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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 September 30, 2023
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 class |  | Trading Symbols |  | Name of each exchange on which registered
Common Stock, without par value |  | INBK |  | The Nasdaq Stock Market LLC
6.0% Fixed to Floating Subordinated Notes due 2029 |  | INBKZ |  | The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
As of November 3, 2023, the registrant had 8,643,673 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 our business strategies, intended results and future performance, including without limitation statements concerning the financial condition, results of operations, trends in lending policies and loan programs, plans and prospective business partnerships, objectives, future performance and business of the Company. Forward-looking statements are generally preceded by terms such as “acquire”, “anticipate,” “attempt,” “believe,” “can,” “change,” “continue,” “could,” “decline,” “decrease,” “differentiate,” “diversify,” “driving,” “effort,” “emerging,” “estimate,” “expect,” “grow,” “increase,” “intend,” “likely,” “may,” “objective,” “plan,” “position,” “potential,” “preliminary,” “pursue,” “remain,” “retain,” “should,” “slowest,” “succeed,” “will,” “win,” “would” or other similar expressions. Such statements are subject to certain risks and uncertainties, including without limitation: 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; changing bank regulatory conditions, policies or programs, whether arising as a result of new legislation or regulatory initiatives, that could lead to restrictions on activities of banks generally or First Internet Bank (the “Bank”) in particular; more restrictive regulatory capital requirements; increased costs, including deposit insurance premiums; other general economic conditions, whether national or regional, and conditions in the lending markets in which we participate that may have an adverse effect on the demand for our loans and other products; our credit quality and related levels of nonperforming assets and credit losses, and the value and salability of the real estate 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 dependence on capital distributions from 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 credit losses or to write-down assets; regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products; 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; 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)

|  | September 30, 2023 |  | December 31, 2022 |  |
|  | (Unaudited) |  |  |  |
Assets |  |  |  |  |  |
Cash and due from banks |  | $ | 3,595 |  |  | $ | 17,426 |  |  |
Interest-bearing deposits |  | 517,610 |  |  | 239,126 |  |  |
Total cash and cash equivalents |  | 521,205 |  |  | 256,552 |  |  |
Securities available-for-sale, at fair value (amortized cost of $507,632 and $436,183 in 2023 and 2022, respectively) |  | 450,827 |  |  | 390,384 |  |  |
Securities held-to-maturity, at amortized cost, net of allowance for credit losses (fair value of $201,650 and $168,483 in 2023 and 2022, respectively) |  | 231,928 |  |  | 189,168 |  |  |
Loans held-for-sale (includes $9,110 at fair value in 2022) |  | 31,669 |  |  | 21,511 |  |  |
Loans |  | 3,735,068 |  |  | 3,499,401 |  |  |
Allowance for credit losses - loans |  | (36,452) |  |  | (31,737) |  |  |
Net loans |  | 3,698,616 |  |  | 3,467,664 |  |  |
Accrued interest receivable |  | 23,761 |  |  | 21,069 |  |  |
Federal Home Loan Bank of Indianapolis stock |  | 28,350 |  |  | 28,350 |  |  |
Cash surrender value of bank-owned life insurance |  | 40,619 |  |  | 39,859 |  |  |
Premises and equipment, net |  | 74,197 |  |  | 72,711 |  |  |
Goodwill |  | 4,687 |  |  | 4,687 |  |  |
Servicing asset, at fair value |  | 9,579 |  |  | 6,255 |  |  |
Other real estate owned |  | 106 |  |  | — |  |  |
Accrued income and other assets |  | 53,479 |  |  | 44,894 |  |  |
Total assets |  | $ | 5,169,023 |  |  | $ | 4,543,104 |  |  |
Liabilities and Shareholders’ Equity |  |  |  |  |  |
Liabilities |  |  |  |  |  |
Noninterest-bearing deposits |  | $ | 125,265 |  |  | $ | 175,315 |  |  |
Interest-bearing deposits |  | 3,958,280 |  |  | 3,265,930 |  |  |
Total deposits |  | 4,083,545 |  |  | 3,441,245 |  |  |
Advances from Federal Home Loan Bank |  | 614,933 |  |  | 614,928 |  |  |
Subordinated debt, net of unamortized debt issuance costs of $2,239 and $2,468 in 2023 and 2022, respectively |  | 104,761 |  |  | 104,532 |  |  |
Accrued interest payable |  | 2,968 |  |  | 2,913 |  |  |
Accrued expenses and other liabilities |  | 15,072 |  |  | 14,512 |  |  |
Total liabilities |  | 4,821,279 |  |  | 4,178,130 |  |  |
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; 8,669,673 and 9,065,883 shares issued and outstanding in 2023 and 2022, respectively |  | 185,085 |  |  | 192,935 |  |  |
Nonvoting common stock, no par value; 86,221 shares authorized; issued and outstanding - none |  | — |  |  | — |  |  |
Retained earnings |  | 203,856 |  |  | 205,675 |  |  |
Accumulated other comprehensive loss |  | (41,197) |  |  | (33,636) |  |  |
Total shareholders’ equity |  | 347,744 |  |  | 364,974 |  |  |
Total liabilities and shareholders’ equity |  | $ | 5,169,023 |  |  | $ | 4,543,104 |  |  |

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 |  | Nine Months Ended
|  | September 30, 2023 |  | September 30, 2022 |  | September 30, 2023 |  | September 30, 2022
Interest Income |  |  |  |  |  |  |  |
Loans |  | $ | 48,898 |  |  | $ | 34,643 |  |  | $ | 139,647 |  |  | $ | 100,246 |
Securities – taxable |  | 4,301 |  |  | 2,701 |  |  | 11,742 |  |  | 7,489 |
Securities – non-taxable |  | 912 |  |  | 491 |  |  | 2,570 |  |  | 1,068 |
Other earning assets |  | 8,904 |  |  | 1,264 |  |  | 19,211 |  |  | 2,436 |
Total interest income |  | 63,015 |  |  | 39,099 |  |  | 173,170 |  |  | 111,239 |
Interest Expense |  |  |  |  |  |  |  |
Deposits |  | 40,339 |  |  | 10,520 |  |  | 102,285 |  |  | 23,025 |
Other borrowed funds |  | 5,298 |  |  | 4,585 |  |  | 15,788 |  |  | 12,790 |
Total interest expense |  | 45,637 |  |  | 15,105 |  |  | 118,073 |  |  | 35,815 |
Net Interest Income |  | 17,378 |  |  | 23,994 |  |  | 55,097 |  |  | 75,424 |
Provision for credit losses - loans |  | 1,850 |  |  | 892 |  |  | 11,976 |  |  | 2,868 |
Benefit for credit losses - debt securities held to maturity |  | (15) |  |  | — |  |  | (15) |  |  | — |
Provision for credit losses - off-balance sheet commitments |  | 111 |  |  | — |  |  | 1,098 |  |  | — |
Net Interest Income After Provision for Credit Losses |  | 15,432 |  |  | 23,102 |  |  | 42,038 |  |  | 72,556 |
Noninterest Income |  |  |  |  |  |  |  |
Service charges and fees |  | 208 |  |  | 248 |  |  | 635 |  |  | 845 |
Loan servicing revenue |  | 1,064 |  |  | 653 |  |  | 2,699 |  |  | 1,858 |
Loan servicing asset revaluation |  | (257) |  |  | (333) |  |  | (670) |  |  | (1,100) |
Mortgage banking activities |  | — |  |  | 871 |  |  | 76 |  |  | 4,454 |
Gain on sale of loans |  | 5,569 |  |  | 2,713 |  |  | 14,498 |  |  | 8,510 |
Other |  | 823 |  |  | 164 |  |  | 1,486 |  |  | 883 |
Total noninterest income |  | 7,407 |  |  | 4,316 |  |  | 18,724 |  |  | 15,450 |
Noninterest Expense |  |  |  |  |  |  |  |
Salaries and employee benefits |  | 11,767 |  |  | 10,439 |  |  | 34,267 |  |  | 31,149 |
Marketing, advertising and promotion |  | 500 |  |  | 1,041 |  |  | 2,049 |  |  | 2,717 |
Consulting and professional services |  | 552 |  |  | 790 |  |  | 2,189 |  |  | 3,912 |
Data processing |  | 701 |  |  | 483 |  |  | 1,880 |  |  | 1,422 |
Loan expenses |  | 1,336 |  |  | 1,142 |  |  | 4,385 |  |  | 3,417 |
Premises and equipment |  | 2,315 |  |  | 2,808 |  |  | 7,753 |  |  | 7,767 |
Deposit insurance premium |  | 1,067 |  |  | 229 |  |  | 2,546 |  |  | 797 |
Other |  | 1,518 |  |  | 1,063 |  |  | 4,311 |  |  | 3,579 |
Total noninterest expense |  | 19,756 |  |  | 17,995 |  |  | 59,380 |  |  | 54,760 |
Income Before Income Taxes |  | 3,083 |  |  | 9,423 |  |  | 1,382 |  |  | 33,246 |
Income Tax (Benefit) Provision |  | (326) |  |  | 987 |  |  | (2,892) |  |  | 4,056 |
Net Income |  | $ | 3,409 |  |  | $ | 8,436 |  |  | $ | 4,274 |  |  | $ | 29,190 |
Income Per Share of Common Stock |  |  |  |  |  |  |  |
Basic |  | $ | 0.39 |  |  | $ | 0.89 |  |  | $ | 0.48 |  |  | $ | 3.04 |
Diluted |  | $ | 0.39 |  |  | $ | 0.89 |  |  | $ | 0.48 |  |  | $ | 3.01 |
Weighted-Average Number of Common Shares Outstanding |  |  |  |  |  |  |  |
Basic |  | 8,744,385 |  |  | 9,458,259 |  |  | 8,889,532 |  |  | 9,615,039 |
Diluted |  | 8,767,217 |  |  | 9,525,855 |  |  | 8,907,748 |  |  | 9,681,742 |
Dividends Declared Per Share |  | $ | 0.06 |  |  | $ | 0.06 |  |  | $ | 0.18 |  |  | $ | 0.18 |

1 Beginning January 1, 2023, the allowance calculation is based on the CECL methodology. Prior to January 1, 2023, the allowance calculation was based on the incurred loss methodology.
See Notes to Condensed Consolidated Financial Statements
2

First Internet Bancorp
Condensed Consolidated Statements of Comprehensive (Loss) Income – Unaudited
(Amounts in thousands except per share data)

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2023 |  | 2022 |  | 2023 |  | 2022
Net income |  | $ | 3,409 |  |  | $ | 8,436 |  |  | $ | 4,274 |  |  | $ | 29,190 |
Other comprehensive loss |  |  |  |  |  |  |  |
Securities available-for-sale |  |  |  |  |  |  |  |
Net unrealized holding losses recorded within other comprehensive loss before income tax |  | (11,308) |  |  | (18,406) |  |  | (11,006) |  |  | (51,682) |
Income tax benefit |  | (2,600) |  |  | (5,121) |  |  | (2,537) |  |  | (13,384) |
Net effect on other comprehensive loss |  | (8,708) |  |  | (13,285) |  |  | (8,469) |  |  | (38,298) |
Securities held-to-maturity |  |  |  |  |  |  |  |
Reclassification of securities from available-for-sale to held-to-maturity |  | — |  |  | — |  |  | — |  |  | (5,402) |
Amortization of net unrealized holding losses on securities transferred from available-for-sale to held-to-maturity |  | 173 |  |  | 296 |  |  | 537 |  |  | 608 |
Income tax provision (benefit) |  | 45 |  |  | 69 |  |  | 140 |  |  | (1,203) |
Net effect on other comprehensive loss |  | 128 |  |  | 227 |  |  | 397 |  |  | (3,591) |
Cash flow hedges |  |  |  |  |  |  |  |
Net unrealized holding gains on cash flow hedging derivatives recorded within other comprehensive income (loss) before income tax |  | 740 |  |  | 6,058 |  |  | 664 |  |  | 19,424 |
Income tax provision |  | 171 |  |  | 1,393 |  |  | 153 |  |  | 5,639 |
Net effect on other comprehensive loss |  | 569 |  |  | 4,665 |  |  | 511 |  |  | 13,785 |
Total other comprehensive loss |  | (8,011) |  |  | (8,393) |  |  | (7,561) |  |  | (28,104) |
Comprehensive (loss) income |  | $ | (4,602) |  |  | $ | 43 |  |  | $ | (3,287) |  |  | $ | 1,086 |

See Notes to Condensed Consolidated Financial Statements
3

First Internet Bancorp
Condensed Consolidated Statements of Changes in Shareholders’ Equity - Unaudited
Nine Months Ended September 30, 2023 and 2022
(Amounts in thousands except per share data)

|  | Voting and Nonvoting Common Stock |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  | Total Shareholders’ Equity
Balance, January 1, 2023 |  | $ | 192,935 |  |  | $ | 205,675 |  |  | $ | (33,636) |  |  | $ | 364,974 |
Impact of adoption of new accounting standards 1 |  | — |  |  | (4,491) |  |  | — |  |  | (4,491) |
Net income |  | — |  |  | 4,274 |  |  | — |  |  | 4,274 |
Other comprehensive loss |  | — |  |  | — |  |  | (7,561) |  |  | (7,561) |
Dividends declared ($0.18 per share) |  | — |  |  | (1,602) |  |  | — |  |  | (1,602) |
Recognition of the fair value of share-based compensation |  | 873 |  |  | — |  |  | — |  |  | 873 |
Repurchased shares of common stock (462,525) |  | (8,535) |  |  | — |  |  | — |  |  | (8,535) |
Excise tax on repurchase of common stock |  | (85) |  |  | — |  |  | — |  |  | (85) |
Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units |  | 3 |  | — |  |  | — |  |  | 3 |
Common stock redeemed for the net settlement of share-based awards |  | (106) |  |  | — |  |  | — |  |  | (106) |
Balance, September 30, 2023 |  | $ | 185,085 |  |  | $ | 203,856 |  |  | $ | (41,197) |  |  | $ | 347,744 |
Balance, January 1, 2022 |  | $ | 218,946 |  |  | $ | 172,431 |  |  | $ | (11,039) |  |  | $ | 380,338 |
Net income |  | — |  |  | 29,190 |  |  | — |  |  | 29,190 |
Other comprehensive loss |  | — |  |  | — |  |  | (28,104) |  |  | (28,104) |
Dividends declared ($0.18 per share) |  | — |  |  | (1,744) |  |  | — |  |  | (1,744) |
Recognition of the fair value of share-based compensation |  | 1,967 |  |  | — |  |  | — |  |  | 1,967 |
Repurchased shares of common stock (518,167) |  | (20,626) |  |  | — |  |  | — |  |  | (20,626) |
Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units |  | 15 |  |  | — |  |  | — |  |  | 15 |
Common stock redeemed for the net settlement of share-based awards |  | (179) |  |  | — |  |  | — |  |  | (179) |
Balance, September 30, 2022 |  | $ | 200,123 |  |  | $ | 199,877 |  |  | $ | (39,143) |  |  | $ | 360,857 |

1 Reflects the impact of adopting Accounting Standards Update (“ASU”) 2016-13.
See Notes to Condensed Consolidated Financial Statements
4

First Internet Bancorp
Condensed Consolidated Statements of Changes in Shareholders’ Equity - Unaudited
Three Months Ended September 30, 2023 and 2022
(Amounts in thousands except per share data)

|  | Voting and Nonvoting Common Stock |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  | Total Shareholders’ Equity
Balance July 1, 2023 |  | $ | 186,545 |  |  | $ | 200,973 |  |  | $ | (33,186) |  |  | $ | 354,332 |
Net income |  | — |  |  | 3,409 |  |  | — |  |  | 3,409 |
Other comprehensive loss |  | — |  |  | — |  |  | (8,011) |  |  | (8,011) |
Dividends declared ($0.06 per share) |  | — |  |  | (526) |  |  | — |  |  | (526) |
Recognition of the fair value of share-based compensation |  | 386 |  |  | — |  |  | — |  |  | 386 |
Repurchased shares of common stock (97,834) |  | (1,828) |  |  | — |  |  | — |  |  | (1,828) |
Excise tax on repurchase of common stock |  | (18) |  |  | — |  |  | — |  |  | (18) |
Balance, September 30, 2023 |  | $ | 185,085 |  |  | $ | 203,856 |  |  | $ | (41,197) |  |  | $ | 347,744 |
Balance July 1, 2022 |  | $ | 204,071 |  |  | $ | 192,011 |  |  | $ | (30,750) |  |  | $ | 365,332 |
Net income |  | — |  |  | 8,436 |  |  | — |  |  | 8,436 |
Other comprehensive loss |  | — |  |  | — |  |  | (8,393) |  |  | (8,393) |
Dividends declared ($0.06 per share) |  | — |  |  | (570) |  |  | — |  |  | (570) |
Recognition of the fair value of share-based compensation |  | 434 |  |  | — |  |  | — |  |  | 434 |
Repurchased shares of common stock (120,000) |  | (4,387) |  |  | — |  |  | — |  |  | (4,387) |
Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units |  | 5 |  |  | — |  |  | — |  |  | 5 |
Balance, September 30, 2022 |  | $ | 200,123 |  |  | $ | 199,877 |  |  | $ | (39,143) |  |  | $ | 360,857 |

5

First Internet Bancorp
Condensed Consolidated Statements of Cash Flows – Unaudited
(Amounts in thousands except per share data)

|  | Nine Months Ended September 30,
|  | 2023 |  | 2022
Operating Activities |  |  |  |
Net income |  | $ | 4,274 |  |  | $ | 29,190 |
Adjustments to reconcile net income to net cash used in operating activities: |  |  |  |
Depreciation and amortization |  | 3,019 |  |  | 6,745 |
Increase in cash surrender value of bank-owned life insurance |  | (760) |  |  | (712) |
Provision for credit losses 1 |  | 13,059 |  |  | 2,868 |
Share-based compensation expense |  | 873 |  |  | 1,967 |
Loans originated for sale |  | (248,622) |  |  | (431,053) |
Proceeds from sale of loans |  | 249,296 |  |  | 466,148 |
Gain on loans sold |  | (14,969) |  |  | (13,629) |
Decrease in fair value of loans held-for-sale |  | 143 |  |  | 599 |
Gain (loss) on derivatives |  | 362 |  |  | (3,625) |
Loan servicing asset revaluation |  | 670 |  |  | 1,100 |
Net change in accrued income and other assets |  | (4,385) |  |  | 19,262 |
Net change in accrued expenses and other liabilities |  | (3,584) |  |  | (5,084) |
Net cash provided by operating activities |  | (624) |  |  | 73,776 |
Investing Activities |  |  |  |
Net loan activity, excluding purchases |  | (51,677) |  |  | (87,883) |
Proceeds from sale of other real estate owned |  | — |  |  | 1,188 |
Maturities and calls of securities available-for-sale |  | 39,749 |  |  | 69,798 |
Purchase of securities available-for-sale |  | (110,749) |  |  | (12,133) |
Maturities and calls of securities held-to-maturity |  | 14,236 |  |  | 5,927 |
Purchase of securities held-to-maturity |  | (53,573) |  |  | (41,246) |
Redemption of Federal Home Loan Bank of Indianapolis stock |  | — |  |  | 431 |
Purchase of Federal Home Loan Bank of Indianapolis stock |  | — |  |  | (3,131) |
Purchase of premises and equipment |  | (4,970) |  |  | (14,368) |
Loans purchased |  | (194,318) |  |  | (295,254) |
Net proceeds from sale of portfolio loans |  | — |  |  | 14,466 |
Other investing activities |  | (3,442) |  |  | 374 |
Net cash used in investing activities |  | (364,744) |  |  | (361,831) |
Financing Activities |  |  |  |
Net increase in deposits |  | 640,370 |  |  | 13,685 |
Cash dividends paid |  | (1,623) |  |  | (1,733) |
Repurchase of common stock |  | (8,620) |  |  | (20,626) |
Proceeds from advances from Federal Home Loan Bank |  | 415,000 |  |  | 455,000 |
Repayment of advances from Federal Home Loan Bank |  | (415,000) |  |  | (380,000) |
Other, net |  | (106) |  |  | (179) |
Net cash provided by financing activities |  | 630,021 |  |  | 66,147 |
Net Increase (Decrease) in Cash and Cash Equivalents |  | 264,653 |  |  | (221,908) |
Cash and Cash Equivalents, Beginning of Period |  | 256,552 |  |  | 442,960 |
Cash and Cash Equivalents, End of Period |  | $ | 521,205 |  |  | $ | 221,052 |
Supplemental Disclosures |  |  |  |
Cash paid during the period for interest |  | 118,019 |  |  | 35,946 |
Cash paid during the period for taxes |  | 864 |  |  | 1,893 |
Loans transferred to other real estate owned |  | 106 |  |  | — |
Loans transferred to held-for-sale from portfolio |  | — |  |  | 14,049 |
Cash dividends declared, paid in subsequent period |  | 520 |  |  | 557 |
Securities purchased during the period, settled in subsequent period |  | 2,632 |  |  | 2,997 |
Transfer of available-for-sale mortgage-backed securities to held-to-maturity mortgage-backed securities at fair value |  | — |  |  | 96,220 |

1 Beginning January 1, 2023, the allowance calculation is based on the CECL methodology. Prior to January 1, 2023, the allowance calculation was based on the incurred loss methodology.
See Notes to Condensed Consolidated Financial Statements
6

First Internet Bancorp
Notes to Condensed Consolidated Financial Statements – Unaudited
(Table amounts in thousands except share and per share data)
Note 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information or footnotes necessary for a complete presentation of financial condition, results of operations, changes in shareholders’ equity, or cash flows in accordance with GAAP. In our opinion, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation have been included. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results expected for the year ending December 31, 2023 or any other period. The September 30, 2023 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the First Internet Bancorp Annual Report on Form 10-K for the year ended December 31, 2022.
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments, or assumptions that could have a material effect on the carrying value of certain assets and liabilities. These estimates, judgments, and assumptions affect the amounts reported in the condensed consolidated financial statements and the disclosures provided. The determination of the allowance for credit losses, income taxes, valuations and impairments of investment securities and goodwill, as well as fair value measurements of derivatives and loans held-for-sale are highly dependent upon management’s estimates, judgments, and assumptions, and changes in any of these could have a significant impact on the condensed consolidated financial statements.
The condensed consolidated financial statements include the accounts of First Internet Bancorp (the “Company”), its wholly owned subsidiary, First Internet Bank of Indiana (the “Bank”), and the Bank’s 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.
Other than the adoption of new accounting standards, the Company has not changed its significant accounting and reporting policies from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Adoption of new accounting standards
ASU 2016 - 13
On January 1, 2023, the Company adopted ASU 2016-03 Financial Instruments - Credit losses (“ASC 326”): Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with an expected credit loss (“CECL”) methodology. The CECL estimate is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures, including loan commitments, standby letters of credit, financial guarantees and other similar instruments. Additionally, ASC 326 resulted in changes to the accounting for available-for-sale debt securities.
The Company adopted ASC 326 for all financial assets measured at amortized cost, available for sale securities and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP. The Company recorded a net decrease to retained earnings of $4.5 million as of January 1, 2023 for the cumulative effect of adopting ASC 326. The net adjustment to allowance for credit losses (“ACL”) includes $2.3 million related to loans, $1.9 million related to off-balance sheet credit exposures and $0.3 million related to held-to-maturity debt securities.
ACL - Available-For-Sale (“AFS”) Debt Securities
7

For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors, such as interest rates or market conditions. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded. Changes in the ACL are recorded as a provision for, or recovery of, credit loss expense. Losses are charged against the allowance when management believes that uncollectibility of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Accrued interest receivable on AFS debt securities totaled $2.3 million at September 30, 2023 and is excluded from the estimate of credit losses. The Company made the policy election to exclude accrued interest from the amortized cost basis of AFS debt securities and report accrued interest separately on the condensed consolidated balance sheet.
ACL - Held-To-Maturity (“HTM”) Debt Securities
Management measures expected credit losses on HTM debt securities on a collective basis by major security type. Accrued interest receivable on HTM debt securities totaled $1.1 million at September 30, 2023 and is excluded from the estimate of credit losses. The Company made the accounting policy election to not measure an ACL for accrued interest. Accrued interest deemed uncollectible will be written off through interest income. The HTM securities portfolio includes municipal securities, residential mortgage-backed-securities, commercial mortgage-backed securities and corporate securities. All residential and commercial mortgage-backed securities are U.S. government issued or sponsored and substantially all municipal and corporate securities are rated investment grade or above.
The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. At the time of adoption, the estimated reserve was $0.3 million.
ACL - Loans
The ACL for loans represents management's estimate of all expected credit losses over the expected life of the Company’s existing loan portfolio. Management estimates the ACL balance using relevant available information about the collectability of cash flows, from internal and external sources, including historical information relating to past events, current conditions, and reasonable and supportable forecasts of future economic conditions. When the Company is unable to forecast future economic events, management may revert to historical information.
Accrued interest receivable on loans totaled $17.9 million and is excluded from the estimate of credit losses. The Company made the accounting policy election to not measure an ACL for accrued interest receivable. Accrued interest deemed uncollectible will be written off through interest income.
ACL - Loans - Collectively Evaluated
The ACL is measured on a collective pool basis when similar risk characteristics exist. The Company has identified the following portfolio segments in the table below.
The Company utilized a discounted cash flow (“DCF”) method to estimate the quantitative portion of the allowance for credit losses for loans evaluated on a collective pooled basis. For each segment, a loss driver analysis was performed in order to identify loss drivers and create a regression model for use in forecasting cash flows.
In creating the DCF model, the Company has established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average. Due to its minimal loss history, the Company elected to use peer data for a more conservative calculation.
Key inputs into the DCF model include loan-level detail, including the amortized cost basis of individual loans, payment structure, loss history, and forecasted loss drivers. The Company utilizes a third party to provide economic forecasts
8

under various scenarios, which are assessed quarterly considering the scenarios in the context of the current economic environment and loss risk.
Expected credit losses are estimated over the contractual term of the loans and adjusted for prepayments when appropriate. The contractual term excludes extensions, renewals, and modifications unless the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.
Additional key assumptions in the DCF model include the probability of default (“PD”), loss given default (“LGD”), and prepayment/curtailment rates. The Company utilizes the model-driven PD and a LGD derived from a method referred to as Frye Jacobs. The Frye Jacobs method is a mathematical formula that traces the relationship between LGD and PD over time and projects the LGD based on the level of PD forecasted. In all cases, the Frye Jacobs method is utilized to calculate LGDs during the forecast period, reversion period and long-term historical average. Prepayment and curtailment rates were calculated through third party analysis of the Company’s own data.
Qualitative factors for the DCF and weighted-average remaining maturity methodologies include the following:
•Changes in lending policies and procedures, including changes in underwriting standards and collections, charge-offs and recovery practices
•Changes in international, national, regional and local conditions
•Changes in the nature and volume of the portfolio and terms of loans
•Changes in the experience, depth and ability of lending management
•Changes in the volume and severity of past due loans and other similar conditions
•Changes in the quality of the organization’s loan review system
•Changes in the value of underlying collateral for collateral dependent loans
•The existence and effect of any concentrations of credit and changes in the levels of such concentrations
•The effect of other external factors (i.e. competition, legal and regulatory requirements) on the level of estimated credit losses
ACL - Loans - Individually Evaluated
Loans that do not share risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation. The Company has determined that any loans which have been placed on nonaccrual status will be individually evaluated. Individual analysis will establish a specific reserve for loans, if necessary. Specific reserves on nonaccrual loans are typically based on management’s best estimate of the fair value of collateral securing these loans, adjusted for selling costs as necessary.
ACL - Off-Balance Sheet Credit Exposures
The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The ACL for off-balance sheet credit exposure is recorded as a liability and adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Funding rates are based on a historical analysis of the Company’s portfolio, while estimates of credit losses are determined using the same loss rates as funded loans.
Regulatory Capital
As permitted by the federal banking regulatory agencies, the Company has elected the option to delay the impact of the day one adoption of ASC 326. Refer to “Item 2. Regulatory Capital Requirements” for details of the phase-in transition adjustments.
Modified Loans to Borrowers Experiencing Financial Difficulty
Concurrent with the adoption of ASU 2016-03, the Company adopted ASU 2022-02 “Financial Instruments-Credit Losses (ASC 326): Troubled Debt Restructurings and Vintage Disclosures,” as amended. The update eliminated the accounting guidance for troubled debt restructurings (“TDRs”) by creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.
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Note 2: Earnings Per Share
Earnings per share of common stock are based on the weighted-average number of basic shares and dilutive shares outstanding during the period.
The following is a reconciliation of the weighted-average common shares for the basic and diluted earnings per share computations for the three and nine months ended September 30, 2023 and 2022.

(dollars in thousands, except per share data) |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2023 |  | 2022 |  | 2023 |  | 2022
Basic earnings per share |  |  |  |  |  |  |  |
Net income |  | $ | 3,409 |  |  | $ | 8,436 |  |  | $ | 4,274 |  |  | $ | 29,190 |
Weighted-average common shares |  | 8,744,385 |  |  | 9,458,259 |  |  | 8,889,532 |  |  | 9,615,039 |
Basic earnings per common share |  | $ | 0.39 |  |  | $ | 0.89 |  |  | $ | 0.48 |  |  | $ | 3.04 |
Diluted earnings per share |  |  |  |  |  |  |  |
Net income |  | $ | 3,409 |  |  | $ | 8,436 |  |  | $ | 4,274 |  |  | $ | 29,190 |
Weighted-average common shares |  | 8,744,385 |  |  | 9,458,259 |  |  | 8,889,532 |  |  | 9,615,039 |
Dilutive effect of equity compensation |  | 22,832 |  |  | 67,596 |  |  | 18,216 |  |  | 66,703 |
Weighted-average common and incremental shares |  | 8,767,217 |  |  | 9,525,855 |  |  | 8,907,748 |  |  | 9,681,742 |
Diluted earnings per common share 1 |  | $ | 0.39 |  |  | $ | 0.89 |  |  | $ | 0.48 |  |  | $ | 3.01 |

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 12,713 and 28,363 for the three and nine months ended September 30, 2023, respectively. Excluded from the computation of diluted EPS were weighted-average antidilutive shares totaling 426 and 1,616 for the three and nine months ended September 30, 2022, respectively.
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Note 3: Securities
The following tables summarize securities AFS and securities HTM as of September 30, 2023 and December 31, 2022.

|  | September 30, 2023
|  | Amortized |  | Gross Unrealized |  | Fair
(in thousands) |  | Cost |  | Gains |  | Losses |  | Value
Securities available-for-sale |  |  |  |  |  |  |  |
U.S. Government-sponsored agencies |  | $ | 98,594 |  |  | $ | 550 |  |  | $ | (1,966) |  |  | $ | 97,178 |
Municipal securities |  | 69,031 |  |  | 64 |  |  | (6,323) |  |  | 62,772 |
Agency mortgage-backed securities - residential 1 |  | 235,468 |  |  | — |  |  | (42,372) |  |  | 193,096 |
Agency mortgage-backed securities - commercial |  | 37,931 |  |  | — |  |  | (1,768) |  |  | 36,163 |
Private label mortgage-backed securities - residential |  | 20,292 |  |  | — |  |  | (1,716) |  |  | 18,576 |
Asset-backed securities |  | 6,713 |  |  | 2 |  |  | (12) |  |  | 6,703 |
Corporate securities |  | 39,603 |  |  | 113 |  |  | (3,377) |  |  | 36,339 |
Total available-for-sale |  | $ | 507,632 |  |  | $ | 729 |  |  | $ | (57,534) |  |  | $ | 450,827 |

|  | September 30, 2023
|  | Amortized Cost |  | Gross Unrealized |  | Fair Value |  | Allowance for Credit Losses |  | Net Carrying Value
(in thousands) |  |  | Gains |  | Losses |  |  |
Securities held-to-maturity |  |  |  |  |  |  |  |  |  |  |  |
Municipal securities |  | $ | 13,903 |  |  | $ | — |  |  | $ | (1,454) |  |  | $ | 12,449 |  |  | $ | (3) |  |  | $ | 13,900 |
Mortgage-backed securities - residential |  | 170,524 |  |  | — |  |  | (23,112) |  |  | 147,412 |  |  | — |  |  | 170,524 |
Mortgage-backed securities - commercial |  | 5,782 |  |  | — |  |  | (1,592) |  |  | 4,190 |  |  | — |  |  | 5,782 |
Corporate securities |  | 42,040 |  |  | — |  |  | (4,441) |  |  | 37,599 |  |  | (318) |  |  | 41,722 |
Total held-to-maturity |  | $ | 232,249 |  |  | $ | — |  |  | $ | (30,599) |  |  | $ | 201,650 |  |  | $ | (321) |  |  | $ | 231,928 |

1 Includes $0.4 million of additional premium related to terminated interest rate swaps associated with agency mortgage-backed securities - residential as of September 30, 2023.
Accrued interest receivable on AFS and HTM securities at September 30, 2023 was $2.3 million and $1.1 million, respectively, and is included in accrued interest receivable on the condensed consolidated balance sheet. The Company elected to exclude all accrued interest receivable from securities when estimating credit losses.
Over 96% of mortgage-backed securities (including both AFS and HTM) held by the Company are issued by U.S. government-sponsored entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government and have a long history of no credit losses; therefore, the Company did not record an ACL on these securities.
Additionally, the Company evaluated credit impairment for individual AFS securities that are in an unrealized loss position and determined that the unrealized losses are unrelated to credit quality and are primarily attributable to changes in interest rates and volatility in the financial markets. As the Company does not intend to sell the AFS securities that are in an unrealized loss position, and it is unlikely that it will be required to sell these securities before recovery of their amortized cost basis, the Company did not record an ACL on these securities.
In accordance with the adoption of ASC 326, the Company also evaluated its HTM securities that are in an unrealized loss position and considered issuer bond ratings, historical loss rates for bond ratings and economic forecasts. As a result, the Company recorded in an initial ACL in retained earnings of $0.3 million on January 1, 2023. The Company reevaluated these securities at September 30, 2023 and determined no additional ACL was necessary.
11

|  | December 31, 2022
|  | Amortized |  | Gross Unrealized |  | Fair
(in thousands) |  | Cost |  | Gains |  | Losses |  | Value
Securities available-for-sale |  |  |  |  |  |  |  |
U.S. Government-sponsored agencies |  | $ | 35,606 |  |  | $ | — |  |  | $ | (1,797) |  |  | $ | 33,809 |
Municipal securities |  | 68,958 |  |  | 458 |  |  | (2,140) |  |  | 67,276 |
Agency mortgage-backed securities - residential 1 |  | 252,066 |  |  | — |  |  | (36,974) |  |  | 215,092 |
Agency mortgage-backed securities - commercial |  | 17,142 |  |  | — |  |  | (1,302) |  |  | 15,840 |
Private label mortgage-backed securities - residential |  | 11,777 |  |  | — |  |  | (1,322) |  |  | 10,455 |
Asset-backed securities |  | 5,000 |  |  | — |  |  | (40) |  |  | 4,960 |
Corporate securities |  | 45,634 |  |  | 35 |  |  | (2,717) |  |  | 42,952 |
Total available-for-sale |  | $ | 436,183 |  |  | $ | 493 |  |  | $ | (46,292) |  |  | $ | 390,384 |

|  | December 31, 2022
|  | Amortized |  | Gross Unrealized |  | Fair
(in thousands) |  | Cost |  | Gains |  | Losses |  | Value
Securities held-to-maturity |  |  |  |  |  |  |  |
Municipal securities |  | $ | 13,946 |  |  | $ | — |  |  | $ | (1,114) |  |  | $ | 12,832 |
Agency mortgage-backed securities - residential |  | 121,853 |  |  | — |  |  | (15,112) |  |  | 106,741 |
Agency mortgage-backed securities - commercial |  | 5,818 |  |  | — |  |  | (1,266) |  |  | 4,552 |
Corporate securities |  | 47,551 |  |  | — |  |  | (3,193) |  |  | 44,358 |
Total held-to-maturity |  | $ | 189,168 |  |  | $ | — |  |  | $ | (20,685) |  |  | $ | 168,483 |

1 Includes $0.5 million of additional premium related to terminated interest rate swaps associated with agency mortgage-backed securities - residential as of December 31, 2022.
The carrying value of securities at September 30, 2023 is shown below by their contractual maturity date. Actual maturities will differ because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

|  | Available-for-Sale
(in thousands) |  | Amortized Cost |  | Fair Value
Within one year |  | $ | 550 |  |  | $ | 545 |
One to five years |  | 29,373 |  |  | 30,293 |
Five to ten years |  | 60,746 |  |  | 57,066 |
After ten years |  | 116,559 |  |  | 108,385 |
|  | 207,228 |  |  | 196,289 |
Agency mortgage-backed securities - residential |  | 235,468 |  |  | 193,096 |
Agency mortgage-backed securities - commercial |  | 37,931 |  |  | 36,163 |
Private label mortgage-backed securities - residential |  | 20,292 |  |  | 18,576 |
Asset-backed securities |  | 6,713 |  |  | 6,703 |
Total |  | $ | 507,632 |  |  | $ | 450,827 |

12

|  | Held-to-Maturity
(in thousands) |  | Amortized Cost |  | Fair Value
Within one year |  | $ | 995 |  |  | $ | 977 |
One to five years |  | 7,135 |  |  | 6,817 |
Five to ten years |  | 43,859 |  |  | 38,974 |
After ten years |  | 3,954 |  |  | 3,280 |
|  | 55,943 |  |  | 50,048 |
Agency mortgage-backed securities - residential |  | 170,524 |  |  | 147,412 |
Agency mortgage-backed securities - commercial |  | 5,782 |  |  | 4,190 |
Total |  | $ | 232,249 |  |  | $ | 201,650 |

There were no gross gains or losses resulting from the sale of available-for-sale securities during the three and nine months ended September 30, 2023 and September 30, 2022, respectively.
Certain investments in debt securities are reported in the condensed consolidated financial statements at an amount less than their historical cost. The total fair value of these investments at September 30, 2023 and December 31, 2022 was $605.9 million and $527.4 million, which was approximately 93% and 94%, respectively, of the Company’s AFS and HTM securities portfolios. As of September 30, 2023, the Company’s security portfolio consisted of 504 securities, of which 488 were in an unrealized loss position. As of December 31, 2022, the Company’s security portfolio consisted of 445 securities, of which 434 were in an unrealized loss position. The unrealized losses are related to the categories noted below.
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 basis of the investments. 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 basis, which may be upon maturity.
Agency Mortgage-Backed and Private Label Mortgage-Backed Securities
The unrealized losses on the Company’s investments in agency mortgage-backed and private label mortgage-backed securities were caused primarily by interest rate changes. The Company expects to recover the amortized cost basis over the terms of the securities. 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 basis, which may be upon maturity.
The following tables show the securities portfolio’s gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2023 and December 31, 2022.
13

|  | September 30, 2023
|  | Less Than 12 Months |  | 12 Months or Longer |  | Total
(in thousands) |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
Securities available-for-sale |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government-sponsored agencies |  | $ | 42,445 |  |  | $ | (184) |  |  | $ | 26,328 |  |  | $ | (1,782) |  |  | $ | 68,773 |  |  | $ | (1,966) |
Municipal securities |  | 9,729 |  |  | (815) |  |  | 46,445 |  |  | (5,508) |  |  | 56,174 |  |  | (6,323) |
Agency mortgage-backed securities- residential |  | 4,292 |  |  | (67) |  |  | 188,803 |  |  | (42,305) |  |  | 193,095 |  |  | (42,372) |
Agency mortgage-backed securities- commercial |  | 21,856 |  |  | (95) |  |  | 14,307 |  |  | (1,673) |  |  | 36,163 |  |  | (1,768) |
Private label mortgage-backed securities - residential |  | 9,431 |  |  | (251) |  |  | 9,145 |  |  | (1,465) |  |  | 18,576 |  |  | (1,716) |
Asset-backed securities |  | 5,803 |  |  | (12) |  |  | — |  |  | — |  |  | 5,803 |  |  | (12) |
Corporate securities |  | 1,720 |  |  | (330) |  |  | 23,953 |  |  | (3,047) |  |  | 25,673 |  |  | (3,377) |
Total |  | $ | 95,276 |  |  | $ | (1,754) |  |  | $ | 308,981 |  |  | $ | (55,780) |  |  | $ | 404,257 |  |  | $ | (57,534) |

|  | December 31, 2022
|  | Less Than 12 Months |  | 12 Months or Longer |  | Total
(in thousands) |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
Securities available-for-sale |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government-sponsored agencies |  | $ | 29,668 |  |  | $ | (1,008) |  |  | $ | 4,141 |  |  | $ | (789) |  |  | $ | 33,809 |  |  | $ | (1,797) |
Municipal securities |  | 39,557 |  |  | (1,766) |  |  | 4,778 |  |  | (374) |  |  | 44,335 |  |  | (2,140) |
Agency mortgage-backed securities - residential |  | 170,026 |  |  | (29,690) |  |  | 45,066 |  |  | (7,284) |  |  | 215,092 |  |  | (36,974) |
Agency mortgage-backed securities - commercial |  | 10,560 |  |  | (926) |  |  | 5,280 |  |  | (376) |  |  | 15,840 |  |  | (1,302) |
Private label mortgage-backed securities |  | 2,445 |  |  | (330) |  |  | 8,010 |  |  | (992) |  |  | 10,455 |  |  | (1,322) |
Asset-backed securities |  | 4,960 |  |  | (40) |  |  | — |  |  | — |  |  | 4,960 |  |  | (40) |
Corporate securities |  | 21,568 |  |  | (1,452) |  |  | 13,239 |  |  | (1,265) |  |  | 34,807 |  |  | (2,717) |
Total |  | $ | 278,784 |  |  | $ | (35,212) |  |  | $ | 80,514 |  |  | $ | (11,080) |  |  | $ | 359,298 |  |  | $ | (46,292) |

|  | December 31, 2022
|  | Less Than 12 Months |  | 12 Months or Longer |  | Total
(in thousands) |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
Securities held-to-maturity |  |  |  |  |  |  |  |  |  |  |  |
Municipal securities |  | $ | 8,160 |  |  | $ | (661) |  |  | $ | 4,258 |  |  | $ | (453) |  |  | $ | 12,418 |  |  | $ | (1,114) |
Agency mortgage-backed securities - residential |  | 68,408 |  |  | (8,848) |  |  | 38,332 |  |  | (6,264) |  |  | 106,740 |  |  | (15,112) |
Agency mortgage-backed securities - commercial |  | 4,552 |  |  | (1,266) |  |  | — |  |  | — |  |  | 4,552 |  |  | (1,266) |
Corporate securities |  | 36,866 |  |  | (2,685) |  |  | 7,492 |  |  | (508) |  |  | 44,358 |  |  | (3,193) |
Total |  | $ | 117,986 |  |  | $ | (13,460) |  |  | $ | 50,082 |  |  | $ | (7,225) |  |  | $ | 168,068 |  |  | $ | (20,685) |

14

The following table summarizes ratings for the Company’s HTM portfolio issued by state and political subdivisions and other securities as of September 30, 2023.

|  | Held-to-Maturity
(in thousands) |  | State and Municipal |  | Other |  | Total
Aaa/AAA |  | $ | 95 |  |  | $ | — |  |  | $ | 95 |
Aa1/AA+ |  | 9,831 |  |  | — |  |  | 9,831 |
Aa2/AA |  | 1,539 |  |  | — |  |  | 1,539 |
A1/A+ |  | 1,794 |  |  | — |  |  | 1,794 |
A2/A |  | 644 |  |  | 5,000 |  |  | 5,644 |
A3/A- |  | — |  |  | 4,512 |  |  | 4,512 |
Baa1/BBB+ |  | — |  |  | 9,500 |  |  | 9,500 |
Baa2/BBB |  | — |  |  | 8,500 |  |  | 8,500 |
Baa3/BBB- |  | — |  |  | 12,528 |  |  | 12,528 |
Ba1/BB+ |  | — |  |  | 2,000 |  |  | 2,000 |
Not Rated 1 |  | — |  |  | 176,306 |  |  | 176,306 |
Total |  | $ | 13,903 |  |  | $ | 218,346 |  |  | $ | 232,249 |

1 HTM agency mortgage-backed securities - commercial and residential are listed under Other securities as not rated.
There were no amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statements of income during the three and nine months ended September 30, 2023.
15

Note 4: Loans
Loan balances as of September 30, 2023 and December 31, 2022 are summarized in the table below. Categories of loans include:

(in thousands) |  | September 30, 2023 |  | December 31, 2022
Commercial loans |  |  |  |
Commercial and industrial |  | $ | 114,265 |  |  | $ | 126,108 |
Owner-occupied commercial real estate |  | 58,486 |  |  | 61,836 |
Investor commercial real estate |  | 129,831 |  |  | 93,121 |
Construction |  | 252,105 |  |  | 181,966 |
Single tenant lease financing |  | 933,873 |  |  | 939,240 |
Public finance |  | 535,960 |  |  | 621,032 |
Healthcare finance |  | 235,622 |  |  | 272,461 |
Small business lending |  | 192,996 |  |  | 123,750 |
Franchise finance |  | 455,094 |  |  | 299,835 |
Total commercial loans |  | 2,908,232 |  |  | 2,719,349 |
Consumer loans |  |  |  |
Residential mortgage |  | 393,501 |  |  | 383,948 |
Home equity |  | 23,544 |  |  | 24,712 |
Other consumer loans |  | 369,451 |  |  | 324,598 |
Total consumer loans |  | 786,496 |  |  | 733,258 |
Total commercial and consumer loans |  | 3,694,728 |  |  | 3,452,607 |
Net deferred loan origination fees/costs and premiums/discounts on purchased loans and other 1 |  | 40,340 |  |  | 46,794 |
Total loans |  | 3,735,068 |  |  | 3,499,401 |
Allowance for credit losses |  | (36,452) |  |  | (31,737) |
Net loans |  | $ | 3,698,616 |  |  | $ | 3,467,664 |

1 Includes carrying value adjustments of $29.0 million and $32.5 million related to terminated interest rate swaps associated with public finance loans as of September 30, 2023 and December 31, 2022, respectively.
Risk characteristics of each loan portfolio segment are as follows:
Commercial and Industrial: Commercial and industrial loans’ sources of repayment are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value. Loans are made for working capital, equipment purchases, or other purposes. Most commercial and industrial loans are secured by the assets being financed and may incorporate a personal guarantee. This portfolio segment is generally concentrated in the Midwest and Southwest regions of the United States.
Owner-Occupied Commercial Real Estate: The primary source of repayment is the cash flow from the ongoing operations and activities conducted by the borrower, or an affiliate of the borrower, who owns the property. This portfolio segment is generally concentrated in the Midwest and Southwest regions of the United States and its loans are often secured by manufacturing and service facilities, as well as office buildings.

Investor Commercial Real Estate: These loans are underwritten primarily based on the cash flow expected to be generated from the property and are secondarily supported by the value of the real estate. These loans typically incorporate a personal guarantee from the primary sponsor or sponsors. This portfolio segment generally involves larger loan amounts with repayment primarily dependent on the successful leasing and operation of the property securing the loan or the business conducted on the property securing the loan. Investor commercial real estate loans may be more adversely affected by changing economic conditions in the real estate markets, industry dynamics or the overall health of the local economy where the property is located. The properties securing the Company’s investor commercial real estate portfolio tend to be diverse in terms of property type and are generally located in the Midwest and Southwest regions of the United States. Management monitors and evaluates commercial real estate loans based on property financial performance, collateral value, guarantor strength, economic and industry conditions together with other risk grade criteria. As a general rule, the Company avoids financing special use projects unless other underwriting factors are present to mitigate these additional risks.
Construction: Construction loans are secured by land and related improvements and are made to assist in the construction of new structures, which may include commercial (retail, industrial, office, and multi-family) properties, land development for residential properties or single family residential properties offered for sale by the builder. These loans generally finance a variety of project costs, including land, site preparation, architectural services, construction, closing and soft costs and interim financing needs. The cash flows of builders, while initially predictable, may fluctuate with market conditions, and the value of the collateral securing these loans may be subject to fluctuations based on general economic changes. This portfolio segment is generally concentrated in the Midwest and Southwest regions of the United States.
Single Tenant Lease Financing: These loans are made on a nationwide basis to property owners of real estate subject to long-term lease arrangements with single tenant operators. The real estate is typically operated by regionally, nationally or globally branded businesses. The loans are underwritten based on the financial strength of the borrower, characteristics of the real estate, cash flows generated from the lease arrangements and the financial strength of the tenant. Similar to the other loan portfolio segments, management monitors and evaluates these loans based on borrower and tenant financial performance, collateral value, industry trends and other risk grade criteria.
Public Finance: These loans are made on a nationwide basis to governmental and not-for-profit entities to provide both tax-exempt and taxable loans for a variety of purposes including: short-term cash-flow needs; debt refinancing; economic development; quality of life projects; infrastructure improvements; renewable energy projects; and equipment financing. The primary sources of repayment for public finance loans include pledged revenue sources including but not limited to: general obligations; property taxes; income taxes; tax increment revenue; utility revenue; gaming revenues; sales tax; and pledged general revenue. Certain loans may also include an additional collateral pledge of mortgaged property or a security interest in financed equipment.
Healthcare Finance: These loans are made on a nationwide basis to healthcare providers, primarily dentists, for practice acquisition financing or refinancing that occasionally includes owner-occupied commercial real estate and equipment purchases. The sources of repayment are primarily based on the identified cash flows from operations of the borrower and related entities and secondarily on the underlying collateral provided by the borrower.
Small Business Lending: These loans are made on a nationwide basis to small businesses and generally carry a partial guaranty from the U.S. Small Business Administration (“SBA”) under its 7(a) loan program. We generally sell the government guaranteed portion of SBA loans into the secondary market while retaining the non-guaranteed portion of the loan and the servicing rights. Loans in the small business lending portfolio have sources of repayment that are primarily based on the identified cash flows of the borrower and secondarily on any underlying collateral provided by the borrower. Loans may, but do not always, have a collateral shortfall. For SBA loans where the guaranteed portion is retained, the SBA guaranty provides a tertiary source of repayment to the Bank in event of borrower default. Cash flows of borrowers, however, may not be as expected and collateral securing these loans may fluctuate in value. Loans are made for a broad array of purposes including, but not limited to, providing operating cash flow, funding ownership changes, and facilitating equipment purchases.
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.
17

Residential Mortgage: With respect to residential loans that are secured by 1-to-4 family residences and are generally owner occupied, the Bank typically establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Repayment of these loans is primarily dependent on the financial circumstances of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in residential property values. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers in geographically diverse locations throughout the country.
Home Equity: Home equity loans and lines of credit are typically secured by a subordinate interest in 1-to-4 family residences. The properties securing the home equity portfolio segment are generally geographically diverse as the Bank offered these products on a nationwide basis. Repayment of these loans and lines of credit is primarily dependent on the financial circumstances of the borrowers and may be impacted by changes in unemployment levels and property values on residential properties, among other economic conditions in the market.
Other Consumer: These loans primarily consist of consumer loans and credit cards. Consumer loans may be secured by consumer assets such as horse trailers or recreational vehicles. Some consumer loans are unsecured, such as small installment loans, home improvement loans and certain lines of credit. Repayment of consumer loans is primarily dependent upon the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers in geographically diverse locations throughout the country.
Allowance for Credit Losses (“ACL”) Methodology
The ACL for loans represents management's estimate of all expected credit losses over the expected life of the Company’s existing loan portfolio. Management estimates the ACL balance using relevant available information about the collectability of cash flows, from internal and external sources, including historical information relating to past events, current conditions, and reasonable and supportable forecasts of future economic conditions. When the Company is unable to forecast future economic events, management may revert to historical information.
The Company's methodologies incorporate a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average.
The ACL methodology may also consider other adjustments to address changes in conditions, trends, and circumstances such as local industry changes that could have a significant impact on the risk profile of the loan portfolio and provide for adjustments that may not be reflected and/or captured in the historical loss data. These factors include: lending policies, imprecision in forecasting future economic conditions, loan profile, lending staff, problem loan trends, loan review, collateral, credit concentration, or other internal and external factors.
The Company also includes qualitative adjustments to the allowance based on factors and considerations that have not otherwise been fully accounted for. Qualitative adjustments include, but are not limited to:
•Changes in lending policies and procedures, including changes in underwriting standards and collections, charge-offs and recovery practices
•Changes in international, national, regional and local conditions
•Changes in the nature and volume of the portfolio and terms of loans
•Changes in the experience, depth and ability of lending management
•Changes in the volume and severity of past due loans and other similar conditions
•Changes in the quality of the organization’s loan review system
•Changes in the value of underlying collateral for collateral dependent loans
•The existence and effect of any concentrations of credit and changes in the levels of such concentrations
•The effect of other external factors (i.e. competition, legal and regulatory requirements) on the level of estimated credit losses
The ACL is measured on a collective or pool basis when similar risk characteristics exist. The Company segments its portfolio generally by Federal Financial Institutions Examination Council ("FFIEC") Call Report codes that align with its lines of business. Additional sub-segmentation may be utilized to identify groups of loans with unique risk characteristics relative to the rest of the portfolio.
18

Loans that do not share similar risk characteristics are evaluated on an individual basis. These evaluations are typically performed on loans with a deteriorated internal risk rating. The allowance for credit loss is determined based on several methods, including estimating the fair value of the underlying collateral or the present value of expected cash flows.
The Company relies on a third-party platform that offers multiple methodologies to measure historical life-of-loan losses.
Modified Loans to Borrowers Experiencing Financial Difficulty
The Company may make modifications to certain loans in order to alleviate temporary difficulties in the borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize potential losses to the Company. Modifications may include changes in the amortization terms of the loan, reductions in interest rates, acceptance of interest only payments, and/or reductions to the outstanding loan balance. Such loans are typically placed on nonaccrual status when there is doubt concerning the full repayment of principal and interest or the loan has been delinquent for a period of 90 days or more. These loans may be returned to accrual status when all contractual amounts past due have been brought current, and the borrower’s performance under the modified terms of the loan agreement and the ultimate collectability of all contractual amounts due under the modified terms is no longer in doubt. The Company typically measures the ACL on modified loans to borrowers experiencing financial difficulty on an individual basis when the loans are deemed to no longer share risk characteristics that are similar with other loans in the portfolio. The determination of the ACL for these loans is based on a discounted cash flow approach for both those measured collectively and individually, unless the loan is deemed collateral dependent, which requires measurement of the ACL based on the estimated expected fair value of the underlying collateral, less costs to sell. GAAP requires the Company to make certain disclosures related to these loans, including certain types of modifications, as well as how such loans have performed since their modifications.
Provision for Credit Losses
A provision for estimated losses on loans is charged to income based upon management’s evaluation of the potential losses. Such an evaluation, which includes a review of all loans for which full repayment may not be reasonably assured, considers, among other matters, the estimated net realizable value of the underlying collateral, as applicable, economic conditions, loan loss experience, and other factors that are particularly susceptible to changes that could result in a material adjustment in the near term. While management attempts to use the best information available in making its evaluations, future allowance adjustments may be necessary if economic conditions change substantially from the assumptions used in making the evaluations.
Policy for Charging Off Loans
The Company’s policy is to charge off a loan at any point in time when it no longer can be considered a bankable asset, meaning collectible within the parameters of policy. A secured loan is generally charged down to the estimated fair value of the collateral, less costs to sell, no later than when it is 120 days past due as to principal or interest. An unsecured loan generally is charged off no later than when it is 180 days past due as to principal or interest. A home improvement loan generally is charged off no later than when it is 90 days past due as to principal or interest.
19

The following tables present changes in the balance of the ACL during the three and nine months ended September 30, 2023.

(in thousands) | Three Months Ended September 30, 2023
Allowance for credit losses: | Balance, Beginning of Period |  |  |  | (Credit) Provision Charged to Expense |  | Losses Charged Off |  | Recoveries |  | Balance, End of Period
Commercial and industrial | $ | 1,849 |  |  |  |  | $ | 260 |  |  | $ | — |  |  | $ | 1 |  |  | $ | 2,110 |
Owner-occupied commercial real estate | 789 |  |  |  |  | 69 |  |  | — |  |  | — |  |  | 858 |
Investor commercial real estate | 1,416 |  |  |  |  | 488 |  |  | (591) |  |  | — |  |  | 1,313 |
Construction | 1,940 |  |  |  |  | 163 |  |  | — |  |  | — |  |  | 2,103 |
Single tenant lease financing | 9,970 |  |  |  |  | (1,605) |  |  | — |  |  | — |  |  | 8,365 |
Public finance | 1,509 |  |  |  |  | (98) |  |  | — |  |  | — |  |  | 1,411 |
Healthcare finance | 2,421 |  |  |  |  | (194) |  |  | — |  |  | — |  |  | 2,227 |
Small business lending | 2,618 |  |  |  |  | 2,341 |  |  | (751) |  |  | 13 |  |  | 4,221 |
Franchise finance | 4,484 |  |  |  |  | 763 |  |  | — |  |  | — |  |  | 5,247 |
Residential mortgage | 2,550 |  |  |  |  | (215) |  |  | (56) |  |  | 1 |  |  | 2,280 |
Home equity | 224 |  |  |  |  | (34) |  |  | — |  |  | 2 |  |  | 192 |
Other consumer loans | 6,288 |  |  |  |  | (88) |  |  | (119) |  |  | 44 |  |  | 6,125 |
Total | $ | 36,058 |  |  |  |  | $ | 1,850 |  |  | $ | (1,517) |  |  | $ | 61 |  |  | $ | 36,452 |

(in thousands) | Nine Months Ended September 30, 2023
Allowance for credit losses: | Balance, Beginning of Period |  | Adoption of CECL |  | (Credit) Provision Charged to Expense |  | Losses Charged Off |  | Recoveries |  | Balance, End of Period
Commercial and industrial | $ | 1,711 |  |  | $ | (120) |  |  | $ | 7,265 |  |  | $ | (6,965) |  |  | $ | 219 |  |  | $ | 2,110 |
Owner-occupied commercial real estate | 651 |  |  | 62 |  |  | 145 |  |  | — |  |  | — |  |  | 858 |
Investor commercial real estate | 1,099 |  |  | (191) |  |  | 996 |  |  | (591) |  |  | — |  |  | 1,313 |
Construction | 2,074 |  |  | (435) |  |  | 464 |  |  | — |  |  | — |  |  | 2,103 |
Single tenant lease financing | 10,519 |  |  | (346) |  |  | (1,808) |  |  | — |  |  | — |  |  | 8,365 |
Public finance | 1,753 |  |  | (135) |  |  | (207) |  |  | — |  |  | — |  |  | 1,411 |
Healthcare finance | 2,997 |  |  | 1,034 |  |  | (1,779) |  |  | (25) |  |  | — |  |  | 2,227 |
Small business lending | 2,168 |  |  | 334 |  |  | 3,834 |  |  | (2,169) |  |  | 54 |  |  | 4,221 |
Franchise finance | 3,988 |  |  | (313) |  |  | 1,903 |  |  | (331) |  |  | — |  |  | 5,247 |
Residential mortgage | 1,559 |  |  | 406 |  |  | 367 |  |  | (56) |  |  | 4 |  |  | 2,280 |
Home equity | 69 |  |  | 133 |  |  | (15) |  |  | — |  |  | 5 |  |  | 192 |
Other consumer loans | 3,149 |  |  | 2,533 |  |  | 811 |  |  | (502) |  |  | 134 |  |  | 6,125 |
Total | $ | 31,737 |  |  | $ | 2,962 |  |  | $ | 11,976 |  |  | $ | (10,639) |  |  | $ | 416 |  |  | $ | 36,452 |

20

Prior to the adoption of ASU 2016-13 on January 1, 2023, the Company calculated the allowance for loan losses using the incurred loss methodology. The following table presents the activity in the allowance for loan losses by segment for the three and nine months ended September 30, 2022.

(in thousands) | Three Months Ended September 30, 2022
Allowance for loan losses: | Balance, Beginning of Period |  | (Credit) Provision Charged to Expense |  | Losses Charged Off |  | Recoveries |  | Balance, End of Period
Commercial and industrial | $ | 2,026 |  |  | $ | (301) |  |  | $ | — |  |  | $ | 2 |  |  | $ | 1,727 |
Owner-occupied commercial real estate | 703 |  |  | (87) |  |  | — |  |  | — |  |  | 616 |
Investor commercial real estate | 621 |  |  | 453 |  |  | — |  |  | — |  |  | 1,074 |
Construction | 1,707 |  |  | (117) |  |  | — |  |  | — |  |  | 1,590 |
Single tenant lease financing | 9,712 |  |  | 315 |  |  | — |  |  | — |  |  | 10,027 |
Public finance | 1,850 |  |  | (61) |  |  | — |  |  | — |  |  | 1,789 |
Healthcare finance | 4,762 |  |  | (1,150) |  |  | — |  |  | — |  |  | 3,612 |
Small business lending | 1,956 |  |  | 217 |  |  | (130) |  |  | 3 |  |  | 2,046 |
Franchise finance | 2,281 |  |  | 734 |  |  | — |  |  | — |  |  | 3,015 |
Residential mortgage | 1,138 |  |  | 231 |  |  | — |  |  | 1 |  |  | 1,370 |
Home equity | 54 |  |  | 7 |  |  | — |  |  | 1 |  |  | 62 |
Other consumer loans | 2,343 |  |  | 651 |  |  | (106) |  |  | 50 |  |  | 2,938 |
Total | $ | 29,153 |  |  | $ | 892 |  |  | $ | (236) |  |  | $ | 57 |  |  | $ | 29,866 |

(in thousands) | Nine Months Ended September 30, 2022
Allowance for loan losses: | Balance, Beginning of Period |  | (Credit) Provision Charged to Expense |  | Losses Charged Off |  | Recoveries |  | Balance, End of Period
Commercial and industrial | $ | 1,891 |  |  | $ | (166) |  |  | $ | — |  |  | $ | 2 |  |  | $ | 1,727 |
Owner-occupied commercial real estate | 742 |  |  | (126) |  |  | — |  |  | — |  |  | 616 |
Investor commercial real estate | 328 |  |  | 746 |  |  | — |  |  | — |  |  | 1,074 |
Construction | 1,612 |  |  | (22) |  |  | — |  |  | — |  |  | 1,590 |
Single tenant lease financing | 10,385 |  |  | (1,589) |  |  | — |  |  | 1,231 |  |  | 10,027 |
Public finance | 1,776 |  |  | 13 |  |  | — |  |  | — |  |  | 1,789 |
Healthcare finance | 5,940 |  |  | (2,328) |  |  | — |  |  | — |  |  | 3,612 |
Small business lending | 1,387 |  |  | 847 |  |  | (210) |  |  | 22 |  |  | 2,046 |
Franchise finance | 1,083 |  |  | 1,932 |  |  | — |  |  | — |  |  | 3,015 |
Residential mortgage | 643 |  |  | 724 |  |  | — |  |  | 3 |  |  | 1,370 |
Home equity | 64 |  |  | (139) |  |  | — |  |  | 137 |  |  | 62 |
Other consumer loans | 1,990 |  |  | 1,116 |  |  | (397) |  |  | 229 |  |  | 2,938 |
Tax refund advance loans | — |  |  | 1,860 |  |  | (1,860) |  |  | — |  |  | — |
Total | $ | 27,841 |  |  | $ | 2,868 |  |  | $ | (2,467) |  |  | $ | 1,624 |  |  | $ | 29,866 |

In addition to the ACL, the Company established a reserve for off-balance sheet commitments, classified in other liabilities, as required by the adoption of the CECL methodology for measuring credit losses. This reserve is maintained at a level management believes to be sufficient to absorb losses arising from unfunded loan commitments. The day one entry for off-balance sheet commitments resulted in a reserve of $2.5 million. The adequacy of the reserve for unfunded commitments is determined quarterly based on methodology similar to the methodology for determining the ACL. The following table details activity in the provision for credit losses on off-balance sheet commitments for the three months ended September 30, 2023.
21

(dollars in thousands) |  | Balance June 30, 2023 |  |  |  | Provision for credit losses |  | Balance September 30, 2023
Off-balance sheet commitments |  |  |  |  |  |  |  |
Commercial loans |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 188 |  |  |  |  | $ | 18 |  |  | $ | 206 |
Owner-occupied commercial real estate |  | 8 |  |  |  |  | 1 |  |  | 9 |
Investor commercial real estate |  | 20 |  |  |  |  | (3) |  |  | 17 |
Construction |  | 2,897 |  |  |  |  | (8) |  |  | 2,889 |
Healthcare finance |  | — |  |  |  |  | — |  |  | — |
Small business lending |  | 242 |  |  |  |  | 148 |  |  | 390 |
Total commercial loans |  | 3,355 |  |  |  |  | 156 |  |  | 3,511 |
Consumer loans |  |  |  |  |  |  |  |
Residential mortgage |  | 59 |  |  |  |  | (34) |  |  | 25 |
Home equity |  | 63 |  |  |  |  | (9) |  |  | 54 |
Other consumer |  | 14 |  |  |  |  | (2) |  |  | 12 |
Total consumer loans |  | 136 |  |  |  |  | (45) |  |  | 91 |
Total allowance for off-balance sheet commitments |  | $ | 3,491 |  |  |  |  | $ | 111 |  |  | $ | 3,602 |

The following table details activity in the provision for credit losses on off-balance sheet commitments for the nine months ended September 30, 2023.

(dollars in thousands) |  | Pre-ASC 326 Adoption |  | Impact of ASC 326 Adoption |  | Provision for credit losses |  | Balance September 30, 2023
Off-balance sheet commitments |  |  |  |  |  |  |  |
Commercial loans |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | — |  |  | $ | 110 |  |  | $ | 96 |  |  | $ | 206 |
Owner-occupied commercial real estate |  | — |  |  | — |  |  | 9 |  |  | 9 |
Investor commercial real estate |  | — |  |  | 9 |  |  | 8 |  |  | 17 |
Construction |  | — |  |  | 2,193 |  |  | 696 |  |  | 2,889 |
Healthcare finance |  | — |  |  | 2 |  |  | (2) |  |  | — |
Small business lending |  | — |  |  | — |  |  | 390 |  |  | 390 |
Total commercial loans |  | — |  |  | 2,314 |  |  | 1,197 |  |  | 3,511 |
Consumer loans |  |  |  |  |  |  |  |
Residential mortgage |  | — |  |  | 127 |  |  | (102) |  |  | 25 |
Home equity |  | — |  |  | 52 |  |  | 2 |  |  | 54 |
Other consumer |  | — |  |  | 11 |  |  | 1 |  |  | 12 |
Total consumer loans |  | — |  |  | 190 |  |  | (99) |  |  | 91 |
Total allowance for off-balance sheet commitments |  | $ | — |  |  | $ | 2,504 |  |  | $ | 1,098 |  |  | $ | 3,602 |

22

The following table presents the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2022.

(in thousands) | Loans |  | Allowance for Loan Losses
December 31, 2022 | Ending Balance: Collectively Evaluated for Impairment |  | Ending Balance: Individually Evaluated for Impairment |  | Ending Balance |  | Ending Balance: Collectively Evaluated for Impairment |  | Ending Balance: Individually Evaluated for Impairment |  | Ending Balance
Commercial and industrial | $ | 116,307 |  |  | $ | 9,801 |  |  | $ | 126,108 |  |  | $ | 1,660 |  |  | $ | 51 |  |  | $ | 1,711 |
Owner-occupied commercial real estate | 60,266 |  |  | 1,570 |  |  | 61,836 |  |  | 651 |  |  | — |  |  | 651 |
Investor commercial real estate | 93,121 |  |  | — |  |  | 93,121 |  |  | 1,099 |  |  | — |  |  | 1,099 |
Construction | 181,966 |  |  | — |  |  | 181,966 |  |  | 2,074 |  |  | — |  |  | 2,074 |
Single tenant lease financing | 939,240 |  |  | — |  |  | 939,240 |  |  | 10,519 |  |  | — |  |  | 10,519 |
Public finance | 621,032 |  |  | — |  |  | 621,032 |  |  | 1,753 |  |  | — |  |  | 1,753 |
Healthcare finance | 272,461 |  |  | — |  |  | 272,461 |  |  | 2,997 |  |  | — |  |  | 2,997 |
Small business lending 1 | 113,699 |  |  | 10,051 |  |  | 123,750 |  |  | 1,465 |  |  | 703 |  |  | 2,168 |
Franchise finance | 299,835 |  |  | — |  |  | 299,835 |  |  | 3,988 |  |  | — |  |  | 3,988 |
Residential mortgage | 380,272 |  |  | 3,676 |  |  | 383,948 |  |  | 1,559 |  |  | — |  |  | 1,559 |
Home equity | 24,683 |  |  | 29 |  |  | 24,712 |  |  | 69 |  |  | — |  |  | 69 |
Other consumer | 324,581 |  |  | 17 |  |  | 324,598 |  |  | 3,149 |  |  | — |  |  | 3,149 |
Total | $ | 3,427,463 |  |  | $ | 25,144 |  |  | $ | 3,452,607 |  |  | $ | 30,983 |  |  | $ | 754 |  |  | $ | 31,737 |

1 Balance is partially guaranteed by the U.S. government.
23

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.
The Company does not risk grade its consumer loans. It classifies them as either performing or nonperforming. Below is a description of those classifications:
•“Performing” - Loans that are accruing and full collection of principal and interest is expected.
•“Nonperforming” - Loans that are 90 days delinquent or for which the full collection of principal and interest may be in doubt.
24

The following tables present the credit risk profile of the Company’s commercial and consumer loan portfolios by loan class and by year of origination for the years indicated based on rating category and payment activity as of September 30, 2023.

| September 30, 2023
| Term Loans (amortized cost basis by origination year) |  | Revolving loans amortized cost basis | Revolving loans converted to term |  |
(in thousands) | 2023 |  | 2022 |  | 2021 |  | 2020 |  | 2019 |  | Prior |  |  | Total
Commercial and industrial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | $ | 22,954 |  |  | $ | 22,268 |  |  | $ | 15,535 |  |  | $ | 2,543 |  |  | $ | 12,543 |  |  | $ | 9,065 |  |  | $ | 28,909 |  | $ | — |  |  | $ | 113,817 |
Special Mention | — |  |  | 32 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 416 |  | — |  |  | 448 |
Substandard | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |
Doubtful | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |
Total Commercial and industrial | 22,954 |  |  | 22,300 |  |  | 15,535 |  |  | 2,543 |  |  | 12,543 |  |  | 9,065 |  |  | 29,325 |  | — |  |  | 114,265 |
Gross charge-offs | — |  |  | — |  |  | 6,914 |  |  | — |  |  | 51 |  |  | — |  |  | — |  | — |  |  | 6,965 |
Owner-occupied commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | 678 |  |  | 11,360 |  |  | 9,027 |  |  | 6,645 |  |  | 5,607 |  |  | 12,982 |  |  | — |  | — |  |  | 46,299 |
Special Mention | 823 |  |  | — |  |  | — |  |  | 8,453 |  |  | — |  |  | 1,541 |  |  | — |  | — |  |  | 10,817 |
Substandard | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,370 |  |  | — |  | — |  |  | 1,370 |
Doubtful | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |
Total owner-occupied commercial real estate | 1,501 |  |  | 11,360 |  |  | 9,027 |  |  | 15,098 |  |  | 5,607 |  |  | 15,893 |  |  | — |  | — |  |  | 58,486 |
Investor commercial real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | 5,033 |  |  | 36,150 |  |  | 24,800 |  |  | 9,927 |  |  | 48,070 |  |  | 5,851 |  |  | — |  | — |  |  | 129,831 |
Special Mention | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |
Substandard | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |
Doubtful | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |
Total investor commercial real estate | 5,033 |  |  | 36,150 |  |  | 24,800 |  |  | 9,927 |  |  | 48,070 |  |  | 5,851 |  |  | — |  | — |  |  | 129,831 |
Gross charge-offs | 591 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | 591 |
Construction |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | 9,816 |  |  | 140,221 |  |  | 58,773 |  |  | 37,982 |  |  | — |  |  | — |  |  | 4,667 |  | — |  |  | 251,459 |
Special Mention | — |  |  | — |  |  | 646 |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | 646 |
Substandard | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |
Doubtful | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |
Total construction | 9,816 |  |  | 140,221 |  |  | 59,419 |  |  | 37,982 |  |  | — |  |  | — |  |  | 4,667 |  | — |  |  | 252,105 |
Single tenant lease financing |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | 36,431 |  |  | 223,113 |  |  | 90,103 |  |  | 67,327 |  |  | 144,143 |  |  | 354,024 |  |  | — |  | — |  |  | 915,141 |
Special Mention | — |  |  | 4,374 |  |  | 6,748 |  |  | 3,053 |  |  | — |  |  | 4,557 |  |  | — |  | — |  |  | 18,732 |
Substandard | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |
Doubtful | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |
Total single tenant lease financing | 36,431 |  |  | 227,487 |  |  | 96,851 |  |  | 70,380 |  |  | 144,143 |  |  | 358,581 |  |  | — |  | — |  |  | 933,873 |
Public finance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | 2,017 |  |  | 35,716 |  |  | 29,750 |  |  | 3,590 |  |  | 46,076 |  |  | 416,531 |  |  | — |  | — |  |  | 533,680 |
Special Mention | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2,280 |  |  | — |  | — |  |  | 2,280 |
Substandard | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |
Doubtful | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |
Total public finance | 2,017 |  |  | 35,716 |  |  | 29,750 |  |  | 3,590 |  |  | 46,076 |  |  | 418,811 |  |  | — |  | — |  |  | 535,960 |

25

| September 30, 2023
| Term Loans (amortized cost basis by origination year) |  | Revolving loans amortized cost basis | Revolving loans converted to term |  |
(in thousands) | 2023 |  | 2022 |  | 2021 |  | 2020 |  | 2019 |  | Prior |  |  | Total
Healthcare finance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | — |  |  | — |  |  | 10,191 |  |  | 132,692 |  |  | 66,555 |  |  | 24,929 |  |  | — |  | — |  |  | 234,367 |
Special Mention | — |  |  | — |  |  | — |  |  | — |  |  | 1,255 |  |  | — |  |  | — |  | — |  |  | 1,255 |
Substandard | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |
Doubtful | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |
Total healthcare finance | — |  |  | — |  |  | 10,191 |  |  | 132,692 |  |  | 67,810 |  |  | 24,929 |  |  | — |  | — |  |  | 235,622 |
Gross charge-offs | — |  |  | — |  |  | — |  |  | — |  |  | 25 |  |  | — |  |  | — |  | — |  |  | 25 |
Small business lending 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | 86,442 |  |  | 45,532 |  |  | 15,566 |  |  | 14,850 |  |  | 3,582 |  |  | 12,837 |  |  | 4,300 |  | — |  |  | 183,109 |
Special Mention | 1,095 |  |  | 1,493 |  |  | 98 |  |  | 566 |  |  | 707 |  |  | 1,028 |  |  | 47 |  | — |  |  | 5,034 |
Substandard | — |  |  | 1,169 |  |  | 55 |  |  | 1,510 |  |  | 1,161 |  |  | 520 |  |  | 438 |  | — |  |  | 4,853 |
Doubtful | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |
Total small business lending | 87,537 |  |  | 48,194 |  |  | 15,719 |  |  | 16,926 |  |  | 5,450 |  |  | 14,385 |  |  | 4,785 |  | — |  |  | 192,996 |
Gross charge-offs | 67 |  |  | 464 |  |  | 281 |  |  | 1,357 |  |  | — |  |  | — |  |  | — |  | — |  |  | 2,169 |
Franchise finance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass | 177,616 |  |  | 217,700 |  |  | 59,476 |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | 454,792 |
Special Mention | — |  |  | — |  |  | 302 |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | 302 |
Substandard | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |
Doubtful | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |
Total franchise finance | 177,616 |  |  | 217,700 |  |  | 59,778 |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | 455,094 |
Gross charge-offs | — |  |  | 331 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | 331 |
Consumer loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | 10,013 |  |  | 195,002 |  |  | 92,181 |  |  | 30,876 |  |  | 13,176 |  |  | 50,899 |  |  | — |  | — |  |  | 392,147 |
Nonperforming | — |  |  | 494 |  |  | 116 |  |  | 74 |  |  | — |  |  | 670 |  |  | — |  | — |  |  | 1,354 |
Total residential mortgage | 10,013 |  |  | 195,496 |  |  | 92,297 |  |  | 30,950 |  |  | 13,176 |  |  | 51,569 |  |  | — |  | — |  |  | 393,501 |
Gross charge-offs | — |  |  | 53 |  |  | 3 |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | 56 |
Home equity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | 1,391 |  |  | 2,085 |  |  | 443 |  |  | 477 |  |  | 153 |  |  | 608 |  |  | 16,855 |  | 1,532 |  |  | 23,544 |
Nonperforming | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | — |
Total home equity | 1,391 |  |  | 2,085 |  |  | 443 |  |  | 477 |  |  | 153 |  |  | 608 |  |  | 16,855 |  | 1,532 |  |  | 23,544 |
Other consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payment performance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing | 94,161 |  |  | 111,134 |  |  | 43,766 |  |  | 27,814 |  |  | 28,411 |  |  | 63,276 |  |  | 801 |  | — |  |  | 369,363 |
Nonperforming | — |  |  | 53 |  |  | — |  |  | 6 |  |  | 16 |  |  | 13 |  |  | — |  | — |  |  | 88 |
Total other consumer | 94,161 |  |  | 111,187 |  |  | 43,766 |  |  | 27,820 |  |  | 28,427 |  |  | 63,289 |  |  | 801 |  | — |  |  | 369,451 |
Gross charge-offs | 86 |  |  | 60 |  |  | 19 |  |  | 42 |  |  | 107 |  |  | 188 |  |  | — |  | — |  |  | 502 |
Total Loans | $ | 448,470 |  |  | $ | 1,047,896 |  |  | $ | 457,576 |  |  | $ | 348,385 |  |  | $ | 371,455 |  |  | $ | 962,981 |  |  | $ | 56,433 |  | $ | 1,532 |  |  | $ | 3,694,728 |
Total gross charge-offs | $ | 744 |  |  | $ | 908 |  |  | $ | 7,217 |  |  | $ | 1,399 |  |  | $ | 183 |  |  | $ | 188 |  |  | $ | — |  | $ | — |  |  | $ | 10,639 |

1 Balance in “Substandard” is partially guaranteed by the U.S. government.
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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 December 31, 2022.

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

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

| December 31, 2022
(in thousands) | Performing |  | Nonaccrual |  | Total
Residential mortgage | $ | 382,900 |  |  | $ | 1,048 |  |  | $ | 383,948 |
Home equity | 24,712 |  |  | — |  |  | 24,712 |
Other consumer | 324,581 |  |  | 17 |  |  | 324,598 |
Total consumer loans | $ | 732,193 |  |  | $ | 1,065 |  |  | $ | 733,258 |

The following tables present the Company’s loan portfolio delinquency analysis as of September 30, 2023 and December 31, 2022.

|  | September 30, 2023
(in thousands) |  | 30-59 Days Past Due |  | 60-89 Days Past Due |  | 90 Days or More Past Due |  | Total Past Due |  | Current |  | Total Loans
Commercial and industrial |  | $ | 30 |  |  | $ | 40 |  |  | $ | — |  |  | $ | 70 |  |  | $ | 114,195 |  |  | $ | 114,265 |
Owner-occupied commercial real estate |  | — |  |  | — |  |  | — |  |  | — |  |  | 58,486 |  |  | 58,486 |
Investor commercial real estate |  | — |  |  | — |  |  | — |  |  | — |  |  | 129,831 |  |  | 129,831 |
Construction |  | — |  |  | — |  |  | — |  |  | — |  |  | 252,105 |  |  | 252,105 |
Single tenant lease financing |  | — |  |  | — |  |  | — |  |  | — |  |  | 933,873 |  |  | 933,873 |
Public finance |  | — |  |  | — |  |  | — |  |  | — |  |  | 535,960 |  |  | 535,960 |
Healthcare finance |  | — |  |  | — |  |  | — |  |  | — |  |  | 235,622 |  |  | 235,622 |
Small business lending 1 |  | 1,329 |  |  | 239 |  |  | 1,753 |  |  | 3,321 |  |  | 189,675 |  |  | 192,996 |
Franchise finance |  | 1,927 |  |  | 302 |  |  | — |  |  | 2,229 |  |  | 452,865 |  |  | 455,094 |
Residential mortgage |  | 1,381 |  |  | 485 |  |  | 494 |  |  | 2,360 |  |  | 391,141 |  |  | 393,501 |
Home equity |  | — |  |  | — |  |  | — |  |  | — |  |  | 23,544 |  |  | 23,544 |
Other consumer |  | 224 |  |  | 35 |  |  | 11 |  |  | 270 |  |  | 369,181 |  |  | 369,451 |
Total |  | $ | 4,891 |  |  | $ | 1,101 |  |  | $ | 2,258 |  |  | $ | 8,250 |  |  | $ | 3,686,478 |  |  | $ | 3,694,728 |

1 Balance is partially guaranteed by the U.S. government.
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|  | December 31, 2022
(in thousands) |  | 30-59 Days Past Due |  | 60-89 Days Past Due |  | 90 Days or More Past Due |  | Total Past Due |  | Current |  | Total Loans
Commercial and industrial |  | $ | 81 |  |  | $ | — |  |  | $ | 51 |  |  | $ | 132 |  |  | $ | 125,976 |  |  | $ | 126,108 |
Owner-occupied commercial real estate |  | — |  |  | — |  |  | — |  |  | — |  |  | 61,836 |  |  | 61,836 |
Investor commercial real estate |  | — |  |  | — |  |  | — |  |  | — |  |  | 93,121 |  |  | 93,121 |
Construction |  | — |  |  | 1,198 |  |  | — |  |  | 1,198 |  |  | 180,768 |  |  | 181,966 |
Single tenant lease financing |  | — |  |  | — |  |  | — |  |  | — |  |  | 939,240 |  |  | 939,240 |
Public finance |  | — |  |  | — |  |  | — |  |  | — |  |  | 621,032 |  |  | 621,032 |
Healthcare finance |  | — |  |  | — |  |  | — |  |  | — |  |  | 272,461 |  |  | 272,461 |
Small business lending 1 |  | 57 |  |  | — |  |  | 3,485 |  |  | 3,542 |  |  | 120,208 |  |  | 123,750 |
Franchise Finance |  | 313 |  |  | — |  |  | — |  |  | 313 |  |  | 299,522 |  |  | 299,835 |
Residential mortgage |  | — |  |  | 283 |  |  | 185 |  |  | 468 |  |  | 383,480 |  |  | 383,948 |
Home equity |  | — |  |  | — |  |  | — |  |  | — |  |  | 24,712 |  |  | 24,712 |
Other consumer |  | 91 |  |  | 10 |  |  | — |  |  | 101 |  |  | 324,497 |  |  | 324,598 |
Total |  | $ | 542 |  |  | $ | 1,491 |  |  | $ | 3,721 |  |  | $ | 5,754 |  |  | $ | 3,446,853 |  |  | $ | 3,452,607 |

1 Balance is partially guaranteed by the U.S. government.
Loans are reclassified to a non-accruing status when, in management’s judgment, the collateral value and financial condition of the borrower do not justify accruing interest. At the time the accrual is discontinued, all unpaid accrued interest is reversed against earnings. Interest income accrued in prior years, if any, is charged to the allowance for credit losses. Payments subsequently received on nonaccrual loans are applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable, typically after a minimum of nine consecutive months of performance.
The following table summarizes the Company’s nonaccrual loans and loans past due 90 days or more and still accruing by loan class for the periods indicated:

|  | September 30, 2023 |  | December 31, 2022
(in thousands) |  | Nonaccrual Loans |  | Nonaccrual Loans with no Allowance for Credit Losses |  | Total Loans 90 Days or More Past Due and Accruing |  | Nonaccrual Loans |  | Nonaccrual Loans with no Allowance for Loan Losses |  | Total Loans 90 Days or More Past Due and Accruing
Commercial and industrial |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 51 |  |  | $ | — |  |  | $ | — |
Owner-occupied commercial real estate |  | — |  |  | — |  |  | — |  |  | 1,570 |  |  | 1,570 |  |  | — |
Small business lending 1 |  | 4,442 |  |  | 1,721 |  |  | — |  |  | 4,764 |  |  | 2,766 |  |  | — |
Residential mortgage |  | 1,354 |  |  | 1,354 |  |  | — |  |  | 1,048 |  |  | 1,048 |  |  | 79 |
Other consumer |  | 89 |  |  | 89 |  |  | — |  |  | 17 |  |  | 17 |  |  | — |
Total loans |  | $ | 5,885 |  |  | $ | 3,164 |  |  | $ | — |  |  | $ | 7,450 |  |  | $ | 5,401 |  |  | $ | 79 |

1 Balance is partially guaranteed by the U.S. government.
There was $0.1 million and $0.2 million in interest income recognized on nonaccrual loans for the nine months ended September 30, 2023 and September 30, 2022, respectively.
Determining fair value for collateral dependent loans requires obtaining a current independent appraisal of the collateral and applying a discount factor, which includes selling costs if applicable, to the value. The fair value of real estate is generally based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis. Fair value on other collateral such as business assets is typically ascertained by assessing, either singularly or some combination of, asset appraisals, accounts receivable aging reports, inventory listings and/or customer financial statements. Both appraised values and values based on borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions.
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The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses as of September 30, 2023.

|  | September 30, 2023
(in thousands) |  | Commercial Real Estate |  | Residential Real Estate |  | Other |  | Total |  | Allowance on Collateral Dependent Loans
Commercial and industrial |  | $ | — |  |  | $ | — |  |  | $ | 1,370 |  |  | $ | 1,370 |  |  | $ | — |
Owner-occupied commercial real estate |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Small business lending 1 |  | 1,578 |  |  | 1,219 |  |  | 1,328 |  |  | 4,125 |  |  | 1,521 |
Residential mortgage |  | — |  |  | 1,354 |  |  | — |  |  | 1,354 |  |  | — |
Other consumer loans |  | — |  |  | — |  |  | 89 |  |  | 89 |  |  | — |
Total loans |  | $ | 1,578 |  |  | $ | 2,573 |  |  | $ | 2,787 |  |  | $ | 6,938 |  |  | $ | 1,521 |

1 Balance is partially guaranteed by the U.S. government.
The following table presents the Company’s impaired loans as of December 31, 2022.

|  | December 31, 2022
(in thousands) |  | Recorded Balance |  | Unpaid Principal Balance |  | Specific Allowance
Loans without a specific valuation allowance |  |  |  |  |  |
Commercial and industrial |  | $ | 9,750 |  |  | $ | 9,750 |  |  | $ | — |
Owner-occupied commercial real estate |  | 1,570 |  |  | 1,779 |  |  | — |
Small business lending |  | 8,184 |  |  | 8,705 |  |  | — |
Residential mortgage |  | 3,676 |  |  | 3,835 |  |  | — |
Home equity |  | 29 |  |  | 29 |  |  | — |
Other consumer loans |  | 17 |  |  | 36 |  |  | — |
Total |  | 23,226 |  |  | 24,134 |  |  | — |
Loans with a specific valuation allowance |  |  |  |  |  |
Commercial and industrial |  | 51 |  |  | 51 |  |  | 51 |
Small business lending 1 |  | 1,867 |  |  | 1,867 |  |  | 703 |
Total |  | 1,918 |  |  | 1,918 |  |  | 754 |
Total impaired loans |  | $ | 25,144 |  |  | $ | 26,052 |  |  | $ | 754 |

1 Balance is partially guaranteed by the U.S. government.
The table below presents average balances and interest income recognized for impaired loans during the three and nine months ended September 30, 2022.
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|  | Three Months Ended |  | Nine Months Ended
|  | September 30, 2022 |  | September 30, 2022
(in thousands) |  | Average Balance |  | Interest Income |  | Average Balance |  | Interest Income
Loans without a specific valuation allowance |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 4,906 |  |  | $ | — |  |  | $ | 1,636 |  |  | $ | — |
Owner-occupied commercial real estate |  | 1,645 |  |  | — |  |  | 2,471 |  |  | — |
Small business lending |  | 2,167 |  |  | — |  |  | 1,288 |  |  | — |
Residential mortgage |  | 3,711 |  |  | 9 |  |  | 3,550 |  |  | 26 |
Home equity |  | 15 |  |  | — |  |  | 14 |  |  | — |
Other consumer loans |  | 8 |  |  | — |  |  | 9 |  |  | — |
Total |  | 12,452 |  |  | 9 |  |  | 8,968 |  |  | 26 |
Loans with a specific valuation allowance |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 350 |  |  | $ | — |  |  | 456 |  |  | — |
Single tenant lease financing |  | — |  |  | — |  |  | 547 |  |  | — |
Healthcare finance |  | 660 |  |  | — |  |  | 826 |  |  | 45 |
Small business lending |  | 1,827 |  |  | — |  |  | 1,611 |  |  | — |
Other consumer loans |  | 199 |  |  | — |  |  | 66 |  |  | — |
Total |  | 3,036 |  |  | — |  |  | 3,506 |  |  | 45 |
Total impaired loans |  | $ | 15,488 |  |  | $ | 9 |  |  | $ | 12,474 |  |  | $ | 71 |

1 Balance is partially guaranteed by the U.S. government.
Loan Modifications to Borrowers Experiencing Financial Difficulty
In January 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt restructurings and Vintage Disclosures” (“ASU 2022-02”), which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis. Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications to borrowers experiencing financial difficulty. Instead, these modifications are included in their respective loan pool and a historical loss rate is applied to the current loan balance to arrive at the quantitative baseline portion of the ACL.
Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions and other actions intended to minimize loss and to avoid foreclosure or repossession of collateral. The Company did not have any loan modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023.
There were no loans classified as new TDRs during the three months ended September 30, 2022. There was one portfolio residential mortgage loan classified as a new TDR during the nine months ended September 30, 2022 with a pre-modification and post-modification outstanding recorded investment of $0.7 million. The Company did not allocate a specific allowance for that loan as of September 30, 2022. The modifications consisted of interest-only payments for a period of time. There were no performing TDRs that had payment defaults within the twelve months following modification during the three and nine months ended September 30, 2022, respectively.
Other Real Estate Owned
The Company had $0.1 million in other real estate owned (“OREO”) as of September 30, 2023, which consisted of one residential mortgage property. The Company did not have any OREO as of December 31, 2022. There were two loans, one totaling $0.5 million and one loan totaling $0.1 million, in the process of foreclosure at September 30, 2023 and December 31, 2022, respectively.
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Note 5: Premises and Equipment
The following table summarizes premises and equipment at September 30, 2023 and December 31, 2022.

(in thousands) |  | September 30, 2023 |  | December 31, 2022
Land |  | $ | 5,598 |  |  | $ | 5,598 |
Construction in process |  | 1,311 |  |  | 714 |
Right of use leased asset |  | 90 |  |  | 206 |
Building and improvements |  | 60,448 |  |  | 57,505 |
Furniture and equipment |  | 20,513 |  |  | 19,585 |
Less: accumulated depreciation |  | (13,763) |  |  | (10,897) |
Total |  | $ | 74,197 |  |  | $ | 72,711 |

Note 6: Goodwill
As of September 30, 2023 and December 31, 2022, the carrying amount of goodwill was $4.7 million. There have been no changes in the carrying amount of goodwill for the three and nine months ended September 30, 2023 or September 30, 2022. Goodwill is assessed for impairment annually as of August 31, or more frequently if events occur or circumstances change that indicate an impairment may exist. When assessing goodwill for impairment, first, a qualitative assessment can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment.
Goodwill was assessed for impairment using a quantitative test performed as of August 31, 2023. The estimated fair value of the reporting unit exceeded the net carrying value, and therefore no goodwill impairment existed as of that date.
Note 7: Servicing Asset
Activity for the servicing asset and the related changes in fair value for the three and nine months ended September 2023 and 2022 are shown in the table below.

|  | Three Months Ended
(in thousands) |  | September 30, 2023 |  | September 30, 2022
Balance, beginning of period |  | $ | 8,251 |  |  | $ | 5,345 |
Additions: |  |  |  |
Originated and purchased servicing |  | 1,585 |  |  | 783 |
Subtractions |  |  |  |
Paydowns: |  | (408) |  |  | (279) |
Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model |  | 151 |  |  | (54) |
Loan servicing asset revaluation |  | $ | (257) |  |  | $ | (333) |
Balance, end of period |  | $ | 9,579 |  |  | $ | 5,795 |

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|  | Nine Months Ended
(in thousands) |  | September 30, 2023 |  | September 30, 2022 |  |
Balance, beginning of period |  | $ | 6,255 |  |  | $ | 4,702 |  |  |
Additions: |  |  |  |  |  |
Originated and purchased servicing |  | 3,994 |  |  | 2,193 |  |  |
Subtractions |  |  |  |  |  |
Paydowns: |  | (1,275) |  |  | (888) |  |  |
Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model |  | 605 |  |  | (212) |  |  |
Loan servicing asset revaluation |  | $ | (670) |  |  | $ | (1,100) |  |  |
Balance, end of period |  | $ | 9,579 |  |  | $ | 5,795 |  |  |

Loans serviced for others are not included in the condensed consolidated balance sheets. The unpaid principal balances of these loans serviced for others as of September 30, 2023 and December 31, 2022 are shown in the table below.

(in thousands) |  | September 30, 2023 |  | December 31, 2022 |  |  |  |  |  |
Loan portfolios serviced for: |  |  |  |  |  |  |  |  |  |
SBA guaranteed loans |  | $ | 464,753 |  |  | $ | 318,194 |  |  |  |  |  |  |
Total |  | $ | 464,753 |  |  | $ | 318,194 |  |  |  |  |  |  |

Loan servicing revenue totaled $1.1 million and $2.7 million for the three and nine months ended September 30, 2023, respectively, and $0.7 million and $1.9 million for the three and nine months ended September 30, 2022, respectively. Loan servicing asset revaluation, which represents the change in fair value of the servicing asset, resulted in a $0.3 million and $0.7 million downward valuation for the three and nine months ended September 30, 2023, respectively, and a $0.3 million and $1.1 million downward valuation for the three and nine months ended September 30, 2022, respectively.
The fair value of servicing rights is highly sensitive to changes in underlying assumptions. Though fluctuations in prepayment speeds and changes in secondary market premiums generally have the most substantial impact on the fair value of servicing rights, other influencing factors include changing economic conditions, changes to the discount rate assumption and the weighted average life of the servicing portfolio. Measurement of fair value is limited to the conditions existing and the assumptions used as of a particular point in time; however, those assumptions may change over time. Refer to Note 11 - Fair Value of Financial Instruments for further details.
Note 8: Subordinated Debt
In 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 SOFR plus 5.795%). The 2030 Note is scheduled to mature on November 1, 2030. The 2030 Note is an unsecured subordinated obligation of the Company and may be repaid, without penalty, on any interest payment date on or after November 1, 2025. The 2030 Note is intended to qualify as Tier 2 capital under regulatory guidelines. The Company used the net proceeds from the issuance of the 2030 Note to redeem a subordinated term note that had been entered into in October 2015.
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In August 2021, the Company issued $60.0 million aggregate principal amount of 3.75% Fixed-to-Floating Rate Subordinated Notes due 2031 (the “2031 Notes”) in a private placement. The 2031 Notes initially bear a fixed interest rate of 3.75% per year to, but excluding, September 1, 2026, and thereafter a floating rate equal to the then-current benchmark rate (initially three-month Term SOFR plus 3.11%). The 2031 Notes are scheduled to mature on September 1, 2031. The 2031 Notes are unsecured subordinated obligations of the Company and may be repaid, without penalty, on any interest payment date on or after September 1, 2026. The 2031 Notes are intended to qualify as Tier 2 capital under regulatory guidelines. The Company used a portion of the net proceeds from the issuance of the 2031 Notes to redeem subordinated notes issued by the Company in 2016. Pursuant to the terms of a Registration Rights Agreement between the Company and the initial purchasers of the 2031 Notes, the Company offered to exchange the 2031 Notes for subordinated notes that are registered under the Securities Act of 1933, as amended, and have substantially the same terms as the 2031 Notes. On December 30, 2021, we completed an exchange of $59.3 million principal amount of the unregistered 2031 Notes for registered 2031 Notes in satisfaction of our obligations under the registration rights agreement. Holders of $0.7 million of unregistered 2031 Notes did not participate in the exchange.
The following table presents the principal balance and unamortized debt issuance costs for the 2029 Notes, the 2030 Note, and the 2031 Notes as of September 30, 2023 and December 31, 2022.

| September 30, 2023 |  | December 31, 2022
(in thousands) | Principal |  | Unamortized Debt Issuance Costs |  | Principal |  | Unamortized Debt Issuance Costs
2029 Notes | $ | 37,000 |  |  | $ | (902) |  |  | $ | 37,000 |  |  | $ | (1,020) |
2030 Notes | 10,000 |  |  | (166) |  |  | 10,000 |  |  | (184) |
2031 Notes | 60,000 |  |  | (1,171) |  |  | 60,000 |  |  | (1,264) |
Total | $ | 107,000 |  |  | $ | (2,239) |  |  | $ | 107,000 |  |  | $ | (2,468) |

Note 9: Benefit Plans
Employment Agreements
The Company is party to certain employment agreements with each of its Chief Executive Officer, President and Chief Operating Officer and Executive Vice President and Chief Financial Officer. The employment agreements each provide for annual base salaries and annual bonuses, if any, as determined from time to time by the Compensation Committee of our Board of Directors. The annual bonuses are to be determined with reference to the achievement of annual performance objectives established by the Compensation Committee. The agreements also provide that each of the Chief Executive Officer, President and Chief Operating Officer and Executive Vice President and Chief Financial Officer, may be awarded additional compensation, benefits, or consideration as the Compensation Committee may determine.
The agreements also provide for the continuation of salary and certain other benefits for a specified period of time upon termination of employment under certain circumstances, including resignation for “good reason,” termination by the Company without “cause” at any time or any termination of employment within twelve months following a “change in control,” along with other specific conditions.
2022 Equity Incentive Plan
The First Internet Bancorp 2022 Equity Incentive Plan (the “2022 Plan”) was approved by our Board of Directors and ratified by our shareholders on May 16, 2022. The 2022 Plan permits awards of incentive and non-statutory stock options, stock appreciation rights, restricted stock awards, stock unit awards, performance awards and other stock-based awards. All employees, consultants, and advisors of the Company or any subsidiary, as well as all non-employee directors of the Company, are eligible to receive awards under the 2022 Plan. The 2022 Plan initially authorized the issuance of 400,000 new shares of the Company’s common stock plus all shares of common stock that remained available for future grants under the First Internet Bancorp 2013 Equity Incentive Plan (the “2013 Plan”).
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Award Activity Under 2022 Plan
The Company recorded $0.2 million and $0.6 million o f share-based compensation expense for the three and nine months ended September 30, 2023, related to stock-based awards under the 2022 Plan. The Company recorded less than $0.1 million o f share-based compensation expense for both the three and nine months ended September 30, 2022, related to stock-based awards under the 2022 Plan
The following table summarizes the stock-based award activity under the 2022 Plan for the nine months ended September 30, 2023.

| Restricted Stock Units |  | Weighted-Average Grant Date Fair Value Per Share |  | Restricted Stock Awards |  | Weighted-Average Grant Date Fair Value Per Share |  | Deferred Stock Units |  | Weighted-Average Grant Date Fair Value Per Share
Unvested at December 31, 2022 | — |  |  | $ | — |  |  | 3,558 |  |  | $ | 36.84 |  |  | — |  |  | $ | — |
Granted | 72,354 |  |  | 24.61 |  |  | 30,030 |  |  | 11.18 |  |  | — |  |  | — |
Cancelled/Forfeited | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Vested | — |  |  | — |  |  | (3,558) |  |  | 36.84 |  |  | — |  |  | — |
Unvested at September 30, 2023 | 72,354 |  |  | $ | 24.61 |  |  | 30,030 |  |  | $ | 11.18 |  |  | — |  |  | $ | — |

At September 30, 2023, the total unrecognized compensation cost related to unvested stock-based awards under the 2022 Plan was $1.6 million with a weighted-average expense recognition period of 2.1 years.
2013 Equity Incentive Plan
The 2013 Plan authorized the issuance of 750,000 shares of the Company’s common stock in the form of stock-based awards to employees, directors, and other eligible persons. Although outstanding stock-based awards under the 2013 Plan remain in place according to their terms, our authority to grant new awards under the 2013 Plan terminated upon shareholder approval of the 2022 Plan.
Award Activity Under 2013 Plan
The Company recorded $0.2 million and $0.3 million of share-based compensation expense for the three and nine months ended September 30, 2023, related to stock-based awards under the 2013 Plan. The Company recorded $0.4 million and $2.0 million of share-based compensation expense for the three and nine months ended September 30, 2022, related to stock-based awards under the 2013 Plan.
The following table summarizes the stock-based award activity under the 2013 Plan for the nine months ended September 30, 2023.

| Restricted Stock Units |  | Weighted-Average Grant Date Fair Value Per Share |  | Restricted Stock Awards |  | Weighted-Average Grant Date Fair Value Per Share |  | Deferred Stock Units |  | Weighted-Average Grant Date Fair Value Per Share
Unvested at December 31, 2022 | 101,734 |  |  | $ | 35.93 |  |  | — |  |  | $ | — |  |  | — |  |  | $ | — |
Granted | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Cancelled/Forfeited | (278) |  |  | 27.56 |  |  | — |  |  | — |  |  | — |  |  | — |
Vested | (35,808) |  |  | 31.87 |  |  | — |  |  | — |  |  | — |  |  | — |
Unvested at September 30, 2023 | 65,648 |  |  | $ | 38.18 |  |  | — |  |  | $ | — |  |  | — |  |  | $ | — |

At September 30, 2023, the total unrecognized compensation cost related to unvested stock-based awards under the 2013 Plan was $0.8 million with a weighted-average expense recognition period of 1.2 years.
34

Directors Deferred Stock Plan
Until January 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 plan provided directors the option to elect to receive up to 100% of their annual retainer in either common stock or deferred stock rights. Deferred stock rights were to be settled in common stock following the end of the deferral period payable on the basis of one share of common stock for each deferred stock right.
The following table summarizes the status of deferred stock rights related to the Directors Deferred Stock Plan for the nine months ended September 30, 2023.

|  | Deferred Stock Rights |
Outstanding, beginning of period |  | 40,414 |  |
Granted |  | 301 |  |
Outstanding, end of period |  | 40,715 |  |

All deferred stock rights granted during the 2023 period were additional rights issued in lieu of cash dividends payable on outstanding deferred stock rights.
Note 10: Commitments and Credit Risk
In the normal course of business, the Company makes various commitments to extend credit which are not reflected in the accompanying condensed consolidated financial statements. At September 30, 2023 and December 31, 2022, the Company had outstanding loan commitments totaling approximately $668.2 million and $485.4 million, respectively.
Capital Commitments
Capital expenditures were made in connection with the construction of the building where our corporate headquarters is located, along with an attached parking garage. The Company entered into construction-related contracts. As of September 30, 2023, the project was completed at a total cost of $67.2 million. There are no remaining capital commitments left at September 30, 2023.
Note 11: Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets for identical assets or liabilities
Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.
35

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.
In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Fair values are calculated using discounted cash flows. Discounted cash flows are calculated based off of the anticipated future cash flows updated to incorporate loss severities. Rating agency and industry research reports as well as default and deferral activity are reviewed and incorporated into the calculation. The Company did not own any securities classified within Level 3 of the hierarchy as of September 30, 2023 or December 31, 2022.
Loans Held-for-Sale (mandatory pricing agreements)
The fair value of loans held-for-sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan (Level 2).
Servicing Asset
Fair value is based on a loan-by-loan basis taking into consideration the origination to maturity dates of the loans, the current age of the loans and the remaining term to maturity. The valuation methodology utilized for the servicing asset begins with generating estimated future cash flows for each servicing asset based on their unique characteristics and market-based assumptions for prepayment speeds and costs to service. The present value of the future cash flows is then calculated utilizing market-based discount rate assumptions (Level 3).
Interest Rate Swap Agreements
The fair values of interest rate swap agreements are 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).
Back-to-Back Swap Agreements
The Company offers interest rate swaps to certain loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable-to-fixed interest rate contract with the customer. The Company also enters into an offsetting interest rate swap with a correspondent bank. These back-to-back swap agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. The fair value of these derivatives is based on a discounted cash flow approach. The fair value assets and liabilities of centrally cleared interest rate swaps are net of variation margin settled-to-market (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 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).
36

The following tables present the fair value measurements of assets and liabilities recognized in the accompanying condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2023 and December 31, 2022.

|  |  |  | September 30, 2023 Fair Value Measurements Using
(in thousands) |  | Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
U.S. Government-sponsored agencies |  | $ | 97,178 |  |  | $ | — |  |  | $ | 97,178 |  |  | $ | — |
Municipal securities |  | 62,772 |  |  | — |  |  | 62,772 |  |  | — |
Agency mortgage-backed securities - residential |  | 193,096 |  |  | — |  |  | 193,096 |  |  | — |
Agency mortgage-backed securities - commercial |  | 36,163 |  |  | — |  |  | 36,163 |  |  | — |
Private label mortgage-backed securities - residential |  | 18,576 |  |  | — |  |  | 18,576 |  |  | — |
Asset-backed securities |  | 6,703 |  |  | — |  |  | 6,703 |  |  | — |
Corporate securities |  | 36,339 |  |  | — |  |  | 36,339 |  |  | — |
Total available-for-sale securities |  | $ | 450,827 |  |  | $ | — |  |  | $ | 450,827 |  |  | $ | — |
Servicing asset |  | 9,579 |  |  | — |  |  | — |  |  | 9,579 |
Interest rate swap agreements |  | 8,934 |  |  | — |  |  | 8,934 |  |  | — |
Interest rate swap agreements - assets (back-to-back) |  | 81 |  |  | — |  |  | 81 |  |  | — |
Interest rate swap agreements - liabilities (back-to-back) |  | 81 |  |  | — |  |  | 81 |  |  | — |

|  |  |  | December 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 |  | $ | 33,809 |  |  | $ | — |  |  | $ | 33,809 |  |  | $ | — |
Municipal securities |  | 67,276 |  |  | — |  |  | 67,276 |  |  | — |
Agency mortgage-backed securities - residential |  | 215,092 |  |  | — |  |  | 215,092 |  |  | — |
Agency mortgage-backed securities - commercial |  | 15,840 |  |  | — |  |  | 15,840 |  |  | — |
Private label mortgage-backed securities - residential |  | 10,455 |  |  | — |  |  | 10,455 |  |  | — |
Asset-backed securities |  | 4,960 |  |  | — |  |  | 4,960 |  |  | — |
Corporate securities |  | 42,952 |  |  | — |  |  | 42,952 |  |  | — |
Total available-for-sale securities |  | $ | 390,384 |  |  | $ | — |  |  | $ | 390,384 |  |  | $ | — |
Loans held-for-sale (mandatory pricing agreements) |  | 9,110 |  |  | — |  |  | 9,110 |  |  | — |
Servicing asset |  | 6,255 |  |  | — |  |  | — |  |  | 6,255 |
Interest rate swap agreements |  | 8,645 |  |  | — |  |  | 8,645 |  |  | — |
Forward contracts |  | 97 |  |  | 97 |  |  | — |  |  | — |
IRLCs |  | 133 |  |  | — |  |  | — |  |  | 133 |

37

The following tables reconcile the beginning and ending balances of recurring fair value measurements recognized in the accompanying condensed consolidated balance sheets using significant unobservable (Level 3) inputs for the three and nine months ended September 30, 2023 and 2022.

|  |  |  | Three Months Ended
(in thousands) |  |  |  | Servicing Asset |  | Interest Rate Lock Commitments
Balance, July 1, 2023 |  |  |  | $ | 8,251 |  |  | $ | — |
Total realized gains |  |  |  |  |  |
Additions: |  |  |  |  |  |
Originated and purchased servicing |  |  |  | 1,585 |  |  | — |
Subtractions: |  |  |  |  |  |
Paydowns |  |  |  | (408) |  |  | — |
Change in fair value |  |  |  | 151 |  |  | — |
Balance, September 30, 2023 |  |  |  | $ | 9,579 |  |  | $ | — |
Balance as of July 1, 2022 |  |  |  | $ | 5,345 |  |  | $ | 462 |
Total realized gains |  |  |  |  |  |
Additions: |  |  |  |  |  |
Originated and purchased servicing |  |  |  | 783 |  |  | — |
Subtractions: |  |  |  |  |  |
Paydowns |  |  |  | (279) |  |  | — |
Change in fair value |  |  |  | (54) |  |  | (850) |
Balance, September 30, 2022 |  |  |  | $ | 5,795 |  |  | $ | (388) |

|  |  |  | Nine Months Ended
(in thousands) |  |  |  | Servicing Asset |  | Interest Rate Lock Commitments
Balance, January 1, 2023 |  |  |  | $ | 6,255 |  |  | $ | 133 |
Total realized gains |  |  |  |  |  |
Additions: |  |  |  |  |  |
Originated and purchased servicing |  |  |  | 3,994 |  |  | — |
Subtractions: |  |  |  |  |  |
Paydowns |  |  |  | (1,275) |  |  | — |
Change in fair value |  |  |  | 605 |  |  | (133) |
Balance, September 30, 2023 |  |  |  | $ | 9,579 |  |  | $ | — |
Balance as of January 1, 2022 |  |  |  | $ | 4,702 |  |  | $ | 718 |
Total realized gains |  |  |  |  |  |
Additions: |  |  |  |  |  |
Originated and purchased servicing |  |  |  | 2,193 |  |  | — |
Subtractions: |  |  |  |  |  |
Paydowns |  |  |  | (888) |  |  | — |
Change in fair value |  |  |  | (212) |  |  | (1,106) |
Balance, September 30, 2022 |  |  |  | $ | 5,795 |  |  | $ | (388) |

38

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.
Collateral Dependent Loans
Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. The amount of impairment may be determined based on the fair value of the underlying collateral, less costs to sell, the estimated present value of future cash flows or the loan’s observable market price.
If the impaired loan is identified as collateral dependent, the fair value of the underlying collateral, less costs to sell, is used to measure impairment. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. If the impaired loan is not collateral dependent, the Company utilizes a discounted cash flow analysis to measure impairment.
Impaired loans with a specific valuation allowance based on the value of the underlying collateral or a discounted cash flow analysis are classified as Level 3 assets.
The following table presents the fair value measurements of assets and liabilities recognized in the accompanying condensed consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurement falls at September 30, 2023 and December 31, 2022.

|  |  |  | September 30, 2023
(in thousands) |  |  |  | Fair Value Measurements Using
|  | Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Collateral dependent loans |  | $ | 1,144 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,144 |

|  |  |  | December 31, 2022
(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 |  | $ | 1,164 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,164 |

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

(dollars in thousands) |  | Fair Value at September 30, 2023 |  | Valuation Technique |  | Significant Unobservable Inputs |  | Range |  | Weighted-Average Range
Collateral dependent loans |  | $ | 1,144 |  |  | Fair value of collateral |  | Discount for type of property and current market conditions |  | 0%- 30% |  | 22%
Servicing asset |  | 9,579 |  |  | Discounted cash flow |  | Prepayment speeds Discount rate |  | 0% - 25% 15% |  | 11.3% 15%

39

(dollars in thousands) |  | Fair Value at December 31, 2022 |  | Valuation Technique |  | Significant Unobservable Inputs |  | Range |  | Weighted-Average Range
Impaired loans |  | $ | 1,164 |  |  | Fair value of collateral |  | Discount for type of property and current market conditions |  | 0% - 25% |  | 20%
IRLCs |  | 133 |  |  | Discounted cash flow |  | Loan closing rates |  | 31% - 100% |  | 89%
Servicing asset |  | 6,255 |  |  | Discounted cash flow |  | Prepayment speeds Discount rate |  | 0% - 25% 14% |  | 14.6% 14%

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying condensed consolidated balance sheets at amounts other than fair value.
Cash and Cash Equivalents
For these instruments, the carrying amount is a reasonable estimate of fair value.
Securities Held-to-Maturity
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 agency mortgage-backed securities - residential, municipal securities and corporate securities. Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities.
In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Fair values are calculated using discounted cash flows. Discounted cash flows are calculated based off of the anticipated future cash flows updated to incorporate loss severities. Rating agency and industry research reports as well as default and deferral activity are reviewed and incorporated into the calculation. The Company did not own any securities classified within Level 3 of the hierarchy as of September 30, 2023 or December 31, 2022.
Loans Held-for-Sale (best efforts pricing agreements)
The fair value of these loans approximates carrying value.
Loans
The fair value of loans is estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.
Accrued Interest Receivable
The fair value of these financial instruments approximates carrying value.
Federal Home Loan Bank of Indianapolis Stock
The fair value of this financial instrument approximates carrying value.
Deposits
The fair value of noninterest-bearing and interest-bearing demand deposits, savings and money market accounts approximates carrying value. The fair value of fixed maturity certificates of deposit and brokered deposits are estimated using rates currently offered for deposits of similar remaining maturities.
40

Advances from Federal Home Loan Bank
The fair value of fixed rate advances is estimated using rates currently available for advances with similar remaining maturities. The carrying value of variable rate advances approximates fair value.
Subordinated Debt
The fair value of the Company’s publicly traded subordinated debt is obtained from quoted market prices. The fair value of the Company’s remaining subordinated debt is estimated using discounted cash flow analysis, based on current borrowing rates for similar types of debt instruments.
Accrued Interest Payable
The fair value of these financial instruments approximates carrying value.
Commitments
The fair value of commitments to extend credit are based on fees currently charged to enter into similar agreements with similar maturities and interest rates. The Company determined that the fair value of commitments was zero based on the contractual value of outstanding commitments at each of September 30, 2023 and December 31, 2022.
The following tables present the carrying value and estimated fair value of all financial assets and liabilities that are not measured at fair value on a recurring basis at September 30, 2023 and December 31, 2022.

|  | September 30, 2023 Fair Value Measurements Using
(in thousands) |  | Carrying Amount |  | Fair Value |  | Quoted Prices In Active Market for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Cash and cash equivalents |  | $ | 521,205 |  |  | $ | 521,205 |  |  | $ | 521,205 |  |  | $ | — |  |  | $ | — |
Securities held-to-maturity, net |  | 231,928 |  |  | 201,650 |  |  | — |  |  | 201,650 |  |  | — |
Loans held-for-sale (best efforts pricing agreements) |  | 31,669 |  |  | 31,669 |  |  | — |  |  | 31,669 |  |  | — |
Net loans |  | 3,698,616 |  |  | 3,480,892 |  |  | — |  |  | — |  |  | 3,480,892 |
Accrued interest receivable |  | 23,761 |  |  | 23,761 |  |  | 23,761 |  |  | — |  |  | — |
Federal Home Loan Bank of Indianapolis stock |  | 28,350 |  |  | 28,350 |  |  | — |  |  | 28,350 |  |  | — |
Deposits |  | 4,083,545 |  |  | 4,070,758 |  |  | 1,746,502 |  |  | — |  |  | 2,324,256 |
Advances from Federal Home Loan Bank |  | 614,933 |  |  | 595,177 |  |  | — |  |  | 595,177 |  |  | — |
Subordinated debt |  | 104,761 |  |  | 101,920 |  |  | 31,820 |  |  | 70,100 |  |  | — |
Accrued interest payable |  | 2,968 |  |  | 2,968 |  |  | 2,968 |  |  | — |  |  | — |

41

|  | December 31, 2022 Fair Value Measurements Using
(in thousands) |  | Carrying Amount |  | Fair Value |  | Quoted Prices In Active Market for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Cash and cash equivalents |  | $ | 256,552 |  |  | $ | 256,552 |  |  | $ | 256,552 |  |  | $ | — |  |  | $ | — |
Securities held-to-maturity |  | 189,168 |  |  | 168,483 |  |  | — |  |  | 168,483 |  |  | — |
Loans held-for-sale (best efforts pricing agreements) |  | 12,401 |  |  | 12,401 |  |  | — |  |  | 12,401 |  |  | — |
Net loans |  | 3,467,664 |  |  | 3,225,845 |  |  | — |  |  | — |  |  | 3,225,845 |
Accrued interest receivable |  | 21,069 |  |  | 21,069 |  |  | 21,069 |  |  | — |  |  | — |
Federal Home Loan Bank of Indianapolis stock |  | 28,350 |  |  | 28,350 |  |  | — |  |  | 28,350 |  |  | — |
Deposits |  | 3,441,245 |  |  | 3,415,390 |  |  | 1,974,344 |  |  | — |  |  | 1,441,046 |
Advances from Federal Home Loan Bank |  | 614,928 |  |  | 596,455 |  |  | — |  |  | 596,455 |  |  | — |
Subordinated debt |  | 104,532 |  |  | 102,669 |  |  | 32,560 |  |  | 70,109 |  |  | — |
Accrued interest payable |  | 2,913 |  |  | 2,913 |  |  | 2,913 |  |  | — |  |  | — |

Note 12: Mortgage Banking Activities
The Bank’s residential real estate lending business originated mortgage loans for customers and typically sold a majority of the originated loans into the secondary market. For most of the mortgages sold in the secondary market, the Bank hedged its mortgage banking pipeline by entering into forward contracts for the future delivery of mortgage loans to third party investors and entering into IRLCs with potential borrowers to fund specific mortgage loans that would be sold into the secondary market. To facilitate the hedging of the loans, the Bank elected the fair value option for loans originated and intended for sale in the secondary market under mandatory pricing agreements. Changes in the fair value of loans held-for-sale, IRLCs and forward contracts are recorded in the mortgage banking activities line item within noninterest income. Refer to Note 13 for further information on derivative financial instruments.
During the three months ended September 30, 2023, the Company had no mortgage loans held-for-sale or sold mortgage loans into the secondary market. During the three months ended September 30, 2022, the Company originated $85.1 million of mortgage loans held-for-sale and sold $95.0 million of mortgage loans into the secondary market. During the nine months ended September 30, 2023 and 2022, the Company originated mortgage loans held-for-sale of $36.3 million and $343.3 million, respectively, and sold $46.5 million and $365.3 million of mortgage loans, respectively, into the secondary market.
The following table presents the components of income from mortgage banking activities for the three and nine months ended September 30, 2023 and 2022.

| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) | 2023 |  | 2022 |  | 2023 |  | 2022
Gain on loans sold | $ | — |  |  | $ | 1,178 |  |  | $ | 471 |  |  | $ | 5,119 |
Loss resulting from the change in fair value of loans held-for-sale | — |  |  | (450) |  |  | (143) |  |  | (599) |
Gain (loss) resulting from the change in fair value of derivatives | — |  |  | 143 |  |  | (252) |  |  | (66) |
Net revenue from mortgage banking activities | $ | — |  |  | $ | 871 |  |  | $ | 76 |  |  | $ | 4,454 |

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.
42

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 entered into forward contracts for the future delivery of mortgage loans to third-party investors and entered into IRLCs with potential borrowers to fund specific mortgage loans that were sold into the secondary market. The forward contracts were entered into in order to economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans.
The Company had various interest rate swap agreements designated and qualifying as accounting hedges during the reported periods. Designating an interest rate swap as an accounting hedge allows the Company to recognize gains and losses in the condensed consolidated statements of income within the same period that the hedged item affects earnings. The Company includes the gain or loss on the hedged items in the same line item as the offsetting loss or gain on the related interest rate swaps. For derivative instruments that are designated and qualify as cash flow hedges, any gains or losses related to changes in fair value are recorded in accumulated other comprehensive loss, net of tax. The fair value of interest rate swaps with a positive fair value are reported in accrued income and other assets in the condensed consolidated balance sheets, while interest rate swaps with a negative fair value are reported in accrued expenses and other liabilities in the condensed consolidated balance sheets.
The Company offers interest rate swaps to certain loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable-to-fixed interest rate contract with the customer. The Company also enters into an offsetting interest rate swap with a correspondent bank. These back-to-back swap agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. The fair value of these derivatives is based on a discounted cash flow approach. The fair value assets and liabilities of centrally cleared interest rate swaps are net of variation margin settled-to-market.
The IRLCs and forward contracts are not designated as accounting hedges and are recorded at fair value with changes in fair value reflected in noninterest income on the condensed consolidated statements of income. The fair value of derivative instruments with a positive fair value are reported in accrued income and other assets in the condensed consolidated balance sheets, while derivative instruments with a negative fair value are reported in accrued expenses and other liabilities in the condensed consolidated balance sheets.
The following table presents amounts that were recorded on the condensed consolidated balance sheets related to cumulative basis adjustments for interest rate swap derivatives designated as fair value accounting hedges as of September 30, 2023 and December 31, 2022.

(in thousands) |  | Carrying amount of the hedged asset |  | Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets
Line item in the condensed consolidated balance sheets in which the hedged item is included |  | September 30, 2023 |  | December 31, 2022 |  | September 30, 2023 |  | December 31, 2022
Securities available-for-sale 1 |  | $ | 69,041 |  |  | $ | 68,963 |  |  | $ | (1,707) |  |  | $ | (2,088) |

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 September 30, 2023 and December 31, 2022.
The following tables present a summary of interest rate swap derivatives designated as fair value accounting hedges of fixed-rate receivables used in the Company’s asset/liability management activities at September 30, 2023 and December 31, 2022, identified by the underlying interest rate-sensitive instruments.
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(dollars in thousands) September 30, 2023 |  | Notional Value |  | Weighted- Average Remaining Maturity (years) |  |  |  | Weighted-Average Ratio
Instruments Associated With |  |  |  | Fair Value |  | Receive |  | Pay
Securities available-for-sale |  | $ | 50,000 |  |  | 1.1 |  | $ | 1,717 |  |  | 3-month SOFR |  | 2.33 | %
Total at September 30, 2023 |  | $ | 50,000 |  |  | 1.1 |  | $ | 1,717 |  |  | 3-month SOFR |  | 2.33 | %

(dollars in thousands) December 31, 2022 |  | Notional Value |  | Weighted- Average Remaining Maturity (years) |  |  |  | Weighted-Average Ratio |
Instruments Associated With |  |  |  | Fair Value |  | Receive |  | Pay |
Securities available-for-sale |  | $ | 50,000 |  |  | 1.8 |  | $ | 2,093 |  |  | 3-month LIBOR |  | 2.33 | % |
Total swap portfolio at December 31, 2022 |  | $ | 50,000 |  |  | 1.8 |  | $ | 2,093 |  |  | 3-month LIBOR |  | 2.33 | % |

In March 2021, the Company terminated the last layer of interest rate swaps associated with available-for-sale agency mortgage-backed securities - residential, which resulted in swap termination payments to counterparties totaling $1.9 million. The corresponding fair value hedging adjustment was allocated pro-rata to the underlying hedged securities and is being amortized over the remaining lives of the designated securities. Amortization expense totaling $0.1 million and $0.1 million for the three and nine months ended September 30, 2023, respectively, and $0.1 million and $0.2 million for the three and nine months ended September 30 2022 respectively was recognized as a reduction to interest income on securities.
In June 2020, the Company terminated all fair value hedging relationships associated with loans, which resulted in swap termination payments to counterparties totaling $46.1 million. The corresponding loan fair value hedging adjustment as of the date of termination is being amortized over the remaining lives of the designated loans, which have a weighted average term to maturity of 10.6 years as of September 30, 2023. Amortization expense totaling $1.5 million and $3.5 million for the three and nine months ended September 30, 2023, respectively, and $1.5 million and $3.6 million for the three and nine months ended September 30 2022 respectively, related to these previously terminated fair value hedges was recognized as a reduction to interest income on loans.
The following tables present a summary of interest rate swap derivatives designated as cash flow accounting hedges of variable-rate liabilities used in the Company’s asset/liability management activities at September 30, 2023 and December 31, 2022.

(dollars in thousands) September 30, 2023 |  | Notional Value |  | Weighted- Average Remaining Maturity (years) |  |  |  | Weighted-Average Ratio
Cash Flow Hedges |  |  |  | Fair Value |  | Receive |  | Pay
Interest rate swaps |  | $ | 110,000 |  |  | 3.3 |  | $ | 6,450 |  |  | 3-month SOFR |  | 2.88 | %
Interest rate swaps |  | 20,000 |  |  | 0.2 |  | 85 |  |  | 1-month SOFR |  | 2.94 | %
Interest rate swaps |  | 40,000 |  |  | 0.7 |  | 682 |  |  | Fed Funds Effective |  | 2.78 | %

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

These derivative financial instruments were entered into for the purpose of managing the interest rate risk of certain assets and liabilities. The Company received $9.4 million and $7.7 million of cash collateral from counterparties as
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security for their obligations related to these swap transactions at September 30, 2023 and December 31, 2022. The Company had no pledged cash collateral as of September 30, 2023 and December 31, 2022 to counterparties on interest rate swap agreements as security for its obligations related to these agreements. Collateral posted and received is dependent on the market valuation of the underlying hedges.
The following table presents the notional amount and fair value of interest rate swaps, IRLCs and forward contracts utilized by the Company at September 30, 2023 and December 31, 2022.

|  | September 30, 2023 |  | December 31, 2022
(in thousands) |  | Notional Amount |  | Fair Value |  | Notional Amount |  | Fair Value
Asset Derivatives |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |
Interest rate swaps associated with securities available-for-sale |  | $ | 50,000 |  |  | $ | 1,717 |  |  | $ | 50,000 |  |  | $ | 2,093 |
Interest rate swaps associated with liabilities |  | 170,000 |  |  | 7,217 |  |  | 210,000 |  |  | 6,552 |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |
Back-to-back swaps |  | $ | 904 |  |  | $ | 81 |  |  | $ | — |  |  | $ | — |
IRLCs |  | — |  |  | — |  |  | 14,862 |  |  | 133 |
Forward contracts |  | — |  |  | — |  |  | 17,000 |  |  | 97 |
Total contracts |  | $ | 220,904 |  |  | $ | 9,015 |  |  | $ | 291,862 |  |  | $ | 8,875 |
Liability Derivatives |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |
Back-to-back swaps |  | $ | 904 |  |  | $ | 81 |  |  | $ | — |  |  | $ | — |
Total contracts |  | $ | 904 |  |  | $ | 81 |  |  | $ | — |  |  | $ | — |

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.
Back-to-back swaps consist of two interest-rate swaps (a customer swap and an offsetting counterparty swap). As a result of this offsetting relationship, no net gains or losses are recognized in income.
The following table presents the effects of the Company’s cash flow hedge relationships on the condensed consolidated statements of comprehensive income during the three and nine months ended September 30, 2023 and 2022.

|  | Amount of Gain Recognized in Other Comprehensive Loss in The Three Months Ended |  | Amount of Gain Recognized in Other Comprehensive Income (Loss) in The Nine Months Ended
(in thousands) |  | September 30, 2023 |  | September 30, 2022 |  | September 30, 2023 |  | September 30, 2022
Interest rate swap agreements |  | $ | 740 |  |  | $ | 6,058 |  |  | $ | 664 |  |  | $ | 19,424 |

The following table summarizes the periodic changes in the fair value of derivatives not designated as hedging instruments on the condensed consolidated statements of income for the three and nine months ended September 30, 2023 and 2022.
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|  | Amount of Gain / (Loss) Recognized in the Three Months Ended |  | Amount of Gain / (Loss) Recognized in the Nine Months Ended
(in thousands) |  | September 30, 2023 |  | September 30, 2022 |  | September 30, 2023 |  | September 30, 2022
Asset Derivatives |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |
IRLCs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Forward contracts |  | — |  |  | 993 |  |  | — |  |  | 1,036 |
Liability Derivatives |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |
IRLCs |  | $ | — |  |  | $ | (850) |  |  | $ | (133) |  |  | $ | (1,102) |
Forward contracts |  | — |  |  | — |  |  | (119) |  |  | — |

The following table presents the effects of the Company’s interest rate swap agreements on the condensed consolidated statements of operations during the three and nine months ended September 30, 2023 and 2022.

(in thousands) Line item in the condensed consolidated statements of operations |  | Three Months Ended |  | Nine Months Ended
| September 30, 2023 |  | September 30, 2022 |  | September 30, 2023 |  | September 30, 2022
Interest income |  |  |  |  |  |  |  |
Securities - taxable |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Securities - non-taxable |  | 407 |  |  | (7) |  |  | 1,055 |  |  | (442) |
Total interest income |  | 407 |  |  | (7) |  |  | 1,055 |  |  | (442) |
Interest expense |  |  |  |  |  |  |  |
Deposits |  | (372) |  |  | 159 |  |  | (1,330) |  |  | 1,338 |
Other borrowed funds |  | (748) |  |  | 168 |  |  | (1,865) |  |  | 1,355 |
Total interest expense |  | (1,120) |  |  | 327 |  |  | (3,195) |  |  | 2,693 |
Net interest income |  | $ | 1,527 |  |  | $ | (334) |  |  | $ | 4,250 |  |  | $ | (3,135) |

Note 14: Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, included in shareholders' equity, for the nine months ended September 30, 2023 and 2022, respectively, are presented in the table below.
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(in thousands) |  | Unrealized Losses On Debt Securities |  | Unrealized Losses On Debt Securities Transferred From Available-For-Sale To Held-To-Maturity |  | Cash Flow Hedges |  | Total
Balance, January 1, 2023 |  | $ | (35,831) |  |  | $ | (3,519) |  |  | $ | 5,714 |  |  | $ | (33,636) |
Other comprehensive (loss) income before reclassifications from accumulated other comprehensive loss before tax |  | (11,006) |  |  | — |  |  | 664 |  |  | (10,342) |
Reclassifications from accumulated other comprehensive loss to earnings before tax |  | — |  |  | 537 |  |  | — |  |  | 537 |
Other comprehensive (loss) gain before tax |  | (11,006) |  |  | 537 |  |  | 664 |  |  | (9,805) |
Income tax (benefit) provision |  | (2,537) |  |  | 140 |  |  | 153 |  |  | (2,244) |
Other comprehensive (loss) gain - net of tax |  | (8,469) |  |  | 397 |  |  | 511 |  |  | (7,561) |
Balance, September 30, 2023 |  | $ | (44,300) |  |  | $ | (3,122) |  |  | $ | 6,225 |  |  | $ | (41,197) |
Balance, January 1, 2022 |  | $ | (2,555) |  |  | $ | — |  |  | $ | (8,484) |  |  | $ | (11,039) |
Other comprehensive (loss) income before reclassifications from accumulated other comprehensive loss before tax |  | (51,682) |  |  | (5,402) |  |  | 19,424 |  |  | (37,660) |
Reclassifications from accumulated other comprehensive loss to earnings before tax |  | — |  |  | 608 |  | — |  |  | 608 |
Other comprehensive (loss) gain before tax |  | (51,682) |  |  | (4,794) |  |  | 19,424 |  |  | (37,052) |
Income tax (benefit) provision |  | (13,384) |  |  | (1,203) |  |  | 5,639 |  |  | (8,948) |
Other comprehensive (loss) income - net of tax |  | (38,298) |  |  | (3,591) |  |  | 13,785 |  |  | (28,104) |
Balance, September 30, 2022 |  | $ | (40,853) |  |  | $ | (3,591) |  |  | $ | 5,301 |  |  | $ | (39,143) |

The components of accumulated other comprehensive loss, included in stockholders' equity, for the three months ended September 30, 2023 and 2022, respectively, are presented in the table below.

(in thousands) |  | Unrealized Losses On Debt Securities |  | Unrealized Losses On Debt Securities Transferred From Available-For-Sale To Held-To-Maturity |  | Cash Flow Hedges |  | Total
Balance, July 1, 2023 |  | $ | (35,592) |  |  | $ | (3,250) |  |  | $ | 5,656 |  |  | $ | (33,186) |
Other comprehensive (loss) income before reclassifications from accumulated other comprehensive loss before tax |  | (11,308) |  |  | — |  |  | 740 |  |  | (10,568) |
Reclassifications from accumulated other comprehensive loss to earnings before tax |  | — |  |  | 173 |  |  |  |  | 173 |
Other comprehensive (loss) gain before tax |  | (11,308) |  |  | 173 |  |  | 740 |  |  | (10,395) |
Income tax (benefit) provision |  | (2,600) |  |  | 45 |  |  | 171 |  |  | (2,384) |
Other comprehensive (loss) income - net of tax |  | (8,708) |  |  | 128 |  |  | 569 |  |  | (8,011) |
Balance, September 30, 2023 |  | $ | (44,300) |  |  | $ | (3,122) |  |  | $ | 6,225 |  |  | $ | (41,197) |
Balance, July 1, 2022 |  | $ | (27,568) |  |  | $ | (3,818) |  |  | $ | 636 |  |  | $ | (30,750) |
Other comprehensive (loss) income before reclassifications from accumulated other comprehensive loss before tax |  | (18,406) |  |  | — |  |  | 6,058 |  |  | (12,348) |
Reclassifications from accumulated other comprehensive loss to earnings before tax |  | — |  |  | 296 |  | — |  |  | 296 |
Other comprehensive (loss) gain before tax |  | (18,406) |  |  | 296 |  |  | 6,058 |  |  | (12,052) |
Income tax (benefit) provision |  | (5,121) |  |  | 69 |  |  | 1,393 |  |  | (3,659) |
Other comprehensive (loss) income - net of tax |  | (13,285) |  |  | 227 |  |  | 4,665 |  |  | (8,393) |
Balance, September 30, 2022 |  | $ | (40,853) |  |  | $ | (3,591) |  |  | $ | 5,301 |  |  | $ | (39,143) |

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Details About Accumulated Other Comprehensive Loss Components |  | Amounts Reclassified from Accumulated Other Comprehensive Loss for the |  | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) for the |  | Affected Line Item in the Statements of Operations
| Three Months Ended September 30, 2023 |  | Three Months Ended September 30, 2022 |  | Nine Months Ended September 30, 2023 |  | Nine Months Ended September 30, 2022 |
Reclassifications from accumulated other comprehensive loss to earnings before tax |  | $ | (173) |  |  | (296) |  |  | $ | (537) |  |  | $ | (608) |  |  | Interest income
Total amount reclassified before tax |  | (173) |  |  | (296) |  |  | (537) |  |  | (608) |  |  | Income before income taxes
Tax benefit |  | (45) |  |  | (68) |  |  | (140) |  |  | (139) |  |  | Income tax (benefit) provision
Total reclassifications from accumulated other comprehensive loss |  | $ | (128) |  |  | $ | (228) |  |  | $ | (397) |  |  | $ | (469) |  |  | Net income

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Note 15: Recent Accounting Pronouncements
ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (June 2016)
The main objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.
The amendments affect entities holding financial assets that are not accounted for at fair value through net income. The amendments affect loans, debt securities, off-balance-sheet credit exposures, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update affect an entity to varying degrees depending on the credit quality of the assets held by the entity, their duration, and how the entity applies current GAAP. There is diversity in practice in applying the incurred loss methodology, which means that before transition some entities may be more aligned under current GAAP than others to the new measure of expected credit losses. The following describes the main provisions of this update.
•Assets Measured at Amortized Cost: The amendments in this update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The statements of income reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increase or decrease of credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances.
•Available-for-Sale Debt Securities: Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. Available-for-sale accounting recognizes that value may be realized either through collection of contractual cash flows or through sale of the security. Therefore, the amendments limit the amount of the allowance for credit losses to the amount by which fair value is below amortized cost because the classification as available-for-sale is premised on an investment strategy that recognizes that the investment could be sold at fair value if cash collection would result in the realization of an amount less than fair value.
•In May 2019, the FASB issued ASU 2019-05 - Financial Instruments - Credit Losses (Topic 326) - Targeted Transition Relief. This ASU allows an option for preparers to irrevocably elect the fair value option, on an instrument-by-instrument basis, for eligible financial assets measured at amortized cost basis upon adoption of the credit losses standard. This increases the comparability of financial statement information provided by institutions that otherwise would have reported similar financial instruments using different measurement methodologies, potentially decreasing costs for financial statement preparers while providing more useful information to investors and other users.
The Company formed a current expected credit losses (“CECL”) working group that discussed implementation matters related to the completeness and accuracy of historical data, model development and corporate governance documentation. The new allowance model estimates credit losses over the expected life of the portfolio and includes a qualitative framework to account for drivers of losses that the quantitative model does not capture. The CECL working group discussed results from parallel model runs for each portfolio segment, assumptions related to unfunded commitments and economic forecast factors. Model validation was completed by an independent third party in the fourth quarter 2022.
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The ASU allows for several different methods of calculating the Allowance for Credit Losses (“ACL”) and based on its analysis of observable data, the Company determined the discounted cash flow method to be the most appropriate for all its loan segments.
The Company adopted this guidance on January 1, 2023 and recorded a $3.0 million pre-tax one-time cumulative effect adjustment to the ACL in retained earnings on the consolidated balance sheet as of the beginning of 2023, as is required in the guidance. In addition, the Company recorded a one-time $2.5 million pre-tax cumulative effect adjustment to the allowance for unfunded commitments in retained earnings on the consolidated balance sheet.
The qualitative impact of the new accounting standard is directed by many of the same factors that impacted the previous methodology for calculating the ACL, including but not limited to, quality and experience of staff, changes in the value of collateral, concentrations of credit in loan types or industries and changes to lending policies. In addition, the Company also uses reasonable and supportable forecasts. Examples of this are regression analyses of data from the Federal Open Market Committee quarterly economic projections for change in real GDP, housing price index and national unemployment.
The following table presents the impact of the adoption of ASC 326 as of January 1, 2023:

|  | January 1, 2023
(dollars in thousands) |  | Pre-ASC 326 Adoption |  | Impact of ASC 326 Adoption |  | As Reported Under ASC 326
Assets: |  |  |  |  |  |
Commercial loans |  |  |  |  |  |
Commercial and industrial |  | $ | 1,711 |  |  | $ | (120) |  |  | $ | 1,591 |
Owner-occupied commercial real estate |  | 651 |  |  | 62 |  |  | 713 |
Investor commercial real estate |  | 1,099 |  |  | (191) |  |  | 908 |
Construction |  | 2,074 |  |  | (435) |  |  | 1,639 |
Single tenant lease financing |  | 10,519 |  |  | (346) |  |  | 10,173 |
Public finance |  | 1,753 |  |  | (135) |  |  | 1,618 |
Healthcare finance |  | 2,997 |  |  | 1,034 |  |  | 4,031 |
Small business lending |  | 2,168 |  |  | 334 |  |  | 2,502 |
Franchise finance |  | 3,988 |  |  | (313) |  |  | 3,675 |
Total commercial loans |  | 26,960 |  |  | (110) |  |  | 26,850 |
Consumer loans |  |  |  |  |  |
Residential mortgage |  | 1,559 |  |  | 406 |  |  | 1,965 |
Home equity |  | 69 |  |  | 133 |  |  | 202 |
Other consumer |  | 3,149 |  |  | 2,533 |  |  | 5,682 |
Total consumer loans |  | 4,777 |  |  | 3,072 |  |  | 7,849 |
Total allowance for credit losses |  | $ | 31,737 |  |  | $ | 2,962 |  |  | $ | 34,699 |
Liabilities: |  |  |  |  |  |
Liability for off-balance sheet credit exposures |  | $ | — |  |  | $ | 2,504 |  |  | $ | 2,504 |

The Company also performed an assessment to determine if an allowance for credit loss was needed for available-for-sale and held-to-maturity securities. The Company analyzed available-for-sale securities investment securities that were in an unrealized loss position as of January 1, 2023 and determined the decline in fair value for those securities was not related to credit, but rather related to changes in interest rates and general market conditions. As such, no ACL was recorded for available-for-sale securities. The Company analyzed held-to-maturity securities and recorded a $0.3 million one-time cumulative adjustment to the allowance in retained earnings.
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ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (March 2020) and ASU 2022-06 - Deferral of sunset Date of Topic 848
In March 2020, FASB issued ASU 2020-04 to ease the potential burden in accounting for the transition away from the LIBOR on financial reporting. The ASU provides optional expedients and exceptions for applying GAAP to contract modification and hedge accounting relationships. The guidance is effective March 12, 2020 through December 31, 2024. The Company believes the adoption of this guidance will not have a material impact on the condensed consolidated financial statements.
ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (March 2022)
In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the separate recognition and measurement guidance for Troubled Debt Restructurings ("TDRs") by creditors. The elimination of the TDR guidance may be adopted prospectively for loan modifications after adoption or on a modified retrospective basis, which would also apply to loans previously modified, resulting in a cumulative effect adjustment to retained earnings in the period of adoption for changes in the allowance for credit losses. The ASU requires an entity to disclose current-period gross write-offs by year of origination for financing receivables within the scope of Subtopic 326-20. This guidance is effective on January 1, 2023, with early adoption permitted. Using a prospective approach, the Company adopted this guidance on January 1, 2023 and it did not have a material impact on the condensed consolidated financial statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this report. This discussion and analysis includes certain forward-looking statements that involve risks, uncertainties, and assumptions. You should review the “Risk Factors” sections of this report and our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by such forward-looking statements. See also “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report.
Overview
First Internet Bancorp is a financial holding company headquartered in Fishers, Indiana that conducts its primary business activities through its wholly-owned subsidiary, First Internet Bank of Indiana, an Indiana chartered bank. The Bank was the first state-chartered, Federal Deposit Insurance Corporation (“FDIC”) insured Internet bank and commenced banking operations in 1999. First Internet Bancorp was incorporated under the laws of the State of Indiana on September 15, 2005. On March 21, 2006, we consummated a plan of exchange by which we acquired all of the outstanding shares of the Bank.
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 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 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 and industrial (“C&I”), construction and investor commercial real estate, single tenant lease financing, public finance, healthcare finance, small business lending, franchise finance and commercial deposits and treasury management. Our C&I team provides credit solutions such as lines of credit, term loans, owner-occupied commercial real estate loans and
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corporate credit cards on a regional basis to commercial borrowers primarily in the Midwest and Southwest regions of the United States. We primarily offer construction and investor commercial real estate loans in the Midwest and Southwest regions of the United States and single tenant lease financing on a nationwide basis. Our public finance team provides a range of public and municipal lending and leasing products to government entities on a nationwide basis. Our healthcare finance team was established in conjunction with our strategic partnership with Provide, Inc. (formerly known as Lendeavor, Inc.), a San Francisco-based technology-enabled lender to healthcare practices, which provided lending on a nationwide basis for healthcare practice finance or acquisition, acquisition or refinancing of owner-occupied commercial real estate and equipment purchases. In the third quarter 2021, Provide was acquired by a super-regional financial institution. Subsequent to Provide being acquired, the acquiring institution has retained most, if not all, of Provide’s loan origination activity and our healthcare finance loan balances have declined. Our franchise finance business was established in July 2021 in conjunction with our business relationship with ApplePie Capital, a financial technology (“fintech”) company that specializes in providing financing to franchisees in various industry segments. Our commercial deposits and treasury management team works with the other commercial teams to provide deposit products and treasury management services to our commercial and municipal lending customers as well as pursues commercial deposit opportunities in business segments where we have no credit relationships.
We believe that we differentiate ourselves from larger financial institutions by providing a full suite of services to emerging small businesses and entrepreneurs on a nationwide basis. We are one of the fastest-growing lenders in the Small Business Administration (“SBA”) 7(a) program, closing more than $308.5 million in SBA 7(a) loans during the nine months ended September 30, 2023, and ranked as the 9 th largest SBA 7(a) lender for the SBA’s 2023 fiscal year. We also offer a top-ranked small business checking account product to our country’s entrepreneurs. We continue to scale up this business with the goal of driving increased earnings and profitability in future periods.
We also offer payment, deposit, card and lending products and services through fintech partnerships, which we plan to grow in future periods. With the rapid evolution of technology that enables consumers and small businesses to manage their finances digitally, fintechs are addressing a significantly growing marketplace. Fintechs have created robust digital offerings, unburdened by legacy technology architecture, to address growing customer expectations. Through partnerships with selected fintechs, we believe our ability to win and retain consumer and small business relationships will be significantly enhanced. Furthermore, we believe partnering with select fintechs will allow us to further diversify our revenue sources, acquire lower-cost deposits and pursue additional asset generation capabilities.
As of September 30, 2023, the Company had consolidated assets of $5.2 billion, consolidated deposits of $4.1 billion and stockholders’ equity of $347.7 million.
52

Results of Operations
During the third quarter 2023, net income was $3.4 million, or $0.39 diluted earnings per share, compared to third quarter 2022 net income of $8.4 million, or $0.89 diluted earnings per share, representing a decrease in net income of $5.0 million, or 59.6%, and a decrease in diluted earnings per share of $0.50, or 56.2%. During the nine months ended September 30, 2023, net income was $4.3 million, or $0.48 per diluted share, compared to the nine months ended September 30, 2022 net income of $29.2 million, or $3.01 per diluted share, resulting in a decrease in net income of $24.9 million, or 85.4%.
The $5.0 million decrease in net income for the third quarter 2023 compared to the third quarter 2022 was due primarily to a decrease of $6.6 million, or 27.6%, in net interest income, an increase of $1.8 million, or 9.8%, in noninterest expense and an increase of $1.1 million, or 118.2%, in provision for credit losses, partially offset by an increase of $3.1 million, or 71.6%, in noninterest income and a decrease of $1.3 million, or 133.0%, in income tax expense.
The decrease in net income for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was due primarily to a $20.3 million, or 27.0%, decrease in net interest income, a $10.2 million, or 355.3%, increase in provision for credit losses and a $4.6 million, or 8.4%, increase in noninterest expense, partially offset by a $6.9 million, or 171.3%, decrease in income tax expense and a $3.3 million, or 21.2%, increase in noninterest income.
Due to the steep decline in consumer mortgage volumes and the negative outlook for consumer mortgage lending over the next several years, the Company decided to exit its consumer mortgage business during the first quarter 2023. This included its nationwide digital direct-to-consumer mortgage platform that originated residential loans for sale in the secondary market, as well as its local traditional consumer mortgage and construction-to-permanent business. In connection with this decision, the Company recognized $3.1 million of mortgage operations and exit costs during the first quarter 2023, which contributed to the increase in noninterest expense compared to the nine months ended September 30, 2022.
The Company also recognized only $0.1 million of mortgage banking revenue during the nine months ended September 30, 2023, down from $4.5 million in the nine months ended September 30, 2022, as it immediately began winding down its existing pipeline following the decision to exit the business.
Additionally, during the nine months ended September 30, 2023, the Company recognized a partial charge-off of $6.9 million related to a commercial and industrial participation loan with a balance of $9.8 million prior to the partial charge-off, that was moved to nonaccrual status late in the first quarter 2023. This action contributed to the increase in the provision for credit losses as compared to the nine months ended September 30, 2022. The Company received payment for the remaining balance of the participation loan during the second quarter 2023.
During the third quarter 2023, return on average assets (“ROAA”), return on average shareholders’ equity (“ROAE”), and return on average tangible common equity (“ROATCE”) were 0.26%, 3.79%, and 3.84%, respectively, compared to 0.82%, 9.01%, and 9.13%, respectively, for the third quarter 2022. During the nine months ended September 30, 2023, ROAA, ROAE and ROATCE were 0.12%, 1.59%, and 1.61%, respectively, compared to 0.94%, 10.40%, and 10.53%, respectively, for the nine months ended September 30, 2022.
During the third quarter 2022, the Company recognized a $0.1 million write-down of software. Excluding this item, adjusted net income for the third quarter 2022 was $8.5 million and adjusted diluted earnings per share was $0.90. Additionally, for the third quarter 2022, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 0.83%, 9.12% and 9.24%, respectively.
Excluding the impact of exiting consumer mortgage and the partial charge-off, adjusted net income for the nine months ended September 30, 2023 was $12.1 million and adjusted diluted earnings per share was $1.35. Additionally, for the nine months ended September 30, 2023, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 0.34%, 4.50% and 4.56%, respectively.
During the nine months ended September 30, 2022, the Company recognized a nonrecurring consulting fee associated with a special project of $0.9 million, paid a $0.5 million discretionary inflation bonus to certain employees, recognized accelerated equity compensation expense of $0.3 million related to several retirements, incurred acquisition-related expenses of $0.3 million and recognized a $0.1 million write-down of software. Excluding these items, adjusted net income for the nine months ended September 30, 2022 was $30.8 million and adjusted diluted earnings per share was $3.17. Additionally, for the nine months ended September 30, 2022, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 0.99%, 11.00% and 11.13%, respectively.
53

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.
54

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
|  | September 30, 2023 |  | June 30, 2023 |  | September 30, 2022
(dollars in thousands) |  | Average Balance |  | Interest /Dividends |  | Yield /Cost |  | Average Balance |  | Interest /Dividends |  | Yield /Cost |  | Average Balance |  | Interest /Dividends |  | Yield /Cost
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-earning assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans, including loans held-for-sale |  | $ | 3,701,072 |  |  | $ | 48,898 |  |  | 5.24 | % |  | $ | 3,656,146 |  |  | $ | 46,906 |  |  | 5.15 | % |  | $ | 3,175,854 |  |  | $ | 34,643 |  |  | 4.33 | %
Securities - taxable |  | 550,208 |  |  | 4,301 |  |  | 3.10 | % |  | 531,040 |  |  | 3,835 |  |  | 2.90 | % |  | 532,470 |  |  | 2,701 |  |  | 2.01 | %
Securities - non-taxable |  | 72,012 |  |  | 912 |  |  | 5.02 | % |  | 73,142 |  |  | 860 |  |  | 4.72 | % |  | 73,859 |  |  | 491 |  |  | 2.64 | %
Other earning assets |  | 653,375 |  |  | 8,904 |  |  | 5.41 | % |  | 511,295 |  |  | 6,521 |  |  | 5.12 | % |  | 188,467 |  |  | 1,264 |  |  | 2.66 | %
Total interest-earning assets |  | 4,976,667 |  |  | 63,015 |  |  | 5.02 | % |  | 4,771,623 |  |  | 58,122 |  |  | 4.89 | % |  | 3,970,650 |  |  | 39,099 |  |  | 3.91 | %
Allowance for credit losses |  | (35,601) |  |  |  |  |  |  | (36,671) |  |  |  |  |  |  | (29,423) |  |  |  |  |
Noninterest-earning assets |  | 196,408 |  |  |  |  |  |  | 192,760 |  |  |  |  |  |  | 164,461 |  |  |  |  |
Total assets |  | $ | 5,137,474 |  |  |  |  |  |  | $ | 4,927,712 |  |  |  |  |  |  | $ | 4,105,688 |  |  |  |  |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing demand deposits |  | $ | 387,517 |  |  | $ | 2,131 |  |  | 2.18 | % |  | $ | 359,969 |  |  | $ | 1,509 |  |  | 1.68 | % |  | $ | 342,116 |  |  | $ | 551 |  |  | 0.64 | %
Savings accounts |  | 26,221 |  |  | 56 |  |  | 0.85 | % |  | 29,915 |  |  | 64 |  |  | 0.86 | % |  | 57,700 |  |  | 111 |  |  | 0.76 | %
Money market accounts |  | 1,230,746 |  |  | 12,537 |  |  | 4.04 | % |  | 1,274,453 |  |  | 12,314 |  |  | 3.88 | % |  | 1,369,783 |  |  | 4,581 |  |  | 1.33 | %
BaaS - brokered deposits |  | 31,891 |  |  | 348 |  |  | 4.33 | % |  | 22,918 |  |  | 230 |  |  | 4.03 | % |  | 153,936 |  |  | 859 |  |  | 2.21 | %
Certificates and brokered deposits |  | 2,235,321 |  |  | 25,267 |  |  | 4.48 | % |  | 2,025,831 |  |  | 20,559 |  |  | 4.07 | % |  | 1,037,792 |  |  | 4,418 |  |  | 1.69 | %
Total interest-bearing deposits |  | 3,911,696 |  |  | 40,339 |  |  | 4.09 | % |  | 3,713,086 |  |  | 34,676 |  |  | 3.75 | % |  | 2,961,327 |  |  | 10,520 |  |  | 1.41 | %
Other borrowed funds |  | 719,655 |  |  | 5,298 |  |  | 2.92 | % |  | 719,577 |  |  | 5,301 |  |  | 2.95 | % |  | 637,877 |  |  | 4,585 |  |  | 2.85 | %
Total interest-bearing liabilities |  | 4,631,351 |  |  | 45,637 |  |  | 3.91 | % |  | 4,432,663 |  |  | 39,977 |  |  | 3.62 | % |  | 3,599,204 |  |  | 15,105 |  |  | 1.67 | %
Noninterest-bearing deposits |  | 127,540 |  |  |  |  |  |  | 117,496 |  |  |  |  |  |  | 124,067 |  |  |  |  |
Other noninterest-bearing liabilities |  | 21,882 |  |  |  |  |  |  | 19,241 |  |  |  |  |  |  | 11,114 |  |  |  |  |
Total liabilities |  | 4,780,773 |  |  |  |  |  |  | 4,569,400 |  |  |  |  |  |  | 3,734,385 |  |  |  |  |
Shareholders’ equity |  | 356,701 |  |  |  |  |  |  | 358,312 |  |  |  |  |  |  | 371,303 |  |  |  |  |
Total liabilities and shareholders’ equity |  | $ | 5,137,474 |  |  |  |  |  |  | $ | 4,927,712 |  |  |  |  |  |  | $ | 4,105,688 |  |  |  |  |
Net interest income |  |  |  | $ | 17,378 |  |  |  |  |  |  | $ | 18,145 |  |  |  |  |  |  | $ | 23,994 |  |  |
Interest rate spread 1 |  |  |  |  |  | 1.11% |  |  |  |  |  | 1.27% |  |  |  |  |  | 2.24 | %
Net interest margin 2 |  |  |  |  |  | 1.39% |  |  |  |  |  | 1.53% |  |  |  |  |  | 2.40 | %
Net interest margin - FTE 3 |  |  |  |  |  | 1.49% |  |  |  |  |  | 1.64% |  |  |  |  |  | 2.53 | %

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.
55

|  | Nine Months Ended
|  | September 30, 2023 |  | September 30, 2022
(dollars in thousands) |  | Average Balance |  | Interest /Dividends |  | Yield /Cost |  | Average Balance |  | Interest /Dividends |  | Yield /Cost
Assets |  |  |  |  |  |  |  |  |  |  |  |
Interest-earning assets |  |  |  |  |  |  |  |  |  |  |  |
Loans, including loans held-for-sale |  | $ | 3,647,243 |  |  | $ | 139,647 |  |  | 5.12 | % |  | $ | 3,057,768 |  |  | $ | 100,246 |  |  | 4.38 | %
Securities - taxable |  | 531,197 |  |  | 11,742 |  |  | 2.96 | % |  | 547,759 |  |  | 7,489 |  |  | 1.83 | %
Securities - non-taxable |  | 72,829 |  |  | 2,570 |  |  | 4.72 | % |  | 77,236 |  |  | 1,068 |  |  | 1.85 | %
Other earning assets |  | 499,835 |  |  | 19,211 |  |  | 5.14 | % |  | 321,262 |  |  | 2,436 |  |  | 1.01 | %
Total interest-earning assets |  | 4,751,104 |  |  | 173,170 |  |  | 4.87 | % |  | 4,004,025 |  |  | 111,239 |  |  | 3.71 | %
Allowance for credit losses |  | (35,784) |  |  |  |  |  |  | (28,671) |  |  |  |  |
Noninterest-earning assets |  | 190,590 |  |  |  |  |  |  | 163,512 |  |  |  |  |
Total assets |  | $ | 4,905,910 |  |  |  |  |  |  | $ | 4,138,866 |  |  |  |  |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing liabilities |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing demand deposits |  | $ | 360,573 |  |  | $ | 4,540 |  |  | 1.68 | % |  | $ | 336,311 |  |  | $ | 1,429 |  |  | 0.57 | %
Savings accounts |  | 31,494 |  |  | 202 |  |  | 0.86 | % |  | 61,647 |  |  | 232 |  |  | 0.50 | %
Money market accounts |  | 1,293,728 |  |  | 37,151 |  |  | 3.84 | % |  | 1,416,984 |  |  | 8,006 |  |  | 0.76 | %
BaaS - brokered deposits |  | 23,246 |  |  | 716 |  |  | 4.12 | % |  | 79,613 |  |  | 1,019 |  |  | 1.71 | %
Certificates and brokered deposits |  | 1,971,705 |  |  | 59,676 |  |  | 4.05 | % |  | 1,122,097 |  |  | 12,339 |  |  | 1.47 | %
Total interest-bearing deposits |  | 3,680,746 |  |  | 102,285 |  |  | 3.72 | % |  | 3,016,652 |  |  | 23,025 |  |  | 1.02 | %
Other borrowed funds |  | 719,577 |  |  | 15,788 |  |  | 2.93 | % |  | 613,609 |  |  | 12,790 |  |  | 2.79 | %
Total interest-bearing liabilities |  | 4,400,323 |  |  | 118,073 |  |  | 3.59 | % |  | 3,630,261 |  |  | 35,815 |  |  | 1.32 | %
Noninterest-bearing deposits |  | 126,647 |  |  |  |  |  |  | 115,142 |  |  |  |  |
Other noninterest-bearing liabilities |  | 19,535 |  |  |  |  |  |  | 18,273 |  |  |  |  |
Total liabilities |  | 4,546,505 |  |  |  |  |  |  | 3,763,676 |  |  |  |  |
Shareholders’ equity |  | 359,405 |  |  |  |  |  |  | 375,190 |  |  |  |  |
Total liabilities and shareholders’ equity |  | $ | 4,905,910 |  |  |  |  |  |  | $ | 4,138,866 |  |  |  |  |
Net interest income |  |  |  | $ | 55,097 |  |  |  |  |  |  | $ | 75,424 |  |  |
Interest rate spread 1 |  |  |  |  |  | 1.28% |  |  |  |  |  | 2.39%
Net interest margin 2 |  |  |  |  |  | 1.55% |  |  |  |  |  | 2.52%
Net interest margin - FTE 3 |  |  |  |  |  | 1.66% |  |  |  |  |  | 2.65%

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.
56

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 September 30, 2023 vs. June 30, 2023 Due to Changes in |  | Three Months Ended September 30, 2023 vs. September 30, 2022 Due to Changes in |  | Nine Months Ended September 30, 2023 vs. September 30, 2022 Due to Changes in
(in thousands) |  | Volume |  | Rate |  | Net |  | Volume |  | Rate |  | Net |  | Volume |  | Rate |  | Net
Interest income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans, including loans held-for-sale |  | $ | 822 |  |  | $ | 1,170 |  |  | $ | 1,992 |  |  | $ | 6,278 |  |  | $ | 7,977 |  |  | $ | 14,255 |  |  | $ | 20,999 |  |  | $ | 18,402 |  |  | $ | 39,401 |
Securities – taxable |  | 160 |  |  | 306 |  |  | 466 |  |  | 93 |  |  | 1,507 |  |  | 1,600 |  |  | (379) |  |  | 4,632 |  |  | 4,253 |
Securities – non-taxable |  | (75) |  |  | 127 |  |  | 52 |  |  | (84) |  |  | 505 |  |  | 421 |  |  | (105) |  |  | 1,607 |  |  | 1,502 |
Other earning assets |  | 1,979 |  |  | 404 |  |  | 2,383 |  |  | 5,384 |  |  | 2,256 |  |  | 7,640 |  |  | 2,008 |  |  | 14,767 |  |  | 16,775 |
Total |  | 2,886 |  |  | 2,007 |  |  | 4,893 |  |  | 11,671 |  |  | 12,245 |  |  | 23,916 |  |  | 22,523 |  |  | 39,408 |  |  | 61,931 |
Interest expense |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing deposits |  | 2,101 |  |  | 3,562 |  |  | 5,663 |  |  | 4,307 |  |  | 25,512 |  |  | 29,819 |  |  | 6,086 |  |  | 73,174 |  |  | 79,260 |
Other borrowed funds |  | 4 |  |  | (7) |  |  | (3) |  |  | 598 |  |  | 115 |  |  | 713 |  |  | 2,323 |  |  | 675 |  |  | 2,998 |
Total |  | 2,105 |  |  | 3,555 |  |  | 5,660 |  |  | 4,905 |  |  | 25,627 |  |  | 30,532 |  |  | 8,409 |  |  | 73,849 |  |  | 82,258 |
Increase (decrease) in net interest income |  | $ | 781 |  |  | $ | (1,548) |  |  | $ | (767) |  |  | $ | 6,766 |  |  | $ | (13,382) |  |  | $ | (6,616) |  |  | $ | 14,114 |  |  | $ | (34,441) |  |  | $ | (20,327) |

Net interest income for the third quarter 2023 was $17.4 million, a decrease of $6.6 million, or 27.6%, compared to $24.0 million for the third quarter 2022. The decrease in net interest income was the result of a $30.5 million, or 202.1%, increase in total interest expense to $45.6 million for the third quarter 2023 from $15.1 million for the third quarter 2022, partially offset by a $23.9 million, or 61.2%, increase in total interest income to $63.0 million for the third quarter 2023 from $39.1 million for the third quarter 2022.
Net interest income for the nine months ended September 30, 2023 was $55.1 million, a decrease of $20.3 million, or 27.0%, compared to $75.4 million for the nine months ended September 30, 2022. The decrease in net interest income was the result of an $82.3 million, or 229.7%, increase in total interest expense to $118.1 million for the nine months ended September 30, 2023 from $35.8 million for the nine months ended September 30, 2022. The increase in total interest expense was partially offset by a $61.9 million, or 55.7%, increase in total interest income to $173.2 million for the nine months ended September 30, 2023 from $111.2 million for the nine months ended September 30, 2022.
The increase in total interest income for the third quarter 2023 compared to third quarter 2022 was due primarily to a $14.3 million, or 41.1%, increase in interest earned on loans, $7.6 million, or 604.4%, increase in income from other earning assets and a $2.0 million, or 63.3%, increase in interest earned on securities. The increase in income from loans was due primarily to a 91 bp increase in the yield earned on loans, including loans held-for-sale, as well as an increase of $525.2 million, or 16.5%, in the average balance of loans, including loans held-for-sale, compared to the third quarter 2022. The yield earned on other earning assets increased 275 bps and the average balance of other earning assets increased $464.9 million, or 246.7%. The increase in the average balance of other earning assets was due primarily to carrying higher cash balances. The average balance of securities increased $15.9 million, or 2.6%, while the yield earned on the securities portfolio increased 123 bps for the third quarter 2023 compared to the third quarter 2022. The increase in the yields earned on loans, other earning assets and securities was due to the continued rise in interest rates during the fourth quarter 2022 and into 2023. The yield on funded portfolio originations was 8.92% in the third quarter 2023, an increase of 362 bps compared to the third quarter 2022.
57

The increase in total interest income for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was due primarily to an increase in interest earned on loans resulting from an increase of 74 bps in the yield on loans, including loans held-for-sale, as well as an increase of $589.5 million, or 19.3%, in the average balance of loans, including loans held-for-sale. The yield on other earning assets increased 413 bps and the average balance of other earning assets increased $178.6 million, or 55.6%. In addition, while the average balance of securities decreased $21.0 million, or 3.4%, the yield earned on the securities portfolio increased 134 bps for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The increase in the yields earned on loans, other earning assets and securities was due to the continued rise in interest rates during the fourth quarter 2022 and into 2023. The yield on funded portfolio originations was 8.29% for the nine months ended September 30, 2023, an increase of 324 bps compared to the nine months ended September 30, 2022.
The increase in total interest expense for the third quarter 2023 compared to the third quarter 2022 was due primarily to increases of $20.8 million, or 471.9%, in interest expense associated with certificates and brokered deposits, $8.0 million, or 173.7%, in interest expense associated with money market accounts, $1.6 million, or 286.8%, in interest expense associated with interest-bearing demand deposits, and $0.7 million, or 15.6%, in interest expense associated with other borrowed funds. The increase in interest expense related to certificates and brokered deposits was driven by an increase of 279 bps in the cost of these deposits, as well as an increase of $1.2 billion, or 115.4%, in the average balance of these deposits. The increase in the average balance of these deposits was driven by strong consumer and small business demand for certificates of deposits in 2023, as well as the funding of brokered deposits earlier in 2023 to supplement on-balance sheet liquidity. The increase in interest expense related to money market accounts was driven primarily by an increase of 271 bps in the cost of these deposits, partially offset by a decrease in the average balance of these deposits of $139.0 million, or 10.2%. The increase in interest expense related to interest-bearing demand deposits was due primarily to a 154 bp increase in the cost of these deposits, as well as an increase of $45.4 million, or 13.3%, in the average balance of these deposits. The increase in interest expense related to other borrowed funds was due primarily to additional long-term FHLB advances in the second half of 2022 at rates lower than market deposit costs, as the cost of the borrowed funds increased only 7 bps while the average balance increased 12.8%. The increase in the overall cost of deposits was due primarily to the continued rise in interest rates during the fourth quarter 2022 and into 2023. However, the pace of increase in deposit costs during the third quarter was the slowest experienced by the Company in the past five quarters.
The increase in total interest expense for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was due primarily to increases of $47.3 million, or 383.6%, in interest expense associated with certificates and brokered deposits, $29.1 million, or 364.0%, in interest expense associated with money market accounts, $3.1 million, or 217.7%, in interest expense associated with interest-bearing demand deposits and $3.0 million, or 23.4%, in interest expense associated with other borrowed funds. The increase in interest expense related to certificates and brokered deposits was driven by an increase of 258 bps in the cost of these deposits, as well as an increase of $849.6 million, or 75.7%, in the average balance of these deposits. The increase in the average balance of these deposits was driven by strong consumer and small business demand for certificates of deposits in 2023, as well as the funding of brokered deposits during the fourth quarter 2022 and earlier in 2023 to supplement on-balance sheet liquidity. The increase in interest expense related to money market accounts was driven primarily by an increase of 308 bps in the cost of these deposits, partially offset by a decrease of $123.3 million, or 8.7%, in the average balance of these deposits. The increase in interest expense related to interest-bearing demand deposits was due primarily to a 111 bp increase in the cost of these deposits, as well as an increase of $24.3 million, or 7.2%, in the average balance of these deposits. The increase in interest expense related to other borrowed funds was due primarily to additional long-term FHLB advances in the second half of 2022 at rates lower than market deposit costs, as the cost of the borrowed funds increased only 14 bps while the average balance increased 17.3%. The increase in the overall cost of deposits was due primarily to the continued rise in interest rates during the fourth quarter 2022 and into 2023. However, as mentioned above, the pace of increase in deposit costs during the third quarter was the slowest experienced by the Company in the past five quarters.
Overall, the cost of total interest-bearing liabilities for the third quarter 2023 increased 224 bps to 3.91% from 1.67% for the third quarter 2022. The cost of total interest-bearing liabilities for the nine months ended September 30, 2023 increased 227 bps to 3.59% from 1.32% for the nine months ended September 30, 2022. The increase in the cost of funds for both the three and nine months ended September 30, 2023 reflects the rapid rise in interest rates in late 2022 and 2023.
Net interest margin (“NIM”) was 1.39% for the third quarter 2023 compared to 2.40% for the third quarter 2022, a decrease of 101 bps. On a fully-taxable equivalent (“FTE”) basis, NIM was 1.49% for the third quarter 2023 compared to 2.53% for the third quarter 2022, a decrease of 104 bps. NIM was 1.55% for the nine months ended September 30, 2023 compared to 2.52% for the nine months ended September 30, 2022, a decrease of 97 bps. FTE NIM was 1.66% for the nine months ended September 30, 2023 compared to 2.65% for the nine months ended September 30, 2022, a decrease of 99 bps.
58

The decrease in both the three and nine months ended September 30, 2023 NIM and FTE NIM compared to the three and nine months ended September 30, 2022 reflects the increase in the cost of interest-bearing liabilities, partially offset by the increase in earning asset yields noted above.
Noninterest Income
The following table presents noninterest income for the last five completed fiscal quarters and the nine months ended September 30, 2023 and 2022.

| Three Months Ended |  | Nine Months Ended
(in thousands) | September 30, 2023 |  | June 30, 2023 |  | March 31, 2023 |  | December 31, 2022 |  | September 30, 2022 |  | September 30, 2023 |  | September 30, 2022
Service charges and fees | $ | 208 |  |  | $ | 218 |  |  | $ | 209 |  |  | $ | 226 |  |  | $ | 248 |  |  | $ | 635 |  |  | $ | 845 |
Loan servicing revenue | 1,064 |  |  | 850 |  |  | 785 |  |  | 715 |  |  | 653 |  |  | 2,699 |  |  | 1,858 |
Loan servicing asset revaluation | (257) |  |  | (358) |  |  | (55) |  |  | (539) |  |  | (333) |  |  | (670) |  |  | (1,100) |
Mortgage banking activities | — |  |  | — |  |  | 76 |  |  | 1,010 |  |  | 871 |  |  | 76 |  |  | 4,454 |
Gain on sale of loans | 5,569 |  |  | 4,868 |  |  | 4,061 |  |  | 2,862 |  |  | 2,713 |  |  | 14,498 |  |  | 8,510 |
Other | 823 |  |  | 293 |  |  | 370 |  |  | 1,533 |  |  | 164 |  |  | 1,486 |  |  | 883 |
Total noninterest income | $ | 7,407 |  |  | $ | 5,871 |  |  | $ | 5,446 |  |  | $ | 5,807 |  |  | $ | 4,316 |  |  | $ | 18,724 |  |  | $ | 15,450 |

During the third quarter 2023, noninterest income was $7.4 million, representing an increase of $3.1 million, or 71.6%, compared to $4.3 million for the third quarter 2022. The increase in noninterest income was due primarily to increases in gain on sale of loans, net loan servicing revenue and other income, partially offset by a decrease in revenue from mortgage banking activities. The increase of $2.9 million, or 105.3%, in gain on sale of loans was due to an increase in the volume of U.S. Small Business Administration (“SBA”) 7(a) guaranteed loan sales, partially offset by lower net premiums. The increase of $0.7 million, or 401.8%, in other income is due primarily to income from fund investments. The increase in loan servicing revenue reflects the growth in the Company’s SBA servicing portfolio, as origination volume has increased compared to the third quarter 2022. The decrease in mortgage banking revenue was due to the Company’s exit from the mortgage business in the first quarter 2023.
During the nine months ended September 30, 2023, noninterest income was $18.7 million, an increase of $3.3 million, or 21.2%, compared to $15.5 million for the nine months ended September 30, 2022. The increase in noninterest income was due primarily to increases in gain on sale of loans, net loan servicing revenue and other income, partially offset by a decrease in mortgage banking activities. The increase of $6.0 million, or 70.4%, in gain on sale of loans was due to an increase in the volume of SBA 7(a) guaranteed loan sales, partially offset by lower net premiums. The increase in net loan servicing revenue was due to growth in the balance of the Company’s SBA 7(a) servicing portfolio, as well as slower prepayment speeds in first nine months of 2023 compared to first nine months of 2022. The increase in other income was due primarily to income from fund investments. The decrease in mortgage banking revenue was due to the Company’s exit from the mortgage business in the first quarter 2023.
59

Noninterest Expense
The following table presents noninterest expense for the last five completed fiscal quarters and the nine months ended September 30, 2023 and 2022.

| Three Months Ended |  | Nine Months Ended
(in thousands) | September 30, 2023 |  | June 30, 2023 |  | March 31, 2023 |  | December 31, 2022 |  | September 30, 2022 |  | September 30, 2023 |  | September 30, 2022
Salaries and employee benefits | $ | 11,767 |  |  | $ | 10,706 |  |  | $ | 11,794 |  |  | $ | 10,404 |  |  | $ | 10,439 |  |  | $ | 34,267 |  |  | $ | 31,149 |
Marketing, advertising and promotion | 500 |  |  | 705 |  |  | 844 |  |  | 837 |  |  | 1,041 |  |  | 2,049 |  |  | 2,717 |
Consulting and professional services | 552 |  |  | 711 |  |  | 926 |  |  | 914 |  |  | 790 |  |  | 2,189 |  |  | 3,912 |
Data processing | 701 |  |  | 520 |  |  | 659 |  |  | 567 |  |  | 483 |  |  | 1,880 |  |  | 1,422 |
Loan expenses | 1,336 |  |  | 1,072 |  |  | 1,977 |  |  | 1,018 |  |  | 1,142 |  |  | 4,385 |  |  | 3,417 |
Premises and equipment | 2,315 |  |  | 2,661 |  |  | 2,777 |  |  | 2,921 |  |  | 2,808 |  |  | 7,753 |  |  | 7,767 |
Deposit insurance premium | 1,067 |  |  | 936 |  |  | 543 |  |  | 355 |  |  | 229 |  |  | 2,546 |  |  | 797 |
Other | 1,518 |  |  | 1,359 |  |  | 1,434 |  |  | 1,497 |  |  | 1,063 |  |  | 4,311 |  |  | 3,579 |
Total noninterest expense | $ | 19,756 |  |  | $ | 18,670 |  |  | $ | 20,954 |  |  | $ | 18,513 |  |  | $ | 17,995 |  |  | $ | 59,380 |  |  | $ | 54,760 |

Noninterest expense for the third quarter 2023 was $19.8 million, compared to $18.0 million for the third quarter 2022. The increase of $1.8 million, or 9.8%, was due primarily to a $1.3 million increase in salaries and employee benefits, a $0.8 million increase in deposit insurance premium, a $0.5 million increase in other, a $0.2 million increase in data processing and a $0.2 million increase in loan expenses, partially offset by a $0.5 million decrease in marketing, advertising and promotion expense and a $0.5 million decrease in premises and equipment. The increase in salaries and employee benefits was due primarily to increased headcount and higher incentive compensation in small business and construction lending. The increase in deposit insurance premium was due primarily to year-over-year asset growth and changes in the composition of the loans and deposit portfolios. The increase in other expense was due to various expenses, none of which were individually significant. The increase in data processing expense was due to variable deposit activity-based expenses. The decrease in marketing, advertising and promotion expense was due primarily to cost savings from the Company’s exit from the mortgage business in the first quarter 2023. The decrease in premises and equipment was due primarily to a decrease in property tax expense.
Noninterest expense for the nine months ended September 30, 2023 was $59.4 million, compared to $54.8 million for the nine months ended September 30, 2022. The increase of $4.6 million, or 8.4%, was due primarily to increases of $3.1 million in salaries and benefits, $1.7 million in deposit insurance premium, $1.0 million in loan expenses and $0.7 million in other expenses, partially offset by a $1.7 million decrease in consulting and professional fees and a $0.7 million decrease in marketing, advertising and promotion expense. During the nine months ended September 30, 2022, the Company paid a $0.5 million discretionary inflation bonus to certain employees and recognized accelerated equity compensation expense of $0.3 million related to several retirements. Excluding these items, salaries and employee benefits increased $3.9 million in 2023. The increase in salaries and employee benefits was due primarily to mortgage exit costs, as well as an increase in headcount and higher incentive compensation in small business and construction lending. The increase in deposit insurance premium was due mainly to year-over-year asset growth, as well as the composition of loans and deposits. The increase in loan expenses was due primarily to mortgage exit costs and accrued contract expenses, as well as higher third-party loan servicing fees and other miscellaneous lending costs. The increase in other expense was due to various expenses, none of which were individually significant. The decrease in consulting and professional fees was due primarily to consulting fees related to a special project that occurred in the first quarter 2022, as well as lower legal fees in 2023. The decrease in marketing, advertising and promotion expense was due primarily to cost savings from the Company’s exit from the mortgage business in the first quarter 2023.
The Company recorded an income tax benefit of $0.3 million for the third quarter 2023, compared to an income tax provision of $1.0 million and an effective tax rate of 10.5% for the third quarter 2022. The Company recorded an income tax benefit of $2.9 million for the nine months ended September 30, 2023, compared to an income tax provision of $4.1 million and an effective tax rate of 12.2% for the nine months ended September 30, 2022. The income tax benefits recognized during 2023 reflect the impact of the partial charge-off of the commercial and industrial participation loan and the mortgage exit costs earlier in the year, as well as the benefit of tax exempt income relative to stated pre-tax income.
60

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

(in thousands) |  |  |  |  |  |  |  |  |  |
Balance Sheet Data: |  | September 30, 2023 |  | June 30, 2023 |  | March 31, 2023 |  | December 31, 2022 |  | September 30, 2022
Total assets |  | $ | 5,169,023 |  |  | $ | 4,947,049 |  |  | $ | 4,721,319 |  |  | $ | 4,543,104 |  |  | $ | 4,264,424 |
Loans |  | 3,735,068 |  |  | 3,646,832 |  |  | 3,607,242 |  |  | 3,499,401 |  |  | 3,255,906 |
Total securities |  | 682,755 |  |  | 609,999 |  |  | 606,594 |  |  | 579,552 |  |  | 584,622 |
Loans held-for-sale |  | 31,669 |  |  | 32,001 |  |  | 18,144 |  |  | 21,511 |  |  | 23,103 |
Noninterest-bearing deposits |  | 125,265 |  |  | 119,291 |  |  | 140,449 |  |  | 175,315 |  |  | 142,875 |
Interest-bearing deposits |  | 3,958,280 |  |  | 3,735,017 |  |  | 3,481,841 |  |  | 3,265,930 |  |  | 3,049,769 |
Total deposits |  | 4,083,545 |  |  | 3,854,308 |  |  | 3,622,290 |  |  | 3,441,245 |  |  | 3,192,644 |
Advances from Federal Home Loan Bank |  | 614,933 |  |  | 614,931 |  |  | 614,929 |  |  | 614,928 |  |  | 589,926 |
Total shareholders’ equity |  | 347,744 |  |  | 354,332 |  |  | 355,572 |  |  | 364,974 |  |  | 360,857 |

Total assets increased $625.9 million, or 13.8%, to $5.2 billion at September 30, 2023 compared to $4.5 billion at December 31, 2022. The increase was due primarily to increases in loan and cash balances, and was funded by growth in deposit balances of $642.3 million, or 18.7%.
As of September 30, 2023, total shareholders’ equity was $347.7 million, a decrease of $17.2 million, or 4.7%, compared to December 31, 2022. The decrease in shareholders’ equity was due primarily to stock repurchase activity, an increase in accumulated other comprehensive loss and the day 1 CECL adjustment, partially offset by net income earned during the period. Tangible common equity totaled $343.1 million as of September 30, 2023, representing a decrease of $17.2 million, or 4.8%, compared to December 31, 2022. The ratio of total shareholders’ equity to total assets decreased to 6.73% as of September 30, 2023 from 8.03% as of December 31, 2022, and the ratio of tangible common equity to tangible assets decreased to 6.64% as of September 30, 2023 from 7.94% as of December 31, 2022.
Book value per common share decreased 0.4% to $40.11 as of September 30, 2023 from $40.26 as of December 31, 2022. Tangible book value per share decreased 0.4% to $39.57 as of September 30, 2023 from $39.74 as of December 31, 2022. The slight decline in both book value per common share and tangible book value per share reflects the declines in total shareholders’ equity and tangible common equity, partially offset by the effect of stock repurchase activity during the year. Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Part I, Item 2 of this report, Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information.
61

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) | September 30, 2023 |  | June 30, 2023 |  | March 31, 2023 |  | December 31, 2022 |  | September 30, 2022 |  |
Commercial loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial | $ | 114,265 |  |  | 3.1 | % |  | $ | 112,423 |  |  | 3.1 | % |  | $ | 113,198 |  |  | 3.1 | % |  | $ | 126,108 |  |  | 3.6 | % |  | $ | 104,780 |  |  | 3.2 | % |  |
Owner-occupied commercial real estate | 58,486 |  |  | 1.6 | % |  | 59,564 |  |  | 1.6 | % |  | 59,643 |  |  | 1.7 | % |  | 61,836 |  |  | 1.8 | % |  | 58,615 |  |  | 1.8 | % |  |
Investor commercial real estate | 129,831 |  |  | 3.5 | % |  | 137,504 |  |  | 3.8 | % |  | 142,174 |  |  | 3.9 | % |  | 93,121 |  |  | 2.7 | % |  | 91,021 |  |  | 2.8 | % |  |
Construction | 252,105 |  |  | 6.7 | % |  | 192,453 |  |  | 5.3 | % |  | 158,147 |  |  | 4.4 | % |  | 181,966 |  |  | 5.2 | % |  | 139,509 |  |  | 4.3 | % |  |
Single tenant lease financing | 933,873 |  |  | 25.0 | % |  | 947,466 |  |  | 25.9 | % |  | 952,533 |  |  | 26.4 | % |  | 939,240 |  |  | 26.8 | % |  | 895,302 |  |  | 27.4 | % |  |
Public finance | 535,960 |  |  | 14.3 | % |  | 575,541 |  |  | 15.8 | % |  | 604,898 |  |  | 16.8 | % |  | 621,032 |  |  | 17.7 | % |  | 614,139 |  |  | 18.9 | % |  |
Healthcare finance | 235,622 |  |  | 6.3 | % |  | 245,072 |  |  | 6.7 | % |  | 256,670 |  |  | 7.1 | % |  | 272,461 |  |  | 7.8 | % |  | 293,686 |  |  | 9.0 | % |  |
Small business lending | 192,996 |  |  | 5.2 | % |  | 170,550 |  |  | 4.7 | % |  | 136,382 |  |  | 3.8 | % |  | 123,750 |  |  | 3.5 | % |  | 113,001 |  |  | 3.5 | % |  |
Franchise finance | 455,094 |  |  | 12.2 | % |  | 390,479 |  |  | 10.6 | % |  | 382,161 |  |  | 10.6 | % |  | 299,835 |  |  | 8.6 | % |  | 225,012 |  |  | 6.8 | % |  |
Total commercial loans | 2,908,232 |  |  | 77.9 | % |  | 2,831,052 |  |  | 77.5 | % |  | 2,805,806 |  |  | 77.8 | % |  | 2,719,349 |  |  | 77.7 | % |  | 2,535,065 |  |  | 77.7 | % |  |
Consumer loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage | 393,501 |  |  | 10.5 | % |  | 396,154 |  |  | 10.9 | % |  | 392,062 |  |  | 10.9 | % |  | 383,948 |  |  | 11.0 | % |  | 337,565 |  |  | 10.4 | % |  |
Home equity | 23,544 |  |  | 0.6 | % |  | 24,375 |  |  | 0.7 | % |  | 26,160 |  |  | 0.7 | % |  | 24,712 |  |  | 0.7 | % |  | 22,114 |  |  | 0.7 | % |  |
Other consumer | 369,451 |  |  | 9.9 | % |  | 352,124 |  |  | 9.7 | % |  | 338,133 |  |  | 9.4 | % |  | 324,598 |  |  | 9.3 | % |  | 312,512 |  |  | 9.7 | % |  |
Total consumer loans | 786,496 |  |  | 21.0 | % |  | 772,653 |  |  | 21.3 | % |  | 756,355 |  |  | 21.0 | % |  | 733,258 |  |  | 21.0 | % |  | 672,191 |  |  | 20.8 | % |  |
Net deferred loan origination costs, premiums and discounts on purchased loans and other 1 | 40,340 |  |  | 1.1 | % |  | 43,127 |  |  | 1.2 | % |  | 45,081 |  |  | 1.2 | % |  | 46,794 |  |  | 1.3 | % |  | 48,650 |  |  | 1.5 | % |  |
Total loans | 3,735,068 |  |  | 100.0 | % |  | 3,646,832 |  |  | 100.0 | % |  | 3,607,242 |  |  | 100.0 | % |  | 3,499,401 |  |  | 100.0 | % |  | 3,255,906 |  |  | 100.0 | % |  |
Allowance for credit losses 2 | (36,452) |  |  |  |  | (36,058) |  |  |  |  | (36,879) |  |  |  |  | (31,737) |  |  |  |  | (29,866) |  |  |  |  |
Net loans | $ | 3,698,616 |  |  |  |  | $ | 3,610,774 |  |  |  |  | $ | 3,570,363 |  |  |  |  | $ | 3,467,664 |  |  |  |  | $ | 3,226,040 |  |  |  |  |

1 Includes carrying value adjustments of $29.0 million, $30.5 million, $31.5 million, $32.5 million and $33.9 million related to terminated interest rate swaps associated with public finance loans as of September 30, 2023, June 30, 2023, March 31, 2023, December 31, 2022 and September 30, 2022, respectively.
2 Beginning January 1, 2023, the allowance calculation is based on the CECL methodology. Prior to January 1, 2023, the allowance calculation was based on the incurred loss methodology.
Total loans were $3.7 billion as of September 30, 2023, an increase of $235.7 million, or 6.7%, compared to December 31, 2022. Total commercial loan balances were $2.9 billion as of September 30, 2023, up $188.9 million, or 7.0%, from December 31, 2022. Total consumer loan balances were $786.5 million as of September 30, 2023, an increase of $53.2 million, or 7.3%, compared to December 31, 2022. Compared to December 31, 2022, the increase in commercial loan balances was driven by growth in the franchise finance, small business lending, construction and investor commercial real estate portfolios. The increase was partially offset by planned decreases in the fixed-rate public finance and single tenant lease financing, as well as continued runoff in the healthcare finance portfolio. The increase in consumer loans was due to higher balances in the recreational vehicles and trailers loan portfolios, in addition to funded residential mortgages and draws on construction/perm loans that were in the pipeline prior to exiting the business.
62

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) | September 30, 2023 |  | June 30, 2023 |  | March 31, 2023 |  | December 31, 2022 |  | September 30, 2022 |  |
Nonaccrual loans |  |  |  |  |  |  |  |  |  |  |
Commercial loans: |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial | $ | — |  |  | $ | — |  |  | $ | 2,836 |  |  | $ | 51 |  |  | $ | 350 |  |  |
Owner-occupied commercial real estate | — |  |  | 1,405 |  |  | 1,441 |  |  | 1,570 |  |  | 1,622 |  |  |
Small business lending 1 | 4,443 |  |  | 3,729 |  |  | 3,797 |  |  | 4,764 |  |  | 2,958 |  |  |
Total commercial loans | 4,443 |  |  | 5,134 |  |  | 8,074 |  |  | 6,385 |  |  | 4,930 |  |  |
Consumer loans: |  |  |  |  |  |  |  |  |  |  |
Residential mortgage | 1,354 |  |  | 992 |  |  | 1,006 |  |  | 1,048 |  |  | 1,073 |  |  |
Other consumer | 88 |  |  | 101 |  |  | 141 |  |  | 17 |  |  | 3 |  |  |
Total consumer loans | 1,442 |  |  | 1,093 |  |  | 1,147 |  |  | 1,065 |  |  | 1,076 |  |  |
Total nonaccrual loans | 5,885 |  |  | 6,227 |  |  | 9,221 |  |  | 7,450 |  |  | 6,006 |  |  |
Past Due 90 days and accruing loans |  |  |  |  |  |  |  |  |  |  |
Consumer loans: |  |  |  |  |  |  |  |  |  |  |
Residential mortgage | — |  |  | — |  |  | — |  |  | 79 |  |  | — |  |  |
Total consumer loans | — |  |  | — |  |  | — |  |  | 79 |  |  | — |  |  |
Total past due 90 days and accruing loans | — |  |  | — |  |  | — |  |  | 79 |  |  | — |  |  |
Total nonperforming loans | 5,885 |  |  | 6,227 |  |  | 9,221 |  |  | 7,529 |  |  | 6,006 |  |  |
Other real estate owned |  |  |  |  |  |  |  |  |  |  |
Residential mortgage | 106 |  |  | 106 |  |  | 106 |  |  | — |  |  | — |  |  |
Total other real estate owned | 106 |  |  | 106 |  |  | 106 |  |  | — |  |  | — |  |  |
Other nonperforming assets | 78 |  |  | 64 |  |  | 19 |  |  | 42 |  |  | — |  |  |
Total nonperforming assets | $ | 6,069 |  |  | $ | 6,397 |  |  | $ | 9,346 |  |  | $ | 7,571 |  |  | $ | 6,006 |  |  |
Total nonperforming loans to total loans 2 | 0.16 | % |  | 0.17 | % |  | 0.26 | % |  | 0.22 | % |  | 0.18 | % |  |
Total nonperforming assets to total assets 2 | 0.12 | % |  | 0.13 | % |  | 0.20 | % |  | 0.17 | % |  | 0.14 | % |  |
Allowance for credit losses to total loans | 0.98 | % |  | 0.99 | % |  | 1.02 | % |  | 0.91 | % |  | 0.92 | % |  |
Nonaccrual loans to total loans | 0.16 | % |  | 0.17 | % |  | 0.26 | % |  | 0.22 | % |  | 0.18 | % |  |
Allowance for credit losses to nonperforming loans 2 | 619.4 | % |  | 579.1 | % |  | 400.0 | % |  | 426.0 | % |  | 497.3 | % |  |

1 Balance of loans are partially guaranteed by the U.S. government.
2 Includes the impact of nonperforming small business lending loans, which are guaranteed by the U.S. government.
Total nonperforming loans decreased $1.6 million, or 21.8%, to $5.9 million as of September 30, 2023 compared to $7.5 million as of December 31, 2022 due primarily to an owner-occupied commercial real estate loan that was returned to accrual status during the quarter. Total nonperforming assets decreased $1.5 million, or 19.8%, to $6.1 million as of September 30, 2023, compared to $7.6 million as of December 31, 2022, due primarily to the owner-occupied commercial real estate loan mentioned above, partially offset by an increase in OREO. As of September 30, 2023, the Company had one residential mortgage property in OREO with a carrying value of $0.1 million. As of December 31, 2022, the Company did not own any OREO.
63

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

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

Allowance for Credit Losses - Loans
The following table provides a rollforward of the allowance for credit losses for the last five completed fiscal quarters and the nine months ended September 30, 2023 and 2022.
64

| Three Months Ended |  | Nine Months Ended
(dollars in thousands) | September 30, 2023 |  | June 30, 2023 |  | March 31, 2023 |  | December 31, 2022 |  | September 30, 2022 |  | September 30, 2023 |  | September 30, 2022
Balance, beginning of period, December 31, 2022 | $ | 36,058 |  |  | $ | 36,879 |  |  | $ | 31,737 |  |  | $ | 29,866 |  |  | $ | 29,153 |  |  | $ | 31,737 |  |  | $ | 27,841 |
Adoption of ASU 2016-13 (CECL) | — |  |  | — |  |  | 2,962 |  |  | — |  |  | — |  |  | 2,962 |  |  | — |
Balance, beginning of period | 36,058 |  |  | 36,879 |  |  | 34,699 |  |  | 29,866 |  |  | 29,153 |  |  | 34,699 |  |  | 27,841 |
Provision charged to expense | 1,850 |  |  | 753 |  |  | 9,373 |  |  | 2,109 |  |  | 892 |  |  | 11,976 |  |  | 2,868 |
Losses charged off |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial | — |  |  | — |  |  | 6,965 |  |  | — |  |  | — |  |  | 6,965 |  |  | — |
Investor commercial real estate | 591 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 591 |  |  | — |
Healthcare finance | — |  |  | 25 |  |  | — |  |  | — |  |  | — |  |  | 25 |  |  | — |
Small business lending | 751 |  |  | 1,358 |  |  | 60 |  |  | 192 |  |  | 130 |  |  | 2,169 |  |  | 210 |
Franchise finance | — |  |  | 331 |  |  | — |  |  | — |  |  | — |  |  | 331 |  |  | — |
Residential mortgage | 56 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 56 |  |  | — |
Other consumer | 120 |  |  | 150 |  |  | 232 |  |  | 101 |  |  | 106 |  |  | 502 |  |  | 397 |
Tax refund advance loans | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,860 |
Total losses charged off | 1,518 |  |  | 1,864 |  |  | 7,257 |  |  | 293 |  |  | 236 |  |  | 10,639 |  |  | 2,467 |
Recoveries |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial | 2 |  |  | 217 |  |  | 1 |  |  | 3 |  |  | 2 |  |  | 220 |  |  | 2 |
Single tenant lease financing | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,231 |
Small business lending | 14 |  |  | 37 |  |  | 3 |  |  | 7 |  |  | 3 |  |  | 54 |  |  | 22 |
Residential mortgage | 1 |  |  | 1 |  |  | 2 |  |  | 2 |  |  | 1 |  |  | 4 |  |  | 3 |
Home equity | 2 |  |  | 2 |  |  | 1 |  |  | 2 |  |  | 1 |  |  | 5 |  |  | 137 |
Other consumer | 43 |  |  | 33 |  |  | 57 |  |  | 41 |  |  | 50 |  |  | 133 |  |  | 229 |
Total recoveries | 62 |  |  | 290 |  |  | 64 |  |  | 55 |  |  | 57 |  |  | 416 |  |  | 1,624 |
Balance, end of period | $ | 36,452 |  |  | $ | 36,058 |  |  | $ | 36,879 |  |  | $ | 31,737 |  |  | $ | 29,866 |  |  | $ | 36,452 |  |  | $ | 29,866 |
Net charge-offs | $ | 1,456 |  |  | $ | 1,574 |  |  | $ | 7,193 |  |  | $ | 238 |  |  | $ | 179 |  |  | $ | 10,223 |  |  | $ | 843 |
Net charge-offs (recoveries) to average loans (annualized) |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial | 0.00 | % |  | (0.46 | %) |  | 27.16 | % |  | 0.00 | % |  | 0.00 | % |  | 9.26 | % |  | 0.00 | %
Investor commercial real estate | 0.59 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.63 | % |  | 0.00 | %
Single tenant lease financing | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | (0.19 | %)
Healthcare finance | 0.00 | % |  | 0.02 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.01 | % |  | 0.00 | %
Small business lending | 0.50 | % |  | 1.50 | % |  | 0.15 | % |  | 0.14 | % |  | 0.14 | % |  | 1.61 | % |  | 0.22 | %
Franchise finance | 0.00 | % |  | 0.17 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.11 | % |  | 0.00 | %
Total commercial net charge-offs (recoveries) | 0.06 | % |  | 0.10 | % |  | 1.02 | % |  | 0.01 | % |  | 0.01 | % |  | 0.46 | % |  | (0.06 | %)
Residential mortgage | 0.06 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.02 | % |  | 0.00 | %
Home equity | (0.01 | %) |  | (0.02 | %) |  | (0.02 | %) |  | (0.01 | %) |  | (0.01 | %) |  | (0.03 | %) |  | (0.94 | %)
Other consumer | 0.18 | % |  | 0.21 | % |  | 0.36 | % |  | 0.18 | % |  | 0.20 | % |  | 0.25 | % |  | 0.30 | %
Tax refund advance loans | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 11.84 | %
Total consumer net charge-offs | 0.02 | % |  | 0.03 | % |  | 0.09 | % |  | 0.01 | % |  | 0.01 | % |  | 0.07 | % |  | 0.44 | %
Total net charge-offs to average loans | 0.16 | % |  | 0.17 | % |  | 0.82 | % |  | 0.03 | % |  | 0.02 | % |  | 0.38 | % |  | 0.04 | %

The allowance for credit losses (“ACL”) was $36.5 million as of September 30, 2023, compared to $31.7 million as of December 31, 2022. The increase in the ACL reflects the day one current expected credit losses (“CECL”) adjustment of $3.0 million, overall growth in the loan portfolio, changes in certain economic forecasts that impacted quantitative loss rates, adjustments to qualitative factors for certain portfolios, and specific reserves placed on certain loans. The ACL as a percentage of total loans was 0.98% at September 30, 2023, compared to 0.91% at December 31, 2022. The ACL as a percentage of
65

nonperforming loans increased to 619.4% as of September 30, 2023, compared to 426.0% as of December 31, 2022, due to the increase in the ACL, as well as the decline in nonperforming loans.
Net charge-offs of $1.5 million were recognized during the third quarter 2023, resulting in net charge-offs to average loans of 0.16%, compared to net charge-offs to average loans of 0.02% for the third quarter 2022. The increase in net charge-offs was due primarily to an increase in charge-offs in small business lending and a loss on the sale of one investor commercial real estate participation loan executed by the lead bank.
During the nine months ended September 30, 2023, the Company recorded net charge-offs of $10.2 million, compared to net charge-offs of $0.8 million during the nine months ended September 30, 2022. The increase in net charge-offs for the nine months ended September 30, 2023 was driven primarily by the $6.9 million partial charge-off of a C&I participation loan that was placed on nonaccrual status and subsequently charged off during the first quarter 2023, as well as an increase in charge-offs in small business lending and a loss on the sale of one investor commercial real estate participation loan executed by the lead bank.
The provision for credit losses in the third quarter 2023 was $1.9 million, compared to $0.9 million for the third quarter 2022. During the nine months ended September 30, 2023, the provision for credit losses was $13.1 million, compared to $2.9 million during the nine months ended September 30, 2022. The increase in the provision for credit losses for the three and nine months ended September 30, 2023 was driven primarily by increases in net charge-offs, as well as increases in specific reserves and unfunded commitments, partially offset by the positive impact of economic forecasts on certain portfolios.
Investment Securities Portfolio
The following tables present the amortized cost and approximate fair value of our investment portfolio by security type for the last five completed fiscal quarters.

(in thousands) |  |  |  |  |  |  |  |  |
Amortized Cost | September 30, 2023 |  | June 30, 2023 |  | March 31, 2023 |  | December 31, 2022 |  | September 30, 2022
Securities available-for-sale |  |  |  |  |  |  |  |  |
U.S. Government-sponsored agencies | $ | 98,594 |  |  | $ | 41,024 |  |  | $ | 38,675 |  |  | $ | 35,606 |  |  | $ | 38,197 |
Municipal securities | 69,031 |  |  | 68,931 |  |  | 69,243 |  |  | 68,958 |  |  | 71,156 |
Agency mortgage-backed securities - residential | 235,468 |  |  | 239,263 |  |  | 249,795 |  |  | 252,066 |  |  | 259,568 |
Agency mortgage-backed securities - commercial | 37,931 |  |  | 16,311 |  |  | 16,739 |  |  | 17,142 |  |  | 17,825 |
Private label mortgage-backed securities - residential | 20,292 |  |  | 14,749 |  |  | 11,445 |  |  | 11,777 |  |  | 12,320 |
Asset-backed securities | 6,713 |  |  | 1,000 |  |  | 5,000 |  |  | 5,000 |  |  | 5,000 |
Corporate securities | 39,603 |  |  | 43,613 |  |  | 45,623 |  |  | 45,634 |  |  | 44,644 |
Total available-for-sale | 507,632 |  |  | 424,891 |  |  | 436,520 |  |  | 436,183 |  |  | 448,710 |
Securities held-to-maturity, net |  |  |  |  |  |  |  |  |
Municipal securities | 13,900 |  |  | 13,913 |  |  | 13,932 |  |  | 13,946 |  |  | 13,957 |
Agency mortgage-backed securities - residential | 170,524 |  |  | 169,186 |  |  | 146,809 |  |  | 121,853 |  |  | 123,718 |
Agency mortgage-backed securities - commercial | 5,782 |  |  | 5,795 |  |  | 5,806 |  |  | 5,818 |  |  | 5,828 |
Corporate securities | 41,722 |  |  | 41,711 |  |  | 44,214 |  |  | 47,551 |  |  | 47,554 |
Total held-to-maturity, net | 231,928 |  |  | 230,605 |  |  | 210,761 |  |  | 189,168 |  |  | 191,057 |
Total securities | $ | 739,560 |  |  | $ | 655,496 |  |  | $ | 647,281 |  |  | $ | 625,351 |  |  | $ | 639,767 |

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(in thousands) |  |  |  |  |  |  |  |  |
Approximate Fair Value | September 30, 2023 |  | June 30, 2023 |  | March 31, 2023 |  | December 31, 2022 |  | September 30, 2022
Securities available-for-sale |  |  |  |  |  |  |  |  |
U.S. Government-sponsored agencies | $ | 97,178 |  |  | $ | 39,474 |  |  | $ | 37,047 |  |  | $ | 33,809 |  |  | $ | 36,329 |
Municipal securities | 62,772 |  |  | 67,209 |  |  | 68,636 |  |  | 67,276 |  |  | 63,537 |
Agency mortgage-backed securities - residential | 193,096 |  |  | 204,141 |  |  | 216,752 |  |  | 215,092 |  |  | 219,191 |
Agency mortgage-backed securities - commercial | 36,163 |  |  | 14,891 |  |  | 15,530 |  |  | 15,840 |  |  | 16,522 |
Private label mortgage-backed securities - residential | 18,576 |  |  | 13,415 |  |  | 10,275 |  |  | 10,455 |  |  | 11,041 |
Asset-backed securities | 6,703 |  |  | 1,000 |  |  | 4,998 |  |  | 4,960 |  |  | 4,884 |
Corporate securities | 36,339 |  |  | 39,264 |  |  | 42,595 |  |  | 42,952 |  |  | 42,061 |
Total available-for-sale | 450,827 |  |  | 379,394 |  |  | 395,833 |  |  | 390,384 |  |  | 393,565 |
Securities held-to-maturity |  |  |  |  |  |  |  |  |
Municipal securities | 12,449 |  |  | 12,950 |  |  | 13,144 |  |  | 12,832 |  |  | 12,668 |
Agency mortgage-backed securities - residential | 147,412 |  |  | 153,593 |  |  | 133,267 |  |  | 106,741 |  |  | 107,570 |
Agency mortgage-backed securities - commercial | 4,190 |  |  | 4,551 |  |  | 4,703 |  |  | 4,552 |  |  | 4,686 |
Corporate securities | 37,599 |  |  | 37,549 |  |  | 41,349 |  |  | 44,358 |  |  | 45,053 |
Total held-to-maturity | 201,650 |  |  | 208,643 |  |  | 192,463 |  |  | 168,483 |  |  | 169,977 |
Total securities | $ | 652,477 |  |  | $ | 588,037 |  |  | $ | 588,296 |  |  | $ | 558,867 |  |  | $ | 563,542 |

The approximate fair value of available-for-sale investment securities increased $60.4 million, or 15.5%, to $450.8 million as of September 30, 2023, compared to $390.4 million as of December 31, 2022. The increase was due primarily to increases of $63.4 million U.S. Government-sponsored agencies, $20.3 million in asset-backed securities - commercial and $8.1 million in private label mortgage-backed securities - residential, partially offset by decreases of $22.0 million in agency mortgage-backed securities - residential, $6.6 million in corporate securities and $4.5 million in municipal securities. The increase was caused primarily by new purchase activity for certain available-for-sale portfolios, partially offset by a decline in fair value resulting from the continued rise in interest rates, as well as net paydown activity.
Accrued Income and Other Assets
Accrued income and other assets increased $8.6 million, or 19.1%, to $53.5 million at September 30, 2023 compared to $44.9 million at December 31, 2022. The increase was due primarily to increases of $6.1 million in deferred tax assets and $2.5 million in fund investments.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities increased $0.6 million, or 3.9%, to $15.1 million at September 30, 2023, compared to $14.5 million at December 31, 2022. The increase was due primarily to increases of $3.6 million in the reserve for unfunded commitments resulting from the adoption of CECL in 2023, as well as new origination activity, $0.5 million in accrued salary and benefits and $0.4 million in other accrued expenses, partially offset by decreases of $2.3 million in other liabilities, $1.3 million in accrued taxes and $0.2 million in accrued property taxes.
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Deposits
The following table presents the composition of the Company’s deposit base for the last five completed fiscal quarters.

(dollars in thousands) |  | September 30, 2023 |  | June 30, 2023 |  | March 31, 2023 |  | December 31, 2022 |  | September 30, 2022
Noninterest-bearing deposits |  | $ | 125,265 |  |  | 3.1 | % |  | $ | 119,291 |  |  | 3.1 | % |  | $ | 140,449 |  |  | 3.9 | % |  | $ | 175,315 |  |  | 5.1 | % |  | $ | 142,635 |  |  | 4.5 | %
Interest-bearing demand deposits |  | 374,915 |  |  | 9.2 | % |  | 398,899 |  |  | 10.3 | % |  | 351,641 |  |  | 9.7 | % |  | 335,611 |  |  | 9.8 | % |  | 337,765 |  |  | 10.6 | %
Savings accounts |  | 23,811 |  |  | 0.6 | % |  | 28,239 |  |  | 0.7 | % |  | 32,762 |  |  | 0.9 | % |  | 44,819 |  |  | 1.3 | % |  | 52,228 |  |  | 1.6 | %
Money market accounts |  | 1,222,511 |  |  | 29.9 | % |  | 1,232,719 |  |  | 32.0 | % |  | 1,254,013 |  |  | 34.6 | % |  | 1,418,599 |  |  | 41.2 | % |  | 1,378,087 |  |  | 43.2 | %
BaaS - brokered deposits |  | 41,884 |  |  | 1.0 | % |  | 25,549 |  |  | 0.7 | % |  | 25,725 |  |  | 0.7 | % |  | 13,607 |  |  | 0.4 | % |  | 96,287 |  |  | 3.0 | %
Certificates of deposits |  | 1,624,447 |  |  | 39.8 | % |  | 1,366,409 |  |  | 35.5 | % |  | 1,170,094 |  |  | 32.3 | % |  | 874,490 |  |  | 25.4 | % |  | 773,040 |  |  | 24.2 | %
Brokered deposits |  | 670,712 |  |  | 16.4 | % |  | 683,202 |  |  | 17.7 | % |  | 647,606 |  |  | 17.9 | % |  | 578,804 |  |  | 16.8 | % |  | 412,602 |  |  | 12.9 | %
Total deposits |  | $ | 4,083,545 |  |  | 100.0 | % |  | $ | 3,854,308 |  |  | 100.0 | % |  | $ | 3,622,290 |  |  | 100.0 | % |  | $ | 3,441,245 |  |  | 100.0 | % |  | $ | 3,192,644 |  |  | 100.0 | %

Total deposits increased $642.3 million, or 18.7%, to $4.1 billion as of September 30, 2023, compared to $3.4 billion as of December 31, 2022. This increase was due primarily to increases of $750.0 million, or 85.8%, in certificates of deposits, $91.9 million, or 15.9%, in brokered deposits, $39.3 million, or 11.7%, in interest-bearing demand deposits and $28.3 million, or 207.8%, in BaaS - brokered deposits, partially offset by decreases of $196.1 million, or 13.8%, in money market accounts, $50.1 million, or 28.6%, in noninterest-bearing deposits and $21.0 million, or 46.9%, in savings accounts. The increase in certificates of deposits and brokered deposits was due primarily to strong consumer and small business demand for certificates of deposits in 2023, as well as the funding of brokered deposits earlier in 2023 to supplement on-balance sheet liquidity. The increase in interest-bearing demand deposits was due primarily to growth in BaaS - brokered deposits. The increase in BaaS - brokered deposits was driven by higher payments volume. The decrease in money market accounts was due primarily to certain customer activity that can be periodically volatile, as well as certain higher-cost relationships that were exited during 2023. The decline in noninterest-bearing deposits was due primarily to drawdowns from commercial real estate development and construction clients contributing equity to projects the Company is financing. The decrease in savings accounts was due primarily to customer withdrawal activity.
Uninsured deposit balances represented 23% of total deposits at September 30, 2023, down from 33% at December 31, 2022. These balances include Indiana-based municipal deposits, which are insured by the Indiana Board for Depositories, as well as larger balance accounts under contractual agreements that only allow withdrawal under certain conditions. After subtracting these types of deposits, the adjusted uninsured deposit balance decreases to 17%, down from 24% as of December 31, 2022.
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. 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, the Company completed an exchange of $59.3 million principal amount of the unregistered 2031 Notes for registered 2031 Notes in satisfaction of its obligations under the registration rights agreement. Holders of $0.7 million of unregistered 2031 Notes did not participate in the exchange.
Regulatory Capital Requirements
The Company and the Bank are subject to various regulatory capital requirements administered by state and federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.
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The Basel III Capital Rules became effective for the Company and the Bank on January 1, 2015, subject to a phase-in period for certain provisions. Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios of Common Equity Tier 1 capital, Tier 1 capital and Total capital, as defined in the regulations, to risk-weighted assets, and of Tier 1 capital to adjusted quarterly average assets (“Leverage Ratio”).
The Basel III Capital Rules were fully phased in on January 1, 2019 and require the Company and the Bank to maintain: 1) a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 4.5%, plus a 2.5% “capital conservation buffer” (resulting in a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 7.0%); 2) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, plus the capital conservation buffer (resulting in a minimum Tier 1 capital ratio of 8.5%); 3) a minimum ratio of Total capital to risk-weighted assets of 8.0%, plus the capital conservation buffer (resulting in a minimum Total capital ratio of 10.5%); and 4) a minimum Leverage Ratio of 4.0%.
The capital conservation buffer is designed to absorb losses during periods of economic stress. Failure to maintain the minimum Common Equity Tier 1 capital ratio plus the capital conservation buffer will result in potential restrictions on a banking institution’s ability to pay dividends, repurchase stock and/or pay discretionary compensation to its employees.
The following tables present actual and required capital ratios as of September 30, 2023 and December 31, 2022 for the Company and the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of September 30, 2023 and December 31, 2022, which are based on the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.
As permitted by the federal banking regulatory agencies, the Company has elected the option to delay the impact of the day one adoption of ASC 326. The transition adjustments of $4.5 million will be phased into the regulatory capital calculations over a three-year period, with 25% of the adjustment recognized in 2023, 50% of the adjustment recognized in 2024, 75% of the adjustment recognized in 2025 and 100% of the adjustment recognized in 2026.

| Actual |  |  |  | Minimum Capital Required - Basel III |  | Minimum Required to be Considered Well Capitalized
(dollars in thousands) | Capital Amount |  | Ratio |  |  |  |  |  | Capital Amount |  | Ratio |  | Capital Amount |  | Ratio
As of September 30, 2023: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common equity tier 1 capital to risk-weighted assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated | $ | 378,575 |  |  | 9.56 | % |  |  |  |  |  | $ | 277,321 |  |  | 7.00 | % |  | N/A |  | N/A
Bank | 463,223 |  |  | 11.77 | % |  |  |  |  |  | 275,523 |  |  | 7.00 | % |  | $ | 255,843 |  |  | 6.50 | %
Tier 1 capital to risk-weighted assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated | 378,575 |  |  | 9.56 | % |  |  |  |  |  | 336,747 |  |  | 8.50 | % |  | N/A |  | N/A
Bank | 463,223 |  |  | 11.77 | % |  |  |  |  |  | 334,563 |  |  | 8.50 | % |  | 314,883 |  |  | 8.00 | %
Total capital to risk-weighted assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated | 520,343 |  |  | 13.13 | % |  |  |  |  |  | 415,982 |  |  | 10.50 | % |  | N/A |  | N/A
Bank | 500,230 |  |  | 12.71 | % |  |  |  |  |  | 413,284 |  |  | 10.50 | % |  | 393,604 |  |  | 10.00 | %
Leverage ratio |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated | 378,575 |  |  | 7.32 | % |  |  |  |  |  | 206,954 |  |  | 4.00 | % |  | N/A |  | N/A
Bank | 463,223 |  |  | 8.97 | % |  |  |  |  |  | 206,578 |  |  | 4.00 | % |  | 258,223 |  |  | 5.00 | %

69

| Actual |  |  |  | Minimum Capital Required - Basel III |  | Minimum Required to be Considered Well Capitalized
(dollars in thousands) | Capital Amount |  | Ratio |  |  |  |  |  | Capital Amount |  | Ratio |  | Capital Amount |  | Ratio
As of December 31, 2022: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common equity tier 1 capital to risk-weighted assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated | $ | 390,150 |  |  | 10.93 | % |  |  |  |  |  | $ | 249,795 |  |  | 7.00 | % |  | N/A |  | N/A
Bank | 466,257 |  |  | 13.10 | % |  |  |  |  |  | 249,191 |  |  | 7.00 | % |  | $ | 231,392 |  |  | 6.50 | %
Tier 1 capital to risk-weighted assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated | 390,150 |  |  | 10.93 | % |  |  |  |  |  | 303,323 |  |  | 8.50 | % |  | N/A |  | N/A
Bank | 466,257 |  |  | 13.10 | % |  |  |  |  |  | 302,590 |  |  | 8.50 | % |  | 284,790 |  |  | 8.00 | %
Total capital to risk-weighted assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated | 526,419 |  |  | 14.75 | % |  |  |  |  |  | 374,693 |  |  | 10.50 | % |  | N/A |  | N/A
Bank | 497,994 |  |  | 13.99 | % |  |  |  |  |  | 373,787 |  |  | 10.50 | % |  | 355,988 |  |  | 10.00 | %
Leverage ratio |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Consolidated | 390,150 |  |  | 9.06 | % |  |  |  |  |  | 172,330 |  |  | 4.00 | % |  | N/A |  | N/A
Bank | 466,257 |  |  | 10.84 | % |  |  |  |  |  | 172,093 |  |  | 4.00 | % |  | 215,116 |  |  | 5.00 | %

Shareholders’ Dividends
The Company’s Board of Directors declared a cash dividend of $0.06 per share of common stock payable October 16, 2023 to shareholders of record as of September 29, 2023. The Company expects to continue to pay cash dividends on a quarterly basis; however, the declaration and amount of any future cash dividends will be subject to the sole discretion of the Board of Directors and will depend upon many factors, including the Company’s results of operations, financial condition, capital requirements, regulatory and contractual restrictions (including with respect to the Company’s outstanding subordinated debt), business strategy and other factors deemed relevant by the Board of Directors.
As of September 30, 2023, the Company had $107.0 million principal amount of subordinated debt outstanding evidenced by the 2029 Notes, 2030 Note and 2031 Notes. The agreements that govern our outstanding subordinated debt prohibit the Company from paying any dividends on its common stock or making any other distributions to shareholders at any time when there shall have occurred, and be continuing to occur, an event of default under the applicable agreement. If an event of default were to occur and the Company did not cure it, the Company would be prohibited from paying any dividends or making any other distributions to shareholders or from redeeming or repurchasing any common stock.
Capital Resources
The Company believes it has sufficient liquidity and capital resources to meet its cash and capital expenditure requirements for the next twelve months and longer. The Company may explore strategic alternatives, including additional asset, deposit or revenue generation channels that complement our small business, 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.
In October 2021, the Company’s Board of Directors approved a stock repurchase program authorizing the repurchase of up to $30.0 million, which was subsequently increased to $35.0 million, of our outstanding common stock from time to time on the open market or in privately negotiated transactions. The stock repurchase authorization was scheduled to expire on December 31, 2022. Under this program, the Company repurchased 855,956 shares of common stock through December 19, 2022, at an average price of $36.31, for a total investment of $31.1 million.
In December 2022, the Company’s Board of Directors approved a new stock repurchase program authorizing the repurchase of up to $25.0 million of the Company’s outstanding stock from time to time on the open market or in privately negotiated transactions. The stock repurchase program is scheduled to expire on December 31, 2023, and replaces the stock repurchase program mentioned above. Under this program, the Company repurchased 509,022 shares of common stock through September 30, 2023, at an average price of $18.92, for a total investment of $9.6 million.
70

Various factors determine the amount and timing of our share repurchases, including our capital requirements, organic growth and other strategic opportunities, economic and market conditions (including the trading price of our stock), and regulatory and legal considerations. See Part II, Item 2, of this report for information regarding recent repurchase activity and our remaining authority under the program.
Liquidity
Liquidity management is the process used by the Company to manage the continuing flow of funds necessary to meet its financial commitments on a timely basis and at a reasonable cost while also maintaining safe and sound operations. Liquidity, represented by cash and investment securities, is a product of the Company’s operating, investing and financing activities. The primary sources of funds are deposits, principal and interest payments on loans and investment securities, maturing loans and investment securities, access to wholesale funding sources and collateralized borrowings. While scheduled payments and maturities of loans and investment securities are relatively predictable sources of funds, deposit flows are greatly influenced by interest rates, general economic conditions and competition. Therefore, the Company supplements deposit growth and enhances interest rate risk management through borrowings and wholesale funding, which are generally advances from the Federal Home Loan Bank and brokered deposits.
The Company holds cash and investment securities that qualify as liquid assets to maintain adequate liquidity to ensure safe and sound operations and meet its financial commitments. At September 30, 2023, on a consolidated basis, the Company had $972.0 million in cash and cash equivalents and investment securities available-for-sale and $31.7 million in loans held-for-sale that were generally available for its cash needs. The Company can also generate funds from wholesale funding sources and collateralized borrowings. At September 30, 2023, the Bank had the ability to borrow an additional $1.2 billion from the FHLB, the Federal Reserve and correspondent bank Fed Funds lines of credit, which when combined with cash balances, totaled $1.7 billion and represented 182% of adjusted uninsured deposit balances.
The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its common shareholders and interest and principal on outstanding debt. The Company’s primary sources of funds are cash maintained at the holding company level and dividends from the Bank, the payment of which is subject to regulatory limits. At September 30, 2023, the Company, on an unconsolidated basis, had $10.6 million in cash generally available for its cash needs, which is in excess of its current annual regular shareholder dividend and operating expenses.
The Company uses its sources of funds primarily to meet ongoing financial commitments, including withdrawals by depositors, credit commitments to borrowers, operating expenses and capital expenditures. At September 30, 2023, approved outstanding loan commitments, including unused lines of credit and standby letters of credit, amounted to $668.2 million. Certificates of deposits and brokered deposits scheduled to mature in one year or less at September 30, 2023 totaled $1.4 billion.
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.
71

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, net interest income - FTE, net interest margin - FTE, adjusted total revenue, adjusted noninterest income, adjusted noninterest expense, adjusted income before income taxes, adjusted income tax (benefit) provision, adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average shareholders’ equity and adjusted return on average tangible common equity are used by the Company’s management to measure the strength of its capital and analyze profitability, including its ability to generate earnings on tangible capital invested by its shareholders. The Company also believes that it is a standard practice in the banking industry to present total interest income, net interest income and net interest margin on a fully-taxable equivalent basis, as those measures provide useful information for peer comparisons. Although the Company believes these non-GAAP financial measures provide a greater understanding of its business, they should not be considered a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP financial measures that may be presented by other companies. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the following table for the last five completed fiscal quarters and the nine months ended September 30, 2023 and 2022.

(dollars in thousands, except share and per share data) | Three Months Ended |  | Nine Months Ended
September 30, 2023 |  | June 30, 2023 |  | March 31, 2023 |  | December 31, 2022 |  | September 30, 2022 |  | September 30, 2023 |  | September 30, 2022
Total equity - GAAP | $ | 347,744 |  |  | $ | 354,332 |  |  | $ | 355,572 |  |  | $ | 364,974 |  |  | $ | 360,857 |  |  | $ | 347,744 |  |  | $ | 360,857 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill | (4,687) |  |  | (4,687) |  |  | (4,687) |  |  | (4,687) |  |  | (4,687) |  |  | (4,687) |  |  | (4,687) |
Tangible common equity | $ | 343,057 |  |  | $ | 349,645 |  |  | $ | 350,885 |  |  | $ | 360,287 |  |  | $ | 356,170 |  |  | $ | 343,057 |  |  | $ | 356,170 |
Total assets - GAAP | $ | 5,169,023 |  |  | $ | 4,947,049 |  |  | $ | 4,721,319 |  |  | $ | 4,543,104 |  |  | $ | 4,264,424 |  |  | $ | 5,169,023 |  |  | $ | 4,264,424 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill | (4,687) |  |  | (4,687) |  |  | (4,687) |  |  | (4,687) |  |  | (4,687) |  |  | (4,687) |  |  | (4,687) |
Tangible assets | $ | 5,164,336 |  |  | $ | 4,942,362 |  |  | $ | 4,716,632 |  |  | $ | 4,538,417 |  |  | $ | 4,259,737 |  |  | $ | 5,164,336 |  |  | $ | 4,259,737 |
Common shares outstanding | 8,669,673 |  |  | 8,774,507 |  |  | 8,943,477 |  |  | 9,065,883 |  |  | 9,290,885 |  |  | 8,669,673 |  |  | 9,290,885 |
Book value per common share | $ | 40.11 |  |  | $ | 40.38 |  |  | $ | 39.76 |  |  | $ | 40.26 |  |  | $ | 38.84 |  |  | $ | 40.11 |  |  | $ | 38.84 |
Effect of goodwill | (0.54) |  |  | (0.53) |  |  | (0.53) |  |  | (0.52) |  |  | (0.50) |  |  | (0.54) |  |  | (0.50) |
Tangible book value per common share | $ | 39.57 |  |  | $ | 39.85 |  |  | $ | 39.23 |  |  | $ | 39.74 |  |  | $ | 38.34 |  |  | $ | 39.57 |  |  | $ | 38.34 |
Total shareholders’ equity to assets | 6.73 | % |  | 7.16 | % |  | 7.53 | % |  | 8.03 | % |  | 8.46 | % |  | 6.73 | % |  | 8.46 | %
Effect of goodwill | (0.09 | %) |  | (0.09 | %) |  | (0.09 | %) |  | (0.09 | %) |  | (0.10 | %) |  | (0.09 | %) |  | (0.10 | %)
Tangible common equity to tangible assets | 6.64 | % |  | 7.07 | % |  | 7.44 | % |  | 7.94 | % |  | 8.36 | % |  | 6.64 | % |  | 8.36 | %
Total average equity - GAAP | $ | 356,701 |  |  | $ | 358,312 |  |  | $ | 363,273 |  |  | $ | 364,657 |  |  | $ | 371,303 |  |  | $ | 359,405 |  |  | $ | 375,190 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |
Average goodwill | (4,687) |  |  | (4,687) |  |  | (4,687) |  |  | (4,687) |  |  | (4,687) |  |  | (4,687) |  |  | (4,687) |
Average tangible common equity | $ | 352,014 |  |  | $ | 353,625 |  |  | $ | 358,586 |  |  | $ | 359,970 |  |  | $ | 366,616 |  |  | $ | 354,718 |  |  | $ | 370,503 |
Return on average shareholders’ equity | 3.79 | % |  | 4.35 | % |  | (3.37 | %) |  | 6.91 | % |  | 9.01 | % |  | 1.59 | % |  | 10.40 | %
Effect of goodwill | 0.05 | % |  | 0.05 | % |  | (0.04 | %) |  | 0.09 | % |  | 0.12 | % |  | 0.02 | % |  | 0.13 | %
Return on average tangible common equity | 3.84 | % |  | 4.40 | % |  | (3.41 | %) |  | 7.00 | % |  | 9.13 | % |  | 1.61 | % |  | 10.53 | %

72

(dollars in thousands, except share and per share data) | Three Months Ended |  | Nine Months Ended
September 30, 2023 |  | June 30, 2023 |  | March 31, 2023 |  | December 31, 2022 |  | September 30, 2022 |  | September 30, 2023 |  | September 30, 2022
Total interest income | $ | 63,015 |  |  | $ | 58,122 |  |  | $ | 52,033 |  |  | $ | 45,669 |  |  | $ | 39,099 |  |  | $ | 173,170 |  |  | $ | 111,239 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |
Fully-taxable equivalent adjustments 1 | 1,265 |  |  | 1,347 |  |  | 1,383 |  |  | 1,384 |  |  | 1,280 |  |  | 3,995 |  |  | 3,971 |
Total interest income - FTE | $ | 64,280 |  |  | $ | 59,469 |  |  | $ | 53,416 |  |  | $ | 47,053 |  |  | $ | 40,379 |  |  | $ | 177,165 |  |  | $ | 115,210 |
Net interest income | $ | 17,378 |  |  | $ | 18,145 |  |  | $ | 19,574 |  |  | $ | 21,669 |  |  | $ | 23,994 |  |  | $ | 55,097 |  |  | $ | 75,424 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |
Fully-taxable equivalent adjustments 1 | 1,265 |  |  | 1,347 |  |  | 1,383 |  |  | 1,384 |  |  | 1,280 |  |  | 3,995 |  |  | 3,971 |
Net interest income - FTE | $ | 18,643 |  |  | $ | 19,492 |  |  | $ | 20,957 |  |  | $ | 23,053 |  |  | $ | 25,274 |  |  | $ | 59,092 |  |  | $ | 79,395 |
Net interest margin | 1.39 | % |  | 1.53 | % |  | 1.76 | % |  | 2.09 | % |  | 2.40 | % |  | 1.55 | % |  | 2.52 | %
Effect of fully-taxable equivalent adjustments 1 | 0.10 | % |  | 0.11 | % |  | 0.13 | % |  | 0.13 | % |  | 0.13 | % |  | 0.11 | % |  | 0.13 | %
Net interest margin - FTE | 1.49 | % |  | 1.64 | % |  | 1.89 | % |  | 2.22 | % |  | 2.53 | % |  | 1.66 | % |  | 2.65 | %
1 Assuming a 21% tax rate |  |  |  |  |  |  |  |  |  |  |  |  |

73

(dollars in thousands, except share and per share data) |  | Three Months Ended |  | Nine Months Ended
| September 30, 2023 |  | June 30, 2023 |  | March 31, 2023 |  | December 31, 2022 |  | September 30, 2022 |  | September 30, 2023 |  | September 30, 2022
Total Revenue- GAAP |  | $ | 24,785 |  |  | $ | 24,016 |  |  | $ | 25,020 |  |  | $ | 27,476 |  |  | $ | 28,310 |  |  | $ | 73,821 |  |  | $ | 90,874 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-related revenue |  | — |  |  | — |  |  | (65) |  |  | — |  |  | — |  |  | — |  |  | — |
Adjusted total revenue |  | $ | 24,785 |  |  | $ | 24,016 |  |  | $ | 24,955 |  |  | $ | 27,476 |  |  | $ | 28,310 |  |  | $ | 73,821 |  |  | $ | 90,874 |
Noninterest income - GAAP |  | $ | 7,407 |  |  | $ | 5,871 |  |  | $ | 5,446 |  |  | $ | 5,807 |  |  | $ | 4,316 |  |  | $ | 18,724 |  |  | $ | 15,450 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-related revenue |  | — |  |  | — |  |  | (65) |  |  | — |  |  | — |  |  | (65) |  |  | — |
Adjusted noninterest income |  | $ | 7,407 |  |  | $ | 5,871 |  |  | $ | 5,381 |  |  | $ | 5,807 |  |  | $ | 4,316 |  |  | $ | 18,659 |  |  | $ | 15,450 |
Noninterest expense - GAAP |  | $ | 19,756 |  |  | $ | 18,670 |  |  | $ | 20,954 |  |  | $ | 18,513 |  |  | $ | 17,995 |  |  | $ | 59,380 |  |  | $ | 54,760 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-related costs |  | — |  |  | — |  |  | (3,052) |  |  | — |  |  | — |  |  | (3,052) |  |  | — |
Acquisition-related expenses |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (273) |
Nonrecurring consulting fee |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (875) |
Write-down of Software |  | — |  |  | — |  |  | — |  |  | — |  |  | (125) |  |  | — |  |  | (125) |
Discretionary inflation bonus |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (531) |
Accelerated equity compensation |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (289) |
Adjusted noninterest expense |  | $ | 19,756 |  |  | $ | 18,670 |  |  | $ | 17,902 |  |  | $ | 18,513 |  |  | $ | 17,870 |  |  | $ | 56,328 |  |  | $ | 52,667 |
Income (loss) before income taxes - GAAP |  | $ | 3,083 |  |  | $ | 3,648 |  |  | $ | (5,349) |  |  | $ | 6,854 |  |  | $ | 9,423 |  |  | $ | 1,382 |  |  | $ | 33,246 |
Adjustments:1 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-related revenue |  | — |  |  | — |  |  | (65) |  |  | — |  |  | — |  |  | (65) |  |  | — |
Mortgage-related costs |  | — |  |  | — |  |  | 3,052 |  |  | — |  |  | — |  |  | 3,052 |  |  | — |
Partial charge-off of C&I participation loan |  | — |  |  | — |  |  | 6,914 |  |  | — |  |  | — |  |  | 6,914 |  |  | — |
Acquisition-related expenses |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 273 |
Nonrecurring consulting fee |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 875 |
Write-down of Software |  | — |  |  | — |  |  | — |  |  | — |  |  | 125 |  |  | — |  |  | 125 |
Discretionary inflation bonus |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 531 |
Accelerated equity compensation |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 289 |
Adjusted income before income taxes |  | $ | 3,083 |  |  | $ | 3,648 |  |  | $ | 4,552 |  |  | $ | 6,854 |  |  | $ | 9,548 |  |  | $ | 11,283 |  |  | $ | 35,339 |
Income tax (benefit) provision - GAAP |  | $ | (326) |  |  | $ | (234) |  |  | $ | (2,332) |  |  | $ | 503 |  |  | $ | 987 |  |  | $ | (2,892) |  |  | $ | 4,056 |
Adjustments:1 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-related revenue |  | — |  |  | — |  |  | (14) |  |  | — |  |  | — |  |  | (14) |  |  | — |
Mortgage-related costs |  | — |  |  | — |  |  | 641 |  |  | — |  |  | — |  |  | 641 |  |  | — |
Partial charge-off of C&I participation loan |  | — |  |  | — |  |  | 1,452 |  |  | — |  |  | — |  |  | 1,452 |  |  | — |
Acquisition-related expenses |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 57 |
Nonrecurring consulting fee |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 184 |
Write-down of Software |  | — |  |  | — |  |  | — |  |  | — |  |  | 26 |  |  | — |  |  | 26 |
Discretionary inflation bonus |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 112 |
Accelerated equity compensation |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 61 |
Adjusted income tax (benefit) provision |  | $ | (326) |  |  | $ | (234) |  |  | $ | (253) |  |  | $ | 503 |  |  | $ | 1,013 |  |  | $ | (813) |  |  | $ | 4,496 |
1 Assuming a 21% tax rate |  |  |  |  |  |  |  |  |  |  |  |  |  |

74

(dollars in thousands, except share and per share data) |  | Three Months Ended |  | Nine Months Ended
| September 30, 2023 |  | June 30, 2023 |  | March 31, 2023 |  | December 31, 2022 |  | September 30, 2022 |  | September 30, 2023 |  | September 30, 2022
Net income (loss) - GAAP |  | $ | 3,409 |  |  | $ | 3,882 |  |  | $ | (3,017) |  |  | $ | 6,351 |  |  | $ | 8,436 |  |  | $ | 4,274 |  |  | $ | 29,190 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-related revenue |  | — |  |  | — |  |  | (51) |  |  | — |  |  | — |  |  | (51) |  |  | — |
Mortgage-related costs |  | — |  |  | — |  |  | 2,411 |  |  | — |  |  | — |  |  | 2,411 |  |  | — |
Partial charge-off of C&I participation loan |  | — |  |  | — |  |  | 5,462 |  |  | — |  |  | — |  |  | 5,462 |  |  | — |
Acquisition-related expenses |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 216 |
Nonrecurring consulting fee |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 691 |
Write-down of Software |  | — |  |  | — |  |  | — |  |  | — |  |  | 99 |  |  | — |  |  | 99 |
Discretionary inflation bonus |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 419 |
Accelerated equity compensation |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 228 |
Adjusted net income |  | $ | 3,409 |  |  | $ | 3,882 |  |  | $ | 4,805 |  |  | $ | 6,351 |  |  | $ | 8,535 |  |  | $ | 12,096 |  |  | $ | 30,843 |
Diluted average common shares outstanding |  | 8,767,217 |  |  | 8,908,180 |  |  | 9,024,072 |  |  | 9,343,533 |  |  | 9,525,855 |  |  | 8,907,748 |  |  | 9,681,742 |
Diluted earnings (loss) per share - GAAP |  | $ | 0.39 |  |  | $ | 0.44 |  |  | $ | (0.33) |  |  | $ | 0.68 |  |  | $ | 0.89 |  |  | $ | 0.48 |  |  | $ | 3.01 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-related revenue |  | — |  |  | — |  |  | (0.01) |  |  | — |  |  | — |  |  | (0.01) |  |  | — |
Mortgage-related costs |  | — |  |  | — |  |  | 0.27 |  |  | — |  |  | — |  |  | 0.27 |  |  | 0.02 |
Effect of partial charge-off of C&I participation loan |  | — |  |  | — |  |  | 0.60 |  |  | — |  |  | — |  |  | 0.61 |  |  | — |
Effect of nonrecurring consulting fee |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 0.07 |
Effect of write-down of software |  | — |  |  | — |  |  | — |  |  | — |  |  | 0.01 |  |  | — |  |  | 0.01 |
Effect of discretionary inflation bonus |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 0.04 |
Effect of accelerated equity compensation |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 0.02 |
Adjusted diluted earnings per share |  | $ | 0.39 |  |  | $ | 0.44 |  |  | $ | 0.53 |  |  | $ | 0.68 |  |  | $ | 0.90 |  |  | $ | 1.35 |  |  | $ | 3.17 |
Return on average assets |  | 0.26 | % |  | 0.32 | % |  | (0.26 | %) |  | 0.59 | % |  | 0.82 | % |  | 0.12 | % |  | 0.94 | %
Effect of mortgage-related revenue |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | %
Effect of mortgage-related costs |  | 0.00 | % |  | 0.00 | % |  | 0.21 | % |  | 0.00 | % |  | 0.00 | % |  | 0.07 | % |  | 0.00 | %
Effect of partial charge-off of C&I participation loan |  | 0.00 | % |  | 0.00 | % |  | 0.48 | % |  | 0.00 | % |  | 0.00 | % |  | 0.15 | % |  | 0.00 | %
Effect of acquisition-related expenses |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.01 | %
Effect of nonrecurring consulting fee |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.02 | %
Effect of write-down of software |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.01 | % |  | 0.00 | % |  | 0.00 | %
Effect of discretionary inflation bonus |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.01 | %
Effect of accelerated equity compensation |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.01 | %
Adjusted return on average assets |  | 0.26 | % |  | 0.32 | % |  | 0.43 | % |  | 0.59 | % |  | 0.83 | % |  | 0.34 | % |  | 0.99 | %
Return on average shareholders' equity |  | 3.79 | % |  | 4.35 | % |  | (3.37 | %) |  | 6.91 | % |  | 9.01 | % |  | 1.59 | % |  | 10.40 | %
Effect of mortgage-related revenue |  | 0.00 | % |  | 0.00 | % |  | (0.06 | %) |  | 0.00 | % |  | 0.00 | % |  | (0.02 | %) |  | 0.00 | %
Effect of mortgage-related costs |  | 0.00 | % |  | 0.00 | % |  | 2.69 | % |  | 0.00 | % |  | 0.00 | % |  | 0.90 | % |  | 0.00 | %

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(dollars in thousands, except share and per share data) |  | Three Months Ended |  | Nine Months Ended
| September 30, 2023 |  | June 30, 2023 |  | March 31, 2023 |  | December 31, 2022 |  | September 30, 2022 |  | September 30, 2023 |  | September 30, 2022
Effect of partial charge-off of C&I participation loan |  | 0.00 | % |  | 0.00 | % |  | 6.10 | % |  | 0.00 | % |  | 0.00 | % |  | 2.03 | % |  | 0.00 | %
Effect of acquisition-related expenses |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.08 | %
Effect of nonrecurring consulting fee |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.25 | %
Effect of write-down of software |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.11 | % |  | 0.00 | % |  | 0.04 | %
Effect of discretionary inflation bonus |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.15 | %
Effect of accelerated equity compensation |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.08 | %
Adjusted return on average shareholders' equity |  | 3.79 | % |  | 4.35 | % |  | 5.36 | % |  | 6.91 | % |  | 9.12 | % |  | 4.50 | % |  | 11.00 | %
Return on average tangible common equity |  | 3.84 | % |  | 4.40 | % |  | (3.41 | %) |  | 7.00 | % |  | 9.13 | % |  | 1.61 | % |  | 10.53 | %
Effect of mortgage-related revenue |  | 0.00 | % |  | 0.00 | % |  | (0.06 | %) |  | 0.00 | % |  | 0.00 | % |  | (0.02 | %) |  | 0.00 | %
Effect of mortgage-related costs |  | 0.00 | % |  | 0.00 | % |  | 2.73 | % |  | 0.00 | % |  | 0.00 | % |  | 0.91 | % |  | 0.00 | %
Effect of partial charge-off of C&I participation loan |  | 0.00 | % |  | 0.00 | % |  | 6.18 | % |  | 0.00 | % |  | 0.00 | % |  | 2.06 | % |  | 0.00 | %
Effect of acquisition-related expenses |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.08 | %
Effect of nonrecurring consulting fee |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.25 | %
Effect of write-down of software |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.11 | % |  | 0.00 | % |  | 0.04 | %
Effect of discretionary inflation bonus |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.15 | %
Effect of accelerated equity compensation |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.08 | %
Adjusted return on average tangible common equity |  | 3.84 | % |  | 4.40 | % |  | 5.44 | % |  | 7.00 | % |  | 9.24 | % |  | 4.56 | % |  | 11.13 | %

Critical Accounting Policies and Estimates
There have been 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, 2022. Refer to Note 1 Basis of Presentation for further details.
Recent Accounting Pronouncements
Refer to Note 15 to the condensed consolidated financial statements.
Off-Balance Sheet Arrangements
In the ordinary course of business, the Company enters into financial transactions to extend credit, interest rate swap agreements and forms of commitments that may be considered off-balance sheet arrangements. Interest rate swaps are arranged to receive hedge accounting treatment and are classified as either fair value or cash flow hedges. Fair value hedges are purchased to convert certain fixed rate assets to floating rate. Cash flow hedges are used to convert certain variable rate liabilities into fixed rate liabilities. At September 30, 2023 and December 31, 2022, the Company had interest rate swaps with notional amounts of $220 million and $260.0 million, respectively. Additionally, prior to the Company’s decision to exit its consumer mortgage business in the first quarter 2023, we entered into forward contracts related to our mortgage banking business to hedge the exposures we have from commitments to extend new residential mortgage loans to our customers and from our mortgage loans held-for-sale. At September 30, 2023, the Company did not have any commitments to sell residential real estate loans. At December 31, 2022, the Company had commitments to sell residential real estate loans of $17.0 million. Refer to Note 13 to the condensed consolidated financial statements for additional information about derivative financial instruments.
76

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 our equity resulting from changes in market interest rates. Interest rate risk arises in the normal course of business to the extent that there are timing and volume differences between the amount of interest-earning assets and the amount of interest-bearing liabilities that are prepaid, withdrawn, re-priced or mature in specified periods. We seek to achieve consistent growth in net interest income and equity while managing volatility arising from shifts in market interest rates.
We monitor the Company’s interest rate risk position using income simulation models and economic value of equity (“EVE”) sensitivity analysis that capture both short-term and long-term interest rate risk exposure. Income simulation involves forecasting net interest income (“NII”) under a variety of interest rate scenarios. We use EVE sensitivity analysis to understand the impact of changes in interest rates on long-term cash flows, income and capital. EVE is calculated by discounting the cash flows for all balance sheet instruments under different interest-rate scenarios. Modeling the sensitivity of NII and EVE to changes in market interest rates is highly dependent on the assumptions incorporated into the modeling process, especially those pertaining to non-maturity deposit accounts. These assumptions are reviewed and refined on an ongoing basis by the Company. We continually model our NII and EVE positions with various interest rate scenarios and assumptions of future balance sheet composition. We utilize implied forward rates as its base case scenario which reflects market expectations for rate increases over the next 24 months. Presented below is the estimated impact on our NII and EVE position as of September 30, 2023, assuming a static balance sheet and instantaneous parallel shifts in interest rates:

| % Change from Base Case for Instantaneous Parallel Changes in Rates
| Implied Forward Curve -200 Basis Points |  | Implied Forward Curve -100 Basis Points |  | Base Implied Forward Curve |  | Implied Forward Curve +50 Basis Points |  | Implied Forward Curve +100 Basis Points
NII - Year 1 | 13.21 | % |  | 7.59 | % |  | N/A |  | (2.20 | %) |  | (4.66 | %)
NII - Year 2 | 43.78 | % |  | 38.89 | % |  | 32.71 | % |  | 30.29 | % |  | 27.62 | %
EVE | 23.32 | % |  | 12.79 | % |  | N/A |  | (4.88 | %) |  | (9.93 | %)

To supplement the instantaneous rate shocks required by regulatory guidance, we also calculate our interest rate risk position assuming a gradual change in market interest rates. This gradual change is commonly referred to as a “rate ramp” and evenly allocates a change in interest rates over a specified time period.
Presented below is the estimated impact on the Company’s NII and EVE position as of September 30, 2023, assuming a static balance sheet and gradual parallel shifts in interest rates:

| % Change from Base Case for Gradual Changes in Rates
| Implied Forward Curve -200 Basis Points |  | Implied Forward Curve -100 Basis Points |  | Base Implied Forward Curve |  | Implied Forward Curve +50 Basis Points |  | Implied Forward Curve +100 Basis Points
NII - Year 1 | 5.34 | % |  | 2.93 | % |  | N/A |  | (1.75 | %) |  | (3.34 | %)
NII - Year 2 | 44.21 | % |  | 38.88 | % |  | 32.71 | % |  | 28.76 | % |  | 24.93 | %
EVE | 21.16 | % |  | 11.57 | % |  | N/A |  | (6.07 | %) |  | (11.80 | %)

77

The NII and EVE figures presented in the tables above are reflective of a static balance sheet, and do not incorporate either balance sheet growth or contraction, or strategies to increase net interest income while managing volatility arising from shifts in market interest rates. As such, it is likely that actual results will differ from what is presented in the tables above. Balance sheet strategies to achieve such objectives may include:
•Increasing the proportion of low-duration or variable-rate loans to total loans, including organic growth in small business, construction or C&I lending, and declines in longer-term loan portfolios
•Selling longer-term fixed rate loans
•Increasing the proportion of lower cost non-maturity deposits to total deposits
•Extending the duration of wholesale funding
•Executing derivative strategies to synthetically extend liabilities or shorten asset duration
•Repositioning the investment portfolio to manage its duration
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. These controls and procedures are also designed to provide reasonable assurance that such information is accumulated and communicated to management, including the principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating disclosure controls and procedures, the Company has recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management is required to apply judgment in evaluating its controls and procedures.
The Company performed an evaluation under the supervision and with the participation of management, including the principal executive and principal financial officers, to assess the effectiveness of the design and operation of its disclosure controls and procedures under the Exchange Act. Based on that evaluation, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2023.
Changes in Internal Control over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
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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
The following represents a material change in our risk factors from those previously disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2022.
Recent negative developments in the banking industry could adversely affect our current and future business operations and financial condition.
The recent bank failures and related negative media attention have caused significant market trading volatility among publicly traded bank and financial holding companies, particularly for regional and community banks. These developments have negatively impacted customer confidence in smaller banks, which could prompt customers to move their deposits to larger financial institutions. Further, competition for and costs of deposits have similarly increased, putting pressure on net interest margin. While we have taken actions to improve our costs of funds, there is no guarantee that such actions will be successful or sufficient in the current or future market.
We also anticipate increased regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks of similar size to the Bank designed to respond to recent negative developments in the banking industry, all of which may increase our costs of doing business and reduce our profitability. Among other things, there may be increased focus by both regulators and investors on deposit composition, the level of uninsured deposits, brokered deposits, unrealized losses in securities portfolios, liquidity, CRE composition and concentration, capital and general oversight and control of the foregoing. The Bank could face increased scrutiny or be viewed as higher risk by regulators and/or the investor community, which could negatively affect our future results of operations and financial condition.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Repurchases of Common Stock
In December 2022, the Company’s Board of Directors approved a stock repurchase program authorizing the repurchase of up to $25.0 million of the Company’s outstanding stock from time to time on the open market or in privately negotiated transactions. The stock repurchase program is scheduled to expire on December 31, 2023. Under this program, the Company has repurchased 509,022 shares of common stock through September 30, 2023, at an average price of $18.92, for a total investment of $9.6 million.
The following table presents information with respect to purchases of the Company’s common stock made by or on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3), during the third quarter 2023.

| Total Number of Shares Purchased |  | Average Price Paid Per Share |  | Total Number of Shares Purchased As Part of Publicly Announced Programs |  | Approximate Dollar Value Of Shares That May Yet Be Purchased Under The Program
July 1, 2023 - July 31, 2023 | 55,100 |  |  | $ | 17.34 |  |  | 55,100 |  |  | $ | 16,202 |
August 1, 2023 - August 31, 2023 | 23,000 |  |  | $ | 21.00 |  |  | 23,000 |  |  | $ | 15,719 |
September 1, 2023 - September 30, 2023 | 19,734 |  |  | $ | 17.77 |  |  | 19,734 |  |  | $ | 15,368 |
Total | 97,834 |  |  |  |  | 97,834 |  |  |

79

Limitations on the Payment of Dividend s
The ability of the Company to make capital distributions, including paying dividends and repurchasing shares, depends upon our receipt of dividends from the Bank. The ability of the Bank to pay dividends is limited by state and federal laws and regulations, including the requirement for the Bank to obtain the prior approval of the Indiana Department of Financial Institutions (“DFI”) before paying a dividend that, together with other dividends it has paid during a calendar year, would exceed the sum of its net income for the year to date combined with its retained net income for the previous two years. The ability of the Bank to pay dividends is further affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and it is generally prohibited from paying any dividends if, following payment thereof, it would be undercapitalized. Notwithstanding the availability of funds for dividends, the FDIC and the DFI may prohibit the payment of dividends by the Bank if either or both determine such payment would constitute an unsafe or unsound practice. In addition, under the Basel III Capital Rules, institutions that seek the freedom to pay dividends have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS

Exhibit No. |  | Description |  | Method of Filing
3.1 |  | Amended and Restated Articles of Incorporation of First Internet Bancorp (incorporated by reference to Exhibit 3.1 to current report on Form 8-K filed May 21, 2020) |  | Incorporated by Reference
3.2 |  | Amended and Restated Bylaws of First Internet Bancorp (incorporated by reference to Exhibit 3.2 to current report on Form 8-K filed May 21, 2020) |  | Incorporated by Reference
31.1 |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |  | Filed Electronically
31.2 |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |  | Filed Electronically
32.1 |  | Section 1350 Certifications |  | Filed Electronically
101 |  | Inline XBRL Instance Document (does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document) |  | Filed Electronically
101.SCH |  | Inline XBRL Taxonomy Extension Schema |  | Filed Electronically
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase |  | Filed Electronically
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase |  | Filed Electronically
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase |  | Filed Electronically
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase |  | Filed Electronically
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |  | Filed Electronically

*Management contract, compensatory plan or arrangement required to be filed as an exhibit.
80

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

|  | FIRST INTERNET BANCORP
11/8/2023 | By | /s/ David B. Becker
|  | David B. Becker, Chairman and Chief Executive Officer (on behalf of Registrant)
11/8/2023 | By | /s/ Kenneth J. Lovik
|  | Kenneth J. Lovik, Executive Vice President and Chief Financial Officer (principal financial officer)

81