IMAGINE
MORE®
2022 AT A GLANCE
NET INCOME
($ in thousands)
$48,114
$50,000
$35,541
$40,000
$25,239
$21,900
$29,453
2018
2019
2020
2021
2022
$30,000
$20,000
$10,000
$0
$4.5BTOTAL ASSETS$3.4BTOTAL DEPOSITS 2.540.17293%%$3.5BTOTAL LOANS21%FROM 2021UPFTE NIMNONPERFORMING ASSETS / TOTAL ASSETSBPS FROM 2021BPS FROM 2021UPUPDOWN WHERE IMAGINATION LEADS
Since our founding in 1999, when we became the first state
chartered, FDIC-insured bank to operate entirely online, we have
consistently delivered on our promise to IMAGINE MORE.
BALANCE SHEET
($ in millions)
Total Assets
Total Loans
$4,100
$4,246
$4,211
$3,542
$4,543
$3,499
$2,716
$2,964
$3,059
$2,888
REVENUE
($ in thousands)
Total Annual Revenue
Noninterest Income
Net Interest Income
$100,877
$36,336
$71,027
$8,760
$62,267
$79,756
$16,789
$62,967
$64,541
$119,400
$118,350
$32,844
$21,257
$86,556
$97,093
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
BOOK VALUE PER SHARE
Book Value Per Share
Tangible Book Value Per Share
$40.26
$39.74
$38.99
$38.51
DILUTED EPS
$4.82
$3.70
$33.77 $33.29
$31.30 $30.82
$28.39
$27.93
$2.99
$2.51
$2.30
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
1
2022 ANNUAL REPORT
Together, we
advance a better
banking experience
for our customers
and uncover new
growth opportunities
every day.
David B. Becker
Chairman and
Chief Executive Officer
DEAR SHAREHOLDER,
It has been said that without leaps of imagination, we lose the excitement
of possibilities. And, in what seems to be a challenging market, we do not
see obstacles, but rather real possibilities. Nearly 25 years ago, we
opened our virtual doors with a singular purpose: that consumers and
business owners could be empowered to connect directly with their
finances online and at their convenience. That notion – fueled by our
entrepreneurial spirit – continues to drive us today, informing the
strategic decisions we make and creating avenues for our customers
and our team to IMAGINE MORE.
This mindset allows us to prosper through
externally driven, short-term adversity while
delivering long-term shareholder value. Coupling
that with our stringent underwriting and credit
standards, and excellent asset quality and
strong capital levels, we are well positioned to
weather any potential economic slowdown.
We continue to focus on what we can control
while leveraging our unique strengths –
technology, creativity and adaptability –
to drive innovative products and solutions for
our customers. 2022 was, after all, not without
its high points.
Our lending teams generated strong production,
as portfolio balances totaled $3.5 billion at year
end, representing an annual increase of 21 percent.
Net interest income was up 12.2 percent for the
year as we deployed cash balances to fund
loan growth, driving average loan balances
higher along with higher loan yields from a rise
2
FIRST INTERNETBANCORP in interest rates. Our SBA lending team has
become one of the fastest growing in the
country; recently placing in the Top 15 for
Small Business Administration 7(a) lenders.
While we achieved exceptional results in loan
growth, we did so while maintaining our
commitment to credit quality. In fact, our asset
quality improved on a year-over-year basis,
with nonperforming assets representing just 17
basis points of total assets at year-end and just
22 basis points of total loans – both well below
industry averages.
In our ongoing effort to broaden noninterest
revenue streams, we made significant strides
in our Banking as a Service (BaaS) offering
last year. We went live with a platform partner,
Increase, and launched our first program
through that partnership with Ramp, a corporate
card and spend management provider. We
have several other fintechs near pilot phase
and continue to consider new opportunities
with Increase. We also anticipate the launch of
a fintech through our partnership with Treasury
Prime, expected to be onboarded during the
second quarter of this year. Our firm commitment
to BaaS initiatives further demonstrates our
support for entrepreneurial ventures. More
importantly, these efforts position us to deliver
innovative financial solutions, while also providing
recurring noninterest revenues to our shareholders.
The past year also saw the introduction of Do
More Business™ Checking – an account designed
to help small business owners accomplish more
in less time. Do More enables business owners to
earn interest and make unlimited transactions,
including bill pay, and provides access to a
dedicated customer success team. In addition,
they can now link multiple financial accounts
including their business and personal checking
or savings, credit cards, loans and investments.
This provides greater day-to-day monetary
control, with insight into spending trends by
category, simplified budgeting and seamless
transfer of funds between accounts. We
continue to explore advanced financial
applications that can simplify owners’
daily operations and fuel growth.
Despite these advancements, sometimes to
move forward, you must also make difficult
decisions. In reviewing mortgage industry
forecasts, it became apparent that the segment
outlook was unfavorable for the coming years.
As a result, we made the necessary determination
to exit the consumer mortgage business.
We are providing former team members with
tools and resources to help transition to new
opportunities and appreciate their contributions
to the Bank. While decisions like this are never
easy, it removes an element of volatility from
our earnings and will ultimately result in a
stronger, more efficient company.
Entrepreneurship runs deep at First Internet
Bank, and our team members help cultivate
and nurture the roots that sustain it. It’s why we
have been named one of the “Best Banks to
Work For” by American Banker for ten
consecutive years. That mindset is what keeps
us moving forward – ever-adapting, ever-
evolving, ever-growing. I appreciate each
member of our team for helping establish what
I believe is an unparalleled work environment.
Together, we advance a better banking
experience for our customers and uncover new
growth opportunities every day. On behalf of
our organization, I would like to thank our
shareholders for the ongoing support they
provide as we continue to IMAGINE MORE.
DAVID B. BECKER
Chairman and
Chief Executive Officer
ANNUAL REPORT 3
2022
DIGITAL PRESENCE - NATIONAL IMPACT
Here’s a small sampling of our national imprint:
First Internet Bank’s boundless approach to financial services, unfettered by the
restrictive geographic limits of brick-and-mortar banks, affords our customers
tailored financial solutions to meet their needs – regardless of where they operate.
Every day, we help further entrepreneurial ventures, spanning a wide range of industries,
with impactful financing that helps spur economic growth across the country.
SMALL BUSINESS
LENDING
SINGLE TENANT
FINANCING
COMMERCIAL
REAL ESTATE
COMMERCIAL
& INDUSTRIAL
SMALL BUSINESS LENDING
Indiana - $4.6MM
SBA 7(a) for electrical
contracting firm
Michigan - $4.0MM
SBA 7(a) for a banquet
center
Wisconsin - $2.5MM
SBA 7(a) for fabrication
manufacturer
Kansas - $2.5MM
SBA 7(a) loan to complete
acquisition
California - $2.4MM
SBA 7(a) commercial
plumbing company
Iowa - $2.3MM
SBA 7(a) loan for
acquisition of recreation
and spa company
New York - $1.6MM
SBA 7(a) for marketing firm
Florida - $1.4MM
SBA 7(a) loan for auto
repair facility
Mississippi - $1.0MM
SBA 7(a) loan for insurance
company acquisition
Texas - $753K
SBA 7(a) loan for
restaurant acquisition
SINGLE TENANT FINANCING
Ohio - $11.8MM
Quick serve restaurant
Ohio/Pennsylvania - $4.4MM
Retail portfolio
Kansas/Nebraska - $4.3MM
Quick serve restaurant
portfolio
Arkansas - $4.0MM
National drug store
Tennessee - $3.9MM
Car wash
Georgia - $3.2MM
Convenience store
Colorado - $3.0MM
Gas station
Florida - $2.6MM
Auto repair facility
Iowa - $2.2MM
National drug store
COMMERCIAL REAL ESTATE
Indiana - $59.0MM
Construction loan for
a mixed use project
Kentucky - $18.4MM
Construction loan for
a hospitality project
4
Oregon - $2.2MM
Auto repair facility
Arizona - $1.8MM
Casual dining restaurant
Arizona - $1.6MM
Fast casual restaurant
Oklahoma - $1.4MM
Fast casual restaurant
Virginia - $1.2MM
Convenience store
California - $1.1MM
Quick serve restaurant
Texas - $1.1MM
Dollar store
New York - $770K
Auto repair facility
COMMERCIAL & INDUSTRIAL
Ohio - $15.0MM
Loan to HVACR company
to finance acquisition
Arizona - $1.0MM
Line of credit for an
anesthesia practice to
expand a growing business
FIRST INTERNETBANCORP UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Ended December 31, 2022.
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Transition Period From ________ to ________.
☑
☐
Commission File Number 001-35750
First Internet Bancorp
(Exact Name of Registrant as Specified in its Charter)
Indiana
(State or other jurisdiction of
incorporation or organization)
8701 E. 116th Street
Fishers, Indiana
(Address of principal executive offices)
20-3489991
(I.R.S. Employer
Identification No.)
46038
(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
Common stock, without par value
6.0% Fixed to Floating Subordinated Notes due 2029
Trading Symbols
INBK
INBKZ
Name of exchange on which registered
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨ No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 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 (§232.405 of this chapter) 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 ¨
Non-accelerated filer ¨
Emerging growth company ☐
Accelerated Filer þ
Smaller reporting 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 has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-
based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1 (b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No þ
The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2022, the last business day
of the registrant’s most recently completed second fiscal quarter, was approximately $284.3 million, based on the closing sale
price for the registrant’s common stock on that date. For purposes of determining this number, all officers and directors of the
registrant are considered to be affiliates of the registrant. This number is provided only for the purpose of this report and does
not represent an admission by either the registrant or any such person as to the status of such person.
As of March 10, 2023, the registrant had 8,949,423 shares of common stock issued and outstanding.
Documents Incorporated By Reference
Portions of our definitive proxy statement for our 2023 annual meeting of shareholders are incorporated by reference into Part
III of this Annual Report on Form 10-K where indicated.
First Internet Bancorp
Table of Contents
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Reserved
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART
IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
SIGNATURES
PAGE
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Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K 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, prospective business partnerships, objectives, future performance and business of the
Company. Forward-looking statements are generally preceded by terms such as “anticipate,” “attempt,” “believe,” “can,”
“continue,” “could,” “effort,” “estimate,” “expect,” “intend,” “likely,” “may,” “objective,” “optimistic,” “pending,” “plan,”
“position,” “potential,” “preliminary,” “remain,” “should,” “will,” “would” or other similar expressions. Such statements are
subject to certain risks and uncertainties including: our business and operations and the business and operations of our vendors
and customers; general economic conditions, whether national or regional, and conditions in the lending markets in which we
participate that may have an adverse effect on the demand for our loans and other products; our credit quality and related levels
of nonperforming assets and loan losses, and the value and salability of the real estate that 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 First Internet Bank of Indiana (the “Bank”); results of examinations of us by our regulators, including the possibility that
our regulators may, among other things, require us to increase our allowance for loan losses or to write-down assets; changing
bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, that could lead to
restrictions on activities of banks generally, or the Bank in particular; more restrictive regulatory capital requirements; increased
costs, including deposit insurance premiums; regulation or prohibition of certain income producing activities or changes in the
secondary market for loans and other products; changes in market rates and prices that may adversely impact the value of
securities, loans, deposits and other financial instruments and the interest rate sensitivity of our balance sheet; our liquidity
requirements being adversely affected by changes in our assets and liabilities; the effect of legislative or regulatory
developments, including changes in laws concerning taxes, banking, securities, insurance and other aspects of the financial
services industry; competitive factors among financial services organizations, including product and pricing pressures and our
ability to attract, develop and retain qualified banking professionals; 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 under the heading “Risk Factors” in this Annual Report on Form 10-K. We caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date made. The factors listed above could affect
our financial performance and could cause our actual results for future periods to differ materially from any opinions or
statements expressed with respect to future periods in any current statements.
Except as required by law, we do not undertake, and specifically disclaim any obligation, to publicly release the result
of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events.
i
Item 1.
Business
PART I
When we refer to “First Internet Bancorp,” the “Company,” “we,” “us” and “our” in the remainder of this Annual
Report on Form 10-K, we mean First Internet Bancorp and its consolidated subsidiaries, unless the context indicates otherwise.
References to “First Internet Bank” or the “Bank” refer to First Internet Bank of Indiana, an Indiana chartered bank and wholly-
owned subsidiary of the Company.
Overview
First Internet Bancorp is a financial holding company headquartered in Fishers, Indiana that conducts its primary
business activities through its wholly-owned subsidiary, First Internet Bank of Indiana, an Indiana chartered bank. The Bank
was the first state-chartered, Federal Deposit Insurance Corporation (“FDIC”) insured Internet bank and commenced banking
operations in 1999. First Internet Bancorp was incorporated under the laws of the State of Indiana on September 15, 2005. On
March 21, 2006, we consummated a plan of exchange by which we acquired all of the outstanding shares of the Bank.
The Bank has three wholly-owned subsidiaries: First Internet Public Finance Corp., an Indiana corporation, which
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, which manages other real estate owned properties as needed; and SPF15 Inc., an Indiana
corporation that owns real estate used primarily for the Bank’s principal office.
We offer a wide range of commercial, small business, consumer and municipal banking products and services. We
conduct our consumer and small business deposit operations primarily through digital channels on a nationwide basis and have
no traditional branch offices. Our consumer lending products are primarily originated on a nationwide basis through
relationships with dealerships and financing partners.
Our commercial banking products and services are delivered through a relationship banking model and include
commercial and industrial (“C&I”) banking, construction and investor commercial real estate, single tenant lease financing,
public finance, healthcare finance, small business lending, franchise finance and commercial deposits and treasury
management. 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 primarily offer construction and investor commercial real estate loans within Central Indiana or on a
regional basis and single tenant lease financing on a nationwide basis. Our public finance team provides a range of public and
municipal lending and leasing products to government entities on a nationwide basis. Our healthcare finance team was
established in conjunction with our strategic partnership with Provide, Inc. (formerly known as Lendeavor, Inc.), a San
Francisco-based technology-enabled lender to healthcare practices, which provided lending on a nationwide basis for healthcare
practice finance or acquisition, acquisition or refinancing of owner-occupied commercial real estate and equipment purchases.
In the third quarter 2021, Provide was acquired by a super-regional financial institution. Subsequent to Provide being acquired,
the acquiring institution has retained most, if not all, of Provide’s loan origination activity and our healthcare finance loan
balances have declined. Our franchise finance business was established in July 2021 in conjunction with our business
relationship with ApplePie Capital, a financial technology (“fintech”) company that specializes in providing financing to
franchisees in various industry segments. Our commercial deposits and treasury management team works with the other
commercial teams to provide deposit products and treasury management services to our commercial and municipal lending
customers as well as pursues commercial deposit opportunities in business segments where we have no credit relationships.
We believe that we differentiate ourselves from larger financial institutions by providing a full suite of services to
emerging small businesses and entrepreneurs on a nationwide basis. We are one of the fastest-growing lenders in the Small
Business Administration (“SBA”) 7(a) program, closing more than $155.4 million in SBA 7(a) loans during 2022 and ranking
in the top 30 SBA 7(a) lenders for the SBA’s 2022 fiscal year. We also offer a top-ranked small business checking account
product to our country’s entrepreneurs. We continue to scale up this business with the goal of driving increased earnings and
profitability in future periods.
We also offer payment, deposit, card and lending products and services through fintech partnerships, which we intend
to grow in future periods. With the rapid evolution of technology that enables consumers and small businesses to manage their
finances digitally, fintechs are addressing a significantly growing marketplace. Fintechs have created robust digital offerings,
unburdened by legacy technology architecture, to address growing customer expectations. Through partnerships with selected
1
fintechs, we believe our ability to win and retain consumer and small business relationships will be significantly enhanced.
Furthermore, we believe partnering with select fintechs will allow us to further diversify our revenue sources, acquire lower-
cost deposits and pursue additional asset generation capabilities.
As of December 31, 2022, the Company had consolidated assets of $4.5 billion, consolidated deposits of $3.4 billion
and stockholders’ equity of $365.0 million.
Human Capital
As of December 31, 2022, we employed 319 people, 314 of which were full-time. Our team members have been and
continue to be our most valuable assets, helping to create a strong workplace culture that recognizes the unique contributions
and perspectives each individual brings to the organization.
We encourage our employees to “Imagine More.” We seek the game-changers, innovators and dreamers – those who
are driven to find a better way of doing things for customers and each other. We encourage community involvement and
opportunities that support team members, both inside and outside the office. We may be a digital bank, but we strongly believe
in the power of personal connection and collaboration. Our focus on employees is evident in the number of “best work place”
awards we have been honored with over the years.
We strive to maintain a diverse and inclusive work culture in which individual differences and experiences are valued
and all employees have the opportunity to contribute and thrive. We believe that leveraging our employees’ diverse
perspectives and capabilities will enhance innovation, foster a collaborative work culture and enable us to better serve our
customers and communities. With this vision in mind, the Company’s diversity and inclusion strategy focuses on five
organizational pillars: People, Partners, Philanthropy, Products and Processes. In 2021, we published our first Environmental,
Social and Governance (“ESG”) Report to highlight, among other things, our focus on and efforts to advance Diversity and
Inclusion goals. In 2022, we provided a status update to our ESG Report, highlighting key initiatives and efforts. One such
effort in 2022 was the introduction of mandatory Diversity, Equity & Inclusion (“DEI”) training for executive leadership and all
employees. The phased training program — including topics such as unconscious bias, sexual harassment, regulatory issues and
the benefits of a more diverse workplace — is delivered both in-person and online. Ongoing quarterly sessions and annual
refresher courses will help reinforce the program’s methods and maintain active awareness. A copy of our ESG Report can be
found on our website at www.firstinternetbancorp.com. See “Available Information” section below for more information.
To further foster inclusion as a norm, our organization promotes and supports the development of employee-led
business resource groups, which currently include First Ladies and LIFT (a young professionals group). These groups magnify
traditionally underrepresented voices. We also offer tuition reimbursement, a robust internal training program, and leadership
training and coaching through a third party consultant to help employees advance their careers and perform competently and
confidently. The tuition reimbursement program reimburses approved tuition costs, registration fees for classes, and costs of
books and computer-based resources as required by class. The internal training program focuses on topics such as privacy, fair
banking, skills-training and many industry specific topics and regulations. And the leadership training program features courses
and curriculum designed to grow and support up-and-coming leaders, with support from internal sponsors and an external,
professional coach.
Community service is a foundational tenet. We commit time, talent and financial support to community initiatives that
inspire passion among our team members and support the communities within which we live and work. We allow paid
volunteer time and sponsor community initiatives such as The Indy Pride Rainbow 5k, the Marian University-Indianapolis
Diversity in Leadership Program and Habitat for Humanity. The result is a sense of pride and increased engagement within the
Bank that serves as a catalyst for the greater good.
Competition
The markets in which we compete to make loans, attract deposits and provide fee based financial services are highly
competitive. For consumer banking activities, we compete with other digital banks and fintech companies, in addition to
traditional banks, savings banks, credit unions, investment banks, insurance companies, securities brokerages and other
financial institutions, as nearly all have some form of digital delivery for their consumer banking services.
For our construction, investor CRE, and C&I lending activities, we compete with super-regional, regional and
community banks operating in the Midwest and Southwest regions of the United States. For our single tenant lease financing
activities, we compete nationally with regional banks, community banks and credit unions, as well as life insurance companies
2
and commercial mortgage-backed securities lenders. For our public finance, healthcare finance and franchise finance activities,
we compete nationally with superregional and regional banks. These competitors may have significantly greater financial
resources and higher lending limits than we do and may also offer specialized products and services that we do not. For our
small business lending activities, we compete on a national footprint with other participating SBA-approved lenders, including
a large number of regional and community banks. These competitors have resources and/or lending limits that differ greatly
from one another.
Regulation and Supervision
The U.S. banking industry is highly regulated under federal and state law and this regulatory environment has a
material effect on the operations and financial condition of the Company and its subsidiaries. As a result, the Company’s
growth and earnings performance may be affected not only by management decisions and general economic conditions, but also
by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies,
including the Indiana Department of Financial Institutions (the “DFI”), the Board of Governors of the Federal Reserve System
(the “Federal Reserve”), the FDIC and the Consumer Financial Protection Bureau (“CFPB”). Furthermore, taxation laws
administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the Financial
Accounting Standards Board (the “FASB”), securities laws administered by the SEC and state securities authorities, and anti-
money laundering laws enforced by the U.S. Department of the Treasury (“U.S. Treasury”) also have an impact on the
Company’s business. This regulatory framework is intended for the protection of depositors, borrowers and other customers, as
well as the FDIC deposit insurance funds and the U.S. banking system, rather than the Company’s shareholders or creditors.
Banking statutes and regulations are subject to ongoing review and revision by federal and state legislatures and
regulatory agencies. Notably, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”),
enacted in 2010 in response to the global financial crisis, imposed a number of new and expanded regulatory requirements on
the banking industry, which in some cases have been subsequently modified. Future changes in laws, regulations or regulatory
policies, including changes in the ways laws and regulations are interpreted or enforced, could affect us in significant and
unpredictable ways that may have a material impact on our business.
Federal and state banking laws and regulations affect, among other things, the scope of the Company’s business; the
kinds and amounts of investments the Company and Bank may make; the fees and charges that may be imposed for bank
products and services; required capital levels relative to assets; the nature and amount of collateral for loans; the ability to
merge, consolidate, and acquire; dealings with the Company’s and Bank’s insiders and affiliates; and the Company’s payment
of dividends. The cost of compliance with these legal and regulatory requirements has increased over time and could increase
further in the future in response to changing laws and regulations or regulatory expectations, or as the Company grows and
passes certain asset size thresholds at which additional requirements begin to apply. The Dodd-Frank Act, for example, gives
rise to a number of additional requirements as financial institutions pass $10 billion in assets.
The supervisory framework for U.S. banking organizations subjects banks and their holding companies to regular
examination by their respective regulatory agencies, which results in examination reports and ratings that are in most cases not
publicly available and that can impact the conduct and growth of their business. These examinations consider not only
compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and
performance, earnings, liquidity, and various other factors. Regulatory agencies may impose restrictions and limitations on the
operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound,
fail to comply with applicable law, or are otherwise inconsistent with laws and regulations. These regulatory agencies have
broad enforcement power over regulated entities, including the ability to impose substantial fines and other adverse
consequences for violations of law and regulations.
Following is a summary of the material elements of the supervisory and regulatory framework applicable to the
Company and Bank. It does not describe all of the statutes, regulations, and regulatory policies that apply, and the descriptions
in this summary are qualified in their entirety by reference to the particular statutory and regulatory provisions involved.
Holding Company Regulation
General. The Company is registered as a bank holding company under the Bank Holding Company Act of 1956 (the
“BHCA”) and has elected to be a financial holding company. It is subject to regulation, supervision, examination and
enforcement by the Federal Reserve. Under the BHCA, the Company is required to file with the Federal Reserve periodic
reports of its operations and such additional information regarding the Company and Bank as the Federal Reserve may require.
In addition, the Federal Reserve has the authority to issue orders to bank holding companies to cease and desist from unsafe or
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unsound banking practices and from violations of conditions imposed by, or violations of agreements with, the Federal Reserve.
The Federal Reserve is also empowered, among other things, to assess civil money penalties against companies or individuals
who violate Federal Reserve orders or regulations, to order termination of nonbanking activities of bank holding companies and
to order termination of ownership and control of a nonbanking subsidiary by a bank holding company.
Regulatory
Capital. Regulatory capital represents the net assets of a banking organization available to absorb losses. Banks and
bank holding companies are generally required to hold more capital than other businesses that are not subject to regulation and
supervision by the banking agencies, and this directly affects the Company’s earnings capabilities. While capital has historically
been one of the key measures of the financial health of both bank holding companies and banks, its role became fundamentally
more important in the wake of the global financial crisis, as banking regulators recognized that the amount and quality of capital
held by banks prior to the crisis was insufficient to absorb losses during periods of severe stress. Certain provisions of the
Dodd-Frank Act and Basel III, discussed below, establish capital standards for banks and bank holding companies that are
meaningfully more stringent than those in place previously.
Banks have been required to hold minimum levels of capital based on guidelines established by bank regulatory
agencies since 1983. The minimums have been expressed in terms of ratios of “capital” divided by “total assets.” The capital
guidelines for U.S. banks beginning in 1989 have been based upon international capital accords, known as “Basel” rules,
adopted by the Basel Committee on Banking Supervision (the “BCBS”), a committee of central banks and bank supervisors that
acts as the primary global standard-setter for prudential regulation, as implemented by the U.S. bank regulatory agencies on an
interagency basis. The accords recognized that bank assets for the purpose of the capital ratio calculations needed to be
weighted (the theory being that riskier assets should require more capital) and that off-balance-sheet credit exposures needed to
be factored in the calculations. Following the global financial crisis, the Group of Governors and Heads of Supervision, the
oversight body of the BCBS, announced agreement on a strengthened set of capital requirements for banking organizations
around the world, known as Basel III, to address deficiencies recognized in connection with the global financial crisis.
The Basel III Rule. In July 2013, the U.S. federal banking agencies approved implementation of the Basel III
regulatory capital reforms in pertinent part, and, at the same time, promulgated rules effecting certain changes required by the
Dodd-Frank Act (the “Basel III Rule”). In contrast to capital requirements historically, which were in the form of guidelines,
Basel III was released in the form of binding regulations by each of the regulatory agencies. The Basel III Rule increased the
required quantity and quality of capital and required more detailed categories of risk weighting of riskier, more opaque assets.
For nearly every class of assets, the Basel III Rule requires a more complex, detailed, and calibrated assessment of risk in the
calculation of risk weightings for all banking organizations that are subject to minimum capital requirements, including federal
and state banks and savings and loan associations, as well as to most bank and savings and loan holding companies. The
Company and Bank are each subject to the Basel III Rule as described below.
Not only did the Basel III Rule increase most of the required minimum capital ratios in effect prior to January 1, 2015,
but in requiring that forms of capital be of higher quality to absorb loss, it also introduced the concept of Common Equity Tier 1
Capital, which consists primarily of common stock, related surplus, retained earnings, and Common Equity Tier 1 minority
interests subject to certain regulatory adjustments. The Basel III Rule also changed the definition of capital by establishing more
stringent criteria that instruments must meet to be considered Additional Tier 1 Capital (primarily non-cumulative perpetual
preferred stock that meets certain requirements) and Tier 2 Capital (primarily other types of preferred stock and subordinated
debt, subject to limitations). The Basel III Rule also constrained the inclusion of minority interests, mortgage-servicing assets,
and deferred tax assets in capital and required deductions from Common Equity Tier 1 Capital in the event that such assets
exceeded a percentage of a banking institution’s Common Equity Tier 1 Capital.
The Basel III Rule requires minimum capital ratios for bank holding companies as follows:
•
•
•
•
A ratio of minimum Common Equity Tier 1 Capital equal to 4.5% of risk-weighted assets;
A ratio of minimum Tier 1 Capital equal to 6% of risk-weighted assets;
A continuation of the minimum required amount of Total Capital (Tier 1 plus Tier 2) at 8% of risk-weighted assets;
and
A minimum leverage ratio of Tier 1 Capital to total quarterly average assets equal to 4% in all circumstances.
In addition, institutions that seek the freedom to make capital distributions (including for dividends and repurchases of
stock) and pay discretionary bonuses to executive officers without restriction must also maintain 2.5% in Common Equity Tier
1 Capital attributable to a capital conservation buffer. The purpose of the conservation buffer is to ensure that banking
institutions maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress.
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Factoring in the conservation buffer increases the minimum ratios depicted above to 7.0% for Common Equity Tier 1 Capital,
8.5% for Tier 1 Capital and 10.5% for Total Capital.
Well-Capitalized Requirements. The ratios described above are minimum standards in order for banking organizations
to be considered “adequately capitalized.” Bank regulatory agencies uniformly encourage banks to hold more capital and be
“well capitalized” and, to that end, federal law and regulations provide various incentives for banking organizations to maintain
regulatory capital at levels in excess of minimum regulatory requirements. For example, a banking organization that is “well
capitalized” may: (i) qualify for exemptions from prior notice or application requirements otherwise applicable to certain types
of activities; (ii) qualify for expedited processing of other required notices or applications; and (iii) accept, rollover or renew
brokered deposits. Higher capital levels could also be required if warranted by the particular circumstances or risk profiles of
individual banking organizations. For example, the Federal Reserve’s capital guidelines contemplate that additional capital may
be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit,
nontraditional activities, or securities trading activities. Further, any banking organization experiencing or anticipating
significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 Capital less all
intangible assets), well above the minimum levels.
Under the capital regulations of the FDIC and Federal Reserve, in order to be well capitalized, a banking organization
must maintain:
•
•
•
•
A Common Equity Tier 1 Capital ratio to risk-weighted assets of 6.5% or more;
A ratio of Tier 1 Capital to total risk-weighted assets of 8.0% or more;
A ratio of Total Capital to total risk-weighted assets of 10.0% or more; and
A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5.0% or greater.
It is possible under the Basel III Rule to be well capitalized while remaining out of compliance with the capital
conservation buffer discussed above.
As of December 31, 2022, the Company had regulatory capital in excess of the Federal Reserve’s requirements and
met the requirements to be well capitalized. The Company was also in compliance with the capital conservation buffer. As of
December 31, 2022, the Bank was was well capitalized, as defined by FDIC regulations.
Prompt Corrective Action. The concept of an institution being “well capitalized” is part of a regulatory enforcement
regime that provides the federal banking regulators with broad power to take “prompt corrective action” to resolve the problems
of depository institutions based on the capital level of each particular institution. The extent of the regulators’ powers depends
on whether the institution in question is “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” or
“critically undercapitalized,” in each case as defined by regulation. Depending upon the capital category to which an institution
is assigned, the regulators’ corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii)
limiting the institution’s asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock
(including additional voting stock) or to sell itself; (iv) restricting transactions between the institution and its affiliates; (v)
restricting the interest rate that the institution may pay on deposits; (vi) ordering a new election of directors of the institution;
(vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits
from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or
interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution.
Community Bank Leverage Ratio Framework. In response to industry complaints concerning the regulatory burdens
imposed on community banks by certain aspects of the Basel III Rule, the U.S. Congress, as part of the 2018 Economic Growth,
Regulatory Relief, and Consumer Protection Act, authorized an optional, simplified measure of capital adequacy, the
“Community Bank Leverage Ratio” (“CBLR”) framework, for qualifying community banking organizations like the Company
with less than $10 billion in total consolidated assets. The federal banking agencies jointly adopted a rulemaking effective
January 1, 2020, that implemented this alternative approach to measuring capital. Qualifying institutions must have a leverage
ratio greater than 9%, off-balance sheet exposures of 25% or less of total consolidated assets, and trading assets and liabilities
of 5% or less of total consolidated assets. Banks that opt in to the rule are not required to calculate or report risk-based capital
and are deemed to have met the well-capitalized ratio requirement. In response to the COVID-19 pandemic, the banking
agencies temporarily lowered the qualifying leverage ratio to 8% in the second quarter of 2020, which then rose to 8.5% for
calendar year 2021 and 9% thereafter. The Company has not opted in to the CBLR capital framework.
Activities, Acquisitions, and Changes in Control. The BHCA requires a bank holding company to obtain approval from
the Federal Reserve before (i) acquiring or holding more than a 5% voting interest in any bank or bank holding company, (ii)
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acquiring all or substantially all of the assets of another bank or bank holding company or (iii) merging or consolidating with
another bank holding company. Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured
depository institution or its holding company without prior notice to the appropriate federal bank regulator. “Control” is
conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank
holding company, but may arise under certain circumstances between 10% and 24.99% ownership.
Bank mergers and acquisitions generally will require the approval of the regulatory authorities of each banking
organization. In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among
other factors, the effect of the acquisition on competition, public benefits expected to be generated by the acquisition, post-
acquisition capital levels, and performance under the Community Reinvestment Act of 1977, as amended (the “CRA”). The
federal banking regulators are also required to take into account the effectiveness of the Bank Secrecy Act/anti-money
laundering activities of the applicant. Federal regulatory policy relating to the approval of proposed mergers and acquisitions is
currently under review. In July 2021, President Biden issued an Executive Order on Promoting Competition in the American
Economy that, among other initiatives, calls upon the federal banking agencies to review their current merger approval practices
under the BHCA and the Bank Merger Act, and adopt a plan for the revitalization of such practices. In February 2022, Acting
FDIC Chairman Gruenberg announced that the agency’s priorities include a comprehensive review of the process of
considering and evaluating bank mergers, something the FDIC indicated had not been done in 25 years.
Holding Company Dividends. The Company’s ability to pay dividends to shareholders will be impacted both by
general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies. It may also be
impacted by the ability of the Bank to pay dividends to the Company, discussed under “Bank Regulation—Dividends” below.
As an Indiana corporation, the Company is subject to the Indiana Business Corporation Law, as amended, which prohibits the
Company from paying a dividend if, after giving effect to the dividend, the Company would not be able to pay its debts as they
become due in the usual course of business, or if the Company’s total assets would be less than the sum of its total liabilities
plus the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.
The Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer or
significantly reduce dividends to shareholders if: (i) the company’s net income available to shareholders for the past four
quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the prospective
rate of earnings retention is inconsistent with the Company’s capital needs and overall current and prospective financial
condition; or (iii) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
The Federal Reserve possesses enforcement powers to prevent or remedy actions that represent unsafe or unsound practices or
violations of applicable statutes or regulations. Among those powers is the ability to restrict the payment of dividends. In
addition, under the Basel III Rule, 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. See “Regulatory” section above.
Source of Strength. Under the Dodd-Frank Act, we are required to serve as a source of financial and managerial
strength for the Bank and to commit resources to support it in circumstances where we might not otherwise do so, in the event
of the financial distress of the Bank. This provision codified the longstanding policy of the Federal Reserve. In addition, any
capital loans by a bank holding company to any of its depository subsidiaries are subordinate to the payment of deposits and to
certain other indebtedness. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding
company to a federal bank regulatory agency to maintain the capital of a depository subsidiary will be assumed by the
bankruptcy trustee and entitled to a priority of payment.
Employee Incentive Compensation. Under regulatory guidance applying to all banking organizations, incentive
compensation policies must be consistent with safety and soundness principles. Under this guidance, banking organizations
must review their compensation programs to ensure that they: (i) provide employees with incentives that appropriately balance
risk and reward and that do not encourage imprudent risk, (ii) are compatible with effective controls and risk management, and
(iii) are supported by strong corporate governance, including active and effective oversight by the banking organization's board
of directors. Monitoring methods and processes used by a banking organization should be commensurate with the size and
complexity of the organization and its use of incentive compensation.
Bank Regulation
General. The Bank is an Indiana-chartered bank formed pursuant to the Indiana Financial Institutions Act (the
“IFIA”). As such, the Bank is regularly examined by and subject to regulations promulgated by the DFI and the FDIC as its
primary federal bank regulator. The Bank is not a member of the Federal Reserve System.
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Business Activities. The Bank derives its lending and investment powers from the IFIA, the Federal Deposit Insurance
Act (the “FDIA”) and related regulations.
Loans-to-One Borrower Limitations. Generally, the Bank’s total loans or extensions of credit to a single borrower,
including the borrower’s related entities, outstanding at one time, and not fully secured, cannot exceed 15% of the Bank’s
unimpaired capital and surplus. If the loans or extensions of credit are fully secured by readily marketable collateral, the Bank
may lend up to an additional 10% of its unimpaired capital and surplus.
Community Reinvestment Act. Under the CRA, as implemented by FDIC regulations, the Bank has a continuing and
affirmative obligation, consistent with safe and sound banking practices, to help meet the credit needs of its entire community,
including low and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for
financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA requires the FDIC, in connection with its
examinations of the Bank, to assess the Bank’s record of meeting the credit needs of its entire community and to take that
record into account in evaluating certain applications for regulatory approvals that we may file with the FDIC.
Due to its online-driven model and nationwide banking platform, the Bank has opted to operate under a CRA Strategic
Plan, which sets forth certain guidelines the Bank must meet. The Bank's current CRA Strategic Plan covers the time period of
January 1, 2021 through December 31, 2023. The Bank received a “Satisfactory” CRA rating in its most recent CRA
examination. Failure of an institution to receive at least a “Satisfactory” rating could inhibit such institution or its holding
company from engaging in certain activities or pursuing acquisitions of other financial institutions.
The federal banking agencies are currently working on a comprehensive review and revision of the rule implementing
the CRA that is intended to strengthen and enhance the CRA.
Transactions with Affiliates. The authority of the Bank, like other FDIC-insured institutions, to engage in transactions
with its “affiliates” is limited by Sections 23A and 23B of the Federal Reserve Act and the Federal Reserve’s Regulation W. An
“affiliate” for this purpose is defined generally as any company that owns or controls the Bank or is under common ownership
or control with the Bank, but excludes a company controlled by a bank. In general, transactions between the Bank and its
affiliates must be on terms that are consistent with safe and sound banking practices and at least as favorable to the Bank as
comparable transactions between the Bank and non-affiliates. In addition, covered transactions with affiliates are restricted
individually to 10% and in the aggregate to 20% of the Bank’s capital. Collateral ranging from 100% to 130% of the loan
amount depending on the quality of the collateral must be provided for an affiliate to secure a loan or other extension of credit
from the Bank. The Company is an “affiliate” of the Bank for purposes of Regulation W and Sections 23A and 23B of the
Federal Reserve Act. We believe the Bank complied with these provisions during 2022.
Loans to and Other Transactions with Insiders. The Bank’s authority to extend credit to its directors, executive
officers and principal shareholders, as well as to entities controlled by such persons (“Related Interests”), is governed by
Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve. Among other things, these
provisions require that extensions of credit to insiders: (1) be made on terms that are substantially the same as, and follow credit
underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons
and that do not involve more than the normal risk of repayment or present other unfavorable features; and (2) not exceed certain
limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part,
on the amount of the Bank’s capital. In addition, extensions of credit in excess of certain limits must be approved in advance by
the Bank’s Board of Directors. Further, provisions of the Dodd-Frank Act require that any sale or purchase of an asset by the
Bank with an insider must be on market terms, and if the transaction represents more than 10% of the Bank’s capital stock and
surplus, it must be approved in advance by a majority of the disinterested directors of the Bank. We believe the Bank is in
compliance with these provisions.
Enforcement. The DFI and the FDIC share primary regulatory enforcement responsibility over the Bank and its
institution-affiliated parties, including directors, officers and employees. This enforcement authority includes, among other
things, the ability to appoint a conservator or receiver for the Bank, to assess civil money penalties, to issue cease and desist
orders, to seek judicial enforcement of administrative orders and to remove directors and officers from office and bar them from
further participation in banking. In general, these enforcement actions may be initiated in response to violations of laws,
regulations and administrative orders, as well as in response to unsafe or unsound banking practices or conditions.
Standards for Safety and Soundness. Pursuant to the FDIA, the federal banking agencies have adopted a set of
guidelines prescribing safety and soundness standards. These guidelines establish general standards relating to internal controls
and information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset
7
growth, asset quality, earnings standards, compensation, fees and benefits. In general, the guidelines require appropriate
systems and practices to identify and manage the risks and exposures specified in the guidelines. We believe we are in
compliance with the safety and soundness guidelines.
Dividends. 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 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 Rule, 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.
Insurance of Deposit Accounts. The Bank is a member of the Deposit Insurance Fund (“DIF”), which is administered
by the FDIC. All deposit accounts at the Bank are insured by the FDIC up to a maximum of $250,000 per depositor. Under the
FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound
practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order
or condition imposed by the FDIC.
Liquidity. The Bank is required to maintain a sufficient amount of liquid assets to ensure its safe and sound operation.
To fund its operations, the Bank historically has relied upon deposits, Federal Home Loan Bank of Indianapolis (“FHLB”)
borrowings, Fed Funds lines with correspondent banks and brokered deposits. The FDIA and FDIC regulations limit the ability
of banks to accept, renew, or roll over brokered deposits unless the institution is well capitalized. The FDIC may grant a waiver
to permit a less than well capitalized bank to hold brokered deposits, but limitations on the rates paid on such deposits will
apply, and the bank may also be required to pay a higher deposit insurance assessment on such deposits. The Bank believes it
has sufficient liquidity to meet its funding obligations for at least the next twelve months.
Federal Home Loan Bank System. The Bank is a member of the FHLB, which is one of the regional Federal Home
Loan Banks comprising the Federal Home Loan Bank System. Each Federal Home Loan Bank serves as a central credit facility
primarily for its member institutions. The Bank, as a member of the FHLB, is required to acquire and hold shares of FHLB
capital stock. While the required percentage of stock ownership is subject to change by the FHLB, the Bank is in compliance
with this requirement with an investment in FHLB stock at December 31, 2022 of $28.4 million. Any advances from the FHLB
must be secured by specified types of collateral, and long-term advances may be used for the purpose of providing funds to
make residential mortgage or commercial loans and to purchase investments. Long-term advances may also be used to help
alleviate interest rate risk for asset and liability management purposes. The Bank receives dividends on its FHLB stock.
Federal Reserve System. Although the Bank is not a member of the Federal Reserve System, it is subject to provisions
of the Federal Reserve Act and the Federal Reserve’s regulations under which depository institutions may be required to
maintain reserves against their deposit accounts and certain other liabilities. In March 2020, the Federal Reserve announced that
the banking system had ample reserves and, as reserve requirements no longer played a significant role in this regime, it
reduced all reserve tranches to zero percent, thereby freeing banks from the reserve maintenance requirement. This action
permits the Bank to loan or invest funds that were previously unavailable. The Federal Reserve has indicated that it currently
has no plans to reimpose reserve requirements but that it may impose such a requirement in the future if conditions warrant.
Anti-Money Laundering and the Bank Secrecy Act. Under the Bank Secrecy Act (the “BSA”), a financial institution is
required to have systems in place to detect and report transactions of a certain size and nature. Financial institutions are
generally required to report to the U.S. Treasury any cash transactions involving more than $10,000. In addition, financial
institutions are required to file suspicious activity reports for transactions that involve more than $5,000 and which the financial
institution knows, suspects or has reason to suspect involves illegal funds, is designed to evade the requirements of the BSA or
has no lawful purpose. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”), which amended the BSA, is designed to deny terrorists and others
the ability to obtain anonymous access to the U.S. financial system. The USA PATRIOT Act has significant implications for
financial institutions and businesses of other types involved in the transfer of money. The USA PATRIOT Act, in conjunction
with the implementation of various federal regulatory agency regulations, has caused financial institutions, such as the Bank, to
adopt and implement additional policies or amend existing policies and procedures with respect to, among other things, anti-
money laundering compliance, suspicious activity, currency transaction reporting, customer identity verification and customer
risk analysis. Bank regulators regularly examine institutions for compliance with these obligations, and may impose “cease and
desist” orders and civil money penalty sanctions on institutions determined to be in violation of these obligations.
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In January 2021, the Anti-Money Laundering Act of 2020 (the “AMLA”), which amends the BSA, was enacted. The
AMLA is intended to comprehensively reform and modernize U.S. anti-money laundering laws. Among other things, the
AMLA codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development
of standards by the U.S. Treasury for evaluating technology and internal processes for BSA compliance; and expands
enforcement- and investigation-related authority, including a significant expansion in the available sanctions for certain BSA
violations and enhanced whistleblower provisions permitting monetary awards to persons who provide information that leads to
successful enforcement of certain violations. Many of the statutory provisions in the AMLA will require additional rulemaking,
reports and other measures, and the impact of the AMLA will depend on, among other things, rulemaking and implementation
guidance.
The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals
and others. These sanctions, which are administered by the U.S. Treasury Office of Foreign Assets Control (“OFAC”), take
many different forms. Generally, however, they contain one or more of the following elements: (1) restrictions on trade with or
investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned
country and prohibitions on “U.S. persons” engaging in financial transactions relating to making investments in, or providing
investment-related advice or assistance to, a sanctioned country; and (2) blocking of assets in which the government or specially
designated nationals of the sanctioned country have an interest by prohibiting transfers of property subject to U.S. jurisdiction
(including property in the possession or control of U.S. persons). Blocked assets (for example, property and bank deposits)
cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. Failure to comply with these
sanctions can give rise to serious legal and reputational consequences.
Consumer Protection Laws. The Bank is subject to a number of federal and state laws designed to protect consumers
and prohibit unfair or deceptive business practices. These laws include the Equal Credit Opportunity Act, Fair Housing Act,
Homeowners Protection Act, Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act of 2003
(the “FACT Act”), the Gramm-Leach-Bliley Act (the “GLBA”), the Truth in Lending Act, the CRA, the Home Mortgage
Disclosure Act, the Real Estate Settlement Procedures Act, the National Flood Insurance Act, the Service Members Civil Relief
Act, the Expedited Funds Availability Act, the Electronic Fund Transfer Act, the Truth in Savings Act, the Right to Financial
Privacy Act, laws relating to unfair, deceptive and abusive acts and practices, and various state laws such as usury laws, or laws
which are counterparts and/or extensions of the foregoing federal laws. These laws and regulations mandate certain disclosure
requirements and regulate the manner in which financial institutions must interact with customers when taking deposits, making
loans, collecting loans and providing other services. Further, the Dodd-Frank Act established the CFPB as an independent
agency within the Federal Reserve System. The CFPB has the exclusive authority to administer, enforce, and otherwise
implement federal consumer financial laws, which includes the power to make rules, issue orders, and issue guidance governing
the provision of consumer financial products and services. The CFPB also has a broad mandate to prohibit unfair or deceptive
acts and practices and is specifically empowered to require certain disclosures to consumers and draft model disclosure forms.
Failure to comply with consumer protection laws and regulations can subject financial institutions to enforcement actions, fines
and other penalties. In recent years, state authorities have also increased their attention to the enforcement of consumer
protection rules, and in some cases, states are permitted to adopt and enforce consumer protection laws and regulations that are
stricter than those issued or enforced by the CFPB. The CFPB has exclusive federal consumer law supervisory authority and
primary enforcement authority over insured depository institutions with assets totaling over $10 billion. Authority for
institutions with $10 billion or less rests with the prudential regulator, and in the case of the Bank lies with the FDIC.
Residential Mortgage Restrictions. The Dodd-Frank Act initiated a number of significant residential mortgage lending
reforms that have taken place in recent years. These reforms include standards that mortgage lenders must consider before
making a residential mortgage loan, including verifying a borrower’s ability to repay such mortgage loan. Borrowers are also
allowed to assert violations of certain provisions of the Truth-in-Lending Act as a defense to foreclosure proceedings.
Prepayment penalties are prohibited for certain mortgage transactions and creditors are prohibited from financing insurance
policies in connection with a residential mortgage loan or home equity line of credit. Mortgage lenders are required to make
additional disclosures prior to the extension of credit, in each billing statement and for negative amortization loans and hybrid
adjustable rate mortgages. Additionally, mortgage originators are prohibited from receiving compensation based on the terms of
residential mortgage loans and are subject to limitations on their ability to be compensated by others if compensation is received
from a consumer.
Customer Information Security. The federal banking agencies have adopted final guidelines for establishing standards
for safeguarding nonpublic personal information about customers. These guidelines implement provisions of the GLBA.
Specifically, the Information Security Guidelines established by the GLBA require each financial institution, under the
supervision and ongoing oversight of its board of directors or an appropriate committee thereof, to develop, implement and
maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer
9
information (as defined under the GLBA), to protect against anticipated threats or hazards to the security or integrity of such
information and to protect against unauthorized access to or use of such information that could result in substantial harm or
inconvenience to any customer. The federal banking regulators have issued guidance for banks on response programs for
unauthorized access to customer information. This guidance, among other things, requires notice to be sent to customers whose
“sensitive information” has been compromised if misuse of this information is “reasonably possible.”
Identity Theft Red Flags. Rules implementing Section 114 of the FACT Act require each financial institution or
creditor to develop and implement a written Identity Theft Prevention Program to detect, prevent and mitigate identity theft in
connection with the opening of certain accounts or certain existing accounts. In addition, the federal banking agencies issued
guidelines to assist financial institutions and creditors in the formulation and maintenance of an Identity Theft Prevention
Program that satisfies the requirements of the rules. Rules implementing Section 114 of the FACT Act also require credit and
debit card issuers to assess the validity of notifications of changes of address under certain circumstances. Additionally, the
federal banking agencies issued joint rules under Section 315 of the FACT Act that provide guidance regarding reasonable
policies and procedures that a user of consumer reports must employ when a consumer reporting agency sends the user a notice
of address discrepancy.
Privacy. The GLBA requires financial institutions to implement policies and procedures regarding the disclosure of
nonpublic personal information about consumers to nonaffiliated third parties. In general, the statute requires financial
institutions to explain to consumers their policies and procedures regarding the disclosure of such nonpublic personal
information and, except as otherwise required or permitted by law, financial institutions are prohibited from disclosing such
information except as provided in their policies and procedures. The Bank is required to provide notice to its customers on an
annual basis disclosing its policies and procedures on the sharing of nonpublic personal information. From time to time,
Congress and state legislatures consider additional legislation relating to privacy and other aspects of consumer information that
could have an impact on our business, financial condition or results of operations.
A number of U.S. states have also enacted data privacy and security laws and regulations that govern the collection,
use, disclosure, transfer, storage, disposal and protection of personal information, such as social security numbers, financial
information and other information. These laws and regulations may be more restrictive and not preempted by U.S. federal laws.
For example, several U.S. territories and all 50 states now have data breach laws that require timely notification to individuals,
and at times regulators, the media or credit reporting agencies, if a company has experienced the unauthorized access or
acquisition of personal information. Other state laws include the California Consumer Privacy Act (“CCPA”), which took effect
on January 1, 2020. The CCPA, among other things, contains new disclosure obligations for businesses that collect personal
information about California residents and affords those individuals numerous rights relating to their personal information that
may affect our ability to use personal information or share it with our business partners.
A second law called the California Privacy Rights Act (“CPRA”), which goes into effect in 2023, expands the scope of
the CCPA, imposes new restrictions on behavioral advertising, and establishes a new California Privacy Protection Agency
which will enforce the law and issue regulations. Similar laws were enacted in Virginia and Colorado in 2021 and go into effect
in 2023, and other states have considered and are actively considering legislation along the same lines. We will continue to
monitor and assess the impact of these state laws, which may impose substantial penalties for violations, impose significant
costs for investigation and compliance, allow private class-action litigation and carry significant potential liability for our
business.
Cybersecurity. In 2015, federal regulators issued two related statements regarding cybersecurity. One statement
indicates that financial institutions should design multiple layers of security controls to establish lines of defense and ensure that
their risk management processes also address the risk posed by compromised customer credentials, including security measures
to reliably authenticate customers accessing digital-based services of the financial institution. The other statement indicates that
a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the
rapid recovery, resumption, and maintenance of the institution’s operations after a cyber-attack involving destructive malware.
A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and
address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type
of cyber-attack. If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including
financial penalties.
In November 2021, the federal banking agencies published a final rule establishing computer-security incident
notification requirements that require a banking organization to notify its primary federal regulator of any “computer security
incident” that rises to the level of a “notification incident” as soon as possible and no later than 36 hours after determining that
such an incident has occurred. The rule also requires a bank service provider to notify each affected banking organization
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customer as soon as possible when the service provider determines it has experienced a computer security incident that has
caused, or is reasonably likely to cause, a material service disruption or degradation for four or more hours.
State regulators have also been increasingly active in implementing privacy and cybersecurity standards and
regulations. For example, several states have adopted regulations requiring certain financial institutions to implement
cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption
requirements. Many states have also recently implemented or modified their data breach notification and data privacy
requirements. We expect this trend of increased activity and changes at the state level to continue.
In 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about
cybersecurity risks and incidents. These SEC guidelines, and any other regulatory guidance, are in addition to notification and
disclosure requirements under state and federal banking law and regulations.
In support of our digital banking platform, we rely heavily on electronic communications and information systems to
conduct our operations and store sensitive data. We employ an in-depth approach that leverages people, processes, and
technology to manage and maintain cybersecurity controls. In addition, we employ a variety of preventative and detective tools
to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent
threats. Notwithstanding the strength of our defensive measures, the threat from cyber-attacks is severe, attacks are
sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures.
We continually strive to enhance our cyber and information security in order to be resilient against emerging threats
and improve our ability to detect and respond to attempts to gain unauthorized access to our data and systems. We regularly
conduct cybersecurity risk assessments, regularly engage with the Board or appropriate committees on cybersecurity matters,
routinely update our incident response plans based on emerging threats, periodically practice implementation of incident
response plans across applicable departments, and train officers and employees to detect and report suspicious activity.
Although to date we have not experienced any material losses relating to cyber-attacks or other information security breaches,
our systems and those of our customers and third-party service providers are under constant threat, and it is possible that we
could experience a significant event in the future due to the rapidly evolving nature and sophistication of these threats.
Climate-Related Risk Management and Regulation. In recent years, the federal banking agencies and the SEC have
increased their focus on climate-related risks impacting the operation of banks, the communities they serve and the financial
system as a whole. Proposals related to climate-related financial and other risks impacting banks are being considered at both
the federal and state level. It is too early to predict to what extent legislative and regulatory proposals will impact the Company
and the Bank, but we will continue to monitor these developments and the steps that will need to be taken to address any new
requirements.
Additional Matters. The earnings of financial institutions are also affected by general economic conditions and
prevailing interest rates, both domestic and foreign, and by the monetary and fiscal policies of the United States Government
and its various agencies, particularly the Federal Reserve. The Federal Reserve regulates the supply of credit in order to
influence general economic conditions, primarily through open market operations in United States Government obligations,
varying the discount rate on financial institution borrowings, varying reserve requirements against financial institution deposits,
and restricting certain borrowings by financial institutions and their subsidiaries. The monetary policies of the Federal Reserve
have had a significant effect on the operating results of the Bank in the past and are expected to continue to do so in the future.
Additional legislation and administrative actions affecting the banking industry may be considered by the United
States Congress, state legislatures and various regulatory agencies, including those referred to above. It cannot be predicted
with certainty whether such legislation or administrative action will be enacted or the extent to which the banking industry, the
Company or the Bank would be affected.
Available Information
The Company makes available its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), free of charge on its website at www.firstinternetbancorp.com as
soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC. In addition, the SEC
maintains an internet site at www.sec.gov that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. References to the Company’s website address in this Annual Report on
Form 10-K are provided as a convenience only and are not incorporated by reference.
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Item 1A.
Risk Factors
Risk factors which could cause actual results to differ from our expectations and which could negatively impact our
financial condition and results of operations are discussed below and elsewhere in this report. Additional risks and
uncertainties not presently known to us or that are currently not believed to be significant to our business may also affect our
actual results and could harm our business, financial condition and results of operations. If any of the risks or uncertainties
described below or any additional risks and uncertainties actually occur, our business, results of operations and financial
condition could be materially and adversely affected.
Business, Strategic, and Reputational Risks
A failure of, or interruption in, the communications and information systems on which we rely to conduct our business
could adversely affect our revenues and profitability.
We rely heavily upon communications and information systems to conduct our business. Although we have built a
level of redundancy into our information technology infrastructure and update our business continuity plan annually, any failure
or interruption of our information systems, or the third-party information systems on which we rely, as a result of inadequate or
failed processes or systems, human errors or external events, could adversely affect our digital-based operations and slow or
temporarily halt the processing of applications, loan servicing, deposit-related transactions, and our general banking operations.
In addition, our communication and information systems may present security risks and could be susceptible to hacking or other
unauthorized access. The occurrence of any of these events could have a material adverse effect on our business, financial
condition and results of operations.
Economic conditions have affected and could continue to adversely affect our revenues and profits.
Our success depends, to a certain extent, upon favorable economic and political conditions, local and national, as well
as governmental monetary policies. Conditions such as recession, unemployment, changes in interest rates, inflation, money
supply, and other factors beyond the Company’s control may adversely affect deposit levels, costs, loan demand and/or asset
quality and, therefore, our earnings. Further, any economic downturn could result in financial stress on our borrowers that
would adversely affect consumer confidence, a reduction in general business activity and increased market volatility. The
resulting economic pressure on consumers and businesses and the lack of confidence in the financial markets could adversely
affect our business, financial condition, results of operations and stock price. Our ability to properly assess the creditworthiness
of our customers and to estimate the losses inherent in our credit exposure would be made more complex by difficult or rapidly
changing market and economic conditions. Accordingly, if market conditions worsen, we may experience increases in
foreclosures, delinquencies, write-offs and customer bankruptcies, as well as more restricted access to funds.
The competitive nature of the banking and financial services industry could negatively affect our ability to increase or
maintain our market share and retain long-term profitability.
Competition in the banking and financial services industry is strong. We compete with commercial banks, savings
institutions, mortgage brokerage firms, credit unions, finance companies, fintechs, mutual funds, insurance companies and
securities brokerage and investment banking firms operating locally and nationwide and may soon compete with entities that
granted “special purpose national bank” (“SPNB”) charters by the Office of the Comptroller of the Currency. Some of our
competitors have greater name recognition and market presence than we do and offer certain services that we do not or cannot
provide. In addition, larger competitors may be able to price loans and deposits more aggressively than we do, which could
affect our ability to increase our market share and remain profitable on a long-term basis.
Reputational risk and social factors may negatively affect us.
Our ability to attract and retain customers is highly dependent upon other external perceptions of our business practices
and financial condition. Adverse perceptions could damage our reputation to a level that could lead to difficulties in generating
and maintaining lending and deposit relationships and accessing equity or credit markets, as well as increased regulatory
scrutiny of our business. Adverse developments or perceptions regarding the business practices or financial condition of our
competitors, or our industry as a whole, may also indirectly adversely affect our reputation.
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In addition, adverse reputational developments with respect to third parties with whom we have important
relationships may negatively affect our reputation. All of the above factors may result in greater regulatory and/or legislative
scrutiny, which may lead to laws or regulations that may change or constrain the manner in which we engage with our
customers and the products we offer and may also increase our litigation risk. If these risks were to materialize, they could
negatively affect our business, financial condition and results of operations.
New lines of business, and new products and services may result in exposure to new risks and the value and earnings related
to existing lines of business are subject to market conditions.
The Bank has introduced, and in the future, may introduce new products and services to differing markets either alone
or in conjunction with third parties, including programs and products introduced as part of our fintech partnership initiatives.
New lines of business, products or services could have a significant impact on the effectiveness of our system of internal
controls or the controls of third parties and could reduce our revenues and potentially generate losses. There are material
inherent risks and uncertainties associated with offering new products and services, especially when new markets are not fully
developed or when the laws and regulations regarding a new product are not mature. New products and services, or entrance
into new markets, may require substantial time, resources and capital, and profitability targets may not be achieved. Factors
outside of our control, such as developing laws and regulations, regulatory orders, competitive product offerings and changes in
commercial and consumer demand for products or services may also materially impact the successful launch and
implementation of new products or services. Failure to manage these risks, or failure of any product or service offerings to be
successful and profitable, could have a material adverse effect on our financial condition and results of operations.
The wind-down of our consumer mortgage operations may take longer than expected and may cost more than anticipated.
Due to the steep decline in consumer mortgage volumes and the negative outlook for consumer mortgage lending over
the next several years, the Company decided to exit the consumer mortgage business during the first quarter of 2023. We have
incurred and expect to incur a number of costs associated with the wind-down of the consumer mortgage business through at
least the end of the second quarter of 2023. Our management made accounting judgments and estimates related to the wind-
down of the consumer mortgage business. Our operating results could be adversely impacted in future periods if the accounting
judgments and estimates prove to be inaccurate, if the wind-down takes significantly longer than anticipated, if we incur
additional, unanticipated costs, or if we face litigation related to the exit.
Significant external events, including continued spread of the COVID-19 pandemic or outbreak of a highly contagious
disease, could adversely affect our business and results of operations.
We could experience other external events such as severe weather, natural disasters, acts of war, such as the current
conflict in Ukraine, terrorism or widespread public health issues, such as the COVID-19 pandemic or another highly contagious
or infectious disease, that could impair the ability of our customers to repay outstanding loans; impair the value of collateral, if
any, securing outstanding loans; negatively impact our deposit base, loan originations or general demand for our services; cause
significant property damage; result in loss of revenue or cause us to incur additional expenses or losses. We could also be
adversely affected if key personnel or a significant number of employees were to become unavailable due to external events
affecting the places they live. Although we have business continuity plans and other safeguards in place, there is no assurance
that such plans and safeguards will completely mitigate the adverse impacts of any significant external event. The occurrence or
continuation of any such event could materially adversely impact our business, our ability to provide our services, demand for
our services, asset quality, financial condition and results of operations.
Anti-takeover provisions could negatively impact our shareholders.
Provisions of Indiana law and provisions of our articles of incorporation could make it more difficult for a third party
to acquire control of us or have the effect of discouraging a third party from attempting to acquire control of us. We are subject
to certain anti-takeover provisions under the Indiana Business Corporation Law. Additionally, our articles of incorporation
authorize our Board of Directors to issue one or more classes or series of preferred stock without shareholder approval and such
preferred stock could be issued as a defensive measure in response to a takeover proposal.
Although these provisions do not preclude a takeover, they may have the effect of discouraging, delaying or deferring
a tender offer or takeover attempt that a shareholder might consider in his or her best interest, including those attempts that
might result in a premium over the market price of our common stock. Such provisions will also render the removal of the
Board of Directors and of management more difficult and, therefore, may serve to perpetuate current management. These
provisions could potentially adversely affect the market price of our common stock.
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Credit Risks
Our commercial loan portfolio exposes us to higher credit risks than residential real estate loans, including risks relating to
the success of the underlying business and conditions in the market or the economy and concentrations in our commercial
loan portfolio.
Our commercial loans totaled $2.7 billion, or 77.7% of our total loan portfolio as of December 31, 2022. These loans
generally involve higher credit risks than residential real estate loans and are dependent upon our lenders maintaining close
relationships with the borrowers. Payments on these loans are often dependent upon the successful operation and management
of the underlying business or assets, and repayment of such loans may be influenced to a great extent by conditions in the
market or the economy. Commercial loans typically involve larger loan balances than residential real estate loans and could
lead to concentration risks within our commercial loan portfolio. In addition, our C&I, healthcare finance, franchise finance and
small business loans have primarily been extended to small to medium sized businesses that generally have fewer financial
resources in terms of capital or borrowing capacity than larger entities. Our failure to manage this commercial loan growth and
the related risks could have a material adverse effect on our business, financial condition and results of operations.
In addition, with respect to CRE, federal and state banking regulators are examining CRE lending activity with
heightened scrutiny and may require banks with higher levels of CRE loans to implement more stringent underwriting, internal
controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for losses and
capital levels as a result of CRE lending growth and exposures. Because a significant portion of our loan portfolio is comprised
of CRE loans, our banking regulators may require us to maintain higher levels of capital than we would otherwise be expected
to maintain, which could limit our ability to leverage our capital and have a material adverse effect on our business, financial
condition, results of operations and prospects.
Portions of our commercial lending activities are geographically concentrated in Central Indiana and adjacent markets, and
changes in local economic conditions may impact their performance.
We offer our consumer lending as well as public finance, healthcare finance, franchise finance, small business lending
and single tenant financing products and services throughout the United States. However, we serve CRE and C&I borrowers
primarily in Central Indiana and adjacent markets. Accordingly, the performance of our CRE and C&I lending depends upon
demographic and economic conditions in those regions. The profitability of our CRE and C&I loan portfolio may be impacted
by changes in those conditions. Additionally, unfavorable local economic conditions could reduce or limit the growth rate of
our CRE and C&I loan portfolios for a significant period of time, or otherwise decrease the ability of those borrowers to repay
their loans, which could have a material adverse effect on our business, financial condition and results of operations.
We are subject to risks arising from conditions in the real estate market, as a significant portion of our loans are secured by
real estate.
At December 31, 2022, approximately 48.2% of our loans held for investment portfolio was comprised of loans with
real estate as the primary component of collateral. Our real estate lending activities, and our exposure to fluctuations in real
estate collateral values, are significant and may increase as our assets increase. The market value of real estate can fluctuate
significantly in a relatively short period of time as a result of market conditions in the geographic area in which the real estate is
located, in response to factors such as economic downturns, changes in the economic health of industries heavily concentrated
in a particular area and in response to changes in market interest rates, which influence capitalization rates used to value
revenue-generating commercial real estate. If the value of real estate serving as collateral for our loans declines materially, a
significant part of our loan portfolio could become under-collateralized and losses incurred upon borrower defaults would
increase. Conditions in certain segments of the real estate industry, including homebuilding, lot development and mortgage
lending, may have an effect on values of real estate pledged as collateral for our loans. The inability of purchasers of real estate,
including residential real estate, to obtain financing may weaken the financial condition of our borrowers who are dependent on
the sale or refinancing of property to repay their loans. Changes in the economic health of certain industries can have a
significant impact on other sectors or industries which are directly or indirectly associated with those industries, and may
impact the value of real estate in areas where such industries are concentrated.
The implementation of CECL, including the design and maintenance of related internal controls over financial reporting,
will require a significant amount of time and resources which may have a material impact on our results of operations.
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A new accounting standard adopted by FASB, referred to as Current Expected Credit Loss, or (“CECL”), will require
financial institutions, like the Bank, to determine periodic estimates of lifetime expected credit losses on loans, and recognize
the expected credit losses as allowances for loan and lease losses beginning with our fiscal year ending December 31, 2023.
Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a
loss has been incurred. CECL will represent a significant change in methodology and may greatly increase the types of data we
will need to collect and review to determine the appropriate level of the allowance for loan and lease losses. We are in the
process of evaluating the impact of the adoption of this guidance on our financial statements. However, the allowance for loan
and lease losses may increase upon the adoption of CECL and any such increased allowance level would decrease shareholders'
equity and the Company's and Bank's regulatory capital ratios.
A significant amount of time and resources may be needed to implement CECL effectively, including the
implementation of adequate internal controls, which may adversely affect our results of operations. If we are unable to maintain
effective internal control over financial reporting relating to CECL, or otherwise, our ability to report our financial condition
and results of operations accurately and on a timely basis could also be adversely affected.
Market, Interest Rate, and Liquidity Risks
The market value of some of our investments could decline and adversely affect our financial position.
In assessing the impairment of investment securities, we consider the length of time and extent to which the fair value
has been less than cost, the financial condition and near-term prospects of the issuers, whether the market decline was affected
by macroeconomic conditions and whether we have the intent to sell the security or will be required to sell the security before
its anticipated recovery. We also use economic models to assist in the valuation of some of our investment securities. If our
investment securities experience a decline in value, we would need to determine whether the decline represented an other-than-
temporary impairment, in which case we would be required to record a write-down of the investment and a corresponding
charge to our earnings.
Changes in interest rates could adversely affect the Company’s results of operations and financial condition.
The Company’s earnings depend substantially on the Company’s interest rate spread, which is the difference between (i) the
rates the Bank earns on loans, securities, and other earning assets and (ii) the interest rates the Bank pays on deposits and other
borrowings. These rates are highly sensitive to many factors beyond the Company’s control, including general economic
conditions and the policies of various governmental and regulatory authorities. If market interest rates continue to rise,
especially at the pace they did in 2022, the Company will have competitive pressure to increase the rates the Bank pays on
deposits, which could result in a decrease of net interest income. If market interest rates decline, the Bank could experience
fixed-rate loan prepayments and higher investment portfolio cash flows, resulting in a lower yield on earning assets. Earnings
can also be impacted by the spread between short-term and long-term market interest rates.
The replacement of the London Inter-bank Offered Rate (“LIBOR”) with a benchmark rate that is higher or more volatile
than LIBOR, could increase our cost of borrowing and could adversely impact our business, financial condition and results
of operations.
In 2017, the Chief Executive of the United Kingdom Financial Conduct Authority (the “Authority”) announced that the
Authority intended to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the ICE Benchmark
Administration Limited (together with any successor, “IBA”), as administrator of LIBOR In response to concerns regarding
the future of LIBOR, Federal Reserve and the Federal Reserve Bank of New York convened the Alternative Reference Rates
Committee (“ARRC”) to identify alternatives to LIBOR. The ARRC first recommended a benchmark replacement waterfall
that facilitated continued linkage to LIBOR while recognizing that the discontinuation of LIBOR would eventually occur. The
initial steps in the ARRC's recommended waterfall referenced variations of the Secured Overnight Financing Rate (“SOFR”),
and the ARRC has since recommended SOFR as the replacement rate for U.S. dollar denominated LIBOR. While market
participants were warned that LIBOR may cease to exist after 2021, the IBA announced in early 2021 that it would continue to
publish the most widely used tenors of U.S. dollar denominated LIBOR (such as one-month and three-month LIBOR) until
June 30, 2023. While the IBA's announcement extended LIBOR's phase-out, there is no current expectation that LIBOR will
continue beyond mid-2023, and U.S. banking regulators have issued guidance encouraging banking organizations to cease
using U.S. dollar denominated LIBOR as a reference rate in new contracts.
15
At this time, it is not possible to predict whether SOFR will attain market acceptance as the standard replacement for
LIBOR, whether alternative reference rates other than SOFR (such as Ameribor) will gain market traction or whether additional
reforms to LIBOR may be enacted. Further, other central banks and regulators have convened working groups to evaluate other
interest rate benchmarks (such as EURIBOR), and it is possible that a transition away from certain of these interest rate
benchmarks will occur leading to the establishment of new market accepted reference rates. Uncertainty regarding the market
standard replacement for LIBOR, and floating rate benchmarks generally, could have adverse impacts on floating-rate
obligations, loans, deposits, derivatives and other financial instruments that currently use LIBOR as a benchmark rate and
adversely affect the Company's business, financial condition or results of operations.
Additionally, the floating rate features of our outstanding 6.0% Fixed-to-Floating Rate Subordinated Notes due 2029
(the “2029 Notes”) are based on LIBOR, while the floating rate features of our 3.75% Fixed-to-Floating Rate Subordinated
notes due 2031 (the “2031 Notes”) are based on SOFR. In anticipation of LIBOR’s phase out, and the uncertainty of SOFR as a
LIBOR replacement, the terms of our 2029 Notes and 2031 Notes provide for a benchmark replacement rate for LIBOR or
SOFR, as applicable, with such benchmark replacement rate to be determined by the Company or an independent financial
advisor appointed by the Company, as applicable, in each case in accordance with terms of the 2029 Notes and 2031 Notes,
respectively. There can be no assurance that any replacement benchmark rate for our 2029 Notes or 2031 Notes will be
determined or agreed upon, as applicable, before experiencing adverse effects due to changes in interest rates, if at all. We will
continue to monitor the situation and address the potential reference rate changes in future debt obligations that we may incur.
Accordingly, the potential effect of the phase-out of LIBOR, or the unavailability of any other interest rate benchmarks such as
SOFR or EURIBOR, on our cost of capital cannot yet be determined. Further, the use of an alternative base rate or a benchmark
replacement rate as a basis for calculating interest with respect to any outstanding variable rate indebtedness could lead to an
increase in the interest we pay and a corresponding increase in our costs of capital or otherwise have a material adverse impact
on our business, financial condition or results of operations.
The Bank may not be able to pay us dividends.
The ability of the Bank to pay dividends to us is limited by state and federal law and depends generally on the Bank’s
ability to generate net income. If we are unable to comply with applicable provisions of these statutes and regulations, the Bank
may not be able to pay dividends to us, we may not be able to pay dividends on our outstanding common stock and our ability
to service our debt may be materially impaired.
We may need additional funding resources in the future, and these funding resources may not be available when needed or
at all, without which our financial condition, results of operations and prospects could be materially impaired.
As a part of our liquidity management, we use a number of funding sources in addition to core deposit growth and
repayments and maturities of loans and investments. These sources include brokered deposits and federal funds purchased.
Further, in recent years, we have raised additional capital in the public debt and equity markets to support balance sheet growth,
refinance existing debt obligations, or explore strategic alternatives which may include additional asset, deposit or revenue
generation channels. Our ability to source deposits and raise future capital, if needed, will depend upon our financial
performance and conditions in the capital markets, as well as economic conditions generally. Accordingly, such financing may
not be available to us on acceptable terms or at all. If we cannot raise additional capital when needed, it could have a material
adverse effect on our business, financial condition and results of operations.
The Company’s stock price can be volatile.
The Company’s stock price can fluctuate widely in response to a variety of factors, including without limitation: actual
or anticipated variations in the Company’s quarterly operating results; recommendations by securities analysts; significant
acquisitions or business combinations; strategic partnerships, joint ventures or capital commitments; operating and stock price
performance of other companies that investors deem comparable to the Company; new technology used or services offered by
the Company’s competitors; news reports relating to trends, concerns and other issues in the banking and financial services
industry, and changes in government regulations. General market fluctuations, industry factors and general economic and
political conditions and events, including terrorist attacks, increased inflation, economic slowdowns or recessions, interest rate
changes, credit loss trends or currency fluctuations, could also cause the Company’s stock price to decrease, regardless of the
Company’s operating results.
Operational Risks
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Because our business is highly dependent on technology that is subject to rapid change and transformation, we are subject
to risks of obsolescence.
The Bank conducts its deposit gathering activities and a significant portion of its lending activities through digital
channels. The financial services industry is undergoing rapid technological change, and we face constant evolution of customer
demand for technology-driven financial and banking products and services. Many of our competitors have substantially greater
resources to invest in technological improvement and product development, marketing and implementation. Any failure to
successfully keep pace with and fund technological innovation in the markets in which we compete could have a material
adverse effect on our business, financial condition and results of operations.
We rely on our management team and could be adversely affected by the unexpected loss of key officers.
Our future success and profitability are substantially dependent upon our management and the abilities of our senior
executives. We believe that our future results will also depend in part upon our ability to attract and retain highly skilled and
qualified management. Competition for senior personnel is intense, and we may not be successful in attracting and retaining
such personnel. Changes in key personnel and their responsibilities may be disruptive to our business and could have a material
adverse effect on our business, financial condition and results of operations. In particular, the loss of our chief executive officer
could have a material adverse effect on our business, financial condition and results of operations.
A failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors and other
service providers, including as a result of cyber-attacks, could disrupt our business and lead to unauthorized disclosure of
customers’ personal information, theft or misuse of confidential or proprietary information, damage to our reputation, and
increases in our costs or financial losses.
We depend upon our ability to process, record and monitor our client transactions on a continuous basis. As customer,
public and regulatory expectations regarding data privacy and information security have increased, our operational systems and
infrastructure must continue to be safeguarded and monitored for potential failures, disruptions and breakdowns. Our business,
financial, accounting and data processing systems, or other operating systems and facilities, may stop operating properly or
become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond our control.
For example, there could be electrical or telecommunications outages; natural disasters such as earthquakes, tornadoes and
hurricanes; disease pandemics; events arising from local or larger-scale political or social matters, including terrorist acts; and,
as described below, cyber-attacks. Although we have business continuity plans and other safeguards in place, our business
operations may be adversely affected by significant and widespread disruption to our physical infrastructure or operating
systems that support our business.
Information security risks for financial institutions such as ours have generally increased in recent years in part
because of the proliferation of new technologies, the use of digital technologies to conduct financial transactions, and the
increased sophistication and activities of organized crime, hackers, terrorists, activists and other external parties. As noted
above, our operations rely on the secure processing, transmission and storage of confidential information in our computer
systems and networks. Our business relies on our digital technologies, computer and email systems, software and networks to
conduct its operations. In addition, to access our products and services, our customers may use smartphones, tablets, personal
computers and other mobile devices that are beyond our control systems. Although we have information security procedures
and controls in place, our technologies, systems, networks and our customers’ devices may become the target of cyber-attacks
or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction
of our or our customers’ confidential, proprietary and other information, or otherwise disrupt our or our customers’ or other
third parties’ business operations.
Third parties with whom we do business or that facilitate our business activities, including financial intermediaries or
vendors that provide services or security solutions for our operations, could also be sources of operational and information
security risk to us, including from breakdowns or failures of their own systems or capacity constraints. Although to date we
have not experienced any material losses relating to cyber-attacks or other information security breaches, like other companies,
we and our vendors face a wide range of ongoing cyber threats that include phishing emails and social engineering schemes,
ransomware threats, and criminal re-use of credentials sold on the dark web. Therefore, there can be no assurance that we will
not suffer such material losses in the future. Our risk and exposure to these matters remains heightened because of the evolving
nature of these threats. As a result, cybersecurity and the continued development and enhancement of our controls, processes
and practices designed to protect our systems, computers, software, company data, networks, and customer information from
attack, damage or unauthorized access remain a focus for us. As threats continue to evolve, we may be required to expend
additional resources to continue to modify or enhance our protective measures or to investigate and remediate information
security vulnerabilities.
17
Disruptions or failures in the physical infrastructure or operating systems that support our business and clients, or
cyber-attacks or security breaches of the networks, systems or devices that our clients use to access our products and services,
could result in client attrition, regulatory fines, penalties or intervention, breach investigation and notification expenses,
reputational damage, claims or litigation, reimbursement or other compensation costs and/or additional compliance costs, any of
which could materially and adversely affect our business, financial condition and results of operations.
Legal and Regulatory Risks
We operate in a highly regulated environment, which could restrain our growth and profitability.
We are subject to extensive laws and regulations that govern almost all aspects of our operations. These laws and
regulations, and the supervisory framework that oversees the administration of these laws and regulations, are primarily
intended to protect depositors, the DIF and the banking system as a whole, and not shareholders. These laws and regulations,
among other matters, affect our lending practices, capital structure, investment practices, dividend policy, operations and
growth. Compliance with the myriad laws and regulations applicable to our organization can be difficult and costly. In addition,
these laws, regulations and policies are subject to continual review by governmental authorities, and changes to these laws,
regulations and policies, including changes in interpretation or implementation of these laws, regulations and policies, could
affect us in substantial and unpredictable ways and often impose additional compliance costs. Further, any new laws, rules and
regulations could make compliance more difficult or expensive. All of these laws and regulations, and the supervisory
framework applicable to our industry, could have a material adverse effect on our business, financial condition and results of
operations.
Federal and state regulators periodically examine our business and we may be required to remediate adverse examination
findings.
The Federal Reserve, the FDIC and the DFI periodically examine our business, including our compliance with laws
and regulations. If, as a result of an examination, a federal or state banking agency were to determine that our financial
condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations
had become unsatisfactory, or that we were in violation of any law or regulation, it may take a number of different remedial
actions as it deems appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require action to
correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced,
to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against our officers or directors, to
remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss
to depositors, to terminate our deposit insurance and place us into receivership or conservatorship. Any regulatory action
against us could have a material adverse effect on our business, financial condition and results of operations.
Our FDIC deposit insurance premiums and assessments may increase, which would reduce our profitability.
The deposits of the Bank are insured by the FDIC up to legal limits and, accordingly, subject to the payment of FDIC
deposit insurance assessments. The Bank’s regular assessments are determined by its risk classification, which is based on a
number of factors, including regulatory capital levels, asset growth and asset quality. High levels of bank failures during and
following the financial crisis and increases in the statutory deposit insurance limits have increased resolution costs to the FDIC
and put significant pressure on the DIF. In order to maintain a strong funding position and restore the reserve ratios of the DIF,
the FDIC may increase deposit insurance assessment rates and may charge a special assessment to all FDIC-insured financial
institutions. Further increases in assessment rates or special assessments may occur in the future, especially if there are
significant additional financial institution failures. Any future special assessments, increases in assessment rates or required
prepayments in FDIC insurance premiums could reduce our profitability or limit our ability to pursue certain business
opportunities, which could have a material adverse effect on our business, financial condition and results of operations.
The long-term impact of regulatory capital rules is uncertain and a significant increase in our capital requirements could
have an adverse effect on our business and profitability.
In order to remain “well-capitalized”, the Basel III Capital Rules require the Company and the Bank to maintain: (i) 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%); (ii) 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
18
of 8.5%); (iii) 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 (iv) a minimum Leverage Ratio of 4.0%.
The application of more stringent capital requirements for both the Company and the Bank could, among other things,
result in lower returns on equity, require the raising of additional capital, and result in regulatory actions constraining us from
paying dividends or repurchasing shares if we were to be unable to comply with such requirements, any of which could have a
material adverse effect on our business and profitability.
We are subject to numerous laws designed to protect consumers, including the CRA and fair lending laws, and failure to
comply with these laws could lead to a wide variety of sanctions.
The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose
nondiscriminatory lending requirements on financial institutions. The Department of Justice and other federal agencies are
responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution’s performance under
the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money
penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion and restrictions on
entering new business lines. Private parties may also have the ability to challenge an institution’s performance under fair
lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial
condition and results of operations.
We are subject to evolving and expensive regulations and requirements. Our failure to adhere to these requirements or the
failure or circumvention of our controls and procedures could seriously harm our business.
We are subject to extensive regulation as a financial institution and are also required to follow the corporate
governance and financial reporting practices and policies required of a company whose stock is registered under the Exchange
Act and listed on the Nasdaq Global Select Market. Compliance with these requirements means we incur significant legal,
accounting and other expenses. Compliance also requires a significant diversion of management time and attention, particularly
with regard to disclosure controls and procedures and internal control over financial reporting. Although we have reviewed, and
will continue to review, our disclosure controls and procedures in order to determine whether they are effective, our controls
and procedures may not be able to prevent errors or frauds in the future. Faulty judgments, simple errors or mistakes, or the
failure of our personnel to adhere to established controls and procedures may make it difficult for us to ensure that the
objectives of the control system will be met. A failure of our controls and procedures to detect other than inconsequential errors
or fraud could seriously harm our business and results of operations.
We face risk under the BSA and other anti-money laundering statutes and regulations, as well as general fund transfer and
payments-related risk.
The BSA, the USA PATRIOT Act and other laws and regulations require financial institutions, among other duties, to
institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports
as appropriate. The federal Financial Crimes Enforcement Network is authorized to impose significant civil money penalties for
violations of those requirements and has engaged in coordinated enforcement efforts with the individual federal banking
regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service. We are
also subject to increased scrutiny of compliance with the rules enforced by the OFAC. If our policies, procedures and systems
are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on
our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business
plan, including our acquisition plans. Failure to maintain and implement adequate programs to combat money laundering and
terrorist financing could also have serious reputational consequences for us. Any of these results could have a material adverse
effect on our business, financial condition and results of operations.
In addition, financial institutions, including ourselves, bear fund transfer risks of different types which result from
large transaction volumes and large dollar amounts of incoming and outgoing money transfers. Loss exposure may result if
money is transferred from the Bank before it is received, or legal rights to reclaim monies transferred are asserted. Such
exposure results from payments which are made to merchants for payment clearing, while customers have statutory periods to
reverse their payments. It also results from funds transfers made prior to receipt of offsetting funds, as accommodations to
customers. Transfers could also be made in error. Additionally, as with other financial institutions, we may incur legal liability
or reputational risk, if we unknowingly process payments for companies in violation of money laundering laws or regulations or
immoral activities.
19
Our introduction of new products and programs in partnership with fintechs is expected to increase account and
transaction volume at the Bank and thereby increase the foregoing risks, the results of which could have a material adverse
effect on our business, financial condition and results of operations.
We may be subject to potential liability and business risk from actions by our regulators related to supervision of third
parties.
Our regulators or auditors may require us to increase the level and manner of our oversight of the third parties which
provide marketing and other services through which we offer products and services, whether in connection with our
introduction of new programs and products, or otherwise. Although we have significant compliance staff and have used outside
consultants, our internal and external compliance examiners continually evaluate our practices and must be satisfied with the
results of our third-party oversight activities. We cannot assure you that we will satisfy all related requirements. Not
maintaining a compliance management system which is deemed adequate could result in sanctions against the Bank. Our
ongoing review and analysis of our compliance management system and implementation of any changes resulting from that
review and analysis will likely result in increased non-interest expense.
Federal banking laws limit the acquisition, ownership and repurchase of our common stock.
Because we are a bank holding company, any purchaser of certain specified amounts of our common stock may be
required to file a notice with or obtain the approval of the Federal Reserve under the BHCA, as amended, and the Change in
Bank Control Act of 1978, as amended. Specifically, under regulations adopted by the Federal Reserve, (1) any other bank
holding company may be required to obtain the approval of the Federal Reserve before acquiring 5% or more of our common
stock and (2) any person may be required to file a notice with and not be disapproved by the Federal Reserve to acquire 10% or
more of our common stock and will be required to file a notice with and not be disapproved by the Federal Reserve to acquire
25% or more of our common stock. Further, recently enacted laws impose an excise tax on a public company’s repurchase of its
own stock. There are discussions and proposed legislation to increase that excise tax. Increases in the excise tax on stock
repurchases could negatively affect our current stock repurchase program and our ability to repurchase common stock in the
future.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
In March 2013, the Company borrowed $4.0 million from the Bank for the purchase of the Company’s principal
executive offices. On February 16, 2021, the Company entered into an agreement to sell its principal executive offices to a third
party. The sale was completed on April 16, 2021 and as a part of the sale agreement, the buyer leased the office building back
to the Company through December 31, 2021. We vacated the office building at the end of the lease, on or prior to December 31,
2021. Additionally, the remaining principal balance of the Company’s loan from the Bank was paid-in-full.
During 2019, the Bank's subsidiary, SPF15, Inc., acquired several parcels of real estate located in Fishers, Indiana.
Site demolition was completed on the properties in early 2020 and construction of a multi-use development, which included the
future headquarters of the Company and the Bank began shortly thereafter. The Company and the Bank now fully occupy the
new headquarters, which is located at 8701 East 116th Street, Fishers, IN 46038.
Item 3.
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 4.
Mine Safety Disclosures
None.
20
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
The Company’s common stock trades on the Nasdaq Global Select Market under the symbol “INBK.”
As of March 10, 2023, the Company had 8,949,423 shares of common stock issued and outstanding, and there were 98
holders of record of common stock.
Dividends
Total cash dividends declared in 2022 were $0.24 per share. 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 our 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.
Because the Company is a holding company and does not engage directly in business activities of a material nature, its
ability to pay dividends to shareholders may depend, in large part, upon the receipt of distributions from the Bank, which is also
subject to numerous limitations on the payment of dividends under federal and state banking laws, regulations and policies. The
present and future ability of the Bank to distribute funds to the Company are subject to the discretion of the Board of the
Directors of the Bank and the Bank is not obligated to pay any distributions to the Company.
Issuer Purchases of Equity Securities
In October 2021, the Company's Board of Directors approved a stock repurchase program authorizing the repurchase
of up to $30.0 million, which was subsequently increased to $35.0 million, of our outstanding common stock from time to time
on the open market or in privately negotiated transactions. The stock repurchase authorization was scheduled to expire on
December 31, 2022. Under this program, the Company repurchased 855,956 shares of common stock through December 19,
2022, at an average price of $36.31, for a total investment of $31.1 million.
In December 2022, the Company’s Board of Directors approved a new stock repurchase program authorizing the
repurchase of up to $25.0 million of the Company’s outstanding stock from time to time on the open market or in privately
negotiated transactions. The stock repurchase program is scheduled to expire on December 31, 2023, and replaced the stock
repurchase program mentioned above. Under this program, the Company repurchased 178,188 shares of common stock through
March 10, 2023, at an average price of $25.46, for a total investment of $4.5 million.
The following table presents information with respect to purchases of the Company’s common stock made during the
fourth quarter of 2022 by or on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3).
(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
Programs
October 1, 2022 - October 31, 2022
November 1, 2022 - November 30, 2022
December 1, 2022 - December 31, 2022
Total
Stock Performance Graph
42,000 $
121,077
121,209
242,286
24.53
25.37
25.17
42,000 $
121,077
121,209
242,286
8,907
5,835
23,864
The following graph and table compares the five-year cumulative total return to shareholders of First Internet Bancorp
common stock with that of the Nasdaq Composite Index and the S&P U.S. BMI Banks Index. The following assumes $100
invested on December 31, 2017 in First Internet Bancorp, the Nasdaq Composite Index and the S&P U.S. BMI Bank Index, and
21
assumes that dividends are reinvested. The historical stock price performance for our common stock is not necessarily
indicative of future stock performance.
Index
First Internet Bancorp
Nasdaq Composite Index
S&P U.S. BMI Banks Index
2017
2018
2019
2020
2021
2022
$
100.00 $
100.00
100.00
54.03 $
97.16
83.54
63.40 $
132.81
114.74
77.90 $
192.47
100.10
128.38 $
235.15
136.10
66.74
158.65
112.89
December 31,
Item 6.
[RESERVED]
22
Index ValueTotal Return PerformanceS&P U.S. BMI Banks IndexNasdaq Composite IndexFirst Internet Bancorp201720182019202020212022050100150200250300350
Item 7.
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 consolidated financial statements and related notes appearing elsewhere in this report.
The following discussion, analysis and comparisons generally focus on the operating results for the years ended
December 31, 2022 and 2021. Discussion, analysis and comparisons of the years ended December 31, 2021 and 2020 that are
not included in this Annual Report on Form 10-K can be found in “Management's Discussion and Analysis of Financial
Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31,
2021. This discussion and analysis includes certain forward-looking statements that involve risks, uncertainties and
assumptions. You should review the “Risk Factors” section of this report 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 the
“Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report.
Costs Associated with Exit Activities
Due to the steep decline in consumer mortgage volumes and the negative outlook for consumer mortgage lending over
the next several years, the Company decided to exit its consumer mortgage business during the first quarter of 2023. This
includes its nationwide digital direct-to-consumer mortgage platform that originates residential loans for sale in the secondary
market, as well as its local traditional consumer mortgage and construction-to-permanent business. The Company’s commercial
construction and land development business will not be affected by this decision and will remain an important part of the
Company’s lending strategy.
This action is expected to reduce total annual noninterest expense by approximately $6.8 million and increase
annualized pre-tax income by approximately $2.7 million, with 80% of the benefit realized in 2023 and 100% thereafter. The
Company estimates that it will incur total pre-tax expense of approximately $3.3 million in the first and second quarters of 2023
associated with exiting this line of business.
Results of Operations
During the twelve months ended December 31, 2022, net income was $35.5 million, or $3.70 per diluted share,
compared to net income of $48.1 million, or $4.82 per diluted share, for the twelve months ended December 31, 2021 and net
income of $29.5 million, or $2.99 per diluted share, for the twelve months ended December 31, 2020.
The $12.6 million decrease in net income for the twelve months ended December 31, 2022 compared to the twelve
months ended December 31, 2021 was due primarily to an $11.6 million decrease in noninterest income, an $11.5 million
increase in noninterest expense and a $3.9 million increase in provision for loan losses, partially offset by a $10.5 million
increase in net interest income and a $3.9 million decrease in income tax expense.
The increase in net income of $18.7 million for the twelve months ended December 31, 2021 compared to the twelve
months ended December 31, 2020 was due primarily to a $22.0 million increase in net interest income and an $8.3 million
decrease in provision for loan losses, partially offset by a $4.1 million increase in noninterest expense, a $4.0 million increase in
income tax expense and a $3.5 million decrease in noninterest income.
During the twelve months ended December 31, 2022, return on average assets was 0.85%, compared to 1.14% for the
twelve months ended December 31, 2021. During the twelve months ended December 31, 2022, return on average
shareholders’ equity was 9.53%, compared to 13.44% for the twelve months ended December 31, 2021. Additionally, for the
twelve months ended December 31, 2022, return on average tangible common equity was 9.65% compared to 13.61% for the
twelve months ended December 31, 2021. These profitability ratios declined during 2022 due primarily to the decrease in net
income. Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Item 7 of Part II of this report,
Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information.
23
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. Balances are
based on the average of daily balances. Nonaccrual loans are included in average loan balances.
Twelve Months Ended
December 31, 2022
December 31, 2021
December 31, 2020
Average
Balance
Interest/
Dividends
Yield/
Cost
Average
Balance
Interest/
Dividends
Yield/
Cost
Average
Balance
Interest/
Dividends
Yield/
Cost
(dollars in thousands)
Assets
Interest-earning assets
Loans, including loans held-for-sale
$ 3,142,166 $ 140,600
4.47 % $ 2,999,232 $ 123,467
4.12 % $ 3,025,989 $ 120,628
3.99 %
Securities - taxable
Securities - non-taxable
Other earning assets
537,921
10,711
1.99 % 544,613
7,970
1.46 % 530,849
11,123
2.10 %
75,382
1,767
2.34 %
84,482
1,017
1.20 %
95,173
1,728
1.82 %
278,073
3,830
1.38 % 466,608
1,429
0.31 % 523,788
3,380
0.65 %
Total interest-earning assets
4,033,542
156,908
3.89 % 4,094,935
133,883
3.27 % 4,175,799
136,859
3.28 %
Allowance for loan losses
Noninterest earning-assets
Total assets
Liabilities
Interest-bearing liabilities
(29,143)
166,127
$ 4,170,526
(29,068)
140,059
$ 4,205,926
(24,660)
112,659
$ 4,263,798
Interest-bearing demand deposits
$ 333,737 $
2,056
0.62 % $ 195,699 $
583
0.30 % $ 145,207 $
840
0.58 %
Savings accounts
Money market accounts
BaaS - brokered deposits
58,156
336
0.58 %
56,967
203
0.36 %
40,593
303
0.75 %
1,423,185
18,513
1.30 % 1,434,829
5,892
0.41 % 1,156,084
11,381
0.98 %
60,699
1,033
1.70 %
—
—
0.00 %
—
—
0.00 %
Certificates and brokered deposits
1,147,017
19,894
1.73 % 1,411,211
23,144
1.64 % 1,882,773
43,452
2.31 %
Total interest-bearing deposits
3,022,794
41,832
1.38 % 3,098,706
29,822
0.96 % 3,224,657
55,976
1.74 %
Other borrowed funds
638,526
17,983
2.82 % 600,035
17,505
2.92 % 586,372
16,342
2.79 %
Total interest-bearing liabilities
3,661,320
59,815
1.63 % 3,698,741
47,327
1.28 % 3,811,029
72,318
1.90 %
Noninterest-bearing deposits
Other noninterest-bearing liabilities
Total liabilities
Shareholders' equity
Total liabilities and shareholders'
equity
120,325
16,037
3,797,682
372,844
$ 4,170,526
101,825
47,255
3,847,821
358,105
$ 4,205,926
74,277
64,729
3,950,035
313,763
$ 4,263,798
Net interest income
$ 97,093
$ 86,556
$ 64,541
Interest rate spread1
Net interest margin2
Net interest margin - FTE3
2.26 %
2.41 %
2.54 %
1.99 %
2.11 %
2.25 %
1.38 %
1.55 %
1.68 %
1 Yield on total interest-earning assets minus cost of total interest-bearing liabilities
2 Net interest income divided by average interest-earning assets
3 On a fully-taxable equivalent (“FTE”) basis assuming a 21% tax rate. Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Item 7 of
Part II of this report, Management's Discussion and Analysis of Financial Condition and Results of Operations
24
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.
(amounts in thousands)
Interest income
Rate/Volume Analysis of Net Interest Income
Twelve Months Ended December 31, 2022 vs.
December 31, 2021 Due to Changes in
Twelve Months Ended December 31, 2021 vs.
December 31, 2020 Due to Changes in
Volume
Rate
Net
Volume
Rate
Net
Loans, including loans held-for-sale
$
6,157 $
10,976 $
17,133 $
(1,074) $
3,913 $
Securities – taxable
Securities – non-taxable
Other earning assets
Total
Interest expense
Interest-bearing deposits
Other borrowed funds
Total
(100)
(120)
(794)
5,143
(744)
1,094
350
2,841
870
3,195
17,882
12,754
(616)
12,138
2,741
750
2,401
23,025
12,010
478
12,488
285
(177)
(337)
(1,303)
(2,097)
388
(1,709)
(3,438)
(534)
(1,614)
(1,673)
2,839
(3,153)
(711)
(1,951)
(2,976)
(24,057)
775
(23,282)
(26,154)
1,163
(24,991)
Increase in net interest income
$
4,793 $
5,744 $
10,537 $
406 $
21,609 $
22,015
Net interest income for the twelve months ended December 31, 2022 was $97.1 million, an increase of $10.5 million,
or 12.2%, compared to $86.6 million for the twelve months ended December 31, 2021. The increase in net interest income was
the result of a $23.0 million, or 17.2%, increase in total interest income to $156.9 million for the twelve months ended
December 31, 2022 compared to $133.9 million for the twelve months ended December 31, 2021. This increase in total interest
income was partially offset by a $12.5 million, or 26.4%, increase in total interest expense to $59.8 million for the twelve
months ended December 31, 2022 compared to $47.3 million for the twelve months ended December 31, 2021.
The increase in total interest income was due to increases in interest earned on loans, including loans held-for-sale,
securities and other earning assets. Interest income earned on loans, including loans held-for-sale, increased by $17.1 million as
a result of the yield on the loan portfolio increasing by 35 bps, as well as the average balance of loans increasing by $142.9
million, or 4.8%. The increase in average loan balances was due primarily to increases in both the commercial (with the
exception of healthcare finance) and consumer loan portfolios. Interest income earned on securities increased $3.5 million, or
38.8%, due to an increase of 60 bps in the yield earned on securities, partially offset by a decrease of $15.8 million, or 2.5%, in
the average balance of securities. Interest income earned on other earning assets increased $2.4 million, or 168.0%, due to an
increase of 107 bps in the yield earned on these assets, partially offset by a decrease of $188.5 million, or 40.4%, in the average
balance of other earning assets. The decrease in the average balance of other earning assets was due primarily to lower cash
balances. The increase in the yields earned on loans, securities and other earning assets was due primarily to the rise in interest
rates throughout 2022.
The increase in total interest expense was driven primarily by increases in interest expense related to money market
accounts, interest-bearing demand deposits and BaaS – brokered deposits, but partially offset by a decrease in interest expense
related to certificates and brokered deposits. The increase in interest expense related to money market accounts of $12.6
million, or 214.2%, was driven by an increase of 89 bps in the cost of these deposits, partially offset by a decrease of $11.6
million, or 0.8%, in the average balance of these deposits. The increase in interest expense related to interest-bearing demand
deposits of $1.5 million, or 252.7%, was due primarily to an increase of $138.0 million, or 70.5%, in the average balance of
these deposits and an increase of 32 bps in the cost of these deposits. The increase in BaaS – brokered deposit expense was due
to a $60.7 million increase in the average balance of deposits. The decrease in interest expense in certificates and brokered
deposits of $3.3 million, or 14.0%, was due primarily to a $264.2 million, or 18.7%, decrease in the average balance of these
deposits, partially offset by an increase of 9 bps in the cost of these deposits. The decrease in certificates and brokered deposit
balances was driven by our pricing strategy to reduce the level of these higher cost deposits. The increase in the cost of total
interest-bearing deposits, reflects the increase in interest rates throughout 2022.
25
Net interest margin (“NIM”) was 2.41% for the twelve months ended December 31, 2022 compared to 2.11% for the
twelve months ended December 31, 2021. On a fully-taxable equivalent (“FTE”) basis, NIM was 2.54% for the twelve months
ended December 31, 2022 compared to 2.25% for the twelve months ended December 31, 2021, an increase of 29 bps. The
increase in NIM and FTE NIM compared to the twelve months ended December 31, 2021 was due primarily to an increase in
the yield earned on interest-earning assets, partially offset by an increase in the cost of interest-bearing liabilities. The increase
in the yield on interest-earning assets and cost of interest-bearing deposits was driven primarily by the increase in interest rates
throughout 2022.
Noninterest Income
The following table presents noninterest income for the three most recent years.
(amounts in thousands)
Service charges and fees
Loan servicing revenue
Loan servicing asset revaluation
Mortgage banking activities
Gain on sale of loans
Gain on sale of securities
Gain on sale of premises and equipment
Other
Total noninterest income
Twelve Months Ended December 31,
2022
2021
2020
$
1,071 $
1,114 $
2.573
(1,639)
5,464
11,372
—
—
2,416
1,934
(1,069)
15,050
11,598
—
2,523
1,694
$
21,257 $
32,844 $
824
1,159
(432)
24,693
8,298
139
—
1,655
36,336
During the twelve months ended December 31, 2022, noninterest income totaled $21.3 million, representing a decrease
of $11.6 million, or 35.3%, compared to $32.8 million for the twelve months ended December 31, 2021. The decrease in
noninterest income was driven primarily by a decrease in revenue from mortgage banking activities, no gain on sale of premises
and equipment in 2022 and a $0.6 million decrease in loan servicing asset revaluation, which was partially offset by an increase
in other noninterest income. The decrease in mortgage banking revenue was due mainly to decreases in interest rate locks, sold
loan volumes and gain-on-sale margins driven by the increase in interest rates throughout 2022. The increase in other
noninterest income was due primarily to distributions received on certain Small Business Investment Company and venture
capital fund investments. Net loan servicing revenue was relatively stable as growth in the balance of the Company’s SBA 7(a)
servicing portfolio was offset by the negative impact of prepayment speeds on the servicing asset revaluation.
Noninterest Expense
The following table presents noninterest expense for the three most recent years.
(amounts in thousands)
Salaries and employee benefits
Marketing, advertising and promotion
Consulting and professional services
Data processing
Loan expenses
Premises and equipment
Deposit insurance premium
Write-down of other real estate owned
Other
Total noninterest expense
Twelve Months Ended December 31,
2022
2021
2020
$
41,553 $
38,223 $
34,231
3,554
4,826
1,989
4,435
10,688
1,152
—
5,076
3,261
4,054
1,649
2,112
7,063
1,213
—
4,223
1,654
3,511
1,528
2,036
6,396
1,810
2,065
4,423
$
73,273 $
61,798 $
57,654
26
Noninterest expense for the twelve months ended December 31, 2022 was $73.3 million, compared to $61.8 million
for the twelve months ended December 31, 2021. The increase of $11.5 million, or 18.6%, compared to the twelve months
ended December 31, 2021 was due primarily to increases of $3.6 million in premises and equipment, $3.3 million in salaries
and employee benefits, $2.3 million in loan expenses, $0.9 million in other noninterest expense and $0.8 million in consulting
and professional fees. The increase in premises and equipment was due mainly to costs associated with the Company’s new
corporate headquarters, as well as investments in technology, software maintenance and a write-down of software. The higher
salaries and employee benefits expense was due mainly to increased headcount, higher medical claims expense, a $0.5 million
discretionary inflation bonus paid to certain employees and $0.3 million of accelerated equity compensation related to
employees who retired during the year. The increase in loan expenses was due primarily to servicing fees related to tax refund
advance loans and franchise finance loans. The increase in other was due to several items, none of which were individually
significant. The increase in consulting and professional fees was due primarily to a $0.9 million consulting fee associated with a
special project.
27
Income Taxes
The following table reconciles reported income tax expense to that computed at the statutory federal tax rate for the
three most recent years.
(amounts in thousands)
Statutory rate times pre-tax income
(Subtract) add the tax effect of:
Income from tax-exempt securities and loans
State income taxes, net of federal tax effect
Bank-owned life insurance
Tax credits
Other differences
Income tax expense
Twelve Months Ended December 31,
2022
2021
2020
$
8,421 $
11,880 $
7,119
(4,190)
(4,217)
592
(201)
(143)
80
865
(199)
(175)
304
(4,464)
1,765
(200)
(178)
403
$
4,559 $
8,458 $
4,445
We recognized income tax expense of $4.6 million in 2022, resulting in an effective tax rate of 11.4%, compared to
$8.5 million and an effective tax rate of 15.0% in 2021. Our federal statutory tax rate was 21% in 2022 and 2021. In both 2022
and 2021, the variance from the federal statutory rate was due primarily to tax-exempt income, partially offset by state income
taxes. Interest income on certain loans or securities issued by governmental, municipal and not-for-profit entities, and earnings
from bank-owned life insurance were the primary components of tax-exempt income. The decrease in the effective tax rate and
income tax expense was due primarily to the decrease in pre-tax earnings driven by a lower proportion of taxable revenue,
including decreased mortgage banking activities and no gain on sale of premises and equipment in 2022.
28
Financial Condition
The following table presents summary balance sheet data as of the end of the last two years.
(amounts in thousands)
Balance Sheet Data:
Total assets
Loans
Total securities
Loans held-for-sale
Noninterest-bearing deposits
Interest-bearing deposits
Total deposits
Advances from Federal Home Loan Bank
Total shareholders' equity
December 31,
2022
2021
$
4,543,104 $
3,499,401
579,552
21,511
175,315
3,265,930
3,441,245
614,928
364,974
4,210,994
2,887,662
662,609
47,745
117,531
3,061,428
3,178,959
514,922
380,338
Total assets increased $332.1 million, or 7.9%, to $4.5 billion as of December 31, 2022 compared to $4.2 billion as of
December 31, 2021. The increase in total assets was driven primarily by an increase in loan balances, partially offset by
decreases in cash and securities.
As of December 31, 2022, total shareholders’ equity was $365.0 million, a decrease of $15.4 million, or 4.0%,
compared to December 31, 2021, due primarily to stock repurchase activity and an increase in accumulated other
comprehensive loss resulting from a decline in the value of the available-for-sale securities portfolio caused mainly by the
continued rise in interest rates during the year. This was partially offset by the net income earned during the year and an
increase in the value of interest rate swaps classified as cash flow hedges. Tangible common equity totaled $360.3 million as of
December 31, 2022, representing a decrease of $15.4 million, or 4.1%, compared to December 31, 2021. The ratio of total
shareholders’ equity to total assets decreased to 8.03% as of December 31, 2022 from 9.03% as of December 31, 2021 and the
ratio of tangible common equity to tangible assets decreased to 7.94% as of December 31, 2022 from 8.93% as of December
31, 2021.
Book value per common share increased 3.3% to $40.26 as of December 30, 2022 from $38.99 as of December 31,
2021. Tangible book value per share increased 3.2% to $39.74 as of December 31, 2022 from $38.51 as of December 31, 2021.
The growth in both book value per common share and tangible book value per share reflects net income earned during the year
and the effect of stock repurchase activity throughout the year, partially offset by the increase in accumulated other
comprehensive loss. Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Item 7 of Part II of this report,
Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information.
29
Loan Portfolio Analysis
The following table provides information regarding our loan portfolio as of the end of the last two years.
(dollars in thousands)
Commercial loans
Commercial and industrial
Owner-occupied commercial real estate
Investor commercial real estate
Construction
Single tenant lease financing
Public finance
Healthcare finance
Small business lending
Franchise finance
Total commercial loans
Consumer loans
Residential mortgage
Home equity
Other consumer
Total consumer loans
Total commercial and consumer loans
December 31,
2022
2021
$
126,108
3.6 % $
96,008
61,836
93,121
181,966
939,240
621,032
272,461
123,750
299,835
1.8 %
2.7 %
66,732
28,019
5.2 %
136,619
26.8 %
865,854
17.7 %
592,665
7.8 %
387,852
3.5 %
108,666
8.6 %
81,448
3.3 %
2.3 %
1.0 %
4.7 %
30.0 %
20.5 %
13.4 %
3.8 %
2.8 %
2,719,349
77.7 % 2,363,863
81.8 %
383,948
11.0 %
186,770
24,712
324,598
733,258
0.7 %
17,665
9.3 %
265,478
21.0 %
469,913
3,452,607
98.7 % 2,833,776
6.5 %
0.6 %
9.2 %
16.3 %
98.1 %
1.9 %
Net deferred loan origination costs, premiums and discounts on purchased loans and other 1
46,794
1.3 %
53,886
Total loans
Allowance for loan losses
Net loans
3,499,401
100.0 % 2,887,662
100.0 %
(31,737)
$ 3,467,664
(27,841)
$ 2,859,821
1 Includes carrying value adjustments of $32.5 million and $37.5 million related to terminated interest rate swaps associated with public
finance loans as of December 31, 2022 and December 31, 2021, respectively.
Total loans were $3.5 billion as of December 31, 2022, an increase of $611.7 million, or 21.2%, compared to
December 31, 2021. Total commercial loan balances were $2.7 billion, as of December 31, 2022, up $355.5 million, or 15.0%,
from December 31, 2021. Total consumer loan balances were $733.3 million as of December 30, 2022, an increase of $263.3
million, or 56.0%, compared to December 31, 2021. The increase in commercial loan balances was driven primarily by growth
in franchise finance, single tenant lease financing, investor commercial real estate, construction, commercial and industrial,
public finance and small business lending balances. These increases were partially offset by net payoffs in healthcare finance
and owner-occupied commercial real estate loans. The increase in consumer loan balances was due primarily to higher balances
in the residential mortgage, recreational vehicles and trailers loan portfolios.
30
Loan Maturities and Rate Sensitivity
The following table shows the contractual maturity distribution intervals (without regard to repayment schedules) of
the outstanding loans in our portfolio as of December 31, 2022.
(amounts in thousands)
Commercial loans
Within 1 Year
1-5 Years
5-15 Years
Beyond 15
Years
Total
Commercial and industrial
$
30,741 $
68,563 $
26,795 $
9 $
126,108
Owner-occupied commercial real estate
Investor commercial real estate
Construction
Single tenant lease financing
Public finance
Healthcare finance
Small business lending
Franchise finance
Total commercial loans
Consumer loans
Residential mortgage
Home equity
Other consumer
Total consumer loans
1,836
13,571
63,699
16,708
49,056
5
798
2,910
179,324
306
1,759
1,250
3,315
26,249
76,774
118,069
400,089
118,646
27,234
5,274
47,703
33,751
2,776
198
522,443
453,330
245,222
78,386
249,222
—
—
—
—
—
—
39,292
—
61,836
93,121
181,966
939,240
621,032
272,461
123,750
299,835
888,601
1,612,123
39,301
2,719,349
1,279
356
30,835
32,470
30,352
5,695
292,513
328,560
352,011
16,902
—
368,913
383,948
24,712
324,598
733,258
Total commercial and consumer loans
$
182,639 $
921,071 $
1,940,683 $
408,214 $
3,452,607
The following table shows the rate sensitivity of the outstanding loans in our portfolio by the contractual maturity
distribution intervals as of December 31, 2022.
(amounts in thousands)
Within 1 Year
1-5 Years
5-15 Years
Beyond 15
Years
Total
Fixed rate
Variable rate
Total commercial and consumer loans
$
$
73,869 $
681,066 $
1,820,429 $
304,928 $
2,880,292
108,770
240,005
120,254
103,286
572,315
182,639 $
921,071 $
1,940,683 $
408,214 $
3,452,607
Loan Approval Procedures and Authority
Our lending activities follow written, non-discriminatory policies with loan approval limits approved by the Board of
Directors of the Bank. Loan officers have underwriting and approval authorization of varying amounts based on their lending
experience and product type. Additionally, based on the amount of the loan, multiple approvals may be required. Based on the
Bank’s legal lending limit, the maximum it could lend to any one borrower at December 31, 2022 was $74.7 million.
Our goal is to have a well-diversified and balanced loan portfolio. In order to manage our loan portfolio risk, we
establish concentration limits by borrower, product type, industry and geography. To supplement our internal loan review
resources, we have engaged independent third-party loan review groups, which are a key component of our overall risk
management process related to credit administration.
31
Asset Quality
(dollars in thousands)
Nonaccrual loans
Commercial loans:
Commercial and industrial
Owner-occupied commercial real estate
Single tenant lease financing
Small business lending
Total commercial loans
Consumer loans:
Residential mortgage
Home equity
Other consumer
Total consumer loans
Total nonaccrual loans
Past Due 90 days and accruing loans
Consumer loans:
Residential mortgage
Total consumer loans
Total past due 90 days and accruing loans
Total nonperforming loans
Other real estate owned
Single tenant lease financing
Total other real estate owned
Other nonperforming assets
Total nonperforming assets
Total nonperforming loans to total loans
Total nonperforming assets to total assets
Allowance for loan losses to total loans
Nonaccrual loans to total loans
Allowance for loan losses to nonaccrual loans
December 31,
2022
2021
$
51
$
1,570
—
4,764
6,385
1,048
—
17
1,065
7,450
79
79
79
674
3,419
1,100
959
6,152
1,226
14
9
1,249
7,401
—
—
—
7,529
7,401
—
—
42
1,188
1,188
29
$
7,571
$
8,618
0.22 %
0.17 %
0.91 %
0.22 %
0.26 %
0.20 %
0.96 %
0.26 %
426.0 %
376.2 %
A loan is designated as impaired, in accordance with the impairment accounting guidance when, based on current
information or events, it is probable that we will be unable to collect all amounts due (principal and interest) according to the
contractual terms of the loan agreement. Payments with delays generally not exceeding 90 days outstanding are not considered
impaired. Certain nonaccrual and substantially all delinquent loans more than 90 days past due may be considered to be
impaired. Generally, loans are placed on nonaccrual status at 90 days past due and accrued interest is reversed against earnings,
unless the loan is well secured and in the process of collection. The accrual of interest on impaired and nonaccrual loans is
discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due.
Impaired loans include nonperforming loans and also include loans modified in troubled debt restructurings (“TDRs”)
where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a
reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance, or other actions intended to
maximize collection.
Nonperforming loans are comprised of total 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
32
repossessed assets. Nonperforming assets can also include investments that were classified as other-than-temporarily impaired;
however, we did not own any investments classified as such during the two-year period ended December 31, 2022.
The increase in nonperforming loans of $0.1 million, or 1.7%, to $7.5 million as of December 31, 2022 compared to
$7.4 million as of December 31, 2021 was due primarily to SBA loans placed on nonaccrual, partially offset by upgrades and
payoffs in owner-occupied commercial real estate and single tenant lease financing during 2022. Total nonperforming assets
declined by $1.0 million, or 12.2%, as of December 31, 2022 compared to December 31, 2021, due primarily to the upgrades
and payoffs discussed above, as well as the decline in other real estate owned (“OREO”) discussed below.
The ratio of nonperforming loans to total loans decreased to 0.22% as of December 31, 2022 compared to 0.26% as of
December 31, 2021 and the ratio of nonperforming assets to total assets decreased to 0.17% as of December 31, 2022,
compared to 0.20% as of December 31, 2021.
Troubled Debt Restructurings
(amounts in thousands)
Troubled debt restructurings – nonaccrual
Troubled debt restructurings – performing
Total troubled debt restructurings
December 31,
2022
2021
$
$
2,864 $
2,658
5,522 $
2,492
1,693
4,185
Total TDRs as of December 31, 2022 were $5.5 million, up $1.3 million from December 31, 2021. The increase was
driven by two portfolio residential mortgage loans and one small business lending loan classified as new TDRs during the
twelve months ended December 31, 2022 with pre-modification and post-modification balances totaling $1.6 million.
As of December 31, 2022, the Company did not own any OREO. As of December 31, 2021, we had one commercial
property in OREO with a carrying value of $1.2 million. During 2022, the Company reached a settlement agreement with the
guarantor, which resulted in the Company recovering $1.2 million in excess of the carrying value of OREO.
Non-TDR Loan Modifications due to COVID-19
The “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers
Affected by the Coronavirus” was issued by our banking regulators on March 22, 2020. This guidance encourages financial
institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to
the effects of COVID-19.
Additionally, Section 4013 of the CARES Act further provided that loan modifications due to the impact of
COVID-19 that would otherwise be classified as TDRs under GAAP will not be so classified. Modifications within the scope of
this relief were in effect from the period beginning March 1, 2020 until January 1, 2022.
In accordance with this guidance, we offered modifications to borrowers who were both impacted by COVID-19 and
current on all principal and interest payments. As of December 31, 2022, the Company had no loans as non-TDR loan
modifications due to COVID-19.
U.S. Small Business Administration Paycheck Protection Program
Section 1102 of the CARES Act created the Paycheck Protection Program (“PPP”), which is jointly administered by
the SBA and the Department of the Treasury. The PPP is designed to provide a direct incentive to small businesses to retain
employees on their payroll during COVID-19 as well as to help cover certain utility costs and rent payments. These loans may
be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA. In 2020, as a preferred SBA lender, we
assisted our clients in participating in the PPP to help them maintain their workforce in an uncertain and challenging
environment. The loans originated in 2020 bear an interest rate of 1.00%, and we received gross origination fees of
approximately $2.3 million. The Company received this fee revenue from the SBA in late June 2020, and it was deferred over
the life of the PPP loans and recognized as interest income. The Company began processing applications for forgiveness from
this round beginning in December 2020 and 100% of loan balances had been forgiven as of December 31, 2021.
On December 27, 2020, $285 billion in additional funding was allocated to the PPP through the passage of the
Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act. The Company began offering PPP loans again in
2021 and continued until the program’s funds were depleted. These loans may be forgiven if certain conditions are satisfied and
33
are fully guaranteed by the SBA. The loans originated during 2021 bear an interest rate of 1.00% and the Company received
gross origination fees of approximately $1.3 million. The Company received this fee revenue from the SBA during 2021, and it
was deferred over the life of the PPP loans and recognized as interest income. The Company began processing applications for
forgiveness from this round beginning in May 2021 and 100% of loan balances had been forgiven as of December 31, 2022.
The following table provides a rollforward of the activity of PPP loans through December 31, 2022.
(dollars in thousands)
Originated
Principal repaid
Net deferred fees recognized
Balance, December 31, 2020
Originated
Principal repaid
Net deferred fees recognized
Balance, December 31, 2021
Originated
Principal repaid
Net deferred fees recognized
Balance, December 31, 2022
Number of Loans
Principal Balance
Net Deferred Fees
$
447
(71)
58,336
$
(7,184)
376
281
(634)
23
(23)
51,152
27,377
(75,377)
3,152
(3,152)
—
$
—
$
1,851
(1,253)
598
1,125
(1,624)
99
(99)
—
34
Allowance for Loan Losses
The following table provides a rollforward of the allowance for loan losses for the twelve months ended December 31,
2022 and 2021.
(amounts in thousands)
Balance, beginning of period
Provision charged to expense
Losses charged off
Commercial and industrial
Single tenant lease financing
Small business lending
Residential mortgage
Home equity
Other consumer
Total losses charged off
Recoveries
Commercial and industrial
Single tenant lease financing
Small business lending
Residential mortgage
Home equity
Other consumer
Total recoveries
Balance, end of period
Net charge-offs
Net charge-offs (recoveries) to average loans (annualized)
Commercial and industrial
Single tenant lease financing
Small business lending
Total commercial net charge-offs (recoveries)
Residential mortgage
Home equity
Other consumer
Total consumer net charge-offs (recoveries)
Net charge-offs to average loans
December 31,
2022
2021
$
27,841
$
4,977
—
—
(402)
—
—
(2,358)
(2,760)
5
1,231
29
4
139
271
1,679
31,737
1,081
(0.01) %
(0.14) %
0.32 %
(0.03) %
— %
(0.68) %
0.43 %
0.32 %
0.03 %
$
$
29,484
1,030
(28)
(2,391)
(222)
(6)
(51)
(529)
(3,227)
89
—
80
63
7
315
554
$
$
27,841
2,673
(0.08) %
0.26 %
0.11 %
0.10 %
(0.03) %
0.24 %
0.29 %
0.04 %
0.09 %
The determination of the allowance for loan losses and the related provision for loan losses are components of our
significant accounting policies as discussed within Note 1 to our consolidated financial statements. The adequacy of the
allowance for loan losses and the provision are based on the review and evaluation of the loan portfolio and reflect
management’s assessment of the risks and potential losses within the portfolio. This evaluation considers historical loss
experience as well as qualitative factors such as economic and business conditions, portfolio growth, concentrations of credit in
the portfolio, trends in risk grades, delinquencies within the portfolio and changes in our lending policies and practices.
Management actively monitors asset quality and, when appropriate, charges off loans against the allowance for loan
losses. Although management believes it uses the best information available to make determinations with respect to the
allowance for loan losses, future adjustments may be necessary if economic conditions differ substantially from those in the
assumptions used to determine the size of the allowance for loan losses.
The allowance for loan losses was $31.7 million as of December 31, 2022, compared to $27.8 million as of
December 31, 2021. The increase in the allowance for loan losses compared to December 31, 2021 was due primarily to the
growth in the overall loan portfolio, partially offset by a reduction in specific reserves. The decrease in the specific reserves was
due to positive developments on certain monitored loans.
35
The allowance for loan losses as a percentage of total loans, including and excluding PPP loans, was 0.91% as of
December 31, 2022, compared to 0.96% and 0.97%, respectively, as of December 31, 2021. The allowance for loan losses as a
percentage of nonperforming loans increased to 421.5% as of December 31, 2022, up from to 376.2% as of December 31, 2021.
The provision for loans losses was $5.0 million for the twelve months ended December 31, 2022 compared to $1.0 million for
the twelve months ended December 31, 2021. The increase in the provision for loan losses was due primarily to the increase in
loan balances during the year. During 2022, we recorded net charge-offs of $1.1 million, compared to $2.7 million during 2021.
The decrease in net charge-offs was due primarily to charge-offs that occurred during 2021 related to single tenant lease
financing loans and a commercial and industrial relationship.
Investment Securities Portfolio
In managing our investment securities portfolio, management focuses on providing an adequate level of liquidity and
managing long-term interest rate risk, while earning an adequate level of investment income without taking undue risk.
Investment securities that are acquired and held principally for the purpose of selling them in the near term with the objective of
generating economic profits on short-term differences in market characteristics are classified as “trading securities.” We did not
classify any securities as trading securities as of December 31, 2022 and 2021. Securities that we intend to hold until maturity
are classified as “held-to-maturity” securities, and all other investment securities are classified as “available-for-sale.” The
carrying values of available-for-sale investment securities are adjusted for unrealized gains or losses as a valuation allowance
and any gain or loss is reported on an after-tax basis as a component of other comprehensive income (loss).
We periodically evaluate each security in an unrealized loss position to determine if the impairment is temporary or
other-than-temporary. As of December 31, 2022, the unrealized losses in our investment securities portfolio were due primarily
to interest rate changes. We have the ability and intent to hold all investment securities in an unrealized loss position resulting
from interest rate changes to the earlier of the forecasted recovery or the maturity of the underlying investment security. As of
December 31, 2022, we did not have any investment securities of a single issuer that exceeded 10% of shareholders’ equity.
The term “issuer” excludes the U.S. Government and its sponsored agencies and corporations.
36
The following tables present the amortized cost and approximate fair value of our investment securities portfolio by
security type as of the end of the last two years.
(amounts in thousands)
Amortized Cost
Securities available-for-sale
U.S. Government-sponsored agencies
Municipal securities
Agency mortgage-backed securities - residential
Agency mortgage-backed securities - commercial
Private label mortgage-backed securities - residential
Asset-backed securities
Corporate securities
Total securities available-for-sale
Securities held-to-maturity
Municipal securities
Agency mortgage-backed securities - residential
Agency mortgage-backed securities - commercial
Corporate securities
Total securities held-to-maturity
Total securities
Approximate Fair Value
Securities available-for-sale
U.S. Government-sponsored agencies
Municipal securities
Agency mortgage-backed securities - residential
Agency mortgage-backed securities - commercial
Private label mortgage-backed securities - residential
Asset-backed securities
Corporate securities
Total securities available-for-sale
Securities held-to-maturity
Municipal securities
Agency mortgage-backed securities - residential
Agency mortgage-backed securities - commercial
Corporate securities
Total securities held-to-maturity
Total securities
December 31,
2022
2021
$
35,606 $
68,958
252,066
17,142
11,777
5,000
45,634
50,013
75,158
377,928
36,024
15,902
5,000
46,482
436,183
606,507
13,946
121,853
5,818
47,551
189,168
13,992
—
—
45,573
59,565
$
625,351 $
666,072
December 31,
2022
2021
$
33,809 $
67,276
215,092
15,840
10,455
4,960
42,952
49,040
77,033
373,236
36,326
16,021
5,004
46,384
390,384
603,044
12,832
106,741
4,552
44,358
168,483
14,709
—
—
46,759
61,468
$
558,867 $
664,512
The approximate fair value of investment securities available-for-sale decreased $212.7 million, or 35.3%, to $390.4
million as of December 31, 2022 compared to $603.0 million as of December 31, 2021. The decrease was due primarily to a
decrease of $158.1 million in agency mortgage-backed securities - residential, $20.5 million in agency mortgage-backed
securities - commercial, $15.2 million in U.S. Government-sponsored agencies securities, $9.8 million in municipal securities,
and $5.6 million in private label mortgage-backed securities - residential. The decrease in agency mortgage-backed securities -
residential and agency mortgage-backed securities - commercial was due primarily to the transfer of $96.2 million of these
securities from available-for-sale to held-to-maturity in the first quarter 2022, a decline in fair value resulting from the
continued rise in interest rates, as well as net paydown activity. The decreases in other securities types were also driven by a
decline in value resulting from the continued rise in interest rates, as well as net paydown activity.
37
Investment Maturities
The following table summarizes the contractual maturity schedule of our investment securities at their amortized cost
and their weighted average yields at December 31, 2022.
1 year or less
Amortized
Cost
Wtd.
Avg.
Yield
More than 1 year
to 5 years
More than 5 years
to 10 years
More than 10 years
Total
Amortized
Cost
Wtd.
Avg.
Yield
Amortized
Cost
Wtd.
Avg.
Yield
Amortized
Cost
Wtd.
Avg.
Yield
Amortized
Cost
Wtd.
Avg.
Yield
(dollars in thousands)
Securities:
U.S. Government-
sponsored agencies
$
Municipal securities
—
—
0.00 % $
1,386
2.63 % $
20,543
2.98 % $
13,677
2.39 % $
35,606
2.74 %
0.00 %
9,522
2.90 %
13,290
2.78 %
60,092
2.68 %
82,904
2.72 %
Agency mortgage-backed
securities - residential
Agency mortgage-backed
securities - commercial
Private-label mortgage-
backed securities -
residential
Asset-backed securities
Corporate securities
Total securities
$
—
0.00 %
—
0.00 %
5,273
2.70 %
368,646
1.82 %
373,919
1.83 %
—
0.00 %
4,950
2.24 %
705
4.49%
17,305
2.23 %
22,960
1.46 %
0.00 %
—
0.00 %
11,777
3.14 %
11,777
3.14 %
0.00 %
0.00 %
—
—
—
—
—
—
0.00 %
35,066
5.39 %
58,119
4.51 %
0.00 %
5,000
6.21 %
—
—
0.00 %
5,000
6.21 %
0.00 %
93,185
4.84 %
0.00 % $
50,924
4.54 % $ 102,930
3.97 % $ 471,497
1.99 % $ 625,351
2.49 %
Accrued Income and Other Assets
Accrued income and other assets decreased $2.0 million, or 4.2%, to $44.9 million at December 31, 2022 compared to
$46.9 million at December 31, 2021.
Deposits
The following table presents the composition of our deposit base as of the end of the last two years.
(dollars in thousands)
Noninterest-bearing deposits
Interest-bearing demand deposits
Savings accounts
Money market accounts
BaaS - brokered deposits
Certificates of deposits
Brokered deposits
Total
December 31,
2022
2021
$ 175,315
5.1 % $ 117,531
335,611
9.8 % 247,967
44,819
1.3 %
59,998
3.7 %
7.8 %
1.9 %
1,418,599
41.2 % 1,483,936
46.7 %
13,607
0.4 %
—
— %
874,490
25.4 % 970,107
30.5 %
578,804
16.8 % 299,420
9.4 %
$ 3,441,245
100.0 % $ 3,178,959
100.0 %
Total deposits increased $262.3 million, or 8.3%, to $3.4 billion as of December 31, 2022 compared to $3.2 billion as
of December 31, 2021. This increase was due primarily to increases of $279.4 million, or 93.3%, in brokered deposits, $87.6
million, or 35.3%, in interest-bearing demand deposits, $57.8 million, or 49.2%, in noninterest-bearing deposits and $13.6
million in BaaS - brokered deposits partially offset by a decline of $95.6 million, or 9.9% in certificates of deposits, $65.3
million, or 4.4%, in money market accounts, and $15.2 million, or 25.3%, in savings accounts. The increase in brokered
deposits was due to accessing certain deposit channels during the third and fourth quarters 2022 to support balance sheet
liquidity and manage interest rate risk. The increase in the balance of interest-bearing demand deposits was due primarily to a
new customer relationship with approximately $100.0 million in deposits with a contractual term of five years and a fixed rate
of 1.15%. The increase in the balance of noninterest-bearing demand deposits was driven primarily by deposits associated with
our commercial real estate construction and development lending, as well as an increase in non-brokered BaaS deposits. BaaS -
brokered deposits increased due to certain fintech relationships being on-boarded during the fourth quarter 2022, which resulted
in deposit inflows of $13.6 million at year end 2022. The decrease in the balance of certificates of deposits was due to the
maturity of higher-cost balances and reduced pricing strategies designed to limit the volume of new production. The decrease in
money market accounts was due primarily to certain customer activity that can be periodically volatile.
38
The following tables present contractual interest rates paid on time deposits, their scheduled maturities, and the
scheduled maturities for time deposits greater than $250,000.
Time Deposit Maturities at December 31, 2022
(dollars in thousands)
Interest Rate:
<1.00%
1.00% – 1.99%
2.00% – 2.99%
3.00% – 3.99%
4.00% – 4.99%
Total
Period to Maturity
Less than 1
year
> 1 year
to 2 years
> 2 years
to 3 years
More than
3 years
Total
Percentage of
Total
Certificate
Accounts
$
217,897 $
73,320 $
96,589 $
92,519 $
480,325
89,076
144,606
99,011
88,411
19,076
80,122
21,034
4,360
10,559
7,711
8,983
—
1,323
48,471
26,695
—
120,034
280,910
155,723
92,771
42.5 %
10.6 %
24.9 %
13.8 %
8.2 %
$
639,001 $
197,912 $
123,842 $
169,008 $
1,129,763
100.0 %
Time Deposit Maturities Greater than $250,000
(dollars in thousands)
Maturity Period:
3 months or less
Over 3 through 6 months
Over 6 through 12 months
Over 12 months
Total
Federal Home Loan Bank Advances
December 31, 2022
$
$
37,873
64,277
105,853
276,697
484,700
Although deposits are the primary source of funds for our lending and investment activities and for general business
purposes, we may use short-term advances from the Federal Home Loan Bank of Indianapolis (the “FHLB”) to manage
liquidity needs and longer-term advances to supplement deposit growth and manage interest rate risk. The following table is a
summary of FHLB borrowings for the periods indicated.
(dollars in thousands)
Balance outstanding at end of period
Average amount outstanding during period
Maximum outstanding at any month end during period
Weighted average interest rate at end of period1
Weighted average interest rate during period1
At or For The Twelve Months Ended December 31,
2022
2021
2020
$
614,928
$
514,922
$
514,916
534,144
615,928
514,617
514,922
514,913
514,916
2.82 %
2.15 %
1.65 %
1.68 %
1.30 %
1.78 %
1Excludes the impact of interest rate swaps. Refer to Note 18 to our consolidated financial statements for additional information about derivative financial
instruments.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities were $14.5 million at December 31, 2022 compared to $30.5 million at
December 31, 2021. The decrease in accrued expenses and other liabilities was due primarily to a $14.3 million decrease in
derivative liabilities due to changes in fair value.
Liquidity and Capital Resources
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.
39
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 December 31, 2022, on a consolidated basis, the Company
had $0.6 billion in cash and cash equivalents and investment securities available-for-sale, and $21.5 million in loans held-for-
sale that were generally available for our cash needs. The Company can also generate funds from wholesale funding sources
and collateralized borrowings. At December 31, 2022, the Bank had the ability to borrow an additional $473.9 million from the
FHLB, the Federal Reserve and correspondent bank Fed Funds lines of credit.
The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its
operating expenses, the Company is responsible for paying any dividends declared to its common shareholders and interest and
principal on outstanding debt. The Company’s primary sources of funds are cash maintained at the holding company level and
dividends from the Bank, the payment of which is subject to regulatory limits. At December 31, 2022, the Company, on an
unconsolidated basis, had $22.3 million in cash generally available for its cash needs, which is in excess of its current annual
regular shareholder dividend and operating expenses.
The Company uses its sources of funds primarily to meet ongoing financial commitments, including withdrawals by
depositors, credit commitments to borrowers, operating expenses and capital expenditures. At December 31, 2022, approved
outstanding loan commitments, including unused lines of credit and standby letters of credit, amounted to $485.4 million.
Certificates of deposits and brokered certificates of deposits scheduled to mature in one year or less at December 31, 2022
totaled $639.0 million.
Management is not aware of any other events or regulatory requirements that, if implemented, are likely to have a
material effect on either the Company’s or the Bank’s liquidity.
The following table presents the Company’s significant contractual obligations as of December 31, 2022.
(dollars in thousands)
Premises and equipment
Deposits and brokered deposits without stated maturity1
Certificates of deposits and brokered deposits1,2
FHLB advances1,2
Subordinated debt1
Total contractual obligations
Note
Reference
5
8
8
9
10
Payments Due In
Less than
1 year
1-3 years
3-5 years
More
than 5
years
Total
4,200 $
$
2,311,482
— $
—
— $
—
— $
—
4,200
2,311,482
639,002
145,000
—
1,129,763
614,928
107,000
$ 3,099,684 $ 556,763 $ 279,007 $ 231,919 $ 4,167,373
—
124,919
107,000
169,007
110,000
—
321,754
235,009
—
1 Amounts do not include associated interest payments.
2 Amounts do not include the effect of interest rate swaps used to convert short-term advances into long-term funding.
In October 2021, the Company’s Board of Directors approved a stock repurchase program authorizing the repurchase
of up to $30.0 million of the Company’s outstanding common stock from time to time on the open market or in privately
negotiated transactions. In October 2022, the Company’s Board of Directors increased the authorization to $35.0 million. Under
this program, The Company repurchased a total of 855,956 shares at an average price of $36.31 per share under the program
through December 19, 2022.
40
On December 19, 2022, the Company's Board of Directors approved a new stock repurchase program authorizing 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 replaced the Company’s previously announced stock repurchase
program and is scheduled to expire on December 31, 2023. 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 5, of this report
for information regarding recent repurchase activity and our remaining authority under the program.
41
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 and net interest margin - FTE 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 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 three completed fiscal years ended on December 31.
42
(dollars in thousands, except share and per share data)
Total equity - GAAP
Adjustments:
Goodwill
Tangible common equity
Total assets - GAAP
Adjustments:
Goodwill
Tangible assets
At or For The Twelve Months Ended December 31,
2022
2021
2020
$
364,974
$
380,338
$
330,944
(4,687)
360,287
4,543,104
$
$
(4,687)
375,651
4,210,994
$
$
(4,687)
326,257
4,246,156
$
$
(4,687)
(4,687)
(4,687)
$
4,538,417
$
4,206,307
$
4,241,469
Total common shares outstanding
9,065,883
9,754,455
9,800,569
Book value per common share
Effect of goodwill
Tangible book value per common share
Total shareholders’ equity to assets
Effect of goodwill
Tangible common equity to tangible assets
Total average equity - GAAP
Adjustments:
Average goodwill
Average tangible common equity
Return on average shareholders' equity
Effect of goodwill
Return on average tangible common equity
Total interest income
Adjustments:
Fully-taxable equivalent adjustments1
Total interest income - FTE
Net interest income
Adjustments:
Fully-taxable equivalent adjustments1
Net interest income - FTE
Net interest margin
Effect of fully-taxable equivalent adjustments1
Net interest margin - FTE
1Assuming a 21% tax rate
Critical Accounting Policies and Estimates
$
$
40.26
(0.52)
39.74
$
$
38.99
(0.48)
38.51
$
$
8.03 %
(0.09 %)
7.94 %
9.03 %
(0.10 %)
8.93 %
33.77
(0.48)
33.29
7.79 %
(0.10 %)
7.69 %
$
372,844
$
358,105
$
313,763
(4,687)
(4,687)
(4,687)
$
368,157
$
353,418
$
309,076
9.53 %
0.12 %
9.65 %
13.44 %
0.17 %
13.61 %
9.39 %
0.14 %
9.53 %
$
156,908
$
133,883
$
136,859
5,355
162,263
97,093
$
$
5,453
139,336
86,556
$
$
$
$
5,355
5,453
$
102,448
$
92,009
$
5,796
142,655
64,541
5,796
70,337
2.41 %
0.13 %
2.54 %
2.11 %
0.14 %
2.25 %
1.55 %
0.13 %
1.68 %
Allowance for Loan Losses. We believe the allowance for loan losses is the critical accounting policy that requires the
most significant judgments and assumptions used in the preparation of our consolidated financial statements. An estimate of
potential losses inherent in the loan portfolio is determined and an allowance for those losses is established by considering
factors including historical loss rates, expected cash flows, estimated collateral values, and other qualitative factors. The
allowance for loan losses represents management’s best estimate of losses inherent in the existing loan portfolio. The allowance
for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of
recoveries. Management evaluates the allowance for loan losses quarterly. If the underlying assumptions later prove to be
inaccurate based on subsequent loss evaluations, the allowance for loan losses is adjusted.
43
Management estimates the appropriate level of allowance for loan losses by separately evaluating impaired and non-
impaired loans. A specific allowance is assigned to an impaired loan when expected cash flows or collateral do not justify the
carrying amount of the loan. The methodology used to assign an allowance to a non-impaired loan is more subjective.
Generally, the allowance assigned to non-impaired loans is determined by applying historical loss rates to existing loans with
similar risk characteristics, adjusted for qualitative factors including changes in economic and business conditions,
unemployment rates, concentrations of credit, changes in the nature and volume of the portfolio, terms of loans, risk grades,
trends in charge-offs and recoveries, trends in delinquencies, nonaccrual loans, and impaired loans, and changes in lending
policies and procedures. Because the economic and business climate in any given industry or market, and its impact on any
given borrower, can change rapidly, the risk profile of the loan portfolio is periodically assessed and adjusted when appropriate.
Notwithstanding these procedures, there still exists the possibility that the assessment could prove to be significantly incorrect
and that an immediate adjustment to the allowance for loan losses would be required.
Investments in Debt and Equity Securities. We classify investments in debt and equity securities as available-for-sale
in accordance with Accounting Standards Codification, or ASC, Topic 320, “Accounting for Certain Investments in Debt and
Equity Securities.” Securities classified as held-to-maturity would be recorded at cost or amortized cost. Available-for-sale
securities are carried at fair value. Fair value calculations are based on quoted market prices when such prices are available. If
quoted market prices are not available, estimates of fair value are computed using a variety of pricing sources, including
Reuters/EJV, Interactive Data and Standard & Poors. Due to the subjective nature of the valuation process, it is possible that the
actual fair values of these investments could differ from the estimated amounts, thereby affecting our financial position, results
of operations and cash flows. If the estimated value of investments is less than the cost or amortized cost, management
evaluates whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value
of the investment. If such an event or change has occurred and management determines that the impairment is other-than-
temporary, a further determination is made as to the portion of impairment that is related to credit loss. The impairment of the
investment that is related to the credit loss is expensed in the period in which the event or change occurred. The remainder of
the impairment is recorded in other comprehensive income (loss).
Other Real Estate Owned. OREO acquired through loan foreclosure is initially recorded at fair value less costs to sell
when acquired, establishing a new cost basis. The adjustment at the time of foreclosure is recorded through the allowance for
loan losses. Due to the subjective nature of establishing the fair value when the asset is acquired, the actual fair value of the
OREO or foreclosed asset could differ from the original estimate. If it is determined that fair value declines subsequent to
foreclosure, a valuation adjustment is recorded through noninterest expense. Net operating costs associated with the assets after
acquisition are also recorded as noninterest expense. Gains and losses on the disposition of OREO and foreclosed assets are
netted and posted through noninterest income.
Impairment of Goodwill. As a result of a previous acquisition by the Company, goodwill, an intangible asset with an
indefinite life, is reflected on the balance sheet. Goodwill is evaluated for impairment annually, unless there are factors present
that indicate a potential impairment, in which case, the goodwill impairment test is performed more frequently.
Deferred Income Tax Assets/Liabilities. Our net deferred income tax asset arises from differences in the dates that
items of income and expense enter into our reported income and taxable income. Deferred tax assets and liabilities are
established for these items as they arise. From an accounting standpoint, deferred tax assets are reviewed to determine if they
are realizable based on the historical level of taxable income, estimates of future taxable income and the reversals of deferred
tax liabilities. In most cases, the realization of the deferred tax asset is based on future profitability. If we were to experience net
operating losses for tax purposes in a future period, the realization of deferred tax assets would be evaluated for a potential
valuation reserve.
Recent Accounting Pronouncements
Refer to Note 22 to our consolidated financial statements.
Off-Balance Sheet Arrangements
In the ordinary course of business, we may enter into financial transactions to extend credit, engage in interest rate
swaps or other forms of commitments that may be considered off-balance sheet arrangements. Interest rate swaps were arranged
to receive hedge accounting treatment and were classified as either fair value or cash flow hedges. Fair value hedges were
purchased to convert certain fixed rate assets to floating rate. Cash flow hedges were used to convert certain variable rate
liabilities into fixed rate liabilities. At December 31, 2022 and December 31, 2021, we had interest rate swaps with a notional
amount of $260.0 million. Additionally, we may enter into forward contracts relating to our mortgage banking business to
44
hedge the exposures we have from commitments to extend new residential mortgage loans to our customers and from our
mortgage loans held-for-sale. At December 31, 2022 and December 31, 2021, we had commitments to sell residential real estate
loans of $17.0 million and $72.8 million, respectively. These contracts mature in less than one year. Refer to Note 18 to our
consolidated financial statements for additional information about derivative financial instruments.
45
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in
interest rates, foreign exchange rates and equity prices. The primary source of market risk for the Company is interest rate risk,
which can be defined as the risk to earnings and the value of our equity resulting from changes in market interest rates. Interest
rate risk arises in the normal course of business to the extent that there are timing and volume differences between the amount
of interest-earning assets and the amount of interest-bearing liabilities that are prepaid, withdrawn, re-priced or mature in
specified periods. We seek to achieve consistent growth in net interest income and equity while managing volatility arising
from shifts in market interest rates.
We monitor the Company’s interest rate risk position using income simulation models and economic value of equity
(“EVE”) sensitivity analysis that capture both short-term and long-term interest rate risk exposure. Income simulation involves
forecasting net interest income (“NII”) under a variety of interest rate scenarios. We use EVE sensitivity analysis to understand
the impact of changes in interest rates on long-term cash flows, income and capital. EVE is calculated by discounting the cash
flows for all balance sheet instruments under different interest-rate scenarios. Modeling the sensitivity of NII and EVE to
changes in market interest rates is highly dependent on the assumptions incorporated into the modeling process, especially those
pertaining to non-maturity deposit accounts. These assumptions are reviewed and refined on an ongoing basis by the Company.
We continually model our NII and EVE positions with various interest rate scenarios and assumptions of future balance sheet
composition. We utilize implied forward rates as its base case scenario which reflects market expectations for rate increases
over the next 24 months. Presented below is the estimated impact on our NII and EVE position as of December 31, 2022,
assuming a static balance sheet and instantaneous parallel shifts in interest rates:
% Change from Base Case for Instantaneous Parallel Changes in Rates
Implied Forward
Curve -200 Basis
Points
Implied Forward
Curve -100 Basis
Points
Base Implied Forward
Curve
Implied Forward
Curve +100 Basis
Points
Implied Forward
Curve +200 Basis
Points
NII - Year 1
NII - Year 2
EVE
18.29 %
44.95 %
40.47 %
10.37 %
39.78 %
23.97 %
N/A
30.40 %
N/A
(7.90 %)
20.95 %
(19.57 %)
(16.08 %)
10.45 %
(36.47 %)
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 our NII and EVE position as of December 31, 2022, assuming a static
balance sheet and gradual parallel shifts in interest rates over a twelve-month period:
% Change from Base Case for Gradual Changes in Rates
Implied Forward
Curve -200 Basis
Points
Implied Forward
Curve -100 Basis
Points
Base Implied Forward
Curve
Implied Forward
Curve +100 Basis
Points
Implied Forward
Curve +200 Basis
Points
NII - Year 1
NII - Year 2
EVE
8.01 %
46.36 %
31.45 %
4.26 %
39.94 %
19.64 %
N/A
30.40 %
N/A
(4.23 %)
19.26 %
(18.22 %)
(8.17 %)
7.61 %
(33.52 %)
46
In the Company’s supplementary model, it incorporates deposit betas ranging from 11% to 98% in up-rate scenarios
related to its savings and money market non-maturity deposit products, which approximates actual deposit pricing experience in
2022. Presented below are the estimated impacts on the Company’s NII and EVE position as of December 31, 2022, assuming a
static balance sheet and instantaneous and gradual parallel shifts in interest rates:
% Change from Base Case for Instantaneous Parallel Changes in Rates
Implied Forward
Curve -200 Basis
Points
Implied Forward
Curve -100 Basis
Points
Base Implied Forward
Curve
Implied Forward
Curve +100 Basis
Points
Implied Forward
Curve +200 Basis
Points
NII - Year 1
NII - Year 2
EVE
18.12 %
44.68 %
33.44 %
10.25 %
39.63 %
21.29 %
N/A
30.31 %
N/A
(7.00 %)
21.74 %
(17.53 %)
(14.29 %)
12.21 %
(32.66 %)
% Change from Base Case for Gradual Changes in Rates
Implied Forward
Curve -200 Basis
Points
Implied Forward
Curve -100 Basis
Points
Base Implied Forward
Curve
Implied Forward
Curve +100 Basis
Points
Implied Forward
Curve +200 Basis
Points
NII - Year 1
NII - Year 2
EVE
7.66 %
45.86 %
30.46 %
4.06 %
39.60 %
19.15 %
N/A
30.31 %
N/A
(3.87 %)
19.78 %
(17.60 %)
(7.40 %)
8.96 %
(32.25 %)
The NII and EVE figures presented in both tables above are reflective of a static balance sheet, and do not incorporate
either balance sheet growth or strategies to increase net interest income while managing volatility arising from shifts in market
interest rates. As such, it is likely that actual results will differ from what is presented in the tables above. Balance sheet
strategies to achieve such objective may include:
•
Increasing the proportion of low-duration or variable-rate loans to total loans, including organic growth in SBA,
construction or C&I lending
•
•
•
•
•
Selling longer-term fixed rate loans
Increasing the proportion of lower cost non-maturity deposits to total deposits
Extending the duration of wholesale funding
Executing derivative strategies to synthetically extend liability or shorten asset duration
Repositioning the investment portfolio to manage its duration
Item 8.
Financial Statements and Supplementary Data
The consolidated financial statements and notes thereto required pursuant to this Item begin on page F-1 of this Annual
Report on Form 10-K.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information the Company
is required to disclose in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time period specified in SEC rules and forms. These controls and procedures are also designed to ensure
that such information is accumulated and communicated to management, including our principal executive and principal
47
financial officer, as appropriate, to allow timely decisions regarding required disclosure. 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
Company’s principal executive officer and principal financial officer, to assess the effectiveness of the design and operation of
our 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
as of December 31, 2022.
Report of Management's Assessment of Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the
Company, including accounting and other internal control systems that, in the opinion of management, provide reasonable
assurance that (1) transactions are properly authorized, (2) the assets are properly safeguarded, and (3) transactions are properly
recorded and reported to permit the preparation of the consolidated financial statements in conformity with accounting
principles generally accepted in the United States. The Company’s management assessed the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated
Framework (2013). Based on that assessment, management concluded that, as of December 31, 2022, the Company’s internal
control over financial reporting was effective based on those criteria. The Company’s internal control over financial reporting
as of December 31, 2022 has been audited by FORVIS, LLP, an independent registered public accounting firm, as stated in its
report appearing on page F-2.
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
December 31, 2022, that has materially affected or is reasonably likely to materially affect, the Company's internal control over
financial reporting.
Item 9B.
Other Information
None.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
48
PART III
Certain information required by Part III is incorporated by reference from our definitive Proxy Statement for our 2023
Annual Meeting of Shareholders (the “Proxy Statement”), which we intend to file with the SEC pursuant to Regulation 14A
within 120 days after December 31, 2022. Except for those portions specifically incorporated by reference from our Proxy
Statement, no other portions of the Proxy Statement are deemed to be filed as part of this report.
Item 10.
Directors, Executive Officers and Corporate Governance
Information about our Executive Officers
Our executive officers are as follows:
Name
David B. Becker
Nicole S. Lorch
Kenneth J. Lovik
Age
69
48
53
Position
Chairman, Chief Executive Officer and Director
President, Chief Operating Officer and Secretary
Executive Vice President and Chief Financial Officer
David B. Becker has served as our Chairman of the Board since 2006, as our Chief Executive Officer since 2007, and
as our President from 2007 to June 2021. Mr. Becker is the founder of the Bank and has served as an officer and director of the
Bank since 1998.
Nicole S. Lorch has served as Secretary since June of 2022 and as President and Chief Operating Officer since June
2021. Previously, she served as Executive Vice President and Chief Operating Officer since January 2017. Ms. Lorch joined the
Company as Director of Marketing in 1999 and served as Vice President, Marketing & Technology from 2003 to 2011 and
Senior Vice President, Retail Banking from 2011 to January 2017. She previously served as Director of Marketing at Virtual
Financial Services, an online banking services provider, from 1996 to 1999.
Kenneth J. Lovik has served as Executive Vice President and Chief Financial Officer of the Company since January
2017. Mr. Lovik joined the Company in August 2014 as Senior Vice President and Chief Financial Officer. Previously, he
served as Senior Vice President, Investor Relations and Corporate Development, at First Financial Bancorp, a publicly traded
bank holding company headquartered in Cincinnati, Ohio, from February 2013 to May 2014. Prior to that, he served as its Vice
President, Investor Relations and Corporate Development, from 2010 to February 2013. Before First Financial Bancorp, he was
an investment banker at Milestone Advisors LLC, Howe Barnes Hoefer & Arnett, Inc. and A.G. Edwards & Sons, Inc.
Executive officers are elected annually by our Board of Directors and serve a one-year period or until their successors
are elected. None of the above-identified executive officers are related to each other or to any of our directors.
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics that applies to all of our directors and officers and other
employees, including our principal executive officer and principal financial officer. This code is publicly available through the
Corporate Governance section of our website at www.firstinternetbancorp.com. To the extent permissible under applicable law,
the rules of the SEC or Nasdaq listing standards, we intend to post on our website any amendment to the code of business
conduct and ethics, or any grant of a waiver from a provision of the code of business conduct and ethics, that requires disclosure
under applicable law, the rules of the SEC or Nasdaq listing standards.
The disclosures in the Proxy Statement under the headings “Proposal 1 - Election of Directors,” “Corporate
Governance,” “Shareholder Proposals for 2024 Annual Meeting,” and, if applicable “Delinquent Section 16(a) Reports” are
incorporated into this Item by reference.
Item 11.
Executive Compensation
Incorporated into this Item by reference is the information in the Proxy Statement regarding the compensation of our
named executive officers appearing under the heading “Executive Compensation” (excluding information under the caption
“Pay versus Performance”), the information regarding compensation committee interlocks and insider participation under the
49
heading “Corporate Governance” and the information regarding compensation of non-employee directors under the heading
“Director Compensation.”
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Incorporated into this Item by reference is the information in the Proxy Statement appearing under the headings
“Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information.”
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Incorporated into this Item by reference is the information in the Proxy Statement regarding director independence and
related person transactions under the heading “Corporate Governance.”
Item 14.
Principal Accountant Fees and Services
Incorporated into this Item by reference is the information in the Proxy Statement under the heading “Audit Matters.”
The independent registered public accounting firm is FORVIS, LLP (Public Company Accounting Oversight Board Firm ID
No. 686) located in Indianapolis, Indiana.
50
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a) Documents Filed as Part of this Annual Report on Form 10-K:
1. See our financial statements beginning on page F-1.
(b) Exhibits:
Exhibit No.
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
Description
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)
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)
Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934
Subordinated Indenture, dated as of September 30, 2016, between First Internet Bancorp and U.S. Bank
National Association, as trustee (incorporated by reference to Exhibit 4.1 to current report on Form 8-K
filed on September 30, 2016)
Third Supplemental Indenture, dated as of October 26, 2020, between First Internet Bancorp and U.S. Bank
National Association, as trustee (including form of 6.0% Fixed-to-Floating Rate Subordinated Notes due
2030) (incorporated by reference to Exhibit 4.2 to current report on Form 8-K filed October 26, 2020)
Fourth Supplemental Indenture, dated as of August 16, 2021, between First Internet Bancorp and U.S. Bank
National Association, as trustee (incorporated by reference to Exhibit 4.2 to current report on Form 8-K
filed August 16, 2021)
Form of Global Note representing 6.0% Subordinated Notes due 2026 (incorporated by reference to
Exhibit A included in Exhibit 4.2 to current report on Form 8-K filed on September 30, 2016)
Form of 3.75% Fixed-to-Floating Rate Subordinated Note due September 1, 2031 (incorporated by
reference to Exhibit A-1 and Exhibit A-2 included in Exhibit 4.2 to current report on Form 8-K filed on
August 16, 2021)
10.1
First Internet Bancorp 2013 Equity Incentive Plan (incorporated by reference to Appendix A to the
10.2
definitive proxy statement on Schedule 14A filed April 9, 2013)*
First Internet Bancorp 2011 Directors’ Deferred Stock Plan (incorporated by reference to Exhibit 10.2 to
registration statement on Form 10 filed November 30, 2012)*
10.3
Amended and Restated Employment Agreement among First Internet Bank of Indiana, First Internet
Bancorp and David B. Becker dated March 28, 2013 (incorporated by reference to Exhibit 10.4 to Annual
Report on Form 10-K for the year ended December 31, 2012)*
51
Exhibit No.
10.4
Description
Amendment to Amended and Restated Employment Agreement among First Internet Bank of Indiana, First
Internet Bancorp and David B. Becker dated April 20, 2022 (incorporated by reference to Exhibit 10.1 to
current report on Form 8-K filed April 25, 2022)
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
21.1
23.1
24.1
31.1
31.2
32.1
101
Employment Agreement among First Internet Bank of Indiana, First Internet Bancorp and Nicole S. Lorch
dated April 20, 2022 (incorporated by reference to Exhibit 10.2 to current report on Form 8-K filed April
25, 2022)
Employment Agreement among First Internet Bank of Indiana, First Internet Bancorp and Kenneth J. Lovik
dated April 20, 2022 (incorporated by reference to Exhibit 10.3 to current report on Form 8-K filed April
25, 2022)
Form of Non-Employee Director Restricted Stock Award Agreement under 2013 Equity Incentive Plan
(incorporated by reference to Exhibit 10.1 to quarterly report on Form 10-Q for the fiscal quarter ended
March 31, 2022)*
First Internet Bancorp Annual Bonus Plan (incorporated by reference to Exhibit 10.1 to quarterly report on
Form 10-Q for the fiscal quarter ended March 31, 2017)*
Form of Subordinated Note Purchase Agreement, dated as of October 26, 2020, between First Internet
Bancorp and the purchaser thereunder (incorporated by reference to Exhibit 10.1 to current report on Form
8-K filed October 26, 2020)
Form of Management Incentive Award Agreement - Restricted Stock Units under 2013 Equity Incentive
Plan (incorporated by reference to Exhibit 10.2 to quarterly report on Form 10-Q for the fiscal quarter
ended March 31, 2022)*
Form of Management Incentive Award Agreement - Restricted Stock units (performance based) under
2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to quarterly report on Form 10-Q for
the fiscal quarter ended March 31, 2021)*
Form of Subordinated Note Purchase Agreement, dated August 16,2021, by and among First Internet
Bancorp and the Purchasers* (incorporated by reference to Exhibit 10.1 to current report on Form 8-K filed
August 15, 2021)
First Internet Bancorp 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to current
report on Form 8-K filed May 17, 2022)*
List of Subsidiaries
Consent of Independent Registered Public Accounting Firm
Powers of Attorney
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
Section 1350 Certifications
Financial statements from the Annual Report on Form 10-K of First Internet Bancorp for the period ended
December 31, 2022, filed with the SEC on March 14, 2023, formatted in inline extensible Business
Reporting Language (XBRL): (i) the Consolidated Balance Sheets at December 31, 2022 and 2021, (ii) the
Consolidated Statements of Income for the fiscal years ended December 31, 2022, 2021, and 2020, (iii) the
Consolidated Statements of Comprehensive Income for the fiscal years ended December 31, 2022, 2021,
and 2020, (iv) the Consolidated Statements of Shareholders’ Equity for the fiscal years ended December
31, 2022, 2021, and 2020, (v) Consolidated Statements of Cash Flows for the fiscal years ended December
31, 2022, 2021, and 2020, and (vi) Notes to Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
__________________________________
*Management contract, compensatory plan or arrangement required to be filed as an exhibit.
Item 16.
Form 10-K Summary.
None.
52
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, on March 14, 2023.
SIGNATURES
FIRST INTERNET BANCORP
By:
/s/ David B. Becker
David B. Becker,
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities indicated on March 14, 2023.
/s/ David B. Becker
David B. Becker,
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ Kenneth J. Lovik
Kenneth J. Lovik,
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and Principal Accounting
Officer)
*
Aasif M. Bade, Director
*
David R. Lovejoy, Director
*
*
Justin P. Christian, Director
Jean L. Wojtowicz, Director
*
Ann Colussi Dee, Director
*
John K. Keach, Jr., Director
* David B. Becker, by signing his name hereto, does hereby sign this document on behalf of each of the above-named
directors of the Registrant pursuant to powers of attorney duly executed by such persons.
By:
/s/ David B. Becker
David B. Becker,
Attorney-in-Fact
53
Reports of Independent Registered Public Accounting Firm
To the Shareholders, Board of Directors and Audit Committee
First Internet Bancorp
Fishers, Indiana
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of First Internet Bancorp (the “Company”) as of December 31,
2022 and 2021, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows9F
for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the
“financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2022, in conformity with accounting principles
generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and our report dated March 14, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on
the accounts or disclosures to which they relate.
Allowances for Loan Losses
Description of the Matter
As described in Note 4 to the financial statements, the Company’s consolidated allowance for loan losses (ALLL) was $31.74
million at December 31, 2022. The Company also describes in Note 1 of the financial statements the “Allowance for Loan
Losses Methodology” accounting policy around this estimate. The ALLL is an estimate of losses inherent in the loan portfolio.
The determination of the reserve requires significant judgment reflecting the Company’s best estimate of probable loan losses.
F-1
The ALLL is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan
losses are charged against the allowance when management determines that an outstanding loan will not be collected.
Subsequent recoveries, if any, are credited to the allowance.
The ALLL is evaluated on a regular basis by management and is based on management’s periodic review of the collectability of
the loans in light of historical experiences, the nature and volume of the loan portfolio, adverse situations that may affect the
borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is
inherently subjective as it requires estimates that are susceptible to revision as more information becomes available.
The ALLL consists of specific and general components. The specific component relates to loans that are classified as impaired
and an allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the
carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience
adjusted for qualitative factors. The historical charge-off experience is determined by portfolio segment and is based on an
analysis of historical loss activity over a time period that represents the economic life cycle of the loan segment. Other
adjustments for each segment, such as qualitative or environmental considerations may be added to the allowance for each loan
segment after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss
or risk rating data.
The primary reason for our determination that the ALLL is a critical audit matter is that it involved significant judgment and
complex review. There is a high degree of subjectivity in evaluating management’s estimate, such as evaluating management’s
assessment of economic conditions and other environmental factors, evaluating the adequacy of specific allowances associated
with impaired loans and assessing the appropriateness of loan grades.
How We Addressed the Matter in Our Audit
Our audit procedures related to the estimated allowance for loan losses included:
a. Testing the design and operating effectiveness of internal controls, including those related to technology, over the
ALLL.
b. Testing clerical and computational accuracy of the Company’s ALLL calculation.
c. Testing the completeness and accuracy of underlying data utilized in the ALLL, including reports used in management
review controls over the ALLL.
d. Evaluating the qualitative and environmental adjustments to the historical loss rates, including assessing the basis for
the adjustments and the reasonableness and directional consistency of those adjustments, including the reliability and
relevance of the significant assumptions and underlying data.
e. Evaluating the appropriateness of loan grades and assessing the reasonableness of specific impairments on loans.
/s/ FORVIS, LLP (Formerly, BKD, LLP)
We have served as the Company's auditor since 2004.
Indianapolis, Indiana
March 14, 2023
F-2
Reports of Independent Registered Public Accounting Firm
To the Shareholders, Board of Directors and Audit Committee
First Internet Bancorp
Fishers, Indiana
Opinion on the Internal Control over Financial Reporting
We have audited First Internet Bancorp’s (the “Company”) internal control over financial reporting as of December 31, 2022,
based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated financial statements of the Company as of December 31, 2022 and 2021, and for each of the three
years in the period ended December 31, 2022 and our report dated March 14, 2023, expressed an unqualified opinion on those
financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of
Management’s Assessment of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definitions and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
F-3
/s/ FORVIS, LLP (Formerly BKD, LLP)
Indianapolis, Indiana
March 14, 2023
F-4
First Internet Bancorp
Consolidated Balance Sheets
(Amounts in thousands except share data)
Assets
Cash and due from banks
Interest-bearing demand deposits
Total cash and cash equivalents
Securities available-for-sale - at fair value (amortized cost of $436,183 in 2022 and $606,507
in 2021)
Securities held-to-maturity - at amortized cost (fair value of $168,483 in 2022 and $61,468 in
2021)
Loans held-for-sale (includes $9,110 in 2022 and $23,233 in 2021 at fair value)
Loans
Allowance for loan losses
Net loans
Accrued interest receivable
Federal Home Loan Bank of Indianapolis stock
Cash surrender value of bank-owned life insurance
Premises and equipment, net
Goodwill
Servicing asset, at fair value
Other real estate owned
Accrued income and other assets
Total assets
Liabilities and shareholders’ equity
Liabilities
Noninterest-bearing deposits
Interest-bearing deposits
Total deposits
Advances from Federal Home Loan Bank
Subordinated debt, net of unamortized discounts and debt issuance costs of $2,468 in 2022 and
$2,769 in 2021
Accrued interest payable
Accrued expenses and other liabilities
Total liabilities
Commitments and Contingencies
Shareholders’ equity
December 31,
2022
2021
$
17,426 $
239,126
256,552
7,492
435,468
442,960
390,384
603,044
189,168
21,511
59,565
47,745
3,499,401
2,887,662
(31,737)
(27,841)
3,467,664
2,859,821
21,069
28,350
39,859
72,711
4,687
6,255
—
44,894
16,037
25,650
38,900
59,842
4,687
4,702
1,188
46,853
$
4,543,104 $
4,210,994
$
175,315 $
117,531
3,265,930
3,441,245
614,928
104,532
2,913
14,512
3,061,428
3,178,959
514,922
104,231
2,018
30,526
4,178,130
3,830,656
Preferred stock, no par value; 4,913,779 shares authorized; issued and outstanding - none
—
—
Voting common stock, no par value; 45,000,000 shares authorized; 9,065,883 and 9,754,455
shares issued and outstanding in 2022 and 2021, respectively
192,935
218,946
Nonvoting common stock, no par value; 86,221 shares authorized; issued and outstanding -
none
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
—
205,675
(33,636)
364,974
—
172,431
(11,039)
380,338
$
4,543,104 $
4,210,994
See Notes to Consolidated Financial Statements
F-5
First Internet Bancorp
Consolidated Statements of Income
(Amounts in thousands except share and per share data)
Interest income
Loans
Securities – taxable
Securities – non-taxable
Other earning assets
Total interest income
Interest expense
Deposits
Other borrowed funds
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income
Service charges and fees
Loan servicing revenue
Loan servicing asset revaluation
Mortgage banking activities
Gain on sale of loans
Gain on sale of securities
Gain on sale of premises and equipment
Other
Total noninterest income
Noninterest expense
Salaries and employee benefits
Marketing, advertising and promotion
Consulting and professional fees
Data processing
Loan expenses
Premises and equipment
Deposit insurance premium
Write-down of other real estate owned
Other
Total noninterest expense
Income before income taxes
Income tax provision
Net income
Income per share of common stock
Basic
Diluted
Year Ended December 31,
2021
2020
2022
$
140,600 $
10,711
1,767
3,830
156,908
123,467 $
7,970
1,017
1,429
133,883
120,628
11,123
1,728
3,380
136,859
41,832
17,983
59,815
97,093
4,977
92,116
1,071
2,573
(1,639)
5,464
11,372
—
—
2,416
21,257
41,553
3,554
4,826
1,989
4,435
10,688
1,152
—
5,076
73,273
40,100
4,559
35,541 $
29,822
17,505
47,327
86,556
1,030
85,526
1,114
1,934
(1,069)
15,050
11,598
—
2,523
1,694
32,844
38,223
3,261
4,054
1,649
2,112
7,063
1,213
—
4,223
61,798
56,572
8,458
48,114 $
3.73 $
3.70
4.85 $
4.82
55,976
16,342
72,318
64,541
9,325
55,216
824
1,159
(432)
24,693
8,298
139
—
1,655
36,336
34,231
1,654
3,511
1,528
2,036
6,396
1,810
2,065
4,423
57,654
33,898
4,445
29,453
2.99
2.99
$
$
Weighted-average number of common shares outstanding
Basic
Diluted
Dividends declared per share
9,530,921
9,595,115
9,918,083
9,976,261
$
0.24 $
0.24 $
9,840,205
9,842,425
0.24
See Notes to Consolidated Financial Statements
F-6
First Internet Bancorp
Consolidated Statements of Comprehensive Income
(Amounts in thousands)
Net income
Other comprehensive (loss) income
Securities available-for-sale
Net unrealized holding (losses) gains on securities available-for-sale recorded
within other comprehensive income before income tax
Reclassification adjustment for gains realized
Income tax (benefit) provision
Net effect on other comprehensive (loss) income
Securities held-to-maturity
Reclassification of securities from available-for-sale to held-to-maturity
Amortization of net unrealized holding losses on securities transferred from available-
for-sale to held-to-maturity
Income tax benefit
Net effect on other comprehensive loss
Cash flow hedges
Net unrealized holding gains (losses) on cash flow hedging derivatives recorded
within other comprehensive income before income tax
Income tax provision (benefit)
Net effect on other comprehensive income (loss)
Year Ended December 31,
2022
2021
2020
$
35,541 $
48,114 $
29,453
(42,336)
—
(9,060)
(33,276)
(5,402)
844
(1,039)
(3,519)
(4,087)
—
(1,064)
(3,023)
—
—
—
—
19,091
4,893
14,198
11,138
1,958
9,180
6,551
(139)
1,556
4,856
—
—
—
—
(10,248)
(2,387)
(7,861)
(3,005)
26,448
Total other comprehensive (loss) income
Comprehensive income
(22,597)
6,157
$
12,944 $
54,271 $
See Notes to Consolidated Financial Statements
F-7
First Internet Bancorp
Consolidated Statements of Shareholders’ Equity
(Amounts in thousands except per share data)
Voting and
Nonvoting
Common
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Shareholders’
Equity
$
$
Balance, January 1, 2020
Net income
Other comprehensive loss
Dividends declared ($0.24 per share)
Recognition of the fair value of share-based
compensation
Deferred stock rights and restricted stock units
issued in lieu of cash dividends payable on
outstanding deferred stock rights and restricted
stock units
Common stock redeemed for the net settlement of
share-based awards
Balance, December 31, 2020
Net income
Other comprehensive income
Dividends declared ($0.24 per share)
Repurchased shares of common stock (100,000)
Recognition of the fair value of share-based
compensation
Deferred stock rights and restricted stock units
issued in lieu of cash dividends payable on
outstanding deferred stock rights and restricted
stock units
Common stock redeemed for the net settlement of
share-based awards
Balance, December 31, 2021
$
Net income
Other comprehensive loss
Dividends declared ($0.24 per share)
Repurchased shares of common stock (779,956)
Recognition of the fair value of share-based
compensation
Deferred stock rights and restricted stock units
issued in lieu of cash dividends payable on
outstanding deferred stock rights and restricted
stock units
219,423 $
—
—
—
99,681 $
29,453
—
(2,402)
(14,191) $
—
(3,005)
—
2,110
27
(152)
221,408 $
—
—
—
(4,436)
2,393
21
(440)
218,946 $
—
—
—
(27,780)
2,035
21
—
—
—
—
—
126,732 $
48,114
—
(2,415)
—
(17,196) $
—
6,157
—
—
—
—
—
—
—
—
172,431 $
35,541
—
(2,297)
—
—
(11,039) $
—
(22,597)
—
—
—
—
—
—
304,913
29,453
(3,005)
(2,402)
2,110
27
(152)
330,944
48,114
6,157
(2,415)
(4,436)
2,393
21
(440)
380,338
35,541
(22,597)
(2,297)
(27,780)
2,035
21
Common stock redeemed for the net settlement of
share-based awards
Balance, December 31, 2022
(287)
192,935 $
—
205,675 $
—
(33,636) $
(287)
364,974
$
See Notes to Consolidated Financial Statements
F-8
First Internet Bancorp
Consolidated Statements of Cash Flows
(Amounts in thousands)
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Year Ended December 31,
2021
2020
2022
$
35,541 $
48,114 $
29,453
Depreciation and amortization
Write-down of other real estate owned
Increase in cash surrender value of bank-owned life insurance
Provision for loan losses
Share-based compensation expense
Gain from sale of available-for-sale securities
Loans originated for sale
Proceeds from sale of loans originated for sale
Gain on sale of loans
Decrease in fair value of loans held-for-sale
(Gain) loss on derivatives
Settlement of derivatives
Gain on sale of premises and equipment
Net change in servicing asset
Net deferred income tax
Net change in other assets
Net change in other liabilities
Net cash provided by operating activities
Investing activities
Net loan activity, excluding sales and purchases
Proceeds from sales of other real estate owned
Net proceeds from sales of portfolio loans
Maturities of securities available-for-sale
Proceeds from sales of securities available-for-sale
Purchase of securities available-for-sale
Maturities and calls of securities held-to-maturity
Purchase of securities held-to-maturity
Redemption of Federal Home Loan Bank of Indianapolis stock
Purchase of Federal Home Loan Bank of Indianapolis stock
Net proceeds from sale of premises and equipment
Purchase of premises and equipment
Loans purchased
Other investing activities
Net cash (used in) provided by investing activities
Financing activities
Net change in deposits
Cash dividends paid
Net proceeds from issuance of subordinated debt
Repayment of subordinated debt
Repurchase of common stock
Proceeds from advances from Federal Home Loan Bank
Repayment of advances from Federal Home Loan Bank
Other, net
Net cash provided by (used in) financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosures of cash flows information
Cash paid during the year for interest
Cash paid during the year for taxes
Loans transferred to other real estate owned
Loans transferred to held-for-sale from portfolio
Cash dividends declared, not paid
Securities purchases settled in subsequent period
8,729
—
(959)
4,977
2,035
—
(518,870)
558,817
(17,473)
184
(2,569)
—
—
1,639
4,632
9,815
(3,775)
82,723
(214,761)
1,188
14,466
80,223
—
(12,969)
7,902
(41,246)
431
(3,131)
—
(17,517)
(412,109)
(3,510)
(601,033)
8,775
—
(948)
1,030
2,393
—
(814,671)
832,089
(29,401)
718
1,513
(1,859)
(2,523)
1,069
2,434
7,028
(921)
54,840
316,002
—
21,093
166,260
—
(282,226)
8,525
—
—
—
8,116
(29,892)
(168,438)
4,434
43,874
262,286
(2,317)
—
—
(27,780)
615,000
(515,000)
(287)
331,902
(186,408)
442,960
256,552 $
(91,926)
(2,415)
58,658
(35,000)
(4,436)
440,000
(440,000)
(441)
(75,560)
23,154
419,806
442,960 $
$
58,920
2,005
—
14,049
544
2,997
96,220
—
46,748
7,045
1,188
20,145
585
—
—
—
7,831
2,065
(950)
9,325
2,110
(139)
(1,009,266)
1,054,873
(31,124)
94
(2,069)
(46,109)
—
(1,088)
(4,118)
7,163
(4,983)
13,068
46,787
—
207,475
179,724
16,986
(144,091)
—
(2,000)
—
—
—
(25,559)
(324,131)
—
(44,809)
116,922
(2,349)
9,765
—
—
440,000
(440,000)
(152)
124,186
92,445
327,361
419,806
74,646
5,912
—
204,647
588
5,547
—
4,479
Transfer of available-for-sale mortgage-backed securities to held-to-maturity mortgage-
backed securities at fair value
Transfer of available-for-sale municipal securities to held-to-maturity municipal securities
See Notes to Consolidated Financial Statements
F-9
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Note 1:
Basis of Presentation and Summary of Significant Accounting Policies
The accounting policies of First Internet Bancorp and its subsidiaries (the “Company”) conform to accounting
principles generally accepted in the United States of America (“GAAP”). A summary of the Company’s significant
accounting policies follows:
Description of Business
The Company was incorporated on September 15, 2005, and consummated a plan of exchange on March 21, 2006, by
which the Company became a bank holding company and 100% owner of First Internet Bank of Indiana (the “Bank”).
The Company elected to and became a financial holding company, effective as of September 1, 2022.
The Bank offers a wide range of commercial, small business, consumer and municipal banking products and services.
The Bank conducts its consumer and small business deposit operations primarily through digital channels on a
nationwide basis and has no traditional branch offices. Consumer lending products are primarily originated on a
nationwide basis through relationships with dealerships and financing partners. The Bank is subject to competition
from other financial institutions. The Bank is regulated by certain state and federal agencies and undergoes periodic
examinations by those regulatory authorities.
The Bank has three wholly owned subsidiaries. JKH Realty Services, LLC was established on August 20, 2012 as a
single member limited liability company wholly owned by the Bank to manage other real estate owned properties as
needed. First Internet Public Finance Corp., a wholly-owned subsidiary of the Bank, was incorporated on March 6,
2017 and was established to provide municipal finance lending and leasing products to government entities and to
purchase, manage, service, and safekeep municipal securities. SPF15, Inc., a wholly-owned subsidiary of the Bank,
was incorporated on August 31, 2018 and was established to acquire and hold real estate.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its direct and indirect subsidiaries. All
significant intercompany accounts and transactions have been eliminated in consolidation. The Company’s business
activities are currently limited to one reporting unit and reportable segment, which is commercial banking.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The
Company utilizes processes that involve the use of significant estimates and the judgment of management in
determining the amount of the Company’s allowance for loan losses, income taxes, valuation and impairments of
investment securities and goodwill, as well as fair value measurements of derivatives, loans held-for-sale and other
real estate owned. Actual results could differ from those estimates.
Securities
The Company classifies its securities in one of three categories and accounts for the investments as follows:
•
•
Securities that the Company has the positive intent and ability to hold to maturity are classified as “held-to-
maturity” and reported at amortized cost.
Securities that are acquired and held principally for the purpose of selling them in the near term with the
objective of generating economic profits on short-term differences in market characteristics are classified as
“trading securities” and reported at fair value, with unrealized gains and losses included in earnings. The
Company had no securities classified as “trading securities” at December 31, 2022 or 2021.
F-10
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
•
Securities not classified as either “held-to-maturity” or “trading securities” are classified as “available-for-
sale” and reported at fair value, with unrealized gains and losses, after applicable taxes, excluded from
earnings and reported in a separate component of shareholders’ equity. Declines in the value of debt securities
and marketable equity securities that are considered to be other-than-temporary are recorded as an other-than-
temporary impairment of securities available-for-sale with other-than-temporary impairment losses recorded
in the consolidated statements of income.
Interest and dividend income, adjusted by amortization of premium or discount, is included in earnings using the
effective interest rate method. Purchases and sales of securities are recorded in the consolidated balance sheets on the
trade date. Gains and losses from the sale or disposal of securities are recognized as of the trade date in the
consolidated statements of income for the period in which securities are sold or otherwise disposed of. Gains and
losses on sales of securities are determined using the specific-identification method.
Loans Held-for-Sale
Loans originated and intended for sale in the secondary market under best-efforts pricing agreements are carried at the
lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance
by charges to noninterest income.
Loans originated and intended for sale in the secondary market under mandatory pricing agreements are carried at fair
value to facilitate hedging of the loans. Gains and losses resulting from changes in fair value are recognized in
noninterest income.
Gains and losses on loan sales are recorded in noninterest income, and direct loan origination costs and fees are
deferred at origination of the loan and are recognized in noninterest income upon sale of the loan.
Revenue Recognition
The Company recognizes revenues as they are earned based on contractual terms, as transactions occur, or as services
are provided and collectability is reasonably assured. The Company's principal source of revenue is interest income
from loans and leases and investment securities.
Interest income on loans is accrued as earned using the interest method based on unpaid principal balances except for
interest on loans in nonaccrual status. Interest on loans in nonaccrual status is recorded as a reduction of loan principal
when received.
Premiums and discounts are amortized using the effective interest rate method.
Loan fees, net of certain direct origination costs, primarily salaries and wages, are deferred and amortized to interest
income as a yield adjustment over the life of the loan.
The Company also earns noninterest income through a variety of financial and transaction services provided to
corporate and consumer clients such as deposit account, debit card, mortgage banking, portfolio loan sales and sales of
the government-guaranteed portion of U.S. Small Business Administration loans. Revenue is recorded for noninterest
income based on the contractual terms for the service or transaction performed. In certain circumstances, noninterest
income is reported net of associated expenses.
Loans
Loans that management intends to hold until maturity are reported at their outstanding principal balance adjusted for
unearned income, charge-offs, the allowance for loan losses (“ALLL”), any unamortized deferred fees or costs on
originated loans, unamortized premiums or discounts on purchased loans and any carrying value adjustments related to
terminated interest rate swaps associated with loans.
F-11
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
For loans recorded at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net
of certain direct origination costs, as well as premiums and discounts, are recorded in accordance with our revenue
recognition policy.
Allowance for Loan Losses Methodology
Company policy is designed to maintain an adequate ALLL. Primary responsibility for ensuring that the Company has
processes in place to consistently assess the adequacy of the ALLL rests with the Board of Directors (the “Board”).
The Board has charged management with responsibility for establishing the methodology to be used and to assess the
adequacy of the ALLL. The Board reviews recommendations from management on a quarterly basis to adjust the
allowance as appropriate.
The methodology employed by management for each portfolio segment, at a minimum, contains the following:
1. Loans are segmented by type of loan.
2. The required ALLL for types of performing homogeneous loans which do not have a specific reserve is
determined by applying a factor based on historical losses averaged over the past sixteen quarters. In
those instances where the Company’s historical experience is not available, management develops factors
based on industry experience and best practices.
3. All criticized, classified and impaired loans are tested for impairment by applying one of three
methodologies:
a. Present value of future cash flows;
b. Fair value of collateral less costs to sell; or
c. The loan’s observable market price.
4. All troubled debt restructurings (“TDR”) are considered impaired loans.
5. Loans tested for impairment are removed from other pools to prevent layering (double-counting).
6. The required ALLL for each group of loans are added together to determine the total required ALLL for
the Company. The required ALLL is compared to the existing ALLL to determine the provision required
to increase the ALLL or credit to decrease the ALLL.
The historical loss experience is determined by portfolio segment and considers two weighted average net charge-off
trends: 1) the Company’s average loss history over the previous sixteen quarters; and 2) the average loss history over
the previous sixteen quarters for a peer group. Management believes the historical loss experience methodology is
appropriate in the current economic environment, as it captures loss rates that are comparable to the current period
being analyzed.
The Company also factors in the following qualitative considerations:
1. Changes in national, regional, and local economic and business conditions;
2. Changes in national, regional, and local unemployment rates;
3. The existence and effect of any concentrations of credit, and changes in the levels of such concentrations;
4. Changes in the nature and volume of the portfolio, and in the terms of loans;
5. Changes in the risk grades assigned to loans;
6. The levels of and trends in charge-offs and recoveries;
F-12
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
7. The levels of and trends in delinquencies, nonaccrual loans, and impaired loans; and
8. Changes in lending policies and procedures, including changes in underwriting standards and collection,
charge-off, and recovery practices.
Provision for Loan Losses
A provision for estimated losses on loans is charged to income based upon management’s evaluation of the potential
losses. Such an evaluation, which includes a review of all loans for which full repayment may not be reasonably
assured, considers, among other matters, the estimated net realizable value of the underlying collateral, as applicable,
economic conditions, loan loss experience, and other factors that are particularly susceptible to changes that could
result in a material adjustment in the near term. While management attempts to use the best information available in
making its evaluations, future allowance adjustments may be necessary if economic conditions change substantially
from the assumptions used in making the evaluations.
Nonaccrual Loans
Any loan which becomes 90 days delinquent or for which the full collection of principal and interest may be in doubt
will be considered for nonaccrual status. At the time a loan is placed on nonaccrual status, all accrued but unpaid
interest will be reversed from interest income. Placing the loan on nonaccrual status does not relieve the borrower of
the obligation to repay interest. A loan placed on nonaccrual status may be restored to accrual status when all
delinquent principal and interest has been brought current, and the Company expects full payment of the remaining
contractual principal and interest.
Impaired Loans
A loan is designated as impaired, in accordance with the impairment accounting guidance when, based on current
information or events, it is probable that the Company will be unable to collect all amounts due (principal and interest)
according to the contractual terms of the loan agreement. Payments with delays not exceeding 90 days outstanding
generally are not considered impaired. Certain nonaccrual and substantially all delinquent loans more than 90 days past
due may be considered to be impaired. Generally, loans are placed on nonaccrual status at 90 days past due and
accrued interest is reversed against earnings, unless the loan is well secured and in the process of collection. The
accrual of interest on impaired and nonaccrual loans is discontinued when, in management’s opinion, the borrower
may be unable to meet payments as they become due.
Impaired loans include nonperforming loans but also include loans modified in TDRs where concessions have been
granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest
rate on the loan, payment extensions, forgiveness of principal, forbearance, or other actions intended to maximize
collection.
Accounting Standards Codification (“ASC”) Topic 310, Receivables, requires that impaired loans be measured based
on the present value of expected future cash flows discounted at the loans’ effective interest rates or the fair value of
the underlying collateral, less costs to sell, and allows existing methods for recognizing interest income.
Troubled Debt Restructurings
The loan portfolio includes certain loans that have been modified in a TDR, where economic concessions have been
granted to borrowers who have experienced financial difficulties. These concessions typically result from loss
mitigation efforts and could include reductions in the interest rate, payment extensions, forgiveness of principal,
forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructuring and typically
are returned to performing status after considering the borrower’s sustained repayment performance for a reasonable
period, generally not less than six months.
When loans are modified in a TDR, any possible impairment similar to other impaired loans is evaluated based on
either the present value of expected future cash flows, discounted at the contractual interest rate of the original loan
agreement, or the current fair value of the collateral, less selling costs for collateral-dependent loans. If it is
F-13
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
determined that the value of the modified loan is less than the recorded balance of the loan, impairment is recognized
through a specific ALLL or charge-off to the ALLL. In periods subsequent to modification, all TDRs, including those
that have payment defaults, are evaluated for possible impairment, and impairment is recognized through the ALLL.
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.
Federal Home Loan Bank (“FHLB”) of Indianapolis Stock
Federal law requires a member institution of the FHLB system to hold common stock of its district FHLB according to
a predetermined formula. This investment is stated at cost, which represents redemption value, and may be pledged as
collateral for FHLB advances.
Premises and Equipment
Premises and equipment is stated at cost, less accumulated depreciation. Depreciation is computed on the straight-line
method over the estimated useful lives, which range from three to five years for software and equipment, ten years for
land improvements, and 39 years for buildings.
Other Real Estate Owned
Other real estate owned represents real estate acquired through foreclosure or deed in lieu of foreclosure and is
recorded at its fair value less estimated costs to sell. When property is acquired, it is recorded at its fair value at the
date of acquisition with any resulting write-down charged against the ALLL. Any subsequent deterioration of the
property is charged directly to operating expense. Costs relating to the development and improvement of other real
estate owned are capitalized, whereas costs relating to holding and maintaining the property are charged to expense as
incurred.
Derivative Financial Instruments
The Company uses derivative financial instruments to help manage exposure to interest rate risk and the effects that
changes in interest rates may have on net income and the fair value of assets and liabilities. The Company enters into
interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk
position. Additionally, the Company enters into forward contracts for the future delivery of mortgage loans to third-
party investors and enters into interest rate lock commitments (“IRLCs”) with potential borrowers to fund specific
mortgage loans that will be sold into the secondary market. The forward contracts are entered into in order to
economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans.
Designating an interest rate swap as an accounting hedge allows the Company to recognize gains and losses, in the
income statement 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 consolidated balance sheets while interest rate swaps with
a negative fair value are reported in accrued expenses and other liabilities in the 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 in the 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 consolidated balance
F-14
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
sheets, while derivative instruments with a negative fair value are reported in accrued expenses and other liabilities in
the consolidated balance sheets.
Fair Value Measurements
The Company records or discloses certain assets and liabilities at fair value. ASC Topic 820, Fair Value
Measurements, 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. Fair value measurements are classified
within one of three levels in a valuation hierarchy. ASC Topic 820 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
There were no transfers that occurred and, therefore, recognized, between any of the fair value hierarchy levels at
December 31, 2022 or 2021.
Income Taxes
Deferred income tax assets and liabilities reflect the impact of temporary differences between amounts of assets and
liabilities for financial reporting purposes and the basis of such assets and liabilities as measured by tax laws and
regulations. Deferred income tax expense or benefit is based upon the change in deferred tax assets and liabilities from
period to period, subject to an ongoing assessment of realization of deferred tax assets. Deferred tax assets are reduced
by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or
all of a deferred tax asset will not be realized.
The Company files income tax returns in the U.S. federal, Indiana, and other state jurisdictions. With few exceptions,
the Company is no longer subject to U.S. federal, state and local examinations by tax authorities for years before 2019.
ASC Topic 740-10, Accounting for Uncertainty in Income Taxes, prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a
tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The Company did not identify any material uncertain tax positions that it believes
should be recognized in the consolidated financial statements.
F-15
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Earnings Per Share
Earnings per share of common stock is based on the weighted average number of basic shares and dilutive shares
outstanding during the year.
The following is a reconciliation of the weighted average common shares for the basic and diluted earnings per share
computations.
Basic earnings per share
Net income available to common shareholders
Weighted average common shares
Basic earnings per common share
Diluted earnings per share
Year Ended December 31,
2022
2021
2020
$
$
35,541 $
48,114 $
29,453
9,530,921
9,918,083
9,840,205
3.73 $
4.85 $
2.99
Net income available to common shareholders
$
35,541 $
48,114 $
29,453
Weighted average common shares
Dilutive effect of equity compensation
Weighted average common and incremental shares
Diluted earnings per common share1
9,530,921
9,918,083
9,840,205
64,194
58,178
2,220
9,595,115
9,976,261
9,842,425
$
3.70 $
4.82 $
2.99
1 Potential dilutive common shares are excluded from the computation of diluted EPS in the periods where the effect would be antidilutive. Excluded from the
computation of diluted EPS were weighted average antidilutive shares totaling 2,646, 28 and 18,524 for the years ended December 31, 2022, 2021 and 2020,
respectively.
Share-based Compensation
The Company has a share-based compensation plan using the fair value recognition provisions of ASC Topic 718,
Compensation - Stock Compensation. The plan is described more fully in Note 11.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income
(loss) includes unrealized gains and losses on securities available-for-sale, unrealized gains and losses on the transfer
of securities available-for-sale to securities held-to-maturity, and unrealized gains and losses on cash flow hedges.
Reclassification adjustments have been determined for all components of other comprehensive income or loss reported
in the consolidated statements of changes in shareholders’ equity.
Statements of Cash Flows
Cash and cash equivalents are defined to include cash on-hand, noninterest and interest-bearing amounts due from
other banks and federal funds sold. Generally, federal funds are sold for one-day periods. The Company reports net
cash flows for customer loan transactions and deposit transactions.
Bank-Owned Life Insurance
Bank-owned life insurance policies are carried at their cash surrender value. The Company recognizes tax-free income
from the periodic increases in the cash surrender value of these policies and from death benefits.
Goodwill
Goodwill is tested at least annually for impairment. If the implied fair value of goodwill is lower than its carrying
amount, goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases
in goodwill value are not recognized in the consolidated financial statements.
F-16
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Servicing Asset
The servicing asset is related to small business lending loans sold. The servicing asset is recognized at the time of sale
when servicing is retained and the income statement effect is recorded in loan servicing revenue. Servicing assets are
recorded at fair value in accordance with ASC 860. Fair value is based on a third-party valuation model that calculates
the present value of net servicing revenue.
Reclassifications
Certain reclassifications have been made to the 2021 and 2020 financial statements to conform to the 2022 financial
statement presentation. These reclassifications had no effect on net income.
Note 2:
Cash and Cash Equivalents
At December 31, 2022, the Company’s interest-bearing and noninterest-bearing cash accounts at other institutions
exceeded the limits for full FDIC insurance coverage by $20.9 million. In addition, approximately $227.9 million and
$0.8 million of cash was held by the Federal Reserve Bank of Chicago and the FHLB of Indianapolis, respectively,
which are not federally insured.
The Federal Reserve Act authorizes the Federal Reserve Board to establish reserve requirements within specified
ranges for the purpose of implementing monetary policy on certain types of deposits and other liabilities of depository
institutions. On March 15, 2020, the Federal Reserve Board reduced requirement ratios to zero percent effective March
26, 2020. As such, the Company is not currently required to maintain reserve funds in cash and/or on deposit with the
Federal Reserve Bank.
Note 3:
Securities
The following tables summarize securities available-for-sale and securities held-to-maturity as of December 31, 2022
and 2021.
Amortized
Cost
December 31, 2022
Gross Unrealized
Gains
Losses
Fair
Value
Securities available-for-sale
U.S. Government-sponsored agencies
$
35,606 $
— $
(1,797) $
Municipal securities
Agency mortgage-backed securities - residential1
Agency mortgage-backed securities - commercial
Private label mortgage-backed securities - residential
Asset-backed securities
Corporate securities
Total available-for-sale
68,958
252,066
17,142
11,777
5,000
45,634
458
—
—
—
—
35
(2,140)
(36,974)
(1,302)
(1,322)
(40)
(2,717)
33,809
67,276
215,092
15,840
10,455
4,960
42,952
$
436,183 $
493 $
(46,292) $
390,384
F-17
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Securities held-to-maturity
Municipal securities
Agency mortgage-backed securities - residential
Agency mortgage-backed securities - commercial
Corporate securities
Total held-to-maturity
Amortized
Cost
December 31, 2022
Gross Unrealized
Gains
Losses
$
13,946 $
— $
(1,114) $
121,853
5,818
47,551
—
—
—
(15,112)
(1,266)
(3,193)
Fair
Value
12,832
106,741
4,552
44,358
$
189,168 $
— $
(20,685) $
168,483
1 Includes $0.5 million of additional premium related to terminated interest rate swaps associated with agency mortgage-backed
securities - residential as of December 31, 2022.
Amortized
Cost
December 31, 2021
Gross Unrealized
Gains
Losses
Fair
Value
Securities available-for-sale
U.S. Government-sponsored agencies
$
50,013 $
164 $
(1,137) $
Municipal securities
Agency mortgage-backed securities - residential1
Agency mortgage-backed securities - commercial
Private label mortgage-backed securities - residential
Asset-backed securities
Corporate securities
Total available-for-sale
Securities held-to-maturity
Municipal securities
Corporate securities
Total held-to-maturity
75,158
377,928
36,024
15,902
5,000
46,482
1,940
960
441
122
4
597
(65)
(5,652)
(139)
(3)
—
(695)
49,040
77,033
373,236
36,326
16,021
5,004
46,384
$
606,507 $
4,228 $
(7,691) $
603,044
Amortized
Cost
December 31, 2021
Gross Unrealized
Gains
Losses
Fair
Value
$
$
13,992 $
45,573
717 $
1,186
59,565 $
1,903 $
— $
—
— $
14,709
46,759
61,468
1 Includes $0.8 million of additional premium related to terminated interest rate swaps associated with agency mortgage-backed
securities - residential as of December 31, 2021.
F-18
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
The carrying value of securities at December 31, 2022 is shown below by their contractual maturity date. Actual
maturities will differ because borrowers may have the right to call or prepay obligations with or without call or
prepayment penalties.
Within one year
One to five years
Five to ten years
After ten years
Agency mortgage-backed securities - residential
Agency mortgage-backed securities - commercial
Private label mortgage-backed securities - residential
Asset-backed securities
Total
One to five years
Five to ten years
After ten years
Agency mortgage-backed securities - residential
Agency mortgage-backed securities - commercial
Total
Available-for-Sale
Amortized
Cost
Fair
Value
$
— $
34,169
47,739
68,290
150,198
252,066
17,142
11,777
5,000
—
35,307
45,422
63,308
144,037
215,092
15,840
10,455
4,960
$
436,183 $
390,384
Held-to-Maturity
Amortized
Cost
Fair
Value
$
11,805 $
44,213
5,479
61,497
121,853
5,818
11,547
40,861
4,782
57,190
106,741
4,552
$
189,168 $
168,483
There were no gross realized gains or losses resulting from the sale of available-for-sale securities recognized during
the twelve months ended December 31, 2022 and December 31, 2021. There were gross realized losses of $0.1 million
resulting from sales of available-for-sale securities recognized during the twelve months ended December 31, 2020.
As of December 31, 2022, the fair value of available-for-sale investment securities pledged as collateral was $328.7
million. The Company pledged the securities for various types of transactions, including FHLB advances, deposits and
derivative financial instruments.
Certain investments in debt securities are reported in the consolidated financial statements at an amount less than their
historical cost. As of December 31, 2022 and 2021, the Company had 434 and 179 securities, respectively, with
market values below their cost basis. The total fair value of these investments at December 31, 2022 and 2021 was
$527.4 million and $403.2 million, which is approximately 94% and 61%, respectively, of the Company’s available-
for-sale and held-to-maturity securities portfolio. These declines resulted primarily from fluctuations in market interest
rates after purchase. Management believes the declines in fair value for these securities are temporary.
Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be
reduced with the resulting loss recognized in net income in the period the other-than-temporary impairment is
identified.
U.S. Government-Sponsored Agencies, Municipal Securities, and Corporate Securities
The unrealized losses on the Company’s investments in securities issued by U.S. Government-sponsored agencies,
municipal organizations and corporate entities were caused by interest rate changes. The contractual terms of those
investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the
investments. Because the Company does not intend to sell the investments and it is not likely that the Company will be
F-19
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
required to sell the investments before recovery of their amortized cost bases, which may not be until maturity, the
Company does not consider those investments to be other-than-temporarily impaired at December 31, 2022.
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 by interest rate changes. The Company expects to recover the amortized cost bases over the
term of the securities. Because the Company does not intend to sell the investments and it is not likely that the
Company will be required to sell the investments before recovery of their amortized cost bases, which may not be until
maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31,
2022.
The following tables show the securities portfolio’s gross unrealized losses and fair value, aggregated by investment
category and length of time that individual securities have been in a continuous unrealized loss position at
December 31, 2022 and 2021:
December 31, 2022
Less Than 12 Months
12 Months or Longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Securities available-for-sale
U.S. Government-sponsored agencies
$
29,668 $
(1,008) $
4,141 $
(789) $
33,809 $
Municipal securities
39,557
(1,766)
4,778
(374)
44,335
(1,797)
(2,140)
Agency mortgage-backed securities -
residential
Agency mortgage-backed securities -
commercial
Private label mortgage-backed securities -
residential
Asset-backed securities
Corporate securities
Total
170,026
(29,690)
45,066
(7,284)
215,092
(36,974)
10,560
(926)
5,280
(376)
15,840
(1,302)
2,445
4,960
21,568
(330)
(40)
8,010
—
(992)
—
(1,452)
13,239
(1,265)
10,455
4,960
34,807
(1,322)
(40)
(2,717)
$
278,784 $
(35,212) $
80,514 $
(11,080) $
359,298 $
(46,292)
December 31, 2022
Less Than 12 Months
12 Months or Longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Securities held-to-maturity
Municipals
Mortgage-backed securities - residential
Mortgage-backed securities - commercial
Corporate securities
Total
$
8,160 $
(661) $
4,258 $
(453) $
12,418 $
68,408
4,552
36,866
(8,848)
(1,266)
(2,685)
38,332
—
7,492
(6,264)
106,740
—
(508)
4,552
44,358
(1,114)
(15,112)
(1,266)
(3,193)
$
117,986 $
(13,460) $
50,082 $
(7,225) $
168,068 $
(20,685)
F-20
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
December 31, 2021
Less Than 12 Months
12 Months or Longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Securities available-for-sale
U.S. Government-sponsored agencies
$
2,921 $
(79) $
40,305 $
(1,058) $
43,226 $
(1,137)
Municipals
5,721
(65)
—
—
5,721
(65)
Agency mortgage-backed securities -
residential
Agency mortgage-backed securities -
commercial
Private label mortgage-backed securities -
residential
Corporate securities
Total
287,820
(3,694)
40,840
(1,958)
328,660
(5,652)
3,944
374
11,813
(139)
(3)
(187)
—
—
—
—
3,944
374
9,491
(508)
21,304
(139)
(3)
(695)
$
312,593 $
(4,167) $
90,636 $
(3,524) $
403,229 $
(7,691)
Amounts reclassified from accumulated other comprehensive loss and the affected line items in the consolidated
statements of income during the years ended December 31, 2022, 2021 and 2020 were as follows:
Details About Accumulated Other
Comprehensive Loss Components
Unrealized gains on securities available-for-
sale
Gain realized in earnings
Total reclassified amount before tax
Tax expense
Total reclassifications out of accumulated
other comprehensive loss
$
$
Equity Investments
Amounts Reclassified from
Accumulated Other Comprehensive Loss
for the Year Ended December 31,
2022
2021
2020
Affected Line Item in the
Statements of Income
— $
— $
139 Gain on sale of securities
—
—
—
—
139
Income before income taxes
38
Income tax provision
— $
— $
101 Net Income
Equity investments, largely comprised of non-marketable equity investments, are generally accounted for under equity security
accounting. The following tables provide additional information related to investments accounted for under this method.
The carrying amount of each equity investment with a readily determinable fair value at December 31, 2022 and 2021 is
reflected in the following table:
(dollars in thousands)
GenOpp Financial Fund LP
Total
2022
2021
$
$
2,134 $
2,134 $
2,075
2,075
F-21
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
The carrying amount of the Company’s investments in non-marketable equity securities with no readily determinable fair value
and amounts recognized in earnings on a cumulative basis as of December 31, 2022 and for the years ended December 31, 2022
and 2021 is reflected in the following table:
(dollars in thousands)
Carrying value1
Carrying value adjustments
Impairment
Upward changes for observable prices
Downward changes for observable prices
Net change
2022
2021
$
8,067 $
4,636
—
—
—
—
—
—
—
—
$
8,067 $
4,636
1 Exclusive of $13.0 million and $12.0 million in unfunded commitments as of December 31, 2022, and 2021, respectively.
F-22
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Note 4:
Loans
Categories of loans include:
Commercial loans
Commercial and industrial
Owner-occupied commercial real estate
Investor commercial real estate
Construction
Single tenant lease financing
Public finance
Healthcare finance
Small business lending
Franchise finance
Total commercial loans
Consumer loans
Residential mortgage
Home equity
Other consumer
Total consumer loans
Total commercial and consumer loans
Net deferred loan origination costs, premiums and discounts on purchased loans, and other 1
Total loans
Allowance for loan losses
Net loans
December 31,
2022
2021
$
126,108 $
61,836
93,121
181,966
939,240
621,032
272,461
123,750
299,835
96,008
66,732
28,019
136,619
865,854
592,665
387,852
108,666
81,448
2,719,349
2,363,863
383,948
24,712
324,598
733,258
186,770
17,665
265,478
469,913
3,452,607
2,833,776
46,794
53,886
3,499,401
2,887,662
(31,737)
(27,841)
$
3,467,664 $
2,859,821
1 Includes carrying value adjustment of $32.5 million and $37.5 million related to terminated interest rate swaps associated with public
finance loans as of December 31, 2022 and December 31, 2021, respectively.
The general risk characteristics specific to each loan portfolio segment are as follows:
Commercial and Industrial: Commercial and industrial loans’ sources of repayment are primarily based on the
identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash
flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value.
Loans are made for working capital, equipment purchases, or other purposes. Most commercial and industrial loans are
secured by the assets being financed and may incorporate a personal guarantee. This portfolio segment is generally
concentrated in the Midwest and Southwest regions of the United States.
Owner-Occupied Commercial Real Estate: The primary source of repayment is the cash flow from the ongoing
operations and activities conducted by the borrower, or an affiliate of the borrower, who owns the property. This
portfolio segment is generally concentrated in the Midwest and Southwest regions of the United States and its loans
are often secured by manufacturing and service facilities, as well as office buildings.
F-23
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Investor Commercial Real Estate: These loans are underwritten primarily based on the cash flow expected to be
generated from the property and are secondarily supported by the value of the real estate. These loans typically
incorporate a personal guarantee from the primary sponsor or sponsors. This portfolio segment generally involves
larger loan amounts with repayment primarily dependent on the successful leasing and operation of the property
securing the loan or the business conducted on the property securing the loan. Investor commercial real estate loans
may be more adversely affected by changing economic conditions in the real estate markets, industry dynamics or the
overall health of the local economy where the property is located. The properties securing the Company’s investor
commercial real estate portfolio tend to be diverse in terms of property type and are generally located in the Midwest
and Southwest regions of the United States. Management monitors and evaluates commercial real estate loans based
on property financial performance, collateral value, guarantor strength, economic and industry conditions together with
other risk grade criteria. As a general rule, the Company avoids financing special use projects unless other
underwriting factors are present to mitigate these additional risks.
Construction: Construction loans are secured by land and related improvements and are made to assist in the
construction of new structures, which may include commercial (retail, industrial, office, and multi-family) properties,
land development for residential properties or single family residential properties offered for sale by the builder. These
loans generally finance a variety of project costs, including land, site preparation, architectural services, construction,
closing and soft costs and interim financing needs. The cash flows of builders, while initially predictable, may
fluctuate with market conditions, and the value of the collateral securing these loans may be subject to fluctuations
based on general economic changes. This portfolio segment is generally concentrated in the Midwest and Southwest
regions of the United States.
Single Tenant Lease Financing: These loans are made on a nationwide basis to property owners of real estate
subject to long-term lease arrangements with single tenant operators. The real estate is typically operated by
regionally, nationally or globally branded businesses. The loans are underwritten based on the financial strength of the
borrower, characteristics of the real estate, cash flows generated from the lease arrangements and the financial strength
of the tenant. Similar to the other loan portfolio segments, management monitors and evaluates these loans based on
borrower and tenant financial performance, collateral value, industry trends and other risk grade criteria.
Public Finance: These loans are made on a nationwide basis to governmental and not-for-profit entities to provide
both tax-exempt and taxable loans for a variety of purposes including: short-term cash-flow needs; debt refinancing;
economic development; quality of life projects; infrastructure improvements; renewable energy projects; and
equipment financing. The primary sources of repayment for public finance loans include pledged revenue sources
including but not limited to: general obligations; property taxes; income taxes; tax increment revenue; utility revenue;
gaming revenues; sales tax; and pledged general revenue. Certain loans may also include an additional collateral
pledge of mortgaged property or a security interest in financed equipment.
Healthcare Finance: These loans are made on a nationwide basis to healthcare providers, primarily dentists, for
practice acquisition financing or refinancing that occasionally includes owner-occupied commercial real estate and
equipment purchases. The sources of repayment are primarily based on the identified cash flows from operations of the
borrower and related entities and secondarily on the underlying collateral provided by the borrower.
F-24
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Small Business Lending: These loans are made on a nationwide basis to small businesses and generally carry a
partial guaranty from the U.S. Small Business Administration (“SBA”) under its 7(a) loan program. We generally sell
the government guaranteed portion of SBA loans into the secondary market while retaining the non-guaranteed portion
of the loan and the servicing rights. Loans in the small business lending portfolio have sources of repayment that are
primarily based on the identified cash flows of the borrower and secondarily on any underlying collateral provided by
the borrower. Loans may, but do not always, have a collateral shortfall. For SBA loans where the guaranteed portion is
retained, the SBA guaranty provides a tertiary source of repayment to the Bank in event of borrower default. Cash
flows of borrowers, however, may not be as expected and collateral securing these loans may fluctuate in value. Loans
are made for a broad array of purposes including, but not limited to, providing operating cash flow, funding ownership
changes, and facilitating equipment purchases.
Franchise Finance: These loans are made on a nationwide basis through our partnership with ApplePie Capital,
which through their deep relationships with franchise brands provides franchisees with financing options for new
franchise units, recapitalization, expansion, equipment and working capital. The sources of repayment are either based
on identified cash flows from existing operations of the borrower or pro forma cash flow for new franchise locations.
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.
F-25
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
The following tables present changes in the balance of the ALLL during the twelve months ended December 31, 2022,
2021, and 2020
Twelve Months Ended December 31, 2022
Allowance for loan losses:
Commercial and industrial
Owner-occupied commercial real estate
Investor commercial real estate
Construction
Single tenant lease financing
Public finance
Healthcare finance
Small business lending
Franchise finance
Residential mortgage
Home equity
Other consumer
Total
Allowance for loan losses:
Commercial and industrial
Owner-occupied commercial real estate
Investor commercial real estate
Construction
Single tenant lease financing
Public finance
Healthcare finance
Small business lending
Franchise finance
Residential mortgage
Home equity
Other consumer
Total
Balance,
Beginning of
Period
Provision
(Credit) Charged
to Expense
Losses Charged
Off
Recoveries
Balance, End of
Period
$
1,891 $
(185) $
— $
5 $
742
328
1,612
10,385
1,776
5,940
1,387
1,083
643
64
1,990
(91)
771
462
(1,097)
(23)
(2,943)
1,154
2,905
912
(134)
3,246
—
—
—
—
—
—
(402)
—
—
—
(2,358)
—
—
—
1,231
—
—
29
—
4
139
271
$
27,841 $
4,977 $
(2,760) $
1,679 $
1,711
651
1,099
2,074
10,519
1,753
2,997
2,168
3,988
1,559
69
3,149
31,737
Twelve Months Ended December 31, 2021
Balance,
Beginning of
Period
Provision
(Credit) Charged
to Expense
Losses Charged
Off
Recoveries
Balance, End of
Period
$
1,146 $
684 $
(28) $
89 $
1,082
155
1,192
12,990
1,732
7,485
628
—
519
48
2,507
(340)
173
420
(214)
44
(1,545)
901
1,083
67
60
(303)
—
—
—
(2,391)
—
—
(222)
—
(6)
(51)
(529)
$
29,484 $
1,030 $
(3,227) $
—
—
—
—
—
—
80
—
63
7
315
554 $
1,891
742
328
1,612
10,385
1,776
5,940
1,387
1,083
643
64
1,990
27,841
F-26
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Twelve Months Ended December 31, 2020
Balance,
Beginning of
Period
Provision
(Credit) Charged
to Expense
Losses Charged
Off
Recoveries
Balance, End of
Period
Allowance for loan losses:
Commercial and industrial
$
1,521 $
80 $
Owner-occupied commercial real estate
Investor commercial real estate
Construction
Single tenant lease financing
Public finance
Healthcare finance
Small business lending
Residential mortgage
Home equity
Other consumer
Total
561
109
380
11,175
1,580
3,247
54
657
46
2,510
545
46
812
1,815
152
4,894
665
(122)
(9)
447
(461) $
(24)
—
—
—
—
(743)
(110)
(20)
—
(804)
6 $
—
—
—
—
—
87
19
4
11
354
481 $
1,146
1,082
155
1,192
12,990
1,732
7,485
628
519
48
2,507
29,484
$
21,840 $
9,325 $
(2,162) $
The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on
portfolio segment and impairment method as of December 31, 2022 and 2021.
Ending
Balance:
Collectively
Evaluated
for
Impairment
Loans
Ending
Balance:
Individually
Evaluated
for
Impairment
Allowance for Loan Losses
Ending
Balance:
Collectively
Evaluated
for
Impairment
Ending
Balance:
Individually
Evaluated
for
Impairment
Ending
Balance
Ending Balance
December 31, 2022
Commercial and industrial
$
116,307 $
9,801 $ 126,108 $
1,660 $
51 $
Owner-occupied commercial real estate
Investor commercial real estate
Construction
Single tenant lease financing
Public finance
Healthcare finance
Small business lending1
Franchise finance
Residential mortgage
Home equity
Other consumer
Total
60,266
93,121
181,966
939,240
621,032
272,461
113,699
299,835
380,272
24,683
324,581
1,570
—
—
—
—
—
61,836
93,121
181,966
939,240
621,032
272,461
10,051
123,750
—
299,835
3,676
383,948
29
17
24,712
324,598
651
1,099
2,074
10,519
1,753
2,997
1,465
3,988
1,559
69
3,149
—
—
—
—
—
—
703
—
—
—
—
$ 3,427,463 $
25,144 $ 3,452,607 $
30,983 $
754 $
1,711
651
1,099
2,074
10,519
1,753
2,997
2,168
3,988
1,559
69
3,149
31,737
1 Balance is partially guaranteed by the U.S. government.
F-27
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Ending
Balance:
Collectively
Evaluated
for
Impairment
Loans
Ending
Balance:
Individually
Evaluated
for
Impairment
Allowance for Loan Losses
Ending
Balance:
Collectively
Evaluated
for
Impairment
Ending
Balance:
Individually
Evaluated
for
Impairment
Ending
Balance
Ending
Balance
December 31, 2021
Commercial and industrial
$
95,364 $
644 $ 96,008 $
1,441 $
450 $
1,891
Owner-occupied commercial real estate
Investor commercial real estate
Construction
Single tenant lease financing
Public finance
Healthcare finance
Small business lending1
Franchise finance
Residential mortgage
Home equity
Other consumer
Total
63,387
28,019
136,619
864,754
592,665
386,926
106,682
81,448
183,852
17,651
265,469
3,345
—
—
66,732
28,019
136,619
1,100
865,854
—
592,665
926
387,852
1,984
108,666
—
81,448
2,918
186,770
14
17,665
9
265,478
742
328
1,612
10,290
1,776
5,417
994
1,083
643
64
1,990
—
—
—
95
—
523
393
—
—
—
—
742
328
1,612
10,385
1,776
5,940
1,387
1,083
643
64
1,990
$ 2,822,836 $
10,940 $ 2,833,776 $
26,380 $
1,461 $
27,841
1 Balance is partially guaranteed by the U.S. government.
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 which 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.
F-28
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
The following tables present the credit risk profile of the Company’s commercial and consumer loan portfolios based
on rating category and payment activity as of December 31, 2022 and 2021.
Pass
Special Mention
Substandard
Total
December 31, 2022
Commercial and industrial
$
114,934 $
1,373 $
Owner-occupied commercial real estate
Investor commercial real estate
Construction
Single tenant lease financing
Public finance
Healthcare finance
Small business lending1
Franchise finance
50,721
93,121
180,768
936,207
618,752
271,085
107,885
299,241
9,546
—
1,198
3,033
2,280
1,376
5,814
594
9,801 $
1,569
—
—
—
—
—
10,051
—
126,108
61,836
93,121
181,966
939,240
621,032
272,461
123,750
299,835
Total commercial loans
$
2,672,714 $
25,214 $
21,421 $
2,719,349
1 Balance is partially guaranteed by the U.S. government.
Residential mortgage
Home equity
Other consumer
Total
Performing
December 31, 2022
Nonaccrual
Total
$
$
382,900 $
24,712
324,581
732,193 $
1,048 $
—
17
1,065 $
December 31, 2021
Commercial and industrial
$
82,412 $
12,952 $
644 $
Pass
Special Mention
Substandard
Total
Owner-occupied commercial real estate
Investor commercial real estate
Construction
Single tenant lease financing
Public finance
Healthcare finance
Small business lending1
Franchise finance
59,369
28,019
124,578
859,612
591,630
386,337
99,250
81,448
4,018
—
12,041
5,142
1,035
589
7,433
—
3,345
—
—
1,100
—
926
1,983
—
383,948
24,712
324,598
733,258
96,008
66,732
28,019
136,619
865,854
592,665
387,852
108,666
81,448
Total commercial loans
$
2,312,655 $
43,210 $
7,998 $
2,363,863
1 Balance is partially guaranteed by the U.S. government.
Residential mortgage
Home equity
Other consumer
Total
$
$
Performing
December 31, 2021
Nonaccrual
Total
1,226 $
14
9
1,249 $
186,770
17,665
265,478
469,913
185,544 $
17,651
265,469
468,664 $
F-29
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
The following tables present the Company’s loan portfolio delinquency analysis as of December 31, 2022 and 2021.
December 31, 2022
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
or More
Past Due
Total
Past Due
Current
Total loans
Nonaccrual
Loans
Total Loans
90 Days or
More Past
Due
and Accruing
Commercial and industrial
$
Owner-occupied commercial
real estate
Investor commercial real estate
Construction
Single tenant lease financing
Public finance
Healthcare finance
Small business lending1
Franchise Finance
Residential mortgage
Home equity
Other consumer
Total
$
132
$ 125,976
$ 126,108
$
51
$
61,836
61,836
1,570
$
51
—
—
—
—
—
—
81
—
—
—
—
—
—
57
313
—
—
91
$
—
—
—
1,198
—
—
—
—
—
283
—
10
—
—
93,121
93,121
1,198
180,768
181,966
—
—
—
939,240
939,240
621,032
621,032
272,461
272,461
3,485
3,542
120,208
123,750
—
185
—
—
313
468
299,522
299,835
383,480
383,948
—
24,712
24,712
101
324,497
324,598
—
—
—
—
—
4,764
—
1,048
—
17
$
542
$
1,491
$
3,721
$
5,754
$ 3,446,853 $ 3,452,607
$
7,450
$
—
—
—
—
—
—
—
—
—
79
—
—
79
1 Balance is partially guaranteed by the U.S. government.
December 31, 2021
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
or More
Past Due
Total
Past Due
Current
Total loans
Nonaccrual
Loans
Total Loans
90 Days or
More Past
Due
and Accruing
Commercial and industrial
$
— $
— $
— $
— $
96,008 $
96,008 $
674 $
Owner-occupied commercial
real estate
Investor commercial real estate
Construction
Single tenant lease financing
Public finance
Healthcare finance
Small business lending1
Franchise Finance
Residential mortgage
Home equity
Other consumer
Total
—
—
—
—
—
—
—
—
51
—
68
—
—
—
—
—
—
—
—
226
—
18
—
—
—
—
—
—
657
—
106
—
—
—
—
—
—
—
—
657
—
383
—
86
66,732
28,019
136,619
865,854
592,665
387,852
108,009
81,448
186,387
17,665
265,392
66,732
28,019
136,619
865,854
592,665
387,852
108,666
81,448
186,770
17,665
265,478
—
3,419
—
1,100
—
—
959
—
1,226
14
9
$
119 $
244 $
763 $
1,126 $ 2,832,650 $ 2,833,776 $
7,401 $
—
—
—
—
—
—
—
—
—
—
—
—
—
1 Balance is partially guaranteed by the U.S. government.
F-30
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
The following tables present the Company’s impaired loans as of December 31, 2022 and 2021.
December 31, 2022
December 31, 2021
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
Loans without a specific valuation allowance
Commercial and industrial
$
9,750 $
9,750 $
— $
— $
— $
Owner-occupied commercial real estate
Small business lending1
Residential mortgage
Home equity
Other consumer
Total
Loans with a specific valuation allowance
Commercial and industrial
Single tenant lease financing
Healthcare finance
Small business lending1
Total
Total impaired loans
1,570
8,184
3,676
29
17
1,779
8,705
3,835
29
36
23,226
24,134
—
—
—
—
—
—
3,345
959
2,918
14
9
3,466
1,193
3,063
15
44
7,245
7,781
$
51 $
51 $
51 $
644 $
677 $
—
—
1,867
1,918
—
—
1,867
1,918
—
—
703
754
1,100
926
1,025
3,695
1,123
926
1,025
3,751
$
25,144 $
26,052 $
754 $
10,940 $
11,532 $
—
—
—
—
—
—
—
450
95
523
393
1,461
1,461
1 Balance is partially guaranteed by the U.S. government.
The following table presents average balances and interest income recognized for impaired loans during the twelve
months ended December 31, 2022, 2021, and 2020.
Twelve Months Ended
December 31, 2022
December 31, 2021
December 31, 2020
Average
Balance
Interest
Income
Average
Balance
Interest
Income
Average
Balance
Interest
Income
Loans without a specific valuation allowance
Commercial and industrial
$
3,676 $
872 $
194 $
9 $
1,037 $
Owner-occupied commercial real estate
Single tenant lease financing
Healthcare finance
Small business lending1
Residential mortgage
Home equity
Other consumer
Total
Loans with a specific valuation allowance
2,253
—
—
2,678
3,529
16
8
12,160
—
—
—
—
25
—
—
3,324
75
252
1,215
2,264
13
29
897
7,366
—
5
—
—
67
—
—
81
3,790
—
386
—
1,333
—
57
6,603
Commercial and industrial
$
411 $
— $
675 $
— $
169 $
Owner-occupied commercial real estate
Single tenant lease financing
Healthcare finance
Small business lending1
Other consumer
Total
Total impaired loans
—
410
620
1,662
50
3,153
—
—
45
—
—
45
355
3,931
841
644
—
6,446
—
—
131
—
—
131
—
5,671
—
—
—
5,840
$
15,313 $
942 $
13,812 $
212 $
12,443 $
140
57
60
—
16
—
—
—
—
133
3
—
4
—
—
—
7
1 Balance is partially guaranteed by the U.S. government.
F-31
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
The Company did not have any other real estate owned (“OREO”) as of December 31, 2022. The Company had
$1.2 million in OREO as of December 31, 2021, which consisted of one commercial property. There was one loan for
$0.1 million and one loan for $0.1 million in the process of foreclosure at December 31, 2022 and December 31, 2021,
respectively.
Troubled Debt Restructurings
In the course of working with troubled borrowers, the Company may choose to restructure the contractual terms of
certain loans in an effort to work out an alternative payment schedule with the borrower in order to optimize the
collectability of the loan. Any loan modification is reviewed by the Company to identify whether a TDR has occurred
when the Company grants a concession to the borrower that it would not otherwise consider based on economic or
legal reasons related to a borrower’s financial difficulties. Terms may be modified to fit the ability of the borrower to
repay in line with its current financial status or the loan may be restructured to secure additional collateral and/or
guarantees to support the debt, or a combination of the two.
There were two portfolio residential mortgage loans classified as new TDRs during the twelve months ended
December 31, 2022 with a pre-modification and post-modification outstanding recorded investment of $1 million. The
Company did not allocate a specific ALLL for these loans as of December 31, 2022 and the modifications consisted of
interest only payments for a period of time. There was one SBA loan classified as a new TDR during the twelve
months ended December 31, 2022 with a pre-modification and post-modification outstanding recorded investment of
$0.6 million and the modification consisted of a forbearance agreement. The company allocated a specific ALLL of
$0.3 million for this loan. There were two portfolio residential mortgage loans classified as new TDRs during the
twelve months ended December 31, 2021 with a pre-modification and post-modification outstanding recorded
investment of $1.6 million. The Company did not allocate a specific ALLL for these loans as of December 31, 2021.
The modifications consisted of interest-only payments for a period of time. There were three commercial and industrial
loans classified as new TDRs during the twelve months ended December 31, 2020 with a pre-modification and post-
modification outstanding recorded investment of $2.6 million. The Company did not allocate a specific ALLL for
these loans as of December 31, 2020 and the modifications consisted of interest only payments for a period of time and
an extension of the maturity dates.
There were no performing TDRs which had payment defaults within the twelve months following modification during
the years ended December 31, 2022, 2021 and 2020.
Non-TDR Loan Modifications due to COVID-19
The “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers
Affected by the Coronavirus” was issued by our banking regulators on March 22, 2020. This guidance encouraged
financial institutions to work prudently with borrowers who were or may be unable to meet their contractual payment
obligations due to the effects of COVID-19.
Additionally, Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) provides
that loan modifications due to the impact of COVID-19 that would otherwise be classified as TDRs under GAAP will
not be so classified. Modifications within the scope of this relief were in effect from the period beginning March 1,
2020 until January 1, 2022. As of December 31, 2022, the Company had no loans classified as non-TDR loan
modifications due to COVID-19.
Note 5:
Premises and Equipment
The following table summarizes premises and equipment at December 31, 2022 and 2021.
F-32
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Land
Construction in process
Right of use leased asset
Building and improvements
Furniture and equipment
Less: accumulated depreciation
December 31,
2022
2021
$
5,598 $
714
206
57,505
19,585
(10,897)
$
72,711 $
—
57,469
208
1,090
7,800
(6,725)
59,842
On February 16, 2021, the Company entered into an agreement to sell its then headquarters (the “Prior Headquarters”)
and certain equipment located in the Prior Headquarters to a third party. The sale was completed on April 16, 2021,
and the Company recorded a gain on sale of $2.5 million. As a part of the sale agreement, the buyer agreed to lease the
Prior Headquarters back to the Company through December 31, 2021. The Company vacated the Prior Headquarters at
the end of the lease, on or prior to December 31, 2021.
Note 6:
Goodwill
As of December 31, 2022 and 2021, the carrying amount of goodwill was $4.7 million. There have been no changes
in the carrying amount of goodwill for the three years ended December 31, 2022, 2021, and 2020. Goodwill is tested
for impairment on an annual basis as of August 31, or whenever events or changes in circumstances indicate the
carrying amount of goodwill exceeds its implied fair value. The annual test indicated no impairment existed as of
August 31, 2022 and no events or changes in circumstances have occurred since the August 31, 2022 annual
impairment test that would suggest it was more likely than not goodwill impairment existed.
F-33
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Note 7:
Servicing Asset
Activity for the servicing asset and the related changes in fair value for the twelve months ended December 31, 2022,
2021 and 2020 are shown in the table below.
December 31, 2022
December 31, 2021
December 31, 2020
Twelve Months Ended
Beginning balance
Additions:
Originated and purchased servicing
Subtractions:
Paydowns
Changes in fair value due to changes in valuation inputs
or assumptions used in the valuation model
Loan servicing asset revaluation
Ending balance
$
4,702 $
3,569 $
3,192
(1,075)
(564)
(1,639)
2,202
(820)
(249)
(1,069)
$
6,255 $
4,702 $
2,481
1,520
(524)
92
(432)
3,569
Loans serviced for others are not included in the consolidated balance sheets. The unpaid principal balances of these
loans serviced for others as of December 31, 2022, 2021, and 2020 are shown in the table below.
Loan portfolios serviced for:
SBA guaranteed loans
Total
December 31, 2022
December 31, 2021
December 31, 2020
$
$
318,194 $
318,194 $
230,514 $
230,514 $
165,961
165,961
Loan servicing revenue totaled $2.6 million, $1.9 million, and $1.2 million during the twelve months ended December
31, 2022, 2021, and 2020, respectively. Loan servicing asset revaluation, which represents paydowns and the change in
fair value of the servicing asset, resulted in a $1.6 million, $1.1 million, and $0.4 million downward valuation for twelve
months ended December 31, 2022 , 2021 and 2020, respectively.
The fair value of servicing rights is highly sensitive to changes in underlying assumptions. Though fluctuations in
prepayment speeds and changes in secondary market premiums generally have the most substantial impact on the fair
value of servicing rights, other influencing factors include changing economic conditions, changes to the discount rate
assumption and the weighted average life of the servicing portfolio. Measurement of fair value is limited to the
conditions existing and the assumptions used as of a particular point in time; however, those assumptions may change
over time. Refer to Note 16 - Fair Value of Financial Instruments for further details.
F-34
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Note 8:
Deposits
The following table presents the composition of the Company’s deposit base as of December 31, 2022 and 2021.
Noninterest-bearing demand deposit accounts
Interest-bearing demand deposit accounts
Savings accounts
Money market accounts
Banking-as-a-Service (“BaaS”) - brokered deposits
Certificates of deposits
Brokered deposits
Total deposits
Time deposits greater than $250
December 31,
2022
2021
$
175,315 $
335,611
44,819
117,531
247,967
59,998
1,418,599
1,483,936
13,607
874,490
578,804
—
970,107
299,420
$
$
3,441,245 $
3,178,959
484,700 $
327,490
The following table presents time deposit maturities by year as of December 31, 2022.
2023
2024
2025
2026
2027
Note 9:
FHLB Advances
Certificates of
Deposits
Brokered
Certificates of
Deposits
$
590,208 $
146,747
38,736
31,764
67,035
48,795
51,164
85,106
35,208
35,000
$
874,490 $
255,273
The Company had outstanding FHLB advances of $614.9 million and $514.9 million as of December 31, 2022 and
2021, respectively. As of December 31, 2022, the stated interest rates on the Company’s outstanding FHLB advances
ranged from 1.06% to 4.64%, with a weighted average interest rate of 2.82%. All advances are collateralized by
residential mortgage loans and commercial real estate loans pledged and held by the Company and investment
securities pledged by the Company and held in safekeeping with the FHLB. Residential mortgage loans pledged were
approximately $258.0 million and $128.8 million as of December 31, 2022 and 2021, respectively, and commercial
real estate loans pledged were approximately $895.3 million and $920.9 million as of December 31, 2022 and 2021,
respectively. The fair value of investment securities pledged to the FHLB was approximately $448.4 million and
$474.5 million as of December 31, 2022 and 2021, respectively. Based on this collateral and the Company’s holdings
of FHLB stock, the Company is eligible to borrow up to an additional $455.9 million at year-end 2022. As of
December 31, 2022, the Company had $125.0 million of putable advances with the FHLB.
The Company’s FHLB advances are scheduled to mature according to the following schedule:
2023
2024
2025
2026
2027
Thereafter
F-35
Amount
145,000
145,009
90,000
10,000
100,000
124,919
614,928
$
$
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Note 10:
Subordinated Debt
In September 2016, the Company issued $25.0 million aggregate principal amount of 6.0% Fixed-to-Floating Rate
Subordinated Notes due 2026 (the “2026 Notes”) in a public offering. The 2026 Notes initially had a fixed interest rate of
6.0% per year to, but excluding, September 30, 2021, and thereafter a floating rate equal to the then-current three-month
London Interbank Offered Rate (“LIBOR”) plus 4.85%. All interest on the 2026 Notes was payable quarterly. The 2026
Notes were scheduled to mature on September 30, 2026. The 2026 Notes were unsecured subordinated obligations of the
Company eligible to be repaid, without penalty, on any interest payment date on or after September 30, 2021. The 2026
Notes were intended to qualify as Tier 2 capital under regulatory guidelines. The Company redeemed the 2026 Notes in
full on September 30, 2021.
In June 2019, the Company issued $37.0 million aggregate principal amount of 6.0% Fixed-to-Floating Rate
Subordinated Notes due 2029 (the “2029 Notes”) in a public offering. The 2029 Notes initially bear a fixed interest rate
of 6.0% per year to, but excluding, June 30, 2024, and thereafter a floating rate equal to the then-current benchmark rate
(initially three-month LIBOR rate) plus 4.11%. All interest on the 2029 Notes is payable quarterly. The 2029 Notes are
scheduled to mature on June 30, 2029. The 2029 Notes are unsecured subordinated obligations of the Company and may
be repaid, without penalty, on any interest payment date on or after June 30, 2024. The 2029 Notes are intended to
qualify as Tier 2 capital under regulatory guidelines.
In October 2020, the Company entered into a term loan in the principal amount of $10.0 million, evidenced by a term
note due 2030 (the “2030 Note”). The 2030 Note initially bears a fixed interest rate of 6.0% per year to, but excluding,
November 1, 2025 and thereafter at a floating rate equal to the then-current benchmark rate (initially 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
the 2026 Notes. Pursuant to the terms of a Registration Rights Agreement between the Company and the initial
purchasers of the 2031 Notes, the Company offered to exchange the 2031 Notes for subordinated notes that are registered
under the Securities Act of 1933, as amended, and have substantially the same terms as the 2031 Notes. On December
30, 2021, we completed an exchange of $59.3 million principal amount of the unregistered 2031 Notes for registered
2031 Notes in satisfaction of our obligations under the registration rights agreement. Holders of $0.7 million of
unregistered 2031 Notes did not participate in the exchange.
The following table presents the principal balance and unamortized discount and debt issuance costs for the 2029 Notes,
the 2030 Note and the 2031 Notes as of December 31, 2022 and 2021.
2029 Notes
2030 Note
2031 Notes
Total
December 31, 2022
December 31, 2021
Unamortized
Discount and
Debt Issuance
Costs
Principal
Unamortized
Discount and
Debt Issuance
Costs
Principal
$
$
37,000 $
(1,020) $
37,000 $
10,000
60,000
(184)
(1,264)
10,000
60,000
107,000 $
(2,468) $
107,000 $
(1,178)
(208)
(1,383)
(2,769)
F-36
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Note 11:
Benefit Plans
401(k) Plan
The Company has a 401(k) plan established for substantially all full-time and part-time employees, as defined in the
plan. Employee contributions are limited to the maximum established by the Internal Revenue Service on an annual
basis. The Company has elected to match contributions equal to 100% up to the first 1% of employee deferrals and
then 50% on deferrals over 1% up to a maximum of 6% of an individual’s total eligible salary, as defined in the plan,
which vests immediately. Discretionary employer-matching contributions begin vesting immediately at a rate of 50%
per year of employment and are fully vested after the completion of two years of employment. Contributions totaled
approximately $0.9 million, $0.9 million and $0.8 million in the twelve months ended December 31, 2022, 2021 and
2020, respectively.
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 less than $0.1 million of share-based compensation expense for the year ended December 31,
2022, related to stock-based awards under the 2022 Plan.
The following table summarizes the stock-based award activity under the 2022 Plan for the year ended December 31,
2022.
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 Unit
Restricted
Stock Units
Unvested at January 1, 2022
Granted
Forfeited
Unvested at December 31, 2022
— $
—
—
— $
— $
4,151
(593)
3,558 $
—
36.84
36.84
36.84
— $
—
—
— $
—
—
—
—
—
—
—
F-37
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
At December 31, 2022, the total unrecognized compensation cost related to unvested stock-based awards was
0.1 million with a weighted-average expense recognition period of 0.4 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 $2.0 million, $2.4 million, and $2.1 million of share-based compensation expense for the years
ended December 31, 2022, 2021, and 2020, 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 year ended December 31,
2022:
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 Unit
Restricted
Stock Units
Unvested at January 1, 2022
112,822 $
Granted
Vested
Forfeited
41,662
(47,309)
(5,441)
Unvested at December 31, 2022
101,734 $
28.18
46.67
26.82
36.80
35.93
— $
9,954
(9,310)
(644)
— $
—
52.64
52.64
52.64
—
— $
6
(6)
—
— $
—
38.31
(38.31)
—
—
As of December 31, 2022, the total unrecognized compensation cost related to unvested awards was $1.6 million, with
a weighted-average expense recognition period of 1.7 years.
Directors Deferred Stock Plan
Until January 1, 2014, the Company had a stock compensation plan for non-employee 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
year ended December 31, 2022.
Outstanding, beginning of year
Granted
Released
Outstanding, end of year
Deferred Rights
84,536
432
(44,554)
40,414
All deferred stock rights granted during 2022 were additional rights issued in lieu of cash dividends payable on
outstanding deferred stock rights.
F-38
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Note 12:
Income Taxes
The provision for income taxes consists of the following:
Current
Deferred
Total
December 31,
2022
2021
2020
$
$
(73) $
6,024 $
4,632
2,434
4,559 $
8,458 $
8,563
(4,118)
4,445
Income tax provision is reconciled to the statutory 21% rate applied to pre-tax income.
Statutory rate times pre-tax income
(Subtract) add the tax effect of:
Income from tax-exempt securities and loans
State income tax, net of federal tax effect
Bank-owned life insurance
Tax credits
Other differences
Total income taxes
December 31,
2022
2021
2020
$
8,421 $
11,880 $
7,119
(4,190)
(4,217)
592
(201)
(143)
80
865
(199)
(175)
304
(4,464)
1,765
(200)
(178)
403
$
4,559 $
8,458 $
4,445
The net deferred tax asset at December 31, 2022 and 2021 consists of the following:
Deferred tax assets (liabilities)
Allowance for loan losses
Net unrealized losses on available-for-sale securities and hedged items
Fair value adjustments
Depreciation
Deferred compensation and accrued payroll
Loan origination costs
Prepaid assets
Net operating loss
Other
December 31,
2022
2021
$
8,569 $
10,047
(12,097)
(2,612)
1,574
(1,816)
(813)
8,928
312
Total deferred tax assets, net
$
12,092 $
7,517
4,835
(618)
(100)
1,577
(1,311)
(641)
—
149
11,408
During 2022, the Company generated a federal and state net operating loss of $40.5 million and $9.1 million,
respectively. For federal income tax purposes, the NOL has no expiration period; however, for state income tax purposes, the
NOL may have varying expiration periods. The Company expects to generate sufficient taxable income in the future to utilize
the loss generated.
Note 13:
Related Party Transactions
In the normal course of business, the Company may enter into transactions with various related parties. In
management’s opinion, such loans, other extensions of credit, and deposits were made in the ordinary course of
business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at
the time for comparable transactions with other persons. Further, in management’s opinion, these loans did not involve
more than the normal risk of collectability or present other unfavorable features.
F-39
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Related party loans and extensions of credit at December 31, 2022 and 2021 totaled $21.9 million and $11.4 million,
respectively.
The following table presents the change in related party loans as of December 31, 2022 and 2021.
Balance at the beginning of period
Effect of change in composition of directors and executive officers
New Term Loans
Repayment of term loans
Changes in balances of revolving lines of credit
Balance at end of period
Twelve Months Ended
December 31, 2022
December 31, 2021
$
$
11,364 $
—
21,810
(11,324)
10
21,860 $
2,089
—
11,352
(2,072)
(5)
11,364
Deposits from related parties held by the Company at December 31, 2022 and 2021 totaled $33.7 million and $28.8
million, respectively.
Note 14:
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.
F-40
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
The following tables present actual and required capital ratios as of December 31, 2022 and 2021 for the Company and
the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum
required capital levels as of December 31, 2022 and 2021 based on the Basel III Capital Rules. Capital levels required
to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the
changes under the Basel III Capital Rules.
Actual
Minimum Capital
Required - Basel III
Minimum Required to be
Considered Well
Capitalized
Capital
Amount
Ratio
Capital
Amount
Ratio
Capital
Amount
Ratio
As of December 31, 2022:
Common equity tier 1 capital to risk-weighted
assets
Consolidated
Bank
Tier 1 capital to risk-weighted assets
Consolidated
Bank
Total capital to risk-weighted assets
Consolidated
Bank
Leverage ratio
Consolidated
Bank
As of December 31, 2021:
Common equity tier 1 capital to risk-weighted
assets
Consolidated
Bank
Tier 1 capital to risk-weighted assets
Consolidated
Bank
Total capital to risk-weighted assets
Consolidated
Bank
Leverage ratio
Consolidated
Bank
390,150
466,257
526,419
497,994
390,150
466,257
384,499
432,181
516,571
460,022
384,499
432,181
$ 390,150
10.93 % $ 249,795
7.00 %
N/A
466,257
13.10 %
249,191
7.00 % $ 231,392
10.93 %
303,323
8.50 %
N/A
13.10 %
302,590
8.50 %
284,790
14.75 %
374,693
10.50 %
N/A
N/A
13.99 %
373,787
10.50 %
355,988
10.00 %
9.06 %
172,330
4.00 %
N/A
10.84 %
172,093
4.00 %
215,116
N/A
5.00 %
Actual
Minimum Capital
Required - Basel III
Minimum Required to be
Considered Well
Capitalized
Capital
Amount
Ratio
Capital
Amount
Ratio
Capital
Amount
Ratio
$ 384,499
12.93 % $ 208,202
7.00 %
N/A
432,181
14.55 %
207,913
7.00 % $ 193,062
N/A
6.50 %
N/A
8.00 %
N/A
6.50 %
N/A
8.00 %
12.93 %
252,817
8.50 %
N/A
14.55 %
252,466
8.50 %
237,615
17.37 %
312,303
10.50 %
N/A
N/A
15.49 %
311,870
10.50 %
297,019
10.00 %
9.22 %
166,824
4.00 %
N/A
10.37 %
166,693
4.00 %
208,366
N/A
5.00 %
Note 15:
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 consolidated financial statements. At December 31, 2022 and 2021, the Company had outstanding
loan commitments totaling approximately $485.4 million and $324.3 million, respectively.
F-41
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Capital Commitments
Capital expenditures contracted for at the balance sheet date but not yet recognized in the financial statements are
associated with the construction of the building where our corporate headquarters is located, along with the attached
parking garage. The Company has entered into construction-related contracts in the amount of $68.9 million. As of
December 31, 2022, $2.4 million of such contract commitments had not yet been incurred. These commitments are due
within one year.
Note 16:
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurements, 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. ASU
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 consolidated balance sheets, as well as the general classification
of such assets pursuant to the valuation hierarchy.
Available-for-Sale Securities
Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation
hierarchy. Level 1 securities include highly liquid mutual funds. If quoted market prices are not available, then fair
values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash
flows.
Level 2 securities include U.S. Government-sponsored agencies, municipal securities, mortgage and asset-backed
securities and corporate securities. Matrix pricing is a mathematical technique widely used in the banking industry to
value investment securities.
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 December 31, 2022 or 2021.
Loans Held-for-Sale (mandatory pricing agreements)
The fair value of loans held-for-sale is determined using quoted prices for similar assets, adjusted for specific attributes
of that loan (Level 2).
F-42
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
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).
Forward Contracts
The fair values of forward contracts on to-be-announced securities are determined using quoted prices in active
markets, or benchmarked thereto (Level 1).
Interest Rate Lock Commitments
The fair values of IRLCs are determined using the projected sale price of individual loans based on changes in market
interest rates, projected pull-through rates (the probability that an IRLC will ultimately result in an originated loan), the
reduction in the value of the applicant’s option due to the passage of time, and the remaining origination costs to be
incurred based on management’s estimate of market costs (Level 3).
F-43
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
The following tables present the fair value measurements of assets and liabilities recognized in the accompanying
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 December 31, 2022 and 2021.
December 31, 2022
Fair Value Measurements Using
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair
Value
U.S. Government-sponsored agencies
$
33,809 $
— $
33,809 $
Municipal securities
Agency mortgage-backed securities - residential
Agency mortgage-backed securities - commercial
Private label mortgage-backed securities - residential
Asset-backed securities
Corporate securities
67,276
215,092
15,840
10,455
4,960
42,952
—
—
—
—
—
—
67,276
215,092
15,840
10,455
4,960
42,952
Total available-for-sale securities
$
390,384 $
— $
390,384 $
Servicing asset
Interest rate swaps assets
Loans held-for-sale (mandatory pricing agreements)
Forward contracts
IRLCs
6,255
8,645
9,110
97
133
—
—
—
97
—
—
8,645
9,110
—
—
—
—
—
—
—
—
—
6,255
—
—
—
133
December 31, 2021
Fair Value Measurements Using
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair
Value
U.S. Government-sponsored agencies
$
49,040 $
— $
49,040 $
Municipal securities
Agency mortgage-backed securities - residential
Agency mortgage-backed securities - commercial
Private label mortgage-backed securities - residential
Asset-backed securities
Corporate securities
Total available-for-sale securities
Servicing asset
Interest rate swaps liabilities
Loans held-for-sale (mandatory pricing agreements)
Forward contracts
IRLCs
77,033
373,236
36,326
16,021
5,004
46,384
—
—
—
—
—
—
77,033
373,236
36,326
16,021
5,004
46,384
$
603,044 $
— $
603,044 $
4,702
(14,271)
23,233
(30)
718
—
—
—
(30)
—
—
(14,271)
23,233
—
—
—
—
—
—
—
—
—
—
4,702
—
—
—
718
F-44
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
The following table reconciles the beginning and ending balances of recurring fair value measurements recognized in
the accompanying consolidated balance sheets using significant unobservable (Level 3) inputs.
Balance as of January 1, 2020
Total realized gains
Additions
Paydowns
Change in fair value
Balance, December 31, 2020
Total realized gains
Additions
Paydowns
Change in fair value
Balance, December 31, 2021
Total realized gains
Additions
Paydowns
Change in fair value
Balance, December 31, 2022
Servicing Asset
$
2,481 $
1,520
(524)
92
3,569
2,202
(820)
(249)
4,702
3,192
(1,135)
(504)
6,255 $
$
Interest Rate Lock
Commitments
910
—
2,451
3,361
—
—
(2,643)
718
—
—
(585)
133
The following describes the valuation methodologies and inputs used for assets measured at fair value on a
nonrecurring basis, as well as the general classification of such assets pursuant to the valuation hierarchy.
Impaired Loans (Collateral Dependent)
Loans for which it is probable that the Company will not collect all principal and interest due according to contractual
terms are measured for impairment. The amount of the impairment may be determined based on the fair value of the
underlying collateral, less costs to sell, the estimated present value of future cash flows or the loan’s observable market
price.
If the impaired loan is identified as collateral dependent, the fair value of the underlying collateral, less costs to sell, is
used to measure impairment. This method requires obtaining a current independent appraisal of the collateral and
applying a discount factor to the value. If the impaired loan is not collateral dependent, the Company utilizes a
discounted cash flow analysis to measure impairment.
Impaired loans with a specific valuation allowance based on the value of the underlying collateral or a discounted cash
flow analysis are classified as Level 3 assets.
The following table presents the fair value measurements of assets and liabilities recognized in the accompanying
condensed consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair
value hierarchy in which the fair value measurement falls at December 31, 2022 and December 31, 2021.
December 31, 2022
Fair Value Measurements Using
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair
Value
Impaired loans
1,164
—
—
1,164
F-45
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
December 31, 2021
Fair Value Measurements Using
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair
Value
Impaired loans
1,228
—
—
1,228
Unobservable (Level 3) Inputs
The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring
Level 3 fair value measurements other than goodwill.
(dollars in
thousands)
Fair Value at
December 31, 2022
Valuation
Technique
Impaired loans
$
1,164
Fair value of collateral
Significant
Unobservable
Inputs
Discount for type of
property and current
market conditions
Range
Weighted-
Average Range
0% - 25%
IRLCs
133
Discounted cash flow
Loan closing rates
31% - 100%
Servicing asset
(dollars in
thousands)
6,255
Discounted cash flow
Discount rate
14%
Prepayment speeds
0% - 25%
Fair Value at
December 31, 2021
Valuation
Technique
Range
Weighted -
Average Range
Unobservable
Inputs
Discount for type of
property and current
market conditions
Impaired loans
$
1,228
Fair value of collateral
0% - 35%
IRLCs
718
Discounted cash flow
Loan closing rates
42% - 100%
Servicing asset
4,702
Discounted cash flow
Discount rate
10%
Prepayment speeds
0% - 25%
20%
89%
14.6%
14%
10.1%
89%
12.5%
10%
The following methods were used to estimate the fair value of all other financial instruments recognized in the
accompanying consolidated balance sheets at amounts other than fair value:
Cash and Cash Equivalents
For these instruments, the carrying amount is a reasonable estimate of fair value.
Securities Held-to-Maturity
Where quoted market prices are available in an active market, securities are classified within Level 1 of the
valuation hierarchy. Level 1 securities include highly liquid mutual funds. If quoted market prices are not available,
then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or
discounted cash flows.
Level 2 securities include agency mortgage-backed securities - residential, municipal securities and corporate
securities. Matrix pricing is a mathematical technique widely used in the banking industry to value investment
securities.
In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the
hierarchy. Fair values are calculated using discounted cash flows. Discounted cash flows are calculated based off of
F-46
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
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 December 31, 2022 or December 31, 2021.
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 accounts 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 offered for 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 December 31, 2022 and 2021.
F-47
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
The following tables provide the carrying amounts and estimated fair values of the Company's financial instruments at
December 31, 2022 and 2021:
December 31, 2022
Fair Value Measurements Using
Carrying
Amount
Fair Value
Quoted Prices
In Active
Market for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents
$
256,552 $
256,552 $
256,552 $
— $
Securities held-to-maturity
Loans held-for-sale (best efforts pricing
agreements)
Net loans
Accrued interest receivable
Federal Home Loan Bank of Indianapolis stock
189,168
168,483
12,401
12,401
3,467,664
3,225,845
21,069
28,350
21,069
28,350
—
—
—
21,069
—
168,483
12,401
—
—
28,350
—
—
3,225,845
—
—
Deposits
3,441,245
3,415,390
1,974,344
—
1,441,046
Advances from Federal Home Loan Bank
Subordinated debt
Accrued interest payable
614,928
104,532
2,913
596,455
102,669
2,913
—
32,560
2,913
596,455
70,109
—
—
—
—
December 31, 2021
Fair Value Measurements Using
Carrying
Amount
Fair Value
Quoted Prices
In Active
Market for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents
$
442,960 $
442,960 $
442,960 $
— $
Securities held-to-maturity
Loans held-for-sale (best efforts pricing
agreements)
Net loans
Accrued interest receivable
Federal Home Loan Bank of Indianapolis stock
59,565
24,512
61,468
24,512
2,859,821
2,880,024
16,037
25,650
16,037
25,650
—
—
—
16,037
—
61,468
24,512
—
—
25,650
—
—
—
2,880,024
—
—
Deposits
3,178,959
3,190,000
1,909,432
—
1,280,568
Advances from Federal Home Loan Bank
Subordinated debt
Accrued interest payable
514,922
104,231
2,018
526,143
108,788
2,018
—
38,643
2,018
526,143
70,145
—
—
—
—
Note 17:
Mortgage Banking Activities
The Company’s residential real estate lending business originated mortgage loans for customers and sold a majority of
the originated loans into the secondary market. The Company hedged its mortgage banking pipeline by entering into
forward contracts for the future delivery of mortgage loans to third-party investors and entering into IRLCs with
potential borrowers to fund specific mortgage loans that will be sold into the secondary market. To facilitate the
hedging of the loans, the Company has elected the fair value option for loans originated and intended for sale in the
secondary market under mandatory pricing agreements. Changes in the fair value of loans held-for-sale, IRLCs and
forward contracts are recorded in the mortgage banking activities line item within noninterest income. Refer to Note
18 for further information on derivative financial instruments.
F-48
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
During the years ended December 31, 2022, 2021, and 2020, the Company originated mortgage loans held-for-sale of
$388.0 million, $721.3 million, and $878.2 million, respectively, and received $411.5 million, $714.9 million, and
$923.8 million from the sale of mortgage loans, respectively, into the secondary market.
The following table provides the components of income from mortgage banking activities for the years ended
December 31, 2022, 2021, and 2020.
Gain on loans sold
Loss resulting from the change in fair value of loans held-for-sale
(Loss) gain resulting from the change in fair value of derivatives
Year Ended December 31,
2022
2021
2020
$
6,101 $
17,803 $
22,826
(184)
(453)
(718)
(2,035)
(94)
1,961
Net revenue from mortgage banking activities
$
5,464 $
15,050 $
24,693
F-49
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Note 18:
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 will be sold into
the secondary market. The forward contracts are entered into in order to economically hedge the effect of changes in
interest rates resulting from the Company’s commitment to fund the loans.
The Company entered into 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 income statement 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 consolidated
balance sheets while interest rate swaps with a negative fair value are reported in accrued expenses and other liabilities
in the 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 in the 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 consolidated balance
sheets, while derivative instruments with a negative fair value are reported in accrued expenses and other liabilities in
the consolidated balance sheets.
The following table presents amounts that were recorded in the consolidated balance sheets related to cumulative basis
adjustments for interest rate swap derivatives designated as fair value accounting hedges as of December 31, 2022 and
2021.
Line item in the consolidated balance
sheet in which the hedged item is
included
Securities available-for-sale1
Carrying amount of the hedged assets
Cumulative amount of fair value hedging
adjustment included in the carrying
amount of the hedged assets
December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021
$
68,963 $
75,156 $
(2,088) $
1,729
1 These amounts include the amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item
is the last layer expected to be remaining at the end of the hedging relationship. The amounts of the designated hedged items were $50.0
million at December 31, 2022 and 2021.
The following tables present a summary of interest rate swap derivatives designated as fair value accounting hedges of
fixed-rate receivables used in the Company's asset/liability management activities at December 31, 2022 and
December 31, 2021, identified by the underlying interest rate-sensitive instruments.
December 31, 2022
Instruments Associated With
Securities available-for-sale
Total swap portfolio at December 31, 2022
Notional
Value
$
$
50,000
50,000
Weighted
Average
Remaining
Maturity
(years)
Weighted-Average Rate
Pay
2.33%
2.33%
Fair Value
Receive
1.8
1.8
$
$
2,093
2,093
3 month LIBOR
3 month LIBOR
F-50
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
December 31, 2021
Instruments Associated With
Securities available-for-sale
Total swap portfolio at December 31, 2021
Notional
Value
$
$
50,000
50,000
Weighted
Average
Remaining
Maturity
(years)
Weighted-Average Rate
Fair Value
Receive
2.8
2.8
$
$
(1,731)
3 month LIBOR
(1,731)
3 month LIBOR
Pay
2.33%
2.33%
In March 2021, the Company terminated the last layer of interest rate swaps associated with available-for-sale agency
mortgage-backed securities - residential, which resulted in swap termination payments to counterparties totaling
$1.9 million. The corresponding fair value hedging adjustment was allocated pro-rata to the underlying hedged
securities and is being amortized over the remaining lives of the designated securities. During the year ended
December 31, 2022, amortization expense totaling $0.3 million was recognized as a reduction to interest income on
securities.
In June 2020, the Company terminated all fair value hedging relationships associated with loans, which resulted in
swap termination payments to counterparties totaling $46.1 million. The corresponding loan fair value hedging
adjustment as of the date of termination is being amortized over the remaining lives of the designated loans, which
have a weighted average term to maturity of 11.3 years as of December 31, 2022. During the years ended December
31, 2022 and 2021, amortization expense totaling $4.9 million and $5.2 million, respectively, related to these
previously terminated fair value hedges was recognized as a reduction to interest income on loans.
The following tables present a summary of interest rate swap derivatives designated as cash flow accounting hedges of
variable-rate liabilities used in the Company's asset/liability management activities at December 31, 2022 and
December 31, 2021.
December 31, 2022
Cash Flow Hedges
Interest rate swaps
Interest rate swaps
Interest rate swaps
December 31, 2021
Cash Flow Hedges
Interest rate swaps
Interest rate swaps
Weighted
Average
Remaining
Maturity
(years)
4.1
0.6
1.4
Weighted
Average
Remaining
Maturity
(years)
5.1
2.0
Notional
Value
$
110,000
60,000
40,000
Notional
Value
$
110,000
100,000
Weighted-Average Rate
Fair Value
Receive
$
4,787
3 month LIBOR
735
1 month LIBOR
1,030 Fed Funds Effective
Pay
2.88%
2.88%
2.78%
Weighted-Average Rate
Fair Value
Receive
$
(8,560)
3 month LIBOR
(3,980)
1 month LIBOR
Pay
2.88%
2.88%
These derivative financial instruments were entered into for the purpose of managing the interest rate risk of certain
assets and liabilities. As of December 31, 2022, the Company received $7.7 million of cash collateral from
counterparties as security for their obligations related to these swap transactions. As of December 31, 2021, the
Company pledged cash collateral of $15.7 million to counterparties as security for its obligations related to these
interest rate swap transactions. Cash collateral is pledged to counterparties on interest rate swap agreements as security
for its obligations related to these agreements. Collateral posted and received is dependent on the market valuation of
the underlying hedges.
F-51
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
The following table presents the notional amount and fair value of interest rate swaps, IRLCs and forward contracts
utilized by the Company at December 31, 2022 and 2021.
December 31, 2022
December 31, 2021
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
—
—
718
—
718
(1,731)
(12,540)
Asset Derivatives
Derivatives designated as hedging instruments
Interest rate swaps associated with securities
available-for-sale
$
50,000 $
2,093 $
Interest rate swaps associated with liabilities
210,000
6,552
Derivatives not designated as hedging instruments
— $
—
IRLCs
Forward contracts
Total contracts
Liability Derivatives
14,862
17,000
133
97
62,789
—
$
291,862 $
8,875 $
62,789 $
Derivatives designated as hedging instruments
Interest rate swaps associated with securities
available-for-sale
Interest rate swaps associated with liabilities
Derivatives not designated as hedging instruments
Forward contracts
Total contracts
$
$
— $
— $
50,000 $
210,000
—
—
—
—
72,750
(30)
— $
— $
332,750 $
(14,301)
The fair values of interest rate swaps were estimated using a discounted cash flow method that incorporates current
market interest rates as of the balance sheet date. Fair values of IRLCs and forward contracts were estimated using
changes in mortgage interest rates and other factors from the date the Company entered into the IRLC and the balance
sheet date. Refer to “Note 16 - Fair Value of Financial Instruments” for additional information.
The following table presents the effects of the Company's cash flow hedge relationships on the consolidated statements
of comprehensive income during the twelve months ended December 31, 2022, 2021, and 2020.
Interest rate swap agreements
$
19,091 $
11,138 $
(10,248)
Amount of Gain (loss) Recognized in Other Comprehensive Income in the
Twelve Months Ended
December 31, 2022
December 31, 2021
December 31, 2020
The following table summarizes the periodic changes in the fair value of the derivative financial instruments on the
consolidated statements of income for the twelve months ended December 31, 2022, 2021, and 2020.
F-52
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Amount of (Loss) / Gain Recognized in the Twelve Months Ended
December 31, 2022
December 31, 2021
December 31, 2020
Asset Derivatives
Derivatives not designated as hedging instruments
IRLCs
Forward contracts
Liability Derivatives
Derivatives not designated as hedging instruments
IRLCs
Forward contracts
$
$
— $
127
— $
610
2,451
—
(585) $
—
(2,643) $
—
—
(487)
The following table presents the effects of the Company's interest rate swap agreements on the consolidated statements
of income during the twelve months ended December 31, 2022, 2021, and 2020.
Line item in the consolidated statements of income
December 31, 2022 December 31, 2021 December 31, 2020
Interest income
Loans
Securities - taxable
Securities - non-taxable
Total interest income
Interest expense
Deposits
Other borrowed funds
Total interest expense
Net interest income
Note 19:
Shareholders’ Equity
$
— $
— $
—
(244)
(244)
1,125
1,110
2,235
(253)
(1,099)
(1,352)
2,775
3,028
5,803
$
(2,479) $
(7,155) $
(2,445)
(722)
(741)
(3,908)
2,273
2,374
4,647
(8,555)
On October 20, 2021, the Company's Board of Directors approved a stock repurchase program authorizing the
repurchase of up to $30.0 million of our outstanding common stock from time to time on the open market or in
privately negotiated transactions. In October 2022, the Company’s Board of Directors increased the authorization to
$35.0 million. The Company repurchased a total of 855,956 shares at an average price of $36.31 per share under the
program through December 19, 2022.
On December 19, 2022, the Company's Board of Directors approved a new stock repurchase program authorizing 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 replaced the Company’s previously announced
stock repurchase program and is scheduled to expire on December 31, 2023. Under this program, the Company
repurchased 46,497 shares of common stock during the fourth quarter 2022 at an average price of $24.42 per share. As
of December 31, 2022, the Company had $23.9 million of remaining authority under the program.
F-53
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Note 20:
Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive loss, included in stockholders' equity, are presented in the table
below.
Unrealized
Losses on
Debt
Securities
Transferred
from
Available-
for-Sale to
Held-to-
Maturity
Available-
For-Sale
Securities
Cash Flow
Hedges
Total
Balance, January 1, 2020
$
(4,388) $
— $
(9,803) $
(14,191)
Net unrealized holding gains (losses) recorded within other comprehensive income
before income tax
Reclassification adjustment for gains realized
Other comprehensive income (loss) before tax
Income tax provision (benefit)
Other comprehensive income (loss) - net of tax
Balance, December 31, 2020
Net unrealized holding (losses) gains recorded within other comprehensive income
before income tax
Other comprehensive (loss) income before tax
Income tax (benefit) provision
Other comprehensive (loss) income- net of tax
Balance, December 31, 2021
Net unrealized holding (losses) gains recorded within other comprehensive income
before income tax
Reclassification of securities available-for-sale to held-to-maturity
Amortization of net unrealized losses on securities transferred from available-for-sale
to held-to-maturity
Other comprehensive (loss) income before tax
Income tax (benefit) provision
Other comprehensive (loss) income - net of tax
Balance, December 31, 2022
6,551
(139)
6,412
1,556
4,856
468
$
(4,087)
(4,087)
(1,064)
(3,023)
(2,555) $
—
—
—
—
—
— $
—
—
—
—
— $
(10,248)
—
(10,248)
(2,387)
(7,861)
(17,664) $
11,138
11,138
1,958
9,180
(8,484) $
(42,336)
—
—
(5,402)
19,091
—
—
(42,336)
(9,060)
(33,276)
(35,831) $
844
(4,558)
(1,039)
(3,519)
(3,519) $
—
19,091
4,893
14,198
5,714 $
(3,697)
(139)
(3,836)
(831)
(3,005)
(17,196)
7,051
7,051
894
6,157
(11,039)
(23,245)
(5,402)
844
(27,803)
(5,206)
(22,597)
(33,636)
$
$
$
Note 21:
Condensed Financial Information (Parent Company Only)
Presented below is condensed financial information as to financial position, results of operations, and cash flows of the
Company on a non-consolidated basis:
F-54
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Condensed Balance
Sheets
Assets
Cash and cash equivalents
Investment in common stock of subsidiaries
Premises and equipment, net
Accrued income and other assets
Total assets
Liabilities and shareholders’ equity
Year Ended December 31,
2022
2021
$
22,259 $
440,645
58
8,567
52,857
428,021
176
5,868
$
471,529 $
486,922
Subordinated debt, net of unamortized discounts and debt issuance costs of $2,468 in 2022 and
$2,769 in 2021
$
104,532 $
104,231
Accrued expenses and other liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
2,023
106,555
364,974
$
471,529 $
2,353
106,584
380,338
486,922
Condensed Statements of
Income
Year Ended December 31,
2022
2021
2020
Income
Gain on sale of premises and equipment
$
— $
2,523 $
Other
Total income
Expenses
Interest on borrowings
Salaries and employee benefits
Consulting and professional fees
Premises and equipment
Other
Total expenses
285
285
75
2,598
$
5,371 $
5,892 $
1,147
1,814
201
134
8,667
1,037
2,178
548
363
10,018
—
—
—
4,924
904
1,678
295
361
8,162
Loss before income tax and equity in undistributed net income of subsidiaries
(8,382)
(7,420)
(8,162)
Income tax benefit
(1,874)
(1,687)
(2,089)
Loss before equity in undistributed net income of subsidiaries
(6,508)
(5,733)
(6,073)
Equity in undistributed net income of subsidiaries
42,049
53,847
35,526
Net income
$
35,541 $
48,114 $
29,453
F-55
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Condensed Statements of Comprehensive
Income
Net income
Other comprehensive (loss) income
Securities available-for-sale
Net unrealized holding (losses) gains on securities available-for-sale recorded
within other comprehensive income before income tax
Reclassification adjustment for gains realized
Income tax (benefit) provision
Net effect on other comprehensive loss
Securities held-to-maturity
Reclassification of securities from available-for-sale to held-to-maturity
Amortization of net unrealized holding losses on securities transferred from available-
for-sale to held-to-maturity
Income tax benefit
Net effect on other comprehensive loss
Cash flow hedges
Net unrealized holding gains (losses) on cash flow hedging derivatives recorded
within other comprehensive income before income tax
Income tax provision (benefit)
Net effect on other comprehensive income (loss)
Year Ended December 31,
2022
2021
2020
$
35,541 $
48,114 $
29,453
(42,336)
—
(9,060)
(33,276)
(5,402)
844
(1,039)
(3,519)
(4,087)
—
(1,064)
(3,023)
—
—
—
—
6,551
(139)
1,556
4,856
—
—
—
—
19,091
4,893
14,198
11,138
1,958
9,180
(10,248)
(2,387)
(7,861)
Total other comprehensive (loss) income
Comprehensive income
(22,597)
6,157
(3,005)
$
12,944 $
54,271 $
26,448
F-56
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Condensed Statements of Cash
Flows
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Dividend received from Bank
Equity in undistributed net income of subsidiaries
Depreciation and amortization
Share-based compensation expense
Gain on sale of premises and equipment
Net change in other assets
Net change in other liabilities
Net cash provided by (used in) operating activities
Investing activities
Net proceeds from sale of premises and equipment
Other investing activities
Net cash (used in) provided by investing activities
Financing activities
Cash dividends paid
Net proceeds from issuance of subordinated debt
Repayment of subordinated debt
Repayment of Bank loan
Repurchase of common stock
Other, net
Net cash provided by financing activities
Year Ended December 31,
2022
2021
2020
$
35,541 $
48,114 $
29,453
8,000
—
—
(42,049)
(53,847)
(35,526)
329
795
—
350
(490)
2,476
—
(2,727)
(2,727)
(2,317)
—
—
—
(27,780)
(250)
(30,347)
1,081
835
(2,523)
(31)
775
711
518
—
(502)
311
(5,596)
(5,035)
8,116
(3,561)
4,555
(2,415)
58,658
(35,000)
(3,000)
(4,436)
(441)
13,366
—
—
—
(2,349)
9,765
—
—
—
(152)
7,264
Net (decrease) increase in cash and cash equivalents
(30,598)
12,325
2,229
Cash and cash equivalents at beginning of year
52,857
40,532
38,303
Cash and cash equivalents at end of year
$
22,259 $
52,857 $
40,532
F-57
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Note 22:
Recent Accounting Pronouncements
ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments (June 2016)
The main objective of this update is to provide financial statement users with more decision-useful information
about the expected credit losses on financial instruments and other commitments to extend credit held by a
reporting entity at each reporting date. To achieve this objective, the amendments in this update replace the
incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses
and requires consideration of a broader range of reasonable and supportable information to inform credit loss
estimates.
The amendments affect entities holding financial assets that are not accounted for at fair value through net
income. The amendments affect loans, debt securities, off-balance-sheet credit exposures, and any other financial
assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update
affect an entity to varying degrees depending on the credit quality of the assets held by the entity, their duration,
and how the entity applies current GAAP. There is diversity in practice in applying the incurred loss
methodology, which means that before transition some entities may be more aligned under current GAAP than
others to the new measure of expected credit losses. The following describes the main provisions of this update.
• Assets Measured at Amortized Cost: The amendments in this update require a financial asset (or a
group of financial assets) measured at amortized cost basis to be presented at the net amount expected to
be collected. The allowance for credit losses is a valuation account that is deducted from the amortized
cost basis of the financial asset(s) to present the net carrying value at the amount expected to be
collected on the financial asset. The statements of income reflect the measurement of credit losses for
newly recognized financial assets, as well as the expected increase or decrease of credit losses that have
taken place during the period. The measurement of expected credit losses is based on relevant
information about past events, including historical experience, current conditions, and reasonable and
supportable forecasts that affect the collectability of the reported amount. An entity must use judgment
in determining the relevant information and estimation methods that are appropriate in its
circumstances.
• Available-for-Sale Debt Securities: Credit losses relating to available-for-sale debt securities should
be recorded through an allowance for credit losses. Available-for-sale accounting recognizes that value
may be realized either through collection of contractual cash flows or through sale of the security.
Therefore, the amendments limit the amount of the allowance for credit losses to the amount by which
fair value is below amortized cost because the classification as available-for-sale is premised on an
investment strategy that recognizes that the investment could be sold at fair value if cash collection
would result in the realization of an amount less than fair value.
•
In May 2019, the FASB issued ASU 2019-05 - Financial Instruments - Credit Losses (Topic 326) -
Targeted Transition Relief. This ASU allows an option for preparers to irrevocably elect the fair value
option, on an instrument-by-instrument basis, for eligible financial assets measured at amortized cost
basis upon adoption of the credit losses standard. This increases the comparability of financial statement
information provided by institutions that otherwise would have reported similar financial instruments
using different measurement methodologies, potentially decreasing costs for financial statement
preparers while providing more useful information to investors and other users.
F-58
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
The ASU was effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2019. FASB subsequently approved a delay in adoption for Smaller Reporting Companies,
which postponed adoption until periods beginning after December 15, 2022.
The Company has a current expected credit losses (“CECL”) working group that has been meeting to discuss
implementation matters related to the completeness and accuracy of historical data, model development and
corporate governance documentation. The new allowance model estimates credit losses over the expected life of
the portfolio and includes a qualitative framework to account for drivers of losses that the quantitative model
does not capture. The CECL working group discussed results from parallel model runs for each portfolio
segment, assumptions related to unfunded commitments and economic forecast factors. Model validation was
completed by an independent third party in the fourth quarter 2022.
The ASU allows for several different methods of calculating the Allowance for Credit Losses (“ACL”) and based
on its analysis of observable data, the Company determined the discounted cash flow method to be the most
appropriate for all its loan segments, with the exception of its home improvement loan segment. The most
appropriate method for this portfolio is the weighted-average remaining life method.
The Company expects to record a one-time cumulative effect adjustment to the ACL in retained earnings on the
consolidated balance sheet as of the beginning of 2023, as is required in the guidance. The Company believes
there will be an increase to the ACL between $2.5 million and $3.0 million. In addition, the Company expects the
allowance for unfunded commitments to be in the range of $2.5 million and $3.0 million.
The qualitative impact of the new accounting standard will still be directed by many of the same factors that
impacted the previous methodology for calculating the ACL, including but not limited to, quality and experience
of staff, changes in the value of collateral, concentrations of credit in loan types or industries and changes to
lending policies. In addition, the Company will also use reasonable and supportable forecasts. Examples of this
are regression analyses of data from the Federal Open Market Committee quarterly economic projections for
change in real GDP, housing price index and national unemployment.
The actual impact from adopting this guidance may be subject to change based upon refinement and finalization
of the model and associated assumptions, the implementation and testing of certain internal controls ensuring
model effectiveness and management’s judgment.
The Company does not expect a material ACL on HTM securities or AFS debt securities.
ASU 2019-04 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815,
Derivatives and Hedging, and Topic 825, Financial Instruments (April 2019)
The amendments in this ASU clarify or correct the guidance in ASC Topic 326, Topic 815 and Topic 825. With
respect to Topic 326, ASU 2019-04 addresses a number of issues as it relates to the CECL standard including
consideration of accrued interest, recoveries, variable-rate financial instruments, prepayments, extension and
renewal options, among other things, in the measurement of expected credit losses. The amendments to Topic
326 have the same effective dates as ASU 2016-13 and the Company is currently evaluating the potential impact
of these amendments on the consolidated financial statements. With respect to Topic 815, ASU 2019-04 clarifies
issues related to partial-term hedges, hedged debt securities, and transitioning from a quantitative method of
assessing hedge effectiveness to a more simplified method. The amendments to Topic 815 are effective for
interim and annual reporting periods beginning after December 15, 2019 and are not expected to have a material
impact on the consolidated financial statements. With respect to Topic 825, ASU 2019-04 addresses the scope of
the guidance, the requirement for remeasurement under ASC Topic 820 when using the measurement alternative,
certain disclosure requirements, and which equity securities must be remeasured at historical exchanges rates.
The amendments to Topic 825 were effective for interim and annual reporting periods beginning after December
15, 2019 and the adoption of this guidance did not have a material impact on the consolidated financial
statements.
F-59
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Coronavirus Aid, Relief and Economic Security Act (“CARES Act”)
In March 2020 in connection with the implementation of the CARES Act and related provisions, the Company
adopted the temporary relief issued under the CARES Act, thereby suspending the guidance in ASC 310-40 on
accounting for TDRs to loan modifications related to COVID-19. Section 4013 of the CARES Act specifies that
loan modifications due to the impact of COVID-19 that would otherwise be classified as TDRs under GAAP will
not be so classified. Modifications within the scope of this relief were in effect from the period beginning March
1, 2020 until the earlier of December 31, 2020 or 60 days after the date on which the national emergency related
to the COVID-19 pandemic formally terminates. See the “Non-TDR Loan Modifications due to COVID-19”
section of Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for
more information.
ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting (March 2020)
In March 2020, FASB issued ASU 2020-04 to ease the potential burden in accounting for the transition away
from LIBOR on financial reporting. The ASU provides optional expedients and exceptions for applying GAAP
to contract modification and hedge accounting relationships. In December 2022, FASB extended the effective
date for this ASU from December 31, 2022 to December 31, 2024. The Company is still evaluating the impact of
reference rate reform and does not believe the adoption of this guidance will have a material impact on the
consolidated financial statements.
ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage
Disclosures (March 2022)
In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled
Debt Restructurings and Vintage Disclosures. This ASU eliminates the separate recognition and measurement
guidance for Troubled Debt Restructurings ("TDRs") by creditors. The elimination of the TDR guidance may be
adopted prospectively for loan modifications after adoption or on a modified retrospective basis, which would
also apply to loans previously modified, resulting in a cumulative effect adjustment to retained earnings in the
period of adoption for changes in the allowance for credit losses. The ASU requires an entity to disclose current-
period gross write-offs by year of origination for financing receivables within the scope of Subtopic 326-20. The
Company adopted this guidance on January 1, 2023 and it did not have a material impact on the condensed
consolidated financial statements.
F-60
First Internet Bancorp
Notes to Consolidated Financial Statements
(Tabular dollar amounts in thousands except per share data)
Note 23: Subsequent Event
Due to the steep decline in consumer mortgage volumes and the negative outlook for consumer mortgage lending over the next
several years, the Company decided to exit its consumer mortgage business during the first quarter of 2023. This includes its
nationwide digital direct-to-consumer mortgage platform that originates residential loans for sale in the secondary market as
well as its local traditional consumer mortgage and construction-to-permanent business. The Company’s commercial
construction and land development business will not be affected by this decision and will remain an important part of the
Company’s lending strategy.
This action is expected to reduce total annual noninterest expense by approximately $6.8 million and increase annualized pre-
tax income by approximately $2.7 million, with 80% of the benefit realized in 2023 and 100% thereafter. The Company
estimates that it will incur total pre-tax expense of approximately $3.3 million in the first and second quarters of 2023
associated with exiting this line of business.
F-61
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EXECUTIVE & SHAREHOLDER INFORMATION
BOARD OF DIRECTORS OF FIRST INTERNET BANCORP
David B. Becker
Chairman and
Chief Executive Officer
David R. Lovejoy
Vice Chairman
Managing Director,
Greycourt & Co.
Aasif M. Bade
Chief Executive Officer,
Ambrose Property
Group, LLC
Justin P. Christian
Co-Founder, President
and Chief Executive Officer,
BCforward
SHAREHOLDER INFORMATION
Ann Colussi Dee
Former Executive Vice
President, General Counsel
and Corporate Secretary,
Duke Realty
John K. Keach, Jr.
Private Investor,
Former Chairman,
President and
Chief Executive
Officer, Indiana
Community Bancorp
Jean L. Wojtowicz
President,
Cambridge Capital
Management Corp.
Common Stock
First Internet Bancorp is listed
on the Nasdaq Global Select
Market under the symbol INBK
Investor Relations Contact
Paula Deemer
(317) 428-4628
investors@firstib.com
Corporate Headquarters
First Internet Bancorp
8701 E. 116th Street
Fishers, IN 46038
(317) 532-7900
www.firstinternetbancorp.com
Transfer Agent
Computershare
PO Box 43006
Providence, RI 02940
(800) 522-6645
www.computershare.com
EXECUTIVE OFFICERS
OF FIRST INTERNET BANCORP
David B. Becker
Chairman and
Chief Executive Officer
Nicole S. Lorch
President,
Chief Operating Officer and
Corporate Secretary
Kenneth J. Lovik
Executive Vice President and
Chief Financial Officer
Independent Registered Public
Accounting Firm
Forvis, LLP
201 North Illinois Street
Suite 700
Indianapolis, IN 46204
(317) 383-4000
Legal Counsel
Faegre Drinker Biddle & Reath LLP
600 East 96th Street, Suite 600
Indianapolis, IN 46240
(317) 569-9600
5
2022 ANNUAL REPORT 8701 E. 116th Street, Fishers, Indiana 46038 • (317) 532-7900 • www.firstinternetbancorp.com
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