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What changed in First Internet Bancorp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of First Internet Bancorp's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+304 added−292 removedSource: 10-K (2024-03-13) vs 10-K (2023-03-14)

Top changes in First Internet Bancorp's 2023 10-K

304 paragraphs added · 292 removed · 206 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

63 edited+7 added−3 removed131 unchanged
Biggest changeWe expect this trend of increased activity and changes at the state level to continue. In 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.
Biggest changeThese SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations. See Part I, Item 1C. Cybersecurity of this Annual Report on Form 10-K for additional information.
Through partnerships with selected 1 fintechs, we believe our ability to win and retain consumer and small business relationships will be significantly enhanced. Furthermore, we believe partnering with select fintechs will allow us to further diversify our revenue sources, acquire lower-cost deposits and pursue additional asset generation capabilities.
Through 1 partnerships with selected fintechs, we believe our ability to win and retain consumer and small business relationships will be significantly enhanced. Furthermore, we believe partnering with select fintechs will allow us to further diversify our revenue sources, acquire lower-cost deposits and pursue additional asset generation capabilities.
The BHCA requires a bank holding company to obtain approval from the Federal Reserve before (i) acquiring or holding more than a 5% voting interest in any bank or bank holding company, (ii) 5 acquiring all or substantially all of the assets of another bank or bank holding company or (iii) merging or consolidating with another bank holding company.
The BHCA requires a bank holding company to obtain approval from the Federal Reserve before (i) acquiring or holding more than a 5% voting interest in any bank or bank holding company, (ii) acquiring all or substantially all of the assets of another bank or bank holding company or (iii) merging or consolidating with another bank holding company.
Many of the statutory provisions in the AMLA will require additional rulemaking, reports and other measures, and the impact of the AMLA will depend on, among other things, rulemaking and implementation guidance. The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others. These sanctions, which are administered by the U.S.
Many of the statutory provisions in the AMLA require additional rulemaking, reports and other measures, and the impact of the AMLA will depend on, among other things, rulemaking and implementation guidance. The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others. These sanctions, which are administered by the U.S.
Additionally, mortgage originators are prohibited from receiving compensation based on the terms of residential mortgage loans and are subject to limitations on their ability to be compensated by others if compensation is received from a consumer. Customer Information Security . The federal banking agencies have adopted final guidelines for establishing standards for safeguarding nonpublic personal information about customers.
Additionally, mortgage originators are prohibited from receiving compensation based on the terms of residential mortgage loans and are subject to limitations on their ability to be compensated by others if compensation is received from a consumer. Customer Information Security . The federal banking agencies have adopted final guidelines establishing standards for safeguarding nonpublic personal information about customers.
The Bank has three wholly-owned subsidiaries: First Internet Public Finance Corp., an Indiana corporation, which provides a range of public and municipal finance lending and leasing products to governmental entities throughout the United States and acquires securities issued by state and local governments and other municipalities; JKH Realty Services, LLC, a Delaware limited liability company, which manages other real estate owned properties as needed; and SPF15 Inc., an Indiana corporation that owns real estate used primarily for the Bank’s principal office.
The Bank has three wholly-owned subsidiaries: First Internet Public Finance Corp., an Indiana corporation that provides a range of public and municipal finance lending and leasing products to governmental entities throughout the United States and acquires securities issued by state and local governments and other municipalities; JKH Realty Services, LLC, a Delaware limited liability company that manages other real estate owned properties as needed; and SPF15, Inc., an Indiana corporation that owns real estate used primarily for the Bank’s principal office.
Specifically, the Information Security Guidelines established by the GLBA require each financial institution, under the supervision and ongoing oversight of its board of directors or an appropriate committee thereof, to develop, implement and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer 9 information (as defined under the GLBA), to protect against anticipated threats or hazards to the security or integrity of such information and to protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.
Specifically, the Information Security Guidelines established by the GLBA require each financial institution, under the supervision and ongoing oversight of its board of directors or an appropriate committee thereof, to develop, implement and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information (as defined under the GLBA), to protect against anticipated threats or hazards to the security or integrity of such information and to protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.
Under this guidance, banking organizations must review their compensation programs to ensure that they: (i) provide employees with incentives that appropriately balance risk and reward and that do not encourage imprudent risk, (ii) are compatible with effective controls and risk management, and (iii) are supported by strong corporate governance, including active and effective oversight by the banking organization's board of directors.
Under this guidance, banking organizations must review their compensation programs to ensure that they: (i) provide employees with incentives that appropriately balance 6 risk and reward and that do not encourage imprudent risk, (ii) are compatible with effective controls and risk management, and (iii) are supported by strong corporate governance, including active and effective oversight by the banking organization's board of directors.
In addition, the SEC maintains an internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. References to the Company’s website address in this Annual Report on Form 10-K are provided as a convenience only and are not incorporated by reference. 11
In addition, the SEC maintains an internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. References to the Company’s website address in this Annual Report on Form 10-K are provided as a convenience only and are not incorporated by reference.
For our construction, investor CRE, and C&I lending activities, we compete with super-regional, regional and community banks operating in the Midwest and Southwest regions of the United States. For our single tenant lease financing activities, we compete nationally with regional banks, community banks and credit unions, as well as life insurance companies 2 and commercial mortgage-backed securities lenders.
For our construction, investor CRE, and C&I lending activities, we compete with super-regional, regional and community banks operating in the Midwest and Southwest regions of the United States. For our single tenant lease financing activities, we compete nationally with regional banks, community banks and credit unions, as well as life insurance companies and commercial mortgage-backed securities lenders.
Congress, as part of the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act, authorized an optional, simplified measure of capital adequacy, the “Community Bank Leverage Ratio” (“CBLR”) framework, for qualifying community banking organizations like the Company with less than $10 billion in total consolidated assets.
Congress, as part of the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act, authorized an optional, simplified measure of capital adequacy, the 5 “Community Bank Leverage Ratio” (“CBLR”) framework, for qualifying community banking organizations like the Company with less than $10 billion in total consolidated assets.
We strive to maintain a diverse and inclusive work culture in which individual differences and experiences are valued and all employees have the opportunity to contribute and thrive. We believe that leveraging our employees’ diverse perspectives and capabilities will enhance innovation, foster a collaborative work culture and enable us to better serve our customers and communities.
We strive to maintain an inclusive and diverse work culture in which individual differences and experiences are valued and all employees have the opportunity to contribute and thrive. We believe that leveraging our employees’ diverse perspectives and capabilities will enhance innovation, foster a collaborative work culture and enable us to better serve our customers and communities.
In addition, financial institutions are required to file suspicious activity reports for transactions that involve more than $5,000 and which the financial institution knows, suspects or has reason to suspect involves illegal funds, is designed to evade the requirements of the BSA or has no lawful purpose.
In addition, financial 8 institutions are required to file suspicious activity reports for transactions that involve more than $5,000 and which the financial institution knows, suspects or has reason to suspect involves illegal funds, is designed to evade the requirements of the BSA or has no lawful purpose.
The phased training program — including topics such as unconscious bias, sexual harassment, regulatory issues and the benefits of a more diverse workplace — is delivered both in-person and online. Ongoing quarterly sessions and annual refresher courses will help reinforce the program’s methods and maintain active awareness.
The phased training program — including topics such as unconscious bias, sexual harassment, regulatory issues and the benefits of a more diverse workplace — is delivered both in-person and online. Ongoing quarterly sessions and annual refresher courses help reinforce the program’s methods and maintain active awareness.
In general, these enforcement actions may be initiated in response to violations of laws, regulations and administrative orders, as well as in response to unsafe or unsound banking practices or conditions. Standards for Safety and Soundness . Pursuant to the FDIA, the federal banking agencies have adopted a set of guidelines prescribing safety and soundness standards.
In general, these enforcement actions may be initiated in response to alleged violations of laws, regulations and administrative orders, as well as in response to alleged unsafe or unsound banking practices or conditions. Standards for Safety and Soundness . Pursuant to the FDIA, the federal banking agencies have adopted a set of guidelines prescribing safety and soundness standards.
Bank regulators regularly examine institutions for compliance with these obligations, and may impose “cease and desist” orders and civil money penalty sanctions on institutions determined to be in violation of these obligations. 8 In January 2021, the Anti-Money Laundering Act of 2020 (the “AMLA”), which amends the BSA, was enacted.
Bank regulators regularly examine institutions for compliance with these obligations, and may impose “cease and desist” orders and civil money penalty sanctions on institutions determined to be in violation of these obligations. In January 2021, the Anti-Money Laundering Act of 2020 (the “AMLA”), which amends the BSA, was enacted.
The rule also requires a bank service provider to notify each affected banking organization 10 customer as soon as possible when the service provider determines it has experienced a computer security incident that has caused, or is reasonably likely to cause, a material service disruption or degradation for four or more hours.
The rule also requires a bank service provider to notify each affected banking organization customer as soon as possible when the service provider determines it has experienced a computer security incident that has caused, or is reasonably likely to cause, a material service disruption or degradation for four or more hours.
The result is a sense of pride and increased engagement within the Bank that serves as a catalyst for the greater good. Competition The markets in which we compete to make loans, attract deposits and provide fee based financial services are highly competitive.
The result is a sense of pride and increased engagement within the Bank that serves as a catalyst for the greater good. 2 Competition The markets in which we compete to make loans, attract deposits and provide fee based financial services are highly competitive.
These guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset 7 growth, asset quality, earnings standards, compensation, fees and benefits. In general, the guidelines require appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines.
These guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings standards, compensation, fees and benefits. In general, the guidelines require appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines.
These regulatory agencies have broad enforcement power over regulated entities, including the ability to impose substantial fines and other adverse consequences for violations of law and regulations. Following is a summary of the material elements of the supervisory and regulatory framework applicable to the Company and Bank.
These regulatory agencies have broad enforcement power over regulated entities, including the ability to impose substantial fines and other adverse consequences for violations of law and regulations. 3 Following is a summary of the material elements of the supervisory and regulatory framework applicable to the Company and Bank.
Generally, the Bank’s total loans or extensions of credit to a single borrower, including the borrower’s related entities, outstanding at one time, and not fully secured, cannot exceed 15% of the Bank’s unimpaired capital and surplus.
Loans-to-One Borrower Limitations . Generally, the Bank’s total loans or extensions of credit to a single borrower, including the borrower’s related entities, outstanding at one time, and not fully secured, cannot exceed 15% of the Bank’s unimpaired capital and surplus.
In addition, the Federal Reserve has the authority to issue orders to bank holding companies to cease and desist from unsafe or 3 unsound banking practices and from violations of conditions imposed by, or violations of agreements with, the Federal Reserve.
In addition, the Federal Reserve has the authority to issue orders to bank holding companies to cease and desist from unsafe or unsound banking practices and from violations of conditions imposed by, or violations of agreements with, the Federal Reserve.
Transactions with Affiliates . The authority of the Bank, like other FDIC-insured institutions, to engage in transactions with its “affiliates” is limited by Sections 23A and 23B of the Federal Reserve Act and the Federal Reserve’s Regulation W.
The authority of the Bank, like other FDIC-insured institutions, to engage in transactions with its “affiliates” is limited by Sections 23A and 23B of the Federal Reserve Act and the Federal Reserve’s Regulation W.
We believe the Bank is in compliance with these provisions. Enforcement . The DFI and the FDIC share primary regulatory enforcement responsibility over the Bank and its institution-affiliated parties, including directors, officers and employees.
We believe the Bank is in compliance with these provisions. 7 Enforcement . The DFI and the FDIC share primary regulatory enforcement responsibility over the Bank and its institution-affiliated parties, including directors, officers and employees.
It is possible under the Basel III Rule to be well capitalized while remaining out of compliance with the capital conservation buffer discussed above. As of December 31, 2022, the Company had regulatory capital in excess of the Federal Reserve’s requirements and met the requirements to be well capitalized. The Company was also in compliance with the capital conservation buffer.
It is possible under the Basel III Rule to be well capitalized while remaining out of compliance with the capital conservation buffer discussed above. As of December 31, 2023, the Company had regulatory capital in excess of the Federal Reserve’s requirements and met the requirements to be well capitalized. The Company was also in compliance with the capital conservation buffer.
Treasury for evaluating technology and internal processes for BSA compliance; and expands enforcement- and investigation-related authority, including a significant expansion in the available sanctions for certain BSA violations and enhanced whistleblower provisions permitting monetary awards to persons who provide information that leads to successful enforcement of certain violations.
Treasury for evaluating technology and internal processes for BSA compliance; and expanded enforcement- and investigation-related authority, including a significant expansion in the available sanctions for certain BSA violations and enhanced whistleblower provisions permitting monetary awards to persons who provide information that leads to successful enforcement of certain violations.
In addition, institutions that seek the freedom to make capital distributions (including for dividends and repurchases of stock) and pay discretionary bonuses to executive officers without restriction must also maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer.
In addition, institutions that seek the freedom to make capital distributions (including for dividends and repurchases of stock) and pay discretionary bonuses to executive officers without restriction must also maintain 2.50% in Common Equity Tier 1 Capital attributable to a capital conservation buffer.
A second law called the California Privacy Rights Act (“CPRA”), which goes into effect in 2023, expands the scope of the CCPA, imposes new restrictions on behavioral advertising, and establishes a new California Privacy Protection Agency which will enforce the law and issue regulations.
A second law called the California Privacy Rights Act (“CPRA”), which went into effect in 2023, expands the scope of the CCPA, imposes new restrictions on behavioral advertising, and establishes a new California Privacy Protection Agency which will enforce the law and issue regulations.
In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer. See “Regulatory” section above. Source of Strength .
In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends have to maintain 2.50% in Common Equity Tier 1 Capital attributable to the capital conservation buffer. See “Regulatory” section above. Source of Strength .
The Basel III Rule requires minimum capital ratios for bank holding companies as follows: • A ratio of minimum Common Equity Tier 1 Capital equal to 4.5% of risk-weighted assets; • A ratio of minimum Tier 1 Capital equal to 6% of risk-weighted assets; • A continuation of the minimum required amount of Total Capital (Tier 1 plus Tier 2) at 8% of risk-weighted assets; and • A minimum leverage ratio of Tier 1 Capital to total quarterly average assets equal to 4% in all circumstances.
The Basel III Rule requires minimum capital ratios for bank holding companies as follows: 4 • A ratio of minimum Common Equity Tier 1 Capital equal to 4.50% of risk-weighted assets; • A ratio of minimum Tier 1 Capital equal to 6.00% of risk-weighted assets; • A continuation of the minimum required amount of Total Capital (Tier 1 plus Tier 2) at 8.00% of risk-weighted assets; and • A minimum leverage ratio of Tier 1 Capital to total quarterly average assets equal to 4.00% in all circumstances.
Under the capital regulations of the FDIC and Federal Reserve, in order to be well capitalized, a banking organization must maintain: • A Common Equity Tier 1 Capital ratio to risk-weighted assets of 6.5% or more; • A ratio of Tier 1 Capital to total risk-weighted assets of 8.0% or more; • A ratio of Total Capital to total risk-weighted assets of 10.0% or more; and • A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5.0% or greater.
Under the capital regulations of the FDIC and Federal Reserve, in order to be well capitalized, a banking organization must maintain: • A Common Equity Tier 1 Capital ratio to risk-weighted assets of 6.50% or more; • A ratio of Tier 1 Capital to total risk-weighted assets of 8.00% or more; • A ratio of Total Capital to total risk-weighted assets of 10.00% or more; and • A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5.00% or greater.
In response to the COVID-19 pandemic, the banking agencies temporarily lowered the qualifying leverage ratio to 8% in the second quarter of 2020, which then rose to 8.5% for calendar year 2021 and 9% thereafter. The Company has not opted in to the CBLR capital framework. Activities, Acquisitions, and Changes in Control.
In response to the COVID-19 pandemic, the banking agencies temporarily lowered the qualifying leverage ratio to 8.00% in the second quarter of 2020, which then rose to 8.50% for calendar year 2021 and 9.00% thereafter. The Company has not opted in to the CBLR capital framework. Activities, Acquisitions, and Changes in Control.
The Federal Reserve is also empowered, among other things, to assess civil money penalties against companies or individuals who violate Federal Reserve orders or regulations, to order termination of nonbanking activities of bank holding companies and to order termination of ownership and control of a nonbanking subsidiary by a bank holding company. Regulatory Capital .
The Federal Reserve is also empowered to assess civil money penalties against companies or individuals who violate Federal Reserve orders or regulations, to order termination of nonbanking activities of bank holding companies and to order termination of ownership and control of a nonbanking subsidiary by a bank holding company. Regulatory Capital .
Our commercial banking products and services are delivered through a relationship banking model and include commercial and industrial (“C&I”) banking, construction and investor commercial real estate, single tenant lease financing, public finance, healthcare finance, small business lending, franchise finance and commercial deposits and treasury management.
Our commercial banking products and services are delivered through a relationship banking model or through strategic partnerships and include commercial and industrial (“C&I”), construction and investor commercial real estate, single tenant lease financing, public finance, healthcare finance, small business lending, franchise finance and commercial deposits and treasury management.
The purpose of the conservation buffer is to ensure that banking institutions maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. 4 Factoring in the conservation buffer increases the minimum ratios depicted above to 7.0% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital.
The purpose of the conservation buffer is to ensure that banking institutions maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. Factoring in the conservation buffer increases the minimum ratios depicted above to 7.00% for Common Equity Tier 1 Capital, 8.50% for Tier 1 Capital and 10.50% for Total Capital.
As of December 31, 2022, the Bank was was well capitalized, as defined by FDIC regulations. Prompt Corrective Action.
As of December 31, 2023, the Bank was well capitalized, as defined by FDIC regulations. Prompt Corrective Action.
The federal banking regulators are also required to take into account the effectiveness of the Bank Secrecy Act/anti-money laundering activities of the applicant. Federal regulatory policy relating to the approval of proposed mergers and acquisitions is currently under review.
The federal banking regulators are also required to consider the effectiveness of the Bank Secrecy Act/anti-money laundering activities of the applicant. Federal regulatory policy relating to the approval of proposed mergers and acquisitions is currently under review.
We believe the Bank complied with these provisions during 2022. Loans to and Other Transactions with Insiders .
We believe the Bank complied with these provisions during 2023. Loans to and Other Transactions with Insiders .
While the required percentage of stock ownership is subject to change by the FHLB, the Bank is in compliance with this requirement with an investment in FHLB stock at December 31, 2022 of $28.4 million.
While the required percentage of stock ownership is subject to change by the FHLB, the Bank is following this requirement with an investment in FHLB stock at December 31, 2023 of $28.4 million.
Each Federal Home Loan Bank serves as a central credit facility primarily for its member institutions. The Bank, as a member of the FHLB, is required to acquire and hold shares of FHLB capital stock.
The Bank is a member of the FHLB, which is one of the regional Federal Home Loan Banks comprising the Federal Home Loan Bank System. Each Federal Home Loan Bank serves as a central credit facility primarily for its member institutions. The Bank, as a member of the FHLB, is required to acquire and hold shares of FHLB capital stock.
The AMLA is intended to comprehensively reform and modernize U.S. anti-money laundering laws. Among other things, the AMLA codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards by the U.S.
The AMLA was intended to comprehensively reform and modernize U.S. anti-money laundering laws. Among other things, the AMLA attempted to codify a risk-based approach to anti-money laundering compliance for financial institutions; required the development of standards by the U.S.
Similar laws were enacted in Virginia and Colorado in 2021 and go into effect in 2023, and other states have considered and are actively considering legislation along the same lines.
Similar laws were enacted in Virginia and Colorado, and other states have considered and are actively considering legislation along the same lines.
Our C&I team provides credit solutions such as lines of credit, term loans, owner-occupied commercial real estate loans and corporate credit cards on a regional basis to commercial borrowers primarily in the Midwest and Southwest regions of the United States.
Our C&I team provides credit solutions such as lines of credit, term loans, owner-occupied commercial real estate loans and corporate credit cards on a regional basis to commercial borrowers primarily in the Midwest and Southwest regions of the United States. We offer construction, investor commercial real estate loans and single tenant lease financing on a nationwide basis.
We continue to scale up this business with the goal of driving increased earnings and profitability in future periods. We also offer payment, deposit, card and lending products and services through fintech partnerships, which we intend to grow in future periods.
We continue to scale up this business with the goal of driving increased earnings and profitability in future periods. We also offer payment, deposit, card and lending products and services through partnerships with financial technology companies and platforms (“fintechs”).
Available Information The Company makes available its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), free of charge on its website at www.firstinternetbancorp.com as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC.
It cannot be predicted with certainty whether such legislation or administrative action will be enacted or the extent to which the banking industry, the Company or the Bank would be affected. 11 Available Information The Company makes available its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), free of charge on its website at www.firstinternetbancorp.com as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC.
We may be a digital bank, but we strongly believe in the power of personal connection and collaboration. Our focus on employees is evident in the number of “best work place” awards we have been honored with over the years.
We may be a digital bank, but we strongly believe in the power of personal connection and collaboration, resulting in a relationship rich culture that enables us to live to our very best potential. Our focus on employees is evident in the number of “best work place” awards we have been honored with over the years.
We are one of the fastest-growing lenders in the Small Business Administration (“SBA”) 7(a) program, closing more than $155.4 million in SBA 7(a) loans during 2022 and ranking in the top 30 SBA 7(a) lenders for the SBA’s 2022 fiscal year. We also offer a top-ranked small business checking account product to our country’s entrepreneurs.
We are one of the fastest-growing lenders in the Small Business Administration (“SBA”) 7(a) program, closing more than $416.1 million in SBA 7(a) loans during the 2023 calendar year, and ranked as the 9 th largest SBA 7(a) lender for the SBA’s 2023 fiscal year. We also offer a top-ranked small business checking account product to our country’s entrepreneurs.
A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties.
A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and 10 address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack.
Our healthcare finance team was established in conjunction with our strategic partnership with Provide, Inc. (formerly known as Lendeavor, Inc.), a San Francisco-based technology-enabled lender to healthcare practices, which provided lending on a nationwide basis for healthcare practice finance or acquisition, acquisition or refinancing of owner-occupied commercial real estate and equipment purchases.
(formerly known as Lendeavor, Inc.), a San Francisco-based technology-enabled lender to healthcare practices, which provided lending on a nationwide basis for healthcare practice finance or acquisition, acquisition or refinancing of owner-occupied commercial real estate and equipment purchases. In the third quarter 2021, Provide was acquired by a super-regional financial institution.
We commit time, talent and financial support to community initiatives that inspire passion among our team members and support the communities within which we live and work. We allow paid volunteer time and sponsor community initiatives such as The Indy Pride Rainbow 5k, the Marian University-Indianapolis Diversity in Leadership Program and Habitat for Humanity.
We commit time, talent and financial support to community initiatives that inspire passion among our team members and support the communities within which we live and work. We allow paid volunteer time and sponsor community initiatives such as Junior Achievement Biztown and Habitat for Humanity.
As such, the Bank is regularly examined by and subject to regulations promulgated by the DFI and the FDIC as its primary federal bank regulator. The Bank is not a member of the Federal Reserve System. 6 Business Activities .
As such, the Bank is regularly examined by and subject to regulations promulgated by the DFI and the FDIC as its primary federal bank regulator. The Bank is not a member of the Federal Reserve System. Business Activities . The Bank derives its lending and investment powers from the IFIA, the Federal Deposit Insurance Act (the “FDIA”) and related regulations.
In 2022, we provided a status update to our ESG Report, highlighting key initiatives and efforts. One such effort in 2022 was the introduction of mandatory Diversity, Equity & Inclusion (“DEI”) training for executive leadership and all employees.
In 2022, we provided a status update to our ESG Report, highlighting key initiatives and efforts. Our initiatives and efforts continued throughout 2023, as we continue to mandate Diversity, Equity & Inclusion (“DEI”) training for executive leadership and all employees.
The Dodd-Frank Act initiated a number of significant residential mortgage lending reforms that have taken place in recent years. These reforms include standards that mortgage lenders must consider before making a residential mortgage loan, including verifying a borrower’s ability to repay such mortgage loan.
The Dodd-Frank Act initiated a number of significant residential mortgage lending reforms. These reforms include standards that mortgage lenders must consider before making a residential mortgage loan, including verifying a borrower’s ability to repay such mortgage loan. Borrowers are also allowed to assert violations of certain provisions of the Truth-in-Lending Act as a defense to foreclosure proceedings.
As of December 31, 2022, the Company had consolidated assets of $4.5 billion, consolidated deposits of $3.4 billion and stockholders’ equity of $365.0 million. Human Capital As of December 31, 2022, we employed 319 people, 314 of which were full-time.
As of December 31, 2023, the Company had consolidated assets of $5.2 billion, consolidated deposits of $4.1 billion and shareholders’ equity of $362.8 million. Human Capital As of December 31, 2023, we employed 290 people, 287 of which were full-time.
Due to its online-driven model and nationwide banking platform, the Bank has opted to operate under a CRA Strategic Plan, which sets forth certain guidelines the Bank must meet. The Bank's current CRA Strategic Plan covers the time period of January 1, 2021 through December 31, 2023. The Bank received a “Satisfactory” CRA rating in its most recent CRA examination.
Due to its online-driven model and nationwide banking platform, the Bank has opted to operate under a CRA Strategic Plan, which sets forth certain guidelines the Bank must meet. The Bank is awaiting FDIC approval for its proposed CRA Strategic Plan to cover the time period of January 1, 2024 through December 31, 2027.
The internal training program focuses on topics such as privacy, fair banking, skills-training and many industry specific topics and regulations. And the leadership training program features courses and curriculum designed to grow and support up-and-coming leaders, with support from internal sponsors and an external, professional coach. Community service is a foundational tenet.
The internal training program focuses on topics such as privacy, fair banking, skills-training and many industry specific topics and regulations. The leadership training program features curriculum designed to help leaders understand management duties essential to their role. Community service is a foundational tenet.
Additional legislation and administrative actions affecting the banking industry may be considered by the United States Congress, state legislatures and various regulatory agencies, including those referred to above. It cannot be predicted with certainty whether such legislation or administrative action will be enacted or the extent to which the banking industry, the Company or the Bank would be affected.
Additional legislation and administrative actions affecting the banking industry may be considered by the United States Congress, state legislatures and various regulatory agencies, including those referred to above.
Mortgage lenders are required to make additional disclosures prior to the extension of credit, in each billing statement and for negative amortization loans and hybrid adjustable rate mortgages.
Prepayment penalties are prohibited for certain mortgage transactions and creditors are prohibited from financing insurance policies in connection with a residential mortgage 9 loan or home equity line of credit. Mortgage lenders are required to make additional disclosures prior to the extension of credit, in each billing statement and for negative amortization loans and hybrid adjustable rate mortgages.
In the third quarter 2021, Provide was acquired by a super-regional financial institution. Subsequent to Provide being acquired, the acquiring institution has retained most, if not all, of Provide’s loan origination activity and our healthcare finance loan balances have declined.
Subsequent to Provide being acquired, the acquiring institution has retained most, if not all, of Provide’s loan origination activity and our healthcare finance loan balances have declined. Our franchise finance business was established in July 2021 in conjunction with our business relationship with ApplePie Capital, a company that specializes in providing financing to franchisees in various industry segments.
Failure of an institution to receive at least a “Satisfactory” rating could inhibit such institution or its holding company from engaging in certain activities or pursuing acquisitions of other financial institutions. The federal banking agencies are currently working on a comprehensive review and revision of the rule implementing the CRA that is intended to strengthen and enhance the CRA.
Failure of an institution to receive at least a “Satisfactory” rating could inhibit such institution or its holding company from engaging in certain activities or pursuing acquisitions of other financial institutions. Transactions with Affiliates .
The Bank believes it has sufficient liquidity to meet its funding obligations for at least the next twelve months. Federal Home Loan Bank System . The Bank is a member of the FHLB, which is one of the regional Federal Home Loan Banks comprising the Federal Home Loan Bank System.
The Bank believes it has sufficient liquidity to meet its funding obligations for at least the next twelve months. Additionally, as of December 31, 2023, the Bank had access to $1.2 billion in unused borrowing capacity at the Federal Reserve and FHLB. Federal Home Loan Bank System .
A copy of our ESG Report can be found on our website at www.firstinternetbancorp.com . See “Available Information” section below for more information. To further foster inclusion as a norm, our organization promotes and supports the development of employee-led business resource groups, which currently include First Ladies and LIFT (a young professionals group). These groups magnify traditionally underrepresented voices.
To further foster inclusion as a norm, our organization promotes and supports the development of employee-led business resource groups, which currently include First Ladies, LIFT (a professional development group), and BELONG (a group engaged in celebrating and learning about our unique experiences, heritages, etc.). These groups magnify traditionally underrepresented voices.
We primarily offer construction and investor commercial real estate loans within Central Indiana or on a regional basis and single tenant lease financing on a nationwide basis. Our public finance team provides a range of public and municipal lending and leasing products to government entities on a nationwide basis.
Our public finance team provides a range of public and municipal lending and leasing products to government entities on a nationwide basis. Our healthcare finance team was established in conjunction with our strategic partnership with Provide, Inc.
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Our franchise finance business was established in July 2021 in conjunction with our business relationship with ApplePie Capital, a financial technology (“fintech”) company that specializes in providing financing to franchisees in various industry segments.
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Meaningful training, an equitable hiring process, expanded hiring pools, and a long-term commitment to fostering a diverse workforce have all resulted in largely exceptional results over the past five years. In particular, when reviewing the Bank’s employee population, representation of diverse individuals by race and ethnicity increased from 9% in 2019 to 17% in 2023.
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The Bank derives its lending and investment powers from the IFIA, the Federal Deposit Insurance Act (the “FDIA”) and related regulations. Loans-to-One Borrower Limitations .
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During that same 5 year time period, we increased our percentage of racially and ethnically diverse new hires by more than 22%.
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Borrowers are also allowed to assert violations of certain provisions of the Truth-in-Lending Act as a defense to foreclosure proceedings. Prepayment penalties are prohibited for certain mortgage transactions and creditors are prohibited from financing insurance policies in connection with a residential mortgage loan or home equity line of credit.
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Similarly, we have created positive trends in gender diversity, increasing our percentage of women new hires by 6% to 57% of our total new hires and increasing our percentage of women promotions by 20% to 58% of all promotions.
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Team members serve on non-profit and other Boards/committees, with organizations such as Indianapolis Neighborhood Housing Partnership (INHP), Indy Chamber, and the Indiana Department of Workforce Development, to assist in meeting the community’s most pressing needs.
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The Bank’s previous CRA Strategic Plan covered the time period of January 1, 2021 through December 31, 2023. The Bank received a “Satisfactory” CRA rating under that plan in its most recent CRA examination.
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If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties.
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We expect this trend of increased activity and changes at the state level to continue. Recently, the SEC has enacted laws requiring public companies to disclose material cybersecurity risks and incidents along with cybersecurity protections and governance processes.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAdditionally, as with other financial institutions, we may incur legal liability or reputational risk, if we unknowingly process payments for companies in violation of money laundering laws or regulations or immoral activities. 19 Our introduction of new products and programs in partnership with fintechs is expected to increase account and transaction volume at the Bank and thereby increase the foregoing risks, the results of which could have a material adverse effect on our business, financial condition and results of operations.
Biggest changeOur introduction of new products and programs in partnership with fintechs has increased account and transaction volume at the Bank and thereby increased the foregoing risks, the results of which could have a material adverse effect on our business, financial condition and results of operations. 19 We may be subject to potential liability and business risk from actions by our regulators related to supervision of third parties.
The market value of real estate can fluctuate significantly in a relatively short period of time as a result of market conditions in the geographic area in which the real estate is located, in response to factors such as economic downturns, changes in the economic health of industries heavily concentrated in a particular area and in response to changes in market interest rates, which influence capitalization rates used to value revenue-generating commercial real estate.
The market value of real estate can fluctuate significantly in a relatively short period of time as a result of market conditions in the geographic area in which the real estate is located; in response to factors such as economic downturns and changes in the economic health of industries heavily concentrated in a particular area; and in response to changes in market interest rates, which influence capitalization rates used to value revenue-generating commercial real estate.
The application of more stringent capital requirements for both the Company and the Bank could, among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions constraining us from paying dividends or repurchasing shares if we were to be unable to comply with such requirements, any of which could have a material adverse effect on our business and profitability.
The application of more stringent capital requirements for both the Company and the Bank could, among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions constraining us from 18 paying dividends or repurchasing shares if we were to be unable to comply with such requirements, any of which could have a material adverse effect on our business and profitability.
We could also be adversely affected if key personnel or a significant number of employees were to become unavailable due to external events affecting the places they live. Although we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will completely mitigate the adverse impacts of any significant external event.
We could also be adversely affected if key personnel 13 or a significant number of employees were to become unavailable due to external events affecting the places they live. Although we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will completely mitigate the adverse impacts of any significant external event.
In addition, with respect to CRE, federal and state banking regulators are examining CRE lending activity with heightened scrutiny and may require banks with higher levels of CRE loans to implement more stringent underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for losses and capital levels as a result of CRE lending growth and exposures.
In addition, with respect to CRE, federal and state banking regulators are examining CRE lending activity with heightened scrutiny and may require banks with higher levels of CRE loans to implement more stringent underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for credit losses and capital levels as a result of CRE lending growth and exposures.
In order to remain “well-capitalized”, the Basel III Capital Rules require the Company and the Bank to maintain: (i) a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 4.5%, plus a 2.5% “capital conservation buffer” (resulting in a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 7.0%); (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, plus the capital conservation buffer (resulting in a minimum Tier 1 capital ratio 18 of 8.5%); (iii) a minimum ratio of Total capital to risk-weighted assets of 8.0%, plus the capital conservation buffer (resulting in a minimum Total capital ratio of 10.5%); and (iv) a minimum Leverage Ratio of 4.0%.
In order to remain “well-capitalized”, the Basel III Capital Rules require the Company and the Bank to maintain: (i) a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 4.5%, plus a 2.5% “capital conservation buffer” (resulting in a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 7.0%); (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, plus the capital conservation buffer (resulting in a minimum Tier 1 capital ratio of 8.5%); (iii) a minimum ratio of Total capital to risk-weighted assets of 8.0%, plus the capital conservation buffer (resulting in a minimum Total capital ratio of 10.5%); and (iv) a minimum Leverage Ratio of 4.0%.
These laws and regulations, and the supervisory framework that oversees the administration of these laws and regulations, are primarily intended to protect depositors, the DIF and the banking system as a whole, and not shareholders. These laws and regulations, among other matters, affect our lending practices, capital structure, investment practices, dividend policy, operations and growth.
These laws and regulations, and the supervisory framework that oversees the administration of these laws and regulations, are primarily intended to protect depositors, the DIF, the government and the banking system as a whole, and not shareholders. These laws and regulations, among other matters, affect our lending practices, capital structure, investment practices, dividend policy, operations and growth.
Adverse developments or perceptions regarding the business practices or financial condition of our competitors, or our industry as a whole, may also indirectly adversely affect our reputation. 12 In addition, adverse reputational developments with respect to third parties with whom we have important relationships may negatively affect our reputation.
Adverse developments or perceptions regarding the business practices or financial condition of our competitors, or our industry as a whole, may also indirectly adversely affect our reputation. In addition, adverse reputational developments with respect to third parties with whom we have important relationships may negatively affect our reputation.
The financial services industry is undergoing rapid technological change, and we face constant evolution of customer demand for technology-driven financial and banking products and services. Many of our competitors have substantially greater resources to invest in technological improvement and product development, marketing and implementation.
The financial services industry is undergoing rapid technological change, and we face constant evolution of customer demand for 16 technology-driven financial and banking products and services. Many of our competitors have substantially greater resources to invest in technological improvement and product development, marketing and implementation.
For example, there could be electrical or telecommunications outages; natural disasters such as earthquakes, tornadoes and hurricanes; disease pandemics; events arising from local or larger-scale political or social matters, including terrorist acts; and, as described below, cyber-attacks.
For example, there could be electrical or telecommunications outages; natural disasters such as earthquakes, tornadoes and hurricanes; pandemics; events arising from local or larger-scale political or social matters, including terrorist acts; and, as described below, cyber-attacks.
Therefore, there can be no assurance that we will not suffer such material losses in the future. Our risk and exposure to these matters remains heightened because of the evolving nature of these threats.
There can be no assurance that we will not suffer such material losses in the future. Our risk and exposure to these matters remains heightened because of the evolving nature of these threats.
We could experience other external events such as severe weather, natural disasters, acts of war, such as the current conflict in Ukraine, terrorism or widespread public health issues, such as the COVID-19 pandemic or another highly contagious or infectious disease, that could impair the ability of our customers to repay outstanding loans; impair the value of collateral, if any, securing outstanding loans; negatively impact our deposit base, loan originations or general demand for our services; cause significant property damage; result in loss of revenue or cause us to incur additional expenses or losses.
We could experience other external events such as severe weather, natural disasters, acts of war, terrorism or widespread public health issues, such as the COVID-19 pandemic or another highly contagious or infectious disease, that could impair the ability of our customers to repay outstanding loans; impair the value of collateral, if any, securing outstanding loans; negatively impact our deposit base, loan originations or general demand for our services; cause significant property damage; result in loss of revenue or cause us to incur additional expenses or losses.
We compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, fintechs, mutual funds, insurance companies and securities brokerage and investment banking firms operating locally and nationwide and may soon compete with entities that granted “special purpose national bank” (“SPNB”) charters by the Office of the Comptroller of the Currency.
We compete with commercial banks, savings institutions, credit unions, finance companies, fintechs, mutual funds, insurance companies and securities brokerage and investment banking firms operating locally and nationwide, and may soon compete with entities granted “special purpose national bank” (“SPNB”) charters by the Office of the Comptroller of the Currency.
Operational Risks 16 Because our business is highly dependent on technology that is subject to rapid change and transformation, we are subject to risks of obsolescence. The Bank conducts its deposit gathering activities and a significant portion of its lending activities through digital channels.
Operational Risks Because our business is highly dependent on technology that is subject to rapid change and transformation, we are subject to risks of obsolescence. The Bank conducts its deposit gathering activities and a portion of its lending activities through digital channels.
In addition, these laws, regulations and policies are subject to continual review by governmental authorities, and changes to these laws, regulations and policies, including changes in interpretation or implementation of these laws, regulations and policies, could affect us in substantial and unpredictable ways and often impose additional compliance costs.
In addition, these laws, regulations and policies are subject to continual review by governmental authorities, and changes to these laws, regulations and policies, including changes in interpretation, implementation, or priorities in enforcement of these laws, regulations and policies, could affect us in substantial and unpredictable ways and often impose additional compliance costs.
Our ability to properly assess the creditworthiness of our customers and to estimate the losses inherent in our credit exposure would be made more complex by difficult or rapidly changing market and economic conditions. Accordingly, if market conditions worsen, we may experience increases in foreclosures, delinquencies, write-offs and customer bankruptcies, as well as more restricted access to funds.
Our ability to properly assess the creditworthiness of our customers and to estimate the losses inherent in our credit exposure would be made more complex by difficult or rapidly changing market and economic conditions. Accordingly, if market conditions worsen, we may experience increases in foreclosures, delinquencies, net charge-offs and customer bankruptcies, as well as more restricted access to funds.
These actions include the power to enjoin “unsafe or unsound” practices, to require action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place us into receivership or conservatorship.
These actions include the power to enjoin “unsafe or unsound” practices, to require action to correct any conditions resulting from any violation or practice, to commence a formal or informal enforcement action or issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place us into receivership or conservatorship.
Further, in recent years, we have raised additional capital in the public debt and equity markets to support balance sheet growth, refinance existing debt obligations, or explore strategic alternatives which may include additional asset, deposit or revenue generation channels.
Further, in the past, we have raised additional capital in the public debt and equity markets to support balance sheet growth, refinance existing debt obligations, or explore strategic alternatives which may include additional asset, deposit or revenue generation channels.
Further, the use of an alternative base rate or a benchmark replacement rate as a basis for calculating interest with respect to any outstanding variable rate indebtedness could lead to an increase in the interest we pay and a corresponding increase in our costs of capital or otherwise have a material adverse impact on our business, financial condition or results of operations.
Accordingly, the phase-out of LIBOR and the use of an alternative base rate or a benchmark replacement rate as a basis for calculating interest with respect to any outstanding variable rate indebtedness could lead to an increase in the interest we pay and a corresponding increase in our costs of capital or otherwise have a material adverse impact on our business, financial condition or results of operations.
Our regulators or auditors may require us to increase the level and manner of our oversight of the third parties which provide marketing and other services through which we offer products and services, whether in connection with our introduction of new programs and products, or otherwise.
Our regulators or auditors have required us to increase the level and manner of our oversight of the third parties which provide marketing and other services through which we offer products and services, whether in connection with our introduction of new programs and products, or otherwise.
As a part of our liquidity management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments. These sources include brokered deposits and federal funds purchased.
As a part of our liquidity management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments. These sources include brokered deposits and FHLB advances.
Uncertainty regarding the market standard replacement for LIBOR, and floating rate benchmarks generally, could have adverse impacts on floating-rate obligations, loans, deposits, derivatives and other financial instruments that currently use LIBOR as a benchmark rate and adversely affect the Company's business, financial condition or results of operations.
The replacement for LIBOR, and floating rate benchmarks generally, could have adverse impacts on floating-rate obligations, loans, deposits, derivatives and other financial instruments that used LIBOR as a benchmark rate and adversely affect the Company's business, financial condition or results of operations.
If market interest rates decline, the Bank could experience fixed-rate loan prepayments and higher investment portfolio cash flows, resulting in a lower yield on earning assets. Earnings can also be impacted by the spread between short-term and long-term market interest rates.
These changes could result in a decrease of net interest income. If market interest rates decline, the Bank could 15 experience fixed-rate loan prepayments and higher investment portfolio cash flows, resulting in a lower yield on earning assets. Earnings can also be impacted by the spread between short-term and long-term market interest rates.
We also use economic models to assist in the valuation of some of our investment securities. If our investment securities experience a decline in value, we would need to determine whether the decline represented an other-than-temporary impairment, in which case we would be required to record a write-down of the investment and a corresponding charge to our earnings.
We also use economic models to assist in the valuation of some of our investment securities. If our investment securities experience a decline in value, we would need to determine whether we would be required to record a write-down of the investment and a corresponding charge to our earnings.
As threats continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate information security vulnerabilities. 17 Disruptions or failures in the physical infrastructure or operating systems that support our business and clients, or cyber-attacks or security breaches of the networks, systems or devices that our clients use to access our products and services, could result in client attrition, regulatory fines, penalties or intervention, breach investigation and notification expenses, reputational damage, claims or litigation, reimbursement or other compensation costs and/or additional compliance costs, any of which could materially and adversely affect our business, financial condition and results of operations.
Disruptions or failures in the physical infrastructure or operating systems that support our business and clients, or cyber-attacks or security breaches of the networks, systems or devices that our clients use to access our products and services, could result in client attrition, regulatory fines, penalties or intervention, breach investigation and notification expenses, 17 reputational damage, claims or litigation, reimbursement or other compensation costs and/or additional compliance costs, any of which could materially and adversely affect our business, financial condition and results of operations.
Not maintaining a compliance management system which is deemed adequate could result in sanctions against the Bank. Our ongoing review and analysis of our compliance management system and implementation of any changes resulting from that review and analysis will likely result in increased non-interest expense. Federal banking laws limit the acquisition, ownership and repurchase of our common stock.
Not maintaining a compliance management system which is deemed adequate could result in sanctions or other action against the Bank. Our ongoing review and analysis of our compliance management system and implementation of any changes resulting from that review and analysis will likely result in increased non-interest expense.
We are subject to risks arising from conditions in the real estate market, as a significant portion of our loans are secured by real estate . At December 31, 2022, approximately 48.2% of our loans held for investment portfolio was comprised of loans with real estate as the primary component of collateral.
We are subject to risks arising from conditions in the real estate market, as a significant portion of our loans are secured by real estate . 14 At December 31, 2023, approximately 45.6% of our loans held for investment portfolio was comprised of commercial, residential mortgage and home equity loans with real estate as the primary component of collateral.
In addition, our C&I, healthcare finance, franchise finance and small business loans have primarily been extended to small to medium sized businesses that generally have fewer financial resources in terms of capital or borrowing capacity than larger entities.
Commercial loans typically involve larger loan balances than residential real estate loans and could lead to concentration risks within our commercial loan portfolio. In addition, our C&I, healthcare finance, franchise finance and small business loans have primarily been extended to small-to medium-sized businesses that generally have fewer financial resources in terms of capital or borrowing capacity than larger entities.
Adverse perceptions could damage our reputation to a level that could lead to difficulties in generating and maintaining lending and deposit relationships and accessing equity or credit markets, as well as increased regulatory scrutiny of our business.
Our ability to attract and retain customers is highly dependent upon other external perceptions of our business practices and financial condition. Adverse perceptions could damage our reputation to a level that could lead to difficulties in generating and maintaining lending and deposit relationships and accessing equity or credit markets, as well as increased regulatory scrutiny of our business.
Changes in interest rates could adversely affect the Company’s results of operations and financial condition. The Company’s earnings depend substantially on the Company’s interest rate spread, which is the difference between (i) the rates the Bank earns on loans, securities, and other earning assets and (ii) the interest rates the Bank pays on deposits and other borrowings.
The Company’s earnings depend substantially on the Company’s interest rate spread, which is the difference between (i) the rates the Bank earns on loans, securities, and other earning assets and (ii) the interest rates the Bank pays on deposits and other borrowings, and its costs of capital.
There are material inherent risks and uncertainties associated with offering new products and services, especially when new markets are not fully developed or when the laws and regulations regarding a new product are not mature. New products and services, or entrance into new markets, may require substantial time, resources and capital, and profitability targets may not be achieved.
There are material inherent risks and uncertainties associated with offering new products and services, especially when new markets are not fully developed or when the laws and regulations regarding a new product are not mature.
If market interest rates continue to rise, especially at the pace they did in 2022, the Company will have competitive pressure to increase the rates the Bank pays on deposits, which could result in a decrease of net interest income.
If market interest rates continue to rise, especially at the pace they did in 2022 and 2023, the Company will continue to face competitive pressure to increase the rates the Bank pays on deposits, which could negatively affect net interest margin.
Changes in the economic health of certain industries can have a significant impact on other sectors or industries which are directly or indirectly associated with those industries, and may impact the value of real estate in areas where such industries are concentrated.
Changes in the economic health of certain industries can have a significant impact on other sectors or industries which are directly or indirectly associated with those industries, and may impact the value of real estate in areas where such industries are concentrated. If our allowance for credit losses is not sufficient to cover actual credit losses, our earnings could decrease.
Such provisions will also render the removal of the Board of Directors and of management more difficult and, therefore, may serve to perpetuate current management.
Such provisions will also render the removal of the Board of Directors and of management more difficult and, therefore, may serve to perpetuate current management. These provisions could potentially adversely affect the market price of our common stock.
The replacement of the London Inter-bank Offered Rate (“LIBOR”) with a benchmark rate that is higher or more volatile than LIBOR, could increase our cost of borrowing and could adversely impact our business, financial condition and results of operations.
The replacement of the London Inter-bank Offered Rate (“LIBOR”) may increase our cost of borrowing and could adversely impact our business, financial condition and results of operations.
Because a significant portion of our loan portfolio is comprised of CRE loans, our banking regulators may require us to maintain higher levels of capital than we would otherwise be expected to maintain, which could limit our ability to leverage our capital and have a material adverse effect on our business, financial condition, results of operations and prospects.
If we were required to maintain higher levels of capital than we would otherwise be expected to maintain, our ability to leverage our capital may be limited, and could have a material adverse effect on our business, financial condition, results of operations and prospects.
These provisions could potentially adversely affect the market price of our common stock. 13 Credit Risks Our commercial loan portfolio exposes us to higher credit risks than residential real estate loans, including risks relating to the success of the underlying business and conditions in the market or the economy and concentrations in our commercial loan portfolio.
Credit Risks Our commercial loan portfolio exposes us to higher credit risks than residential real estate loans, including risks relating to the success of the underlying business and conditions in the market or the economy and concentrations in our commercial loan portfolio. Our commercial loans totaled $3.0 billion, or 78.3% of our total loan portfolio as of December 31, 2023.
Our commercial loans totaled $2.7 billion, or 77.7% of our total loan portfolio as of December 31, 2022. These loans generally involve higher credit risks than residential real estate loans and are dependent upon our lenders maintaining close relationships with the borrowers.
These loans generally involve higher credit risks than residential real estate loans and are dependent upon our lenders and service providers maintaining close relationships with the borrowers.
Additionally, the floating rate features of our outstanding 6.0% Fixed-to-Floating Rate Subordinated Notes due 2029 (the “2029 Notes”) are based on LIBOR, while the floating rate features of our 3.75% Fixed-to-Floating Rate Subordinated notes due 2031 (the “2031 Notes”) are based on SOFR.
The floating rate features of our outstanding 2029 Notes due were based on LIBOR, while the floating rate features of our other subordinated notes are based on SOFR.
Some of our competitors have greater name recognition and market presence than we do and offer certain services that we do not or cannot provide. In addition, larger competitors may be able to price loans and deposits more aggressively than we do, which could affect our ability to increase our market share and remain profitable on a long-term basis.
In addition, larger competitors may be able to price loans and deposits more aggressively than we do, which could affect our ability to increase our market share and remain profitable on a long-term basis. 12 Negative developments in the banking industry could adversely affect our current and future business operations and financial condition.
Failure to manage these risks, or failure of any product or service offerings to be successful and profitable, could have a material adverse effect on our financial condition and results of operations. The wind-down of our consumer mortgage operations may take longer than expected and may cost more than anticipated.
Failure to manage these risks, or failure of any product or service offerings to be successful and profitable, could have a material adverse effect on our financial condition and results of operations. Significant external events, including continued the spread or outbreak of a highly contagious disease, could adversely affect our business and results of operations.
Market, Interest Rate, and Liquidity Risks The market value of some of our investments could decline and adversely affect our financial position.
Material additions to the ACL would decrease our net income and may have a material adverse effect on our financial condition, results of operations and capital. Market, Interest Rate, and Liquidity Risks The market value of some of our investments could decline and adversely affect our financial position.
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Reputational risk and social factors may negatively affect us. Our ability to attract and retain customers is highly dependent upon other external perceptions of our business practices and financial condition.
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Some of our competitors have greater name financial resources, recognition and market presence than we do and offer certain services that we do not or cannot provide.
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Due to the steep decline in consumer mortgage volumes and the negative outlook for consumer mortgage lending over the next several years, the Company decided to exit the consumer mortgage business during the first quarter of 2023.
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Bank failures and related negative media attention have caused significant market trading volatility among publicly traded bank and financial holding companies, particularly for regional and community banks. These developments have negatively impacted customer confidence in smaller banks, which could prompt customers to move their deposits to larger financial institutions.
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We have incurred and expect to incur a number of costs associated with the wind-down of the consumer mortgage business through at least the end of the second quarter of 2023. Our management made accounting judgments and estimates related to the wind-down of the consumer mortgage business.
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Further, competition for and costs of deposits has similarly increased, putting pressure on net interest margin. While we have taken actions to minimize the increase in our costs of funds, there is no guarantee that such actions will be successful or sufficient in the current or future market.
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Our operating results could be adversely impacted in future periods if the accounting judgments and estimates prove to be inaccurate, if the wind-down takes significantly longer than anticipated, if we incur additional, unanticipated costs, or if we face litigation related to the exit.
Added
We also anticipate increased regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks of similar size to the Bank designed to respond to recent negative developments in the banking industry and/or changing regulatory focus, all of which may increase our costs of doing business and reduce our profitability.
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Significant external events, including continued spread of the COVID-19 pandemic or outbreak of a highly contagious disease, could adversely affect our business and results of operations.
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Among other things, there may be increased focus by both regulators and investors on deposit composition, the level of uninsured deposits, brokered deposits, unrealized losses in securities portfolios, liquidity, CRE composition and concentration, capital, third party risk management and general oversight and control of the foregoing.
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Commercial loans typically involve larger loan balances than residential real estate loans and could lead to concentration risks within our commercial loan portfolio.
Added
The Bank could face increased scrutiny or be viewed as higher risk by regulators and/or the investor community due to changing regulatory focus and/or the failures of other financial institutions, which could negatively affect our future results of operations and financial condition. Reputational risk and social factors may negatively affect us.
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The implementation of CECL, including the design and maintenance of related internal controls over financial reporting, will require a significant amount of time and resources which may have a material impact on our results of operations. 14 A new accounting standard adopted by FASB, referred to as Current Expected Credit Loss, or (“CECL”), will require financial institutions, like the Bank, to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan and lease losses beginning with our fiscal year ending December 31, 2023.
Added
New products and services, or entrance into new markets, are carefully scrutinized by regulatory agencies and may require substantial time, resources and capital, and profitability targets may not be achieved.
Removed
Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. CECL will represent a significant change in methodology and may greatly increase the types of data we will need to collect and review to determine the appropriate level of the allowance for loan and lease losses.
Added
We maintain an allowance for credit losses (“ACL”) on loans and held-to-maturity debt securities. The ACL represents the Bank’s best estimate of probable losses within the existing portfolio of loans and held-to-maturity debt securities. Additionally, related to off-balance-sheet credit exposures, we maintain a liability reserve account reported as an other liability in our balance sheet.
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We are in the process of evaluating the impact of the adoption of this guidance on our financial statements. However, the allowance for loan and lease losses may increase upon the adoption of CECL and any such increased allowance level would decrease shareholders' equity and the Company's and Bank's regulatory capital ratios.
Added
The amount of each allowance account represents management's best estimate of current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts.
Removed
A significant amount of time and resources may be needed to implement CECL effectively, including the implementation of adequate internal controls, which may adversely affect our results of operations.
Added
As a result, the determination of the appropriate level of the ACL inherently involves a high degree of subjectivity and requires us to make significant estimates related to current and expected future credit risks and trends, all of which may undergo material changes.
Removed
If we are unable to maintain effective internal control over financial reporting relating to CECL, or otherwise, our ability to report our financial condition and results of operations accurately and on a timely basis could also be adversely affected.
Added
Continuing deterioration in economic conditions affecting borrowers; new information regarding existing loans and loan commitments; and identification of additional problem loans, ratings down-grades and other factors, both within and outside of our control, may require an increase in the ACL.
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In 2017, the Chief Executive of the United Kingdom Financial Conduct Authority (the “Authority”) announced that the Authority intended to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the ICE Benchmark Administration Limited (together with any successor, “IBA”), as administrator of LIBOR In response to concerns regarding the future of LIBOR, Federal Reserve and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee (“ARRC”) to identify alternatives to LIBOR.
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In addition, if any charge-offs related to loans or off-balance sheet credit exposures in future periods exceed our ACL or reserve for off-balance sheet credit exposures, we will need to recognize additional provision for credit losses.
Removed
The ARRC first recommended a benchmark replacement waterfall that facilitated continued linkage to LIBOR while recognizing that the discontinuation of LIBOR would eventually occur. The initial steps in the ARRC's recommended waterfall referenced variations of the Secured Overnight Financing Rate (“SOFR”), and the ARRC has since recommended SOFR as the replacement rate for U.S. dollar denominated LIBOR.
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Changes in interest rates could adversely affect the Company’s results of operations and financial condition.
Removed
While market participants were warned that LIBOR may cease to exist after 2021, the IBA announced in early 2021 that it would continue to publish the most widely used tenors of U.S. dollar denominated LIBOR (such as one-month and three-month LIBOR) until June 30, 2023.
Added
In addition, the interest rate on the Company’s 6.0% Fixed-to-Floating Rate Subordinated Notes due 2029 (the “2029 Notes”) will change from 6.0% to three-month term SOFR plus 4.376% on June 30, 2024 (a total interest rate of 9.74% based on three-month term SOFR as of January 31, 2024), and the interest rates on the Company’s other subordinated notes are scheduled to change in 2025 and 2026, respectively.
Removed
While the IBA's announcement extended LIBOR's phase-out, there is no current expectation that LIBOR will continue beyond mid-2023, and U.S. banking regulators have issued guidance encouraging banking organizations to cease using U.S. dollar denominated LIBOR as a reference rate in new contracts. 15 At this time, it is not possible to predict whether SOFR will attain market acceptance as the standard replacement for LIBOR, whether alternative reference rates other than SOFR (such as Ameribor) will gain market traction or whether additional reforms to LIBOR may be enacted.
Added
As threats continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate information security vulnerabilities.
Removed
Further, other central banks and regulators have convened working groups to evaluate other interest rate benchmarks (such as EURIBOR), and it is possible that a transition away from certain of these interest rate benchmarks will occur leading to the establishment of new market accepted reference rates.
Added
Additionally, as with other financial institutions, we may incur legal liability or reputational risk, if we unknowingly process payments for companies in violation of money laundering laws or regulations or immoral activities.
Removed
There can be no assurance that any replacement benchmark rate for our 2029 Notes or 2031 Notes will be determined or agreed upon, as applicable, before experiencing adverse effects due to changes in interest rates, if at all. We will continue to monitor the situation and address the potential reference rate changes in future debt obligations that we may incur.
Added
Federal banking laws limit the acquisition, ownership and repurchase of our common stock.
Removed
Accordingly, the potential effect of the phase-out of LIBOR, or the unavailability of any other interest rate benchmarks such as SOFR or EURIBOR, on our cost of capital cannot yet be determined.
Removed
We may be subject to potential liability and business risk from actions by our regulators related to supervision of third parties.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings Neither we nor any of our subsidiaries are party to any material legal proceedings. From time to time, the Bank is a party to legal actions arising from its normal business activities. Item 4. Mine Safety Disclosures None. 20 PART II
Biggest changeItem 3. Legal Proceedings Neither we nor any of our subsidiaries are party to any material legal proceedings. From time to time, the Bank is a party to legal actions arising from its normal business activities. Item 4. Mine Safety Disclosures None. PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 20 PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 21 Item 6. Reserved 22 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 46 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 21 PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 21 Item 6. Reserved 23 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 50 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe stock repurchase authorization was scheduled to expire on December 31, 2022. Under this program, the Company repurchased 855,956 shares of common stock through December 19, 2022, at an average price of $36.31, for a total investment of $31.1 million.
Biggest changeUnder this program, the Company repurchased 855,956 shares of common stock at an average price of $36.31, for a total investment of $31.1 million. This stock repurchase authorization expired on December 31, 2022.
In December 2022, the Company’s Board of Directors approved a new stock repurchase program authorizing the repurchase of up to $25.0 million of the Company’s outstanding stock from time to time on the open market or in privately negotiated transactions. The stock repurchase program is scheduled to expire on December 31, 2023, and replaced the stock repurchase program mentioned above.
In December 2022, the Company’s Board of Directors approved a new stock repurchase program authorizing the repurchase of up to $25.0 million of the Company’s outstanding stock from time to time on the open market or in privately negotiated transactions. The stock repurchase program is scheduled to expire on December 31, 2024, and replaced the stock repurchase program mentioned above.
The following table presents information with respect to purchases of the Company’s common stock made during the fourth quarter of 2022 by or on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3).
The following table presents information with respect to purchases of the Company’s common stock made during the fourth quarter of 2023 by or on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3).
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The Company’s common stock trades on the Nasdaq Global Select Market under the symbol “INBK.” As of March 10, 2023, the Company had 8,949,423 shares of common stock issued and outstanding, and there were 98 holders of record of common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The Company’s common stock trades on the Nasdaq Global Select Market under the symbol “INBK.” As of March 8, 2024, the Company had 8,655,854 shares of common stock issued and outstanding, and there were 97 holders of record of common stock.
(dollars in thousands, except per share data) Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased As Part of Publicly Announced Programs Approximate Dollar Value Of Shares That May Yet Be Purchased Under The Programs October 1, 2022 - October 31, 2022 42,000 $ 24.53 42,000 $ 8,907 November 1, 2022 - November 30, 2022 121,077 25.37 121,077 5,835 December 1, 2022 - December 31, 2022 121,209 25.17 121,209 23,864 Total 242,286 242,286 Stock Performance Graph The following graph and table compares the five-year cumulative total return to shareholders of First Internet Bancorp common stock with that of the Nasdaq Composite Index and the S&P U.S.
(dollars in thousands, except per share data) Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased As Part of Publicly Announced Programs Approximate Dollar Value Of Shares That May Yet Be Purchased Under The Programs October 1, 2023 - October 31, 2023 23,000 $ 16.51 23,000 $ 14,988 November 1, 2023 - November 30, 2023 7,000 18.90 7,000 14,856 December 1, 2023 - December 31, 2023 10,000 23.92 10,000 14,617 Total 40,000 40,000 Stock Performance Graph The following graph and table compares the five-year cumulative total return to shareholders of First Internet Bancorp common stock with that of the Nasdaq Composite Index and the S&P U.S.
Dividends Total cash dividends declared in 2022 were $0.24 per share.
Dividends 21 Total cash dividends declared by the Company in 2023 were $0.24 per share.
BMI Banks Index. The following assumes $100 invested on December 31, 2017 in First Internet Bancorp, the Nasdaq Composite Index and the S&P U.S. BMI Bank Index, and 21 assumes that dividends are reinvested. The historical stock price performance for our common stock is not necessarily indicative of future stock performance.
BMI Banks Index. The following assumes $100 invested on December 31, 2018 in First Internet Bancorp, the Nasdaq Composite Index and the S&P U.S. BMI Bank Index, and assumes that dividends are reinvested.
Under this program, the Company repurchased 178,188 shares of common stock through March 10, 2023, at an average price of $25.46, for a total investment of $4.5 million.
Under this program, the Company repurchased 559,522 shares of common stock through March 8, 2024, at an average price of $19.06, for a total investment of $10.7 million.
Removed
December 31, Index 2017 2018 2019 2020 2021 2022 First Internet Bancorp $ 100.00 $ 54.03 $ 63.40 $ 77.90 $ 128.38 $ 66.74 Nasdaq Composite Index 100.00 97.16 132.81 192.47 235.15 158.65 S&P U.S. BMI Banks Index 100.00 83.54 114.74 100.10 136.10 112.89
Added
The historical stock price performance for our common stock is not necessarily indicative of future stock performance. 22 December 31, Index 2018 2019 2020 2021 2022 2023 First Internet Bancorp $ 100.00 $ 117.34 $ 144.17 $ 237.61 $ 123.53 $ 124.77 Nasdaq Composite Index 100.00 136.69 198.10 242.03 163.28 236.17 S&P U.S.
Added
BMI Banks Index 100.00 137.36 119.83 162.92 135.13 147.41

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeReconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the following table for the last three completed fiscal years ended on December 31. 42 (dollars in thousands, except share and per share data) At or For The Twelve Months Ended December 31, 2022 2021 2020 Total equity - GAAP $ 364,974 $ 380,338 $ 330,944 Adjustments: Goodwill (4,687) (4,687) (4,687) Tangible common equity $ 360,287 $ 375,651 $ 326,257 Total assets - GAAP $ 4,543,104 $ 4,210,994 $ 4,246,156 Adjustments: Goodwill (4,687) (4,687) (4,687) Tangible assets $ 4,538,417 $ 4,206,307 $ 4,241,469 Total common shares outstanding 9,065,883 9,754,455 9,800,569 Book value per common share $ 40.26 $ 38.99 $ 33.77 Effect of goodwill (0.52) (0.48) (0.48) Tangible book value per common share $ 39.74 $ 38.51 $ 33.29 Total shareholders’ equity to assets 8.03 % 9.03 % 7.79 % Effect of goodwill (0.09 %) (0.10 %) (0.10 %) Tangible common equity to tangible assets 7.94 % 8.93 % 7.69 % Total average equity - GAAP $ 372,844 $ 358,105 $ 313,763 Adjustments: Average goodwill (4,687) (4,687) (4,687) Average tangible common equity $ 368,157 $ 353,418 $ 309,076 Return on average shareholders' equity 9.53 % 13.44 % 9.39 % Effect of goodwill 0.12 % 0.17 % 0.14 % Return on average tangible common equity 9.65 % 13.61 % 9.53 % Total interest income $ 156,908 $ 133,883 $ 136,859 Adjustments: Fully-taxable equivalent adjustments 1 5,355 5,453 5,796 Total interest income - FTE $ 162,263 $ 139,336 $ 142,655 Net interest income $ 97,093 $ 86,556 $ 64,541 Adjustments: Fully-taxable equivalent adjustments 1 5,355 5,453 5,796 Net interest income - FTE $ 102,448 $ 92,009 $ 70,337 Net interest margin 2.41 % 2.11 % 1.55 % Effect of fully-taxable equivalent adjustments 1 0.13 % 0.14 % 0.13 % Net interest margin - FTE 2.54 % 2.25 % 1.68 % 1 Assuming a 21% tax rate Critical Accounting Policies and Estimates Allowance for Loan Losses.
Biggest changeReconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the following tables for the last three completed fiscal years ended on December 31. 42 (dollars in thousands, except share and per share data) At or For The Twelve Months Ended December 31, 2023 2022 2021 Total equity - GAAP $ 362,795 $ 364,974 $ 380,338 Adjustments: Goodwill (4,687) (4,687) (4,687) Tangible common equity $ 358,108 $ 360,287 $ 375,651 Total assets - GAAP $ 5,167,572 $ 4,543,104 $ 4,210,994 Adjustments: Goodwill (4,687) (4,687) (4,687) Tangible assets $ 5,162,885 $ 4,538,417 $ 4,206,307 Total common shares outstanding 8,644,451 9,065,883 9,754,455 Book value per common share $ 41.97 $ 40.26 $ 38.99 Effect of goodwill (0.54) (0.52) (0.48) Tangible book value per common share $ 41.43 $ 39.74 $ 38.51 Total shareholders’ equity to assets 7.02 % 8.03 % 9.03 % Effect of goodwill (0.08 %) (0.09 %) (0.10 %) Tangible common equity to tangible assets 6.94 % 7.94 % 8.93 % Total average equity - GAAP $ 357,800 $ 372,844 $ 358,105 Adjustments: Average goodwill (4,687) (4,687) (4,687) Average tangible common equity $ 353,113 $ 368,157 $ 353,418 Return on average shareholders' equity 2.35 % 9.53 % 13.44 % Effect of goodwill 0.03 % 0.12 % 0.17 % Return on average tangible common equity 2.38 % 9.65 % 13.61 % Total interest income $ 239,442 $ 156,908 $ 133,883 Adjustments: Fully-taxable equivalent adjustments 1 5,233 5,355 5,453 Total interest income - FTE $ 244,675 $ 162,263 $ 139,336 Net interest income $ 74,904 $ 97,093 $ 86,556 Adjustments: Fully-taxable equivalent adjustments 1 5,233 5,355 5,453 Net interest income - FTE $ 80,137 $ 102,448 $ 92,009 Net interest margin 1.56 % 2.41 % 2.11 % Effect of fully-taxable equivalent adjustments 1 0.11 % 0.13 % 0.14 % Net interest margin - FTE 1.67 % 2.54 % 2.25 % 1 Assuming a 21% tax rate 43 (dollars in thousands, except share and per share data) At or For The Twelve Months Ended December 31, 2023 2022 2021 Total Revenue- GAAP $ 101,029 $ 118,350 $ 119,400 Adjustments: Mortgage-related revenue (65) — — Gain on sale of premises and equipment — — (2,523) Subordinated debt redemption cost — — 810 Adjusted total revenue $ 100,964 $ 118,350 $ 117,687 Noninterest income - GAAP $ 26,125 $ 21,257 $ 32,844 Adjustments: Mortgage-related revenue (65) — — Gain on sale of premises and equipment — — (2,523) Adjusted noninterest income $ 26,060 $ 21,257 $ 30,321 Noninterest expense - GAAP $ 79,436 $ 73,273 $ 61,798 Adjustments: Mortgage-related costs (3,052) — — Acquisition-related expenses — (273) (163) IT Termination fee — (475) Nonrecurring consulting fee — (875) — Write-down of Software — (125) — Discretionary inflation bonus — (531) — Accelerated equity compensation — (289) — Adjusted noninterest expense $ 76,384 $ 71,180 $ 61,160 Income before income taxes - GAAP $ 4,940 $ 40,100 $ 56,572 Adjustments: 1 Mortgage-related revenue (65) — — Mortgage-related costs 3,052 — — Gain on sale of premises and equipment — — (2,523) Partial charge-off of C&I participation loan 6,914 — — Acquisition-related expenses — 273 163 IT Termination fee — 475 Nonrecurring consulting fee — 875 — Write-down of Software — 125 — Subordinated debt redemption cost — — 810 Discretionary inflation bonus — 531 — Accelerated equity compensation — 289 — Adjusted income before income taxes $ 14,841 $ 42,193 $ 55,497 Income tax provision - GAAP $ (3,477) $ 4,559 $ 8,458 Adjustments: 1 Mortgage-related revenue (14) — — Mortgage-related costs 641 — — Gain on sale of premises and equipment — — (530) Partial charge-off of C&I participation loan 1,452 — — Acquisition-related expenses — 57 34 IT Termination fee — 100 Nonrecurring consulting fee — 184 — Write-down of Software — 26 — Subordinated debt redemption cost — — 170 Discretionary inflation bonus — 112 — Accelerated equity compensation — 61 — Adjusted income tax provision $ (1,398) $ 4,999 $ 8,232 1 Assuming a 21% tax rate 44 (dollars in thousands, except share and per share data) At or For The Twelve Months Ended December 31, 2023 2022 2021 Net income - GAAP $ 8,417 $ 35,541 $ 48,114 Adjustments: Mortgage-related revenue (51) — — Mortgage-related costs 2,411 — — Partial charge-off of C&I participation loan 5,462 — — Gain on sale of premises and equipment — — (1,993) IT Termination fee — — 375 Acquisition-related expenses — 216 129 Nonrecurring consulting fee — 691 — Write-down of Software — 99 — Subordinated debt redemption cost — — 640 Discretionary inflation bonus — 419 — Accelerated equity compensation — 228 — Adjusted net income $ 16,239 $ 37,194 $ 47,265 Diluted average common shares outstanding 8,858,890 9,595,115 9,976,261 Diluted earnings per share - GAAP $ 0.95 $ 3.70 $ 4.82 Adjustments: Mortgage-related revenue (0.01) — — Mortgage-related costs 0.27 — — Effect of gain on sale of premises and equipment — — (0.19) Effect of partial charge-off of C&I participation loan 0.62 — — Effect of acquisition-related expenses — 0.02 0.01 Effect of IT termination fee — — 0.04 Effect of nonrecurring consulting fee — 0.07 — Effect of write-down of software — 0.01 — Effect of subordinated debt redemption cost — — 0.06 Effect of discretionary inflation bonus — 0.04 — Effect of accelerated equity compensation — 0.02 — Adjusted diluted earnings per share $ 1.83 $ 3.86 $ 4.74 Return on average assets 0.17 % 0.85 % 1.14 % Effect of mortgage-related revenue 0.00 % 0.00 % 0.00 % Effect of mortgage-related costs 0.05 % 0.00 % 0.00 % Effect of gain on sale of premises and equipment 0.00 % 0.00 % (0.05 %) Effect of partial charge-off of C&I participation loan 0.11 % 0.00 % 0.00 % Effect of acquisition-related expenses 0.00 % 0.01 % 0.00 % Effect of IT termination fee 0.00 % 0.00 % 0.01 % Effect of nonrecurring consulting fee 0.00 % 0.02 % 0.00 % Effect of write-down of software 0.00 % 0.00 % 0.00 % Effect of subordinated debt redemption cost 0.00 % 0.00 % 0.02 % Effect of discretionary inflation bonus 0.00 % 0.01 % 0.00 % Effect of accelerated equity compensation 0.00 % 0.01 % 0.00 % Adjusted return on average assets 0.33 % 0.90 % 1.12 % 45 (dollars in thousands, except share and per share data) At or For The Twelve Months Ended December 31, 2023 2022 2021 Return on average shareholders' equity 2.35 % 9.53 % 13.44 % Effect of mortgage-related revenue (0.01) % 0.00 % 0.00 % Effect of mortgage-related costs 0.67 % 0.00 % 0.00 % Effect of gain on sale of premises and equipment 0.00 % 0.00 % (0.56 %) Effect of partial charge-off of C&I participation loan 1.53 % 0.00 % 0.00 % Effect of acquisition-related expenses 0.00 % 0.06 % 0.04 % Effect of IT termination fee 0.00 % 0.00 % 0.10 % Effect of nonrecurring consulting fee 0.00 % 0.19 % 0.00 % Effect of write-down of software 0.00 % 0.03 % 0.00 % Effect of subordinated debt redemption cost 0.00 % 0.00 % 0.18 % Effect of discretionary inflation bonus 0.00 % 0.11 % 0.00 % Effect of accelerated equity compensation 0.00 % 0.06 % 0.00 % Adjusted return on average shareholders' equity 4.54 % 9.98 % 13.20 % Return on average tangible common equity 2.38 % 9.65 % 13.61 % Effect of mortgage-related revenue (0.01) % 0.00 % 0.00 % Effect of mortgage-related costs 0.68 % 0.00 % 0.00 % Effect of partial charge-off of C&I participation loan 1.55 % 0.00 % 0.00 % Effect of gain on sale of premises and equipment 0.00 % 0.00 % (0.56 %) Effect of acquisition-related expenses 0.00 % 0.06 % 0.04 % Effect of IT termination fee 0.00 % 0.00 % 0.10 % Effect of nonrecurring consulting fee 0.00 % 0.19 % 0.00 % Effect of write-down of software 0.00 % 0.03 % 0.00 % Effect of subordinated debt redemption cost 0.00 % 0.00 % 0.18 % Effect of discretionary inflation bonus 0.00 % 0.11 % 0.00 % Effect of accelerated equity compensation 0.00 % 0.06 % 0.00 % Adjusted return on average tangible common equity 4.60 % 10.10 % 13.37 % 46 Critical Accounting Policies and Estimates Adoption of new accounting standards ASU 2016 - 13 On January 1, 2023, the Company adopted ASU 2016-03 Financial Instruments - Credit losses (“ASC 326”): Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with an expected credit loss (“CECL”) methodology.
Liquidity and Capital Resources Liquidity management is the process used by the Company to manage the continuing flow of funds necessary to meet its financial commitments on a timely basis and at a reasonable cost while also maintaining safe and sound operations. 39 Liquidity, represented by cash and investment securities, is a product of the Company’s operating, investing and financing activities.
Liquidity and Capital Resources Liquidity management is the process used by the Company to manage the continuing flow of funds necessary to meet its financial commitments on a timely basis and at a reasonable cost while also maintaining safe and sound operations. Liquidity, represented by cash and investment securities, is a product of the Company’s operating, investing and financing activities.
The $12.6 million decrease in net income for the twelve months ended December 31, 2022 compared to the twelve months ended December 31, 2021 was due primarily to an $11.6 million decrease in noninterest income, an $11.5 million increase in noninterest expense and a $3.9 million increase in provision for loan losses, partially offset by a $10.5 million increase in net interest income and a $3.9 million decrease in income tax expense.
The decrease in net income of $12.6 million for the twelve months ended December 31, 2022 compared to the twelve months ended December 31, 2021 was due primarily to an $11.6 million decrease in noninterest income, an $11.5 million increase in noninterest expense and a $3.9 million increase in provision for loan losses, partially offset by a $10.5 million increase in net interest income and $3.9 million decrease in income tax expense.
Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Item 7 of Part II of this report, Management's Discussion and Analysis of Financial Condition and Results of Operations 24 Rate/Volume Analysis The following table illustrates the impact of changes in the volume of interest-earning assets and interest-bearing liabilities and interest rates on net interest income for the periods indicated.
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 26 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.
We have the ability and intent to hold all investment securities in an unrealized loss position resulting from interest rate changes to the earlier of the forecasted recovery or the maturity of the underlying investment security. As of December 31, 2022, we did not have any investment securities of a single issuer that exceeded 10% of shareholders’ equity.
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, 2023, we did not have any investment securities of a single issuer that exceeded 10% of shareholders’ equity.
The term “issuer” excludes the U.S. Government and its sponsored agencies and corporations. 36 The following tables present the amortized cost and approximate fair value of our investment securities portfolio by security type as of the end of the last two years. (amounts in thousands) December 31, Amortized Cost 2022 2021 Securities available-for-sale U.S.
The term “issuer” excludes the U.S. Government and its sponsored agencies and corporations. 36 The following tables present the amortized cost and approximate fair value of our investment securities portfolio by security type as of the end of the last two years. (amounts in thousands) December 31, Amortized Cost 2023 2022 Securities available-for-sale U.S.
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.
The adequacy of the allowance for credit 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.
Investment securities that are acquired and held principally for the purpose of selling them in the near term with the objective of generating economic profits on short-term differences in market characteristics are classified as “trading securities.” We did not classify any securities as trading securities as of December 31, 2022 and 2021.
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, 2023 and 2022.
Discussion, analysis and comparisons of the years ended December 31, 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.
Discussion, analysis and comparisons of the years ended December 31, 2022 and 2021 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, 2022.
Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Item 7 of Part II of this report, Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information. 29 Loan Portfolio Analysis The following table provides information regarding our loan portfolio as of the end of the last two years.
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. 30 Loan Portfolio Analysis The following table provides information regarding our loan portfolio as of the end of the last two years.
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 Twelve Months Ended December 31, 2022 vs. December 31, 2021 Due to Changes in Twelve Months Ended December 31, 2021 vs.
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 Twelve Months Ended December 31, 2023 vs. December 31, 2022 Due to Changes in Twelve Months Ended December 31, 2022 vs.
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.
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 individually evaluated loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due.
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.
Although management believes it uses the best information available to make determinations with respect to the 35 allowance for credit 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 credit losses.
Nonperforming loans are comprised of total nonaccrual loans and loans 90 days past due and accruing. Nonperforming assets include nonperforming loans, other real estate owned and other nonperforming assets, which consist of 32 repossessed assets.
Nonperforming loans are comprised of total nonaccrual loans and loans 90 days past due and accruing. Nonperforming assets include nonperforming loans, other real estate owned (“OREO”) and other nonperforming assets, which consist of repossessed assets.
See also the “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report. Costs Associated with Exit Activities Due to the steep decline in consumer mortgage volumes and the negative outlook for consumer mortgage lending over the next several years, the Company decided to exit its consumer mortgage business during the first quarter of 2023.
See also the “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report. Costs Associated with Exit Activities Due to the steep decline in consumer mortgage volumes and the negative outlook for consumer mortgage lending, the Company decided to exit its consumer mortgage business during the first quarter 2023.
Fair value hedges were purchased to convert certain fixed rate assets to floating rate. Cash flow hedges were used to convert certain variable rate liabilities into fixed rate liabilities. At December 31, 2022 and December 31, 2021, we had interest rate swaps with a notional amount of $260.0 million.
Fair value hedges were purchased to convert certain fixed rate assets to floating rate. Cash flow hedges were used to convert certain variable rate liabilities into fixed rate liabilities. At December 31, 2023 and December 31, 2022, we had interest rate swaps with a notional amount of $200.0 million and $260.0 million, respectively.
The following discussion, analysis and comparisons generally focus on the operating results for the years ended December 31, 2022 and 2021.
The following discussion, analysis and comparisons generally focus on the operating results for the years ended December 31, 2023 and 2022.
Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Item 7 of Part II of this report, Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information. 23 Consolidated Average Balance Sheets and Net Interest Income Analyses For the periods presented, the following tables provide the average balances of interest-earning assets and interest-bearing liabilities and the related yields and cost of funds.
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. 25 Consolidated Average Balance Sheets and Net Interest Income Analyses For the periods presented, the following table provides the average balances of interest-earning assets and interest-bearing liabilities and the related yields and cost of funds.
Loan officers have underwriting and approval authorization of varying amounts based on their lending experience and product type. Additionally, based on the amount of the loan, multiple approvals may be required. Based on the Bank’s legal lending limit, the maximum it could lend to any one borrower at December 31, 2022 was $74.7 million.
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, 2023 was $75.6 million.
At December 31, 2022, on a consolidated basis, the Company had $0.6 billion in cash and cash equivalents and investment securities available-for-sale, and $21.5 million in loans held-for-sale that were generally available for our cash needs. The Company can also generate funds from wholesale funding sources and collateralized borrowings.
At December 31, 2023, on a consolidated basis, the Company had $0.9 billion in cash and cash equivalents and investment securities available-for-sale, and $22.1 million in loans held-for-sale that were generally available for our cash needs. The Company can also generate funds from wholesale funding sources and collateralized borrowings.
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.
The table does not reflect any effect of income taxes. Balances are based on the average of daily balances. Nonaccrual loans are included in average loan balances.
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.
Individually evaluated loans include nonperforming loans and also include loans 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.
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.
Payments with delays generally not exceeding 90 days outstanding are not individually evaluated. Certain nonaccrual and substantially all delinquent loans more than 90 days past due may be individually evaluated.
This includes its nationwide digital direct-to-consumer mortgage platform that originates residential loans for sale in the secondary market, as well as its local traditional consumer mortgage and construction-to-permanent business. The Company’s commercial construction and land development business will not be affected by this decision and will remain an important part of the Company’s lending strategy.
This included its nationwide digital direct-to-consumer mortgage platform that originated residential loans for sale in the secondary market, as well as its local traditional consumer mortgage and construction-to-permanent business. The Company’s commercial construction and land development business was not affected by the decision and remains an important part of the Company’s lending strategy.
We periodically evaluate each security in an unrealized loss position to determine if the impairment is temporary or other-than-temporary. As of December 31, 2022, the unrealized losses in our investment securities portfolio were due primarily to interest rate changes.
We periodically evaluate each security in an unrealized loss position to determine if there is an impairment. As of December 31, 2023, the unrealized losses in our investment securities portfolio were due primarily to interest rate changes.
Non-GAAP financial measures, specifically tangible common equity, tangible assets, tangible book value per common share, tangible common equity to tangible assets, average tangible common equity, return on average tangible common equity, total interest income - FTE, net interest income - FTE and net interest margin - FTE are used by the Company's management to measure the strength of its capital and analyze profitability, including its ability to generate earnings on tangible capital invested by its shareholders.
Non-GAAP financial measures, specifically tangible common equity, tangible assets, tangible book value per common share, tangible common equity to tangible assets, average tangible common equity, return on average tangible common equity, total interest income - FTE, net interest income - FTE, net interest margin - FTE, adjusted total revenue, adjusted noninterest income, adjusted noninterest expense, adjusted income before income taxes, adjusted income tax provision, adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average shareholders’ equity and adjusted return on average tangible common equity are used by the Company's management to measure the strength of its capital and analyze profitability, including its ability to generate earnings on tangible capital invested by its shareholders.
At December 31, 2022, the Bank had the ability to borrow an additional $473.9 million from the FHLB, the Federal Reserve and correspondent bank Fed Funds lines of credit. The Company is a separate legal entity from the Bank and must provide for its own liquidity.
At December 31, 2023, the Bank had the ability to borrow an additional $1.2 billion from the FHLB, the Federal Reserve and correspondent bank Fed Funds lines of credit. The Company is a separate legal entity from the Bank and must provide for its own liquidity.
Results of Operations During the twelve months ended December 31, 2022, net income was $35.5 million, or $3.70 per diluted share, compared to net income of $48.1 million, or $4.82 per diluted share, for the twelve months ended December 31, 2021 and net income of $29.5 million, or $2.99 per diluted share, for the twelve months ended December 31, 2020.
Results of Operations During the twelve months ended December 31, 2023, net income was $8.4 million, or $0.95 per diluted share, compared to net income of $35.5 million, or $3.70 per diluted share, for the twelve months ended December 31, 2022 and net income of $48.1 million, or $4.82 per diluted share, for the twelve months ended December 31, 2021.
The ratio of total shareholders’ equity to total assets decreased to 8.03% as of December 31, 2022 from 9.03% as of December 31, 2021 and the ratio of tangible common equity to tangible assets decreased to 7.94% as of December 31, 2022 from 8.93% as of December 31, 2021.
The ratio of total shareholders’ equity to total assets decreased to 7.02% as of December 31, 2023 from 8.03% as of December 31, 2022 and the ratio of tangible common equity to tangible assets decreased to 6.94% as of December 31, 2023 from 7.94% as of December 31, 2022.
Refer to Note 18 to our consolidated financial statements for additional information about derivative financial instruments. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities were $14.5 million at December 31, 2022 compared to $30.5 million at December 31, 2021.
Refer to Note 18 to our consolidated financial statements for additional information about derivative financial instruments. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities decreased $0.3 million, or 2.3%, to $14.2 million at December 31, 2023, compared to $14.5 million at December 31, 2022.
Twelve Months Ended December 31, (amounts in thousands) 2022 2021 2020 Statutory rate times pre-tax income $ 8,421 $ 11,880 $ 7,119 (Subtract) add the tax effect of: Income from tax-exempt securities and loans (4,190) (4,217) (4,464) State income taxes, net of federal tax effect 592 865 1,765 Bank-owned life insurance (201) (199) (200) Tax credits (143) (175) (178) Other differences 80 304 403 Income tax expense $ 4,559 $ 8,458 $ 4,445 We recognized income tax expense of $4.6 million in 2022, resulting in an effective tax rate of 11.4%, compared to $8.5 million and an effective tax rate of 15.0% in 2021.
Twelve Months Ended December 31, (amounts in thousands) 2023 2022 2021 Statutory rate times pre-tax income $ 1,037 $ 8,421 $ 11,880 (Subtract) add the tax effect of: Income from tax-exempt securities and loans (3,951) (4,190) (4,217) State income taxes, net of federal tax effect (30) 592 865 Bank-owned life insurance (215) (201) (199) Tax credits (168) (143) (175) Other differences (150) 80 304 Income tax (benefit) provision $ (3,477) $ 4,559 $ 8,458 We recognized an income tax benefit of $3.5 million in 2023, compared to an income tax provision of $4.6 million and an effective tax rate of 11.4% in 2022.
The increase in net income of $18.7 million for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 was due primarily to a $22.0 million increase in net interest income and an $8.3 million decrease in provision for loan losses, partially offset by a $4.1 million increase in noninterest expense, a $4.0 million increase in income tax expense and a $3.5 million decrease in noninterest income.
The $27.1 million decrease in net income for the twelve months ended December 31, 2023 compared to the twelve months ended December 31, 2022 was due primarily to a decrease of $22.2 million, or 22.9%, in net interest income, an increase of $11.7 million, or 234.6%, in provision for credit losses and an increase of $6.2 million, or 8.4%, in noninterest expense, partially offset by a decrease of $8.0 million, or 176.3%, in income tax expense and an increase of $4.9 million, or 22.9%, in noninterest income.
The increase in interest expense related to money market accounts of $12.6 million, or 214.2%, was driven by an increase of 89 bps in the cost of these deposits, partially offset by a decrease of $11.6 million, or 0.8%, in the average balance of these deposits.
The increase in interest expense related to money market accounts was driven primarily by an increase of 261 bps in the cost of these deposits, partially offset by a decrease of $146.6 million, or 10.3%, in the average balance of these deposits.
At or For The Twelve Months Ended December 31, (dollars in thousands) 2022 2021 2020 Balance outstanding at end of period $ 614,928 $ 514,922 $ 514,916 Average amount outstanding during period 534,144 514,617 514,913 Maximum outstanding at any month end during period 615,928 514,922 514,916 Weighted average interest rate at end of period 1 2.82 % 1.65 % 1.30 % Weighted average interest rate during period 1 2.15 % 1.68 % 1.78 % 1 Excludes the impact of interest rate swaps.
At or For The Twelve Months Ended December 31, (dollars in thousands) 2023 2022 Balance outstanding at end of period $ 614,934 $ 614,928 Average amount outstanding during period 614,931 534,144 Maximum outstanding at any month end during period 614,934 615,928 Weighted average interest rate at end of period 1 3.04 % 2.82 % Weighted average interest rate during period 1 3.00 % 2.15 % 1 Excludes the impact of interest rate swaps.
Our federal statutory tax rate was 21% in 2022 and 2021. In both 2022 and 2021, the variance from the federal statutory rate was due primarily to tax-exempt income, partially offset by state income taxes.
Our federal statutory tax rate was 21% in 2023 and 2022. In 2023 and 2022, the variance from the federal statutory rate was due primarily to tax-exempt income.
To supplement our internal loan review resources, we have engaged independent third-party loan review groups, which are a key component of our overall risk management process related to credit administration. 31 Asset Quality December 31, (dollars in thousands) 2022 2021 Nonaccrual loans Commercial loans: Commercial and industrial $ 51 $ 674 Owner-occupied commercial real estate 1,570 3,419 Single tenant lease financing — 1,100 Small business lending 4,764 959 Total commercial loans 6,385 6,152 Consumer loans: Residential mortgage 1,048 1,226 Home equity — 14 Other consumer 17 9 Total consumer loans 1,065 1,249 Total nonaccrual loans 7,450 7,401 Past Due 90 days and accruing loans Consumer loans: Residential mortgage 79 — Total consumer loans 79 — Total past due 90 days and accruing loans 79 — Total nonperforming loans 7,529 7,401 Other real estate owned Single tenant lease financing — 1,188 Total other real estate owned — 1,188 Other nonperforming assets 42 29 Total nonperforming assets $ 7,571 $ 8,618 Total nonperforming loans to total loans 0.22 % 0.26 % Total nonperforming assets to total assets 0.17 % 0.20 % Allowance for loan losses to total loans 0.91 % 0.96 % Nonaccrual loans to total loans 0.22 % 0.26 % Allowance for loan losses to nonaccrual loans 426.0 % 376.2 % A loan is designated as impaired, in accordance with the impairment accounting guidance when, based on current information or events, it is probable that we will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement.
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. 32 Asset Quality December 31, (dollars in thousands) 2023 2022 Nonaccrual loans Commercial loans: Commercial and industrial $ — $ 51 Owner-occupied commercial real estate — 1,570 Small business lending 6,824 4,764 Franchise finance 303 — Total commercial loans 7,127 6,385 Consumer loans: Residential mortgage 1,911 1,048 Other consumer 86 17 Total consumer loans 1,997 1,065 Total nonaccrual loans 9,124 7,450 Past Due 90 days and accruing loans Consumer loans: Residential mortgage 838 79 Total consumer loans 838 79 Total past due 90 days and accruing loans 838 79 Total nonperforming loans 9,962 7,529 Other real estate owned Residential mortgage 375 — Total other real estate owned 375 — Other nonperforming assets 17 42 Total nonperforming assets $ 10,354 $ 7,571 Total nonperforming loans to total loans 0.26 % 0.22 % Total nonperforming assets to total assets 0.20 % 0.17 % Allowance for credit losses - loans to total loans 1.01 % 0.91 % Nonaccrual loans to total loans 0.24 % 0.21 % Allowance for credit losses - loans to nonaccrual loans 425.0 % 426.0 % A loan is individually evaluated, 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.
Twelve Months Ended December 31, (amounts in thousands) 2022 2021 2020 Service charges and fees $ 1,071 $ 1,114 $ 824 Loan servicing revenue 2.573 1,934 1,159 Loan servicing asset revaluation (1,639) (1,069) (432) Mortgage banking activities 5,464 15,050 24,693 Gain on sale of loans 11,372 11,598 8,298 Gain on sale of securities — — 139 Gain on sale of premises and equipment — 2,523 — Other 2,416 1,694 1,655 Total noninterest income $ 21,257 $ 32,844 $ 36,336 During the twelve months ended December 31, 2022, noninterest income totaled $21.3 million, representing a decrease of $11.6 million, or 35.3%, compared to $32.8 million for the twelve months ended December 31, 2021.
Twelve Months Ended December 31, (amounts in thousands) 2023 2022 2021 Service charges and fees $ 851 $ 1,071 $ 1,114 Loan servicing revenue 3,833 2,573 1,934 Loan servicing asset revaluation (1,463) (1,639) (1,069) Mortgage banking activities 76 5,464 15,050 Gain on sale of loans 20,526 11,372 11,598 Gain on sale of premises and equipment — — 2,523 Other 2,302 2,416 1,694 Total noninterest income $ 26,125 $ 21,257 $ 32,844 During the twelve months ended December 31, 2023, noninterest income totaled $26.1 million, representing an increase of $4.9 million, or 22.9%, compared to $21.3 million for the twelve months ended December 31, 2022.
Twelve Months Ended December 31, (amounts in thousands) 2022 2021 2020 Salaries and employee benefits $ 41,553 $ 38,223 $ 34,231 Marketing, advertising and promotion 3,554 3,261 1,654 Consulting and professional services 4,826 4,054 3,511 Data processing 1,989 1,649 1,528 Loan expenses 4,435 2,112 2,036 Premises and equipment 10,688 7,063 6,396 Deposit insurance premium 1,152 1,213 1,810 Write-down of other real estate owned — — 2,065 Other 5,076 4,223 4,423 Total noninterest expense $ 73,273 $ 61,798 $ 57,654 26 Noninterest expense for the twelve months ended December 31, 2022 was $73.3 million, compared to $61.8 million for the twelve months ended December 31, 2021.
Twelve Months Ended December 31, (amounts in thousands) 2023 2022 2021 Salaries and employee benefits $ 45,322 $ 41,553 $ 38,223 Marketing, advertising and promotion 2,567 3,554 3,261 Consulting and professional services 3,082 4,826 4,054 Data processing 2,373 1,989 1,649 Loan expenses 5,756 4,435 2,112 Premises and equipment 10,599 10,688 7,063 Deposit insurance premium 3,880 1,152 1,213 Other 5,857 5,076 4,223 Total noninterest expense $ 79,436 $ 73,273 $ 61,798 28 Noninterest expense for the twelve months ended December 31, 2023 was $79.4 million, compared to $73.3 million for the twelve months ended December 31, 2022.
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.
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. 29 Financial Condition The following table presents summary balance sheet data as of the end of the last two years.
Twelve Months Ended December 31, 2022 December 31, 2021 December 31, 2020 (dollars in thousands) Average Balance Interest/Dividends Yield/Cost Average Balance Interest/Dividends Yield/Cost Average Balance Interest/Dividends Yield/Cost Assets Interest-earning assets Loans, including loans held-for-sale $ 3,142,166 $ 140,600 4.47 % $ 2,999,232 $ 123,467 4.12 % $ 3,025,989 $ 120,628 3.99 % Securities - taxable 537,921 10,711 1.99 % 544,613 7,970 1.46 % 530,849 11,123 2.10 % Securities - non-taxable 75,382 1,767 2.34 % 84,482 1,017 1.20 % 95,173 1,728 1.82 % Other earning assets 278,073 3,830 1.38 % 466,608 1,429 0.31 % 523,788 3,380 0.65 % Total interest-earning assets 4,033,542 156,908 3.89 % 4,094,935 133,883 3.27 % 4,175,799 136,859 3.28 % Allowance for loan losses (29,143) (29,068) (24,660) Noninterest earning-assets 166,127 140,059 112,659 Total assets $ 4,170,526 $ 4,205,926 $ 4,263,798 Liabilities Interest-bearing liabilities Interest-bearing demand deposits $ 333,737 $ 2,056 0.62 % $ 195,699 $ 583 0.30 % $ 145,207 $ 840 0.58 % Savings accounts 58,156 336 0.58 % 56,967 203 0.36 % 40,593 303 0.75 % Money market accounts 1,423,185 18,513 1.30 % 1,434,829 5,892 0.41 % 1,156,084 11,381 0.98 % BaaS - brokered deposits 60,699 1,033 1.70 % — — 0.00 % — — 0.00 % Certificates and brokered deposits 1,147,017 19,894 1.73 % 1,411,211 23,144 1.64 % 1,882,773 43,452 2.31 % Total interest-bearing deposits 3,022,794 41,832 1.38 % 3,098,706 29,822 0.96 % 3,224,657 55,976 1.74 % Other borrowed funds 638,526 17,983 2.82 % 600,035 17,505 2.92 % 586,372 16,342 2.79 % Total interest-bearing liabilities 3,661,320 59,815 1.63 % 3,698,741 47,327 1.28 % 3,811,029 72,318 1.90 % Noninterest-bearing deposits 120,325 101,825 74,277 Other noninterest-bearing liabilities 16,037 47,255 64,729 Total liabilities 3,797,682 3,847,821 3,950,035 Shareholders' equity 372,844 358,105 313,763 Total liabilities and shareholders' equity $ 4,170,526 $ 4,205,926 $ 4,263,798 Net interest income $ 97,093 $ 86,556 $ 64,541 Interest rate spread 1 2.26 % 1.99 % 1.38 % Net interest margin 2 2.41 % 2.11 % 1.55 % Net interest margin - FTE 3 2.54 % 2.25 % 1.68 % 1 Yield on total interest-earning assets minus cost of total interest-bearing liabilities 2 Net interest income divided by average interest-earning assets 3 On a fully-taxable equivalent (“FTE”) basis assuming a 21% tax rate.
Twelve Months Ended December 31, 2023 December 31, 2022 December 31, 2021 (dollars in thousands) Average Balance Interest/Dividends Yield/Cost Average Balance Interest/Dividends Yield/Cost Average Balance Interest/Dividends Yield/Cost Assets Interest-earning assets Loans, including loans held-for-sale $ 3,685,729 $ 192,337 5.22 % $ 3,142,166 $ 140,600 4.47 % $ 2,999,232 $ 123,467 4.12 % Securities - taxable 551,479 17,189 3.12 % 537,921 10,711 1.99 % 544,613 7,970 1.46 % Securities - non-taxable 72,571 3,532 4.87 % 75,382 1,767 2.34 % 84,482 1,017 1.20 % Other earning assets 500,061 26,384 5.28 % 278,073 3,830 1.38 % 466,608 1,429 0.31 % Total interest-earning assets 4,809,840 239,442 4.98 % 4,033,542 156,908 3.89 % 4,094,935 133,883 3.27 % Allowance for credit losses (36,038) (29,143) (29,068) Noninterest earning-assets 194,712 166,127 140,059 Total assets $ 4,968,514 $ 4,170,526 $ 4,205,926 Liabilities Interest-bearing liabilities Interest-bearing demand deposits $ 366,082 $ 6,186 1.69 % $ 333,737 $ 2,056 0.62 % $ 195,699 $ 583 0.30 % Savings accounts 29,200 249 0.85 % 58,156 336 0.58 % 56,967 203 0.36 % Money market accounts 1,276,602 49,890 3.91 % 1,423,185 18,513 1.30 % 1,434,829 5,892 0.41 % BaaS - brokered deposits 33,039 1,402 4.24 % 60,699 1,033 1.70 % — — 0.00 % Certificates and brokered deposits 2,040,041 85,636 4.20 % 1,147,017 19,894 1.73 % 1,411,211 23,144 1.64 % Total interest-bearing deposits 3,744,964 143,363 3.83 % 3,022,794 41,832 1.38 % 3,098,706 29,822 0.96 % Other borrowed funds 719,617 21,175 2.94 % 638,526 17,983 2.82 % 600,035 17,505 2.92 % Total interest-bearing liabilities 4,464,581 164,538 3.69 % 3,661,320 59,815 1.63 % 3,698,741 47,327 1.28 % Noninterest-bearing deposits 125,816 120,325 101,825 Other noninterest-bearing liabilities 20,317 16,037 47,255 Total liabilities 4,610,714 3,797,682 3,847,821 Shareholders' equity 357,800 372,844 358,105 Total liabilities and shareholders' equity $ 4,968,514 $ 4,170,526 $ 4,205,926 Net interest income $ 74,904 $ 97,093 $ 86,556 Interest rate spread 1 1.29 % 2.26 % 1.99 % Net interest margin 2 1.56 % 2.41 % 2.11 % Net interest margin - FTE 3 1.67 % 2.54 % 2.25 % 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.
The increase in consumer loan balances was due primarily to higher balances in the residential mortgage, recreational vehicles and trailers loan portfolios. 30 Loan Maturities and Rate Sensitivity The following table shows the contractual maturity distribution intervals (without regard to repayment schedules) of the outstanding loans in our portfolio as of December 31, 2022.
The increase in consumer loans was due to higher balances in the recreational vehicles and trailers loan portfolios, in addition to funded residential mortgages and draws on construction/perm loans that were in the pipeline prior to exiting the business. 31 Loan Maturities and Rate Sensitivity The following table shows the contractual maturity distribution intervals (without regard to repayment or repricing schedules) of the outstanding loans in our portfolio as of December 31, 2023.
The stock repurchase authorization replaced the Company’s previously announced stock repurchase program and is scheduled to expire on December 31, 2023. Various factors determine the amount and timing of our share repurchases, including our capital requirements, organic growth and other strategic opportunities, economic and market conditions (including the trading price of our stock), and regulatory and legal considerations.
Various factors determine the amount and timing of our share repurchases, including our capital requirements, organic growth and other strategic opportunities, economic and market conditions (including the trading price of our stock), and regulatory and legal considerations.
Total loans were $3.5 billion as of December 31, 2022, an increase of $611.7 million, or 21.2%, compared to December 31, 2021. Total commercial loan balances were $2.7 billion, as of December 31, 2022, up $355.5 million, or 15.0%, from December 31, 2021.
Total loans were $3.8 billion as of December 31, 2023, an increase of $340.8 million, or 9.7%, compared to December 31, 2022. Total commercial loan balances were $3.0 billion, as of December 31, 2023, up $286.6 million, or 10.5%, from December 31, 2022.
Book value per common share increased 3.3% to $40.26 as of December 30, 2022 from $38.99 as of December 31, 2021. Tangible book value per share increased 3.2% to $39.74 as of December 31, 2022 from $38.51 as of December 31, 2021.
Book value per common share increased 4.2% to $41.97 as of December 31, 2023 from $40.26 as of December 31, 2022. Tangible book value per share increased 4.2% to $41.43 as of December 31, 2023 from $39.74 as of December 31, 2022.
The growth in both book value per common share and tangible book value per share reflects net income earned during the year and the effect of stock repurchase activity throughout the year, partially offset by the increase in accumulated other comprehensive loss.
The increase in both book value per common share and tangible book value per share reflects the effect of stock repurchase activity throughout the year, partially offset by the declines in total shareholders’ equity and tangible common equity.
December 31, (dollars in thousands) 2022 2021 Commercial loans Commercial and industrial $ 126,108 3.6 % $ 96,008 3.3 % Owner-occupied commercial real estate 61,836 1.8 % 66,732 2.3 % Investor commercial real estate 93,121 2.7 % 28,019 1.0 % Construction 181,966 5.2 % 136,619 4.7 % Single tenant lease financing 939,240 26.8 % 865,854 30.0 % Public finance 621,032 17.7 % 592,665 20.5 % Healthcare finance 272,461 7.8 % 387,852 13.4 % Small business lending 123,750 3.5 % 108,666 3.8 % Franchise finance 299,835 8.6 % 81,448 2.8 % Total commercial loans 2,719,349 77.7 % 2,363,863 81.8 % Consumer loans Residential mortgage 383,948 11.0 % 186,770 6.5 % Home equity 24,712 0.7 % 17,665 0.6 % Other consumer 324,598 9.3 % 265,478 9.2 % Total consumer loans 733,258 21.0 % 469,913 16.3 % Total commercial and consumer loans 3,452,607 98.7 % 2,833,776 98.1 % Net deferred loan origination costs, premiums and discounts on purchased loans and other 1 46,794 1.3 % 53,886 1.9 % Total loans 3,499,401 100.0 % 2,887,662 100.0 % Allowance for loan losses (31,737) (27,841) Net loans $ 3,467,664 $ 2,859,821 1 Includes carrying value adjustments of $32.5 million and $37.5 million related to terminated interest rate swaps associated with public finance loans as of December 31, 2022 and December 31, 2021, respectively.
December 31, (dollars in thousands) 2023 2022 Commercial loans Commercial and industrial $ 129,349 3.4 % $ 126,108 3.6 % Owner-occupied commercial real estate 57,286 1.5 % 61,836 1.8 % Investor commercial real estate 132,077 3.4 % 93,121 2.7 % Construction 261,750 6.8 % 181,966 5.2 % Single tenant lease financing 936,616 24.4 % 939,240 26.8 % Public finance 521,764 13.6 % 621,032 17.7 % Healthcare finance 222,793 5.8 % 272,461 7.8 % Small business lending 218,506 5.7 % 123,750 3.5 % Franchise finance 525,783 13.7 % 299,835 8.6 % Total commercial loans 3,005,924 78.3 % 2,719,349 77.7 % Consumer loans Residential mortgage 395,648 10.3 % 383,948 11.0 % Home equity 23,669 0.6 % 24,712 0.7 % Other consumer 377,614 9.8 % 324,598 9.3 % Total consumer loans 796,931 20.7 % 733,258 21.0 % Total commercial and consumer loans 3,802,855 99.0 % 3,452,607 98.7 % Net deferred loan origination costs, premiums and discounts on purchased loans and other 1 37,365 1.0 % 46,794 1.3 % Total loans 3,840,220 100.0 % 3,499,401 100.0 % Allowance for credit losses - loans (38,774) (31,737) Net loans $ 3,801,446 $ 3,467,664 1 Includes carrying value adjustments of $27.8 million and $32.5 million related to terminated interest rate swaps associated with public finance loans as of December 31, 2023 and December 31, 2022, respectively.
Total consumer loan balances were $733.3 million as of December 30, 2022, an increase of $263.3 million, or 56.0%, compared to December 31, 2021. The increase in commercial loan balances was driven primarily by growth in franchise finance, single tenant lease financing, investor commercial real estate, construction, commercial and industrial, public finance and small business lending balances.
Total consumer loan balances were $796.9 million as of December 31, 2023, an increase of $63.7 million, or 8.7%, compared to December 31, 2022. Compared to December 31, 2022, the increase in commercial loan balances was driven by growth in the franchise finance, small business lending, construction and investor commercial real estate portfolios.
The increase in interest expense related to interest-bearing demand deposits of $1.5 million, or 252.7%, was due primarily to an increase of $138.0 million, or 70.5%, in the average balance of these deposits and an increase of 32 bps in the cost of these deposits.
The increase in interest expense related to interest-bearing demand deposits was due primarily to a 107 bp increase in the cost of these deposits, as well as an increase of $32.3 million, or 9.7%, in the average balance of these deposits.
Under this program, The Company repurchased a total of 855,956 shares at an average price of $36.31 per share under the program through December 19, 2022. 40 On December 19, 2022, the Company's Board of Directors approved a new stock repurchase program authorizing the repurchase of up to $25.0 million of our outstanding common stock from time to time on the open market or in privately negotiated transactions.
The Company repurchased a total of 855,956 shares at an average price of $36.31 per share under the program through December 19, 2022. On December 19, 2022, the Company's Board of Directors approved a new stock repurchase program to replace the prior program.
The decrease in noninterest income was driven primarily by a decrease in revenue from mortgage banking activities, no gain on sale of premises and equipment in 2022 and a $0.6 million decrease in loan servicing asset revaluation, which was partially offset by an increase in other noninterest income.
The increase in noninterest income was driven primarily by increases in gain on sale of loans and net loan servicing revenue, partially offset by a decrease in mortgage banking activities.
The increase was driven by two portfolio residential mortgage loans and one small business lending loan classified as new TDRs during the twelve months ended December 31, 2022 with pre-modification and post-modification balances totaling $1.6 million. As of December 31, 2022, the Company did not own any OREO.
Total TDRs as of December 31, 2022 were $5.5 million. There were two portfolio residential mortgage loans and one small business lending loan classified as new TDRs during the twelve months ended December 31, 2022, with pre-modification and post-modification balances totaling $1.6 million. The following table provides a summary of troubled debt restructurings.
December 31, (dollars in thousands) 2022 2021 Noninterest-bearing deposits $ 175,315 5.1 % $ 117,531 3.7 % Interest-bearing demand deposits 335,611 9.8 % 247,967 7.8 % Savings accounts 44,819 1.3 % 59,998 1.9 % Money market accounts 1,418,599 41.2 % 1,483,936 46.7 % BaaS - brokered deposits 13,607 0.4 % — — % Certificates of deposits 874,490 25.4 % 970,107 30.5 % Brokered deposits 578,804 16.8 % 299,420 9.4 % Total $ 3,441,245 100.0 % $ 3,178,959 100.0 % Total deposits increased $262.3 million, or 8.3%, to $3.4 billion as of December 31, 2022 compared to $3.2 billion as of December 31, 2021.
December 31, (dollars in thousands) 2023 2022 Noninterest-bearing deposits $ 123,464 3.0 % $ 175,315 5.1 % Interest-bearing demand deposits 402,976 9.9 % 335,611 9.8 % Savings accounts 21,364 0.5 % 44,819 1.3 % Money market accounts 1,248,319 30.8 % 1,418,599 41.2 % BaaS - brokered deposits 74,401 1.8 % 13,607 0.4 % Certificates of deposits 1,605,156 39.5 % 874,490 25.4 % Brokered deposits 591,293 14.5 % 578,804 16.8 % Total $ 4,066,973 100.0 % $ 3,441,245 100.0 % 38 Total deposits increased $625.7 million, or 18.2%, to $4.1 billion as of December 31, 2023 compared to $3.4 billion as of December 31, 2022.
(amounts in thousands) December 31, Balance Sheet Data: 2022 2021 Total assets $ 4,543,104 $ 4,210,994 Loans 3,499,401 2,887,662 Total securities 579,552 662,609 Loans held-for-sale 21,511 47,745 Noninterest-bearing deposits 175,315 117,531 Interest-bearing deposits 3,265,930 3,061,428 Total deposits 3,441,245 3,178,959 Advances from Federal Home Loan Bank 614,928 514,922 Total shareholders' equity 364,974 380,338 Total assets increased $332.1 million, or 7.9%, to $4.5 billion as of December 31, 2022 compared to $4.2 billion as of December 31, 2021.
(amounts in thousands) December 31, Balance Sheet Data: 2023 2022 Total assets $ 5,167,572 $ 4,543,104 Loans 3,840,220 3,499,401 Total securities 702,008 579,552 Loans held-for-sale 22,052 21,511 Noninterest-bearing deposits 123,464 175,315 Interest-bearing deposits 3,943,509 3,265,930 Total deposits 4,066,973 3,441,245 Advances from Federal Home Loan Bank 614,934 614,928 Total shareholders' equity 362,795 364,974 Total assets increased $624.5 million, or 13.7%, to $5.2 billion as of December 31, 2023 compared to $4.5 billion as of December 31, 2022.
On a fully-taxable equivalent (“FTE”) basis, NIM was 2.54% for the twelve months ended December 31, 2022 compared to 2.25% for the twelve months ended December 31, 2021, an increase of 29 bps.
Net interest margin (“NIM”) was 1.56% for the twelve months ended December 31, 2023 compared to 2.41% for the twelve months ended December 31, 2022. On a fully-taxable equivalent (“FTE”) basis, NIM was 1.67% for the twelve months ended December 31, 2023 compared to 2.54% for the twelve months ended December 31, 2022, a decrease of 87 bps.
This increase in total interest income was partially offset by a $12.5 million, or 26.4%, increase in total interest expense to $59.8 million for the twelve months ended December 31, 2022 compared to $47.3 million for the twelve months ended December 31, 2021.
The increase in total interest expense was partially offset by an $82.5 million, or 52.6%, increase in total interest income to $239.4 million for the twelve months ended December 31, 2023 compared to $156.9 million for the twelve months ended December 31, 2022.
December 31, (amounts in thousands) 2022 2021 Balance, beginning of period $ 27,841 $ 29,484 Provision charged to expense 4,977 1,030 Losses charged off Commercial and industrial — (28) Single tenant lease financing — (2,391) Small business lending (402) (222) Residential mortgage — (6) Home equity — (51) Other consumer (2,358) (529) Total losses charged off (2,760) (3,227) Recoveries Commercial and industrial 5 89 Single tenant lease financing 1,231 — Small business lending 29 80 Residential mortgage 4 63 Home equity 139 7 Other consumer 271 315 Total recoveries 1,679 554 Balance, end of period $ 31,737 $ 27,841 Net charge-offs $ 1,081 $ 2,673 Net charge-offs (recoveries) to average loans (annualized) Commercial and industrial (0.01) % (0.08) % Single tenant lease financing (0.14) % 0.26 % Small business lending 0.32 % 0.11 % Total commercial net charge-offs (recoveries) (0.03) % 0.10 % Residential mortgage — % (0.03) % Home equity (0.68) % 0.24 % Other consumer 0.43 % 0.29 % Total consumer net charge-offs (recoveries) 0.32 % 0.04 % Net charge-offs to average loans 0.03 % 0.09 % The determination of the allowance for loan losses and the related provision for loan losses are components of our significant accounting policies as discussed within Note 1 to our consolidated financial statements.
December 31, (amounts in thousands) 2023 2022 Balance, beginning of period $ 31,737 $ 27,841 Adoption of ASU 2016-13 (CECL) 2,962 — Balance, beginning of period 34,699 27,841 Provision charged to expense 15,454 4,977 Losses charged off Commercial and industrial (7,049) — Investor commercial real estate (591) — Healthcare finance (605) — Small business lending (2,586) (402) Franchise finance (331) Residential mortgage (140) — Other consumer (582) (2,358) Total losses charged off (11,884) (2,760) Recoveries Commercial and industrial 243 5 Single tenant lease financing — 1,231 Small business lending 77 29 Residential mortgage 5 4 Home equity 6 139 Other consumer 174 271 Total recoveries 505 1,679 Balance, end of period $ 38,774 $ 31,737 Net charge-offs $ 11,379 $ 1,081 Net charge-offs (recoveries) to average loans (annualized) Commercial and industrial 6.87 % (0.01 %) Investor commercial real estate 0.47 % — % Single tenant lease financing — % (0.14 %) Healthcare finance 0.25 % — % Small business lending 1.34 % 0.32 % Franchise Finance 0.08 % — % Total commercial net charge-offs (recoveries) 0.38 % (0.03 %) Residential mortgage 0.03 % — % Home equity (0.02 %) (0.68 %) Other consumer 0.21 % 0.43 % Total consumer net charge-offs (recoveries) 0.07 % 0.32 % Net charge-offs to average loans 0.31 % 0.03 % The determination of the allowance for credit losses (“ACL”) and the related provision for credit losses are components of our significant accounting policies as discussed within Note 1 to our consolidated financial statements.
Additionally, we may enter into forward contracts relating to our mortgage banking business to 44 hedge the exposures we have from commitments to extend new residential mortgage loans to our customers and from our mortgage loans held-for-sale.
Additionally, prior to the Company’s decision to exit its consumer mortgage business in the first quarter 2023, we entered into forward contracts related to our mortgage banking business to hedge the exposures we had from commitments to extend new residential mortgage loans to our customers and from our mortgage loans held-for-sale.
The increase of $11.5 million, or 18.6%, compared to the twelve months ended December 31, 2021 was due primarily to increases of $3.6 million in premises and equipment, $3.3 million in salaries and employee benefits, $2.3 million in loan expenses, $0.9 million in other noninterest expense and $0.8 million in consulting and professional fees.
The increase of $6.2 million, or 8.4%, compared to the twelve months ended December 31, 2022 was due primarily to increases of $3.8 million in salaries and employee benefits, $2.8 million in deposit insurance premium and $1.3 million in loan expenses, partially offset by decreases of $1.7 million in consulting and professional fees and $1.0 million in marketing, advertising and promotion.
The decrease in the average balance of other earning assets was due primarily to lower cash balances. The increase in the yields earned on loans, securities and other earning assets was due primarily to the rise in interest rates throughout 2022.
The increase in the yields earned on loans, other earning assets and securities was due to the continued rise in interest rates during the fourth quarter 2022 and into 2023.
At December 31, 2022 and December 31, 2021, we had commitments to sell residential real estate loans of $17.0 million and $72.8 million, respectively. These contracts mature in less than one year. Refer to Note 18 to our consolidated financial statements for additional information about derivative financial instruments. 45
At December 31, 2023, the Company did not have any commitments to sell residential real estate loans. At December 31, 2022, the Company had commitments to sell residential real estate loans of $17.0 million. Refer to Note 18 to our consolidated financial statements for additional information about derivative financial instruments. 49
At December 31, 2022, the Company, on an unconsolidated basis, had $22.3 million in cash generally available for its cash needs, which is in excess of its current annual regular shareholder dividend and operating expenses.
At December 31, 2023, the Company, on an unconsolidated basis, had $11.6 million in cash generally available for its cash needs, which is in excess of its current annual regular shareholder dividend and operating expenses. 40 The Company uses its sources of funds primarily to meet ongoing financial commitments, including withdrawals by depositors, credit commitments to borrowers, operating expenses and capital expenditures.
December 31, 2020 Due to Changes in (amounts in thousands) Volume Rate Net Volume Rate Net Interest income Loans, including loans held-for-sale $ 6,157 $ 10,976 $ 17,133 $ (1,074) $ 3,913 $ 2,839 Securities – taxable (100) 2,841 2,741 285 (3,438) (3,153) Securities – non-taxable (120) 870 750 (177) (534) (711) Other earning assets (794) 3,195 2,401 (337) (1,614) (1,951) Total 5,143 17,882 23,025 (1,303) (1,673) (2,976) Interest expense Interest-bearing deposits (744) 12,754 12,010 (2,097) (24,057) (26,154) Other borrowed funds 1,094 (616) 478 388 775 1,163 Total 350 12,138 12,488 (1,709) (23,282) (24,991) Increase in net interest income $ 4,793 $ 5,744 $ 10,537 $ 406 $ 21,609 $ 22,015 Net interest income for the twelve months ended December 31, 2022 was $97.1 million, an increase of $10.5 million, or 12.2%, compared to $86.6 million for the twelve months ended December 31, 2021.
December 31, 2021 Due to Changes in (amounts in thousands) Volume Rate Net Volume Rate Net Interest income Loans, including loans held-for-sale $ 26,264 $ 25,473 $ 51,737 $ 6,157 $ 10,976 $ 17,133 Securities – taxable 275 6,203 6,478 (100) 2,841 2,741 Securities – non-taxable (69) 1,834 1,765 (120) 870 750 Other earning assets 4,967 17,587 22,554 (794) 3,195 2,401 Total 31,437 51,097 82,534 5,143 17,882 23,025 Interest expense Interest-bearing deposits 12,042 89,489 101,531 (744) 12,754 12,010 Other borrowed funds 2,391 801 3,192 1,094 (616) 478 Total 14,433 90,290 104,723 350 12,138 12,488 Increase /(decrease) in net interest income $ 17,004 $ (39,193) $ (22,189) $ 4,793 $ 5,744 $ 10,537 Net interest income for the twelve months ended December 31, 2023 was $74.9 million, a decrease of $22.2 million, or 22.9%, compared to $97.1 million for the twelve months ended December 31, 2022.
The decrease in interest expense in certificates and brokered deposits of $3.3 million, or 14.0%, was due primarily to a $264.2 million, or 18.7%, decrease in the average balance of these deposits, partially offset by an increase of 9 bps in the cost of these deposits.
The increase in interest expense related to certificates and brokered deposits was driven by an increase of 247 bps in the cost of these deposits, as well as an increase of $893.0 million, or 77.9%, in the average balance of these deposits.
Certificates of deposits and brokered certificates of deposits scheduled to mature in one year or less at December 31, 2022 totaled $639.0 million. Management is not aware of any other events or regulatory requirements that, if implemented, are likely to have a material effect on either the Company’s or the Bank’s liquidity.
Management is not aware of any other events or regulatory requirements that, if implemented, are likely to have a material effect on either the Company’s or the Bank’s liquidity. The following table presents the Company’s significant contractual obligations as of December 31, 2023.
Government-sponsored agencies $ 35,606 $ 50,013 Municipal securities 68,958 75,158 Agency mortgage-backed securities - residential 252,066 377,928 Agency mortgage-backed securities - commercial 17,142 36,024 Private label mortgage-backed securities - residential 11,777 15,902 Asset-backed securities 5,000 5,000 Corporate securities 45,634 46,482 Total securities available-for-sale 436,183 606,507 Securities held-to-maturity Municipal securities 13,946 13,992 Agency mortgage-backed securities - residential 121,853 — Agency mortgage-backed securities - commercial 5,818 — Corporate securities 47,551 45,573 Total securities held-to-maturity 189,168 59,565 Total securities $ 625,351 $ 666,072 December 31, Approximate Fair Value 2022 2021 Securities available-for-sale U.S.
Government-sponsored agencies $ 96,404 $ 35,606 Municipal securities 69,494 68,958 Agency mortgage-backed securities - residential 237,798 252,066 Agency mortgage-backed securities - commercial 40,215 17,142 Private label mortgage-backed securities - residential 21,742 11,777 Asset-backed securities 8,071 5,000 Corporate securities 39,591 45,634 Total securities available-for-sale 513,315 436,183 Securities held-to-maturity Municipal securities 13,889 13,946 Agency mortgage-backed securities - residential 166,750 121,853 Agency mortgage-backed securities - commercial 5,767 5,818 Corporate securities 40,747 47,551 Total held-to-maturity, net 227,153 189,168 Total securities $ 740,468 $ 625,351 December 31, Approximate Fair Value 2023 2022 Securities available-for-sale U.S.
The increase in net interest income was the result of a $23.0 million, or 17.2%, increase in total interest income to $156.9 million for the twelve months ended December 31, 2022 compared to $133.9 million for the twelve months ended December 31, 2021.
The decrease in net interest income was the result of a $104.7 million, or 175.1%, increase in total interest expense to $164.5 million for the twelve months ended December 31, 2023 compared to $59.8 million for the twelve months ended December 31, 2022.
The decrease was due primarily to a decrease of $158.1 million in agency mortgage-backed securities - residential, $20.5 million in agency mortgage-backed securities - commercial, $15.2 million in U.S. Government-sponsored agencies securities, $9.8 million in municipal securities, and $5.6 million in private label mortgage-backed securities - residential.
The increase was due primarily to increases of $61.4 million in U.S. Government-sponsored agencies securities, $23.0 million in agency mortgage-backed securities - commercial and $10.3 million in private label mortgage-backed securities - residential, partially offset by decreases of $8.4 million in agency mortgage-backed securities - residential and $6.1 million in corporate securities.
Government-sponsored agencies $ 33,809 $ 49,040 Municipal securities 67,276 77,033 Agency mortgage-backed securities - residential 215,092 373,236 Agency mortgage-backed securities - commercial 15,840 36,326 Private label mortgage-backed securities - residential 10,455 16,021 Asset-backed securities 4,960 5,004 Corporate securities 42,952 46,384 Total securities available-for-sale 390,384 603,044 Securities held-to-maturity Municipal securities 12,832 14,709 Agency mortgage-backed securities - residential 106,741 — Agency mortgage-backed securities - commercial 4,552 — Corporate securities 44,358 46,759 Total securities held-to-maturity 168,483 61,468 Total securities $ 558,867 $ 664,512 The approximate fair value of investment securities available-for-sale decreased $212.7 million, or 35.3%, to $390.4 million as of December 31, 2022 compared to $603.0 million as of December 31, 2021.
Government-sponsored agencies $ 95,177 $ 33,809 Municipal securities 68,446 67,276 Agency mortgage-backed securities - residential 206,649 215,092 Agency mortgage-backed securities - commercial 38,885 15,840 Private label mortgage-backed securities - residential 20,779 10,455 Asset-backed securities 8,081 4,960 Corporate securities 36,838 42,952 Total securities available-for-sale 474,855 390,384 Securities held-to-maturity Municipal securities 13,040 12,832 Agency mortgage-backed securities - residential 152,642 106,741 Agency mortgage-backed securities - commercial 4,521 4,552 Corporate securities 37,369 44,358 Total held-to-maturity 207,572 168,483 Total securities $ 682,427 $ 558,867 The approximate fair value of investment securities available-for-sale increased $84.5 million, or 21.6%, to $474.9 million as of December 31, 2023 compared to $390.4 million as of December 31, 2022.
The decrease in money market accounts was due primarily to certain customer activity that can be periodically volatile. 38 The following tables present contractual interest rates paid on time deposits, their scheduled maturities, and the scheduled maturities for time deposits greater than $250,000.
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.
This increase was due primarily to increases of $279.4 million, or 93.3%, in brokered deposits, $87.6 million, or 35.3%, in interest-bearing demand deposits, $57.8 million, or 49.2%, in noninterest-bearing deposits and $13.6 million in BaaS - brokered deposits partially offset by a decline of $95.6 million, or 9.9% in certificates of deposits, $65.3 million, or 4.4%, in money market accounts, and $15.2 million, or 25.3%, in savings accounts.
This increase was due primarily to increases of $730.7 million, or 83.6%, in certificates of deposits, $67.4 million, or 20.1%, in interest-bearing demand deposits, $60.8 million, or 446.8%, in BaaS - brokered deposits and $12.5 million, 2.2%, in brokered deposits, partially offset by decreases of $170.3 million, or 12.0%, in money market accounts, $51.9 million, or 29.6%, in noninterest-bearing deposits, and $23.5 million, or 52.3%, in savings accounts.
Payments Due In (dollars in thousands) Note Reference Less than 1 year 1-3 years 3-5 years More than 5 years Total Premises and equipment 5 $ 4,200 $ — $ — $ — $ 4,200 Deposits and brokered deposits without stated maturity 1 8 2,311,482 — — — 2,311,482 Certificates of deposits and brokered deposits 1,2 8 639,002 321,754 169,007 — 1,129,763 FHLB advances 1,2 9 145,000 235,009 110,000 124,919 614,928 Subordinated debt 1 10 — — — 107,000 107,000 Total contractual obligations $ 3,099,684 $ 556,763 $ 279,007 $ 231,919 $ 4,167,373 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.
Payments Due In (dollars in thousands) Note Reference Less than 1 year 1-3 years 3-5 years More than 5 years Total Deposits and brokered deposits without stated maturity 1 8 2,193,959 — — — 2,193,959 Certificates of deposits and brokered deposits 1 8 1,332,424 274,626 259,564 6,400 1,873,014 FHLB advances 1,2 9 255,003 100,000 135,000 124,931 614,934 Subordinated debt 1 10 — — — 107,000 107,000 Total contractual obligations $ 3,781,386 $ 374,626 $ 394,564 $ 238,331 $ 4,788,907 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.
The decreases in other securities types were also driven by a decline in value resulting from the continued rise in interest rates, as well as net paydown activity. 37 Investment Maturities The following table summarizes the contractual maturity schedule of our investment securities at their amortized cost and their weighted average yields at December 31, 2022. 1 year or less More than 1 year to 5 years More than 5 years to 10 years More than 10 years Total (dollars in thousands) Amortized Cost Wtd.
The increase was due primarily to CRA-eligible purchases of agency mortgage-backed securities - residential. 37 Investment Maturities The following table summarizes the contractual maturity schedule (without regard to repricing schedules) of our investment securities at their amortized cost and their weighted average yields at December 31, 2023. 1 year or less More than 1 year to 5 years More than 5 years to 10 years More than 10 years Total (dollars in thousands) Amortized Cost Wtd.
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.
This evaluation uses a discounted cash flow analysis based on historical loss data, reasonable and supportable forecasts and prepayment rates, 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.
The allowance for loan losses as a percentage of nonperforming loans increased to 421.5% as of December 31, 2022, up from to 376.2% as of December 31, 2021. The provision for loans losses was $5.0 million for the twelve months ended December 31, 2022 compared to $1.0 million for the twelve months ended December 31, 2021.
The provision for credit losses - loans was $15.5 million for the twelve months ended December 31, 2023 compared to $5.0 million for the twelve months ended December 31, 2022.
The increase in consulting and professional fees was due primarily to a $0.9 million consulting fee associated with a special project. 27 Income Taxes The following table reconciles reported income tax expense to that computed at the statutory federal tax rate for the three most recent years.
Income Taxes The following table reconciles reported income tax (benefit) provision to that computed at the statutory federal tax rate for the three most recent years.
The Company estimates that it will incur total pre-tax expense of approximately $3.3 million in the first and second quarters of 2023 associated with exiting this line of business.
The Company incurred total pre-tax expense of $3.1 million in 2023 associated with exiting the consumer mortgage origination business.
Deposits The following table presents the composition of our deposit base as of the end of the last two years.
The increase was due primarily to increases of $3.0 million in deferred tax assets and $3.4 million in fund investments. Deposits The following table presents the composition of our deposit base as of the end of the last two years.
The increase in NIM and FTE NIM compared to the twelve months ended December 31, 2021 was due primarily to an increase in the yield earned on interest-earning assets, partially offset by an increase in the cost of interest-bearing liabilities.
The decrease in NIM and FTE NIM compared to the twelve months ended December 31, 2022 reflects the increase in the cost of interest-bearing liabilities of 206 bps, partially offset by the increase in earning asset yields of 109 bps. Noninterest Income The following table presents noninterest income for the three most recent years.
(amounts in thousands) Within 1 Year 1-5 Years 5-15 Years Beyond 15 Years Total Fixed rate $ 73,869 $ 681,066 $ 1,820,429 $ 304,928 $ 2,880,292 Variable rate 108,770 240,005 120,254 103,286 572,315 Total commercial and consumer loans $ 182,639 $ 921,071 $ 1,940,683 $ 408,214 $ 3,452,607 Loan Approval Procedures and Authority Our lending activities follow written, non-discriminatory policies with loan approval limits approved by the Board of Directors of the Bank.
(amounts in thousands) Within 1 Year 1-5 Years 5-15 Years Beyond 15 Years Total Fixed rate $ 76,393 $ 594,012 $ 1,945,170 $ 429,865 $ 3,045,440 Variable rate 182,084 260,899 200,467 113,965 757,415 Total commercial and consumer loans $ 258,477 $ 854,911 $ 2,145,637 $ 543,830 $ 3,802,855 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.
Interest income earned on loans, including loans held-for-sale, increased by $17.1 million as a result of the yield on the loan portfolio increasing by 35 bps, as well as the average balance of loans increasing by $142.9 million, or 4.8%.
The growth in total interest income was due primarily to an increase in interest earned on loans resulting from an increase of 75 bps in the yield earned on loans, as well as an increase of $543.6 million, or 17.3%, in the average balance of loans, including loans held-for-sale.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+0 added−1 removed10 unchanged
Biggest changePresented below are the estimated impacts on the Company’s NII and EVE position as of December 31, 2022, assuming a static balance sheet and instantaneous and gradual parallel shifts in interest rates: % Change from Base Case for Instantaneous Parallel Changes in Rates Implied Forward Curve -200 Basis Points Implied Forward Curve -100 Basis Points Base Implied Forward Curve Implied Forward Curve +100 Basis Points Implied Forward Curve +200 Basis Points NII - Year 1 18.12 % 10.25 % N/A (7.00 %) (14.29 %) NII - Year 2 44.68 % 39.63 % 30.31 % 21.74 % 12.21 % EVE 33.44 % 21.29 % N/A (17.53 %) (32.66 %) % Change from Base Case for Gradual Changes in Rates Implied Forward Curve -200 Basis Points Implied Forward Curve -100 Basis Points Base Implied Forward Curve Implied Forward Curve +100 Basis Points Implied Forward Curve +200 Basis Points NII - Year 1 7.66 % 4.06 % N/A (3.87 %) (7.40 %) NII - Year 2 45.86 % 39.60 % 30.31 % 19.78 % 8.96 % EVE 30.46 % 19.15 % N/A (17.60 %) (32.25 %) The NII and EVE figures presented in both tables above are reflective of a static balance sheet, and do not incorporate either balance sheet growth or strategies to increase net interest income while managing volatility arising from shifts in market interest rates.
Biggest changePresented below is the estimated impact on our NII and EVE position as of December 31, 2023, assuming a static balance sheet and gradual parallel shifts in interest rates over a twelve-month period: % Change from Base Case for Gradual Changes in Rates Implied Forward Curve -200 Basis Points Implied Forward Curve -100 Basis Points Base Implied Forward Curve Implied Forward Curve +50 Basis Points Implied Forward Curve +100 Basis Points NII - Year 1 7.78 % 4.16 % N/A (2.43 %) (4.92 %) NII - Year 2 44.76 % 38.44 % 29.04 % 23.18 % 17.18 % EVE 24.22 % 14.85 % N/A (7.67 %) (15.39 %) 50 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.
Presented below is the estimated impact on our NII and EVE position as of December 31, 2022, assuming a static balance sheet and instantaneous parallel shifts in interest rates: % Change from Base Case for Instantaneous Parallel Changes in Rates Implied Forward Curve -200 Basis Points Implied Forward Curve -100 Basis Points Base Implied Forward Curve Implied Forward Curve +100 Basis Points Implied Forward Curve +200 Basis Points NII - Year 1 18.29 % 10.37 % N/A (7.90 %) (16.08 %) NII - Year 2 44.95 % 39.78 % 30.40 % 20.95 % 10.45 % EVE 40.47 % 23.97 % N/A (19.57 %) (36.47 %) To supplement the instantaneous rate shocks required by regulatory guidance, we also calculate our interest rate risk position assuming a gradual change in market interest rates.
Presented below is the estimated impact on our NII and EVE position as of December 31, 2023, assuming a static balance sheet and instantaneous parallel shifts in interest rates: % Change from Base Case for Instantaneous Parallel Changes in Rates Implied Forward Curve -200 Basis Points Implied Forward Curve -100 Basis Points Base Implied Forward Curve Implied Forward Curve +50 Basis Points Implied Forward Curve +100 Basis Points NII - Year 1 20.32 % 10.83 % N/A (4.51 %) (8.86 %) NII - Year 2 43.94 % 38.11 % 29.04 % 24.52 % 20.17 % EVE 26.38 % 16.02 % N/A (6.93 %) (13.75 %) 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.
Removed
Presented below is the estimated impact on our NII and EVE position as of December 31, 2022, assuming a static balance sheet and gradual parallel shifts in interest rates over a twelve-month period: % Change from Base Case for Gradual Changes in Rates Implied Forward Curve -200 Basis Points Implied Forward Curve -100 Basis Points Base Implied Forward Curve Implied Forward Curve +100 Basis Points Implied Forward Curve +200 Basis Points NII - Year 1 8.01 % 4.26 % N/A (4.23 %) (8.17 %) NII - Year 2 46.36 % 39.94 % 30.40 % 19.26 % 7.61 % EVE 31.45 % 19.64 % N/A (18.22 %) (33.52 %) 46 In the Company’s supplementary model, it incorporates deposit betas ranging from 11% to 98% in up-rate scenarios related to its savings and money market non-maturity deposit products, which approximates actual deposit pricing experience in 2022.

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