What changed in this filing

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Item 1. Business

2025-03-12 compared with 2024-03-13 · 115 added, 147 removed, 244 unchanged (52% of the section changed)

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References to “First Internet Bank” or the “Bank” refer to First Internet Bank of Indiana, an Indiana chartered bank and wholly-owned subsidiary of the Company.

First Internet Bancorp is a financial holding company headquartered in Fishers, Indiana that conducts its primary business activities through its wholly-owned subsidiary, First Internet Bank of Indiana, an Indiana chartered bank.

First Internet Bancorp is a bank holding company headquartered in Fishers, Indiana that conducts its primary business activities through its wholly-owned subsidiary, First Internet Bank of Indiana, an Indiana chartered bank.

The Bank was the first state-chartered, Federal Deposit Insurance Corporation (“FDIC”) insured Internet bank and commenced banking operations in 1999.

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We believe that we differentiate ourselves from larger financial institutions by providing a full suite of services to emerging small businesses and entrepreneurs on a nationwide basis.

We are one of the fastest-growing lenders in the Small Business Administration (“SBA”) 7(a) program, closing more than $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 ranked as the 8 th largest Small Business Administration (“SBA”) 7(a) lender for the SBA’s 2024 fiscal year.

We also offer a top-ranked small business checking account product to our country’s entrepreneurs.

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We also offer payment, deposit, card and lending products and services through partnerships with financial technology companies and platforms (“fintechs”).

With the rapid evolution of technology that enables consumers and small businesses to manage their finances digitally, fintechs are addressing a significantly growing marketplace.

With the rapid evolution of technology that enables small businesses to manage their finances digitally, fintechs are addressing a significantly growing marketplace.

Fintechs have created robust digital offerings, unburdened by legacy technology architecture, to address growing customer expectations.

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.

Through partnerships with selected fintechs, we believe our ability to win and retain small business relationships will be significantly enhanced.

Furthermore, we

believe partnering with select fintechs will allow us to further diversify our revenue sources, acquire deposits and pursue additional asset generation capabilities.

As of December 31, 2024, the Company had consolidated assets of $5.7 billion, consolidated deposits of $4.9 billion and shareholders’ equity of $384.1 million.

Human Capital

As of December 31, 2023, we employed 290 people, 287 of which were full-time.

Our team members have been, and continue to be, our most valuable assets, helping to create a strong workplace culture that recognizes the unique contributions and perspectives each individual brings to the organization.

We encourage our employees to “Imagine More.” We seek the game-changers, innovators and dreamers – those who are driven to find a better way of doing things for customers and each other.

As of December 31, 2024, we employed 326 people consisting of 323 full-time employees and 3 part-time employees.

Our team members have been, and continue to be, our most valuable assets, helping to create a strong workplace culture that recognizes the unique contributions and perspectives of each individual.

We empower our employees to “Imagine More.” We seek the game-changers, innovators and dreamers – those who are driven to find a better way of doing things for customers and each other.

Our employees are encouraged to think outside the box and look for innovative ways to improve efficiency, drive revenue and decrease cost.

One example is our Eureka!

program, which promotes the submission of unique ideas to a senior leadership panel for review and possible selection.

This program enables our employees to serve as team leads and members of cross-functional teams that develop and implement ideas that drive our business while upskilling in the areas of influential leadership, collaboration, communication, critical thinking and change management.

We encourage community involvement and opportunities that support team members, both inside and outside the office.

We may be a digital bank, but we strongly believe in the power of personal connection and collaboration, 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 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.

With this vision in mind, the Company’s diversity and inclusion strategy focuses on five organizational pillars:

People, Partners, Philanthropy, Products and Processes.

In 2021, we published our first Environmental, Social and Governance (“ESG”) Report to highlight, among other things, our focus on and efforts to advance Diversity and Inclusion goals.

In 2022, we provided a status update to our ESG Report, highlighting key initiatives and efforts.

Our initiatives and efforts continued throughout 2023, as we continue to mandate Diversity, Equity & Inclusion (“DEI”) training for executive leadership and all employees.

The phased training program — including topics such as unconscious bias, sexual harassment, regulatory issues and the benefits of a more diverse workplace — is delivered both in-person and online.

Ongoing quarterly sessions and annual refresher courses help reinforce the program’s methods and maintain active awareness.

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.

During that same 5 year time period, we increased our percentage of racially and ethnically diverse new hires by more than 22%.

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.

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 also offer tuition reimbursement, a robust internal training program, and leadership training and coaching through a third party consultant to help employees advance their careers and perform competently and confidently.

The tuition reimbursement program reimburses approved tuition costs, registration fees for classes, and costs of books and computer-based resources as required by class.

The internal training program focuses on topics such as privacy, fair banking, skills-training and many industry specific topics and regulations.

The leadership training program features curriculum designed to help leaders understand management duties essential to their role.

Community service is a foundational tenet.

We commit time, talent and financial support to community initiatives that inspire passion among our team members and support the communities within which we live and work.

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The result is a sense of pride and increased engagement within the Bank that serves as a catalyst for the greater good.

We focus on the employee experience and culture.

We are 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 and work to our very best potential.

To that end, we promote and support 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.).

We also offer tuition reimbursement for professional development, a robust internal training program, and leadership training and coaching through certified coaches within HR as well as a third-party consultant to help employees develop their skills, leverage their strengths, lead effectively, advance their careers and perform competently and confidently.

The professional development program reimburses approved tuition costs, certification costs, registration fees for classes or relevant seminars, and costs of books and computer-based resources as required by class.

The internal training program focuses on topics such as privacy, fair banking, skills-training and many industry specific topics and regulations.

We strive to maintain a talented work culture in which varied perspectives and experiences are valued and all employees have the opportunity to contribute and thrive.

We believe leveraging our employees’ varied experiences, talents and capabilities will enhance innovation, foster a collaborative work culture and enable us to better serve our customers and communities.

Meaningful training and education, an equitable hiring process, expanded hiring pools and a long-term commitment to fostering a qualified and diverse workforce have all resulted in largely exceptional results over the last several 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 2024.

During that same time period, we increased our percentage of racially and ethnically diverse new employees by more than 18% and increased the percentage of promotions among racially and ethnically diverse employees by 12%.

Similarly, we have created positive trends in gender diversity, increasing women’s representation among our employee population from 46% in 2019 to 49% in 2024 and by increasing our percentage of women receiving promotions from 16% to 47% during the same time range.

All hiring and promotion decisions are made on the basis of merit.

Our focus on employees is evidenced by the number of “best work place” awards we have been honored with over the years.

And we remain committed to an entrepreneurial culture, employee growth and empowerment, robust training and support, and competitive compensation and benefits that will enable us to attract the top talent and continue to “Imagine More.”

The markets in which we compete to make loans, attract deposits and provide fee based financial services are highly competitive.

For consumer banking activities, we compete with other digital banks and fintech companies, in addition to traditional banks, savings banks, credit unions, investment banks, insurance companies, securities brokerages and other financial institutions, as nearly all have some form of digital delivery for their consumer banking services.

For our construction, investor CRE, and C&I lending activities, we compete with super-regional, regional and community banks operating in the Midwest and Southwest regions of the United States.

For our 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.

For our public finance, healthcare finance and franchise finance activities, we compete nationally with superregional and regional banks.

For our construction, investor commercial real estate, public finance, healthcare finance and franchise finance activities, we compete nationally with superregional, regional and community banks.

These competitors may have significantly greater financial resources and higher lending limits than we do and may also offer specialized products and services that we do not.

For our small business lending activities, we compete on a national footprint with other participating SBA-approved lenders, including a large number of regional and community banks.

For our small business lending activities, we compete on a national footprint with other participating SBA-approved lenders, including a large number of superregional, regional and community banks, as well as non-bank lenders.

These competitors have resources and/or lending limits that differ greatly from one another.

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Treasury”) also have an impact on the Company’s business.

This regulatory framework is intended for the protection of depositors, borrowers and other customers, as well as the FDIC deposit insurance funds and the U.S.

This regulatory framework is intended for the protection of depositors, borrowers and other customers, as well as the FDIC deposit insurance fund and the U.S.

banking system, rather than the Company’s shareholders or creditors.

Banking statutes and regulations are subject to ongoing review and revision by federal and state legislatures and regulatory agencies.

Notably, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), enacted in 2010 in response to the global financial crisis, imposed a number of new and expanded regulatory requirements on the banking industry, which in some cases have been subsequently modified.

Future changes in laws, regulations or regulatory policies, including changes in the ways laws and regulations are interpreted or enforced, could affect us in significant and unpredictable ways that may have a material impact on our business.

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The cost of compliance with these legal and regulatory requirements has increased over time and could increase further in the future in response to changing laws and regulations or regulatory expectations, or as the Company grows and passes certain asset size thresholds at which additional requirements begin to apply.

The Dodd-Frank Act, for example, gives rise to a number of additional requirements as financial institutions pass $10 billion in assets.

The supervisory framework for U.S.

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Holding Company Regulation

The Company is registered as a bank holding company under the Bank Holding Company Act of 1956 (the “BHCA”) and has elected to be a financial holding company.

The Company is registered as a bank holding company under the Bank Holding Company Act of 1956 (the “BHCA”).

It is subject to regulation, supervision, examination and enforcement by the Federal Reserve.

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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 represents the net assets of a banking organization available to absorb losses.

Banks and bank holding companies are generally required to hold more capital than other businesses that are not subject to regulation and supervision by the banking agencies, and this directly affects the Company’s earnings capabilities.

While capital has historically been one of the key measures of the financial health of both bank holding companies and banks, its role became fundamentally more important in the wake of the global financial crisis, as banking regulators recognized that the amount and quality of capital held by banks prior to the crisis was insufficient to absorb losses during periods of severe stress.

Certain provisions of the Dodd-Frank Act and Basel III, discussed below, establish capital standards for banks and bank holding companies that are meaningfully more stringent than those in place previously.

Banks have been required to hold minimum levels of capital based on guidelines established by bank regulatory agencies since 1983.

The minimums have been expressed in terms of ratios of “capital” divided by “total assets.” The capital guidelines for U.S.

banks beginning in 1989 have been based upon international capital accords, known as “Basel” rules, adopted by the Basel Committee on Banking Supervision (the “BCBS”), a committee of central banks and bank supervisors that acts as the primary global standard-setter for prudential regulation, as implemented by the U.S.

bank regulatory agencies on an interagency basis.

The accords recognized that bank assets for the purpose of the capital ratio calculations needed to be weighted (the theory being that riskier assets should require more capital) and that off-balance-sheet credit exposures needed to be factored in the calculations.

Following the global financial crisis, the Group of Governors and Heads of Supervision, the oversight body of the BCBS, announced agreement on a strengthened set of capital requirements for banking organizations around the world, known as Basel III, to address deficiencies recognized in connection with the global financial crisis.

The Basel III Rule.

In July 2013, the U.S.

federal banking agencies approved implementation of the Basel III regulatory capital reforms in pertinent part, and, at the same time, promulgated rules effecting certain changes required by the Dodd-Frank Act (the “Basel III Rule”).

In contrast to capital requirements historically, which were in the form of guidelines, Basel III was released in the form of binding regulations by each of the regulatory agencies.

The Basel III Rule increased the required quantity and quality of capital and required more detailed categories of risk weighting of riskier, more opaque assets.

For nearly every class of assets, the Basel III Rule requires a more complex, detailed, and calibrated assessment of risk in the calculation of risk weightings for all banking organizations that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as to most bank and savings and loan holding companies.

The Company and Bank are each subject to the Basel III Rule as described below.

Not only did the Basel III Rule increase most of the required minimum capital ratios in effect prior to January 1, 2015, but in requiring that forms of capital be of higher quality to absorb loss, it also introduced the concept of Common Equity Tier 1 Capital, which consists primarily of common stock, related surplus, retained e arnings, and Common Equity Tier 1 minority interests subject to certain regulatory adjustments.

The Basel III Rule also changed the definition of capital by establishing more stringent criteria that instruments must meet to be considered Additional Tier 1 Capital (primarily non-cumulative perpetual preferred stock that meets certain requirements) and Tier 2 Capital (primarily other types of preferred stock and subordinated debt, subject to limitations).

The Basel III Rule also constrained the inclusion of minority interests, mortgage-servicing assets, and deferred tax assets in capital and required deductions from Common Equity Tier 1 Capital in the event that such assets exceeded a percentage of a banking institution’s Common Equity Tier 1 Capital.

The Basel III Rule requires minimum capital ratios for bank holding companies as follows:

• A ratio of minimum Common Equity Tier 1 Capital equal to 4.50% 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;

• A minimum leverage ratio of Tier 1 Capital to total quarterly average assets equal to 4.00% in all circumstances.

In addition, institutions that seek the freedom to make capital distributions (including for dividends and repurchases of stock) and pay discretionary bonuses to executive officers without restriction must also maintain 2.50% in Common Equity Tier 1 Capital attributable to a capital conservation buffer.

The purpose of the conservation buffer is to ensure that banking institutions maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress.

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.

Well-Capitalized Requirements.

The ratios described above are minimum standards in order for banking organizations to be considered “adequately capitalized.” Bank regulatory agencies uniformly encourage banks to hold more capital and be “well capitalized” and, to that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements.

For example, a banking organization that is “well capitalized” may:

(i) qualify for exemptions from prior notice or application requirements otherwise applicable to certain types of activities;

(ii) qualify for expedited processing of other required notices or applications;

and (iii) accept, rollover or renew brokered deposits.

Higher capital levels could also be required if warranted by the particular circumstances or risk profiles of individual banking organizations.

For example, the Federal Reserve’s capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities, or securities trading activities.

Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 Capital less all intangible assets), well above the minimum levels.

Under the capital regulations of the FDIC and Federal Reserve, in order to be well capitalized, a banking organization must maintain:

• A Common Equity Tier 1 Capital ratio to risk-weighted assets of 6.50% 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;

• A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5.00% or greater.

It is possible under the Basel III Rule to be well capitalized while remaining out of compliance with the capital conservation buffer discussed above.

As of December 31, 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.

As of December 31, 2023, the Bank was well capitalized, as defined by FDIC regulations.

Prompt Corrective Action.

The concept of an institution being “well capitalized” is part of a regulatory enforcement regime that provides the federal banking regulators with broad power to take “prompt corrective action” to resolve the problems of depository institutions based on the capital level of each particular institution.

The extent of the regulators’ powers depends on whether the institution in question is “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized,” in each case as defined by regulation.

Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include:

(i) requiring the institution to submit a capital restoration plan;

(ii) limiting the institution’s asset growth and restricting its activities;

(iii) requiring the institution to issue additional capital stock (including additional voting stock) or to sell itself;

(iv) restricting transactions between the institution and its affiliates;

(v) restricting the interest rate that the institution may pay on deposits;

(vi) ordering a new election of directors of the institution;

(vii) requiring that senior executive officers or directors be dismissed;

(viii) prohibiting the institution from accepting deposits from correspondent banks;

(ix) requiring the institution to divest certain subsidiaries;

(x) prohibiting the payment of principal or interest on subordinated debt;

and (xi) ultimately, appointing a receiver for the institution.

Capital Requirements.

The Company and the Bank are required under federal law to maintain certain minimum capital levels based on ratios of capital to total assets and capital to risk-weighted assets.

The required capital ratios are minimums, and the federal banking agencies may determine that a banking organization, based on its size, complexity or risk profile, must maintain a higher level of capital in order to operate in a safe and sound manner.

Risks such as concentration of credit risks and the risk arising from non-traditional activities, as well as the institution’s exposure to a decline in the economic value of its capital due to changes in interest rates, and an institution’s ability to manage those risks are important factors that are to be taken into account by the federal banking agencies in assessing an institution’s overall capital adequacy.

The following is a brief description of the relevant provisions of these capital rules and their potential impact on our capital levels.

The Company and the Bank are subject to the following risk-based capital ratios:

a common equity Tier 1 (“CET1”) risk-based capital ratio, a Tier 1 risk-based capital ratio, which includes CET1 and additional Tier 1 capital, and a total risk-based capital ratio, which includes Tier 1 and Tier 2 capital.

CET1 is primarily comprised of the sum of common stock instruments and related surplus net of treasury stock, retained earnings, and certain qualifying minority interests, less certain adjustments and deductions, including with respect to goodwill, intangible assets, mortgage servicing assets and deferred tax assets subject to temporary timing differences.

Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock, tier 1 minority interests and grandfathered trust preferred securities.

Tier 2 capital consists of instruments disqualified from Tier 1 capital, including qualifying subordinated debt, other preferred stock and certain hybrid capital instruments, and a limited amount of allowance for credit loss up to a maximum of 1.25% of risk-weighted assets, subject to certain eligibility criteria.

The capital rules also define the risk-weights assigned to assets and off-balance sheet items to determine the risk-weighted asset components of the risk-based capital rules, including, for example, certain “high volatility” commercial real estate, past due assets, structured securities and equity holdings.

The leverage capital ratio, which serves as a minimum capital standard, is the ratio of Tier 1 capital to quarterly average total assets net of goodwill, certain other intangible assets, and certain required deduction items.

The required minimum leverage ratio for all banks and bank holding companies is 4%.

In addition, the capital rules also require a capital conservation buffer of CET1 capital of 2.5% above each of the minimum capital ratio requirements (CET1, Tier 1, and total risk-based capital), which is designed to absorb losses during periods of economic stress.

These buffer requirements must be met for a bank or bank holding company to be able to pay dividends, engage in share buybacks or make discretionary bonus payments to executive management without restriction.

The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), among other things, requires the federal bank regulatory agencies to take “prompt corrective action” regarding depository institutions that do not meet minimum capital requirements.

FDICIA establishes five regulatory capital tiers:

“well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” A depository institution’s capital tier will depend upon how its capital levels compare to various relevant capital measures and certain other factors, as established by regulation.

FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized.

FDICIA imposes progressively more restrictive restraints on operations, management and capital distributions, depending on the category in which an institution is classified.

Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve System.

In addition, undercapitalized depository institutions may not accept brokered deposits absent a waiver from the FDIC, are subject to growth limitations and are required to submit capital restoration plans for regulatory approval.

A depository institution’s holding company must guarantee any required capital restoration plan, up to an amount equal to the lesser of 5 percent of the depository institution’s assets at the time it becomes undercapitalized or the amount of the capital deficiency when the institution fails to comply with the plan.

Federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital.

If a depository institution fails to submit an acceptable

plan, it is treated as if it is significantly undercapitalized.

The Bank was well capitalized at December 31, 2024, and brokered deposits are not restricted.

To be well-capitalized, the Bank must maintain at least the following capital ratios:

5.0% leverage ratio.

6.5% CET1 to risk-weighted assets;

8.0% Tier 1 capital to risk-weighted assets;

10.0% Total capital to risk-weighted assets;

The Federal Reserve has different requirements than those imposed under the current capital rules applicable to banks.

For purposes of the Federal Reserve’s Regulation Y, including determining whether a bank holding company meets the requirements to be a financial holding company, bank holding companies, such as the Company, must maintain a Tier 1 risk-based capital ratio of 6.0% or greater and a total risk-based capital ratio of 10.0% or greater to be well-capitalized.

If the Federal Reserve were to apply the same or a very similar well-capitalized standard to bank holding companies as that applicable to the Bank, the Company’s capital ratios as of December 31, 2024 would exceed such revised well-capitalized standard.

Also, the Federal Reserve may require bank holding companies, including the Company, to maintain capital ratios substantially in excess of mandated minimum levels, depending upon general economic conditions and a bank holding company’s particular condition, risk profile and growth plans.

Community Bank Leverage Ratio Framework.

In response to industry complaints concerning the regulatory burdens imposed on community banks by certain aspects of the Basel III Rule, the U.S.

Congress, as part of the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act, authorized an optional, simplified measure of capital adequacy, the

“Community Bank Leverage Ratio” (“CBLR”) framework, for qualifying community banking organizations like the Company with less than $10 billion in total consolidated assets.

The federal banking agencies jointly adopted a rulemaking effective January 1, 2020, that implemented this alternative approach to measuring capital.

Qualifying institutions must have a leverage ratio greater than 9%, off-balance sheet exposures of 25% or less of total consolidated assets, and trading assets and liabilities of 5% or less of total consolidated assets.

Banks that opt in to the rule are not required to calculate or report risk-based capital and are deemed to have met the well-capitalized ratio requirement.

In response to the COVID-19 pandemic, the banking agencies temporarily lowered the qualifying leverage ratio to 8.00% in the second quarter of 2020, which then rose to 8.50% for calendar year 2021 and 9.00% thereafter.

Under the “Community Bank Leverage Ratio” (“CBLR”) framework, for qualifying community banking organizations like the Company with less than $10 billion in total consolidated assets.

Qualifying institutions that opt in and have a leverage ratio greater than 9%, off-balance sheet exposures of 25% or less of total consolidated assets, and trading assets and liabilities of 5% or less of total consolidated assets are not required to calculate or report risk-based capital and are deemed to have met the well-capitalized ratio requirement.

The Company has not opted in to the CBLR capital framework.

Activities, Acquisitions, and Changes in Control.

Bank holding companies generally are limited to the business of banking, managing or controlling banks, and other activities that the Federal Reserve determines to be closely related to banking, or managing or controlling banks as to be a proper incident thereto.

Bank holding companies are prohibited from acquiring or obtaining control of more than five percent (5%) of any class of voting interests of any company that engages in activities other than those activities permissible for bank holding companies.

Examples of activities that the Federal Reserve has determined to be permissible are making, acquiring, brokering, or servicing loans;

leasing personal property;

providing certain investment or financial advice;

performing certain data processing services;

acting as agent or broker in selling credit life insurance and other insurance products in certain locations;

securities brokerage;

and performing certain insurance underwriting activities.

The BHC Act does not place domestic geographic limits on permissible non-banking activities of bank holding companies.

Even with respect to permissible activities, however, the Federal Reserve has the power to order a holding company or its subsidiaries to terminate any activity or its control of any subsidiary when the Federal Reserve has reasonable cause to believe that continuation of such activity or control of such subsidiary would pose a serious risk to the financial safety, soundness or stability of any bank subsidiary of that 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.

Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator.

“Control” is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances between 10% and 24.99% ownership.

Bank mergers and acquisitions generally will require the approval of the regulatory authorities of each banking organization.

In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition, public benefits expected to be generated by the acquisition, post-acquisition capital levels, and performance under the Community Reinvestment Act of 1977, as amended (the “CRA”).

The federal banking regulators are also required to 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.

In July 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy that, among other initiatives, calls upon the federal banking agencies to review their current merger approval practices under the BHCA and the Bank Merger Act, and adopt a plan for the revitalization of such practices.

In February 2022, Acting FDIC Chairman Gruenberg announced that the agency’s priorities include a comprehensive review of the process of considering and evaluating bank mergers, something the FDIC indicated had not been done in 25 years.

In reviewing a proposed covered acquisition, among other factors, the Federal Reserve considers (1) the financial and managerial resources of the companies involved, including pro forma capital ratios;

(2) the risk to the stability of the United States banking or financial system;

(3) the convenience and needs of the communities to be served, including performance under the CRA;

and (4) the effectiveness of the companies in combating money laundering.

The Federal Reserve also reviews any indebtedness to be incurred by a bank holding company in connection with a proposed acquisition to ensure that the bank holding company can service such indebtedness without adversely affecting its ability to serve as a source of strength to its bank subsidiaries.

Well capitalized and well managed bank holding companies are permitted to acquire control of banks in any state, subject to federal regulatory approval, without regard to whether such a transaction is prohibited by the laws of any state.

However, a bank holding company may not, following an interstate acquisition, control more than 10% of nationwide insured deposits or 30% of deposits within any state in which the acquiring bank operates.

States have the right to lower the 30% limit, although no states within the Company’s current market area have done so.

Federal banking regulators are also required to take into account compliance with the CRA in evaluating any proposal for interstate bank acquisitions.

Federal law restricts the amount of voting stock of a bank holding company or a bank that a person may acquire without the prior approval of banking regulators.

Under the Change in Bank Control Act and the regulations thereunder, a

person or group must give advance notice to and obtain approval from the Federal Reserve before acquiring control of any bank holding company, such as the Company.

The Change in Bank Control Act creates a rebuttable presumption of control if a member or group acquires a certain percentage or more of any class of a bank holding company’s voting stock.

As a result, a person or entity generally must provide prior notice to the Federal Reserve before acquiring the power to vote 10% or more of our outstanding common stock.

The overall effect of such laws is to make it more difficult to acquire a bank holding company by tender offer or similar means than it might be to acquire control of another type of corporation.

Consequently, shareholders of the Company may be less likely to benefit from the rapid increases in stock prices that may result from tender offers or similar efforts to acquire control of other companies.

Investors should be aware of these requirements when acquiring shares of our stock.

Holding Company Dividends.

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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.

See “Capital Requirements” section above.

Source of Strength .

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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.

(i) provide employees with incentives that appropriately balance risk and reward and that do not encourage imprudent risk, (ii) are compatible with effective controls and risk management, and (iii) are supported by strong corporate governance, including active and effective oversight by the banking organization's board of directors.

Monitoring methods and processes used by a banking organization should be commensurate with the size and complexity of the organization and its use of incentive compensation.

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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 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.

The Bank’s current CRA Strategic Plan covers the time period of January 1, 2024 through December 31, 2026.

The Bank received a “Satisfactory” CRA rating in its most recent CRA examination.

Failure of an institution to receive at least a “Satisfactory” rating could inhibit such institution or its holding company from engaging in certain activities or pursuing acquisitions of other financial institutions.

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The Company is an “affiliate” of the Bank for purposes of Regulation W and Sections 23A and 23B of the Federal Reserve Act.

We believe the Bank complied with these provisions during 2023.

Loans to and Other Transactions with Insiders .

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The ability of the Bank to pay dividends is further affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and it is generally prohibited from paying any dividends if, following payment thereof, it would be undercapitalized.

Notwithstanding the availability of funds for dividends, the FDIC and the DFI may prohibit the payment of dividends by the Bank if either or both determine such payment would constitute an unsafe or unsound practice.

Notwithstanding the availability of funds for

dividends, the FDIC and the DFI may prohibit the payment of dividends by the Bank if either or both determine such payment would constitute an unsafe or unsound practice.

In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer.

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The Bank is a member of the Deposit Insurance Fund (“DIF”), which is administered by the FDIC.

All deposit accounts at the Bank are insured by the FDIC up to a maximum of $250,000 per depositor.

All deposit accounts at the Bank are insured by the FDIC up to a maximum of $250,000 per depositor, per insured bank, for each account ownership category.

Under the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

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Treasury any cash transactions involving more than $10,000.

In addition, financial

institutions are required to file suspicious activity reports for transactions that involve more than $5,000 and which the financial institution knows, suspects or has reason to suspect involves illegal funds, is designed to evade the requirements of the BSA or has no lawful purpose.

In addition, financial institutions are required to file suspicious activity reports for transactions that involve more than $5,000 and which the financial institution knows, suspects or has reason to suspect involves illegal funds, is designed to evade the requirements of the BSA or has no lawful purpose.

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”), which amended the BSA, is designed to deny terrorists and others the ability to obtain anonymous access to the U.S.

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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.

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.

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.

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These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must interact with customers when taking deposits, making loans, collecting loans and providing other services.

Further, the Dodd-Frank Act established the CFPB as an independent agency within the Federal Reserve System.

The CFPB has the exclusive authority to administer, enforce, and otherwise implement federal consumer financial laws, which includes the power to make rules, issue orders, and issue guidance governing the provision of consumer financial products and services.

The CFPB also has a broad mandate to prohibit unfair or deceptive acts and practices and is specifically empowered to require certain disclosures to consumers and draft model disclosure forms.

Failure to comply with consumer protection laws and regulations can subject financial institutions to enforcement actions, fines and other penalties.

In recent years, state authorities have also increased their attention to the enforcement of consumer protection rules, and in some cases, states are permitted to adopt and enforce consumer protection laws and regulations that are stricter than those issued or enforced by the CFPB.

The CFPB has exclusive federal consumer law supervisory authority and primary enforcement authority over insured depository institutions with assets totaling over $10 billion.

Authority for institutions with $10 billion or less rests with the prudential regulator, and in the case of the Bank lies with the FDIC.

Residential Mortgage Restrictions.

The Dodd-Frank Act initiated a number of significant residential mortgage lending reforms.

These reforms include standards that mortgage lenders must consider before making a residential mortgage loan, including verifying a borrower’s ability to repay such mortgage loan.

Borrowers are also allowed to assert violations of certain provisions of the Truth-in-Lending Act as a defense to foreclosure proceedings.

Prepayment penalties are prohibited for certain mortgage transactions and creditors are prohibited from financing insurance policies in connection with a residential mortgage

loan or home equity line of credit.

Mortgage lenders are required to make additional disclosures prior to the extension of credit, in each billing statement and for negative amortization loans and hybrid adjustable rate mortgages.

Additionally, mortgage originators are prohibited from receiving compensation based on the terms of residential mortgage loans and are subject to limitations on their ability to be compensated by others if compensation is received from a consumer.

Customer Information Security .

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Cybersecurity .

In 2015, federal regulators issued two related statements regarding cybersecurity.

One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing digital-based services of the financial institution.

The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption, and maintenance of the institution’s operations after a cyber-attack involving destructive malware.

A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and

address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack.

Federal regulators have indicated that financial institutions should design multiple layers of security controls to establish lines of defense and ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing digital-based services of the financial institution.

Federal regulators have also indicated that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption, and maintenance of the institution’s operations after a cyber-attack involving destructive malware.

A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack.

If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties.

In November 2021, the federal banking agencies published a final rule establishing computer-security incident notification requirements that require a banking organization to notify its primary federal regulator of any “computer security incident” that rises to the level of a “notification incident” as soon as possible and no later than 36 hours after determining that such an incident has occurred.

The federal banking agencies published a final rule establishing computer-security incident notification requirements that require a banking organization to notify its primary federal regulator of any “computer security incident” that rises to the level of a “notification incident” as soon as possible and no later than 36 hours after determining that such an incident has occurred.

The rule also requires a bank service provider to notify each affected banking organization 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.

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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.

The SEC has enacted laws requiring public companies to disclose material cybersecurity risks and incidents along with cybersecurity protections and governance processes.

These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.

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Proposals related to climate-related financial and other risks impacting banks are being considered at both the federal and state level.

It is too early to predict to what extent legislative and regulatory proposals will impact the Company and the Bank, but we will continue to monitor these developments and the steps that will need to be taken to address any new requirements.

While our branchless business model and diversified customer base mitigates our exposure to climate-related risks, we will continue to monitor these developments and the steps that will need to be taken to address any new requirements.

Additional Matters .

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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-K

Item 1. Business