 5,142 1,100 865,854 
Public finance591,630 1,035 — 592,665 
Healthcare finance386,337 589 926 387,852 
Small business lending(1)
99,250 7,432 1,983 108,666 
Franchise finance81,448 — — 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)PerformingNonaccrualTotal
Residential mortgage$185,544 $1,226 $186,770 
Home equity17,651 14 17,665 
Other consumer265,469 9 265,478 
Total consumer loans$468,664 $1,249 $469,913 
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The following tables present the Company’s loan portfolio delinquency analysis as of March 31, 2022 and December 31, 2021. 

March 31, 2022
(in thousands)30-59
Days
Past Due		60-89
Days
Past Due		90 Days 
or More
Past Due		Total 
Past Due		CurrentTotal
Loans		Non-
accrual
Loans		Total Loans
90 Days or
More Past
Due and
Accruing
Commercial and industrial$— $— $— $— $99,808 $99,808 $610 $— 
Owner-occupied commercial real estate— — — — 56,752 56,752 — — 
Investor commercial real estate— — — — 34,627 34,627 3,267 — 
Construction— — — — 149,662 149,662 — — 
Single tenant lease financing— — — — 852,519 852,519 1,092 — 
Public finance— — — — 587,817 587,817 — — 
Healthcare finance— — — — 354,574 354,574 — — 
Small business lending(1)
515 — 129 644 96,396 97,040 881 — 
Franchise finance— — — — 107,246 107,246 — — 
Residential mortgage— 77 106 183 190,970 191,153 1,207 — 
Home equity— — — — 18,100 18,100 14 — 
Other consumer69 64 — 133 270,197 270,330 13 — 
Tax refund advance loans— — — — 9,177 9,177 — — 
Total$584 $141 $235 $960 $2,827,845 $2,828,805 $7,084 $— 
1 Balance in “Total Past Due” is 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		CurrentTotal
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 mortgage51 226 106 383 186,387 186,770 1,226 — 
Home equity— — — — 17,665 17,665 14 — 
Other consumer68 18 — 86 265,392 265,478 9 — 
Total$119 $244 $763 $1,126 $2,832,650 $2,833,776 $7,401 $— 
1 Balance in “Total Past Due” is guaranteed by the U.S. government.

Impaired Loans
 
A loan is designated as impaired, in accordance with the impairment accounting guidance, when, based on current information or events, it is probable that the Company will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. Payments with delays generally not exceeding 90 days
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outstanding are not considered impaired. Certain nonaccrual and substantially all delinquent loans more than 90 days past due may be considered to be impaired. Generally, loans are placed on nonaccrual status at 90 days past due and accrued interest is reversed against earnings, unless the loan is well-secured and in the process of collection. The accrual of interest on impaired and nonaccrual loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due.
 
Impaired loans include nonperforming loans as well as loans modified in TDRs where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance, or other actions intended to maximize collection.
 
ASC Topic 310, Receivables, requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loans’ effective interest rates or the fair value of the underlying collateral, less costs to sell, and allows existing methods for recognizing interest income.
 
The following table presents the Company’s impaired loans as of March 31, 2022 and December 31, 2021. 
 March 31, 2022December 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 mortgage3,625 3,780 — 2,918 3,063 — 
Home equity14 15 — 14 15 — 
Other consumer loans13 55 — 9 44 — 
Total7,800 8,382 — 7,245 7,781 — 
Loans with a specific valuation allowance      
Commercial and industrial610 652 450 644 677 450 
Single tenant lease financing1,092 1,116 95 1,100 1,123 95 
Healthcare finance908 908 523 926 926 523 
Small business lending(1)
1,634 1,634 393 1,025 1,025 393 
Total4,244 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 
1 Balance of loans individually evaluated for impairment are guaranteed by the U.S. government.

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The table below presents average balances and interest income recognized for impaired loans during the three months ended March 31, 2022 and 2021.
Three Months Ended
March 31, 2022March 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 estate3,307 — 2,440 — 
Single tenant lease financing— — 151 5 
Healthcare finance— — 1,008 — 
Small business lending(1)
830 — 577 — 
Residential mortgage3,273 8 1,736 4 
Home equity14 — 11 — 
Other consumer10 — 37 — 
Total7,434 8 6,477 18 
Loans with a specific valuation allowance    
Commercial and industrial627 — 501 — 
Single tenant lease financing1,094 — 7,148 — 
Healthcare finance918 17 494 12 
Small business lending(1)
1,333 — — — 
Total3,972 17 8,143 12 
Total impaired loans$11,406 $25 $14,620 $30 
1 Balance is guaranteed by the U.S. government.

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

Troubled Debt Restructurings
 
The loan portfolio includes TDRs, which are loans that have been modified to grant economic concessions to borrowers who have experienced financial difficulties. These concessions typically result from loss mitigation efforts and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructuring and typically are returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally not less than six consecutive months.
 
When loans are modified in a TDR, any possible impairment similar to other impaired loans is evaluated based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, or using the current fair value of the collateral, less selling costs, for collateral dependent loans. If it is determined that the value of the modified loan is less than the recorded balance of the loan, impairment is recognized through a specific allowance or charge-off to the allowance. In periods subsequent to modification, all TDRs, including those that have payment defaults, are evaluated for possible impairment, and impairment is recognized through the allowance.
 
In the course of working with troubled borrowers, the Company may choose to restructure the contractual terms of certain loans in an effort to work out an alternative payment schedule with the borrower in order to optimize the collectability of the loan. Any loan modification is reviewed by the Company to identify whether a TDR has occurred when the Company grants a concession to the borrower that it would not otherwise consider based on economic or legal reasons related to a borrower’s financial difficulties. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status or the loan may be restructured to obtain additional collateral and/or guarantees to support the debt, or a combination of the two.

There was one 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
20


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 one 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 and December 31, 2021.
(in thousands)March 31,
2022		December 31,
2021
Land$5,598 $— 
Construction in process— 57,469 
Right of use leased asset160 208 
Building and improvements51,902 1,090 
Furniture and equipment18,666 7,800 
Less: accumulated depreciation(7,694)(6,725)
Total$68,632 $59,842 
  

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 and December 31, 2021, 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, 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. The estimated fair value of the reporting unit exceeded the net carrying value, and therefore no goodwill impairment existed as of that date.

21


Note 7:        Servicing Asset

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

Three Months Ended
(in thousands)March 31, 2022March 31, 2021
Balance, beginning of period$4,702 $3,569 
  Additions:
     Originated and purchased servicing844 403 
  Subtractions
     Paydowns:(256)(170)
     Changes in fair value due to changes in valuation inputs or assumptions used in
      the valuation model 		(41)15 
      Loan servicing asset revaluation$(297)$(155)
Balance, end of period$5,249 $3,817 


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 and December 31, 2021 are shown in the table below.

(in thousands)March 31, 2022December 31, 2021
Loan portfolios serviced for:
   SBA guaranteed loans$254,545 $230,514 
     Total$254,545 $230,514 

Loan servicing revenue totaled $0.6 million and $0.4 million for the three months ended March 31, 2022 and March 31, 2021, respectively. Loan servicing asset revaluation, which represents the change in fair value of the servicing asset, resulted in a $0.3 million and $0.2 million downward valuation for the three months ended March 31, 2022 and 2021, respectively.

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

Note 8:        Subordinated Debt
 
In 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.

22


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”) plus 5.795%). 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 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. 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, and the 2031 Notes as of March 31, 2022 and December 31, 2021.
March 31, 2022December 31, 2021
(in thousands)PrincipalUnamortized Debt Issuance CostsPrincipalUnamortized Debt Issuance Costs
2029 Notes$37,000 $(1,139)$37,000 $(1,178)
2030 Notes10,000 (201)10,000 (208)
2031 Notes60,000 (1,354)60,000 (1,383)
Total$107,000 $(2,694)$107,000 $(2,769)



Note 9:        Benefit Plans
 
Employment Agreement
 
The Company is party to an employment agreement with its Chief Executive Officer that provides for an annual base salary and an annual bonus, if any, as determined from time to time by the Compensation Committee of our Board of Directors. The annual bonus is to be determined with reference to the achievement of annual performance objectives established by the Compensation Committee for the Chief Executive Officer and other senior officers. The agreement also provides that the Chief Executive Officer may be awarded additional compensation, benefits, or consideration as the Compensation Committee may determine.

The agreement provides for the continuation of salary and certain other benefits for a specified period of time upon termination of his employment under certain circumstances, including his resignation for “good reason” or termination
23


by the Company without “cause” at any time or any termination of his employment for any reason within twelve months following a “change in control,” along with other specific conditions.
 
2013 Equity Incentive Plan
 
The 2013 Equity Incentive Plan (the “2013 Plan”) authorizes the issuance of 750,000 shares of the Company’s common stock in the form of equity-based awards to employees, directors, and other eligible persons. Under the terms of the 2013 Plan, the pool of shares available for issuance may be used for available types of equity awards under the 2013 Plan, which includes stock options, stock appreciation rights, restricted stock awards, stock unit awards, and other share-based awards. All employees, consultants, and advisors of the Company or any subsidiary, as well as all non-employee directors of the Company, are eligible to receive awards under the 2013 Plan.

The Company recorded $0.6 million of share-based compensation expense for the three months ended March 31, 2022, related to 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 the 2013 Plan awards as of March 31, 2022, and activity for the three months ended March 31, 2022.
Restricted Stock UnitsWeighted-Average Grant Date Fair Value Per ShareRestricted Stock AwardsWeighted-Average Grant Date Fair Value Per ShareDeferred Stock UnitsWeighted-Average Grant Date Fair Value Per Share
Unvested at December 31, 2021112,822 $28.18 — $— — $— 
   Granted41,381 46.71 9,954 52.64 1 52.64 
   Vested(23,256)24.62 (2,502)52.64 (1)52.64 
Unvested at March 31, 2022130,947 $34.67 7,452 $52.64 — $— 

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

Directors Deferred Stock Plan
 
Until January 1, 2014, the Company had a practice of granting awards under a stock compensation plan for members of the Board of Directors (“Directors Deferred Stock Plan”). The Company reserved 180,000 shares of common stock that could have been issued pursuant to the Directors Deferred Stock Plan. The Directors Deferred Stock Plan provided directors the option to elect to receive up to 100% of their annual retainer in either common stock or deferred stock rights. Deferred stock rights were to be settled in common stock following the end of the deferral period payable on the basis of one share of common stock for each deferred stock right.
 
The following table summarizes the status of deferred stock rights related to the Directors Deferred Stock Plan for the three months ended March 31, 2022.
 Deferred Stock Rights
Outstanding, beginning of period84,536 
Granted107 
Exercised— 
Outstanding, end of period84,643 

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

24


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 and December 31, 2021, the Company had outstanding loan commitments totaling approximately $325.7 million and $324.3 million, respectively.

Capital Commitments

Capital expenditures contracted for at the balance sheet date but not yet recognized in the financial statements are associated 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. As of March 31, 2022, $8.3 million of such contract commitments had not yet been incurred. These commitments are due within one year.

Note 11:        Fair Value of Financial Instruments
 
ASC Topic 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

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

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

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

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

Available-for-Sale Securities
 
Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid mutual funds. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.
 
Level 2 securities include U.S. Government-sponsored agencies, municipal securities, mortgage- and asset-backed securities and corporate securities. Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but also on the investment securities’ relationship to other benchmark quoted investment securities.
 
In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Fair values are calculated using discounted cash flows. Discounted cash flows are calculated based off of the anticipated future cash flows updated to incorporate loss severities. Rating agency and industry research reports as well as default and deferral activity are reviewed and incorporated into the calculation. The Company did not own any securities classified within Level 3 of the hierarchy as of March 31, 2022 or December 31, 2021.

Loans Held-for-Sale (mandatory pricing agreements)

The fair value of loans held-for-sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan (Level 2).
 
25


Servicing Asset

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

Interest Rate Swap Agreements

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

Forward Contracts

The fair values of forward contracts on to-be-announced securities are determined using quoted prices in active markets or benchmarked thereto (Level 1).
 
Interest Rate Lock Commitments
 
The fair values of interest rate lock commitments (“IRLCs”) are determined using the projected sale price of individual loans based on changes in market interest rates, projected pull-through rates (the probability that an IRLC will ultimately result in an originated loan), the reduction in the value of the applicant’s option due to the passage of time, and the remaining origination costs to be incurred based on management’s estimate of market costs (Level 3).

The following tables present the fair value measurements of assets and liabilities recognized in the accompanying condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2022 and December 31, 2021.
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 securities72,804 — 72,804 — 
Agency mortgage-backed securities - residential257,682 — 257,682 — 
Agency mortgage-backed securities - commercial24,156 — 24,156 — 
Private label mortgage-backed securities - residential14,818 — 14,818 — 
Asset-backed securities
4,986 — 4,986 — 
Corporate securities46,995 — 46,995 — 
Total available-for-sale securities$465,288 $— $465,288 $— 
Loans held-for-sale (mandatory pricing agreements)17,364 — 17,364 — 
Servicing asset5,249 — — 5,249 
Interest rate swap agreements(2,917)— (2,917)— 
Forward contracts1,072 1,072 — — 
IRLCs(88)— — (88)

26


December 31, 2021
Fair Value Measurements Using
(in thousands)Fair
Value		Quoted Prices
in Active Markets for Identical Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
U.S. Government-sponsored agencies$49,040 $— $49,040 $— 
Municipal securities77,033 — 77,033 — 
Agency mortgage-backed securities - residential373,236 — 373,236 — 
Agency mortgage-backed securities - commercial36,326 36,326 
Private label mortgage-backed securities - residential16,021 — 16,021 — 
Asset-backed securities
5,004 — 5,004 — 
Corporate securities46,384 — 46,384 — 
Total available-for-sale securities$603,044 $— $603,044 $— 
Loans held-for-sale (mandatory pricing agreements)23,233 — 23,233 — 
Servicing asset4,702 — — 4,702 
Interest rate swap agreements(14,271)— (14,271)— 
Forward contracts(30)(30)— — 
IRLCs718 — — 718 



The following tables reconcile the beginning and ending balances of recurring fair value measurements recognized in the accompanying condensed consolidated balance sheets using significant unobservable (Level 3) inputs for the three months ended March 31, 2022 and 2021.
Three Months Ended
(in thousands)Servicing AssetInterest Rate Lock
Commitments
Balance, January 1, 2022$4,702 $718 
Total realized gains
Additions844 — 
Paydowns(256)— 
Change in fair value(41)(806)
Balance, March 31, 2022$5,249 $(88)
Balance as of January 1, 2021$3,569 $3,361 
Total realized gains
Additions403 — 
Paydowns(170)— 
Change in fair value15 (2,251)
Balance, March 31, 2021$3,817 $1,110 


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

27


Impaired Loans (Collateral Dependent)

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

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

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

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


December 31, 2021
(in thousands)Fair Value Measurements Using
 Fair
Value		Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Impaired loans$1,228 $— $— $1,228 
 Significant Unobservable (Level 3) Inputs
 
The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.

(dollars in thousands)Fair Value at
March 31, 2022		Valuation
Technique		Significant Unobservable
Inputs		RangeWeighted-Average Range
Impaired loans$2,164 Fair value of collateralDiscount for type of property and current market conditions10%10%
IRLCs(88)Discounted cash flowLoan closing rates
45% - 100%
87%
Servicing asset5,249 Discounted cash flowPrepayment speeds
Discount rate
0% - 25%

10%
13.3%

10%



(dollars in thousands)Fair Value at
December 31, 2021		Valuation
Technique		Significant Unobservable
Inputs		RangeWeighted-Average Range
Impaired loans$1,228 Fair value of collateralDiscount for type of property and current market conditions
0% - 35%
10.1%
IRLCs718 Discounted cash flowLoan closing rates
42% - 100%
89%
Servicing asset4,702 

Discounted cash flow		Prepayment speeds

Discount rate
0% - 25%

10%
12.5%

10%
28



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
 
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 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.
 
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 or December 31, 2021.

Loans Held-for-Sale (best efforts pricing agreements)
 
The fair value of these loans approximates carrying value.

Loans
 
The fair value of loans is estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.
 
Accrued Interest Receivable
 
The fair value of these financial instruments approximates carrying value.
 
Federal Home Loan Bank of Indianapolis Stock
 
The fair value approximates carrying value.
 
Deposits 
The fair value of noninterest-bearing and interest-bearing demand deposits, savings and money market accounts approximates carrying value. The fair value of fixed maturity certificates of deposit and brokered deposits are estimated using rates currently offered for deposits of similar remaining maturities.

Advances from Federal Home Loan Bank
 
The fair value of fixed rate advances is estimated using rates currently available for advances with similar remaining maturities. The carrying value of variable rate advances approximates fair value.
 
Subordinated Debt
 
The fair value of the Company’s publicly traded subordinated debt is obtained from quoted market prices. The fair value of the Company’s remaining subordinated debt is estimated using discounted cash flow analysis, based on current borrowing rates for similar types of debt instruments.
29



 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 and December 31, 2021.
  
The following tables present the carrying value and estimated fair value of all financial assets and liabilities that are not measured at fair value on a recurring basis at March 31, 2022 and December 31, 2021.
March 31, 2022
Fair Value Measurements Using
(in thousands)Carrying
Amount		Fair ValueQuoted Prices
In Active
Market for
Identical Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents$517,549 $517,549 $517,549 $— $— 
Securities held-to-maturity 163,370 159,971 — 159,971 — 
Loans held-for-sale (best efforts pricing agreements)16,627 16,627 — 16,627 — 
Net loans2,852,529 2,750,399 — — 2,750,399 
Accrued interest receivable15,263 15,263 15,263 — — 
Federal Home Loan Bank of Indianapolis stock25,219 25,219 — 25,219 — 
Deposits3,217,979 3,164,027 1,996,097 — 1,167,930 
Advances from Federal Home Loan Bank514,923 512,307 — 512,307 — 
Subordinated debt104,306 108,320 38,184 70,136 — 
Accrued interest payable1,532 1,532 1,532 — — 

December 31, 2021
Fair Value Measurements Using
(in thousands)Carrying
Amount		Fair ValueQuoted 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 loans2,859,821 2,880,024 — — 2,880,024 
Accrued interest receivable16,037 16,037 16,037 — — 
Federal Home Loan Bank of Indianapolis stock25,650 25,650 — 25,650 — 
Deposits3,178,959 3,190,000 1,909,432 — 1,280,568 
Advances from Federal Home Loan Bank514,922 526,143 — 526,143 — 
Subordinated debt104,231 108,788 38,643 70,145 — 
Accrued interest payable2,018 2,018 2,018 — — 
 

Note 12:        Mortgage Banking Activities

The Company’s residential real estate lending business originates mortgage loans for customers and typically sells a majority of the originated loans into the secondary market. For most of the mortgages it sells in the secondary market,
30


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

During the three months ended March 31, 2022 and 2021, the Company originated mortgage loans held-for-sale of $152.4 million and $223.9 million, respectively, and sold $162.4 million and $241.6 million of mortgage loans, respectively, into the secondary market.

The following table presents the components of income from mortgage banking activities for the three months ended March 31, 2022 and 2021.
Three Months Ended March 31,
(in thousands)20222021
Gain on loans sold$2,062 $7,499 
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 derivatives300 (887)
Net revenue from mortgage banking activities$1,873 $5,750 

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

Note 13:        Derivative Financial Instruments
 
The Company uses derivative financial instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income and the fair value of assets and liabilities. The Company enters into interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. Additionally, the Company enters into forward contracts for the future delivery of mortgage loans to third-party investors and enters into IRLCs with potential borrowers to fund specific mortgage loans that will be sold into the secondary market. The forward contracts are entered into in order to economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans.
 
The Company had various interest rate swap agreements designated and qualifying as accounting hedges during the reported periods. Designating an interest rate swap as an accounting hedge allows the Company to recognize gains and losses, in the condensed consolidated statements of income within the same period that the hedged item affects earnings. The Company includes the gain or loss on the hedged items in the same line item as the offsetting loss or gain on the related interest rate swaps. For derivative instruments that are designated and qualify as cash flow hedges, any gains or losses related to changes in fair value are recorded in accumulated other comprehensive loss, net of tax. The fair value of interest rate swaps with a positive fair value are reported in accrued income and other assets in the condensed consolidated balance sheets, while interest rate swaps with a negative fair value are reported in accrued expenses and other liabilities in the condensed consolidated balance sheets.

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

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

31


(in thousands)Carrying amount of the hedged assetCumulative 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 includedMarch 31, 2022December 31, 2021March 31, 2022December 31, 2021
Securities available-for-sale (1)
$72,416 $75,156 $(292)$1,729 

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

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

(dollars in thousands)
 
March 31, 2022
Notional ValueWeighted- Average Remaining Maturity (years)Weighted-Average Ratio
Instruments Associated WithFair ValueReceivePay
Securities available-for-sale$50,000 2.6$288 3-month LIBOR2.33 %
Total at March 31, 2022$50,000 2.6$288 3-month LIBOR2.33 %


(dollars in thousands)

December 31, 2021
Notional ValueWeighted- Average Remaining Maturity (years)Weighted-Average Ratio
Instruments Associated WithFair ValueReceivePay
Securities available-for-sale$50,000 2.8$(1,731)3-month LIBOR2.33 %
Total at December 31, 2021$50,000 2.8$(1,731)3-month LIBOR2.33 %

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 expense totaling $0.1 million was recognized as a reduction to interest income on securities.

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

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

(dollars in thousands)
 
March 31, 2022
NotionalWeighted- Average Remaining MaturityWeighted-Average Ratio
Cash Flow HedgesValue(years)Fair ValueReceivePay
Interest rate swaps$110,000 4.8$(2,132)3-month LIBOR2.88 %
Interest rate swaps60,000 1.4(648)1-month LIBOR2.88 %
Interest rate swaps40,000 2.2(425)Fed Funds Effective2.78 %

32


(dollars in thousands)

December 31, 2021
NotionalWeighted- Average Remaining MaturityWeighted-Average Ratio
Cash Flow HedgesValue(years)Fair ValueReceivePay
Interest rate swaps$110,000 5.1$(8,560)3-month LIBOR2.88 %
Interest rate swaps100,000 2.0(3,980)1-month LIBOR2.88 %

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

The following table presents the notional amount and fair value of interest rate swaps, IRLCs and forward contracts utilized by the Company at March 31, 2022 and December 31, 2021.
 March 31, 2022December 31, 2021
(in thousands)Notional
Amount		Fair
Value		Notional
Amount		Fair
Value
Asset Derivatives    
Derivatives not designated as hedging instruments    
IRLCs$— $— $62,789 $718 
Forward contracts56,750 1,072 — — 
Total contracts
$56,750 $1,072 $62,789 $718 
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 liabilities210,000 (3,205)210,000 (12,540)
Derivatives not designated as hedging instruments
Forward contracts— — 72,750 (30)
IRLCs63,378 (88)— — 
Total contracts
$323,378 $(3,005)$332,750 $(14,301)

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

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

 Amount of Gain Recognized in Other Comprehensive Income (Loss) in The Three Months Ended
(in thousands)March 31, 2022March 31, 2021
Interest rate swap agreements$9,334 $6,280 

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

33


 Amount of Gain / (Loss) Recognized in the Three Months Ended
(in thousands)March 31, 2022March 31, 2021
Asset Derivatives  
Derivatives not designated as hedging instruments  
Forward contracts1,102 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 during the three months ended March 31, 2022 and 2021.
(in thousands)

Line item in the condensed consolidated statements of income
Three Months Ended
March 31, 2022March 31, 2021
Interest income
Securities - taxable— (253)
Securities - non-taxable(260)(266)
Total interest income
(260)(519)
Interest expense  
Deposits670 678 
Other borrowed funds696 730 
Total interest expense
1,366 1,408 
Net interest income
$(1,626)$(1,927)

34


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 and 2021, respectively, are presented in the table below.
(in thousands)Unrealized Losses On Debt SecuritiesUnrealized Losses On Debt Securities Transferred From Available-For-Sale To Held-To-MaturityCash Flow HedgesTotal
Balance, January 1, 2022$(2,555)$— $(8,484)$(11,039)
Other comprehensive (loss) income before reclassifications from accumulated other comprehensive loss before tax(17,881)(5,402)9,334 (13,949)
Reclassifications from accumulated other comprehensive (loss) income to earnings before tax— 119 — 119 
Other comprehensive (loss) gain before tax(17,881)(5,283)9,334 (13,830)
Income tax (benefit) provision(4,077)(1,249)3,318 (2,008)
Other comprehensive (loss) income - net of tax(13,804)(4,034)6,016 (11,822)
Balance, March 31, 2022$(16,359)$(4,034)$(2,468)$(22,861)
Balance, January 1, 2021$468 $— $(17,664)$(17,196)
Other comprehensive (loss) income before reclassifications from accumulated other comprehensive loss before tax(2,195)— 6,280 4,085 
Other comprehensive (loss) gain before tax(2,195)— 6,280 4,085 
Income tax (benefit) provision (508)— 1,317 809 
Other comprehensive (loss) income - net of tax(1,687)— 4,963 3,276 
Balance, March 31, 2021$(1,219)$— $(12,701)$(13,920)


Details About Accumulated Other Comprehensive Income (Loss) ComponentsAmounts Reclassified from
Accumulated Other Comprehensive Income (Loss) for the 		Affected Line Item in the
Statements of Income
Three Months Ended March 31, 2022Three 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
35




Note 15:     Recent Accounting Pronouncements

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Note 16:     Subsequent Event

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
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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 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by such forward-looking statements. See also “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report.
 
Overview
 
    First Internet Bancorp (“we,” “our,” “us,” or the “Company”) is a bank holding company with $4.2 billion in total assets as of March 31, 2022, that conducts its primary business activities through its wholly owned subsidiary, First Internet Bank of Indiana, an Indiana chartered bank (the “Bank”). The Bank was the first state-chartered, Federal Deposit Insurance Corporation (“FDIC”) insured Internet bank and commenced banking operations in 1999. The Company was incorporated under the laws of the State of Indiana on September 15, 2005. On March 21, 2006, we consummated a plan of exchange by which we acquired all of the outstanding shares of the Bank.

    The Company has two wholly-owned subsidiaries: the Bank and FC Subsidiary, Inc., a Georgia corporation, formed in connection with our potential acquisition of First Century Bancorp. The Bank has three wholly-owned subsidiaries: 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, 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 loans and corporate credit cards on a regional basis to commercial borrowers primarily in the Midwest and Southwest regions of the United States. Our public finance team provides a range of public and municipal lending and leasing products to government entities on a nationwide basis. Our healthcare finance team was established in conjunction with our strategic partnership with Provide, Inc. (formerly known as Lendeavor, Inc.), a San Francisco-based technology-enabled lender to healthcare practices, which provided lending on a nationwide basis for healthcare practice finance or acquisition, acquisition or refinancing of owner-occupied CRE and equipment purchases. In the third quarter 2021, Provide Inc. was acquired by a super-regional financial institution. It is our expectation that the acquiring institution will retain most, if not all, of Provide’s loan origination activity and that our healthcare finance loan balances will decline. Our franchise finance business was established in July 2021 in conjunction with our business relationship with ApplePie Capital, a financial technology (“fintech”) company that specializes in providing financing to 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 and continue to recruit experienced small business sales, credit and operations personnel to expand our capabilities in small business lending and U.S. government
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guaranteed lending programs. We continue to scale up this business with the goal of driving increased earnings and profitability in future periods.

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

Merger Transaction

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

During the first quarter 2022, net income was $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 in net income of $0.8 million, or 7.3%, and an increase in diluted earnings per share of $0.09, or 8.6%.

The $0.8 million increase in net income for the first quarter 2022 compared to the first quarter 2021 was due primarily to an increase of $5.2 million, or 25.5%, in net interest income, a decrease of $0.5 million, or 38.0%, 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 million, or 18.6%, in noninterest income.

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

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.
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Consolidated Average Balance Sheets and Net Interest Income Analyses
 
For the periods presented, the following tables provide the average balances of interest-earning assets and interest-bearing liabilities and the related yields and cost of funds. The tables do not reflect any effect of income taxes except for net interest margin - FTE, as discussed below. Balances are based on the average of daily balances. Nonaccrual loans are included in average loan balances.
Three Months Ended
March 31, 2022December 31, 2021March 31, 2021
(in thousands)Average BalanceInterest /DividendsYield /CostAverage BalanceInterest /DividendsYield /CostAverage BalanceInterest /DividendsYield /Cost
Assets
Interest-earning assets
Loans, including
loans held-for-sale 		$2,976,037 $33,188 4.52 %$2,947,053 $31,621 4.26 %$3,079,130 $30,885 4.07 %
Securities - taxable567,776 2,221 1.59 %595,024 1,973 1.32 %461,300 1,779 1.56 %
Securities - non-taxable80,952 249 1.25 %82,556 236 1.13 %87,129 281 1.31 %
Other earning assets455,960 376 0.33 %431,621 362 0.33 %446,045 335 0.30 %
Total interest-earning assets4,080,725 36,034 3.58 %4,056,254 34,192 3.34 %4,073,604 33,280 3.31 %
Allowance for loan losses(27,974)(27,946)(29,884)
Noninterest-earning assets162,167 149,270 129,553 
Total assets$4,214,918 $4,177,578 $4,173,273 
Liabilities
Interest-bearing liabilities
Interest-bearing demand deposits$318,281 $412 0.52 %$210,283 $158 0.30 %$180,746 $133 0.30 %
Savings accounts60,616 53 0.35 %63,575 58 0.36 %46,035 40 0.35 %
Money market accounts1,454,436 1,503 0.42 %1,453,447 1,507 0.41 %1,369,626 1,391 0.41 %
BaaS - brokered deposits12,111 6 0.20 %— — 0.00 %— — 0.00 %
Certificates and brokered deposits1,225,976 4,123 1.36 %1,305,130 4,676 1.42 %1,519,580 7,064 1.89 %
Total interest-bearing deposits3,071,420 6,097 0.81 %3,032,435 6,399 0.84 %3,115,987 8,628 1.12 %
Other borrowed funds619,191 4,187 2.74 %619,115 4,288 2.75 %583,780 4,127 2.87 %
Total interest-bearing liabilities3,690,611 10,284 1.13 %3,651,550 10,687 1.16 %3,699,767 12,755 1.40 %
Noninterest-bearing deposits112,248 113,887 90,764 
Other noninterest-bearing liabilities31,292 35,309 46,774 
Total liabilities3,834,151 3,800,746 3,837,305 
Shareholders’ equity380,767 376,832 335,968 
Total liabilities and shareholders’ equity$4,214,918 $4,177,578 $4,173,273 
Net interest income$25,750 $23,505 $20,525 
Interest rate spread 1
2.45%2.18%1.91 %
Net interest margin 2
2.56%2.30%2.04 %
Net interest margin - FTE 3
2.69%2.43%2.18 %

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

The following table illustrates the impact of changes in the volume of interest-earning assets and interest-bearing liabilities and interest rates on net interest income for the periods indicated. The change in interest not due solely to volume or rate has been allocated in proportion to the absolute dollar amounts of the change in each. 
Three Months Ended March 31, 2022 vs. December 31, 2021 Due to Changes inThree Months Ended March 31, 2022 vs. March 31, 2021 Due to Changes in
(in thousands)VolumeRateNetVolumeRateNet
Interest income   
Loans, including loans held-for-sale$218 $1,349 $1,567 $(5,906)$8,209 $2,303 
Securities – taxable(543)791 248 408 34 442 
Securities – non-taxable(28)41 13 (19)(13)(32)
Other earning assets14 — 14 7 33 40 
Total(339)2,181 1,842 (5,510)8,263 2,753 
Interest expense      
Interest-bearing deposits401 (703)(302)(124)(2,407)(2,531)
Other borrowed funds1 (102)(101)903 (843)60 
Total402 (805)(403)779 (3,250)(2,471)
(Decrease) increase in net interest income$(741)$2,986 $2,245 $(6,289)$11,513 $5,224 

Net interest income for the first quarter 2022 was $25.8 million, an increase of $5.2 million, or 25.5%, compared to $20.5 million for the first quarter 2021. The increase in net interest income was the result of a $2.8 million, or 8.3% increase in total interest income to $36.0 million for the first quarter 2022 from $33.3 million for the first quarter 2021, as well as a $2.5 million, or 19.4%, decrease in total interest expense to $10.3 million for the first quarter 2022 from $12.8 million for the first quarter 2021.

The increase in total interest income for the first quarter 2022 compared to the first quarter 2021 was due to an increase in interest earned on loans, securities and other earning assets. Interest income 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. 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 3 bp increase in the yield earned on these assets, as well as an increase of $9.9 million, or 2.2%, in the average balance of other earning assets. The increase in the average balance of other earning assets was due primarily to higher cash balances.


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The decrease in total interest expense for the first quarter 2022 compared to the first quarter 2021 was due primarily to a decrease in interest expense related to certificates and brokered deposits, partially offset by increases in interest expense associated with interest-bearing demand 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 in interest expense related to interest-bearing demand deposits was due primarily to approximately $100.0 million in deposits with a contractual term of five years and a fixed rate of 1.15% pursuant to a new customer relationship. The $0.1 million, or 8.1%, increase in interest expense related to money market accounts was driven primarily by an increase of $84.8 million, or 6.2%, in the average balance of these deposits. Average money market balances increased from the prior year period due primarily to targeted digital marketing efforts to grow small business accounts, as well as consumers, small businesses and commercial clients increasing their cash balances due in part to the economic uncertainty resulting from COVID-19. The increase in interest expense associated with other borrowed funds was due primarily to an increase of $34.2 million, or 48.8%, in the average balance of subordinated debt, partially offset by a 213 bp decrease in the cost of subordinated debt resulting from the issuance of the 2031 Notes and the redemption of the 2026 Notes.

Overall, the cost of total interest-bearing liabilities for the first quarter 2022 declined 27 bps to 1.13% from 1.40% for the first quarter 2021. Declines 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 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.

Net interest margin (“NIM”) was 2.56% for the first quarter 2022 compared to 2.04% for the first quarter 2021, an increase of 52 bps. On a fully-taxable equivalent (“FTE”) basis, NIM was 2.69% for the first quarter 2022 compared to 2.18% for the first quarter 2021, an increase of 51 bps.
The increase in first quarter 2022 NIM and FTE NIM compared to the first quarter 2021 reflects the decrease in the cost of funds and 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
(in thousands)March 31,
2022		December 31,
2021		September 30,
2021		June 30,
2021		March 31,
2021
Service charges and fees$316 $292 $276 $280 $266 
Loan servicing revenue585 544 511 457 422 
Loan servicing asset revaluation(297)(400)(274)(240)(155)
Mortgage banking activities1,873 2,776 3,850 2,674 5,750 
Gain on sale of loans3,845 4,137 2,719 3,019 1,723 
Gain on sale of premises and equipment— — — 2,523 — 
Other498 345 731 249 369 
Total noninterest income$6,820 $7,694 $7,813 $8,962 $8,375 

During the first quarter 2022, noninterest income was $6.8 million, representing a decrease of $1.6 million, or 18.6%, compared to $8.4 million for the first quarter 2021. The decrease in noninterest income was due primarily to a decrease in revenue from mortgage banking activities, partially offset by an increase in gain on sale of loans. The decline in mortgage banking revenue in the first quarter 2022 compared to the first quarter 2021 was due primarily to decreases in interest rate locks, sold loan volumes and gain on sale margins. The increase in gain on sale of loans was due to an increase in the volume of U.S. SBA 7(a) guaranteed loan sales, as well as a $0.4 million gain on sale on the sale of $14.4 million of single tenant lease financing loans.

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Noninterest Expense

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

Three Months Ended
(in thousands)March 31,
2022		December 31,
2021		September 30,
2021		June 30,
2021		March 31,
2021
Salaries and employee benefits$9,878 $10,183 $9,316 $9,232 $9,492 
Marketing, advertising and promotion756 896 813 872 680 
Consulting and professional services1,925 1,262 728 1,078 986 
Data processing449 425 380 382 462 
Loan expenses1,582 654 383 541 534 
Premises and equipment2,540 2,188 1,687 1,587 1,601 
Deposit insurance premium281 283 230 275 425 
Other1,369 1,064 914 1,108 1,137 
Total noninterest expense$18,780 $16,955 $14,451 $15,075 $15,317 

Noninterest expense for the first quarter 2022 was $18.8 million, compared to $15.3 million for the first quarter 2021. The increase of $3.5 million, or 22.6%, was due primarily to increases of $1.0 million in loan expenses, $0.9 million in premises and equipment, $0.9 million in consulting and professional services, $0.4 million in salaries and employee benefits and $0.2 million in other expense. The increase in loan expenses was driven primarily by servicing fees related to tax refund advance loans. The increase in premises and equipment was primarily related to costs associated with the Company’s new corporate headquarters. The increase in consulting and professional services was due primarily to a nonrecurring consulting fee and acquisition-related expenses. The increase in salaries and employee benefits was due mainly to increased headcount and small business lending incentive compensation, partially offset by a decrease in mortgage banking incentive compensation and lower employee benefits costs.

Income tax provision was $1.8 million for the first quarter 2022, resulting in 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)
Balance Sheet Data:March 31,
2022		December 31,
2021		September 30,
2021		June 30,
2021		March 31,
2021
Total assets$4,225,397 $4,210,994 $4,252,292 $4,204,642 $4,188,570 
Loans2,880,780 2,887,662 2,936,148 2,957,608 3,058,694 
Total securities628,658 662,609 696,136 729,178 530,566 
Loans held-for-sale33,991 47,745 43,970 27,587 30,235 
Noninterest-bearing deposits119,196 117,531 110,117 113,996 100,700 
Interest-bearing deposits3,098,783 3,061,428 3,114,478 3,092,151 3,116,903 
Total deposits3,217,979 3,178,959 3,224,595 3,206,147 3,217,603 
Advances from Federal Home Loan Bank514,923 514,922 514,920 514,919 514,917 
Total shareholders’ equity374,655 380,338 370,442 358,641 344,566 

Total assets increased $14.4 million, or 0.3%, to $4.2 billion at March 31, 2022 compared to $4.2 billion at December 31, 2021.

As of March 31, 2022, total shareholders’ equity was $374.7 million, a decrease of $5.7 million, or 1.5%, compared to December 31, 2021, due primarily to an increase in accumulated other comprehensive loss resulting from a decline in the value of the available-for-sale securities portfolio following the rapid rise in interest rates during the quarter, as well as stock repurchase activity during the quarter. This was partially offset by the net income earned during the quarter and an increase in the value of interest rate swaps classified as cash flow hedges. Tangible common equity totaled $370.0 million as of March 31, 2022, representing a decrease of $5.7 million, or 1.5%, compared to December 31, 2021. The ratio of total shareholders’ equity to total assets decreased to 8.87% as of March 31, 2022 from 9.03% as of December 31, 2021, and the ratio of tangible common equity to tangible assets decreased to 8.77% as of March 31, 2022 from 8.93% as of December 31, 2021.
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Book value per common share decreased 0.8% to $38.69 as of March 31, 2022 from $38.99 as of December 31, 2021. Tangible book value per share decreased 0.8% to $38.21 as of March 31, 2022 from $38.51 as of December 31, 2021. The decline in both book value per common share and tangible book value per share reflects the decline in total shareholders’ equity and tangible common equity. Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Part I, Item 2 of this report, Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information.
    

Loan Portfolio Analysis

    The following table presents a summary of the Company’s loan portfolio for the last five completed fiscal quarters.
(dollars in thousands)March 31,
2022		December 31,
2021		September 30,
2021		June 30,
2021		March 31,
2021
Commercial loans
Commercial and industrial$99,808 3.5 %$96,008 3.3 %$107,142 3.6 %$96,203 3.3 %$71,835 2.3 %
Owner-occupied commercial real estate56,752 2.0 %66,732 2.3 %84,819 2.9 %87,136 2.9 %87,930 2.9 %
Investor commercial real estate34,627 1.2 %28,019 1.0 %28,505 1.0 %28,871 1.0 %14,832 0.5 %
Construction149,662 5.2 %136,619 4.7 %115,414 3.9 %117,970 4.0 %123,483 4.0 %
Single tenant lease financing852,519 29.6 %865,854 30.0 %921,998 31.5 %913,115 30.9 %941,322 30.8 %
Public finance587,817 20.4 %592,665 20.5 %601,738 20.5 %612,138 20.7 %637,600 20.8 %
Healthcare finance354,574 12.3 %387,852 13.4 %417,388 14.2 %455,890 15.3 %510,237 16.8 %
Small business lending97,040 3.4 %108,666 3.8 %102,889 3.5 %123,293 4.2 %132,490 4.3 %
Franchise finance107,246 3.7 %81,448 2.8 %25,598 0.9 %— 0.0 %— 0.0 %
Total commercial loans2,340,045 81.3 %2,363,863 81.8 %2,405,491 82.0 %2,434,616 82.3 %2,519,729 82.4 %
Consumer loans
Residential mortgage191,153 6.6 %186,770 6.5 %188,750 6.4 %177,148 6.0 %190,148 6.2 %
Home equity18,100 0.6 %17,665 0.6 %17,960 0.6 %17,510 0.6 %17,949 0.6 %
Other consumer270,330 9.4 %265,478 9.2 %268,396 9.1 %271,796 9.2 %270,209 8.8 %
Tax refund advance loans9,177 0.3 %— 0.0 %— 0.0 %— 0.0 %— 0.0 %
Total consumer loans488,760 16.9 %469,913 16.3 %475,106 16.1 %466,454 15.8 %478,306 15.6 %
Net deferred loan origination costs, premiums and discounts on purchased loans and other (1)
51,975 1.8 %53,886 1.9 %55,551 1.9 %56,538 1.9 %60,659 2.0 %
Total loans2,880,780 100.0 %2,887,662 100.0 %2,936,148 100.0 %2,957,608 100.0 %3,058,694 100.0 %
Allowance for loan losses(28,251)(27,841)(28,000)(28,066)(30,642)
Net loans $2,852,529 $2,859,821 $2,908,148 $2,929,542 $3,028,052 

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


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


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Asset Quality

Nonperforming loans are comprised of nonaccrual loans and loans 90 days past due and accruing. Nonperforming assets include nonperforming loans, 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 estate3,267 3,419 3,429 3,487 4,266 
Single tenant lease financing1,092 1,100 1,100 2,373 7,080 
Small business lending (1)
881 959 1,351 1,209 865 
Total commercial loans5,850 6,152 6,558 7,761 13,213 
Consumer loans:
Residential mortgage1,207 1,226 1,253 1,253 1,120 
Home equity14 14 14 14 15 
Other consumer13 9 26 10 23 
Total consumer loans1,234 1,249 1,293 1,277 1,158 
Total nonaccrual loans7,084 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 loans7,084 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 assets1 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 loans0.98 %0.96 %0.95 %0.95 %1.00 %
Nonaccrual loans to total loans0.25 %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 %

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

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Troubled Debt Restructurings

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 – performing2,418 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.

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.

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 LoansPrincipal BalanceNet Deferred Fees
Originated447 $58,336 $1,851 
Principal repaid(71)(7,184)
Net deferred fees recognized(1,253)
Balance, December 31, 2020376 51,152 598 
Originated281 27,377 1,125 
Principal repaid(634)(75,377)
Net deferred fees recognized(1,624)
Balance, December 31, 202123 3,152 99 
Originated— — — 
Principal repaid(18)(2,149)
Net deferred fees recognized— (75)
Balance, March 31, 20225 $1,003 $24 

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Allowance for Loan Losses 

The following table provides a rollforward of the allowance for loan losses for the last five completed fiscal quarters.
Three Months Ended
(in thousands)March 31,
2022		December 31,
2021		September 30,
2021		June 30,
2021		March 31,
2021
Balance, beginning of period$27,841 $28,000 $28,066 $30,642 $29,484 
Provision (credit) charged to expense791 (238)(29)21 1,276 
Losses charged off
Commercial and industrial— — — 28 — 
Single tenant lease financing— — — 2,392 — 
Small business lending80 — 10 133 79 
Residential mortgage— — — 6 — 
Home equity— — — — 51 
Other consumer163 106 110 131 181 
Tax refund advance loans1,488 — — — — 
Total losses charged off1,731 106 120 2,690 311 
Recoveries
Commercial and industrial— 3 2 2 82 
Single tenant lease financing1,231 — — — — 
Small business lending17 48 26 2 4 
Residential mortgage1 51 3 4 5 
Home equity2 2 2 1 2 
Other consumer99 81 50 84 100 
Total losses charged off1,350 185 83 93 193 
Balance, end of period$28,251 $27,841 $28,000 $28,066 $30,642 
Net charge-offs (recoveries)$381 $(79)$37 $2,597 $118 
Net charge-offs (recoveries) to average loans (annualized)
Commercial and industrial0.00 %(0.01 %)(0.01 %)0.14 %(0.49 %)
Single tenant lease financing(0.58 %)0.00 %0.00 %1.04 %0.00 %
Small business lending0.23 %(0.17 %)(0.05 %)0.35 %0.20 %
Total commercial net charge-offs (recoveries)(0.20 %)(0.01 %)0.00 %0.42 %0.00 %
Residential mortgage0.00 %(0.11 %)(0.01 %)0.00 %(0.01 %)
Home equity(0.04 %)(0.04 %)(0.05 %)(0.02 %)1.04 %
Other consumer0.40 %0.28 %0.24 %0.32 %0.42 %
Tax refund advance loans9.97 %0.00 %0.00 %0.00 %0.00 %
Total consumer net charge-offs (recoveries)0.05 %(0.01 %)0.01 %0.35 %0.02 %
Total net charge-offs (recoveries), excluding tax refund advance loans(0.16 %)(0.01 %)0.01 %0.35 %0.02 %

    The allowance for loan losses was $28.3 million as of March 31, 2022, compared to $27.8 million as of December 31, 2021. The allowance for loan losses as a percentage of total loans, including and excluding PPP loans, was 0.98% at March 31, 2022, compared to 0.96%, or 0.97% when excluding PPP loans, at December 31, 2021. The allowance for loan losses as a percentage of nonperforming loans increased to 398.8% as of March 31, 2022, compared to 376.2% as of December 31, 2021.

Net charge-offs of $0.4 million were recognized during the first quarter 2022, resulting in net charge-offs to average loans of 0.05%, compared to net charge-offs to average loans of 0.02% for the first quarter 2021. Excluding $1.5 million of net charge-offs related to tax refund advance loans, net recoveries of $1.1 million were recognized during the first quarter 2022, resulting in net recoveries to average loans of 0.16%.

The provision for loan losses in the first quarter 2022 was $0.8 million, compared to $1.3 million for the first quarter 2021. The provision for the first quarter 2022 was driven by the provision related to tax refund advance loans, which totaled $1.8 million, and, to a lesser extent, adjustments to qualitative factors that increased the overall allowance as a percentage of
50


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


Investment Securities Portfolio

The following tables present the amortized cost and approximate fair value of our investment portfolio by security type for the last five completed fiscal quarters.   
(in thousands)
Amortized CostMarch 31,
2022		December 31,
2021		September 30,
2021		June 30,
2021		March 31,
2021
Securities available-for-sale
U.S. Government-sponsored agencies$45,335 $50,013 $53,380 $57,984 $60,815 
Municipal securities72,420 75,158 76,528 77,364 79,168 
Agency mortgage-backed securities - residential276,392 377,928 398,504 410,971 197,326 
Agency mortgage-backed securities - commercial24,815 36,024 34,109 34,924 32,655 
Private label mortgage-backed securities - residential15,090 15,902 19,997 29,003 40,550 
Asset-backed securities5,000 5,000 5,000 5,000 5,000 
Corporate securities47,580 46,482 48,460 48,447 48,433 
Total available-for-sale486,632 606,507 635,978 663,693 463,947 
Securities held-to-maturity
Municipal securities13,981 13,992 14,538 14,549 14,560 
Agency mortgage-backed securities - residential95,982 — — — — 
Agency mortgage-backed securities - commercial5,847 — — — — 
Corporate securities47,560 45,573 47,591 51,110 53,630 
Total held-to-maturity163,370 59,565 62,129 65,659 68,190 
Total securities$650,002 $666,072 $698,107 $729,352 $532,137 
(in thousands)
Approximate Fair ValueMarch 31,
2022		December 31,
2021		September 30,
2021		June 30,
2021		March 31,
2021
Securities available-for-sale
U.S. Government-sponsored agencies$43,847 $49,040 $52,455 $57,135 $59,478 
Municipal securities72,804 77,033 77,450 78,438 79,208 
Agency mortgage-backed securities - residential257,682 373,236 395,105 408,710 195,514 
Agency mortgage-backed securities - commercial24,156 36,326 34,780 35,784 33,304 
Private label mortgage-backed securities - residential14,818 16,021 20,235 29,363 41,106 
Asset-backed securities4,986 5,004 5,005 5,005 5,006 
Corporate securities46,995 46,384 48,977 49,084 48,760 
Total available-for-sale465,288 603,044 634,007 663,519 462,376 
Securities held-to-maturity
Municipal securities14,093 14,709 15,319 15,373 15,109 
Agency mortgage-backed securities - residential92,939 — — — — 
Agency mortgage-backed securities - commercial5,420 — — — — 
Corporate securities47,519 46,759 49,018 52,685 54,274 
Total held-to-maturity159,971 61,468 64,337 68,058 69,383 
Total securities$625,259 $664,512 $698,344 $731,577 $531,759 

The approximate fair value of available-for-sale investment securities decreased $137.8 million, or 22.8%, to $465.3 million as of March 31, 2022, compared to $603.0 million as of December 31, 2021. The decrease was due primarily to a decrease of $115.6 million in agency mortgage-backed securities - residential, a decrease of $12.2 million in agency mortgage-
51


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 million, or 26.4%, to $34.5 million at March 31, 2022 compared to $46.9 million at December 31, 2021. The decrease was primarily related to a decrease of $12.9 million in cash pledged as collateral. As of these dates, the Company pledged $2.7 million and $15.7 million, respectively, of cash collateral to counterparties on interest rate swap agreements as security for its obligations related to these agreements. Collateral posted and received is dependent on the fair value of the underlying agreements as of the respective date.

Accrued Expenses and Other Liabilities

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

Deposits  

The following table presents the composition of the Company’s deposit base for the last five completed fiscal quarters.
(dollars in thousands)March 31,
2022		December 31,
2021		September 30,
2021		June 30,
2021		March 31,
2021
Noninterest-bearing deposits$119,197 3.7 %$117,531 3.7 %$110,117 3.4 %$113,996 3.6 %$100,700 3.1 %
Interest-bearing demand deposits334,723 10.4 %247,967 7.8 %201,557 6.3 %196,841 6.1 %186,015 5.8 %
Savings accounts66,320 2.1 %59,998 1.9 %66,762 2.1 %56,298 1.8 %51,251 1.6 %
Money market accounts1,475,857 45.8 %1,483,936 46.7 %1,479,358 45.8 %1,432,355 44.6 %1,397,449 43.4 %
BaaS - brokered deposits50,006 1.6 %— 0.0 %— 0.0 %— 0.0 %— 0.0 %
Certificates of deposits889,789 27.6 %970,107 30.5 %1,043,898 32.4 %1,087,350 33.9 %1,174,764 36.5 %
Brokered deposits282,087 8.8 %299,420 9.4 %322,903 10.0 %319,307 10.0 %307,424 9.6 %
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 increased $39.0 million, or 1.2%, to $3.2 billion as of March 31, 2022, compared to $3.2 billion as of December 31, 2021. This increase was due primarily to an increase of $86.8 million, or 35.0%, in interest-bearing demand deposits, $50.0 million in BaaS brokered deposits, and $6.3 million, or 10.5%, in savings accounts, partially offset by decreases of $80.3 million, or 8.3%, in certificates of deposits, $17.3 million, or 5.8%, in brokered deposits, and $8.1 million, or 0.5%, in money market accounts. The increase in the balance of interest-bearing demand deposits was due primarily to approximately $100 million in deposits with a contractual term of five years and a fixed rate of 1.15% pursuant to a new customer relationship. Additionally, the Company generated $50.0 million of new BaaS deposits during the quarter at a cost of 0.20%. Aside from 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 of deposits was due to the maturity of higher cost balances and reduced pricing strategies designed to limit the volume of new production.

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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 exchange the unregistered 2031 Notes for registered 2031 Notes expired on December 30, 2021.

Regulatory Capital Requirements

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

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

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

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

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The following tables present actual and required capital ratios as of March 31, 2022 and December 31, 2021 for the Company and the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of March 31, 2022 and December 31, 2021, which are based on the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.
ActualMinimum Capital Required - Basel III Minimum Required to be Considered Well Capitalized
(dollars in thousands)Capital AmountRatioCapital AmountRatioCapital AmountRatio
As of March 31, 2022:
Common equity tier 1 capital to risk-weighted assets
Consolidated $390,255 13.16 %$207,661 7.00 %N/AN/A
Bank445,240 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/AN/A
Bank445,240 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/AN/A
Bank473,491 15.99 %311,021 10.50 %296,210 10.00 %
Leverage ratio
Consolidated 390,255 9.26 %168,584 4.00 %N/AN/A
Bank445,240 10.57 %168,420 4.00 %210,524 5.00 %

ActualMinimum Capital Required - Basel III Minimum Required to be Considered Well Capitalized
(dollars in thousands)Capital AmountRatioCapital AmountRatioCapital AmountRatio
As of December 31, 2021:
Common equity tier 1 capital to risk-weighted assets
Consolidated $384,499 12.93 %$208,202 7.00 %N/AN/A
Bank432,181 14.55 %207,913 7.00 %$193,062 6.50 %
Tier 1 capital to risk-weighted assets
Consolidated 384,499 12.93 %252,817 8.50 %N/AN/A
Bank432,181 14.55 %252,466 8.50 %237,615 8.00 %
Total capital to risk-weighted assets
Consolidated 516,571 17.37 %312,303 10.50 %N/AN/A
Bank460,022 15.49 %311,870 10.50 %297,019 10.00 %
Leverage ratio
Consolidated 384,499 9.22 %166,824 4.00 %N/AN/A
Bank432,181 10.37 %166,693 4.00 %208,366 5.00 %

54


Shareholders’ Dividends

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

As of March 31, 2022, the Company had $107.0 million principal amount of subordinated debt outstanding evidenced by its 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. The Company may explore strategic alternatives, including additional asset, deposit or revenue generation channels that complement our commercial and consumer banking platforms, which may require additional capital. If the Company is unable to secure such capital at favorable terms, its ability to take advantage of such opportunities could be adversely affected.

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


Liquidity

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

The Company holds cash and investment securities that qualify as liquid assets to maintain adequate liquidity to ensure safe and sound operations and meet its financial commitments. At March 31, 2022, on a consolidated basis, the Company had $982.8 million in cash and cash equivalents and investment securities available-for-sale and $34.0 million in loans held-for-sale that were generally available for its cash needs. The Company can also generate funds from wholesale funding sources and collateralized borrowings. At March 31, 2022, the Bank had the ability to borrow an additional $526.5 million from the FHLB, the Federal Reserve and correspondent bank Fed Funds lines of credit.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its common shareholders and interest and principal on outstanding debt. The Company’s primary sources of funds are cash maintained at the holding company level and dividends from the Bank, the payment of which is subject to regulatory limits. At March 31, 2022, the Company, on an unconsolidated basis, had $44.3 million in cash generally available for its cash needs, which is in excess of its current annual regular shareholder dividend and operating expenses.
55


 
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, approved outstanding loan commitments, including unused lines of credit and standby letters of credit, amounted to $304.8 million. Certificates of deposits and brokered deposits scheduled to mature in one year or less at March 31, 2022 totaled $623.9 million.

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

56


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, adjusted net interest margin - FTE, (benefit) provision for loan losses, excluding tax refund advance loans, average loans, excluding tax refund advance loans, net (recoveries) charge-offs to average loans, excluding tax refund advance loans, loans, excluding PPP loans, allowance for loan losses to loans, excluding PPP loans, adjusted noninterest expense, adjusted income before income taxes, adjusted income tax provision, adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average shareholders’ equity, adjusted return on average tangible common equity, 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 outstanding9,683,727 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 assets8.87 %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 assets8.77 %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’ equity11.94 %13.14 %13.10 %14.88 %12.61 %
Effect of goodwill0.15 %0.16 %0.17 %0.21 %0.18 %
Return on average tangible common equity12.09 %13.30 %13.27 %15.09 %12.79 %


57


(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
58


(dollars in thousands)Three Months Ended
March 31,
2022		December 31,
2021		September 30,
2021		June 30,
2021		March 31,
2021
Net interest margin2.56 %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 - FTE2.69 %2.43 %2.13 %2.25 %2.18 %
Net interest margin2.56 %2.30 %2.00 %2.11 %2.04 %
     Effect of subordinated debt redemption cost0.00 %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 margin2.28 %2.30 %2.08 %2.11 %2.04 %
Net interest margin2.56 %2.30 %2.00 %2.11 %2.04 %
     Effect of fully-taxable equivalent adjustments0.13 %0.13 %0.13 %0.14 %0.14 %
     Effect of subordinated debt redemption cost0.00 %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 - FTE2.41 %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 loans0.05 %(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 loans0.98 %0.96 %0.95 %0.95 %1.00 %
Effect of PPP loans0.00 %0.01 %0.01 %0.01 %0.02 %
Allowance for loan losses to loans, excluding PPP loans0.98 %0.97 %0.96 %0.96 %1.02 %

1 Assuming a 21% tax rate

59



(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 expenses170 163 — — — 
      IT termination fee— 475 — — — 
      Gain on sale of premises and equipment— — — (2,523)— 
       Subordinated debt redemption cost — — 810 — — 
       Nonrecurring consulting fee875 — — — — 
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 expenses36 34 — — — 
     IT termination fee— 100 — — — 
     Gain on sale of premises and equipment— — — (530)— 
     Subordinated debt redemption cost— — 170 — — 
     Nonrecurring consulting fee184 — — — — 
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 expenses134 129 — — — 
     IT termination fee— 375 — — — 
     Gain on sale of premises and equipment— — — (1,993)— 
     Subordinated debt redemption cost— — 640 — — 
     Nonrecurring consulting fee691 — — — — 
Adjusted net income$12,034 $12,982 $12,730 $11,103 $10,450 
Diluted average common shares outstanding9,870,394 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 expenses0.01 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 fee0.07 — — — — 
Adjusted diluted earnings per share$1.22 $1.30 $1.27 $1.11 $1.05 
Return on average assets1.08 %1.19 %1.12 %1.25 %1.02 %
     Effect of acquisition-related expenses0.01 %0.01 %0.00 %0.00 %0.00 %
     Effect of IT termination fee0.00 %0.04 %0.00 %0.00 %0.00 %
     Effect of gain on sale of premises and equipment0.00 %0.00 %0.00 %(0.19 %)0.00 %
     Effect of subordinated debt redemption cost0.00 %0.00 %0.06 %0.00 %0.00 %
     Effect of nonrecurring consulting fee0.07 %0.00 %0.00 %0.00 %0.00 %
Adjusted return on average assets1.16 %1.24 %1.18 %1.06 %1.02 %
60


(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' equity11.94 %13.14 %13.10 %14.88 %12.61 %
    Effect of acquisition-related expenses0.14 %0.14 %0.00 %0.00 %0.00 %
    Effect of IT termination fee0.00 %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 fee0.74 %0.00 %0.00 %0.00 %0.00 %
Adjusted return on average shareholders' equity12.82 %13.67 %13.79 %12.62 %12.61 %
Return on average tangible common equity12.09 %13.30 %13.27 %15.09 %12.79 %
     Effect of acquisition-related expenses0.14 %0.14 %0.00 %0.00 %0.00 %
     Effect of IT termination fee0.00 %0.40 %0.00 %0.00 %0.00 %
     Effect of gain on sale of premises and equipment0.00 %0.00 %0.00 %(2.30 %)0.00 %
     Effect of subordinated debt redemption cost0.00 %0.00 %0.70 %0.00 %0.00 %
     Effect of nonrecurring consulting fee0.75 %0.00 %0.00 %0.00 %0.00 %
Adjusted return on average tangible common equity12.98 %13.84 %13.97 %12.79 %12.79 %
Effective income tax rate13.8 %13.8 %15.5 %15.4 %15.1 %
     Effect of acquisition-related expenses0.3 %0.1 %0.0 %0.0 %0.0 %
     Effect of IT termination fee0.0 %0.2 %0.0 %0.0 %0.0 %
     Effect of gain on sale of premises and equipment0.0 %0.0 %0.0 %(1.1 %)0.0 %
     Effect of subordinated debt redemption cost0.0 %0.0 %0.3 %0.0 %0.0 %
     Effect of nonrecurring consulting fee1.3 %0.0 %0.0 %0.0 %0.0 %
Adjusted effective income tax rate15.4 %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 losses1,842 — — — — 
     Tax refund advance lending servicing fee921 — — — — 
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 losses387 — — — — 
     Tax refund advance lending servicing fee193 — — — — 
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 losses1,455 — — — — 
     Tax refund advance lending servicing fee728 — — — — 
Net income, excluding tax refund advance loans$11,129 $12,478 $12,090 $13,096 $10,450 







61


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.
 
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 and December 31, 2021, 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 December 31, 2021, the Company had commitments to sell residential real estate loans of $56.8 million and $72.8 million, respectively. These contracts mature in less than one year. Refer to Note 13 to the condensed consolidated financial statements for additional information about derivative financial instruments.

62


ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

The Company monitors its interest rate risk position using income simulation models and economic value of equity (“EVE”) sensitivity analysis that capture both short-term and long-term interest rate risk exposure. Income simulation involves forecasting net interest income (“NII”) under a variety of interest rate scenarios. The Company uses EVE sensitivity analysis to understand the impact of changes in interest rates on long-term cash flows, income and capital. EVE is calculated by discounting the cash flows for all balance sheet instruments under different interest-rate scenarios. Modeling the sensitivity of NII and EVE to changes in market interest rates is highly dependent on the assumptions incorporated into the modeling process, especially those pertaining to non-maturity deposit accounts. These assumptions are reviewed and refined on an ongoing basis by the Company. The Company continually models its NII and EVE positions with various interest rate scenarios and assumptions of future balance sheet composition. The Company utilizes implied forward rates as its base case scenario which reflects market expectations for interest rates over the next 24 months. Presented below is the estimated impact on the Company’s NII and EVE position as of March 31, 2022, assuming a static balance sheet and instantaneous parallel shifts in interest rates:
% Change from Base Case for Instantaneous Parallel Changes in Rates
Implied Forward Curve -25 Basis Points Base Implied Forward CurveImplied Forward Curve +100 Basis PointsImplied Forward Curve +200 Basis Points
NII - Year 11.59 %N/A(3.25 %)(5.55 %)
NII - Year 22.19 %0.54 %(2.61 %)(4.63 %)
EVE0.73 %N/A(4.33 %)(9.99 %)

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

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


% Change from Base Case for Gradual Parallel Changes in Rates
Implied Forward Curve -25 Basis PointsBase Implied Forward CurveImplied Forward Curve +100 Basis PointsImplied Forward Curve +200 Basis Points
NII - Year 10.25 %N/A(1.51 %)(2.05 %)
NII - Year 21.19 %0.54 %(2.52 %)(4.36 %)
EVE0.56 %N/A(4.46 %)(10.41 %)

63


The NII and EVE figures presented in both tables above are reflective of a static balance sheet, and do not incorporate either balance sheet growth or strategies to increase net interest income while managing volatility arising from shifts in market interest rates. As such, it is likely that actual results will differ from what is presented in the tables above. Balance sheet strategies to achieve such objectives may include:
•Increasing the proportion of low-duration or variable-rate loans to total loans, including organic growth in SBA, construction or C&I lending
•Selling longer-term fixed rate loans
•Increasing the proportion of lower cost non-maturity deposits to total deposits
•Extending the duration of wholesale funding
•Executing derivative strategies to synthetically extend 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.

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 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
64


PART II
 
ITEM 1.    LEGAL PROCEEDINGS
 
Neither we nor any of our subsidiaries are party to any material legal proceedings. From time to time, the Bank is a party to legal actions arising from its normal business activities.
 
ITEM 1A.    RISK FACTORS
 
There have been no material changes to the risk factors previously disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”).

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
Repurchases of Common Stock

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

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

Total Number of Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares Purchased As Part of Publicly Announced ProgramsApproximate Dollar Value Of Shares That May Yet Be Purchased Under The Program
January 1, 2022 - January 31, 202271,185 $49.32 71,185 $22,053 
February 1, 2022 - February 28, 202228,815 50.22 28,815 20,605 
March 1 2022 - March 31, 20223,703 43.02 3,703 20,446 
  Total103,703 103,703 

Limitations on the Payment of Dividends

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

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES
 
None.
 
ITEM 4.    MINE SAFETY DISCLOSURES
65


 
Not Applicable.
 
ITEM 5.    OTHER INFORMATION

None.
 
ITEM 6.    EXHIBITS 
Exhibit No.DescriptionMethod of Filing
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
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
Filed Electronically
Filed Electronically
Filed Electronically
Filed Electronically
Filed Electronically
101Inline XBRL Instance Document (does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document)Filed Electronically
101.SCHInline XBRL Taxonomy Extension SchemaFiled Electronically
101.CALInline XBRL Taxonomy Extension Calculation LinkbaseFiled Electronically
101.DEFInline XBRL Taxonomy Extension Definition LinkbaseFiled Electronically
101.LABInline XBRL Taxonomy Extension Label LinkbaseFiled Electronically
101.PREInline XBRL Taxonomy Extension Presentation LinkbaseFiled Electronically
104Cover 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.

66


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
   
5/9/2022By/s/ David B. Becker
  
David B. Becker,
Chairman and Chief Executive Officer
(on behalf of Registrant)
   
5/9/2022By/s/ Kenneth J. Lovik
  
Kenneth J. Lovik,
Executive Vice President and Chief Financial Officer (principal financial officer)
 
67
Exhibit 10.1

FIRST INTERNET BANCORP 2013 EQUITY INCENTIVE PLAN RESTRICTED STOCK AWARD AGREEMENT (Non-Employee Director)


This Award Agreement (“Award Agreement”), effective as of _____ __, 2022, is by and between First Internet Bancorp, an Indiana corporation (the “Company”), and the Non-Employee Director designated below (“Participant”). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the First Internet Bancorp 2013 Equity Incentive Plan (the “Plan”).


I. NOTICE OF GRANT
Subject to the terms and conditions of the Plan and this Award Agreement, the Company granted the Participant an Award of Restricted Stock, and the Participant has accepted the Award, as follows:

Participant
Service Year
Date of Grant
Number of Shares of Restricted Stock Granted
Vesting Schedule

II. TERMS OF THE AWARD
1.Grant of Award. The Company hereby grants to the Participant the number of shares of Restricted Stock set forth in the Notice of Grant, subject to the terms and conditions of the Plan, which are incorporated herein by reference. Upon vesting in accordance with the Plan and this Award Agreement, each share of Restricted Stock shall represent one Share.

2.Vesting. Unless otherwise provided in this Award Agreement or in the Plan, the shares of Restricted Stock shall become fully vested and nonforfeitable in accordance with the Vesting Schedule set forth in the Notice of Grant above, but only but only if the Participant is still a director of the Company on the applicable vesting date [or has experienced, after the Date of Grant, death, Disability, or separation from service without Cause after reaching age 65. If the Participant ceases to be a director of the Company through the applicable vesting date for death, disability, or separation from service without Cause after reaching age 65, the Participant’s unvested Restricted Stock shall become 100% vested.] Otherwise, the Participant’s unvested Restricted Stock shall be automatically forfeited as of the date the Participant ceases to be a director and neither the Company nor any affiliate shall have any further obligations to the Participant under this Agreement.

3.Restriction Period. Except as otherwise provided in this Award Agreement or the Plan, Participant may not sell, assign, transfer, pledge or otherwise dispose of or encumber the Restricted Stock, or any interest therein, until his or her rights in such Restricted Stock have vested, and any purported sale, assignment, transfer, pledge or other disposition or encumbrance in violation of this Award Agreement or the Plan will be void and of no effect.

4.Voting. Participant shall have the right to vote the vested and unvested shares of Restricted Stock.

5.Dividends. Cash dividends shall be paid to the Participant on both the vested and unvested portions of the Award. Any stock dividends paid on or additional Shares issued with respect to any unvested portion of the Award will be treated as an equivalent number of shares of Restricted Stock subject to the same restrictions that apply to the Award.

6.Change in Control. As provided in the Plan, upon the occurrence of a Change in Control, the Restricted Stock may vest prior to the time provided for under the Vesting Schedule set forth in the Notice of Grant.

7.Section 83(b) Election. If the Participant makes an election pursuant to Internal Revenue Code Section 83(b), to include in gross income the value of Restricted Stock transferred under this Award Agreement, the Participant shall immediately provide the Company a copy of the election notice submitted to the Internal Revenue Service.


Exhibit 10.1
8.Tax Consequences. THE PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE THE RESTRICTED STOCK VESTS, BEFORE MAKING AN ELECTION UNDER INTERNAL REVENUE CODE SECTION 83(B), OR BEFORE DISPOSING OF THE SHARES.

9.Entire Agreement; Governing Law. The Plan is incorporated herein by reference. The Plan and this Award Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to the Participant’s interest except by means of a writing signed by the Company and Participant. This Award Agreement is governed by the internal substantive laws but not the choice of law rules of Indiana.

10.Notices. All notices and other communications required or permitted under this Award Agreement shall be written and delivered personally or sent by registered or certified first-class mail, postage prepaid and return receipt required, addressed as follows: if to the Company, to the Company’s executive offices in Fishers, Indiana, and if to the Participant or his or her successor, to the residence address last furnished by the Participant to the Company. Notwithstanding the foregoing, the Company may authorize notice by any other means it deems desirable or efficient at a given time, such as notice by facsimile or electronic mail (e-mail). Participant agrees to notify the Company upon any change in the Participant’s residence address.

11.No Guarantee of Continued Service. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THIS AWARD DOES NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A DIRECTOR FOR ANY PERIOD, OR AT ALL.

12.Plan Controlling. In the event of a conflict between the terms and conditions of the Plan and this Award Agreement, the terms and conditions of the Plan shall prevail. Participant acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts the Restricted Stock, subject to all of the terms and provisions thereof. Participant has reviewed the Plan and this Award Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Award Agreement and fully understands all provisions of the Award Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Plan or this Award Agreement.
[Signature Page Follows]


Exhibit 10.1


The Company and the Participant have executed this Award Agreement, which amends and replaces the Prior Award Agreement, as of the date first written above.


PARTICIPANT
FIRST INTERNET BANCORP
___________________________________________
By:___________________________________________
David B. Becker, Chairman and CEO
Exhibit 10.2

FIRST INTERNET BANCORP
2013 EQUITY INCENTIVE PLAN
MANAGEMENT INCENTIVE AWARD AGREEMENT

RESTRICTED STOCK UNIT AWARD AGREEMENT

This Restricted Stock Unit Award Agreement (“Award Agreement”), effective as of March __, 2022, is by and between First Internet Bancorp, an Indiana corporation (the “Company”), and the participant designated below (“Participant”), pursuant to the First Internet Bancorp 2013 Equity Incentive Plan (the “Plan”). Capitalized terms that are used but not defined herein have the meaning ascribed to them in the Plan.

I. NOTICE OF GRANT.

The Company has granted the Participant an Award of Stock Units (designated as “Restricted Stock Units”), subject to the terms and conditions of the Plan and this Award Agreement. By executing this Award Agreement and delivering it to the Company, the Participant is accepting the terms and conditions of this Award.

Participant
Service Year
Date of Grant
Number of Performance-Based Restricted Stock Units Granted
Performance Period for Performance-Based Restricted Stock Units
Vesting Schedule for Performance-Based Restricted Stock Units
Number of Time-Based Restricted Stock Units Granted
Vesting Schedule


II. TERMS AND CONDITIONS.

1. Grant of Award. The Company hereby grants to the Participant on the Date of Grant a Restricted Stock Unit Award consisting of, in the aggregate, the number of Restricted Stock Units set forth above (the “Restricted Stock Units”). Each Restricted Stock Unit is a bookkeeping entry that represents an unfunded unsecured right to receive one Share or payment in lieu thereof, subject to the terms and conditions of the Plan and the restrictions set forth in this Award Agreement.

2. Vesting; Performance Conditions. The Restricted Stock Units shall vest and become payable as set forth herein, subject to earlier expiration or termination as provided in this Agreement.


Exhibit 10.2
a. Performance-Based Vesting. The performance-based Restricted Stock Units (“Performance-Based RSUs”) shall vest and become payable at the end of the three-year Performance Period subject to the attainment of certain performance goals as described herein. Performance-Based RSUs shall be earned based on the Company’s performance compared to the Return on Average Assets and Non-Performing Assets goals measured at the end of the three-year Performance Period. Unless otherwise provided in this Award Agreement or the Plan, the number of Performance-Based RSUs that vest and that will be settled shall be determined as follows:

(i) If the Company fails to achieve the Non-Performing Assets goal at the end of the Performance Period as determined by the Committee, none of the Performance-Based RSUs shall vest and all of the Performance-Based RSUs shall be forfeited. If the Company achieves the Non-Performing Assets goal at the end of the Performance Period as determined by the Committee, the number of Performance-Based RSUs eligible to vest based on the achievement of the Return on Average Assets goal as determined pursuant to Section 2(a)(ii) of this Award Agreement shall vest. The Non-Performing Assets goal associated with these Performance-Based RSUs have been established by the Committee and is set forth on Exhibit A to this Award Agreement.

(ii) If the Non-Performing Asset goal is achieved, a number of Performance-Based RSUs shall be eligible to vest at the end of the Performance Period, based on the achievement by the Company, as determined by the Committee, of the Return on Average Assets goal set forth on Exhibit A. The number of Performance-Based RSUs that will vest will range from 0% to 150% of the Performance-Based RSUs granted, based upon the Company’s achievement of the Return on Average Assets goal, as follows: 0% if performance is below the threshold level, 50% if performance is at the threshold level, 100% if performance is at target and 150% if performance is at or above the maximum level. If the actual level of achievement of the Return on Average Assets goal is between the threshold level and the target level or between the target level and the maximum level, the percentage of Performance-Based RSUs earned will be interpolated accordingly on a straight-line basis. The Return on Average Assets goal (including the associated threshold, target and maximum levels with respect thereto) associated with these Performance-Based RSUs has been established by the Committee and is set forth on Exhibit A to this Award Agreement.
(iii) Notwithstanding anything else in this Award Agreement, the Performance Based RSUs shall only be eligible to vest in accordance with the terms and conditions of this Award Agreement (A) if the Participant is still employed by the Company or a wholly-owned subsidiary of the Company through the end of the Performance Period, or [(B) as otherwise set forth in this Section 2(a)(iii). If the Participant experiences, after the Date of Grant but before the end of the Performance Period, death, Disability, or a separation from service without Cause after reaching age 65, a prorated number of Performance Based RSUs (the “Prorated Amount”) shall be eligible to vest in accordance with the terms and conditions of this Award Agreement. The Prorated Amount shall be equal to (x) the number of Performance Based RSUs that would have vested under this Agreement if the Participant were still employed by the Company or a wholly-owned subsidiary of the Company through the end of the Performance Period, multiplied by (y) a fraction, the numerator of which is the number of full months the Participant was employed by the Company during the Performance Period, and the denominator of which is thirty-six (36)].
b. Time-Based Vesting. Unless otherwise provided in this Award Agreement or the Plan, the Restricted Stock Units subject only to time-based vesting restrictions (“Time-Based RSUs”) shall become fully vested and nonforfeitable in three equal installments in accordance with the vesting schedule set forth below, but only if the Participant is still employed by the Company or a wholly-owned subsidiary of the Company on the applicable vesting date or has experienced, after the Date of Grant, death, Disability, or separation from service [without Cause] after reaching age 65.

Exhibit 10.2
Vesting Date
Restricted Stock Units That Vest

c. If the Participant does not remain employed by the Company through the applicable vesting date for any reason other than the Participant’s death, Disability, or separation from service [without Cause] after reaching age 65, the Participant’s unvested Restricted Stock Units shall be automatically forfeited upon such termination of employment and neither the Company nor any affiliate shall have any further obligations to the Participant under this Agreement. [If the Participant dies, experiences a Disability, or separates from service without Cause after reaching age 65, the Participant’s unvested Restricted Stock Units shall not be forfeited and shall continue to vest in accordance with the vesting schedule set forth above.]

3. Account for Restricted Stock Units, Dividends, and Stock Splits.

a. The Company will establish a bookkeeping account (the “Account”) in the Participant’s name and will initially credit to the Account the number of Restricted Stock Units granted. All amounts credited to the Account shall continue for all purposes to be part of the general assets of the Company. The Participant shall not have any rights of a shareholder with respect to the Shares underlying the Restricted Stock Units unless and until the Restricted Stock Units vest and are settled by the issuance of such Shares.

b. If, prior to the settlement of all Restricted Stock Units pursuant to the Award Agreement, the Company declares a cash or stock dividend on its Shares, then, on the payment date of the dividend, the Account shall be credited with an amount equal to the dividends that would have been paid to the Participant if one Share had been issued on the Date of Grant for each Restricted Stock Unit in the Account (collectively, the “Dividend Equivalents”). Dividend Equivalents shall be withheld by the Company in the Account without interest and will be subject to the same vesting and forfeiture restrictions as the Restricted Stock Units to which they are attributable and shall be paid or settled on the same date that the Restricted Stock Units to which they are attributable are settled in accordance with Section 4 hereof.

c. Any stock dividends paid on or additional Shares issued with respect to the Company’s Shares will be credited to the Account as an equivalent number of additional Restricted Stock Units. Such additional Restricted Stock Units will also be eligible for Dividend Equivalents as any further dividends are declared.

4. Payment of Restricted Stock Units.

a. Subject to Section 6 hereof, as soon as reasonably practical, and in any event no later than March 31 after such vesting occurs, the Company shall (a) issue and deliver to the Participant the number of shares of Common Stock equal to the number of Vested Units and any Dividend Equivalents credited with respect to such Vested Units; and (b) enter the Participant's name on the books of the Company as the shareholder of record with respect to the shares of Common Stock delivered to the Participant; provided, however, that the Committee may in its sole discretion elect to pay cash or pay part cash and part Common Stock in lieu of delivering only shares of Common Stock. If a cash payment is made in lieu of delivering shares of Common Stock, the amount shall be equal to the product of (a) the Fair Market Value

Exhibit 10.2
of a share of Common Stock on the vesting date and (b) the number of Restricted Stock Units vesting on that date.

b. If the Participant is deemed a "specified employee" within the meaning of Section 409A of the Code, as determined by the Committee, at a time when the Participant becomes eligible for settlement of the Restricted Stock Units upon his "separation from service" within the meaning of Section 409A of the Code, then to the extent necessary to prevent any accelerated or additional tax under Section 409A of the Code, such settlement will be delayed until the earlier of: (a) the date that is six months following the Participant's separation from service and (b) the Participant's death.

c. To the extent that the Participant does not vest in any Restricted Stock Units, all interest in such Restricted Stock Units and any related Dividend Equivalents shall be forfeited. The Participant has no right or interest in any Restricted Stock Units that are forfeited.

5. Voting. The Participant shall have no right to vote the Restricted Stock Units.

6. Tax Liability and Withholding.

a. The Participant shall be required to pay to the Company, and the Company shall have the right to deduct from any compensation paid to the Participant pursuant to the Plan, the amount of any required withholding taxes in respect of the Restricted Stock Units and to take all such other action as the Committee deems necessary to satisfy all obligations for the payment of such withholding taxes. The Committee may permit the Participant to satisfy any federal, state or local tax withholding obligation by any of the following means, or by a combination of such means:

(i) tendering a cash payment;

(ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable or deliverable to the Participant as a result of the vesting of the Restricted Stock Units; provided, however, that no shares of Common Stock shall be withheld with a value exceeding the minimum amount of tax required to be withheld by law; or

(iii) delivering to the Company previously owned and unencumbered shares of Common Stock.

b. Notwithstanding any action the Company takes with respect to any or all income tax, social insurance, payroll tax, or other tax-related withholding ("Tax-Related Items"), the ultimate liability for all Tax-Related Items is and remains the Participant's responsibility and the Company (a) makes no representation or undertakings regarding the treatment of any Tax-Related Items in connection with the grant or vesting of the Restricted Stock Units or the subsequent sale of any shares; and (b) does not commit to structure the Restricted Stock Units to reduce or eliminate the Participant's liability for Tax-Related Items. The Participant should consult a tax adviser concerning the tax consequences of receiving the award and the earning, vesting, and payment of restricted stock units under the plan and this agreement.

7. Change in Control. As provided in the Plan, upon the occurrence of a Change in Control, the Restricted Stock Unites may vest prior to the time provided for in this Award Agreement and may be paid at a time other than the payment date described herein.


Exhibit 10.2
8. Clawback and Make-Up Payment. In the event of a restatement of the Company’s consolidated financial statements, (i) the Committee or the Company shall have the right to take appropriate action to recoup from the Participant all or any portion of this Award which would not have been earned, vested or paid if based on the restated financial statements for the applicable period, and (ii) the Participant shall be entitled to any additional portion of this Award which the Participant would have earned, which would have vested, or which Participant would have been entitled to be paid if based on the restated financial statements for the applicable period. This Section 8 shall become ineffective at such time as the Company adopts a clawback policy pursuant to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) which applies to the Participant. Any amounts required to be repaid hereunder shall take into account any taxes that the Participant has already paid.

9. Prohibition on Assignment. Except as otherwise provided in this Award Agreement or the Plan, the Participant may not sell, assign, transfer, pledge or otherwise dispose of or encumber the Restricted Stock Units, or any interest therein, until paid to the Participant in the form of shares of Company common stock, and any purported sale, assignment, transfer, pledge or other disposition or encumbrance in violation of this Award Agreement or the Plan will be void and of no effect.

10. Tax Consequences. THE PARTICIPANT SHOULD CONSULT A TAX ADVISER CONCERNING THE TAX CONSEQUENCES OF RECEIVING THE AWARD AND THE EARNING, VESTING, AND PAYMENT OF RESTRICTED STOCK UNITS UNDER THE PLAN AND THIS AGREEMENT.

11. Notices. All notices and other communications required or permitted under this Award Agreement shall be written and delivered personally or sent by registered or certified first-class mail, postage prepaid and return receipt required, addressed as follows: if to the Company, to the Secretary of the Company at the Company’s executive offices in Fishers, Indiana, and if to the Participant, to the address appearing in the personnel records of the Company or its Affiliate. Notwithstanding the foregoing, the Company may authorize notice by any other means it deems desirable or efficient at a given time, such as notice by facsimile or electronic mail (e-mail). Participant agrees to notify the Company upon any change in the Participant’s residence address.

12. Entire Agreement; Governing Law. The Plan is incorporated herein by reference. The Plan and this Award Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to the Participant’s interest except by means of a writing signed by the Company and Participant. This Agreement will be construed and interpreted in accordance with the laws of the State of Indiana without regard to conflict of law principles.

13. Successors and Assigns. The Company may assign any of its rights under this Agreement. This Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement will be binding upon the Participant and the Participant's beneficiaries, executors, administrators and the person(s) to whom the Restricted Stock Units may be transferred by will or the laws of descent or distribution.

14. Severability. The invalidity or unenforceability of any provision of the Plan or this Agreement shall not affect the validity or enforceability of any other provision of the Plan or this Agreement, and each provision of the Plan and this Agreement shall be severable and enforceable to the extent permitted by law.

Exhibit 10.2

15. Discretionary Nature of Plan. The Plan is discretionary and may be amended, cancelled or terminated by the Company at any time, in its discretion. The grant of the Restricted Stock Units in this Agreement does not create any contractual right or other right to receive any Restricted Stock Units or other Awards in the future. Future Awards, if any, will be at the sole discretion of the Company. Any amendment, modification, or termination of the Plan shall not constitute a change or impairment of the terms and conditions of the Participant's employment with the Company.

16. Amendment. The Committee has the right to amend, alter, suspend, discontinue or cancel the Restricted Stock Units, prospectively or retroactively; provided, that, no such amendment shall adversely affect the Participant's material rights under this Agreement without the Participant's consent.

17. Headings. The section headings of this Agreement are for convenience and reference only and are not intended to define, extend or limit the contents of the sections.

18. Section 409A. This Agreement is intended to comply with Section 409A of the Internal Revenue Code to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Agreement shall be interpreted and administered to be in compliance therewith. In the event this Agreement or any benefit paid to Employee hereunder is deemed to be subject to section 409A of the Code, Employee consents to the Company adopting such conforming amendments as the Company deems necessary, in its reasonable discretion, to comply with section 409A of the Code.

19. No Guarantee of Continued Service. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THIS AWARD DOES NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED EMPLOYMENT FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE PARTICIPANT’S EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE.

20. Plan Controlling. In the event of a conflict between the terms and conditions of the Plan and this Award Agreement, the terms and conditions of the Plan shall prevail. Participant acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts the Restricted Stock Units, subject to all of the terms and provisions thereof. Participant has reviewed the Plan and this Award Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Award Agreement and fully understands all provisions of the Award Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Plan or this Award Agreement.


IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

FIRST INTERNET BANCORP

______________________________ By:_________________________________

Title: _____________________________ Name and Title:
Date: ______________________________ Date: _________________ ______________



Exhibit 10.2

EXHIBIT A TO RESTRICTED STOCK UNIT AWARD AGREEMENT


NON-PERFORMING ASSET GOAL.

1. The Non-Performing Asset goal shall be achieved if the Company attains either (i) a ratio of Non-Performing Assets to total assets of less than 1.5% as of the last day of the final year of the Performance Period, or (ii) a ratio of Non-Performing Assets to total assets better than the 75th percentile of the peer group (attached as Annex 1 to this Exhibit A).

2. The Company’s “Non-Performing Assets” shall be defined as the sum of total non-performing assets. Non-performing assets are any assets of the Company or any of its subsidiaries that are classified internally by the Company or by the banking regulators as “loss,” “nonaccrual,” “doubtful,” “substandard,” or “other real estate owned.” Total assets shall be as set forth in the audited consolidated financial statements of the Company and its subsidiaries.

RETURN ON ASSETS GOAL.

1. The Return on Average Assets Goal is as follows:

· Target Return on Average Assets Goal: 1.0%;
· Threshold Return on Average Assets Goal: 0.9%; and
· Maximum Return on Average Assets Goal: 1.5%.

2. However, if the pending acquisitions of First Century Bancorp. and First Century Bank, N.A., close on or prior to June 30, 2022, the Return on Average Assets Goal shall be increased as follows:

· Target Return on Average Assets Goal: 1.2%;
· Threshold Return on Average Assets Goal: 1.1%; and
· Maximum Return on Average Assets Goal: 1.7%.

3. Promptly following completion of the Performance Period and the receipt of audited financial statements (and no later than 30 days following the receipt of audited financial statements), the Committee will review and certify in writing (a) whether, and to what extent, the Performance Goals for the Performance Period have been achieved, and (b) the number of Performance Shares that the Participant shall earn, if any, subject to adjustment in accordance with Section 4 below. Such certification shall be final, conclusive, and binding on the Participant, and on all other persons, to the maximum extent permitted by law.

4. If the Company implements a change in accounting principle during the Performance Period either as a result of issuance of new accounting standards or otherwise, and the effect of the accounting change was not reflected in the Company’s business plan at the time of approval of this Award, then Return on Average Assets shall be adjusted to eliminate the impact of the change in accounting principle.

5. All financial computations required to effect adjustments pursuant to Section 4 above shall be calculated by the Company in accordance with generally accepted accounting principles applied in a manner consistent with the application of such principles to the preparation of the audited consolidated financial statements of the Company and its subsidiaries.

Exhibit 10.2


ANNEX 1 TO Exhibit A

Peer Companies: Non-Performing Assets
Company Name
Ticker
City
State
Axos Financial Inc.
AX
Las Vegas
NV
Merchants Bancorp
Live Oak Bancshares Inc.
MBIN
LOB
Carmel Wilmington
IN
NC
ConnectOne Bancorp Inc.
CNOB
Englewood Cliffs
NJ
Luther Burbank Corp.
LBC
Santa Rosa
CA
First Foundation Inc.
FFWM
Dallas
TX
Preferred Bank
PFBC
Los Angeles
CA
Republic First Bancorp Inc.
FRBK
Philadelphia
PA
Metropolitan Bank Holding Corp
MCB
New York
NY
CNB Financial Corp.
CCNE
Clearfield
PA
Bus. First Bancshares Inc.
Enterprise Bancorp Inc.
BFST
EBTC
Baton Rouge
Lowell
LA
MA
Cambridge Bancorp
CATC
Cambridge
MA
West Bancorp.
WTBA
West Des Moines
IA
SmartFinancial Inc.
Sterling Bncp (Southfield MI)
SMBK
SBT
Knoxville
Southfield
TN
MI
Altabancorp
ALTA
American Fork
UT
American National Bankshares
AMNB
Danville
VA
Bridgewater Bancshares Inc.
BWB
Saint Louis Park
MN
Civista Bancshares Inc.
CIVB
Sandusky
OH
BCB Bancorp Inc.
BCBP
Bayonne
NJ
Western New England Bancorp
WNEB
Westfield
MA

Exhibit 31.1

Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, David B. Becker, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of First Internet Bancorp;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date:May 9, 2022
/s/ David B. Becker
David B. Becker, Chief Executive Officer

Exhibit 31.2

Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Kenneth J. Lovik, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of First Internet Bancorp;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date:May 9, 2022
/s/ Kenneth J. Lovik
Kenneth J. Lovik, Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of First Internet Bancorp (the “Company") on Form 10-Q for the period ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ David B. Becker
David B. Becker
Chief Executive Officer
May 9, 2022
/s/ Kenneth J. Lovik
Kenneth J. Lovik
Chief Financial Officer
May 9, 2022