INBK 10-Q Quarterly Report Sept. 30, 2024

FIRST INTERNET BANCORP

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inbk-20240930

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, 2024


☐			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 1, 2024, the registrant had 8,667,894 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 ; changes in 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; changes in the enforcement and interpretation of applicable laws and regulations by governmental and self-regulatory agencies, which could require us to change certain business practices, increase compliance risk, reduce our revenue, impose additional costs on us, or otherwise negatively affect our businesses; more restrictive regulatory capital requirements; increased costs, including deposit insurance premiums; increased regulatory scrutiny resulting from bank failures; risks related to potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings or enforcement actions; the risk that we may be required to make substantial expenditures to keep pace with regulatory initiatives and the rapid technology changes in the financial services market; 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.

PART I

ITEM 1. FINANCIAL STATEMENTS

First Internet Bancorp

Condensed Consolidated Balance Sheets

(Amounts in thousands except share data)


	September 30, 2024		December 31, 2023
	(Unaudited)
Assets
Cash and due from banks	$	6,539	$	8,269
Interest-bearing deposits	705,940		397,629
Total cash and cash equivalents	712,479		405,898

Securities available-for-sale, at fair value (amortized cost of $ 605,722 and $ 513,315 in 2024 and 2023, respectively)	575,257		474,855
Securities held-to-maturity, at amortized cost, net of allowance for credit losses of $ 0.2 million and $ 0.3 million in 2024 and 2023, respectively, (fair value of $ 249,618 and $ 207,572 in 2024 and 2023, respectively)	263,320		227,153
Loans held-for-sale	32,996		22,052
Loans	4,035,880		3,840,220
Allowance for credit losses - loans	( 45,721 )		( 38,774 )
Net loans	3,990,159		3,801,446
Accrued interest receivable	27,750		26,746
Federal Home Loan Bank of Indianapolis stock	28,350		28,350
Cash surrender value of bank-owned life insurance	41,111		40,882
Premises and equipment, net	72,150		73,463
Goodwill	4,687		4,687
Servicing asset, at fair value	14,662		10,567
Other real estate owned	251		375
Accrued income and other assets	60,087		51,098
Total assets	$	5,823,259	$	5,167,572
Liabilities and Shareholders’ Equity
Liabilities
Noninterest-bearing deposits	$	111,591	$	123,464
Interest-bearing deposits	4,686,119		3,943,509
Total deposits	4,797,710		4,066,973
Advances from Federal Home Loan Bank	515,000		614,934
Subordinated debt, net of unamortized debt issuance costs of $ 1,929 and $ 2,162 in 2024 and 2023, respectively	105,071		104,838
Accrued interest payable	2,808		3,848
Accrued expenses and other liabilities	17,541		14,184
Total liabilities	5,438,130		4,804,777
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; 8,667,894 and 8,644,451 shares issued and outstanding in 2024 and 2023, respectively	185,631		184,700
Nonvoting common stock, no par value; 86,221 shares authorized; issued and outstanding - none	—		—
Retained earnings	223,824		207,470
Accumulated other comprehensive loss	( 24,326 )		( 29,375 )
Total shareholders’ equity	385,129		362,795
Total liabilities and shareholders’ equity	$	5,823,259	$	5,167,572

See Notes to Condensed Consolidated Financial Statements

First Internet Bancorp

Condensed Consolidated Statements of Income – Unaudited

(Amounts in thousands except share and per share data)


	Three Months Ended				Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
Interest Income
Loans	$	59,792	$	48,898	$	172,321	$	139,647
Securities – taxable	6,953		4,301		19,123		11,742
Securities – non-taxable	1,042		912		2,981		2,570
Other earning assets	7,203		8,904		19,691		19,211
Total interest income	74,990		63,015		214,116		173,170
Interest Expense
Deposits	47,415		40,339		134,039		102,285
Other borrowed funds	5,810		5,298		16,251		15,788
Total interest expense	53,225		45,637		150,290		118,073
Net Interest Income	21,765		17,378		63,826		55,097
Provision for credit losses - loans	3,858		1,850		10,360		11,976
Benefit for credit losses - debt securities held to maturity	( 29 )		( 15 )		( 93 )		( 15 )
(Benefit) Provision for credit losses - off-balance sheet commitments	( 439 )		111		( 398 )		1,098
Net Interest Income After Provision for Credit Losses	18,375		15,432		53,957		42,038
Noninterest Income
Service charges and fees	245		208		711		635
Loan servicing revenue	1,570		1,064		4,363		2,699
Loan servicing asset revaluation	( 846 )		( 257 )		( 2,109 )		( 670 )
Mortgage banking activities	—		—		—		76



Gain on sale of loans	9,933		5,569		24,761		14,498


Other	1,127		823		3,683		1,486
Total noninterest income	12,029		7,407		31,409		18,724
Noninterest Expense
Salaries and employee benefits	13,456		11,767		37,714		34,267
Marketing, advertising and promotion	548		500		1,893		2,049
Consulting and professional services	902		552		2,777		2,189
Data processing	675		701		1,845		1,880
Loan expenses	1,524		1,336		4,566		4,385
Premises and equipment	2,918		2,315		8,898		7,753
Deposit insurance premium	1,219		1,067		3,536		2,546

Other	1,552		1,518		4,924		4,311
Total noninterest expense	22,794		19,756		66,153		59,380
Income Before Income Taxes	7,610		3,083		19,213		1,382
Income Tax Provision (Benefit)	620		( 326 )		1,267		( 2,892 )
Net Income	$	6,990	$	3,409	$	17,946	$	4,274
Income Per Share of Common Stock
Basic	$	0.80	$	0.39	$	2.07	$	0.48
Diluted	$	0.80	$	0.39	$	2.05	$	0.48
Weighted-Average Number of Common Shares Outstanding
Basic	8,696,634		8,744,385		8,688,304		8,889,532
Diluted	8,768,731		8,767,217		8,756,544		8,907,748
Dividends Declared Per Share	$	0.06	$	0.06	$	0.18	$	0.18

See Notes to Condensed Consolidated Financial Statements

First Internet Bancorp

Condensed Consolidated Statements of Comprehensive Income (Loss) – Unaudited

(Amounts in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net income	$	6,990	$	3,409	$	17,946	$	4,274
Other comprehensive income (loss)
Securities available-for-sale
Net unrealized holding gains (losses) recorded within other comprehensive income (loss) before income tax	10,620		( 11,308 )		7,995		( 11,006 )

Income tax provision (benefit)	2,442		( 2,600 )		1,841		( 2,537 )
Net effect on other comprehensive income (loss)	8,178		( 8,708 )		6,154		( 8,469 )

Securities held-to-maturity

Amortization of net unrealized holding losses on securities transferred from available-for-sale to held-to-maturity	185		173		607		537
Income tax provision	46		45		149		140
Net effect on other comprehensive income	139		128		458		397

Cash flow hedges
Net unrealized holding (losses) gains on cash flow hedging derivatives recorded within other comprehensive income (loss) before income tax	( 2,670 )		740		( 2,030 )		664
Income tax (benefit) provision	( 614 )		171		( 467 )		153
Net effect on other comprehensive (loss) income	( 2,056 )		569		( 1,563 )		511

Total other comprehensive income (loss)	6,261		( 8,011 )		5,049		( 7,561 )
Comprehensive income (loss)	$	13,251	$	( 4,602 )	$	22,995	$	( 3,287 )

See Notes to Condensed Consolidated Financial Statements

First Internet Bancorp

Condensed Consolidated Statements of Changes in Shareholders’ Equity - Unaudited

Nine Months Ended September 30, 2024 and 2023

(Amounts in thousands except share and per share data)


	Voting and Nonvoting Common Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
Balance, January 1, 2024	$	184,700	$	207,470	$	( 29,375 )	$	362,795

Net income	—		17,946		—		17,946

Other comprehensive income	—		—		5,049		5,049
Dividends declared ($ 0.18 per share)	—		( 1,592 )		—		( 1,592 )

Recognition of the fair value of share-based compensation	1,356		—		—		1,356
Repurchased shares of common stock ( 10,500 )	( 283 )		—		—		( 283 )
Excise tax on repurchase of common stock	( 3 )		—		—		( 3 )
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	( 142 )		—		—		( 142 )

Balance, September 30, 2024	$	185,631	$	223,824	$	( 24,326 )	$	385,129

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

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

See Notes to Condensed Consolidated Financial Statements

First Internet Bancorp

Condensed Consolidated Statements of Changes in Shareholders’ Equity - Unaudited

Three Months Ended September 30, 2024 and 2023

(Amounts in thousands except share and per share data)


	Voting and Nonvoting Common Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
Balance, July 1, 2024	185,175		$	217,365	$	( 30,587 )	$	371,953

Net income	—		6,990		—		6,990

Other comprehensive income	—		—		6,261		6,261
Dividends declared ($ 0.06 per share)	—		( 531 )		—		( 531 )

Recognition of the fair value of share-based compensation	454		—		—		454


Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units	2		—		—		2


Balance, September 30, 2024	$	185,631	$	223,824	$	( 24,326 )	$	385,129

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

See Notes to Condensed Consolidated Financial Statements

First Internet Bancorp

Condensed Consolidated Statements of Cash Flows – Unaudited

(Amounts in thousands)


	Nine Months Ended September 30,
	2024		2023
Operating Activities
Net income	$	17,946	$	4,274
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	6,030		3,019
Increase in cash surrender value of bank-owned life insurance	( 817 )		( 760 )
Provision for credit losses	9,869		13,059
Share-based compensation expense	1,356		873


Loans originated for sale	( 366,948 )		( 248,622 )
Proceeds from sale of loans	374,561		249,296
Gain on loans sold	( 24,761 )		( 14,969 )
Gain on sale of other real estate owned	( 31 )		—
Decrease in fair value of loans held-for-sale	—		143
Loss on derivatives	768		362
Gain on bank-owned life insurance	( 149 )		—

Loan servicing asset revaluation	2,109		670

Net change in accrued income and other assets	( 3,525 )		( 4,385 )
Net change in accrued expenses and other liabilities	2,739		( 3,584 )
Net cash provided by (used in) operating activities	19,147		( 624 )
Investing Activities
Net loan activity, excluding purchases	( 117,719 )		( 51,677 )
Proceeds from sale of other real estate owned	406		—

Maturities and calls of securities available-for-sale	54,418		39,749

Purchase of securities available-for-sale	( 148,019 )		( 110,749 )
Maturities and calls of securities held-to-maturity	18,426		14,236
Purchase of securities held-to-maturity	( 53,977 )		( 53,573 )



Purchase of premises and equipment	( 2,097 )		( 4,970 )
Proceeds from bank-owned life insurance	737		—

Loans purchased	( 81,605 )		( 194,318 )

Other investing activities	( 11,857 )		( 3,442 )
Net cash used in investing activities	( 341,287 )		( 364,744 )
Financing Activities
Net increase in deposits	730,737		640,370

Cash dividends paid	( 1,580 )		( 1,623 )


Repurchase of common stock	( 283 )		( 8,620 )
Proceeds from advances from Federal Home Loan Bank	430,000		415,000
Repayment of advances from Federal Home Loan Bank	( 530,000 )		( 415,000 )

Other, net	( 153 )		( 106 )
Net cash provided by financing activities	628,721		630,021
Net Increase in Cash and Cash Equivalents	306,581		264,653
Cash and Cash Equivalents, Beginning of Period	405,898		256,552
Cash and Cash Equivalents, End of Period	$	712,479	$	521,205
Supplemental Disclosures


Cash paid during the period for interest	151,330		118,019
Cash paid during the period for taxes	492		864
Loans transferred to other real estate owned	251		106

Cash dividends declared, paid in subsequent period	520		520
Securities purchased during the period, settled in subsequent period	—		2,632

See Notes to Condensed Consolidated Financial Statements

First Internet Bancorp

Notes to Condensed Consolidated Financial Statements – Unaudited

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

Note 1: Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information or footnotes necessary for a complete presentation of financial condition, results of operations, changes in shareholders’ equity, or cash flows in accordance with GAAP. In our opinion, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation have been included. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results expected for the year ending December 31, 2024 or any other period. The September 30, 2024 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, 2023.

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.

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, 2024 and 2023.


(dollars in thousands, except share and per share data)	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Basic earnings per share
Net income	$	6,990	$	3,409	$	17,946	$	4,274
Weighted-average common shares	8,696,634		8,744,385		8,688,304		8,889,532
Basic earnings per common share	$	0.80	$	0.39	$	2.07	$	0.48
Diluted earnings per share
Net income	$	6,990	$	3,409	$	17,946	$	4,274
Weighted-average common shares	8,696,634		8,744,385		8,688,304		8,889,532

Dilutive effect of equity compensation	72,097		22,832		68,240		18,216
Weighted-average common and incremental shares	8,768,731		8,767,217		8,756,544		8,907,748
Diluted earnings per common share 1	$	0.80	$	0.39	$	2.05	$	0.48

1 Potential dilutive common shares are excluded from the computation of diluted EPS in the periods where the effect would be antidilutive. There were no antidilutive shares for both the three and nine months ended September 30, 2024. 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.

Note 3: Securities

The following tables summarize securities available-for-sale and securities held-to-maturity as of September 30, 2024 and December 31, 2023.


	September 30, 2024
	Amortized		Gross Unrealized				Fair
(in thousands)	Cost		Gains		Losses		Value
Securities available-for-sale
U.S. Government-sponsored agencies	$	88,990	$	539	$	( 1,213 )	$	88,316
Municipal securities	67,399		24		( 2,000 )		65,423
Agency mortgage-backed securities - residential 1	290,213		673		( 25,033 )		265,853
Agency mortgage-backed securities - commercial	65,772		184		( 1,022 )		64,934
Private label mortgage-backed securities - residential	34,971		295		( 730 )		34,536
Asset-backed securities	18,318		41		( 18 )		18,341
Corporate securities	40,059		84		( 2,289 )		37,854

Total available-for-sale	$	605,722	$	1,840	$	( 32,305 )	$	575,257


	September 30, 2024
	Amortized Cost		Gross Unrealized				Fair Value		Allowance for Credit Losses		Net Carrying Value
(in thousands)			Gains		Losses
Securities held-to-maturity
Municipal securities	$	12,859	$	1	$	( 613 )	$	12,247	$	( 3 )	$	12,856
Agency mortgage-backed securities - residential	207,878		935		( 11,515 )		197,298		—		207,878
Agency mortgage-backed securities - commercial	5,722		—		( 824 )		4,898		—		5,722
Corporate securities	37,061		—		( 1,886 )		35,175		( 197 )		36,864
Total held-to-maturity	$	263,520	$	936	$	( 14,838 )	$	249,618	$	( 200 )	$	263,320

1 Includes $ 0.3 million of additional premium related to terminated interest rate swaps associated with agency mortgage-backed securities - residential as of September 30, 2024 .


	December 31, 2023
	Amortized		Gross Unrealized				Fair
(in thousands)	Cost		Gains		Losses		Value
Securities available-for-sale
U.S. Government-sponsored agencies	$	96,404	$	402	$	( 1,629 )	$	95,177
Municipal securities	69,494		356		( 1,404 )		68,446
Agency mortgage-backed securities - residential 1	237,798		101		( 31,250 )		206,649
Agency mortgage-backed securities - commercial	40,215		9		( 1,339 )		38,885
Private label mortgage-backed securities - residential	21,742		144		( 1,107 )		20,779
Asset-backed securities	8,071		17		( 7 )		8,081
Corporate securities	39,591		25		( 2,778 )		36,838

Total available-for-sale	$	513,315	$	1,054	$	( 39,514 )	$	474,855


	December 31, 2023
	Amortized		Gross Unrealized				Fair		Allowance for Credit Losses		Net Carrying Value
(in thousands)	Cost		Gains		Losses		Value
Securities held-to-maturity
Municipal securities	$	13,892	$	1	$	( 853 )	$	13,040	$	( 3 )	$	13,889
Agency mortgage-backed securities - residential	166,750		4		( 14,112 )		152,642		—		166,750
Agency mortgage-backed securities - commercial	5,767		—		( 1,246 )		4,521		—		5,767
Corporate securities	41,037		—		( 3,668 )		37,369		( 290 )		40,747
Total held-to-maturity	$	227,446	$	5	$	( 19,879 )	$	207,572	$	( 293 )	$	227,153

1 Includes $ 0.4 million of additional premium related to terminated interest rate swaps associated with agency mortgage-backed securities - residential as of December 31, 2023.

Accrued interest receivable on AFS and HTM securities at September 30, 2024 was $ 2.8 million and $ 1.2 million, respectively, compared to $ 2.9 million and $ 1.2 million, respectively, at December 31, 2023, 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.

At both September 30, 2024 and December 31, 2023, over 94 % 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.

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. The ACL on HTM securities at September 30, 2024 was $ 0.2 million.

The carrying value of securities at September 30, 2024 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	$	10,725	$	10,537
One to five years	22,032		22,069
Five to ten years	72,412		70,160
After ten years	91,279		88,827
	196,448		191,593
Agency mortgage-backed securities - residential	290,213		265,853
Agency mortgage-backed securities - commercial	65,772		64,934
Private label mortgage-backed securities - residential	34,971		34,536
Asset-backed securities	18,318		18,341

Total	$	605,722	$	575,257


	Held-to-Maturity
(in thousands)	Amortized Cost		Fair Value
Within one year	$	1,812	$	1,795
One to five years	15,201		14,791
Five to ten years	29,408		27,666
After ten years	3,499		3,170
	49,920		47,422
Agency mortgage-backed securities - residential	207,878		197,298
Agency mortgage-backed securities - commercial	5,722		4,898
Total	$	263,520	$	249,618

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, 2024 and September 30, 2023, 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, 2024 and December 31, 2023 was $ 586.9 million and $ 578.9 million, which was approximately 71 % and 85 %, respectively, of the Company’s AFS and HTM securities portfolios. As of September 30, 2024, the Company’s security portfolio consisted of 573 securities, of which 442 were in an unrealized loss position. As of December 31, 2023, the Company’s security portfolio consisted of 512 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, 2024 and December 31, 2023.


	September 30, 2024
	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	$	24,430	$	( 93 )	$	22,792	$	( 1,120 )	$	47,222	$	( 1,213 )
Municipal securities	2,465		( 125 )		49,399		( 1,875 )		51,864		( 2,000 )
Agency mortgage-backed securities- residential	44,406		( 119 )		181,557		( 24,914 )		225,963		( 25,033 )
Agency mortgage-backed securities- commercial	18,779		( 63 )		12,518		( 959 )		31,297		( 1,022 )
Private label mortgage-backed securities - residential	5,049		( 20 )		8,048		( 710 )		13,097		( 730 )
Asset-backed securities	7,467		( 18 )		—		—		7,467		( 18 )
Corporate securities	4,325		( 675 )		22,413		( 1,614 )		26,738		( 2,289 )

Total	$	106,921	$	( 1,113 )	$	296,727	$	( 31,192 )	$	403,648	$	( 32,305 )


	December 31, 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	$	41,934	$	( 161 )	$	24,579	$	( 1,468 )	$	66,513	$	( 1,629 )
Municipal securities	2,399		( 103 )		36,193		( 1,301 )		38,592		( 1,404 )
Agency mortgage-backed securities - residential	1,089		( 5 )		194,095		( 31,245 )		195,184		( 31,250 )
Agency mortgage-backed securities - commercial	21,561		( 50 )		14,217		( 1,289 )		35,778		( 1,339 )
Private label mortgage-backed securities - residential	3,567		( 29 )		9,114		( 1,078 )		12,681		( 1,107 )
Asset-backed securities	1,654		( 7 )		—		—		1,654		( 7 )
Corporate securities	1,680		( 365 )		24,587		( 2,413 )		26,267		( 2,778 )

Total	$	73,884	$	( 720 )	$	302,785	$	( 38,794 )	$	376,669	$	( 39,514 )

The following tables summarize ratings for the Company’s HTM portfolio as of September 30, 2024 and December 31, 2023.


	September 30, 2024
	Held-to-Maturity
(in thousands)	Municipal Securities		Mortgage-Backed Securities - Residential		Mortgage-Backed Securities - Commercial		Corporate Securities		Total
AAA equivalent - agency	$	—	$	207,878	$	5,722	$	—	$	213,600
Aa1/AA+	8,889		—		—		—		8,889
Aa2/AA	2,177		—		—		—		2,177
Aa3/AA-	1,793		—		—		—		1,793
A2/A	—		—		—		5,000		5,000
A3/A-	—		—		—		4,501		4,501
Baa1/BBB+	—		—		—		8,500		8,500
Baa2/BBB	—		—		—		8,500		8,500
Baa3/BBB-	—		—		—		8,560		8,560
Ba1/BB+	—		—		—		2,000		2,000

Total	$	12,859	$	207,878	$	5,722	$	37,061	$	263,520


	December 31, 2023
	Held-to-Maturity
(in thousands)	Municipal Securities		Mortgage-Backed Securities - Residential		Mortgage-Backed Securities - Commercial		Corporate Securities		Total
AAA equivalent - agency	$	—	$	166,750	$	5,767	$	—	$	172,517
Aa1/AA+	9,917		—		—		—		9,917
Aa2/AA	1,538		—		—		—		1,538
A1/A+	1,794		—		—		—		1,794
A2/A	643		—		—		5,000		5,643
A3/A-	—		—		—		4,509		4,509
Baa1/BBB+	—		—		—		8,500		8,500
Baa2/BBB	—		—		—		8,500		8,500
Baa3/BBB-	—		—		—		12,528		12,528
Ba1/BB+	—		—		—		2,000		2,000

Total	$	13,892	$	166,750	$	5,767	$	41,037	$	227,446

Note 4: Loans

Loan balances as of September 30, 2024 and December 31, 2023 are summarized in the table below. Categories of loans include:


(in thousands)	September 30, 2024		December 31, 2023
Commercial loans
Commercial and industrial	$	111,199	$	129,349
Owner-occupied commercial real estate	56,461		57,286
Investor commercial real estate	260,614		132,077
Construction	340,954		261,750
Single tenant lease financing	932,148		936,616
Public finance	462,730		521,764
Healthcare finance	190,287		222,793
Small business lending	298,645		218,506
Franchise finance	550,442		525,783

Total commercial loans	3,203,480		3,005,924
Consumer loans
Residential mortgage	378,701		395,648
Home equity	20,264		23,669
Other consumer loans	404,388		377,614

Total consumer loans	803,353		796,931
Total commercial and consumer loans	4,006,833		3,802,855
Net deferred loan origination fees/costs and premiums/discounts on purchased loans and other 1	29,047		37,365
Total loans	4,035,880		3,840,220
Allowance for credit losses	( 45,721 )		( 38,774 )
Net loans	$	3,990,159	$	3,801,446

1 Includes carrying value adjustments of $ 24.1 million and $ 27.8 million related to terminated interest rate swaps associated with public finance loans as of September 30, 2024 and December 31, 2023, 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.

Investor Commercial Real Estate: These loans are made on a nationwide basis and 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. 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 made on a nationwide basis and 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.

Single Tenant Lease Financing: These loans are made on a nationwide basis to 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 and commercial real estate 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.

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

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

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

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.

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, other-than-insignificant payment delays, reductions in interest rates, acceptance of interest only payments, and/or reductions to the outstanding loan balance. Such loans may be 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.

The following tables present changes in the balance of the ACL during the three and nine months ended September 30, 2024 and 2023.


(in thousands)	Three Months Ended September 30, 2024
Allowance for credit losses:	Balance, Beginning of Period		(Credit) Provision Charged to Expense		Losses Charged Off		Recoveries		Balance, End of Period
Commercial and industrial	$	1,389	$	( 166 )	$	—	$	3	$	1,226
Owner-occupied commercial real estate	561		( 9 )		—		—		552
Investor commercial real estate	1,172		( 29 )		—		—		1,143
Construction	3,140		( 357 )		—		—		2,783
Single tenant lease financing	8,256		( 1,562 )		—		—		6,694
Public finance	742		( 44 )		—		—		698
Healthcare finance	1,809		( 87 )		—		—		1,722
Small business lending	11,993		3,346		( 1,309 )		169		14,199
Franchise finance	5,991		1,963		—		—		7,954

Residential mortgage	2,112		67		( 17 )		—		2,162
Home equity	118		( 6 )		—		3		115
Other consumer loans	6,122		742		( 425 )		34		6,473

Total	$	43,405	$	3,858	$	( 1,751 )	$	209	$	45,721


(in thousands)	Nine Months Ended September 30, 2024
Allowance for credit losses:	Balance, Beginning of Period		(Credit) Provision Charged to Expense		Losses Charged Off		Recoveries		Balance, End of Period
Commercial and industrial	$	2,185	$	( 966 )	$	—	$	7	$	1,226
Owner-occupied commercial real estate	825		( 273 )		—		—		552
Investor commercial real estate	1,311		( 168 )		—		—		1,143
Construction	2,167		616		—		—		2,783
Single tenant lease financing	8,129		( 1,240 )		( 195 )		—		6,694
Public finance	1,372		( 674 )		—		—		698
Healthcare finance	1,976		( 254 )		—		—		1,722
Small business lending	6,532		9,564		( 2,171 )		274		14,199
Franchise finance	6,363		2,168		( 577 )		—		7,954

Residential mortgage	2,054		193		( 86 )		1		2,162
Home equity	171		( 62 )		—		6		115
Other consumer loans	5,689		1,456		( 760 )		88		6,473

Total	$	38,774	$	10,360	$	( 3,789 )	$	376	$	45,721


(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

Accrued interest receivable on loans totaled $ 27.8 million and $ 26.7 million at September 30, 2024 and December 31, 2023, respectively, 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.

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 tables detail activity in the provision (benefit) for credit losses on off-balance sheet commitments for the three and nine months ended September 30, 2024.



(in thousands)	Balance June 30, 2024		Provision (Benefit) for credit losses		Balance September 30, 2024
Off-balance sheet commitments
Commercial loans
Commercial and industrial	$	188	$	24	$	212
Owner-occupied commercial real estate	—		24		24
Investor commercial real estate	—		10		10
Construction	3,420		( 556 )		2,864
Single tenant lease financing	—		28		28


Small business lending	131		31		162


Total commercial loans	3,739		( 439 )		3,300
Consumer loans
Residential mortgage	3		( 1 )		2
Home equity	33		1		34
Other consumer	11		—		11
Total consumer loans	47		—		47
Total allowance for off-balance sheet commitments	$	3,786	$	( 439 )	$	3,347



(in thousands)	Balance December 31, 2023		Provision (Benefit) for credit losses		Balance September 30, 2024
Off-balance sheet commitments
Commercial loans
Commercial and industrial	$	233	$	( 21 )	$	212
Owner-occupied commercial real estate	9		15		24
Investor commercial real estate	6		4		10
Construction	2,889		( 25 )		2,864
Single tenant lease financing	—		28		28


Small business lending	541		( 379 )		162


Total commercial loans	3,678		( 378 )		3,300
Consumer loans
Residential mortgage	11		( 9 )		2
Home equity	45		( 11 )		34
Other consumer	11		—		11
Total consumer loans	67		( 20 )		47
Total allowance for off-balance sheet commitments	$	3,745	$	( 398 )	$	3,347

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



(in thousands)	Balance June 30, 2023		Provision (Benefit) 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



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



(in thousands)	Pre-ASC 326 Adoption		Impact of ASC 326 Adoption		Provision (Benefit) 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

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.

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, 2024 and December 31, 2023.


	September 30, 2024
	Term Loans (amortized cost basis by origination year)												Revolving loans amortized cost basis		Revolving loans converted to term
(in thousands)	2024		2023		2022		2021		2020		Prior						Total
Commercial and industrial
Pass	$	15,655	$	9,127	$	14,422	$	5,480	$	2,397	$	18,819	$	40,614	$	—	$	106,514
Special Mention	51		172		4,462		—		—		—		—		—		4,685
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial and industrial	15,706		9,299		18,884		5,480		2,397		18,819		40,614		—		111,199
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—

Owner-occupied commercial real estate
Pass	3,432		1,467		10,496		6,538		5,766		16,263		—		—		43,962
Special Mention	—		—		574		897		8,208		1,165		—		—		10,844
Substandard	—		—		—		—		—		1,655		—		—		1,655
Doubtful	—		—		—		—		—		—		—		—		—
Total owner-occupied commercial real estate	3,432		1,467		11,070		7,435		13,974		19,083		—		—		56,461
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Investor commercial real estate
Pass	60,642		2,894		90,280		65,050		9,673		27,709		—		—		256,248
Special Mention	—		—		—		—		—		4,366		—		—		4,366
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total investor commercial real estate	60,642		2,894		90,280		65,050		9,673		32,075		—		—		260,614
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Construction
Pass	24,292		128,924		136,518		47,004		2,098		—		2,118		—		340,954
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total construction	24,292		128,924		136,518		47,004		2,098		—		2,118		—		340,954
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Single tenant lease financing
Pass	40,680		51,925		214,769		88,047		64,010		447,248		—		—		906,679
Special Mention	646		—		7,667		4,333		—		12,823		—		—		25,469
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total single tenant lease financing	41,326		51,925		222,436		92,380		64,010		460,071		—		—		932,148
Year-to-date gross charge-offs	—		—		—		—		—		195		—		—		195
Public finance
Pass	5,565		1,788		7,790		27,775		634		417,168		—		—		460,720
Special Mention	—		—		—		—		—		2,010		—		—		2,010
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total public finance	5,565		1,788		7,790		27,775		634		419,178		—		—		462,730
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—


	September 30, 2024
	Term Loans (amortized cost basis by origination year)												Revolving loans amortized cost basis		Revolving loans converted to term
(in thousands)	2024		2023		2022		2021		2020		Prior						Total
Healthcare finance
Pass	—		—		—		9,220		108,900		71,521		—		—		189,641
Special Mention	—		—		—		—		—		646		—		—		646
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total healthcare finance	—		—		—		9,220		108,900		72,167		—		—		190,287
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Small business lending 1
Pass	95,188		103,226		32,612		12,447		10,500		11,643		14,191		—		279,807
Special Mention	977		2,365		1,556		642		364		579		991		—		7,474
Substandard	—		5,350		2,579		70		1,437		1,466		462		—		11,364
Doubtful	—		—		—		—		—		—		—		—		—
Total small business lending	96,165		110,941		36,747		13,159		12,301		13,688		15,644		—		298,645
Year-to-date gross charge-offs	—		1,303		677		—		104		87		—		—		2,171
Franchise finance
Pass	62,376		238,009		185,117		45,867		—		—		—		—		531,369
Special Mention	—		2,226		3,993		6,339		—		—		—		—		12,558
Substandard	—		2,985		3,057		473		—		—		—		—		6,515
Doubtful	—		—		—		—		—		—		—		—		—
Total franchise finance	62,376		243,220		192,167		52,679		—		—		—		—		550,442
Year-to-date gross charge-offs	—		281		—		296		—		—		—		—		577
Consumer loans
Residential mortgage
Performing	1,393		13,746		186,656		87,071		29,170		57,496		—		—		375,532
Nonperforming	—		—		828		611		69		1,661		—		—		3,169
Total residential mortgage	1,393		13,746		187,484		87,682		29,239		59,157		—		—		378,701
Year-to-date gross charge-offs	—		—		28		58		—		—		—		—		86
Home equity
Performing	—		1,018		1,577		364		431		557		15,392		925		20,264
Nonperforming	—		—		—		—		—		—		—		—		—
Total home equity	—		1,018		1,577		364		431		557		15,392		925		20,264
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Other consumer
Performing	82,580		102,067		92,328		35,338		22,069		69,149		841		—		404,372
Nonperforming	—		—		—		—		2		14		—		—		16
Total other consumer	82,580		102,067		92,328		35,338		22,071		69,163		841		—		404,388
Year-to-date gross charge-offs	49		214		235		100		1		161		—		—		760
Total Loans	$	393,477	$	667,289	$	997,281	$	443,566	$	265,728	$	1,163,958	$	74,609	$	925	$	4,006,833
Total year-to-date gross charge-offs	$	49	$	1,798	$	940	$	454	$	105	$	443	$	—	$	—	$	3,789

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


	December 31, 2023
	Term Loans (amortized cost basis by origination year)												Revolving loans amortized cost basis		Revolving loans converted to term
(in thousands)	2023		2022		2021		2020		2019		Prior						Total
Commercial and industrial
Pass	$	24,329	$	19,382	$	15,464	$	2,502	$	12,365	$	8,703	$	41,967	$	—	$	124,712
Special Mention	—		4,637		—		—		—		—		—		—		4,637
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial and industrial	24,329		24,019		15,464		2,502		12,365		8,703		41,967		—		129,349
Year-to-date gross charge-offs	—		—		6,914		5		130		—		—		—		7,049

Owner-occupied commercial real estate
Pass	1,492		10,731		7,990		6,591		5,255		12,485		—		—		44,544
Special Mention	—		584		922		8,392		—		1,189		—		—		11,087
Substandard	—		—		—		—		—		1,655		—		—		1,655
Doubtful	—		—		—		—		—		—		—		—		—
Total owner-occupied commercial real estate	1,492		11,315		8,912		14,983		5,255		15,329		—		—		57,286
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Investor commercial real estate
Pass	6,571		35,209		26,841		9,864		47,827		5,765		—		—		132,077
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total investor commercial real estate	6,571		35,209		26,841		9,864		47,827		5,765		—		—		132,077
Year-to-date gross charge-offs	—		—		—		—		—		591		—		—		591
Construction
Pass	26,539		153,066		70,175		6,121		—		—		5,849		—		261,750
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total construction	26,539		153,066		70,175		6,121		—		—		5,849		—		261,750
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Single tenant lease financing
Pass	52,360		221,964		89,075		65,863		142,023		346,695		—		—		917,980
Special Mention	—		4,362		6,698		3,032		—		4,544		—		—		18,636
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total single tenant lease financing	52,360		226,326		95,773		68,895		142,023		351,239		—		—		936,616
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Public finance
Pass	3,805		30,583		29,750		719		43,611		411,176		—		—		519,644
Special Mention	—		—		—		—		—		2,120		—		—		2,120
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total public finance	3,805		30,583		29,750		719		43,611		413,296		—		—		521,764
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—


	December 31, 2023
	Term Loans (amortized cost basis by origination year)												Revolving loans amortized cost basis		Revolving loans converted to term
(in thousands)	2023		2022		2021		2020		2019		Prior						Total
Healthcare finance
Pass	—		—		9,955		124,654		63,486		23,484		—		—		221,579
Special Mention	—		—		—		—		1,214		—		—		—		1,214
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total healthcare finance	—		—		9,955		124,654		64,700		23,484		—		—		222,793
Year-to-date gross charge-offs	—		—		—		—		605		—		—		—		605
Small business lending 1
Pass	119,149		42,077		15,180		13,948		4,582		9,215		5,388		—		209,539
Special Mention	343		496		—		341		265		698		—		—		2,143
Substandard	1,095		1,854		52		1,777		1,155		417		474		—		6,824
Doubtful	—		—		—		—		—		—		—		—		—
Total small business lending	120,587		44,427		15,232		16,066		6,002		10,330		5,862		—		218,506
Year-to-date gross charge-offs	67		739		416		1,364		—		—		—		—		2,586
Franchise finance
Pass	256,944		210,617		57,919		—		—		—		—		—		525,480
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		303		—		—		—		—		—		303
Doubtful	—		—		—		—		—		—		—		—		—
Total franchise finance	256,944		210,617		58,222		—		—		—		—		—		525,783
Year-to-date gross charge-offs	—		331		—		—		—		—		—		—		331
Consumer loans
Residential mortgage
Performing	14,942		195,453		91,010		30,092		13,072		48,330		—		—		392,899
Nonperforming	—		738		456		73		—		1,482		—		—		2,749
Total residential mortgage	14,942		196,191		91,466		30,165		13,072		49,812		—		—		395,648
Year-to-date gross charge-offs	—		53		70		—		17		—		—		—		140
Home equity
Performing	1,369		1,997		436		467		141		585		16,896		1,778		23,669
Nonperforming	—		—		—		—		—		—		—		—		—
Total home equity	1,369		1,997		436		467		141		585		16,896		1,778		23,669
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Other consumer
Performing	115,736		106,883		41,598		26,527		27,087		58,902		795		—		377,528
Nonperforming	—		53		—		5		15		13		—		—		86
Total other consumer	115,736		106,936		41,598		26,532		27,102		58,915		795		—		377,614
Year-to-date gross charge-offs	97		115		20		51		56		243		—		—		582
Total Loans	$	624,674	$	1,040,686	$	463,824	$	300,968	$	362,098	$	937,458	$	71,369	$	1,778	$	3,802,855
Total year-to-date gross charge-offs	$	164	$	1,238	$	7,420	$	1,420	$	808	$	834	$	—	$	—	$	11,884

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

The following tables present the Company’s loan portfolio delinquency analysis as of September 30, 2024 and December 31, 2023.


	September 30, 2024
(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	$	—	$	—	$	—	$	—	$	111,199	$	111,199
Owner-occupied commercial real estate	—		—		—		—		56,461		56,461
Investor commercial real estate	—		—		—		—		260,614		260,614
Construction	—		—		—		—		340,954		340,954
Single tenant lease financing	—		—		—		—		932,148		932,148
Public finance	—		—		—		—		462,730		462,730
Healthcare finance	—		—		—		—		190,287		190,287
Small business lending 1	3,180		1,755		6,779		11,714		286,931		298,645
Franchise finance	1,938		3,651		7,300		12,889		537,553		550,442

Residential mortgage	1,216		1,570		2,647		5,433		373,268		378,701
Home equity	—		—		—		—		20,264		20,264
Other consumer	164		11		—		175		404,213		404,388

Total	$	6,498	$	6,987	$	16,726	$	30,211	$	3,976,622	$	4,006,833

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


	December 31, 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	$	40	$	21	$	—	$	61	$	129,288	$	129,349
Owner-occupied commercial real estate	—		—		—		—		57,286		57,286
Investor commercial real estate	—		—		—		—		132,077		132,077
Construction	—		—		—		—		261,750		261,750
Single tenant lease financing	—		—		—		—		936,616		936,616
Public finance	—		—		—		—		521,764		521,764
Healthcare finance	—		—		—		—		222,793		222,793
Small business lending 1	2,680		57		2,794		5,531		212,975		218,506
Franchise finance	—		2,923		303		3,226		522,557		525,783

Residential mortgage	70		709		1,663		2,442		393,206		395,648
Home equity	—		—		—		—		23,669		23,669
Other consumer	223		68		53		344		377,270		377,614
Total	$	3,013	$	3,778	$	4,813	$	11,604	$	3,791,251	$	3,802,855

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 Company recognized less than $ 0.1 million in interest income on nonaccrual loans for both the three and nine months ended September 30, 2024 and September 30, 2023.

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, 2024						December 31, 2023
(in thousands)	Nonaccrual Loans		Nonaccrual Loans with no Allowance for Credit Losses		Total Loans 90 Days or More Past Due and Accruing		Nonaccrual Loans		Nonaccrual Loans with no Allowance for Credit Losses		Total Loans 90 Days or More Past Due and Accruing







Small business lending 1	$	11,364	$	888	$	61	$	6,824	$	904	$	—
Franchise finance	6,515		—		785		303		—		—

Residential mortgage	3,169		3,169		568		1,911		1,911		838

Other consumer	16		16		—		86		86		—
Total loans	$	21,064	$	4,073	$	1,414	$	9,124	$	2,901	$	838

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

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.

The following tables present the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses as of September 30, 2024 and December 31, 2023.


	September 30, 2024
(in thousands)	Commercial Real Estate		Residential Real Estate		Other		Total		Allowance on Collateral Dependent Loans

Owner-occupied commercial real estate	$	—	$	—	$	1,654	$	1,654	$	—





Small business lending 1	1,192		—		8,147		9,339		5,337
Franchise finance	6,515		—		—		6,515		2,017

Residential mortgage	—		3,169		—		3,169		—

Other consumer loans	—		—		16		16		—
Total loans	$	7,707	$	3,169	$	9,817	$	20,693	$	7,354

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


	December 31, 2023
(in thousands)	Commercial Real Estate		Residential Real Estate		Other		Total		Allowance on Collateral Dependent Loans

Owner-occupied commercial real estate	$	—	$	—	$	1,654	$	1,654	$	—





Small business lending 1	2,875		1,210		2,226		6,311		2,391


Residential mortgage	—		1,911		—		1,911		—

Other consumer loans	—		—		86		86		—
Total loans	$	2,875	$	3,121	$	3,966	$	9,962	$	2,391

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, other-than-insignificant payment delays, term extensions and other actions intended to minimize loss and to avoid foreclosure or repossession of collateral. The Company had three loan modifications made to borrowers experiencing financial difficulty during both the three and nine months ended September 30, 2024. The Company did not have any loan modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023.

The following tables present loans that were both experiencing financial difficulty and modified during the three and nine months ended September 30, 2024.


(in thousands)
Three Months Ended September 30, 2024	Payment Delay		Total Modification by Loan Class		% of Class of Loans


Investor commercial real estate	$	3,731	$	3,731	1.4	%





Franchise finance	4,028		4,028		0.7	%




Total loans	$	7,759	$	7,759


(in thousands)
Nine Months Ended September 30, 2024	Payment Delay		Total Modification by Loan Class		% of Class of Loans


Investor commercial real estate	$	3,731	$	3,731	1.4	%





Franchise finance	4,028		4,028		0.7	%




Total loans	$	7,759	$	7,759

The following tables describe the financial effect of the modifications made to borrowers experiencing financial difficulty. As of September 30, 2024, the Company had no commitments to lend additional funds to these borrowers included in the table below.

(in thousands)

Three Months Ended September 30, 2024 - Payment Delay

Loan Type

Financial Effect

Investor commercial real estate

Forbearance average of 9 months.

Franchise finance

Forbearance average of 7 months.

(in thousands)

Nine Months Ended September 30, 2024 - Payment Delay

Loan Type

Financial Effect

Investor commercial real estate

Forbearance average of 9 months.

Franchise finance

Forbearance average of 7 months.

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified in the last twelve months as of September 30, 2024.


(in thousands)	Current		30 - 89 Days Past Due		90+ Days Past Due


Investor commercial real estate	$	3,731	$	—	$	—





Franchise finance	4,028		—		—




Total loans	$	7,759	$	—	$	—

No modified loans defaulted during the three and nine months ended September 30, 2024.

Other Real Estate Owned

The Company had $ 0.3 million in other real estate owned (“OREO”) as of September 30, 2024. The Company had $ 0.4 million in other real estate owned (“OREO”) as of December 31, 2023, which consisted of two residential mortgage properties. There were seven loans totaling $ 1.9 million and one loan totaling $ 0.8 million, in the process of foreclosure at September 30, 2024 and December 31, 2023, respectively.

Note 5: Premises and Equipment

The following table summarizes premises and equipment at September 30, 2024 and December 31, 2023.


(in thousands)	September 30, 2024		December 31, 2023
Land	$	5,598	$	5,598
Construction in process	382		1,119
Right of use leased asset	203		66
Building and improvements	62,583		60,699
Furniture and equipment	21,677		20,836

Less: accumulated depreciation	( 18,293 )		( 14,855 )
Total	$	72,150	$	73,463

Note 6: Goodwill

As of September 30, 2024 and December 31, 2023, 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, 2024 or September 30, 2023. Goodwill is assessed for impairment annually as of August 31, or more frequently if events occur or circumstances change that indicate an impairment may exist. When assessing goodwill for impairment, first, a qualitative assessment can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment.

Goodwill was assessed for impairment using a qualitative test performed as of August 31, 2024. 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 2024 and 2023 are shown in the table below.


	Three Months Ended
(in thousands)	September 30, 2024		September 30, 2023
Balance, beginning of period	$	13,009	$	8,251
Additions:
Originated	2,499		1,585
Subtractions
Paydowns:	( 689 )		( 408 )
Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model	( 157 )		151
Loan servicing asset revaluation	$	( 846 )	$	( 257 )
Balance, end of period	$	14,662	$	9,579


	Nine Months Ended
(in thousands)	September 30, 2024		September 30, 2023
Balance, beginning of period	$	10,567	$	6,255
Additions:
Originated	6,204		3,994
Subtractions
Paydowns:	( 2,097 )		( 1,275 )
Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model	( 12 )		605
Loan servicing asset revaluation	$	( 2,109 )	$	( 670 )
Balance, end of period	$	14,662	$	9,579

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, 2024 and December 31, 2023 are shown in the table below.



(in thousands)	September 30, 2024		December 31, 2023
Loan portfolios serviced for:
SBA guaranteed loans	$	783,276	$	531,927

Total	$	783,276	$	531,927

Loan servicing revenue totaled $ 1.6 million and $ 4.4 million for the three and nine months ended September 30, 2024, respectively, and $ 1.1 million and $ 2.7 million for the three and nine months ended September 30, 2023, respectively. Loan servicing asset revaluation, which represents the change in fair value of the servicing asset, resulted in a $ 0.8 million and $ 2.1 million downward valuation for the three and nine months ended September 30, 2024, respectively, and a $ 0.3 million and $ 0.7 million downward valuation for both the three and nine months ended September 30, 2023, 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 bear interest at a floating rate equal to three-month Term SOFR plus 4.376 %. 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 at any time, without penalty. 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 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.

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 discount and debt issuance costs for the 2029 Notes, the 2030 Note, and the 2031 Notes as of September 30, 2024 and December 31, 2023.


	September 30, 2024				December 31, 2023
(in thousands)	Principal		Unamortized Discount and Debt Issuance Costs		Principal		Unamortized Discount and Debt Issuance Costs

2029 Notes	$	37,000	$	( 743 )	$	37,000	$	( 862 )
2030 Notes	10,000		( 143 )		10,000		( 160 )
2031 Notes	60,000		( 1,043 )		60,000		( 1,140 )


Total	$	107,000	$	( 1,929 )	$	107,000	$	( 2,162 )

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 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”).

Award Activity Under 2022 Plan

The Company recorded $ 0.4 million and $ 1.1 million o f share-based compensation expense for the three and nine months ended September 30, 2024, respectively, related to stock-based awards under the 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, respectively, 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, 2024.


	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, 2023	72,354	$	24.61	30,030	$	11.18	—	$	—
Granted	75,222	24.13		12,040	31.46		—	—
Cancelled/Forfeited	( 1,290 )	24.37		—	—		—	—
Vested	( 14,294 )	24.52		( 30,030 )	11.18		—	—

Unvested at September 30, 2024	131,992	$	24.35	12,040	$	31.46	—	$	—

At September 30, 2024, the total unrecognized compensation cost related to unvested stock-based awards under the 2022 Plan was $ 2.4 million with a weighted-average expense recognition period of 1.8 years.

2013 Equity Incentive Plan

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

Award Activity Under 2013 Plan

The Company recorded $ 0.1 million and $ 0.2 million of share-based compensation expense for the three and nine months ended September 30, 2024, respectively, related to stock-based awards under the 2013 Plan . The Company recorded less than $ 0.2 million and $ 0.3 million of share-based compensation expense for the three and nine months ended September 30, 2023, respectively, 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, 2024.


	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, 2023	53,985	$	39.86	—	$	—	—	$	—

Cancelled/Forfeited	( 22,806 )	30.45		—	—		—	—
Vested	( 8,089 )	46.64		—	—		—	—

Unvested at September 30, 2024	23,090	$	46.69	—	$	—	—	$	—

At September 30, 2024, the total unrecognized compensation cost related to unvested stock-based awards under the 2013 Plan was $ 0.1 million with a weighted-average expense recognition period of 0.3 years.

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, 2024.


						Deferred Stock Rights
Outstanding, beginning of period						28,538
Granted						213

Outstanding, end of period						28,751

All deferred stock rights granted during the 2024 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, 2024 and December 31, 2023, the Company had outstanding loan commitments totaling approximately $ 707.5 million and $ 755.4 million, respectively.

Note 11: Fair Value of Financial Instruments

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

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

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

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

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

Available-for-Sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. 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. The Company did not own any securities classified within Level 1 of the hierarchy as of September 30, 2024 or December 31, 2023.

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, 2024 or December 31, 2023.

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).

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).

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, 2024 and December 31, 2023.


			September 30, 2024 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	$	88,316	$	—	$	88,316	$	—
Municipal securities	65,423		—		65,423		—
Agency mortgage-backed securities - residential	265,853		—		265,853		—
Agency mortgage-backed securities - commercial	64,934		—		64,934		—
Private label mortgage-backed securities - residential	34,536		—		34,536		—
Asset-backed securities	18,341		—		18,341		—
Corporate securities	37,854		—		37,854		—

Total available-for-sale securities	$	575,257	$	—	$	575,257	$	—

Servicing asset	14,662		—		—		14,662

Interest rate swap agreements	2,079		—		2,079		—
Interest rate swap agreements - assets (back-to-back)	700		—		700		—
Interest rate swap agreements - liabilities (back-to-back)	( 700 )		—		( 700 )		—


			December 31, 2023 Fair Value Measurements Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government-sponsored agencies	$	95,177	$	—	$	95,177	$	—
Municipal securities	68,446		—		68,446		—
Agency mortgage-backed securities - residential	206,649		—		206,649		—
Agency mortgage-backed securities - commercial	38,885		—		38,885		—
Private label mortgage-backed securities - residential	20,779		—		20,779		—
Asset-backed securities	8,081		—		8,081		—
Corporate securities	36,838		—		36,838		—

Total available-for-sale securities	$	474,855	$	—	$	474,855	$	—

Servicing asset	10,567		—		—		10,567

Interest rate swap agreements	5,139		—		5,139		—
Interest rate swap agreements - assets (back-to-back)	677		—		677		—
Interest rate swap agreements - liabilities (back-to-back)	( 677 )		—		( 677 )		—

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, 2024 and 2023.


	Three Months Ended
(in thousands)	Servicing Asset		Interest Rate Lock Commitments
Balance as of July 1, 2024	$	13,009	$	—
Total realized gains
Additions:
Originated	2,499		—
Subtractions:
Paydowns	( 689 )		—
Change in fair value	( 157 )		—

Balance, September 30, 2024	$	14,662	$	—

Balance as of July 1, 2023	$	8,251	$	—
Total realized gains
Additions:
Originated	1,585		—
Subtractions:
Paydowns	( 408 )		—
Change in fair value	151		—
Balance, September 30, 2023	$	9,579	$	—


	Nine Months Ended
(in thousands)	Servicing Asset		Interest Rate Lock Commitments
Balance, January 1, 2024	$	10,567	$	—
Total realized gains
Additions:
Originated	6,204		—
Subtractions:			—
Paydowns	( 2,097 )		—
Change in fair value	( 12 )		—

Balance, September 30, 2024	$	14,662	$	—

Balance, January 1, 2023	$	6,255	$	133
Total realized gains
Additions:
Originated	3,994		—
Subtractions:
Paydowns	( 1,275 )		—
Change in fair value	605		( 133 )
Balance, September 30, 2023	$	9,579	$	—

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.

Individually Analyzed 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 individually analyzed 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 individually analyzed loan is not collateral dependent, the Company utilizes a discounted cash flow analysis to measure impairment.

Individually analyzed 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, 2024 and December 31, 2023.


			September 30, 2024
(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	$	7,221	$	—	$	—	$	7,221


			December 31, 2023
(in thousands)			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Collateral dependent loans	$	2,799	$	—	$	—	$	2,799

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, 2024

Valuation
Technique

Significant Unobservable
Inputs

Range

Weighted-Average Range

Collateral dependent loans

7,221

Fair value of collateral

Discount for type of property and current market conditions

0 %- 90 %

21 %

Servicing asset

14,662

Discounted cash flow

Prepayment speeds

Discount rate

0 % - 25 %

14 %

11.6 %

14 %

(dollars in thousands)

Fair Value at
December 31, 2023

Valuation
Technique

Significant Unobservable
Inputs

Range

Weighted-Average Range

Collateral dependent loans

2,799

Fair value of collateral

Discount for type of property and current market conditions

0 % - 90 %

28 %

Servicing asset

10,567

Discounted cash flow

Prepayment speeds

Discount rate

0 % - 25 %

15 %

11.3 %

15 %

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.

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

The fair value of these loans approximates carrying value.

Loans

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

Accrued Interest Receivable

The fair value of these financial instruments approximates carrying value.

Federal Home Loan Bank of Indianapolis Stock

The fair value of this financial instrument approximates carrying value.

Deposits

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

Advances from Federal Home Loan Bank

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

Subordinated Debt

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

Accrued Interest Payable

The fair value of these financial instruments approximates carrying value.

Commitments

The fair value of commitments to extend credit are based on fees currently charged to enter into similar agreements with similar maturities and interest rates. The Company determined that the fair value of commitments was zero based on the contractual value of outstanding commitments at each of September 30, 2024 and December 31, 2023.

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, 2024 and December 31, 2023.


	September 30, 2024 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	$	712,479	$	712,479	$	712,479	$	—	$	—

Securities held-to-maturity, net	263,320		249,618		—		249,618		—
Loans held-for-sale (best efforts pricing agreements)	32,996		32,996		—		32,996		—
Net loans	3,990,159		3,854,166		—		—		3,854,166
Accrued interest receivable	27,750		27,750		27,750		—		—
Federal Home Loan Bank of Indianapolis stock	28,350		28,350		—		28,350		—
Deposits	4,797,710		4,818,679		1,902,494		—		2,916,185
Advances from Federal Home Loan Bank	515,000		516,348		—		516,348		—
Subordinated debt	105,071		107,767		37,725		70,042		—
Accrued interest payable	2,808		2,808		2,808		—		—


	December 31, 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	$	405,898	$	405,898	$	405,898	$	—	$	—

Securities held-to-maturity	227,153		207,572		—		207,572		—
Loans held-for-sale (best efforts pricing agreements)	22,052		22,052		—		22,052		—
Net loans	3,801,446		3,611,909		—		—		3,611,909
Accrued interest receivable	26,746		26,746		26,746		—		—
Federal Home Loan Bank of Indianapolis stock	28,350		28,350		—		28,350		—
Deposits	4,066,973		4,059,447		1,796,123		—		2,263,324
Advances from Federal Home Loan Bank	614,934		605,366		—		605,366		—
Subordinated debt	104,838		102,632		32,560		70,072		—
Accrued interest payable	3,848		3,848		3,848		—		—

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 both the three and nine months ended September 30, 2024, the Company had no mortgage loans held-for-sale or sold mortgage loans into the secondary market. During the three months ended September 30, 2023, the Company had no mortgage loans held-for-sale and sold mortgage loans into the secondary market. During the nine months ended September 30, 2023, the Company originated $ 36.3 million of mortgage loans held-for-sale and sold $ 46.5 million of mortgage loans, respectively, into the secondary market. During the first quarter 2023, the Company made the decision to exit the residential mortgage business.

The following table presents the components of income from mortgage banking activities for the three and nine months ended September 30, 2024 and 2023.


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2024		2023		2024		2023
Gain on loans sold	$	—	$	—	$	—	$	471
Loss resulting from the change in fair value of loans held-for-sale	—		—		—		( 143 )
Loss resulting from the change in fair value of derivatives	—		—		—		( 252 )
Net revenue from mortgage banking activities	$	—	$	—	$	—	$	76

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

Note 13: Derivative Financial Instruments

The Company uses derivative financial instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income and the fair value of assets and liabilities. The Company enters into interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. Additionally, the Company 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 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, 2024 and December 31, 2023.


(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, 2024		December 31, 2023		September 30, 2024		December 31, 2023

Securities available-for-sale 1	$	67,410	$	69,504	$	( 112 )	$	( 1,143 )

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, 2024 and December 31, 2023.

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, 2024 and December 31, 2023, identified by the underlying interest rate-sensitive instruments.


(dollars in thousands) September 30, 2024	Notional Value		Weighted- Average Remaining Maturity (years)			Weighted-Average Ratio
Instruments Associated With				Fair Value		Receive	Pay

Securities available-for-sale	$	50,000	0.1	$	123	3-month SOFR	2.33	%
Total swap portfolio at September 30, 2024	$	50,000	0.1	$	123	3-month SOFR	2.33	%


(dollars in thousands) December 31, 2023	Notional Value		Weighted- Average Remaining Maturity (years)			Weighted-Average Ratio
Instruments Associated With				Fair Value		Receive	Pay

Securities available-for-sale	$	50,000	0.8	$	1,153	3-month SOFR	2.33	%
Total swap portfolio at December 31, 2023	$	50,000	0.8	$	1,153	3-month SOFR	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. The Company had amortization expense totaling less than $ 0.1 million for both the three and nine months ended September 30, 2024 and 2023, which 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 9.8 years as of September 30, 2024. The Company had amortization expense totaling $ 1.6 million and $ 3.7 million for the three and nine months ended September 30, 2024, respectively, and $ 1.5 million and $ 3.5 million for the three and nine months ended September 30 2023, 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, 2024 and December 31, 2023.


(dollars in thousands) September 30, 2024	Notional Value		Weighted- Average Remaining Maturity (years)			Weighted-Average Ratio
Cash Flow Hedges				Fair Value		Receive	Pay
Interest rate swaps	$	110,000	2.3	$	1,956	3-month SOFR	2.88	%


(dollars in thousands) December 31, 2023	Notional Value		Weighted- Average Remaining Maturity (years)			Weighted-Average Ratio
Cash Flow Hedges				Fair Value		Receive	Pay
Interest rate swaps	$	110,000	3.1	$	3,596	3-month SOFR	2.88	%

Interest rate swaps	40,000		0.4	390		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 $ 1.6 million and $ 5.2 million of cash collateral from counterparties as security for their obligations related to these swap transactions at September 30, 2024 and December 31, 2023. The Company had no pledged cash collateral as of September 30, 2024 and December 31, 2023 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 utilized by the Company at September 30, 2024 and December 31, 2023.


	September 30, 2024				December 31, 2023
(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	$	123	$	50,000	$	1,153
Interest rate swaps associated with liabilities	110,000		1,956		150,000		3,986

Derivatives not designated as hedging instruments
Back-to-back swaps	18,885		700		1,778		677


Total contracts	$	178,885	$	2,779	$	201,778	$	5,816
Liability Derivatives




Derivatives not designated as hedging instruments
Back-to-back swaps	$	18,885	$	( 700 )	$	1,778	$	( 677 )


Total contracts	$	18,885	$	( 700 )	$	1,778	$	( 677 )

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.

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, 2024 and 2023.


	Amount of (Loss) Gain Recognized in Other Comprehensive Income in The Three Months Ended				Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) in The Nine Months Ended
(in thousands)	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023

Interest rate swap agreements	$	( 2,670 )	$	740	$	( 2,030 )	$	664

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, 2024 and 2023.


	Amount of Loss Recognized in the Three Months Ended				Amount of Loss Recognized in the Nine Months Ended
(in thousands)	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023






Liability Derivatives
Derivatives not designated as hedging instruments
IRLCs	$	—	$	—	$	—	$	( 133 )
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, 2024 and 2023.


(in thousands) Line item in the condensed consolidated statements of operations	Three Months Ended				Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
Interest income


Securities - non-taxable	$	421	$	407	$	1,250	$	1,055
Total interest income	421		407		1,250		1,055
Interest expense
Deposits	—		( 372 )		( 424 )		( 1,330 )
Other borrowed funds	( 782 )		( 748 )		( 2,304 )		( 1,865 )
Total interest expense	( 782 )		( 1,120 )		( 2,728 )		( 3,195 )
Net interest income	$	1,203	$	1,527	$	3,978	$	4,250

Note 14: Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, included in shareholders' equity, for the nine months ended September 30, 2024 and 2023, 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
Balance, January 1, 2024	$	( 30,174 )	$	( 2,939 )	$	3,738	$	( 29,375 )
Other comprehensive income (loss) before reclassifications from accumulated other comprehensive loss before tax	7,995		—		( 2,030 )		5,965
Reclassifications from accumulated other comprehensive loss to earnings before tax	—		607		—		607

Other comprehensive gain (loss) before tax	7,995		607		( 2,030 )		6,572
Income tax provision (benefit)	1,841		149		( 467 )		1,523
Other comprehensive gain (loss) - net of tax	6,154		458		( 1,563 )		5,049
Balance, September 30, 2024	$	( 24,020 )	$	( 2,481 )	$	2,175	$	( 24,326 )

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 )

The components of accumulated other comprehensive loss, included in stockholders' equity, for the three months ended September 30, 2024 and 2023, 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, 2024	$	( 32,198 )	$	( 2,620 )	$	4,231	$	( 30,587 )
Other comprehensive income (loss) before reclassifications from accumulated other comprehensive loss before tax	10,620		—		( 2,670 )		7,950
Reclassifications from accumulated other comprehensive loss to earnings before tax	—		185				185

Other comprehensive gain (loss) before tax	10,620		185		( 2,670 )		8,135
Income tax provision (benefit)	2,442		46		( 614 )		1,874
Other comprehensive income (loss) - net of tax	8,178		139		( 2,056 )		6,261
Balance, September 30, 2024	$	( 24,020 )	$	( 2,481 )	$	2,175	$	( 24,326 )

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 )


Details About Accumulated Other Comprehensive Loss Components	Amounts Reclassified from Accumulated Other Comprehensive Loss for the				Amounts Reclassified from Accumulated Other Comprehensive Loss for the				Affected Line Item in the Statements of Operations
	Three Months Ended September 30, 2024		Three Months Ended September 30, 2023		Nine Months Ended September 30, 2024		Nine Months Ended September 30, 2023
Reclassifications from accumulated other comprehensive loss to earnings before tax	$	( 185 )	( 173 )		$	( 607 )	$	( 537 )	Interest income
Total amount reclassified before tax	( 185 )		( 173 )		( 607 )		( 537 )		Income before income taxes
Tax benefit	( 46 )		( 45 )		( 149 )		( 140 )		Income tax provision (benefit)
Total reclassifications from accumulated other comprehensive loss	$	( 139 )	$	( 128 )	$	( 458 )	$	( 397 )	Net income

Note 15: Recent Accounting Pronouncements

ASU 2023-02 - Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (March 2023)

In March 2023, the FASB issued ASU No. 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. This ASU permits companies to account for tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. The Company adopted this guidance on January 1, 2024 and it did not have a material impact on its consolidated financial statements.

ASU 2023-07 - Segment Reporting (Topic 280): Improvements to Reportable Segments (November 2023)

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segments. This ASU enhances financial reporting by requiring disclosure of incremental segment information on an annual and interim basis. The guidance is effective for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements.

ASU 2023-09 - Income Taxes (Topic 740): Improvements to Income Tax Disclosures (December 2023)

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. This ASU enhances the transparency and usefulness of income tax disclosures, which addresses investor requests for more transparency about income tax disclosures related primarily to the rate reconciliation and income taxes paid information. The guidance is effective for annual periods beginning after December 15, 2024 with early adoption permitted. The Company is currently evaluating the impact of this ASU on its 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, 2023 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 bank holding company headquartered in Fishers, Indiana that conducts its primary business activities through its wholly-owned subsidiary, First Internet Bank of Indiana (the “Bank”), 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 or through strategic partnerships 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 corporate credit cards on a regional basis to commercial borrowers primarily in the Midwest and Southwest regions of the United States. We offer construction and investor commercial real estate loans, as well as 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 company that specializes in providing financing to franchisees in various industry segments across the United States. 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 $371.0 million in SBA 7(a) loans during the nine months ended September 30, 2024, and ranked as the 8th largest SBA 7(a) lender for the SBA’s 2024 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 partnerships with financial technology companies and platforms (“fintechs”). With the rapid evolution of technology that enables 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 small business relationships will be significantly enhanced. Furthermore, we believe partnering with select fintechs will allow us to further diversify our revenue sources, acquire deposits and pursue additional asset generation capabilities.

As of September 30, 2024, the Company had consolidated assets of $5.8 billion, consolidated deposits of $4.8 billion and stockholders’ equity of $385.1 million.

Results of Operations

During the third quarter 2024, net income was $7.0 million, or $0.80 diluted earnings per share, compared to net income of $3.4 million, or $0.39 diluted earnings per share, during the third quarter 2023, representing an increase in net income of $3.6 million, or 105.0%, and an increase in diluted earnings per share of $0.41, or 105.1%. During the nine months ended September 30, 2024, net income was $17.9 million, or $2.05 diluted earnings per share, compared to the nine months ended September 30, 2023 net income of $4.3 million, or $0.48 per diluted share, resulting in an increase in net income of $13.7 million, or 319.9%, and an increase in diluted earnings per share of $1.57, or 327.1%.

The $3.6 million increase in net income for the third quarter 2024 compared to the third quarter 2023 was due primarily to a $4.6 million, or 62.4%, increase in noninterest income and a $4.4 million, or 25.2%, increase in net interest income, partially offset by increases of $3.0 million, or 15.4%, in noninterest expense, $1.4 million, or 74.2%, in the provision for credit losses and $0.9 million in income tax expense.

The $13.7 million increase in net income for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was due primarily to a $12.7 million, or 67.7%, increase in noninterest income, an $8.7 million, or 15.8%, increase in net interest income and a $3.2 million, or 24.4%, decrease in provision for credit losses, partially offset by increases of $6.8 million, or 11.4%, in noninterest expense and $4.2 million in income tax expense.

During the third quarter 2024, return on average assets (“ROAA”), return on average shareholders’ equity (“ROAE”), and return on average tangible common equity (“ROATCE”) were 0.50%, 7.32%, and 7.41%, respectively, compared to 0.26%, 3.79%, and 3.84%, respectively, for the third quarter 2023. During the nine months ended September 30, 2024, ROAA, ROAE and ROATCE were 0.45%, 6.42%, and 6.51%, respectively, compared to 0.12%, 1.59%, and 1.61%, respectively, for the nine months ended September 30, 2023.

During the nine months ended September 30, 2024, the Company recognized $0.5 million in IT termination fees and $0.1 million in anniversary expenses. Excluding these items, adjusted net income for the nine months ended September 30, 2024 was $18.4 million and adjusted diluted earnings per share was $2.10. Additionally, for the nine months ended September 30, 2024, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 0.46%, 6.58% and 6.67%, respectively.

Due to the steep decline in consumer mortgage volumes and the negative outlook for consumer mortgage lending, 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 nine months ended September 30, 2023. The Company also recognized $0.1 million of mortgage banking revenue during the nine months ended September 30, 2023.

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. The Company received payment for the remaining balance of the participation loan during the second quarter 2023.

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

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.

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, 2024						June 30, 2024						September 30, 2023
(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	$	4,029,360	$	59,792	5.90	%	$	3,936,723	$	57,094	5.83	%	$	3,701,072	$	48,898	5.24	%
Securities - taxable	713,992		6,953		3.87	%	670,502		6,476		3.88	%	550,208		4,301		3.10	%
Securities - non-taxable	78,417		1,042		5.29	%	74,035		970		5.27	%	72,012		912		5.02	%
Other earning assets	526,384		7,203		5.44	%	469,045		6,421		5.51	%	653,375		8,904		5.41	%
Total interest-earning assets	5,348,153		74,990		5.58	%	5,150,305		70,961		5.54	%	4,976,667		63,015		5.02	%

Allowance for credit losses - loans	(44,572)						(41,362)						(35,601)
Noninterest-earning assets	220,329						223,833						196,408
Total assets	$	5,523,910					$	5,332,776					$	5,137,474

Liabilities
Interest-bearing liabilities
Interest-bearing demand deposits	$	511,446	$	2,880	2.24	%	$	474,124	$	2,567	2.18	%	$	387,517	$	2,131	2.18	%
Savings accounts	22,774		48		0.84	%	22,987		48		0.84	%	26,221		56		0.85	%
Money market accounts	1,224,680		12,980		4.22	%	1,243,011		13,075		4.23	%	1,230,746		12,537		4.04	%
Fintech - brokered deposits	153,012		1,682		4.37	%	119,662		1,299		4.37	%	31,891		348		4.33	%
Certificates and brokered deposits	2,472,166		29,825		4.80	%	2,313,192		27,506		4.78	%	2,235,321		25,267		4.48	%
Total interest-bearing deposits	4,384,078		47,415		4.30	%	4,172,976		44,495		4.29	%	3,911,696		40,339		4.09	%
Other borrowed funds	620,032		5,810		3.73	%	652,176		5,139		3.17	%	719,655		5,298		2.92	%
Total interest-bearing liabilities	5,004,110		53,225		4.23	%	4,825,152		49,634		4.14	%	4,631,351		45,637		3.91	%
Noninterest-bearing deposits	113,009						116,939						127,540
Other noninterest-bearing liabilities	26,730						20,860						21,882
Total liabilities	5,143,849						4,962,951						4,780,773

Shareholders’ equity	380,061						369,825						356,701
Total liabilities and shareholders’ equity	$	5,523,910					$	5,332,776					$	5,137,474

Net interest income			$	21,765					$	21,327					$	17,378

Interest rate spread 1					1.35%						1.40%						1.11	%
Net interest margin 2					1.62%						1.67%						1.39	%
Net interest margin - FTE 3					1.70%						1.76%						1.49	%

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.


	Nine Months Ended
	September 30, 2024						September 30, 2023
(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	$	3,953,170	$	172,321	5.82	%	$	3,647,243	$	139,647	5.12	%
Securities - taxable	670,728		19,123		3.81	%	531,197		11,742		2.96	%
Securities - non-taxable	76,257		2,981		5.22	%	72,829		2,570		4.72	%
Other earning assets	476,697		19,691		5.52	%	499,835		19,211		5.14	%
Total interest-earning assets	5,176,852		214,116		5.52	%	4,751,104		173,170		4.87	%

Allowance for credit losses - loans	(41,526)						(35,784)
Noninterest-earning assets	220,165						190,590
Total assets	$	5,355,491					$	4,905,910

Liabilities
Interest-bearing liabilities
Interest-bearing demand deposits	$	467,054	$	7,538	2.16	%	$	360,573	$	4,540	1.68	%
Savings accounts	22,760		144		0.85	%	31,494		202		0.86	%
Money market accounts	1,228,538		38,727		4.21	%	1,293,728		37,151		3.84	%
Fintech - brokered deposits	119,470		3,912		4.37	%	23,246		716		4.12	%
Certificates and brokered deposits	2,344,272		83,718		4.77	%	1,971,705		59,676		4.05	%
Total interest-bearing deposits	4,182,094		134,039		4.28	%	3,680,746		102,285		3.72	%
Other borrowed funds	662,824		16,251		3.28	%	719,577		15,788		2.93	%
Total interest-bearing liabilities	4,844,918		150,290		4.14	%	4,400,323		118,073		3.59	%
Noninterest-bearing deposits	114,425						126,647
Other noninterest-bearing liabilities	23,037						19,535
Total liabilities	4,982,380						4,546,505

Shareholders’ equity	373,111						359,405
Total liabilities and shareholders’ equity	$	5,355,491					$	4,905,910

Net interest income			$	63,826					$	55,097

Interest rate spread 1					1.38%						1.28%
Net interest margin 2					1.65%						1.55%
Net interest margin - FTE 3					1.74%						1.66%

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).

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, 2024 vs. June 30, 2024 Due to Changes in						Three Months Ended September 30, 2024 vs. September 30, 2023 Due to Changes in						Nine Months Ended September 30, 2024 vs. September 30, 2023 Due to Changes in
(in thousands)	Volume		Rate		Net		Volume		Rate		Net		Volume		Rate		Net
Interest income
Loans, including loans held-for-sale	$	1,786	$	912	$	2,698	$	4,502	$	6,392	$	10,894	$	12,423	$	20,251	$	32,674
Securities – taxable	588		(111)		477		1,446		1,206		2,652		3,526		3,855		7,381
Securities – non-taxable	68		4		72		81		49		130		127		284		411
Other earning assets	1,303		(521)		782		(2,035)		334		(1,701)		(1,278)		1,758		480
Total	3,745		284		4,029		3,994		7,981		11,975		14,798		26,148		40,946

Interest expense
Interest-bearing deposits	2,791		129		2,920		4,965		2,111		7,076		15,084		16,670		31,754
Other borrowed funds	(1,447)		2,118		671		(3,711)		4,223		512		(1,819)		2,282		463
Total	1,344		2,247		3,591		1,254		6,334		7,588		13,265		18,952		32,217

Increase in net interest income	$	2,401	$	(1,963)	$	438	$	2,740	$	1,647	$	4,387	$	1,533	$	7,196	$	8,729

Net interest income for the third quarter 2024 was $21.8 million, an increase of $4.4 million, or 25.2%, compared to $17.4 million for the third quarter 2023. The increase in net interest income was the result of a $12.0 million, or 19.0%, increase in total interest income to $75.0 million for the third quarter 2024 from $63.0 million for the third quarter 2023, partially offset by a $7.6 million, or 16.6%, increase in total interest expense to $53.2 million for the third quarter 2024 from $45.6 million for the third quarter 2023.

Net interest income for the nine months ended September 30, 2024 was $63.8 million, an increase of $8.7 million, or 15.8%, compared to $55.1 million for the nine months ended September 30, 2023. The increase in net interest income was the result of a $40.9 million, or 23.6%, increase in total interest income to $214.1 million for the nine months ended September 30, 2024 from $173.2 million for the nine months ended September 30, 2023. The increase in total interest income was partially offset by a $32.2 million, or 27.3%, increase in total interest expense to $150.3 million for the nine months ended September 30, 2024 from $118.1 million for the nine months ended September 30, 2023.

The increase in total interest income for the third quarter 2024 compared to third quarter 2023 was due primarily to an increase in interest earned on loans, resulting from an increase of 66 bps in the yield earned on loans, including loans held-for-sale, as well as an increase of $328.3 million, or 8.9%, in the average balance of loans, including loans held-for-sale. Additionally, the average balance of securities increased $170.2 million, or 27.4%, and the yield earned on the securities portfolio increased 69 bps for the third quarter 2024 compared to the third quarter 2023. The increase in the yields earned on loans and securities was due to the impact of the continued elevated interest rate environment on existing interest-earning assets. The yield on funded portfolio loan originations was 8.85% for the third quarter 2024, a decrease of 7 bps compared to the third quarter 2023.

The increase in total interest income for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was due primarily to an increase in interest earned on loans resulting from an increase of 70 bps in the yield earned on loans, including loans held-for-sale, as well as an increase of $305.9 million, or 8.4%, in the average balance of loans, including loans held-for-sale. Additionally, the average balance of securities increased $143.0 million, or 23.7%, and the yield earned on the securities portfolio increased 78 bps for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. Furthermore, the yield on other earning assets increased 38 bps, partially offset by a $23.1 million, or 4.6%, decrease in the average balance of other earning assets. The increase in the yield earned on loans, securities and other earning assets was due to the impact of the continued elevated interest rate environment on both existing and newly-originated interest-earning assets. The yield on funded portfolio loan originations was 8.85% for the nine months ended September 30, 2024, an increase of 56 bps compared to the nine months ended September 30, 2023.

The increase in total interest expense for the third quarter 2024 compared to the third quarter 2023 was due primarily to increases of $4.6 million, or 18.0%, in interest expense associated with certificates and brokered deposits, $1.3 million, or 383.3%, in interest expense associated with fintech - brokered deposits and $0.7 million, or 35.1%, in interest expense associated with interest-bearing demand deposits. The increase in interest expense related to certificates and brokered deposits was driven by an increase of 32 bps in the cost of these deposits, as well as an increase of $236.8 million, or 10.6%, 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, partially offset by lower brokered deposit balances as the Company used on-balance sheet liquidity to pay down higher-cost balances throughout 2023 and 2024. The increase in interest expense related to fintech - brokered deposits was driven by an increase of 4 bps in the cost of these deposits, as well as an increase of $121.1 million, or 379.8%, in the average balance of these deposits. The increase in interest expense related to interest-bearing demand deposits was driven by an increase of 6 bps in the cost of these deposits, as well as an increase of $123.9 million, or 32.0%, in the average balance of these deposits. The increase in the cost of funds reflects the impact of the continued elevated interest rate environment throughout 2023 and 2024.

The increase in total interest expense for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was due primarily to increases of $24.0 million, or 40.3%, in interest expense associated with certificates and brokered deposits, $3.2 million, or 446.4%, in interest expense associated with fintech - brokered deposits, $3.0 million, or 66.0%, in interest expense associated with interest-bearing demand deposits, and $1.6 million, or 4.2%, in interest expense associated with money market accounts. The increase in interest expense related to certificates and brokered deposits was driven by an increase of 72 bps in the cost of these deposits, as well as an increase of $372.6 million, or 18.9%, 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 2024, partially offset by lower brokered deposit balances as the Company used on-balance sheet liquidity to pay down higher-cost balances throughout 2023 and 2024. The increase in interest expense related to interest-bearing demand deposits was due primarily to a 48 bp increase in the cost of these deposits, as well as an increase of $106.5 million, or 29.5%, in the average balance of these deposits. The increase in interest expense related to fintech - brokered deposits was driven primarily by an increase of 25 bps in the cost of these deposits, as well as an increase of $96.2 million, or 413.9%, in the average balance of these deposits. The increase in interest expense related to money market accounts was driven primarily by an increase of 37 bps in the cost of these deposits, partially offset by a decrease of $65.2 million, or 5.0%, in the average balance of these deposits. The increase in the cost of funds reflects the impact of the continued elevated interest rate environment throughout 2023 and 2024.

Overall, the cost of total interest-bearing liabilities for the third quarter 2024 increased 32 bps to 4.23% from 3.91% for the third quarter 2023. The cost of total interest-bearing liabilities for the nine months ended September 30, 2024 increased 55 bps to 4.14% from 3.59% for the nine months ended September 30, 2023. The increase in the cost of funds for the three and nine months ended September 30, 2024 reflects the impact of the continued elevated interest rate environment throughout 2023 and 2024.

Net interest margin (“NIM”) was 1.62% for the third quarter 2024 compared to 1.39% for the third quarter 2023, an increase of 23 bps. On a fully-taxable equivalent (“FTE”) basis, NIM was 1.70% for the third quarter 2024 compared to 1.49% for the third quarter 2023, an increase of 21 bps. NIM was 1.65% for the nine months ended September 30, 2024 compared to 1.55% for the nine months ended September 30, 2023, an increase of 10 bps. FTE NIM was 1.74% for the nine months ended September 30, 2024 compared to 1.66% for the nine months ended September 30, 2023, an increase of 8 bps.

The increase in the third quarter 2024 NIM and FTE NIM compared to the third quarter 2023 reflects the increase in earning asset yields noted above outpacing the increase in the cost of interest-bearing liabilities. The increase in NIM and FTE NIM for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 reflects the decelerating pace of increase in the cost of interest-bearing deposits and the Company’s focus on shifting the loan composition towards variable rate and higher-yielding products.

Noninterest Income

The following table presents noninterest income for the last five completed fiscal quarters and the nine months ended September 30, 2024 and 2023.


	Three Months Ended										Nine Months Ended
(in thousands)	September 30, 2024		June 30, 2024		March 31, 2024		December 31, 2023		September 30, 2023		September 30, 2024		September 30, 2023
Service charges and fees	$	245	$	246	$	220	$	216	$	208	$	711	$	635
Loan servicing revenue	1,570		1,470		1,323		1,134		1,064		4,363		2,699
Loan servicing asset revaluation	(846)		(829)		(434)		(793)		(257)		(2,109)		(670)
Mortgage banking activities	—		—		—		—		—		—		76
Gain on sale of loans	9,933		8,292		6,536		6,028		5,569		24,761		14,498


Other	1,127		1,854		702		816		823		3,683		1,486
Total noninterest income	$	12,029	$	11,033	$	8,347	$	7,401	$	7,407	$	31,409	$	18,724

During the third quarter 2024, noninterest income was $12.0 million, representing an increase of $4.6 million, or 62.4%, compared to $7.4 million for the third quarter 2023. The increase in noninterest income was due primarily to increases in gain on sale of loans and other income, partially offset by a decrease in net loan servicing revenue. The increase of $4.4 million, or 78.4%, in gain on sale of loans was due primarily to an increase in U.S. Small Business Administration (“SBA”) 7(a) guaranteed loan sales. The increase of $0.3 million, or 36.9%, in other income was due primarily to distributions from fund investments. The decrease in net loan servicing was due to the fair value adjustment to the loan servicing asset.

During the nine months ended September 30, 2024, noninterest income was $31.4 million, an increase of $12.7 million, or 67.7%, compared to $18.7 million for the nine month ended September 30, 2023. The increase in noninterest income was due primarily to increases in gain on sale of loans, other income and net loan servicing revenue. The increase of $10.3 million, or 70.8%, in gain on sale of loans was due primarily to an increase in SBA 7(a) guaranteed loan sales. The increase of $2.2 million, or 147.8%, in other income was due primarily to distributions from fund investments. The increase in net loan servicing revenue was due to growth in the balance of the Company’s SBA 7 (a) servicing portfolio, partially offset by the fair value adjustment to the loan servicing asset.

Noninterest Expense

The following table presents noninterest expense for the last five completed fiscal quarters and the nine months ended September 30, 2024 and 2023.


	Three Months Ended											Nine Months Ended
(in thousands)	September 30, 2024		June 30, 2024		March 31, 2024		December 31, 2023		September 30, 2023			September 30, 2024		September 30, 2023
Salaries and employee benefits	$	13,456	$	12,462	$	11,796	$	11,055	$	11,767		$	37,714	$	34,267
Marketing, advertising and promotion	548		609		736		518		500			1,893		2,049
Consulting and professional services	902		1,022		853		893		552			2,777		2,189
Data processing	675		606		564		493		701			1,845		1,880
Loan expenses	1,524		1,597		1,445		1,371		1,336			4,566		4,385
Premises and equipment	2,918		3,154		2,826		2,846		2,315			8,898		7,753
Deposit insurance premium	1,219		1,172		1,145		1,334		1,067			3,536		2,546

Other	1,552		1,714		1,658		1,546		1,518			4,924		4,311
Total noninterest expense	$	22,794	$	22,336	$	21,023	$	20,056	$	19,756	19756000	$	66,153	$	59,380

Noninterest expense for the third quarter 2024 was $22.8 million, compared to $19.8 million for the third quarter 2023. The increase of $3.0 million, or 15.4%, was due primarily to increases of $1.7 million in salaries and employee benefits, $0.6 million in premises and equipment, $0.4 million in consulting and professional fees, $0.2 million in loan expenses, and $0.2 million in deposit insurance premium. The increase in salaries and employee benefits was due primarily to higher small business lending incentive compensation, as well as staff additions in small business lending and risk management. The increase in premises and equipment was due primarily to property taxes, as well as software maintenance expense. The increase in consulting and professional fees was due primarily to increased consulting and audit fees. The increase in loan expenses was due primarily to higher third-party loan servicing fees and other miscellaneous lending costs. The increase in deposit insurance premium was due to asset growth and changes in the composition of the loan and deposit portfolios.

Noninterest expense for the nine months ended September 30, 2024 was $66.2 million, compared to $59.4 million for the nine months ended September 30, 2023. The increase of $6.8 million, or 11.4%, was due primarily to increases of $3.4 million in salaries and employee benefits, $1.1 million in premises and equipment, $1.0 million in deposit insurance premium, $0.6 million in other expenses and $0.6 million in consulting and professional fees. In the first quarter 2023, the Company incurred $2.2 million in severance costs as a result of its decision to exit the mortgage business. In the second quarter 2024, the Company incurred $0.1 million in non-recurring anniversary expenses. Excluding these costs, salaries and employee benefits increased $6.4 million, or 20.4%. The increase in salaries and employee benefits was due primarily to higher small business lending incentive compensation and staff additions in small business lending and risk management, as well as higher incentive compensation accruals based on the increase in net income for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase in premises and equipment was due primarily to non-recurring IT termination fees, property taxes and software maintenance expense. The increase in deposit insurance premium was due primarily to year-over-year asset growth and changes in the composition of the loan and deposit portfolios. The increase in other expenses was due primarily to various expenses, none of which were individually significant. The increase in consulting and professional fees was due primarily to increased consulting and audit fees.

The Company recorded an income tax provision of $0.6 million and an effective tax rate of 8.1% for the third quarter 2024, compared to an income tax benefit of $0.3 million for the third quarter 2023. The Company recorded an income tax provision of $1.3 million and an effective tax rate of 6.6% for the nine months ended September 30, 2024, compared to an income tax benefit of $2.9 million for the nine months ended September 30, 2023. The income tax benefits recognized during 2023 reflect the benefit of tax exempt income relative to stated pre-tax income, as well as the impact on pre-tax income from mortgage exit costs and the partial charge-off of a commercial and industrial participation loan during the nine months ended September 30, 2023.

Financial Condition

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


(in thousands)
Balance Sheet Data:	September 30, 2024		June 30, 2024		March 31, 2024		December 31, 2023			September 30, 2023
Total assets	$	5,823,259	$	5,343,302	$	5,340,667	$	5,167,572		$	5,169,023
Loans	4,035,880		3,961,146		3,909,804		3,840,220			3,735,068
Total securities	838,577		758,921		718,169		702,008		—	682,755


Loans held-for-sale	32,996		19,384		22,589		22,052			31,669
Noninterest-bearing deposits	111,591		126,438		130,760		123,464			125,265
Interest-bearing deposits	4,686,119		4,147,484		4,143,008		3,943,509			3,958,280
Total deposits	4,797,710		4,273,922		4,273,768		4,066,973			4,083,545
Advances from Federal Home Loan Bank	515,000		575,000		574,936		614,934			614,933
Total shareholders’ equity	385,129		371,953		366,739		362,795			347,744

Total assets increased $655.7 million, or 12.7%, to $5.8 billion at September 30, 2024 compared to $5.2 billion at December 31, 2023. The increase was due primarily to increases in cash balances, securities and loans.

As of September 30, 2024, total shareholders’ equity was $385.1 million, an increase of $22.3 million, or 6.2%, compared to December 31, 2023. The increase in shareholders’ equity was due primarily to the net income earned during the nine months ended September 30, 2024 and a decrease in accumulated other comprehensive loss, as unrealized losses on securities decreased during 2024. Tangible common equity totaled $380.4 million as of September 30, 2024, representing an

increase of $22.3 million, or 6.2%, compared to December 31, 2023. The ratio of total shareholders’ equity to total assets decreased to 6.61% as of September 30, 2024 from 7.02% as of December 31, 2023, and the ratio of tangible common equity to tangible assets decreased to 6.54% as of September 30, 2024 from 6.94% as of December 31, 2023.

Book value per common share increased 5.9% to $44.43 as of September 30, 2024 from $41.97 as of December 31, 2023. Tangible book value per share increased 5.9% to $43.89 as of September 30, 2024 from $41.43 as of December 31, 2023. The increase in both book value per common share and tangible book value per share was driven primarily by the increases in total shareholders’ equity and tangible common equity. Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Part I, Item 2 of this report, Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information.

Loan Portfolio Analysis

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


(dollars in thousands)	September 30, 2024				June 30, 2024				March 31, 2024				December 31, 2023				September 30, 2023
Commercial loans
Commercial and industrial	$	111,199	2.8	%	$	115,585	2.9	%	$	133,897	3.4	%	$	129,349	3.4	%	$	114,265	3.1	%
Owner-occupied commercial real estate	56,461		1.4	%	58,089		1.5	%	57,787		1.5	%	57,286		1.5	%	58,486		1.6	%
Investor commercial real estate	260,614		6.5	%	188,409		4.8	%	128,276		3.3	%	132,077		3.4	%	129,831		3.5	%
Construction	340,954		8.4	%	328,922		8.3	%	325,597		8.3	%	261,750		6.8	%	252,105		6.7	%
Single tenant lease financing	932,148		23.1	%	927,462		23.4	%	941,597		24.1	%	936,616		24.4	%	933,873		25.0	%
Public finance	462,730		11.5	%	486,200		12.3	%	498,262		12.7	%	521,764		13.6	%	535,960		14.3	%
Healthcare finance	190,287		4.7	%	202,079		5.1	%	213,332		5.5	%	222,793		5.8	%	235,622		6.3	%
Small business lending	298,645		7.4	%	270,129		6.8	%	239,263		6.1	%	218,506		5.7	%	192,996		5.2	%
Franchise finance	550,442		13.6	%	551,133		13.9	%	543,122		13.9	%	525,783		13.7	%	455,094		12.2	%

Total commercial loans	3,203,480		79.4	%	3,128,008		79.0	%	3,081,133		78.8	%	3,005,924		78.3	%	2,908,232		77.9	%
Consumer loans
Residential mortgage	378,701		9.4	%	382,549		9.7	%	390,009		10.0	%	395,648		10.3	%	393,501		10.5	%
Home equity	20,264		0.5	%	21,405		0.5	%	22,753		0.6	%	23,669		0.6	%	23,544		0.6	%
Other consumer	404,388		10.0	%	396,527		10.0	%	380,675		9.7	%	377,614		9.8	%	369,451		9.9	%

Total consumer loans	803,353		19.9	%	800,481		20.2	%	793,437		20.3	%	796,931		20.7	%	786,496		21.0	%
Net deferred loan origination costs, premiums and discounts on purchased loans and other 1	29,047		0.7	%	32,657		0.8	%	35,234		0.9	%	37,365		1.0	%	40,340		1.1	%
Total loans	4,035,880		100.0	%	3,961,146		100.0	%	3,909,804		100.0	%	3,840,220		100.0	%	3,735,068		100.0	%
Allowance for credit losses - loans	(45,721)				(43,405)				(40,891)				(38,774)				(36,452)
Net loans	$	3,990,159			$	3,917,741			$	3,868,913			$	3,801,446			$	3,698,616

1 Includes carrying value adjustments of $24.1 million, $25.6 million, $26.9 million, $27.8 million and $29.0 million related to terminated interest rate swaps associated with public finance loans as of September 30, 2024, June 30, 2024, March 31, 2024, December 31, 2023 and September 30, 2023, respectively.

Total loans were $4.0 billion as of September 30, 2024, an increase of $195.7 million, or 5.1%, compared to December 31, 2023. Total commercial loan balances were $3.2 billion as of September 30, 2024, up $197.6 million, or 6.6%, from December 31, 2023. Total consumer loan balances were $803.4 million as of September 30, 2024, an increase of $6.4 million, or 0.8%, compared to December 31, 2023. Compared to December 31, 2023, in connection with the Company’s focus on variable rate and higher-yielding products, the increase in commercial loan balances was driven by growth in the investor commercial real estate, small business lending, construction, and franchise finance portfolios. These increases were partially offset by decreases in the public finance and single tenant lease financing portfolios, as well as continued runoff in the healthcare finance portfolio. Additionally, commercial and industrial balances declined due primarily to early payoffs. The slight increase in consumer loan balances was due primarily to new origination activity in the other consumer loans portfolios, partially offset by a decrease in the residential mortgage portfolio.

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, 2024			June 30, 2024			March 31, 2024			December 31, 2023			September 30, 2023
Nonaccrual loans
Commercial loans:

Owner-occupied commercial real estate	$	—		$	—		$	—		$	—		$	—



Small business lending 1	11,364			10,246			9,532			6,824			4,443
Franchise finance	6,515			—			295			303			—

Total commercial loans	17,879			10,246			9,827			7,127			4,443
Consumer loans:
Residential mortgage	3,169			2,117			2,309			1,911			1,354

Other consumer	16			54			129			86			88
Total consumer loans	3,185			2,171			2,438			1,997			1,442
Total nonaccrual loans	21,064			12,417			12,265			9,124			5,885

Past Due 90 days and accruing loans
Commercial loans:





Small business lending	61			—			—			—			—
Franchise finance	785			556			230			—			—
Total commercial loans	846			556			230			—			—
Consumer loans:
Residential mortgage	568			—			555			838			—

Other consumer	—			5			—			—			—
Total consumer loans	568			5			555			838			—
Total past due 90 days and accruing loans	1,414			561			785			838			—

Total nonperforming loans	22,478			12,978			13,050			9,962			5,885

Other real estate owned

Residential mortgage	251			—			375			375			106
Total other real estate owned	251			—			375			375			106

Other nonperforming assets	215			77			—			17			78

Total nonperforming assets	$	22,944		$	13,055		$	13,425		$	10,354		$	6,069

Total nonperforming loans to total loans 2	0.56		%	0.33		%	0.33		%	0.26		%	0.16		%
Total nonperforming assets to total assets 2	0.57		%	0.24		%	0.25		%	0.20		%	0.12		%
Allowance for credit losses - loans to total loans	1.13		%	1.10		%	1.05		%	1.01		%	0.98		%
Nonaccrual loans to total loans	0.52		%	0.31		%	0.31		%	0.24		%	0.16		%
Allowance for credit losses - loans to nonaccrual loans 2	217.1		%	349.6		%	333.4		%	425.0		%	619.4		%
Allowance for credit losses - loans to nonperforming loans 2	203.4		%	334.5		%	313.3		%	389.2		%	619.4		%

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

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

Total nonperforming loans increased $12.5 million, or 125.6%, to $22.5 million as of September 30, 2024 compared to $10.0 million as of December 31, 2023 due primarily to an increase in nonperforming loans in franchise finance and small business lending during the year. Total nonperforming assets increased $12.6 million, or 121.6%, to $22.9 million as of

September 30, 2024, compared to $10.4 million as of December 31, 2023, due primarily to the increase in nonperforming loans in franchise finance and small business lending mentioned above. As of September 30, 2024, the Company had one residential mortgage property in OREO with a carrying value of $0.3 million. As of December 31, 2023, the Company had two residential mortgage properties in OREO with a carrying value of $0.4 million

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, 2024 and 2023.


	Three Months Ended															Nine Months Ended
(dollars in thousands)	September 30, 2024			June 30, 2024			March 31, 2024			December 31, 2023			September 30, 2023			September 30, 2024			September 30, 2023
Balance, beginning of period	$	43,405		$	40,891		$	38,774		$	36,452		$	36,058		$	38,774		$	31,737
Adoption of ASU 2016-13 (CECL)	—			—			—			—			—			—			2,962
Balance, beginning of period	43,405			40,891			38,774			36,452			36,058			38,774			34,699
Provision charged to expense	3,858			3,920			2,582			3,478			1,850			10,360			11,976
Losses charged off
Commercial and industrial	—			—			—			—			—			—			6,965

Investor commercial real estate	—			—			—			—			591			—			591

Single tenant lease financing	—			195			—			—			—			195			—

Healthcare finance	—			—			—			580			—			—			25
Small business lending	1,309			573			289			417			751			2,171			2,169
Franchise finance	—			577			—			—			—			577			331

Residential mortgage	17			—			69			84			56			86			56



Other consumer	425			160			175			164			120			760			502

Total losses charged off	1,751			1,505			533			1,245			1,518			3,789			10,639
Recoveries
Commercial and industrial	3			2			2			23			2			7			220






Small business lending	169			65			40			23			14			274			54
Residential mortgage	—			—			1			1			1			1			4
Home equity	3			1			2			1			2			6			5
Other consumer	34			31			23			41			43			88			133
Total recoveries	209			99			68			89			62			376			416
Balance, end of period	$	45,721		$	43,405		$	40,891		$	38,774		$	36,452		$	45,721		$	36,452

Net charge-offs	$	1,542		$	1,406		$	465		$	1,156		$	1,456		$	3,413		$	10,223

Net charge-offs (recoveries) to average loans (annualized)
Commercial and industrial	(0.01		%)	0.00		%	(0.01		%)	(0.02		%)	0.00		%	(0.01		%)	9.26		%

Investor commercial real estate	0.00		%	0.00		%	0.00		%	0.00		%	0.59		%	0.00		%	0.63		%

Single tenant lease financing	0.00		%	0.04		%	0.00		%	0.00		%	0.00		%	0.03		%	0.00		%

Healthcare finance	0.00		%	0.00		%	0.00		%	0.25		%	0.00		%	0.00		%	0.01		%
Small business lending	0.48		%	0.37		%	0.40		%	0.17		%	0.50		%	0.90		%	1.61		%
Franchise finance	0.00		%	0.21		%	0.00		%	0.00		%	0.00		%	0.14		%	0.11		%

Total commercial net charge-offs	0.05		%	0.08		%	0.03		%	0.03		%	0.06		%	0.11		%	0.46		%
Residential mortgage	0.02		%	0.00		%	0.07		%	0.08		%	0.06		%	0.03		%	0.02		%
Home equity	(0.02		%)	(0.01		%)	(0.03		%)	0.00		%	(0.01		%)	(0.04		%)	(0.03		%)
Other consumer	0.46		%	0.20		%	0.21		%	0.22		%	0.18		%	0.29		%	0.25		%

Total consumer net charge-offs	0.07		%	0.03		%	0.11		%	0.03		%	0.02		%	0.13		%	0.07		%
Total net charge-offs to average loans	0.15		%	0.14		%	0.05		%	0.12		%	0.16		%	0.12		%	0.38		%

The allowance for credit losses - loans (“ACL”) was $45.7 million as of September 30, 2024, compared to $38.8 million as of December 31, 2023. The increase in the ACL reflects growth and higher coverage ratios in certain portfolios, as well as additional reserves for nonperforming small business lending and franchise finance loans, partially offset by the impact of economic data on forecasted loss rates and qualitative factors for other portfolios. The ACL as a percentage of total loans was 1.13% at September 30, 2024, compared to 1.01% at December 31, 2023. The ACL as a percentage of nonperforming loans decreased to 203.4% as of September 30, 2024, compared to 389.2% as of December 31, 2023, due primarily to the increase in nonperforming loans in small business lending and franchise finance.

Net charge-offs of $1.5 million were recognized during the third quarter 2024, resulting in net charge-offs to average loans of 0.15%, compared to net charge-offs of $1.5 million, or 0.16% of average loans, for the third quarter 2023.

During the nine months ended September 30, 2024, the Company recorded net charge-offs of $3.4 million, compared to net charge-offs of $10.2 million during the nine months ended September 30, 2023. The decrease in net charge-offs for the nine months ended September 30, 2024 was driven primarily by a $6.9 million partial charge-off of a C&I participation loan that was placed on nonaccrual status and charged off during the first quarter 2023.

The provision for credit losses - loans in the third quarter 2024 was $3.9 million, compared to $1.9 million for the third quarter 2023. The increase in the provision for credit losses - loans for the third quarter 2024 was driven primarily by growth and higher coverage ratios in certain loan portfolios, as well as additional reserves related to small business lending and franchise finance loans, partially offset by the impact of economic data on forecasted loss rates and qualitative factors on other portfolios.

Investment Securities Portfolio

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


(in thousands)
Amortized Cost	September 30, 2024		June 30, 2024		March 31, 2024		December 31, 2023		September 30, 2023
Securities available-for-sale
U.S. Government-sponsored agencies	$	88,990	$	88,694	$	93,323	$	96,404	$	98,594
Municipal securities	67,399		68,057		69,289		69,494		69,031
Agency mortgage-backed securities - residential	290,213		262,758		253,181		237,798		235,468
Agency mortgage-backed securities - commercial	65,772		37,986		39,367		40,215		37,931
Private label mortgage-backed securities - residential	34,971		26,709		23,307		21,742		20,292
Asset-backed securities	18,318		8,383		7,417		8,071		6,713
Corporate securities	40,059		37,070		37,081		39,591		39,603

Total available-for-sale	605,722		529,657		522,965		513,315		507,632
Securities held-to-maturity, net carrying value
Municipal securities	12,856		13,368		13,381		13,889		13,900
Agency mortgage-backed securities - residential	207,878		213,440		178,800		166,750		170,524
Agency mortgage-backed securities - commercial	5,722		5,738		5,752		5,767		5,782
Corporate securities	36,864		37,803		37,805		40,747		41,722
Total held-to-maturity, net carrying value	263,320		270,349		235,738		227,153		231,928
Total securities	$	869,042	$	800,006	$	758,703	$	740,468	$	739,560


(in thousands)
Approximate Fair Value	September 30, 2024		June 30, 2024		March 31, 2024		December 31, 2023		September 30, 2023
Securities available-for-sale
U.S. Government-sponsored agencies	$	88,316	$	87,746	$	92,101	$	95,177	$	97,178
Municipal securities	65,423		64,412		67,415		68,446		62,772
Agency mortgage-backed securities - residential	265,853		230,045		220,484		206,649		193,096
Agency mortgage-backed securities - commercial	64,934		36,891		38,081		38,885		36,163
Private label mortgage-backed securities - residential	34,536		25,631		22,266		20,779		18,576
Asset-backed securities	18,341		8,429		7,459		8,081		6,703
Corporate securities	37,854		35,418		34,625		36,838		36,339

Total available-for-sale	575,257		488,572		482,431		474,855		450,827
Securities held-to-maturity
Municipal securities	12,247		12,326		12,450		13,040		12,449
Agency mortgage-backed securities - residential	197,298		195,337		161,915		152,642		147,412
Agency mortgage-backed securities - commercial	4,898		4,699		4,560		4,521		4,190
Corporate securities	35,175		35,068		35,295		37,369		37,599
Total held-to-maturity	249,618		247,430		214,220		207,572		201,650
Total securities	$	824,875	$	736,002	$	696,651	$	682,427	$	652,477

The approximate fair value of available-for-sale investment securities increased $100.4 million, or 21.1%, to $575.3 million as of September 30, 2024, compared to $474.9 million as of December 31, 2023. The increase was due primarily to increases of $59.2 million in agency mortgage-backed securities - residential, $26.0 million in agency mortgage-backed securities - commercial, $13.8 million in private label mortgage-backed securities - residential and $10.3 million in asset-backed securities, partially offset by a decrease of $6.9 million in U.S. Government-sponsored agencies. This increase was

caused primarily by new purchase activity within certain available-for-sale portfolios, partially offset by net paydown activity. As of September 30, 2024, the Company had securities with a net carrying value of $263.3 million designated as held-to-maturity, compared to $227.2 million as of December 31, 2023. The increase was due primarily to purchases of CRA-eligible agency mortgage-backed securities - residential.

Accrued Income and Other Assets

Accrued income and other assets increased $9.0 million, or 17.6%, to $60.1 million at September 30, 2024, compared to $51.1 million at December 31, 2023. The increase was due primarily to increases of $11.1 million in equity investments and $4.1 million in income tax receivable, partially offset by a decrease of $5.8 million in deferred tax assets.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities increased $3.4 million, or 23.7%, to $17.5 million at September 30, 2024, compared to $14.2 million at December 31, 2023. The increase was due primarily to increases of $1.9 million in accrued salary and benefits, and $1.5 million in other various expenses and liabilities.

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, 2024				June 30, 2024				March 31, 2024				December 31, 2023				September 30, 2023
Noninterest-bearing deposits	$	111,591	2.3	%	$	126,438	3.0	%	$	130,760	3.1	%	$	123,464	3.0	%	$	125,265	3.1	%
Interest-bearing demand deposits	538,484		11.2	%	480,141		11.2	%	423,529		9.9	%	402,976		9.9	%	374,915		9.2	%
Savings accounts	21,712		0.5	%	22,619		0.5	%	23,554		0.6	%	21,364		0.5	%	23,811		0.6	%
Money market accounts	1,230,707		25.7	%	1,222,197		28.6	%	1,251,230		29.2	%	1,248,319		30.8	%	1,222,511		29.9	%
Fintech - brokered deposits	211,814		4.4	%	140,180		3.3	%	107,911		2.5	%	74,401		1.8	%	41,884		1.0	%
Certificates of deposits	2,110,618		44.0	%	1,829,644		42.8	%	1,738,996		40.7	%	1,605,156		39.5	%	1,624,447		39.8	%
Brokered deposits	572,784		11.9	%	452,703		10.6	%	597,788		14.0	%	591,293		14.5	%	670,712		16.4	%
Total deposits	$	4,797,710	100.0	%	$	4,273,922	100.0	%	$	4,273,768	100.0	%	$	4,066,973	100.0	%	$	4,083,545	100.0	%

Total deposits increased $730.7 million, or 18.0%, to $4.8 billion as of September 30, 2024, compared to $4.1 billion as of December 31, 2023. The increase was due primarily to increases of $505.5 million, or 31.5%, in certificates of deposits, $137.4 million, or 184.7%, in fintech - brokered deposits and $135.5 million, or 33.6% in interest-bearing demand deposits, partially offset by decreases of $18.5 million, or 3.1%, in brokered deposits, $17.6 million, or 1.4%, in money market accounts and $11.9 million, or 9.6%, in noninterest-bearing deposits. The increase in certificates of deposits was due primarily to strong consumer and small business demand throughout 2024. The increase in fintech - brokered deposits was driven by higher payments volumes from our fintech partners. The increase in interest-bearing demand deposits was due primarily to growth in fintech partnership deposits. Using liquidity created by the growth in these deposit channels, the Company was able to pay down higher-cost brokered deposits during 2024.

Uninsured deposit balances represented 24% of total deposits at September 30, 2024, down from 25% at December 31, 2023. 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 drops to 19% at both September 30, 2024 and December 31, 2023.

Regulatory Capital Requirements

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

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

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

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

The following tables present actual and required capital ratios as of September 30, 2024 and December 31, 2023 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, 2024 and December 31, 2023, 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 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, 2024:
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	395,462	9.37	%		$	295,473	7.00	%	N/A		N/A
Bank	471,364		11.22	%		294,031		7.00	%	$	273,028	6.50	%
Tier 1 capital to risk-weighted assets
Consolidated	395,462		9.37	%		358,789		8.50	%	N/A		N/A
Bank	471,364		11.22	%		357,037		8.50	%	336,035		8.00	%
Total capital to risk-weighted assets
Consolidated	540,007		12.79	%		443,210		10.50	%	N/A		N/A
Bank	518,387		12.34	%		441,046		10.50	%	420,044		10.00	%
Leverage ratio
Consolidated	395,462		7.13	%		221,873		4.00	%	N/A		N/A
Bank	471,364		8.53	%		221,011		4.00	%	276,264		5.00	%


	Actual				Minimum Capital Required - Basel III			Minimum Required to be Considered Well Capitalized
(dollars in thousands)	Capital Amount		Ratio			Capital Amount		Ratio		Capital Amount		Ratio
As of December 31, 2023:
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	381,001	9.60	%		$	277,914	7.00	%	N/A		N/A
Bank	464,390		11.73	%		277,063		7.00	%	$	257,273	6.50	%
Tier 1 capital to risk-weighted assets
Consolidated	381,001		9.60	%		337,467		8.50	%	N/A		N/A
Bank	464,390		11.73	%		336,434		8.50	%	316,644		8.00	%
Total capital to risk-weighted assets
Consolidated	525,283		13.23	%		416,870		10.50	%	N/A		N/A
Bank	503,834		12.73	%		415,595		10.50	%	395,804		10.00	%
Leverage ratio
Consolidated	381,001		7.33	%		207,929		4.00	%	N/A		N/A
Bank	464,390		8.95	%		207,479		4.00	%	259,349		5.00	%

Shareholders’ Dividends

The Company’s Board of Directors declared a cash dividend of $0.06 per share of common stock payable October 15, 2024 to shareholders of record as of September 30, 2024. 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, 2024, 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.

On December 19, 2022, the Company's Board of Directors approved a new stock repurchase program to replace the prior program. The new program authorized the repurchase of up to $25.0 million of our outstanding common stock from time to time on the open market or in privately negotiated transactions. The stock repurchase authorization is scheduled to expire on December 31, 2024. Under this program, the Company repurchased 559,522 shares of common stock through September 30, 2024, at an average price of $19.06, for a total investment of $10.7 million.

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, 2024, on a consolidated basis, the Company had $1.3 billion in cash and cash equivalents and investment securities available-for-sale and $33.0 million in loans held-for-sale that were generally available for its cash needs. The Company can also generate funds from wholesale funding sources and collateralized borrowings. At September 30, 2024, the Bank had the ability to borrow an additional $1.4 billion from the FHLB, the Federal Reserve and correspondent bank Fed Funds lines of credit, which when combined with cash balances, totaled $2.1 billion and represented 230% 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, 2024, the Company, on an unconsolidated basis, had $9.7 million in cash for debt servicing 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, 2024, approved outstanding loan commitments, including unused lines of credit and standby letters of credit, amounted to $708.3 million. Certificates of deposits and brokered deposits scheduled to mature in one year or less at September 30, 2024 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.

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 provision (benefit), 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.


(dollars in thousands, except share and per share data)	Three Months Ended															Nine Months Ended
	September 30, 2024			June 30, 2024			March 31, 2024			December 31, 2023			September 30, 2023			September 30, 2024			September 30, 2023
Total equity - GAAP	$	385,129		$	371,953		$	366,739		$	362,795		$	347,744		$	385,129		$	347,744
Adjustments:
Goodwill	(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			(4,687)
Tangible common equity	$	380,442		$	367,266		$	362,052		$	358,108		$	343,057		$	380,442		$	343,057

Total assets - GAAP	$	5,823,259		$	5,343,302		$	5,340,667		$	5,167,572		$	5,169,023		$	5,823,259		$	5,169,023
Adjustments:
Goodwill	(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			(4,687)
Tangible assets	$	5,818,572		$	5,338,615		$	5,335,980		$	5,162,885		$	5,164,336		$	5,818,572		$	5,164,336

Common shares outstanding	8,667,894			8,667,894			8,655,854			8,644,451			8,669,673			8,667,894			8,669,673

Book value per common share	$	44.43		$	42.91		$	42.37		$	41.97		$	40.11		$	44.43		$	40.11
Effect of goodwill	(0.54)			(0.54)			(0.54)			(0.54)			(0.54)			(0.54)			(0.54)
Tangible book value per common share	$	43.89		$	42.37		$	41.83		$	41.43		$	39.57		$	43.89		$	39.57

Total shareholders’ equity to assets	6.61		%	6.96		%	6.87		%	7.02		%	6.73		%	6.61		%	6.73		%
Effect of goodwill	(0.07		%)	(0.08		%)	(0.08		%)	(0.08		%)	(0.09		%)	(0.07		%)	(0.09		%)
Tangible common equity to tangible assets	6.54		%	6.88		%	6.79		%	6.94		%	6.64		%	6.54		%	6.64		%

Total average equity - GAAP	$	380,061		$	369,825		$	369,371		$	353,037		$	356,701		$	373,111		$	359,405
Adjustments:
Average goodwill	(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			(4,687)			(4,687)
Average tangible common equity	$	375,374		$	365,138		$	364,684		$	348,350		$	352,014		$	368,424		$	354,718

Return on average shareholders’ equity	7.32		%	6.28		%	5.64		%	4.66		%	3.79		%	6.42		%	1.59		%
Effect of goodwill	0.09		%	0.08		%	0.07		%	0.06		%	0.05		%	0.09		%	0.02		%
Return on average tangible common equity	7.41		%	6.36		%	5.71		%	4.72		%	3.84		%	6.51		%	1.61		%


(dollars in thousands, except share and per share data)	Three Months Ended															Nine Months Ended
	September 30, 2024			June 30, 2024			March 31, 2024			December 31, 2023			September 30, 2023			September 30, 2024			September 30, 2023
Total interest income	$	74,990		$	70,961		$	68,165		$	66,272		$	63,015		$	214,116		$	173,170
Adjustments:
Fully-taxable equivalent adjustments 1	1,133			1,175			1,190			1,238			1,265			3,498			3,995
Total interest income - FTE	$	76,123		$	72,136		$	69,355		$	67,510		$	64,280		$	217,614		$	177,165






Net interest income	$	21,765		$	21,327		$	20,734		$	19,807		$	17,378		$	63,826		$	55,097
Adjustments:
Fully-taxable equivalent adjustments 1	1,133			1,175			1,190			1,238			1,265			3,498			3,995
Net interest income - FTE	$	22,898		$	22,502		$	21,924		$	21,045		$	18,643		$	67,324		$	59,092














Net interest margin	1.62		%	1.67		%	1.66		%	1.58		%	1.39		%	1.65		%	1.55		%
Effect of fully-taxable equivalent adjustments 1	0.08		%	0.09		%	0.09		%	0.10		%	0.10		%	0.09		%	0.11		%
Net interest margin - FTE	1.70		%	1.76		%	1.75		%	1.68		%	1.49		%	1.74		%	1.66		%
1 Assuming a 21% tax rate


(dollars in thousands, except share and per share data)	Three Months Ended										Nine Months Ended
	September 30, 2024		June 30, 2024		March 31, 2024		December 31, 2023		September 30, 2023		September 30, 2024		September 30, 2023
Total revenue- GAAP	$	33,794	$	32,360	$	29,081	$	27,208	$	24,785	$	95,235	$	73,821
Adjustments:
Mortgage-related revenue	—		—		—		—		—		—		(65)



Adjusted total revenue	$	33,794	$	32,360	$	29,081	$	27,208	$	24,785	$	95,235	$	73,756

Noninterest income - GAAP	$	12,029	$	11,033	$	8,347	$	7,401	$	7,407	$	31,409	$	18,724
Adjustments:
Mortgage-related revenue	—		—		—		—		—		—		(65)

Adjusted noninterest income	$	12,029	$	11,033	$	8,347	$	7,401	$	7,407	$	31,409	$	18,659

Noninterest expense - GAAP	$	22,794	$	22,336	$	21,023	$	20,056	$	19,756	$	66,153	$	59,380
Adjustments:
Mortgage-related costs	—		—		—		—		—		—		(3,052)


IT termination fees	—		(452)		—		—		—		(452)		—
Anniversary expenses	—		(120)		—		—		—		(120)		—

Adjusted noninterest expense	$	22,794	$	21,764	$	21,023	$	20,056	$	19,756	$	65,581	$	56,328

Income before income taxes - GAAP	$	7,610	$	5,993	$	5,610	$	3,558	$	3,083	$	19,213	$	1,382
Adjustments: 1
Mortgage-related revenue	—		—		—		—		—		—		(65)
Mortgage-related costs	—		—		—		—		—		—		3,052

Partial charge-off of C&I participation loan	—		—		—		—		—		—		6,914


IT termination fees	—		452		—		—		—		452		—

Anniversary expenses	—		120		—		—		—		120		—

Adjusted income before income taxes	$	7,610	$	6,565	$	5,610	$	3,558	$	3,083	$	19,785	$	11,283

Income tax provision (benefit) - GAAP	$	620	$	218	$	429	$	(585)	$	(326)	$	1,267	$	(2,892)
Adjustments: 1
Mortgage-related revenue	—		—		—		—		—		—		(14)
Mortgage-related costs	—		—		—		—		—		—		641

Partial charge-off of C&I participation loan	—		—		—		—		—		—		1,452


IT termination fees	—		95		—		—		—		95		—

Anniversary expenses	—		25		—		—		—		25		—

Adjusted income tax provision (benefit)	$	620	$	338	$	429	$	(585)	$	(326)	$	1,387	$	(813)

1 Assuming a 21% tax rate


(dollars in thousands, except share and per share data)	Three Months Ended															Nine Months Ended
	September 30, 2024			June 30, 2024			March 31, 2024			December 31, 2023			September 30, 2023			September 30, 2024			September 30, 2023
Net income - GAAP	$	6,990		$	5,775		$	5,181		$	4,143		$	3,409		$	17,946		$	4,274
Adjustments:
Mortgage-related revenue	—			—			—			—			—			—			(51)
Mortgage-related costs	—			—			—			—			—			—			2,411

Partial charge-off of C&I participation loan	—			—			—			—			—			—			5,462


IT termination fees	—			357			—			—			—			357			—

Anniversary expenses	—			95			—			—			—			95			—

Adjusted net income	$	6,990		$	6,227		$	5,181		$	4,143		$	3,409		$	18,398		$	12,096






Diluted average common shares outstanding	8,768,731			8,656,215			8,750,297			8,720,078			8,767,217			8,756,544			8,907,748

Diluted earnings per share - GAAP	$	0.80		$	0.67		$	0.59		$	0.48		$	0.39		$	2.05		$	0.48
Adjustments:
Mortgage-related revenue	—			—			—			—			—			—			(0.01)
Mortgage-related costs	—			—			—			—			—			—			0.27

Effect of partial charge-off of C&I participation loan	—			—			—			—			—			—			0.61


Effect of IT termination fees	—			0.04			—			—			—			0.04			—

Effect of anniversary expenses	—			0.01			—			—			—			0.01			—

Adjusted diluted earnings per share	$	0.80		$	0.72		$	0.59		$	0.48		$	0.39		$	2.10		$	1.35

Return on average assets	0.50		%	0.44		%	0.40		%	0.32		%	0.26		%	0.45		%	0.12		%
Effect of mortgage-related revenue	—			—			—			—			—			—			—
Effect of mortgage-related costs	—			—			—			—			—			—			0.07		%

Effect of partial charge-off of C&I participation loan	—			—			—			—			—			—			0.15		%


Effect of IT termination fees	—			0.03		%	—			—			—			0.01		%	—

Effect of anniversary expenses	—			0.01		%	—			—			—			0.00		%	—

Adjusted return on average assets	0.50		%	0.48		%	0.40		%	0.32		%	0.26		%	0.46		%	0.34		%

Return on average shareholders' equity	7.32		%	6.28		%	5.64		%	4.66		%	3.79		%	6.42		%	1.59		%
Effect of mortgage-related revenue	—			—			—			—			—			—			(0.02		%)
Effect of mortgage-related costs	—			—			—			—			—			—			0.90		%

Effect of partial charge-off of C&I participation loan	—			—			—			—			—			—			2.03		%


Effect of IT termination fees	—			0.39		%	—			—			—			0.13		%	—

Effect of anniversary expenses	—			0.10		%	—			—			—			0.03		%	—

Adjusted return on average shareholders' equity	7.32		%	6.77		%	5.64		%	4.66		%	3.79		%	6.58		%	4.50		%


(dollars in thousands, except share and per share data)	Three Months Ended										Nine Months Ended
	September 30, 2024		June 30, 2024		March 31, 2024		December 31, 2023		September 30, 2023		September 30, 2024		September 30, 2023
Return on average tangible common equity	7.41	%	6.36	%	5.71	%	4.72	%	3.84	%	6.51	%	1.61	%
Effect of mortgage-related revenue	—		—		—		—		—		—		(0.02	%)
Effect of mortgage-related costs	—		—		—		—		—		—		0.91	%

Effect of partial charge-off of C&I participation loan	—		—		—		—		—		—		2.06	%

Effect of IT termination fees	—		0.39	%	—		—		—		0.13	%	—

Effect of anniversary expenses	—		0.10	%	—		—		—		0.03	%	—

Adjusted return on average tangible common equity	7.41	%	6.85	%	5.71	%	4.72	%	3.84	%	6.67	%	4.56	%

Critical Accounting Policies and Estimates

There have been no material changes in the Company’s critical accounting policies or estimates from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2023.

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. The Company had interest rate swaps with notional amounts of $160.0 million at September 30, 2024, and $200.0 million at December 31, 2023. Refer to Note 13 to the condensed consolidated financial statements for additional information about derivative financial instruments.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, foreign exchange rates and equity prices. The primary source of market risk for the Company is interest rate risk, which can be defined as the risk to earnings and the value of 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 in the base case scenario which reflects market expectations for rate changes over the next 24 months. Presented below is the estimated impact on our NII and EVE position as of September 30, 2024, assuming a static balance sheet and instantaneous parallel shifts in interest rates. As of September 30, 2024, we estimate the effects of holding higher cash balances on a static balance sheet had a moderately negative impact on NII volatility in the -100 bps and -200 bps rate scenarios, compared to prior quarters. The Company plans to deploy this excess liquidity over the next several quarters to pay down higher cost deposits and fund loan growth, which is expected to benefit NII in future simulations.


	% 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	3.72	%	2.81	%	N/A		(1.80	%)	(3.61	%)
NII - Year 2	29.31	%	28.09	%	24.50	%	21.05	%	17.42	%
EVE	15.92	%	10.89	%	N/A		(7.34	%)	(15.54	%)

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, 2024, 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	1.68	%	1.31	%	N/A		(0.87	%)	(1.86	%)
NII - Year 2	30.80	%	28.61	%	24.50	%	21.00	%	17.03	%
EVE	14.38	%	10.01	%	N/A		(6.56	%)	(14.83	%)

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:

• Deploying excess liquidity to pay down higher-cost deposits and other wholesale borrowings, as well as to fund loan growth

• 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, 2024.

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, 2024 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2023.

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, 2024. Under this program, the Company has repurchased 559,522 shares of common stock through September 30, 2024, at an average price of $19.06, for a total investment of $10.7 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 2024.


(dollars in thousands, except per share data)	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, 2024 - July 31, 2024	—	$	—	—	$	14,334
August 1, 2024 - August 31, 2024	—	$	—	—	$	14,334
September 1, 2024 - September 30, 2024	—	$	—	—	$	14,334
Total	—			—

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

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

11/7/2024	By	/s/ David B. Becker
		David B. Becker, Chairman and Chief Executive Officer (on behalf of Registrant)

11/7/2024	By	/s/ Kenneth J. Lovik
		Kenneth J. Lovik, Executive Vice President and Chief Financial Officer (principal financial officer)

TABLE OF CONTENTS

Part I Item 1. Financial Statements Note 1: Basis Of Presentation Note 2: Earnings Per Share Note 3: Securities Note 4: Loans Note 5: Premises and Equipment Note 6: Goodwill Note 7: Servicing Asset Note 8: Subordinated Debt Note 9: Benefit Plans Note 10: Commitments and Credit Risk Note 11: Fair Value Of Financial Instruments Note 12: Mortgage Banking Activities Note 13: Derivative Financial Instruments Note 14: Accumulated Other Comprehensive Loss Note 15: Recent Accounting Pronouncements Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

Exhibits

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

INBK 10-Q Quarter ended Sept. 30, 2024

Exhibits