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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, 2021 and 2020. Discussion, analysis and comparisons of the years ended December 31, 2020 and 2019 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, 2020. 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.

COVID-19 Pandemic

The year 2021 was characterized by continued uncertainty as the coronavirus (“COVID-19”) pandemic persisted globally. However, federal, state and local governments have continued to take additional steps to reopen and stimulate economies, evidenced by improving economic indicators as 2021 progressed. While the effects of COVID-19 did have an impact on our operating results during 2021, we believe the impact was consistent with the effects of COVID-19 on the overall banking industry. The extent to which COVID-19 will continue to impact our business will depend on numerous evolving factors and future developments that we are not able to predict, including potential new variants of COVID-19, the effectiveness of continuing containment measures, including the speed of the ongoing vaccine distribution effort, the efficacy of the various vaccines, and how quickly and to what extent normal economic and operating conditions can resume.

COVID-19 impacted our business during 2021, as the low interest rate environment following Federal Reserve rate cuts in the first quarter 2020 had a negative impact on some variable rate assets throughout 2021. However, the low interest rate environment has also allowed us to reprice our interest-bearing deposits at lower rates, which provided a benefit to net interest income in 2021.

Throughout COVID-19, our top priority has been the health of our team and clients. As a digitally-focused institution without branch locations, we were able to continue serving clients when they needed us most, while minimizing operational disruptions caused by COVID-19. The vast majority of our employees who worked remotely during the earlier stages of the pandemic have returned to the office. Management continues to assess the evolving health and safety situations at local, regional and national levels. Our plans remain flexible to adapt as these situations evolve.

Pending Merger Transaction

On November 1, 2021, we entered into a merger agreement to acquire all of the outstanding shares of common stock of First Century Bancorp. (“First Century”), the parent company of First Century Bank, N.A. (“First Century Bank”), for $80 million in cash. First Century Bank is a technology-driven, financial solutions company with lines of business focused on payments, tax product lending, sponsored card programs and homeowners association services. We expect to fund our payment obligations upon closing with available on-balance sheet cash. The acquisition is subject to customary regulatory approvals and the completion of various closing conditions. The acquisition has received approval from the Indiana Department of Financial Institutions and First Century shareholders, but it is awaiting approval from the Federal Deposit Insurance Corporation and the Federal Reserve. As of December 31, 2021, First Century had total assets of $486.7 million, total deposits of $409.4 million, and total loans of $25.2 million.

Results of Operations

During the twelve months ended December 31, 2021, net income was $48.1 million, or $4.82 per diluted share, compared to net income of $29.5 million, or $2.99 per diluted share, for the twelve months ended December 31, 2020 and net income of $25.2 million, or $2.51 per diluted share, for the twelve months ended December 31, 2019.

The $18.7 million increase in net income 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.

The increase in net income of $4.2 million for the twelve months ended December 31, 2020 compared to the twelve months ended December 31, 2019 was due primarily to a $19.5 million increase in noninterest income and a $1.6 million increase in net interest income, partially offset by an $11.0 million increase in noninterest expense, a $3.4 million increase in provision for loan losses and a $2.5 million increase in income tax expense.

During the twelve months ended December 31, 2021, return on average assets was 1.14%, compared to 0.69% for the twelve months ended December 31, 2020. During the twelve months ended December 31, 2021, return on average shareholders’ equity was 13.44%, compared to 9.39% for the twelve months ended December 31, 2020. Additionally, for the twelve months ended December 31, 2021, return on average tangible common equity was 13.61% compared to 9.53% for the twelve months ended December 31, 2020. These profitability ratios improved during 2021 due to net income growth of 63.4%, while total average assets was down slightly from 2020. Additionally, the growth in net income outpaced growth in average shareholders' equity of 14.1% and growth in average tangible common equity of 14.4%. 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.

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

Assets

Interest-earning assets

Liabilities

Interest-bearing liabilities

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

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.

Rate/Volume Analysis of Net Interest Income

(amounts in thousands) Volume Rate Net Volume Rate Net

Interest income

Interest expense

Net interest income for the twelve months ended December 31, 2021 was $86.6 million, an increase of $22.0 million, or 34.1%, compared to $64.5 million for the twelve months ended December 31, 2020. The increase in net interest income was the result of a $25.0 million, or 34.6%, decrease in total interest expense to $47.3 million for the twelve months ended December 31, 2021 compared to $72.3 million for the twelve months ended December 31, 2020. This decrease in total interest expense was partially offset by a $3.0 million, or 2.2%, decrease in total interest income to $133.9 million for the twelve months ended December 31, 2021 compared to $136.9 million for the twelve months ended December 31, 2020.

The decrease in total interest expense was driven primarily by decreases in interest expense related to certificates and brokered deposits and money market accounts. Interest expense on certificates and brokered deposits decreased $20.3 million, or 46.7%, due to a decline of 67 bps in the cost of these deposits as well as a $471.6 million, or 25.0%, decrease in the average balance 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 decrease in interest expense related to money market accounts of $5.5 million, or 48.2%, was driven by a decline of 57 bps in the cost of these deposits, partially offset by an increase of $278.7 million, or 24.1%, in the average balance of these deposits. Money market balances increased throughout 2021 due to targeted digital marketing efforts to grow small business accounts, as well as consumers, small businesses and commercial clients increasing their cash balances due in part to the continued economic uncertainty resulting from COVID-19. The decrease in interest expense related to interest-bearing demand deposits and savings accounts was due primarily to decreases of 28 bps and 39 bps, respectively, in the cost of these deposits, partially offset by increases of $50.5 million, or 34.8%, and $16.4 million, or 40.3%, respectively, in the average balance of these deposits. The increase in interest expense associated with other borrowed funds was due primarily to the recognition of $0.8 million of costs related to the Company redeeming the 2026 Notes on September 30, 2021.

The decrease in total interest income was due primarily to decreases in interest earned on securities and other earning assets, partially offset by an increase in interest earned on loans, including loans held-for sale. Interest income earned on securities decreased $3.9 million, or 21.6%, due to a decline of 62 bps in the yield earned on securities, partially offset by an increase of $3.1 million, or 0.4%, in the average balance of securities. The decrease in the yield earned on securities was driven primarily by lower market interest rates following Federal Reserve interest rate cuts in March 2020 in response to the economic effects of COVID-19, which contributed to increased prepayment activity and lower yields earned on private label and agency mortgage-backed securities and U.S. Government agency securities, as well as early redemptions and maturities in corporate and municipal securities. Interest income earned on other earning assets decreased $2.0 million, or 57.7%, due to a decline of 34 bps in the yield earned on these assets, as well as a decrease of $57.2 million, or 10.9%, in the average balance of other earning assets. The decrease in the yield earned on other earning assets was due primarily to lower market interest rates, as

described above. The decrease in the average balance of other earning assets was due to lower cash balances driven by declines in the average balance of deposits. Interest income earned on loans, including loans held-for-sale, increased by $2.8 million as the yield on the loan portfolio increased by 13 bps, but was partially offset by a decrease of $26.8 million, or 0.9%, in the average balance of loans. The decrease in average loan balances was due primarily to declines in the single tenant lease financing, public finance, owner-occupied commercial real estate, commercial and industrial and consumer portfolios, but was partially offset by increases in the healthcare finance, construction, small business lending (which included loans originated through the Paycheck Protection Program (“PPP”)), franchise finance and investor commercial real estate portfolios.

Net interest margin was 2.11% for the twelve months ended December 31, 2021 compared to 1.55% for the twelve months ended December 31, 2020. The increase in net interest margin was due primarily to a 62 bp decrease in the cost of interest-bearing liabilities, partially offset by a 1 bp decrease in the yield earned on interest-earning assets. The decline in the cost of interest-bearing liabilities was driven primarily by the lower deposit costs, as discussed above, due primarily to the continued low interest rate environment following Federal Reserve interest rate cuts in March 2020 in response to the economic effects of COVID-19. Looking ahead into 2022, we believe that yields on interest-earning assets will increase as we anticipate growing our commercial loan portfolio. We have approximately $712.8 million of certificates and brokered deposits with a weighted average cost of 1.02% that mature over the next twelve months. As the weighted average of cost of these deposits is significantly higher than current new production costs, we expect the cost of deposit funding to continue to decline in 2022, although at a much slower pace than in 2021.

Noninterest Income

The following table presents noninterest income for the three most recent years.

Twelve Months Ended December 31,

Loan servicing asset revaluation (1,069) (432) —

Gain (loss) on sale of securities — 139 (458)

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

During the twelve months ended December 31, 2021, noninterest income totaled $32.8 million, representing a decrease of $3.5 million, or 9.6%, compared to $36.3 million for the twelve months ended December 31, 2020. The decrease in noninterest income was driven primarily by a decrease in revenue from mortgage banking activities, which was partially offset by increases in gain on sale of loans and gain on sale of premises and equipment. The decrease in mortgage banking revenue was due mainly to decreases in interest rate locks and sold loan volume as well as lower gain-on-sale margins. The increase in gain on sale of loans for the twelve months ended December 31, 2021 was due to a higher amount of SBA 7(a) guaranteed loan sales as well as the sale of single tenant lease financing loans. The increase in gain on sale of premises and equipment was due to the Company completing the sale of its headquarters during 2021.

Noninterest Expense

The following table presents noninterest expense for the three most recent years.

Twelve Months Ended December 31,

Write-down of other real estate owned — 2,065 —

Noninterest expense for the twelve months ended December 31, 2021 was $61.8 million, compared to $57.7 million for the twelve months ended December 31, 2020. The increase of $4.1 million, or 7.2%, compared to the twelve months ended December 31, 2020 was due primarily to a $4.0 million increase in salaries and employee benefits, a $1.6 million increase in marketing, advertising and promotion, a $0.7 million increase in premises and equipment, and a $0.5 million increase in consulting and professional fees, partially offset by a $2.1 million decrease in write-down of other real estate owned and a $0.6 million decrease in deposit insurance premium. The increase in salaries and employee benefits was due mainly to increased headcount, predominately in the Company’s small business lending, information technology and construction lending groups. The increase in marketing, advertising and promotion was due primarily to higher mortgage lead generation costs and digital marketing initiatives. The increase in consulting and professional fees was due primarily to acquisition-related expenses. The increase in premises and equipment was driven primarily by a $0.5 million termination fee related to an information technology contract. The decrease in write-down of other real estate owned was due to no write-down in 2021, as opposed to a $2.1 million write-down in 2020. The decrease in deposit insurance premium was due primarily to a decrease in asset growth and an increase in the Bank's regulatory capital ratios, both of which positively impact the formula used to calculate deposit insurance expense.

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.

Twelve Months Ended December 31,

(Subtract) add the tax effect of:

Income from tax-exempt securities and loans (4,217) (4,464) (4,881)

State income taxes, net of federal tax effect 865 1,765 1,285

We recognized income tax expense of $8.5 million in 2021, resulting in an effective tax rate of 15.0%, compared to $4.4 million and an effective tax rate of 13.1% in 2020. Our federal statutory tax rate was 21% in 2021 and 2020. In both 2021 and 2020, 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 increase in the effective tax rate and income tax expense was due primarily to the increase in pre-tax earnings driven by a higher proportion of taxable revenue, including higher net interest income, gain on sale of loans and gain on sale of premises and equipment.

Financial Condition

The following table presents summary balance sheet data as of the end of the last two years.

(amounts in thousands) December 31,

Total assets decreased $35.2 million, or 0.8%, to $4.2 billion as of December 31, 2021 compared to $4.2 billion as of December 31, 2020. The decline in total assets was driven primarily by a decrease in loan balances of $171.6 million, or 5.6%. The liquidity provided by the decline in loan balances was used, in part, to fund the reduction in higher cost deposit balances. Overall, deposit balances declined $91.9 million, or 2.8%, compared to the year-end 2020. Additional liquidity from the decline in loan balances was deployed into securities as total securities balances increased $96.8 million, or 17.1%, compared to balances at December 31, 2020.

As of December 31, 2021, total shareholders’ equity was $380.3 million, an increase of $49.4 million, or 14.9%, compared to December 31, 2020, due primarily to the net income earned during the year, as well as a decrease in accumulated other comprehensive loss. Tangible common equity totaled $375.7 million as of December 31, 2021, representing an increase of $49.4 million, or 15.1%, compared to December 31, 2020. As both total shareholders’ equity and tangible common equity increased compared to a slight decline in both total assets and tangible assets, the ratio of total shareholders’ equity to total assets increased to 9.03% as of December 31, 2021 from 7.79% as of December 31, 2020 and the ratio of tangible common equity to tangible assets increased to 8.93% as of December 31, 2021 from 7.69% as of December 31, 2020.

Book value per common share increased 15.5% to $38.99 as of December 30, 2021 from $33.77 as of December 31, 2020. Tangible book value per share increased 15.7% to $38.51 as of December 31, 2021 from $33.29 as of December 31, 2020. The growth in both book value per common share and tangible book value per share reflects the growth in total shareholders’ equity and tangible common equity while total common shares outstanding decreased slightly year-over-year, or 0.5%. 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.

Loan Portfolio Analysis

The following table provides information regarding our loan portfolio as of the end of the last two years.

December 31,

Commercial loans

Consumer loans

1 Includes carrying value adjustments of $37.5 million and $42.7 million related to terminated interest rate swaps associated with public finance loans as of December 31, 2021 and December 31, 2020, respectively.

Total loans were $2.9 billion as of December 31, 2021, a decrease of $171.6 million, or 5.6%, compared to December 31, 2020. Total commercial loan balances were $2.4 billion, as of December 31, 2021, down $151.8 million, or 6.0%, from December 31, 2020. Total consumer loan balances were $469.9 million as of December 30, 2021, a decrease of $12.4 million, or 2.6%, compared to December 31, 2020. Compared to December 31, 2020, the decline in commercial loan balances was driven largely by net payoffs in healthcare finance, single tenant lease financing, small business lending and public finance loans. These items were partially offset by increases in franchise finance, construction, commercial and industrial, franchise finance and investor commercial real estate loan balances. The net payoffs in the healthcare finance portfolio were driven primarily by elevated prepayment activity and minimal origination activity. Going forward, we expect the balance of healthcare finance loans to continue to decline as a result of Provide, Inc.'s acquisition by a superregional financial institution, as well as potential prepayment activity. The decline in single tenant lease financing balances was due to elevated prepayment activity and lower origination volumes as well as a sale of $20.1 million of balances in the fourth quarter 2021. The decline in public finance balances was due to lower origination activity and scheduled maturities. Related to single tenant lease financing, public finance and other lending areas with fixed interest rates, the combination of the low interest rate environment and heightened competition for high quality borrowers drove pricing to levels that we consider unattractive, which negatively impacted origination activity in such areas during 2021. The net payoffs in small business lending were predominantly related to PPP loan forgiveness, partially offset by originations.

Franchise finance was established in July 2021 in conjunction with our business relationship with ApplePie Capital, a provider of growth financing to franchisees in various industry segments across the country. We began funding franchise finance loans during 2021 and, as of December 31, 2021, we funded a total of $81.4 million in loans. We expect to fund approximately $150.0 million of franchise finance loans during 2022. The increase in construction balances was driven by increased origination activity, offset by paydowns, as we have increased our reserves in this area due to the variable rate structure and attractive pricing levels.

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, 2021.

(amounts in thousands) Within 1 Year 1-5 Years 5-15 Years Beyond 15 Years Total

Commercial loans

Consumer loans

The following table shows the rate sensitivity of the outstanding loans in our portfolio by the contractual maturity distribution intervals as of December 31, 2021.

(amounts in thousands) Within 1 Year 1-5 Years 5-15 Years Beyond 15 Years Total

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, 2021 was $69.0 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.

Asset Quality

December 31,

Nonaccrual loans

Commercial loans:

Commercial and industrial $ 674 $ —

Owner-occupied commercial real estate 3,419 1,838

Single tenant lease financing 1,100 7,116

Small business lending 959 —

Consumer loans:

Home equity 14 —

Other consumer 9 46

Past Due 90 days and accruing loans — —

Other real estate owned

Single tenant lease financing 1,188 —

Total other real estate owned 1,188 —

Other nonperforming assets 29 35

Total nonperforming loans to total loans 0.26 % 0.33 %

Total nonperforming assets to total assets 0.20 % 0.22 %

Allowance for loan losses to total loans 0.96 % 0.96 %

Nonaccrual loans to total loans 0.26 % 0.33 %

Allowance for loan losses to nonaccrual loans 376.2 % 289.5 %

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 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, 2021.

Troubled Debt Restructurings

December 31,

Troubled debt restructurings – nonaccrual $ 2,492 $ 2,637

Troubled debt restructurings – performing 1,693 367

Total troubled debt restructurings $ 4,185 $ 3,004

The decrease in nonperforming loans of $2.8 million, or 27.3%, to $7.4 million as of December 31, 2021 compared to $10.2 million as of December 31, 2020 was due primarily to a decrease in nonaccrual single tenant lease financing balances, which was partially offset by an increase in nonaccrual loans in owner-occupied commercial real estate, and to a lessor extent, increases in small business lending and commercial and industrial loans. The decrease in nonaccrual single tenant lease financing balances was due to a payoff of a loan that was previously on nonaccrual, as well as positive developments related to a single tenant lease financing relationship which included two loans, one of which was paid off at net book value (unpaid principal balance less specific reserves) and the other was transferred to other real estate owned (“OREO”).

Total nonperforming assets decreased $1.6 million, or 15.7%, as of December 31, 2021 compared to December 31, 2020, due primarily to the decrease in nonperforming loans discussed above, partially offset by a $1.2 million increase in OREO related to the single tenant loan financing relationship discussed above. The ratio of nonperforming loans to total loans decreased to 0.26% as of December 31, 2021 compared to 0.33% as of December 31, 2020 and the ratio of nonperforming assets to total assets decreased to 0.20% as of December 31, 2021, compared to 0.22% as of December 31, 2020.

Total TDRs as of December 31, 2021 were $4.2 million, up $1.2 million from December 31, 2020. The increase was driven by 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.

As of December 31, 2021, we had one commercial property in OREO with a carrying value of $1.2 million. We did not have any OREO as of December 31, 2020.

As of December 31, 2021, our financial results have reflected little impact on asset quality to date as a result of COVID-19. We are optimistic that the combination of vaccinations, government stimulus programs and relief programs we have provided to our clients will continue to mitigate the impact of the pandemic on our business.However, if economic conditions return to levels experienced during 2020, our credit quality and overall financial performance could be adversely affected.

Non-TDR Loan Modifications due to COVID-19

The “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” was issued by our banking regulators on March 22, 2020. This guidance encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19.

Additionally, Section 4013 of the CARES Act further provides that loan modifications due to the impact of COVID-19 that would otherwise be classified as TDRs under GAAP will not be so classified. Modifications within the scope of this relief were in effect from the period beginning March 1, 2020 until January 1, 2022.

In accordance with this guidance, we offered modifications to borrowers who were both impacted by COVID-19 and current on all principal and interest payments. As of December 31, 2021, we had eleven loans totaling $10.5 million in non-TDR loan modifications due to COVID-19.

U.S. Small Business Administration Paycheck Protection Program

Section 1102 of the CARES Act created the PPP, which is jointly administered by the 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 workforces 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. We 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. We began processing applications for forgiveness from this round beginning in December 2020 and 100% of loan balances have been forgiven as of December 31, 2021.

On December 27, 2020, $285 billion in additional funding was allocated to the PPP through the passage of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act. We 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 are fully guaranteed by the SBA. The loans originated during 2021 bear an interest rate of 1.00% and we received gross origination fees of approximately $1.3 million. We received this fee revenue from the SBA during 2021, and it is being deferred over the life of the PPP loans and recognized as interest income. We began processing applications for forgiveness from this round beginning in May 2021 and 96.5% of loan balances have been forgiven as of December 31, 2021.

The following table provides a rollforward of the activity of PPP loans through December 31, 2021.

(dollars in thousands)

Number of Loans Principal Balance Net Deferred Fees

Net deferred fees recognized (1,253)

Net deferred fees recognized (1,624)

We anticipate that the majority of PPP loans we originated will ultimately be forgiven, in whole or in part, by the SBA in accordance with the terms of the program. Management anticipates that loan forgiveness applications will continue during 2022.

Allowance for Loan Losses

December 31,

Losses charged off

Commercial and industrial (28) (461)

Owner-occupied commercial real estate — (24)

Single tenant lease financing (2,391) —

Healthcare finance — (743)

Small business lending (222) (110)

Residential mortgage (6) (20)

Home equity (51) —

Recoveries

Commercial and industrial 89 6

Healthcare finance — 87

Small business lending 80 19

Residential mortgage 63 4

Home equity 7 11

Net charge-offs (recoveries) to average loans (annualized)

Commercial and industrial (0.08) % 0.58 %

Owner-occupied commercial real estate — % 0.03 %

Single tenant lease financing 0.26 % — %

Healthcare finance — % 0.16 %

Small business lending 0.11 % 0.08 %

Total commercial net charge-offs (recoveries) 0.10 % 0.05 %

Residential mortgage (0.03) % 0.01 %

Total consumer net charge-offs (recoveries) 0.04 % 0.08 %

Net charge-offs to average loans 0.09 % 0.06 %

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 $27.8 million as of December 31, 2021, compared to $29.5 million as of December 31, 2020. The decrease in the allowance for loan losses compared to December 31, 2020 was due primarily to the elimination of $2.9 million of specific reserves related to single tenant lease financing loans and a commercial and industrial relationship, all of which had been classified as nonaccrual. The single tenant lease financing loans included a nonaccrual loan

that was paid off during the year and a relationship consisting of two loans, one of which was paid off at net book value (unpaid principal balance less specific reserves) and the other was transferred to OREO. The commercial and industrial relationship included four loans, two of which were paid off during the year. The decrease in the specific reserves was partially offset by additional adjustments to the qualitative factors in our allowance model that increased the allowance for loan losses to total loans.

The allowance for loan losses as a percentage of total loans was 0.96% as of December 31, 2021, or 0.97 % when excluding PPP Loans, compared to 0.96% and 0.98%, respectively, as of December 31, 2020. The allowance for loan losses as a percentage of nonperforming loans increased to 376.2% as of December 31, 2021, up from to 289.5% as of December 31, 2020. The provision for loans losses was $1.0 million for the twelve months ended December 31, 2021 compared to $9.3 million for the twelve months ended December 31, 2020. The decrease in the provision for loan losses was due primarily to the decline in loan balances during the year. During 2021, we recorded net charge-offs of $2.7 million, compared to $1.7 million during 2020. The increase in net charge-offs was due primarily to the elimination of the specific reserve related to the single tenant lease financing loans disclosed above, offset by a $0.7 million charge-off of a healthcare finance relationship in 2020.

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, 2021 and 2020. 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, 2021, 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, 2021, 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.

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) December 31,

Securities available-for-sale

U.S. Government-sponsored agencies $ 50,013 $ 61,765

Agency mortgage-backed securities - residential 377,928 213,408

Agency mortgage-backed securities - commercial 36,024 28,387

Private label mortgage-backed securities - residential 15,902 57,268

Securities held-to-maturity

December 31,

Securities available-for-sale

U.S. Government-sponsored agencies $ 49,040 $ 60,545

Agency mortgage-backed securities - residential 373,236 214,330

Agency mortgage-backed securities - commercial 36,326 29,591

Private label mortgage-backed securities - residential 16,021 58,116

Securities held-to-maturity

The approximate fair value of investment securities available-for-sale increased $105.4 million, or 21.2%, to $603.0 million as of December 31, 2021 compared to $497.6 million as of December 31, 2020. The increase was due primarily to an increase of $158.9 million in agency mortgage-backed securities - residential and $6.7 million in agency mortgage-backed securities - commercial, partially offset by decreases of $42.1 million in private label mortgage-backed securities - residential, $11.5 million in U.S. Government-sponsored agencies securities, and $5.5 million in municipal securities. The increase in agency mortgage-backed securities was driven primarily by purchases during the twelve months ended December 31, 2021, partially offset by prepayments and maturities in agency and private label mortgage-backed securities and U.S. Government-sponsored agencies, as well as early redemptions and maturities in municipal securities. As of December 31, 2021, we had securities with an amortized cost basis of $59.6 million designated as held-to-maturity compared to $68.2 million as of December 31, 2020, a decrease of $8.7 million, due mainly to contractual calls within corporate securities.

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, 2021.

Securities:

Accrued Income and Other Assets

Accrued income and other assets were $46.9 million at December 31, 2021 compared to $64.3 million at December 31, 2020. The decrease was primarily related to a decrease of $14.9 million in cash pledged as collateral. As of these dates, we pledged $15.7 million and $30.6 million, respectively, of cash collateral to counterparties on interest rate swap agreements as security for its obligations related to these agreements. Collateral posted and received is dependent on the fair value of the underlying agreements as of the respective date.

Deposits

The following table presents the composition of our deposit base as of the end of the last two years.

December 31,

Total deposits decreased $91.9 million, or 2.8%, to $3.2 billion as of December 31, 2021 compared to $3.3 billion as of December 31, 2020. This decrease was due primarily to a decline of $319.2 million, or 24.8%, in certificates of deposits, partially offset by increases of $133.4 million, or 9.9%, in money market accounts, $59.3 million, or 31.4%, in interest-bearing demand deposits, $20.8 million, or 21.5%, in noninterest-bearing deposits, and $16.8 million, or 38.9%, in savings accounts. We experienced strong growth in money market and interest-bearing demand deposits balances due to targeted digital marketing efforts to grow small business accounts, as well as consumers, small businesses and commercial clients increasing their cash balances due in part to the continued economic uncertainty resulting from the COVID-19 pandemic. The declines in certificates of deposits and brokered deposits were due to the maturity of higher cost balances and reduced pricing strategies designed to limit the volume of new production.

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, 2021

Period to Maturity Percentage of Total Certificate Accounts

Interest Rate:

Time Deposit Maturities Greater than $250,000

(dollars in thousands) December 31, 2021

Maturity Period:

Federal Home Loan Bank Advances

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 balance sheet growth and manage interest rate risk. Refer to Note 18 to our consolidated financial statements for additional information about derivative financial instruments. The following table is a summary of FHLB borrowings for the periods indicated.

At Or For The Twelve Months Ended December 31,

Weighted average interest rate at end of period 1 1.65 % 1.30 % 1.98 %

Weighted average interest rate during period 1 1.68 % 1.78 % 2.15 %

1 Excludes the impact of interest rate swaps.

Subordinated Notes due 2031

On August 16, 2021, we issued $60.0 million of subordinated notes at an initial fixed interest rate of 3.75%, which is payable semi-annually. Beginning on September 1, 2026, the interest rate converts to a variable interest rate, reset quarterly, equal to the three-month Term SOFR plus 3.11%, which is payable quarterly. The subordinated notes mature on September 1, 2031. The subordinated notes, net of issuance costs, were $58.6 million million at December 31, 2021. On December 30, 2021, we completed an exchange of $59.3 million principal amount of the subordinated notes for substantially identical subordinated notes registered under the Securities Act of 1933, in satisfaction of our obligations under a registration rights agreement entered into with the initial purchasers of the subordinated notes. The subordinated notes qualify for Tier 2 regulatory capital treatment at the Company level under applicable regulatory guidelines.

For additional information regarding these and our other outstanding subordinated notes, refer to Note 10 to our consolidated financial statements

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities were $30.5 million at December 31, 2021 compared to $48.4 million at December 31, 2020. The decrease in accrued expenses and other liabilities was due primarily to an $16.1 million, or 52.9%, decrease in derivative liabilities due to changes in fair value.

Liquidity and Capital Resources

Liquidity management is the process we use to manage the continuing flow of funds necessary to meet our financial commitments on a timely basis and at a reasonable cost while also maintaining safe and sound operations. Liquidity, represented by cash and investment securities, is a product of our 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. We supplement deposit growth and enhance interest rate risk management, if necessary, through borrowings and wholesale funding, which are generally advances from the FHLB and brokered deposits.

We hold cash and investment securities that qualify as liquid assets to maintain adequate liquidity to ensure safe and sound operations and to meet our financial commitments. At December 31, 2021, on a consolidated basis, we had $1.0 billion in cash and cash equivalents and investment securities available-for-sale, and $47.7 million in loans held-for-sale that were generally available for our cash needs. Additionally, at December 31, 2021, the Bank had the ability to borrow an additional $596.5 million in advances from the FHLB 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, 2021, the Company, on an unconsolidated basis, had $52.9 million in cash generally available for its cash needs, which is in excess of its current annual regular shareholder dividend and operating expenses.

We use our 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, 2021, approved outstanding loan commitments, including unused lines of credit, amounted to $324.3 million. Certificates of deposits and brokered certificates of deposits scheduled to mature in one year or less at December 31, 2021 totaled $747.6 million.

Thefollowing table presents the Company’s significant contractual obligations as of December 31, 2021.

Payments Due In

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.

On October 18, 2021, our Board of Directors approved a stock repurchase program authorizing the repurchase of up to $30.0 million of our outstanding common stock from time to time on the open market or in privately negotiated transactions. The stock repurchase authorization is scheduled to expire on December 31, 2022.

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 ratio, average tangible common equity, return on average tangible common equity, total interest income - FTE, net interest income - FTE, adjusted net interest income, adjusted net interest income - FTE, net interest margin - FTE, adjusted net interest margin, adjusted net interest margin - FTE, allowance for loan losses, loans, excluding PPP loans, adjusted total revenue, adjusted noninterest income, adjusted noninterest expense, adjusted income before income taxes, adjusted income tax provision, adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average shareholders' equity, adjusted return on average tangible common equity and adjusted effective income tax rate 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.

Adjustments:

Total shareholders’ equity to assets 9.03 % 7.79 % 7.44 %

Tangible common equity to tangible assets 8.93 % 7.69 % 7.33 %

Adjustments:

Return on average shareholders' equity 13.44 % 9.39 % 8.52 %

Return on average tangible common equity 13.61 % 9.53 % 8.65 %

Adjustments:

Subordinated debt redemption cost 810 — —

Adjustments:

Subordinated debt redemption cost 810 — —

Effect of fully-taxable equivalent adjustments1 0.14 % 0.13 % 0.17 %

Net interest margin - FTE 2.25 % 1.68 % 1.82 %

Effect of subordinated debt redemption cost 0.02 % — % — %

Adjusted net interest margin 2.13 % 1.55 % 1.65 %

Effect of fully-taxable equivalent adjustments1 0.14 % 0.13 % 0.17 %

Effect of subordinated debt redemption cost 0.02 % — % — %

Adjusted net interest margin - FTE 2.27 % 1.68 % 1.82 %

Adjustments:

Allowance for loan losses to loans 0.96 % 0.96 % 0.74 %

Effect of PPP loans 0.01 % 0.02 % — %

Allowance for loan losses to loans, excluding PPP loans 0.97 % 0.98 % 0.74 %

1Assuming a 21% tax rate

Adjustments:

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

Subordinated debt redemption cost 810 — —

Adjustments:

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

Adjustments:

Acquisition-related expenses (163) — —

IT termination fee (475) — —

Adjustments:

Write-down of other real estate owned — 2,065 —

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

Subordinated debt redemption cost 810 — —

Acquisition-related expenses 163 — —

IT termination fee 475 — —

Adjustments:

Write-down of other real estate owned — 434 —

Gain on sale of premises and equipment (530) — —

Subordinated debt redemption cost 170 — —

Acquisition-related expenses 34 — —

IT termination fee 100 — —

Net deferred tax asset revaluation — — —

Adjustments:

Write-down of other real estate owned — 1,631 —

Gain on sale of premises and equipment (1,993) — —

Subordinated debt redemption cost 640 — —

Acquisition-related expenses 129 — —

IT termination fee 375 — —

Net deferred tax asset revaluation — — —

Diluted earnings per share - GAAP $ 4.82 $ 2.99 $ 2.51

Adjustments:

Effect of write-down of other real estate owned — 0.17 —

Effect of gain on sale of premises and equipment (0.19) — —

Effect of subordinated debt redemption cost 0.06 — —

Effect of acquisition-related expenses 0.01 — —

Effect of IT termination fee 0.04 — —

Effect of net deferred tax asset revaluation — — —

Adjusted diluted earnings per share $ 4.74 $ 3.16 $ 2.51

Effect of write-down of other real estate owned — % 0.04 % — %

Effect of gain on sale of premises and equipment (0.05) % — % — %

Effect of subordinated debt redemption cost 0.02 % — % — %

Effect of acquisition-related expenses — % — % — %

Effect of IT termination fee 0.01 % — % — %

Effect of net deferred tax asset revaluation — % — % — %

Adjusted return on average assets 1.12 % 0.73 % 0.65 %

Return on average shareholders' equity 13.44 % 9.39 % 8.52 %

Effect of write-down of other real estate owned — % 0.52 % — %

Effect of gain on sale of premises and equipment (0.56) % — % — %

Effect of subordinated debt redemption cost 0.18 % — % — %

Effect of acquisition-related expenses 0.04 % — % — %

Effect of IT termination fee 0.10 % — % — %

Effect of net deferred tax asset revaluation — % — % — %

Adjusted return on average shareholders' equity 13.20 % 9.91 % 8.52 %

Return on average tangible common equity 13.61 % 9.53 % 8.65 %

Effect of write-down of other real estate owned — % 0.53 % — %

Effect of gain on sale of premises and equipment (0.56) % — % — %

Effect of subordinated debt redemption cost 0.18 % — % — %

Effect of acquisition-related expenses 0.04 % — % — %

Effect of IT termination fee 0.10 % — % — %

Effect of net deferred tax asset revaluation — % — % — %

Adjusted return on average tangible common equity 13.37 % 10.06 % 8.65 %

Effective income tax rate 15.0 % 13.1 % 7.1 %

Effect of write-down of other real estate owned — % 0.5 % — %

Effect of gain on sale of premises and equipment (0.4) % — % — %

Effect of subordinated debt redemption cost 0.1 % — % — %

Effect of acquisition-related expenses — % — % — %

Effect of IT termination fee 0.1 % — % — %

Effect of net deferred tax asset revaluation — % — % — %

Adjusted effective income tax rate 14.8 % 13.6 % 7.1 %

Critical Accounting Policies and Estimates

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.

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 enter into financial transactions to extend credit, interest rate swaps and forms of commitments that may be considered off-balance sheet arrangements. Interest rate swaps are arranged to receive hedge accounting treatment and are classified as either fair value or cash flow hedges. Fair value hedges are purchased to convert certain fixed rate assets to floating rate. Cash flow hedges are used to convert certain variable rate liabilities into fixed rate liabilities. In June 2020, we terminated all fair value hedging instruments associated with loans. At December 31, 2021 and December 31, 2020, we had interest rate swaps with notional amounts of $260.0 million and $298.2 million, respectively. Additionally, we enter into forward contracts relating to our mortgage banking business to hedge the exposures we have from commitments to extend new residential mortgage loans to our customers and from our mortgage loans held-for-sale. At

December 31, 2021 and December 31, 2020, we had commitments to sell residential real estate loans of $72.8 million and $107.5 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.

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 its interest rate risk position using income simulation models and economic value of equity (“EVE”) sensitivity analysis that capture both short-term and long-term interest rate risk exposure. Income simulation involves forecasting net interest income (“NII”) under a variety of interest rate scenarios. 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, 2021, assuming a static balance sheet and instantaneous parallel shifts in interest rates:

% Change from Base Case for Instantaneous Parallel Changes in Rates

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, 2021, assuming a static balance sheet and gradual parallel shifts in interest rates over a twelve-month period:

% Change from Base Case for Gradual Parallel Changes in Rates

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 report.

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 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, 2021.

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, 2021. 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, 2021, 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, 2021 has been audited by BKD, 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, 2021, 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.

PART III

Certain information required by Part III is incorporated by reference from our definitive Proxy Statement for our 2022 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, 2021. 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 Age Position

David B. Becker 68 Chairman, Chief Executive Officer and Director

Nicole S. Lorch 47 President and Chief Operating Officer

Kenneth J. Lovik 52 Executive Vice President and Chief Financial Officer

C. Charles Perfetti 77 Executive Vice President and Secretary

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 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.

C. Charles Perfetti has served as Executive Vice President since January 2017 and Secretary since May 2014. He previously served as Senior Vice President from 2012 until January 2017. Mr. Perfetti joined First Internet Bancorp in 2007 upon our acquisition of Landmark Financial Corporation, where he had served as President from 1989 to 2007. He previously conducted independent real estate and government consulting and served as the Chief Investment Manager of the State of Indiana from 1979 to 1986.

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 disclosure in the Proxy Statement under the headings “Proposal No. 1 - Election of Directors,” “Corporate Governance,” “Shareholder proposals for 2021 Annual Meeting,” and, if applicable “Delinquent Section 16(a) Reports” is 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,” the information regarding compensation committee interlocks and insider participation under the 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-Related Matters.” The independent registered public accounting firm is BKD, LLP (Public Company Accounting Oversight Board Firm ID No. 686) located in Indianapolis, Indiana.

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. Description

21.1 List of Subsidiaries

23.1 Consent of Independent Registered Public Accounting Firm

24.1 Powers of Attorney

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

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

__________________________________

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

**Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished to the SEC upon request; provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any document so furnished.

Item 16. Form 10-K Summary.

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 15, 2022.

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 15, 2022.

/s/ David B. Becker /s/ Kenneth J. Lovik

* *

Aasif M. Bade, Director David R. Lovejoy, Director

* *

Justin P. Christian, Director Ralph R. Whitney, Jr., Director

* *

Ann Colussi Dee, Director Jerry Williams, Director

* *

Ana Dutra., Director Jean L. Wojtowicz, 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

Reports of Independent Registered Public Accounting Firm

To the Shareholders, Board of Directors and Audit Committee

First Internet Bancorp

Fishers, Indiana

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of First Internet Bancorp (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2021 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, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021 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, 2021, 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 15, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

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.

F-1

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was 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 a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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 $27.84 million at December 31, 2021. 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.

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, including the impact of the COVID-19 pandemic on the loan portfolio, 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:

•Testing the design and operating effectiveness of internal controls, including those related to technology, over the ALLL.

•Testing clerical and computational accuracy of the company’s ALLL calculation.

•Testing the completeness and accuracy of underlying data utilized in the ALLL, including reports used in management review controls over the ALLL.

•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.

•Evaluating the appropriateness of loan grades and assessing the reasonableness of specific impairments on loans.

F-2

/s/ BKD, LLP

We have served as the Company's auditor since 2004.

Indianapolis, Indiana

March 15, 2022

F-3

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, 2021 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, 2021 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 and our report dated March 15, 2022, expressed an unqualified opinion thereon.

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 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 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.

/s/ BKD, LLP

Indianapolis, Indiana

March 15, 2022

F-4

First Internet Bancorp

Consolidated Balance Sheets

(Amounts in thousands except share data)

December 31,

Assets

Federal Home Loan Bank of Indianapolis stock 25,650 25,650

Cash surrender value of bank-owned life insurance 38,900 37,952

Servicing asset, at fair value 4,702 3,569

Other real estate owned 1,188 —

Liabilities and shareholders’ equity

Liabilities

Accrued expenses and other liabilities 30,526 48,369

Commitments and Contingencies

Shareholders’ equity

Accumulated other comprehensive loss (11,039) (17,196)

See Notes to Consolidated Financial Statements

F-5

First Internet Bancorp

Consolidated Statements of Income

(Amounts in thousands except share and per share data)

Year Ended December 31,

Interest income

Interest expense

Noninterest income

Loan servicing asset revaluation (1,069) (432) —

Gain (loss) on sale of securities — 139 (458)

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

Noninterest expense

Write-down of other real estate owned — 2,065 —

Income per share of common stock

Weighted-average number of common shares outstanding

Dividends declared per share $ 0.24 $ 0.24 $ 0.24

See Notes to Consolidated Financial Statements

F-6

First Internet Bancorp

Consolidated Statements of Comprehensive Income

(Amounts in thousands)

Year Ended December 31,

Other comprehensive income (loss)

Reclassification adjustment for (gains) losses realized — (139) 458

Other comprehensive income (loss) before tax 7,051 (3,836) 3,459

Other comprehensive income (loss) - net of tax 6,157 (3,005) 2,350

See Notes to Consolidated Financial Statements

F-7

First Internet Bancorp

Consolidated Statements of Shareholders’ Equity

(Amounts in thousands except per share data)

Impact of adoption of new accounting standards (1) (821) — (821)

Other comprehensive income — — 2,350 2,350

Repurchase of common stock (9,784) — — (9,784)

Recognition of the fair value of share-based compensation 1,680 — — 1,680

Common stock redeemed for the net settlement of share-based awards (94) — — (94)

Other comprehensive loss — — (3,005) (3,005)

Dividends declared ($0.24 per share) — (2,402) — (2,402)

Recognition of the fair value of share-based compensation 2,110 — — 2,110

Other comprehensive income — — 6,157 6,157

Dividends declared ($0.24 per share) — (2,415) — (2,415)

Repurchase of common stock (4,436) — — (4,436)

Recognition of the fair value of share-based compensation 2,393 — — 2,393

(1)Represents the impact of adopting ASU 2017-08.

See Notes to Consolidated Financial Statements

F-8

First Internet Bancorp

Consolidated Statements of Cash Flows

(Amounts in thousands)

Year Ended December 31,

Operating activities

Write-down of other real estate owned — 2,065 —

Increase in cash surrender value of bank-owned life insurance (948) (950) (943)

(Gain) loss from sale of available-for-sale securities — (139) 458

Decrease (increase) in fair value of loans held-for-sale 718 94 (538)

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

Investing activities

Proceeds from sales of other real estate owned — — 554

Proceeds from sales of securities available-for-sale — 16,986 30,137

Maturities and calls of securities held-to-maturity 8,525 — —

Purchase of securities held-to-maturity — (2,000) (39,208)

Net proceeds from sale of premises and equipment 8,116 — —

Purchase of Federal Home Loan Bank of Indianapolis stock — — (2,025)

Financing activities

Repayment of subordinated debt (35,000) — —

Repurchase of common stock (4,436) — (9,784)

Supplemental disclosures of cash flows information

Initial recognition of right-of-use asset $ — $ — $ 2,096

Initial recognition of operating lease liabilities — — 2,096

Loans transferred to other real estate owned 1,188 — —

Securities purchases settled in subsequent period — 5,547 —

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 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. Residential mortgage products are offered nationwide primarily through a digital direct-to-consumer platform and are supplemented with Central Indiana-based mortgage and construction lending. 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

INBK US Equity

INBK · 10-K · period ended 2021-12-31

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

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

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary.

INBK US Equity☆

INBK · 10-K · period ended 2021-12-31

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

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

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary.

INBK US Equity