What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-10 compared with 2020-11-05 · 217 added, 328 removed, 1069 unchanged (34% of the section changed)

3 unchanged sentences

(Amounts in thousands except share data)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Cash and due from banks $ 4,440 $ 7,367

13 unchanged sentences

Servicing asset, at fair value 3,817 3,569

Other real estate owned — 2,065

Accrued income and other assets 52,359 64,304

28 unchanged sentences

(Amounts in thousands except share and per share data)

Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Three Months Ended

March 31, 2021 March 31, 2020

Interest Income

17 unchanged sentences

Gain on sale of loans 1,723 1,801

Gain (loss) on sale of securities 98 — 139 ( 458 )

Gain on sale of securities — 41

Other 369 417

8 unchanged sentences

Deposit insurance premium 425 485

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

Other 1,137 1,076

14 unchanged sentences

(Amounts in thousands)

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Net income $ 10,450 $ 6,019

1 unchanged sentence

Net unrealized holding gains on securities available-for-sale recorded within other comprehensive (loss) income before income tax ( 2,195 ) 6,299

Reclassification adjustment for (gains) losses realized ( 98 ) — ( 139 ) 458

Reclassification adjustment for gains realized — ( 41 )

Net unrealized holding gains (losses) on cash flow hedging derivatives recorded within other comprehensive income (loss) before income tax 6,280 ( 13,458 )

6 unchanged sentences

Condensed Consolidated Statements of Changes in Shareholders’ Equity - Unaudited

Nine Months Ended September 30, 2020 and 2019

Three Months Ended March 31, 2021 and 2020

(Amounts in thousands except per share data)

5 unchanged sentences

Net income — 10,450 — 10,450

Other comprehensive loss — — ( 4,899 ) ( 4,899 )

Other comprehensive income — — 3,276 3,276

Dividends declared ($ 0.06 per share)

3 unchanged sentences

Common stock redeemed for the net settlement of share-based awards ( 195 ) — — ( 195 )

Balance, September 30, 2020 $ 220,951 $ 116,241 $ ( 19,090 ) $ 318,102

Balance, March 31, 2021 $ 221,911 $ 136,575 $ ( 13,920 ) $ 344,566

Balance, January 1, 2020 $ 219,423 $ 99,681 $ ( 14,191 ) $ 304,913

Impact of adoption of new accounting standards (1)

— ( 821 ) — ( 821 )

Net income — 6,019 — 6,019

3 unchanged sentences

Recognition of the fair value of share-based compensation 555 — — 555

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

Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units 8 — — 8

Common stock redeemed for the net settlement of share-based awards ( 93 ) — — ( 93 )

Balance, September 30, 2019 $ 219,013 $ 93,182 $ ( 17,055 ) $ 295,140

(1) Represents the impact of adopting Accounting Standards Update (“ASU”) 2017-08.

See Notes to Condensed Consolidated Financial Statements

First Internet Bancorp

Condensed Consolidated Statements of Changes in Shareholders’ Equity - Unaudited

Three Months Ended September 30, 2020 and 2019

(Amounts in thousands except per share data)

Stock Retained

Earnings Accumulated

Comprehensive

Shareholders’

Balance, July 1, 2020 $ 220,418 $ 108,431 $ ( 21,138 ) $ 307,711

Net income — 8,411 — 8,411

Other comprehensive income — — 2,048 2,048

Dividends declared ($ 0.06 per share)

— ( 601 ) — ( 601 )

Recognition of the fair value of share-based compensation 527 — — 527

Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units 6 — — 6

Balance, September 30, 2020 $ 220,951 $ 116,241 $ ( 19,090 ) $ 318,102

Balance, July 1, 2019 $ 224,244 $ 87,454 $ ( 15,578 ) $ 296,120

Net income — 6,326 — 6,326

Other comprehensive loss — — ( 1,477 ) ( 1,477 )

Dividends declared ($ 0.06 per share)

— ( 598 ) — ( 598 )

Recognition of the fair value of share-based compensation 416 — — 416

Repurchase of common stock ( 5,651 ) ( 5,651 )

Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units 4 — — 4

Balance, September 30, 2019 $ 219,013 $ 93,182 $ ( 17,055 ) $ 295,140

Balance, March 31, 2020 $ 219,893 $ 105,100 $ ( 19,866 ) $ 305,127

See Notes to Condensed Consolidated Financial Statements

2 unchanged sentences

(Amounts in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Operating Activities

5 unchanged sentences

Share-based compensation expense 692 555

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

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

Loss on sale of available-for-sale securities — ( 41 )

Loans originated for sale ( 223,880 ) ( 215,385 )

3 unchanged sentences

Gain on derivatives 881 1,163

Settlement of derivatives ( 46,109 ) —

Net change in servicing asset ( 248 ) 66

1 unchanged sentence

Net change in accrued expenses and other liabilities ( 2,012 ) 311

Net cash used in operating activities ( 35,023 ) ( 40,853 )

Net cash provided by ( used in) operating activities 31,133 ( 25,835 )

Investing Activities

3 unchanged sentences

Purchase of securities available-for-sale ( 21,279 ) ( 95,835 )

Purchase of securities held-to-maturity ( 2,000 ) ( 24,116 )

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

Purchase of premises and equipment ( 5,697 ) ( 4,856 )

1 unchanged sentence

Net proceeds from sale of portfolio loans — 193,533

Net cash used in investing activities ( 20,447 ) ( 222,080 )

Net cash provided by investing activities 29,344 25,877

Financing Activities

1 unchanged sentence

Cash dividends paid ( 601 ) ( 585 )

Net proceeds from issuance of subordinated debt — 35,418

Repurchase of common stock — ( 9,784 )

Repayment of subordinated debt ( 10,000 ) —

Proceeds from advances from Federal Home Loan Bank 110,000 110,000

1 unchanged sentence

Other, net ( 195 ) ( 93 )

Net cash provided by financing activities 216,562 490,623

Net Increase in Cash and Cash Equivalents 161,092 227,690

Net cash (used in) provided by financing activities ( 64,078 ) 23,865

Net (Decrease) Increase in Cash and Cash Equivalents ( 3,601 ) 23,907

Cash and Cash Equivalents, Beginning of Period 419,806 327,361

1 unchanged sentence

Supplemental Disclosures

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

Initial recognition of operating lease liabilities — 2,096

Cash paid during the period for interest 12,777 21,699

14 unchanged sentences

In our opinion, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation have been included.

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results expected for the year ending December 31, 2020 or any other period.

The September 30, 2020 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the First Internet Bancorp Annual Report on Form 10-K for the year ended December 31, 2019.

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the year ending December 31, 2021 or any other period.

The March 31, 2021 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the First Internet Bancorp Annual Report on Form 10-K for the year ended December 31, 2020.

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments, or assumptions that could have a material effect on the carrying value of certain assets and liabilities.

9 unchanged sentences

Earnings per share of common stock are based on the weighted-average number of basic shares and dilutive shares outstanding during the period.

The following is a reconciliation of the weighted-average common shares for the basic and diluted earnings per share computations for the three and nine months ended September 30, 2020 and 2019.

(dollars in thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

The following is a reconciliation of the weighted-average common shares for the basic and diluted earnings per share computations for the three months ended March 31, 2021 and 2020.

(dollars in thousands, except per share data) Three Months Ended March 31,

Basic earnings per share

10 unchanged sentences

(1) Potential dilutive common shares are excluded from the computation of diluted EPS in the periods where the effect would be antidilutive.

Excluded from the computation of diluted EPS were weighted-average antidilutive shares totaling 55,309 and 38,212 for the three and nine months ended September 30, 2020, respectively, and 15,256 and 22,209 for the three and nine months ended September 30, 2019, respectively .

The following tables summarize securities available-for-sale and securities held-to-maturity as of September 30, 2020 and December 31, 2019.

September 30, 2020

There were no weighted-average antidilutive shares excluded from the computation of diluted EPS for the three months ended March 31, 2021 and 8,575 weighted-average antidilutive shares excluded from the computation of diluted EPS for the three months ended March 31, 2020 .

The following tables summarize securities available-for-sale and securities held-to-maturity as of March 31, 2021 and December 31, 2020.

March 31, 2021

Amortized Gross Unrealized Fair

8 unchanged sentences

Total available-for-sale $ 463,947 $ 5,116 $ ( 6,687 ) $ 462,376

September 30, 2020

March 31, 2021

Amortized Gross Unrealized Fair

25 unchanged sentences

Total held-to-maturity $ 68,223 $ 1,356 $ ( 127 ) $ 69,452

The Company elected to transfer ten available-for-sale (“AFS”) securities with an aggregate fair value of $ 4.5 million to a classification of held-to-maturity (“HTM”) on March 1, 2020.

The net unrealized holding gain of $ 0.1 million, net of tax, as the date of the transfer was retained in accumulated other comprehensive loss, with the associated pretax amount retained in the carrying value of the HTM securities.

Such amounts will be amortized to interest income over the remaining life of the securities.

The fair value of the transferred AFS securities became the book value of the HTM securities as of March 1, 2020, with no unrealized gain or loss at that date.

The carrying value of securities at September 30, 2020 is shown below by their contractual maturity date.

The carrying value of securities at March 31, 2021 is shown below by their contractual maturity date.

Actual maturities will differ because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

16 unchanged sentences

Total $ 68,190 $ 69,383

There were $ 0.1 million of gross gains resulting from sales of AFS securities during the three and nine months ended September 30, 2020.

There were zero and $ 0.5 million of gross losses resulting from sales of AFS securities during the three and nine months ended September 30, 2019, respectively.

There were no gross gains or losses resulting from sale of available-for-sale securities during the three months ended March 31, 2021.

There were less than $0.1 million gross gains resulting from sales of available securities during the three months ended March 31, 2020.

Certain investments in debt securities are reported in the condensed consolidated financial statements at an amount less than their historical cost.

The total fair value of these investments at September 30, 2020 and December 31, 2019 was $ 206.4 million and $ 317.5 million, which was approximately 35 % and 53 %, respectively, of the Company’s AFS and HTM securities portfolios.

The total fair value of these investments at March 31, 2021 and December 31, 2020 was $ 247.3 million and $ 226.5 million, which was approximately 47 % and 40 %, respectively, of the Company’s AFS and HTM securities portfolios.

As of March 31, 2021, the Company’s security portfolio consisted of 437 securities, of which 146 were in an unrealized loss position.

The unrealized losses are related to the categories noted below.

These declines resulted primarily from fluctuations in market interest rates after purchase.

5 unchanged sentences

The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments.

Because the Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be upon maturity, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2020.

Agency Mortgage-Backed, Private Label Mortgage-Backed and Asset-Backed Securities

The unrealized losses on the Company’s investments in agency mortgage-backed, private label mortgage-backed and asset-backed securities were caused primarily by interest rate changes.

The Company expects to recover the amortized cost bases over the term of the securities.

The following tables show the securities portfolio’s gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2020 and December 31, 2019.

September 30, 2020

The Company expects to recover the amortized cost bases over the terms of the securities.

March 31, 2021

Less Than 12 Months 12 Months or Longer Total

9 unchanged sentences

1,980 ( 1 ) — — 1,980 ( 1 )

Asset-backed securities — — 4,921 ( 79 ) 4,921 ( 79 )

Corporate securities — — 9,458 ( 542 ) 9,458 ( 542 )

Total $ 173,656 $ ( 4,232 ) $ 67,218 $ ( 2,455 ) $ 240,874 $ ( 6,687 )

September 30, 2020

March 31, 2021

Less Than 12 Months 12 Months or Longer Total

32 unchanged sentences

Total $ 17,456 $ ( 126 ) $ 2,999 $ ( 1 ) $ 20,455 $ ( 127 )

Amounts reclassified from accumulated other comprehensive loss and the affected line items in the condensed consolidated statements of income during the three and nine months ended September 30, 2020 and September 30, 2019 were as follows:

There were no amounts reclassified form accumulated other comprehensive loss to the condensed consolidated statements of income during the three months ended March 31, 2021.

Amounts reclassified from accumulated other comprehensive loss and the affected line items in the condensed consolidated statements of income during the three months ended March 31, 2020 were as follows:

(in thousands)

2 unchanged sentences

Statements of Income

Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020 Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019

Realized gains (losses) on securities available-for-sale

Gain (loss) realized in earnings $ 98 $ 139 $ — $ ( 458 ) Gain (loss) on sale of securities

Three Months Ended

March 31, 2020

Realized gains on securities available-for-sale

Gain realized in earnings $ 41 Gain on sale of securities

Total reclassified amount before tax 41 Income Before Income Taxes

Tax expense (benefit) 26 38 — ( 124 ) Income Tax Provision

Tax expense 11 Income Tax Provision

Total reclassifications out of accumulated other comprehensive loss

$ 30 Net Income

Loan balances as of September 30, 2020 and December 31, 2019 are summarized in the table below.

Loan balances as of March 31, 2021 and December 31, 2020 are summarized in the table below.

Categories of loans include:

(in thousands) September 30, 2020 December 31, 2019

(in thousands) March 31, 2021 December 31, 2020

Commercial loans

1 unchanged sentence

Owner-occupied commercial real estate 87,930 89,785

89,095 86,726

Investor commercial real estate 14,832 13,902

4 unchanged sentences

Small business lending 132,490 125,589

123,168 46,945

Total commercial loans 2,519,729 2,515,631

10 unchanged sentences

Net loans $ 3,028,052 $ 3,029,747

(1) As of September 30, 2020, $ 12.0 million of commercial real estate loan balances were reclassified from small business lending to owner-occupied commercial real estate.

(2) Includes carrying value adjustments of $ 44.3 million related to terminated interest rate swaps associated with public finance loans as of September 30, 2020 and $ 21.4 million related to interest rate swaps associated with public finance loans as of December 31, 2019.

(1) Includes carrying value adjustments of $ 41.6 million related to terminated interest rate swaps associated with public finance loans as of March 31, 2021 and $ 42.7 million related to interest rate swaps associated with public finance loans as of December 31, 2020.

The risk characteristics of each loan portfolio segment are as follows:

97 unchanged sentences

A home improvement loan generally is charged off no later than when it is 90 days past due as to principal or interest.

The following tables present changes in the balance of the ALLL during the three and nine months ended September 30, 2020 and 2019.

(in thousands) Three Months Ended September 30, 2020

Allowance for loan losses:

Balance, Beginning of Period Provision (Credit) Charged to Expense Losses

Charged Off Recoveries Balance,

End of Period

Commercial and industrial $ 1,477 $ ( 227 ) $ ( 99 ) $ — $ 1,151

Owner-occupied commercial real estate 846 167 — — 1,013

Investor commercial real estate 130 — — — 130

Construction 721 155 — — 876

Single tenant lease financing 11,318 717 — — 12,035

Public finance 1,542 191 — — 1,733

Healthcare finance 4,762 1,232 — 87 6,081

Small business lending 251 230 — 3 484

Residential mortgage 539 26 — — 565

Home equity 51 ( 1 ) — 3 53

Other consumer 2,828 19 ( 142 ) 91 2,796

Total $ 24,465 $ 2,509 $ ( 241 ) $ 184 $ 26,917

Nine Months Ended September 30, 2020

Allowance for loan losses:

Balance, Beginning of Period Provision (Credit) Charged to Expense Losses

Charged Off Recoveries Balance,

End of Period

Commercial and industrial $ 1,521 $ ( 22 ) $ ( 353 ) $ 5 $ 1,151

Owner-occupied commercial real estate 561 452 — — 1,013

Investor commercial real estate 109 21 — — 130

Construction 380 496 — — 876

Single tenant lease financing 11,175 860 — — 12,035

Public finance 1,580 153 — — 1,733

Healthcare finance 3,247 3,490 ( 743 ) 87 6,081

Small business lending 54 413 — 17 484

Residential mortgage 657 ( 81 ) ( 15 ) 4 565

Home equity 46 ( 1 ) — 8 53

Other consumer 2,510 680 ( 644 ) 250 2,796

Total $ 21,840 $ 6,461 $ ( 1,755 ) $ 371 $ 26,917

(in thousands) Three Months Ended September 30, 2019

The following tables present changes in the balance of the ALLL during the three months ended March 31, 2021 and 2020.

(in thousands) Three Months Ended March 31, 2021

Allowance for loan losses:

14 unchanged sentences

Total $ 29,484 $ 1,276 $ ( 311 ) $ 193 $ 30,642

Nine Months Ended September 30, 2019

Three Months Ended March, 2020

Allowance for loan losses:

14 unchanged sentences

Total $ 21,840 $ 1,461 $ ( 498 ) $ 54 $ 22,857

The following tables present the recorded investment in loans based on portfolio segment and impairment method as of September 30, 2020 and December 31, 2019.

The following tables present the recorded investment in loans based on portfolio segment and impairment method as of March 31, 2021 and December 31, 2020.

(in thousands) Loans Allowance for Loan Losses

September 30, 2020 Ending Balance:

March 31, 2021 Ending Balance:

Collectively Evaluated for Impairment Ending Balance:

10 unchanged sentences

Small business lending (1)

131,625 865 132,490 700 — 700

Residential mortgage 187,845 2,303 190,148 601 — 601

2 unchanged sentences

Total $ 2,980,775 $ 17,260 $ 2,998,035 $ 26,429 $ 4,213 $ 30,642

1 Balance of loans individually evaluated for impairment are guaranteed by the U.S.

(in thousands) Loans Allowance for Loan Losses

32 unchanged sentences

A loan placed on nonaccrual status may be restored to accrual status when all delinquent principal and interest has been brought current, and the Company expects full payment of the remaining contractual principal and interest.

The following tables present the credit risk profile of the Company’s commercial and consumer loan portfolios based on rating category and payment activity as of September 30, 2020 and December 31, 2019.

September 30, 2020

The following tables present the credit risk profile of the Company’s commercial and consumer loan portfolios based on rating category and payment activity as of March 31, 2021 and December 31, 2020.

March 31, 2021

(in thousands) Pass Special Mention Substandard Total

7 unchanged sentences

Small business lending (1)

123,959 7,666 865 132,490

Total commercial loans $ 2,465,922 $ 38,892 $ 14,915 $ 2,519,729

September 30, 2020

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

March 31, 2021

(in thousands) Performing Nonaccrual Total

20 unchanged sentences

Total consumer loans $ 481,107 $ 1,229 $ 482,336

The following tables present the Company’s loan portfolio delinquency analysis as of September 30, 2020 and December 31, 2019.

September 30, 2020

The following tables present the Company’s loan portfolio delinquency analysis as of March 31, 2021 and December 31, 2020.

March 31, 2021

(in thousands) 30-59

12 unchanged sentences

Small business lending (1)

— — 865 865 131,625 132,490 865 —

Residential mortgage — — 497 497 189,651 190,148 1,120 278

2 unchanged sentences

Total $ 196 $ 1,109 $ 6,054 $ 7,359 $ 2,990,676 $ 2,998,035 $ 14,371 $ 278

1 Balance in “90 Days Or More Past Due” is guaranteed by the U.S.

December 31, 2020

26 unchanged sentences

ASC Topic 310, Receivables , requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loans’ effective interest rates or the fair value of the underlying collateral, less costs to sell, and allows existing methods for recognizing interest income.

The following table presents the Company’s impaired loans as of September 30, 2020 and December 31, 2019.

September 30, 2020 December 31, 2019

The following table presents the Company’s impaired loans as of March 31, 2021 and December 31, 2020.

March 31, 2021 December 31, 2020

(in thousands) Recorded

9 unchanged sentences

Healthcare finance — — — 1,010 1,010 —

Small business lending (1)

865 865 — — — —

Residential mortgage 2,303 2,416 — 1,546 1,652 —

Home equity 15 15 — — — —

Other consumer 28 63 — 50 120 —

3 unchanged sentences

Single tenant lease financing 7,080 7,154 3,090 6,009 6,036 3,090

Healthcare Finance 987 987 524 — — —

Total 9,069 9,143 4,213 6,009 6,036 3,090

Total impaired loans $ 17,260 $ 17,482 $ 4,213 $ 12,285 $ 12,519 $ 3,090

The table below presents average balances and interest income recognized for impaired loans during the three and nine months ended September 30, 2020 and 2019.

Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

1 Entire balance is guaranteed by the U.S.

The table below presents average balances and interest income recognized for impaired loans during the three months ended March 31, 2021 and 2020.

Three Months Ended

March 31, 2021 March 30, 2020

(in thousands) Average

2 unchanged sentences

Balance Interest

Income Average

Balance Interest

Income Average

Balance Interest

Loans without a specific valuation allowance

1 unchanged sentence

Owner-occupied commercial real estate 2,440 — 1,890 2

Single tenant lease financing 151 5 — —

Healthcare finance 1,008 — — —

Small business lending (1)

577 — 3,332 —

Residential mortgage 1,736 4 1,274 —

5 unchanged sentences

Single tenant lease financing 7,148 — 4,680 —

Healthcare Finance 494 12 — —

Total 8,143 12 4,884 —

Total impaired loans $ 14,620 $ 30 $ 13,491 $ 20

The Company had no residential mortgage other real estate owned as of September 30, 2020 and December 31, 2019.

There were no loans in the process of foreclosure at September 30, 2020 and December 31, 2019.

1 Entire balance is guaranteed by the U.S.

The Company had no residential mortgage other real estate owned as of March 31, 2021 and December 31, 2020.

There was one loan for $ 0.1 million and no loans in the process of foreclosure at March 31, 2021 and December 31, 2020, respectively.

Troubled Debt Restructurings

1 unchanged sentence

These concessions typically result from loss mitigation efforts and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions.

TDRs are classified as nonperforming at the time of restructuring and typically are returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally not less than six consecutive months.

Certain TDRs are classified as nonperforming at the time of restructuring and typically are returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally not less than six consecutive months.

When loans are modified in a TDR, any possible impairment similar to other impaired loans is evaluated based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, or using the current fair value of the collateral, less selling costs, for collateral dependent loans.

4 unchanged sentences

Terms may be modified to fit the ability of the borrower to repay in line with its current financial status or the loan may be restructured to secure additional collateral and/or guarantees to support the debt, or a combination of the two.

There were no loans classified as new TDRs during the three months ended September 30, 2020 and one portfolio residential mortgage loan classified as a new TDR during the nine months ended September 30, 2020 with a pre-modification and post-modification outstanding recorded investment of $ 0.8 million.

The Company did not allocate a specific allowance for that loan as of September 30, 2020.

The modification consisted of an extension of the maturity date.

There were no loans classified as new TDRs during the three months ended September 30, 2019 and four commercial and industrial loans classified as new TDRs during the nine months ended September 30, 2019 with a pre-modification and post-modification outstanding recorded investment of $ 2.0 million.

The Company did not allocate a specific allowance for those loans as of September 30, 2019.

There was one residential mortgage loan classified as a new TDR during the three months ended March 31, 2021 with a pre-modification and post-modification outstanding recorded investment of $ 0.8 million.

The Company did not allocate a specific allowance for that loan as of March 31, 2021.

The modifications consisted of interest-only payments for a period of time.

There were no performing TDRs that had payment defaults within the twelve months following modification during the three and nine months ended September 30, 2020 and 2019, respectively.

There were no loans classified as new TDRs during the three months ended March 31, 2020.

There were no performing TDRs that had payment defaults within the twelve months following modification during the three ended March 31, 2021 and 2020, respectively.

Non-TDR Loan Modifications due to COVID-19

2 unchanged sentences

Additionally, Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) provides that loan modifications due to the impact of COVID-19 that would otherwise be classified as TDRs under GAAP will not be so classified.

Modifications within the scope of this relief are in effect from the period beginning March 1, 2020 until the earlier of December 31, 2020 or 60 days after the date on which the national emergency related to the COVID-19 pandemic formally terminates.

In accordance with this guidance, the Company offered modifications to borrowers who were both impacted by COVID-19 and current on all principal and interest payments.

The table below presents loan deferrals by loan category as of June 30, 2020 and September 30, 2020, respectively.

(in thousands) June 30, 2020

Deferrals Balance September 30, 2020

Number of Deferrals

Commercial loans

Commercial and industrial $ 2,312 $ 722 5

Owner-occupied commercial real estate 25,254 6,235 4

Investor commercial real estate 411 — —

Construction — — —

Single tenant lease financing 275,129 8,281 4

Public finance — — —

Healthcare finance 79,179 2,275 3

Small business lending 1,823 2,790 10

Total commercial loans 384,108 20,303 26

Consumer loans

Residential mortgage 4,719 2,329 5

Home equity 398 — —

Other consumer 3,205 632 21

Total consumer loans 8,322 2,961 26

Total commercial and consumer loans $ 392,430 $ 23,264 52

Modifications within the scope of this relief are in effect from the period beginning March 1, 2020 until the earlier of January 1, 2022 or 60 days after the date on which the national emergency related to the COVID-19 pandemic formally terminates.

As of March 31, 2021, the Company had 37 loans totaling $ 14.3 million in non-TDR loan modifications due to COVID-19.

Premises and Equipment

The following table summarizes premises and equipment at September 30, 2020 and December 31, 2019.

(in thousands) September 30,

The following table summarizes premises and equipment at March 31, 2021 and December 31, 2020.

(in thousands) March 31,

2021 December 31,

1 unchanged sentence

Right of use leased asset 351 819

Construction in process 34,221 28,754

Building and improvements 5,962 5,819

9 unchanged sentences

Development of the site is estimated to be substantially completed by the fourth quarter 2021.

On February 16, 2021, the Company entered into an agreement to sell its current headquarters and certain equipment currently located in the building to a third party.

At March 31, 2021 the net book value of the land, building and improvements was $ 5.3 million.

The sale was completed on April 16, 2021 and as a part of the sale agreement, the buyer has agreed to lease the office building back to the Company through December 31, 2021, with an option to extend up to 90 days beyond that date.

The sale price was $ 8.9 million in cash paid in full at closing.

The Bank is expected to continue to sublease substantially all of the office space for the duration of the leaseback arrangement.

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property or equipment for a period of time in exchange for consideration.

1 unchanged sentence

In addition, the Company elected not to adjust prior comparative periods.

The Company has three operating leases that are used for general office operations with remaining lease terms of two to four years .

The Company has two operating leases that are used for general office operations with remaining lease terms of two to three years .

With the adoption of ASU 2016-02, operating lease agreements are required to be recognized on the condensed consolidated balance sheets as a right-of-use asset and a corresponding lease liability.

The following table shows the components of lease expense.

(in thousands) Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

(in thousands) Three Months Ended

March 31, 2021 March 31, 2020

Operating lease cost $ 143 $ 215

The following table shows supplemental cash flow information related to leases.

(in thousands) Nine Months Ended

September 30, 2020 September 30, 2019

(in thousands) Three Months Ended

March 31, 2021 March 31, 2020

Cash paid for amounts included in the measurement of lease liabilities:

6 unchanged sentences

(dollars in thousands)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Operating lease right-of-use assets $ 351 $ 819

4 unchanged sentences

Operating leases 2.3 % 2.0 %

The following table shows the future minimum payments of operating leases with initial or remaining terms of one year or more as of September 30, 2020.

The following table shows the future minimum payments of operating leases with initial or remaining terms of one year or more as of March 31, 2021.

(in thousands)

Twelve months ended September 30,

Twelve months ended March 31, 2021

Total lease payments 1,326

imputed interest ( 8 )

As of September 30, 2020 and December 31, 2019, the carrying amount of goodwill was $ 4.7 million.

There have been no changes in the carrying amount of goodwill for the three months ended September 30, 2020.

Total $ 1,318

As of March 31, 2021 and December 31, 2020, the carrying amount of goodwill was $ 4.7 million.

There have been no changes in the carrying amount of goodwill for the three months ended March 31, 2021.

Goodwill is assessed for impairment annually as of August 31, or more frequently if events occur or circumstances change that indicate an impairment may exist.

5 unchanged sentences

Servicing Asset

Activity for the servicing asset and the related changes in fair value for the nine months ended September 30, 2020 and 2019 are shown in the table below.

(in thousands) Nine Months Ended

September 30, 2020 September 30, 2019

Beginning balance $ 2,481 $ —

Additions 709 —

Changes in fair value ( 372 ) —

Ending balance $ 2,818 $ —

Activity for the servicing asset and the related changes in fair value for the three months ended March 31, 2021 and 2020 are shown in the table below.

(in thousands) Three Months Ended

March 31, 2021 March 31, 2020

Balance, beginning of period $ 3,569 $ 2,481

Originated and purchased servicing 403 113

Paydowns ( 170 ) ( 179 )

Changes in fair value due to changes in valuation inputs or assumptions used in the

valuation model 15 —

Balance, end of period $ 3,817 $ 2,415

Loans serviced for others are not included in the condensed consolidated balance sheets.

The unpaid principal balances of these loans serviced for others as of September 30, 2020 and December 31, 2019 are shown in the table below.

The unpaid principal balances of these loans serviced for others as of March 31, 2021 and December 31, 2020 are shown in the table below.

(in thousands)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Loan portfolios serviced for:

1 unchanged sentence

Total $ 179,556 $ 165,961

Loan servicing revenue totaled $ 0.3 million and $ 0.8 million during the three and nine months ended September 30, 2020, respectively.

There was no loan servicing revenue during the three and nine months ended September 30, 2019.

Loan servicing asset revaluation, which represents the change in fair value of the servicing asset, resulted in a $ 0.1 million and $ 0.4 million downward valuation for the three and nine months ended September 30, 2020, respectively.

There was no loan servicing asset revaluation during the three and nine months ended September 30, 2019.

Loan servicing revenue totaled $ 0.4 million and $ 0.3 million for the three months ended March 31, 2021 and 2020, respectively.

Loan servicing asset revaluation, which represents the change in fair value of the servicing asset, resulted in a $ 0.2 million downward valuation for the three months ended March 31, 2021 and 2020.

The fair value of servicing rights is highly sensitive to changes in underlying assumptions.

5 unchanged sentences

In October 2015, the Company entered into a term loan in the principal amount of $ 10.0 million, evidenced by a term note due 2025 (the “2025 Note”).

The 2025 Note bears a fixed interest rate of 6.4375 % per year, payable quarterly, and is scheduled to mature on October 1, 2025.

The 2025 Note is an unsecured subordinated obligation of the Company and may be repaid, without penalty, on any interest payment date on or after October 15, 2020.

The 2025 Note is intended to qualify as Tier 2 capital under regulatory guidelines.

The 2025 Note had a fixed interest rate of 6.4375 % per year, payable quarterly, and was scheduled to mature on October 1, 2025.

The 2025 Note was an unsecured subordinated obligation of the Company and was eligible to be repaid, without penalty, on any interest payment date on or after October 15, 2020.

The 2025 Note was intended to qualify as Tier 2 capital under regulatory guidelines.

The Company redeemed the 2025 Note on January 4, 2021.

In September 2016, the Company issued $ 25.0 million aggregate principal amount of 6.0% Fixed-to-Floating Rate Subordinated Notes due 2026 (the “2026 Notes”) in a public offering.

10 unchanged sentences

The 2029 Notes are intended to qualify as Tier 2 capital under regulatory guidelines.

The following table presents the principal balance and unamortized debt issuance costs for the 2025 Note, the 2026 Notes and the 2029 Notes as of September 30, 2020 and December 31, 2019.

September 30, 2020 December 31, 2019

In October 2020, the Company, entered into a term loan in the principal amount of $ 10.0 million, evidenced by term notes due 2030 (the “2030 Notes”).

The 2030 Notes initially bears a fixed interest rate of 6.0 % per year to, but excluding, November 1, 2025 and thereafter at a floating rate equal to the then-current benchmark rate (initially three-month Term SOFR plus 5.795 %).

The 2030 Notes are an unsecured subordinated obligation of the Company and may be repaid, without penalty, on any interest payment date on or after November 1, 2025.

The 2030 Notes are intended to qualify as Tier 2 capital under regulatory guidelines.

The Company used the net proceeds from the issuance of the 2030 Notes to redeem the 2025 Note as discussed above.

The following table presents the principal balance and unamortized debt issuance costs for the 2025 Note, the 2026 Notes, the 2029 Notes and the 2030 Notes as of March 31, 2021 and December 31, 2020.

March 31, 2021 December 31, 2020

(in thousands) Principal Unamortized Debt Issuance Costs Principal Unamortized Debt Issuance Costs

2 unchanged sentences

2029 Notes 37,000 ( 1,297 ) 37,000 ( 1,337 )

2030 Notes $ 10,000 $ ( 225 ) $ 10,000 $ ( 231 )

Total $ 72,000 $ ( 2,206 ) $ 82,000 $ ( 2,397 )

9 unchanged sentences

All employees, consultants, and advisors of the Company or any subsidiary, as well as all non-employee directors of the Company, are eligible to receive awards under the 2013 Plan.

The Company recorded $ 0.5 million and $ 1.6 million of share-based compensation expense for the three and nine months ended September 30, 2020, respectively, related to awards made under th e 2013 Plan.

The Company recorded $ 0.4 million and $ 1.3 million of share-based compensation expense for the three and nine months ended September 30, 2019, respectively, related to awards made under the 2013 Plan.

The following table summarizes the status of the 2013 Plan awards as of September 30, 2020 , and activity for the nine months ended September 30, 2020.

The Company recorded $ 0.7 million of share-based compensation expense for the three months ended March 31, 2021, related to awards made under th e 2013 Plan.

The Company recorded $ 0.6 million of share-based compensation expense for the three months ended March 31, 2020, related to awards made under the 2013 Plan.

The following table summarizes the status of the 2013 Plan awards as of March 31, 2021 , and activity for the three months ended March 31, 2021.

Restricted Stock Units Weighted-Average Grant Date Fair Value Per Share Restricted Stock Awards Weighted-Average Grant Date Fair Value Per Share Deferred Stock Units Weighted-Average Grant Date Fair Value Per Share

2 unchanged sentences

Vested ( 35,745 ) 30.12 ( 3,157 ) 30.13 ( 2 ) 30.85

Forfeited — — ( 1,638 ) 27.56 — —

Nonvested at September 30, 2020 125,600 $ 27.74 3,822 $ 24.44 — $ —

At September 30, 2020, the total unrecognized compensation cost related to nonvested awards was $ 2.6 million with a weighted-average expense recognition period of 1.8 years.

Nonvested at March 31, 2021 134,390 $ 28.20 9,513 $ 30.13 — $ —

At March 31, 2021, the total unrecognized compensation cost related to nonvested awards was $ 3.5 million with a weighted-average expense recognition period of 2.0 years.

Directors Deferred Stock Plan

3 unchanged sentences

Deferred stock rights were to be settled in common stock following the end of the deferral period payable on the basis of one share of common stock for each deferred stock right.

The following table summarizes the status of deferred stock rights related to the Directors Deferred Stock Plan for the nine months ended September 30, 2020.

The following table summarizes the status of deferred stock rights related to the Directors Deferred Stock Plan for the three months ended March 31, 2021.

Deferred Stock Rights

4 unchanged sentences

In the normal course of business, the Company makes various commitments to extend credit which are not reflected in the accompanying condensed consolidated financial statements.

At September 30, 2020 and December 31, 2019, the Company had outstanding loan commitments totaling approximately $ 278.7 million and $ 254.4 million, respectively.

At March 31, 2021 and December 31, 2020, the Company had outstanding loan commitments totaling approximately $ 260.8 million and $ 263.9 million, respectively.

In addition, the Company is a limited partner in a Small Business Investment Company fund (the “SBIC Fund”).

As of September 30, 2020, the Company has committed to contribute up to $ 1.7 million of capital to the SBIC Fund.

As of March 31, 2021, the Company has committed to contribute up to $ 1.4 million of capital to the SBIC Fund.

Capital Commitments

Capital expenditures contracted to at the balance sheet date but not yet recognized in the financial statements are associated with the construction of premises intended to house our future corporate headquarters.

The Company has entered into construction-related contracts in the amount of $ 65.1 million.

As of September 30, 2020, $ 44.7 million of such contract commitments had not yet been incurred.

These commitments are due within two years .

The Company has entered into construction-related contracts and change orders in the amount of $ 66.3 million.

As of March 31, 2021, $ 32.9 million of such contract commitments had not yet been incurred.

These commitments are due within twelve months .

Fair Value of Financial Instruments

19 unchanged sentences

Rating agency and industry research reports as well as default and deferral activity are reviewed and incorporated into the calculation.

The Company did not own any securities classified within Level 3 of the hierarchy as of September 30, 2020 or December 31, 2019.

The Company did not own any securities classified within Level 3 of the hierarchy as of March 31, 2021 or December 31, 2020.

Loans Held-for-Sale (mandatory pricing agreements)

10 unchanged sentences

The fair values of interest rate lock commitments (“IRLCs”) are determined using the projected sale price of individual loans based on changes in market interest rates, projected pull-through rates (the probability that an IRLC will ultimately result in an originated loan), the reduction in the value of the applicant’s option due to the passage of time, and the remaining origination costs to be incurred based on management’s estimate of market costs (Level 3).

The following tables present the fair value measurements of assets and liabilities recognized in the accompanying condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2020 and December 31, 2019.

September 30, 2020

March 31, 2021

Fair Value Measurements Using

41 unchanged sentences

IRLCs 3,361 — — 3,361

The following tables reconcile the beginning and ending balances of recurring fair value measurements recognized in the accompanying condensed consolidated balance sheets using significant unobservable (Level 3) inputs for the three and nine months ended September 30, 2020 and 2019.

Three Months Ended

(in thousands) Servicing Asset Interest Rate Lock

Balance, July 1, 2020 $ 2,522 $ 282

Total realized gains (losses)

Additions 399 —

Change in fair value ( 103 ) 2,834

Balance, September 30, 2020 2,818 3,116

Balance as of July 1, 2019 $ — $ 1,209

Total realized gains

Change in fair value — 275

Balance, September 30, 2019 $ — $ 1,484

(in thousands) Nine Months Ended

Servicing Asset Interest Rate Lock Commitments

Balance, January 1, 2021 $ 3,569 $ 3,361

Total realized gains (losses)

Total realized gains

Additions 403 —

Paydowns ( 170 ) —

Change in fair value 15 ( 2,251 )

Balance, September 30, 2020 $ 2,818 3,116

Balance, March 31, 2021 3,817 1,110

Balance as of January 1, 2020 $ 2,481 $ 910

Total realized gains

Additions 113 —

Paydowns ( 179 ) —

Change in fair value — 1,154

Balance, September 30, 2019 $ — $ 1,484

Balance, March 31, 2020 $ 2,415 $ 2,064

The following describes the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis, as well as the general classification of such assets pursuant to the valuation hierarchy.

3 unchanged sentences

If the impaired loan is identified as collateral dependent, the fair value of the underlying collateral, less costs to sell, is used to measure impairment.

This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value.

This method requires obtaining a current independent appraisal of the collateral and

applying a discount factor to the value.

If the impaired loan is not collateral dependent, the Company utilizes a discounted cash flow analysis to measure impairment.

Impaired loans with a specific valuation allowance based on the value of the underlying collateral or a discounted cash flow analysis are classified as Level 3 assets.

The following table presents the fair value measurements of assets and liabilities recognized in the accompanying condensed consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurement falls at September 30, 2020 and December 31, 2019.

September 30, 2020

March 31, 2021

(in thousands) Fair Value Measurements Using

3 unchanged sentences

Impaired Loans $ 9,069 $ — $ — $ 9,069

Other real estate owned — — — —

December 31, 2020

7 unchanged sentences

(dollars in thousands) Fair Value at

September 30, 2020 Valuation

March 31, 2021 Valuation

Technique Significant Unobservable

3 unchanged sentences

Servicing asset 3,817 Discounted cash flow Prepayment speeds

Other real estate owned — Fair value of collateral Discount to reflect current market conditions 100 % 100 %

Discount rate 0 % - 25 %

(dollars in thousands) Fair Value at

4 unchanged sentences

IRLCs 3,361 Discounted cash flow Loan closing rates 44 % - 100 %

Servicing asset 2,481 Discounted cash flow Prepayment speeds 0% - 25% 13.5 %

Servicing asset 3,569

Discounted cash flow Prepayment speeds

Discount rate 0 % - 25 %

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying condensed consolidated balance sheets at amounts other than fair value.

6 unchanged sentences

Level 2 securities include municipal securities and corporate securities.

Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for

specific investment securities but also on the investment securities’ relationship to other benchmark quoted investment securities.

Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but also on the investment securities’ relationship to other benchmark quoted investment securities.

In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

2 unchanged sentences

Rating agency and industry research reports as well as default and deferral activity are reviewed and incorporated into the calculation.

The Company did not own any securities classified within Level 3 of the hierarchy as of September 30, 2020 or December 31, 2019.

The Company did not own any securities classified within Level 3 of the hierarchy as of March 31, 2021 or December 31, 2020.

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

16 unchanged sentences

The fair value of commitments to extend credit are based on fees currently charged to enter into similar agreements with similar maturities and interest rates.

The Company determined that the fair value of commitments was zero based on the contractual value of outstanding commitments at each of September 30, 2020 and December 31, 2019.

The following tables present the carrying value and estimated fair value of all financial assets and liabilities at September 30, 2020 and December 31, 2019.

September 30, 2020

The Company determined that the fair value of commitments was zero based on the contractual value of outstanding commitments at each of March 31, 2021 and December 31, 2020.

The following tables present the carrying value and estimated fair value of all financial assets and liabilities at March 31, 2021 and December 31, 2020.

March 31, 2021

Fair Value Measurements Using

22 unchanged sentences

Securities held-to-maturity 68,223 69,452 — 69,452 —

Loans held-for-sale (best efforts pricing agreements) 13,243 13,243 — 13,243 —

Net loans 3,029,747 3,084,375 — — 3,084,375

11 unchanged sentences

Refer to Note 14 for further information on derivative financial instruments.

During the three months ended September 30, 2020 and 2019, the Company originated mortgage loans held-for-sale of $ 216.0 million and $ 210.2 million, respectively, and sold $ 203.7 million and $ 203.7 million of mortgage loans, respectively, into the secondary market.

During the nine months ended September 30, 2020 and 2019, the Company originated mortgage loans held-for-sale of $ 431.4 million and $ 430.5 million, respectively, and sold $ 429.3 million and $ 415.2 million of mortgage loans, respectively, into the secondary market.

The following table presents the components of income from mortgage banking activities for the three and nine months ended September 30, 2020 and 2019.

Three Months Ended September 30, Nine Months Ended September 30,

During the three months ended March 31, 2021 and 2020, the Company originated mortgage loans held-for-sale of $ 223.9 million and $ 215.4 million, respectively, and sold $ 241.6 million and $ 225.5 million of mortgage loans, respectively, into the secondary market.

The following table presents the components of income from mortgage banking activities for the three months ended March 31, 2021 and 2020.

Three Months Ended March 31,

(in thousands) 2021 2020

Gain on loans sold $ 7,499 $ 4,343

Gain (loss) resulting from the change in fair value of loans held-for-sale 823 ( 100 ) ( 116 ) ( 452 )

(Loss) gain resulting from the change in fair value of loans held-for-sale ( 862 ) 316

Gain resulting from the change in fair value of derivatives ( 887 ) ( 991 )

13 unchanged sentences

The fair value of derivative instruments with a positive fair value are reported in accrued income and other assets in the condensed consolidated balance sheets, while derivative instruments with a negative fair value are reported in accrued expenses and other liabilities in the condensed consolidated balance sheets.

The following table presents amounts that were recorded on the condensed consolidated balance sheets related to cumulative basis adjustments for interest rate swap derivatives designated as fair value accounting hedges as of September 30, 2020 and December 31, 2019.

(in thousands) Carrying amount of the hedged asset Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets

Line item in the condensed consolidated balance sheets in which the hedged item is included September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019

Loans $ — $ 474,957 $ — $ 21,440

Line item in the condensed consolidated balance sheets in which the hedged item is included March 31, 2021 December 31, 2020 March 31, 2021 December 31, 2020

Securities available-for-sale (1)

1 unchanged sentence

(1) These amounts include the amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship.

At both September 30, 2020 and December 31, 2019, the amounts of the designated hedged items were $ 88.2 million.

The following tables present a summary of interest rate swap derivatives designated as fair value accounting hedges of fixed-rate receivables used in the Company’s asset/liability management activities at September 30, 2020 and December 31, 2019, identified by the underlying interest rate-sensitive instruments.

The designated hedged items were $ 50.0 million and $ 88.2 million, at March 31, 2021 and December 31, 2020.

The following tables present a summary of interest rate swap derivatives designated as fair value accounting hedges of fixed-rate receivables used in the Company’s asset/liability management activities at March 31, 2021 and December 31, 2020, identified by the underlying interest rate-sensitive instruments.

(dollars in thousands)

September 30, 2020

March 31, 2021

Notional Value Weighted- Average Remaining Maturity (years) Weighted-Average Ratio

1 unchanged sentence

Securities available-for-sale $ 50,000 3.6 $ ( 2,992 ) 3-month LIBOR 2.33 %

Total at September 30, 2020 $ 88,200 3.4 $ ( 6,610 ) 3-month LIBOR 2.54 %

Total at March 31, 2021 $ 50,000 3.6 $ ( 2,992 ) 3-month LIBOR 2.33 %

In March 2021, the Company terminated fair value hedging relationships with a notional value of $ 38.2 million associated with agency mortgage-backed securities available-for-sale, which resulted in swap termination payments to counterparties totaling $ 1.9 million.

The corresponding securities fair value hedging adjustment as of the date of termination is being amortized over the remaining lives of the designated securities.

(dollars in thousands)

2 unchanged sentences

Instruments Associated With Fair Value Receive Pay

Loans $ 427,446 5.5 $ ( 21,551 ) 3-month LIBOR 2.86 %

Securities available-for-sale 88,200 3.1 ( 6,072 ) 3-month LIBOR 2.54 %

1 unchanged sentence

In June 2020, the Company terminated all fair value hedging relationships associated with loans, which resulted in swap termination payments to counterparties totaling $ 46.1 million.

The corresponding loan fair value hedging adjustment as of the date of termination is being amortized over the remaining lives of the designated loans.

As of September 30, 2020, the remaining unamortized loan fair value hedging adjustment was $ 44.3 million and the remaining lives of the designated loans have a weighted-average term to maturity of 13.4 years.

The following tables present a summary of interest rate swap derivatives designated as cash flow accounting hedges of variable-rate liabilities used in the Company’s asset/liability management activities at September 30, 2020 and December 31, 2019.

The corresponding loan fair value hedging adjustment as of the date of termination is being amortized over the remaining lives of the designated loans, which have a weighted average term to maturity of 12.86 years as of March 31, 2021.

(dollars in thousands)

September 30, 2020

March 31, 2021

Notional Weighted- Average Remaining Maturity Weighted-Average Ratio

9 unchanged sentences

These derivative financial instruments were entered into for the purpose of managing the interest rate risk of certain assets and liabilities.

The Company pledged $ 33.7 million and $ 42.3 million of cash collateral to counterparties as security for its obligations related to these interest rate swap transactions at September 30, 2020 and December 31, 2019, respectively.

The Company pledged $ 23.4 million and $ 30.6 million of cash collateral to counterparties as security for its obligations related to these interest rate swap transactions at March 31, 2021 and December 31, 2020, respectively.

Collateral posted and received is dependent on the market valuation of the underlying hedges.

The following table presents the notional amount and fair value of interest rate swaps, IRLCs and forward contracts utilized by the Company at September 30, 2020 and December 31, 2019.

September 30, 2020 December 31, 2019

The following table presents the notional amount and fair value of interest rate swaps, IRLCs and forward contracts utilized by the Company at March 31, 2021 and December 31, 2020.

March 31, 2021 December 31, 2020

(in thousands) Notional

3 unchanged sentences

IRLCs $ 70,230 $ 1,110 $ 108,095 $ 3,361

Forward contracts 81,500 721 — —

Total contracts

11 unchanged sentences

Fair values of IRLCs and forward contracts were estimated using changes in mortgage interest rates from the date the Company entered into the IRLC and the balance sheet date.

The following table presents the effects of the Company’s cash flow hedge relationships on the condensed consolidated statements of comprehensive income during the three and nine months ended September 30, 2020 and 2019.

Amount of Gain (Loss )Recognized in Other Comprehensive Income (Loss) in The Three Months Ended Amount of Loss Recognized in Other Comprehensive Income (Loss) in The Nine Months Ended

(in thousands) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

The following table presents the effects of the Company’s cash flow hedge relationships on the condensed consolidated statements of comprehensive income during the three months ended March 31, 2021 and 2020.

Amount of Gain (Loss )Recognized in Other Comprehensive Income (Loss) in The Three Months Ended

(in thousands) March 31, 2021 March 31, 2020

Interest rate swap agreements $ 6,280 $ ( 13,458 )

The following table summarizes the periodic changes in the fair value of derivatives not designated as hedging instruments on the condensed consolidated statements of income for the three and nine months ended September 30, 2020 and 2019.

Amount of Gain / (Loss) Recognized in the Three Months Ended Amount of Gain / (Loss) Recognized in the Nine Months Ended

(in thousands) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Amount of Gain / (Loss) Recognized in the Three Months Ended

(in thousands) March 31, 2021 March 31, 2020

Asset Derivatives

1 unchanged sentence

IRLCs $ ( 2,251 ) $ 1,154

Forward contracts 1,361 —

Liability Derivatives

1 unchanged sentence

Forward contracts $ — $ ( 2,145 )

The following table presents the effects of the Company’s interest rate swap agreements on the condensed consolidated statements of income during the three and nine months ended September 30, 2020 and 2019.

The following table presents the effects of the Company’s interest rate swap agreements on the condensed consolidated statements of income during the three months ended March 31, 2021 and 2020.

(in thousands)

Line item in the condensed consolidated statements of income

Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Three Months Ended

March 31, 2021 March 31, 2020

Interest income

8 unchanged sentences

Total interest expense

1,406 297 3,217 604

Net interest income

1 unchanged sentence

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, included in stockholders' equity, for the nine months ended September 30, 2020 and 2019, respectively, are presented in the table below.

The components of accumulated other comprehensive loss, included in stockholders' equity, for the three months ended March 31, 2021 and 2020, respectively, are presented in the table below.

(in thousands) Available-For-Sale Securities Cash Flow Hedges Total

Balance, January 1, 2021 $ 468 $ ( 17,664 ) $ ( 17,196 )

Net change in unrealized gain (loss) 6,187 ( 12,453 ) ( 6,266 )

Reclassification of gain realized and included in earnings ( 139 ) — ( 139 )

Accumulated other comprehensive income (loss) before income tax 1,660 ( 22,256 ) ( 20,596 )

Income tax provision (benefit) 2,096 ( 3,602 ) ( 1,506 )

Balance, September 30, 2020 $ ( 436 ) $ ( 18,654 ) $ ( 19,090 )

Net unrealized holding (losses) gains recorded within other comprehensive income before income tax ( 2,195 ) 6,280 4,085

Other comprehensive (loss) gain before tax ( 2,195 ) 6,280 4,085

Income tax (benefit) provision ( 508 ) 1,317 809

Other comprehensive (loss) income - net of tax $ ( 1,687 ) $ 4,963 $ 3,276

Balance, March 31, 2021 $ ( 1,219 ) $ ( 12,701 ) $ ( 13,920 )

Balance, January 1, 2020 $ ( 4,388 ) $ ( 9,803 ) $ ( 14,191 )

Net change in unrealized gain (loss) 11,843 ( 12,689 ) ( 846 )

Net unrealized holding gains (losses) recorded within other comprehensive income before income tax 6,299 ( 13,458 ) ( 7,159 )

Reclassification of net loss realized and included in earnings ( 41 ) — ( 41 )

Accumulated other comprehensive loss before income tax ( 1,059 ) ( 15,870 ) ( 16,929 )

Other comprehensive income (loss) before tax 6,258 ( 13,458 ) ( 7,200 )

Income tax provision (benefit) 2,109 ( 3,634 ) ( 1,525 )

Balance, September 30, 2019 $ ( 4,611 ) $ ( 12,444 ) $ ( 17,055 )

The components of accumulated other comprehensive loss, included in stockholders' equity, for the three months ended September 30, 2020 and 2019, respectively, are presented in the table below.

(in thousands) Available-For-Sale Securities Cash Flow Hedges Total

Balance, July 1, 2020 $ ( 1,388 ) $ ( 19,750 ) $ ( 21,138 )

Net change in unrealized loss 1,386 1,514 2,900

Reclassification of gain realized and included in earnings ( 98 ) — ( 98 )

Accumulated other comprehensive loss before income tax ( 100 ) ( 18,236 ) ( 18,336 )

Income tax benefit 336 418 754

Balance, September 30, 2020 $ ( 436 ) $ ( 18,654 ) $ ( 19,090 )

Balance, July 1, 2019 $ ( 5,488 ) $ ( 10,090 ) $ ( 15,578 )

Net change in unrealized gain (loss) 1,266 ( 3,225 ) ( 1,959 )

Accumulated other comprehensive loss before income tax ( 4,222 ) ( 13,315 ) ( 17,537 )

Income tax (benefit) provision 389 ( 871 ) ( 482 )

Balance, September 30, 2019 $ ( 4,611 ) $ ( 12,444 ) $ ( 17,055 )

Other comprehensive income (loss) - net of tax 4,149 ( 9,824 ) ( 5,675 )

Balance, March 31, 2020 $ ( 239 ) $ ( 19,627 ) $ ( 19,866 )

Recent Accounting Pronouncements

27 unchanged sentences

The effect of a prospective transition approach is to maintain the same amortized cost basis before and after the effective date of this update.

The Company does not expect to early adopt and is currently evaluating the impact of the amendments on the Company’s condensed consolidated financial statements.

The Company expects to adopt this guidance on January 1, 2023 and is currently evaluating the impact of the amendments on the Company’s condensed consolidated financial statements.

The Company currently cannot determine or reasonably quantify the impact of the adoption of the amendments due to the complexity and extensive changes.

1 unchanged sentence

The Company has formed an implementation committee and has engaged a third-party consultant to assist in developing current expected credit losses (“CECL”) models using appropriate methodologies.

ASU 2017-04 - Intangibles - Goodwill and other (Topic 350) - Simplifying the Test for Goodwill Impairment” (January 2017)

The amendments in this update simplify the goodwill impairment test by eliminating Step 2 of the goodwill impairment process, which requires an entity to determine the implied fair value of its goodwill by assigning fair value to all its assets and liabilities.

Under the new guidance, an entity will record an impairment charge if a reporting unit’s carrying amount exceeds its fair value.

Entities still have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment is necessary.

The amendments in this ASU are effective for smaller reporting companies for annual and interim impairment tests performed in periods beginning after December 15, 2022.

Early adoption is permitted.

The Company adopted this guidance effective July 1, 2020 and it did not have a material impact on the condensed consolidated financial statements.

ASU 2018-13 - Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (August 2018)

The amendments in this update modify the disclosure requirements on fair value measurements in ASC Topic 820.

This ASU eliminates the requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements.

In addition, this ASU requires entities that calculate net asset value to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly.

This ASU also adds new requirements, which include the disclosure of the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

The amendments in this ASU are effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2019.

The Company adopted this guidance and it did not have a material impact on the condensed consolidated financial statements.

ASU 2019-04 - Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (April 2019)

3 unchanged sentences

With respect to Topic 815, ASU 2019-04 clarifies issues related to partial-term hedges, hedged debt securities, and transitioning from a quantitative method of assessing hedge effectiveness to a more simplified method.

The amendments to Topic 815 are effective for interim and annual reporting periods beginning after December 15, 2019 and are not expected to have a material impact on the condensed consolidated financial statements.

The amendments to Topic 815 were effective for interim and annual reporting periods beginning after December 15, 2019 and did not have a material impact on the condensed consolidated financial statements.

With respect to Topic 825, ASU 2019-04 addresses the scope of the guidance, the requirement for remeasurement under ASC Topic 820 when using the measurement alternative, certain disclosure requirements, and which equity securities must be remeasured at historical exchanges rates.

The amendments to Topic 825 are effective for interim and annual reporting periods beginning after December 15, 2019 and are not expected to have a material impact on the condensed consolidated financial statements.

The amendments to Topic 825 were effective for interim and annual reporting periods beginning after December 15, 2019 and did not have a material impact on the condensed consolidated financial statements.

Coronavirus Aid, Relief and Economic Security Act (“CARES Act”)

1 unchanged sentence

Section 4013 of the CARES Act specifies that loan modifications due to the impact of COVID-19 that would otherwise be classified as TDRs under GAAP will not be so classified.

See the “Non-TDR Loan Modifications due to COVID-19” section of Item 2.

See the “Non-TDR Loan Modifications due to COVID-19” section of Part I, Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information.

Subsequent Event

Subsequent to the end of the quarter, on October 26, 2020, the Company issued $ 10.0 million in aggregate principal amount of 6.0 % Fixed-to-Floating Rate Subordinated Notes due 2030 (the “2030 Notes”).

The Notes were offered and sold by the Company in a private placement and are scheduled to mature on November 1, 2030.

The 2030 Notes bear interest at a fixed rate of 6.0 % per annum from and including October 26, 2020, to, but excluding, November 1, 2025, and thereafter at a floating interest rate initially equal to the three-month term SOFR plus 5.795 %.

The 2030 Notes are unsecured subordinated obligations of the Company and may be repaid, without penalty, on any interest payment date on or after November 1, 2025.

The 2030 Notes are intended to qualify as Tier 2 capital under regulatory guidelines.

ASU 2020-04 - Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (March 2020)

In March 2020, FASB issued ASU 2020-04 to ease the potential burden in accounting for the transition away from the LIBORon financial reporting.

The ASU provides optional expedients and exceptions for applying GAAP to contract modification and hedge accounting relationships.

The guidance is effective March 12, 2020 through December 31, 2022.

The Company believes the adoption of this guidance will not have a material impact on the condensed consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements