
(in thousands)	June 30, 2020		December 31, 2019
Commercial loans
Commercial and industrial	$	81,687	$	96,420
Owner-occupied commercial real estate⁽¹⁾	86,897		86,726
Investor commercial real estate	13,286		12,567
Construction	77,591		60,274
Single tenant lease financing	980,292		995,879
Public finance	647,107		687,094
Healthcare finance	380,956		300,612
Small business lending⁽¹⁾	118,526		46,945
Total commercial loans	2,386,342		2,286,517
Consumer loans
Residential mortgage	208,728		313,849
Home equity	22,640		24,306
Other consumer	291,632		295,309
Total consumer loans	523,000		633,464
Total commercial and consumer loans	2,909,342		2,919,981
Net deferred loan origination costs and premiums and discounts on purchased loans and other⁽²⁾	64,332		43,566
Total loans	2,973,674		2,963,547
Allowance for loan losses	(24,465)		(21,840)
Net loans	$	2,949,209	$	2,941,707

Commercial and Industrial: Commercial and industrial loans’ sources of repayment are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value. Loans are made for working capital, equipment purchases, or other purposes. Most commercial and industrial loans are secured by the assets being financed and may incorporate a personal guarantee. This portfolio segment is generally concentrated in Central Indiana and adjacent markets and the greater Phoenix, Arizona market.

Owner-Occupied Commercial Real Estate: The primary source of repayment is the cash flow from the ongoing operations and activities conducted by the borrower, or an affiliate of the borrower, who owns the property. This portfolio segment is generally concentrated in Central Indiana and adjacent markets and the greater Phoenix, Arizona market and its loans are often secured by manufacturing and service facilities, as well as office buildings.

Investor Commercial Real Estate: These loans are underwritten primarily based on the cash flow expected to be generated from the property and are secondarily supported by the value of the real estate. These loans typically incorporate a personal guarantee from the primary sponsor or sponsors. This portfolio segment generally involves larger loan amounts with repayment primarily dependent on the successful leasing and operation of the property securing the loan or the business conducted on the property securing the loan. Investor commercial real estate loans may be more adversely affected by changing economic conditions in the real estate markets, industry dynamics or the overall health of the local economy where the property is located. The properties securing the Company’s investor commercial real estate portfolio tend to be diverse in terms of property type and are generally located in the state of Indiana or markets immediately adjacent to Indiana. Management monitors and evaluates commercial real estate loans based on property financial performance, collateral value, guarantor strength, economic and industry conditions together with other risk grade criteria. As a general rule, the Company avoids financing special use projects or properties outside of its designated market areas unless other underwriting factors are present to mitigate these additional risks.

Construction: Construction loans are secured by land and related improvements and are made to assist in the construction of new structures, which may include commercial (retail, industrial, office, multi-family) properties or single family residential properties offered for sale by the builder. These loans generally finance a variety of project costs, including land, site preparation, architectural services, construction, closing and soft costs and interim financing needs. The cash flows of builders, while initially predictable, may fluctuate with market conditions, and the value of the collateral securing these loans may be subject to fluctuations based on general economic changes. This portfolio segment is generally concentrated in Central Indiana.

Single Tenant Lease Financing: These loans are made on a nationwide basis to property owners of real estate subject to long-term lease arrangements with single tenant operators. The real estate is typically operated by regionally, nationally or globally branded businesses. The loans are underwritten based on the financial strength of the borrower, characteristics of the real estate, cash flows generated from the lease arrangements and the financial strength of the tenant. Similar to the other loan portfolio segments, management monitors and evaluates these loans based on borrower and tenant financial performance, collateral value, industry trends and other risk grade criteria.

Public Finance: These loans are made to governmental and not-for-profit entities to provide both tax-exempt and taxable loans for a variety of purposes including: short-term cash-flow needs; debt refinancing; economic development; quality of life projects; infrastructure improvements; and equipment financing. The primary sources of repayment for public finance loans include pledged revenue sources including but not limited to: general obligations; property taxes; income taxes; tax increment revenue; utility revenue; gaming revenues; sales tax; and pledged general revenue. Certain loans may also include an additional collateral pledge of mortgaged property or a security interest in financed equipment. Public finance loans have been completed primarily in the Midwest, but continues to expand nationwide.

Healthcare Finance: These loans are made to healthcare providers, primarily dentists, for practice acquisition refinancing that occasionally includes owner-occupied commercial real estate and equipment purchases. The sources of repayment are primarily based on the identified cash flows from operations of the borrower and related entities if the real estate is held in a separate entity and secondarily on the underlying collateral provided by the borrower. This portfolio segment was initially concentrated in the Western United States but has been growing rapidly throughout the rest of the country with the addition of a growing sales force located in Eastern and Midwestern markets.

Small Business Lending: These loans are to small businesses and generally carry a partial guaranty from the U.S. Small Business Administration ("SBA") under its 7(a) loan program. We generally sell the government guaranteed portion of SBA loans into the secondary market while retaining the non-guaranteed portion of the loan and the servicing rights. Loans in the small business lending portfolio have sources of repayment that are primarily based on the identified cash flows of the borrower and secondarily on any underlying collateral provided by the borrower. Loans may, but do not always, have a collateral shortfall. For SBA loans where the guaranteed portion is retained, the SBA guaranty provides a tertiary source of repayment to the Bank in event of borrower default. Cash flows of borrowers, however, may not be as expected and collateral securing these loans may fluctuate in value. Loans are made for a broad array of purposes including, but not limited to, providing operating cash flow, funding ownership changes, and facilitating equipment purchases. These loans also include loans originated by the Bank under the SBA’s Paycheck Protection Program, which are fully guaranteed by the SBA. This portfolio segment has an emerging geography, with a nationwide focus.

Residential Mortgage: With respect to residential loans that are secured by 1-to-4 family residences and are generally owner occupied, the Company typically establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Repayment of these loans is primarily dependent on the financial circumstances of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels.

Home Equity: Home equity loans and lines of credit are typically secured by a subordinate interest in 1-to-4 family residences. The properties securing the home equity portfolio segment are generally geographically diverse as the Company offers these products on a nationwide basis. Repayment of these loans and lines of credit is primarily dependent on the financial circumstances of the borrowers and may be impacted by changes in unemployment levels and property values on residential properties, among other economic conditions in the market.

Other Consumer: These loans primarily consist of consumer loans and credit cards. Consumer loans may be secured by consumer assets such as horse trailers or recreational vehicles. Some consumer loans are unsecured, such as small installment loans, home improvement loans and certain lines of credit. Repayment of consumer loans is primarily dependent upon the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers in geographically diverse locations throughout the country.

Company policy is designed to maintain an adequate allowance for loan losses (“ALLL”). The portfolio is segmented by loan type, and the required ALLL for types of performing homogeneous loans which do not have a specific reserve is determined by applying a factor based on average historical losses, adjusted for current economic factors and portfolio trends. Management adds qualitative factors for observable trends, changes in internal practices, changes in delinquencies and impairments, and external factors. Observable factors include changes in the composition and size of portfolios, as well as loan terms or concentration levels. The Company evaluates the impact of internal changes such as management and staff experience levels or modification to loan underwriting processes. Delinquency trends are scrutinized for both volume and severity of past due, nonaccrual, or classified loans, as well as any changes in the value of underlying collateral. Finally, the Company considers the effect of other external factors such as national, regional, and local economic and business conditions, as well as competitive, legal, and regulatory requirements. Loans that are considered to be impaired are evaluated to determine the need for a specific allowance by applying at least one of three methodologies: present value of future cash flows; fair value of collateral less costs to sell; or the loan’s observable market price. All troubled debt restructurings (“TDR”) are considered impaired loans. Loans evaluated for impairment are removed from other pools to prevent double-counting. Accounting Standards Codification (“ASC”) Topic 310, Receivables, requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loans’ effective interest rates or the fair value of the underlying collateral less costs to sell and allows existing methods for recognizing interest income.

A provision for estimated losses on loans is charged to income based upon management’s evaluation of the potential losses. Such an evaluation, which includes a review of all loans for which full repayment may not be reasonably assured, considers, among other matters, the estimated net realizable value of the underlying collateral, as applicable, economic conditions, loan loss experience, and other factors that are particularly susceptible to changes that could result in a material adjustment in the near term. While management attempts to use the best information available in making its evaluations, future allowance adjustments may be necessary if economic conditions change substantially from the assumptions used in making the evaluations.

The Company’s policy is to charge off a loan at any point in time when it no longer can be considered a bankable asset, meaning collectible within the parameters of policy. A secured loan is generally charged down to the estimated fair value of the collateral, less costs to sell, no later than when it is 120 days past due as to principal or interest. An unsecured loan generally is charged off no later than when it is 180 days past due as to principal or interest. A home improvement loan generally is charged off no later than when it is 90 days past due as to principal or interest.


(in thousands)	Three Months Ended June 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	$	1,670	$	(141)	$	(57)	$	5	$	1,477
Owner-occupied commercial real estate	645		201		—		—		846
Investor commercial real estate	128		2		—		—		130
Construction	460		261		—		—		721
Single tenant lease financing	10,755		563		—		—		11,318
Public finance	1,483		59		—		—		1,542
Healthcare finance	4,318		1,187		(743)		—		4,762
Small business lending	265		(20)		—		6		251
Residential mortgage	500		36		—		3		539
Home equity	53		(4)		—		2		51
Other consumer	2,580		347		(216)		117		2,828
Total	$	22,857	$	2,491	$	(1,016)	$	133	$	24,465


	Six Months Ended June 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	$	205	$	(254)	$	5	$	1,477
Owner-occupied commercial real estate	561		285		—		—		846
Investor commercial real estate	109		21		—		—		130
Construction	380		341		—		—		721
Single tenant lease financing	11,175		143		—		—		11,318
Public finance	1,580		(38)		—		—		1,542
Healthcare finance	3,247		2,258		(743)		—		4,762
Small business lending	54		183		—		14		251
Residential mortgage	657		(107)		(15)		4		539
Home equity	46		—		—		5		51
Other consumer	2,510		661		(502)		159		2,828
Total	$	21,840	$	3,952	$	(1,514)	$	187	$	24,465


(in thousands)	Three Months Ended June 30, 2019
Allowance for loan losses:	Balance, Beginning of Period		Provision (Credit) Charged to Expense		Losses Charged Off		Recoveries		Balance, End of Period
Commercial and industrial	$	1,351	$	444	$	—	$	—	$	1,795
Owner-occupied commercial real estate	847		(223)		—		—		624
Investor commercial real estate	103		66		—		—		169
Construction	267		35		—		—		302
Single tenant lease financing	9,368		293		—		—		9,661
Public finance	1,650		113		—		—		1,763
Healthcare finance	1,731		562		—		—		2,293
Small business lending	93		36		—		—		129
Residential mortgage	1,044		(383)		—		1		662
Home equity	49		(5)		—		4		48
Other consumer	2,338		451		(337)		78		2,530
Total	$	18,841	$	1,389	$	(337)	$	83	$	19,976


	Six Months Ended June 30, 2019
Allowance for loan losses:	Balance, Beginning of Period		Provision (Credit) Charged to Expense		Losses Charged Off		Recoveries		Balance, End of Period
Commercial and industrial	$	1,384	$	523	$	(112)	$	—	$	1,795
Owner-occupied commercial real estate	891		(267)		—		—		624
Investor commercial real estate	61		108		—		—		169
Construction	251		51		—		—		302
Single tenant lease financing	8,827		834		—		—		9,661
Public finance	1,670		93		—		—		1,763
Healthcare finance	1,264		1,029		—		—		2,293
Small business lending	95		34		—		—		129
Residential mortgage	1,079		(419)		—		2		662
Home equity	53		(11)		—		6		48
Other consumer	2,321		699		(654)		164		2,530
Total	$	17,896	$	2,674	$	(766)	$	172	$	19,976


(in thousands)	Loans										Allowance for Loan Losses
June 30, 2020	Ending Balance: Collectively Evaluated for Impairment		Ending Balance: Individually Evaluated for Impairment		Ending Balance		Ending Balance: Collectively Evaluated for Impairment		Ending Balance: Individually Evaluated for Impairment		Ending Balance
Commercial and industrial	$	80,871	$	816	$	81,687	$	1,368	$	109	$	1,477
Owner-occupied commercial real estate	82,974		3,922		86,897		846		—		846
Investor commercial real estate	13,286		—		13,286		130		—		130
Construction	77,591		—		77,591		721		—		721
Single tenant lease financing	975,612		4,680		980,292		9,658		1,660		11,318
Public finance	647,107		—		647,107		1,542		—		1,542
Healthcare finance	380,956		—		380,956		4,762		—		4,762
Small business lending	118,526		—		118,526		251				251
Residential mortgage	207,320		1,408		208,728		539		—		539
Home equity	22,640		—		22,640		51		—		51
Other consumer	291,518		115		291,632		2,828		—		2,828
Total	$	2,898,401	$	10,941	$	2,909,342	$	22,696	$	1,769	$	24,465


(in thousands)	Loans										Allowance for Loan Losses
December 31, 2019	Ending Balance: Collectively Evaluated for Impairment		Ending Balance: Individually Evaluated for Impairment		Ending Balance		Ending Balance: Collectively Evaluated for Impairment		Ending Balance: Individually Evaluated for Impairment		Ending Balance
Commercial and industrial	$	93,520	$	2,900	$	96,420	$	1,412	$	109	$	1,521
Owner-occupied commercial real estate	81,063		5,663		86,726		561		—		561
Investor commercial real estate	12,567		—		12,567		109		—		109
Construction	60,274		—		60,274		380		—		380
Single tenant lease financing	991,199		4,680		995,879		9,515		1,660		11,175
Public finance	687,094		—		687,094		1,580		—		1,580
Healthcare finance	300,612		—		300,612		3,247		—		3,247
Small business lending	46,945		—		46,945		54		—		54
Residential mortgage	312,714		1,135		313,849		657		—		657
Home equity	24,306		—		24,306		46		—		46
Other consumer	295,266		43		295,309		2,510		—		2,510
Total	$	2,905,560	$	14,421	$	2,919,981	$	20,071	$	1,769	$	21,840

•“Doubtful” - Such loans have been placed on nonaccrual status and may be heavily dependent upon collateral possessing a value that is difficult to determine or based upon some near-term event that lacks clear certainty. These loans have all of the weaknesses of those classified as Substandard; however, based on existing conditions, these weaknesses make full collection of the principal balance highly improbable.

Any loan which becomes 90 days delinquent or for which the full collection of principal and interest may be in doubt will be considered for nonaccrual status. At the time a loan is placed on nonaccrual status, all accrued but unpaid interest will be reversed from interest income. Placing the loan on nonaccrual status does not relieve the borrower of the obligation to repay interest. A loan placed on nonaccrual status may be restored to accrual status when all delinquent principal and interest has been brought current, and the Company expects full payment of the remaining contractual principal and interest.


	June 30, 2020
(in thousands)	Pass		Special Mention		Substandard		Total
Commercial and industrial	$	77,447	$	3,465	$	775	$	81,687
Owner-occupied commercial real estate	80,389		2,585		3,923		86,897
Investor commercial real estate	13,286		—		—		13,286
Construction	77,591		—		—		77,591
Single tenant lease financing	966,782		8,830		4,680		980,292
Public finance	647,107		—		—		647,107
Healthcare finance	379,899		1,057		—		380,956
Small business lending	118,526		—		—		118,526
Total commercial loans	$	2,361,027	$	15,937	$	9,378	$	2,386,342


	December 31, 2019
(in thousands)	Pass		Special Mention		Substandard		Total
Commercial and industrial	$	89,818	$	3,973	$	2,629	$	96,420
Owner-occupied commercial real estate	79,329		3,462		3,935		86,726
Investor commercial real estate	12,567		—		—		12,567
Construction	60,274		—		—		60,274
Single tenant lease financing	983,448		7,751		4,680		995,879
Public finance	687,094		—		—		687,094
Healthcare finance	300,612		—		—		300,612
Small business lending	46,945		—		—		46,945
Total commercial loans	$	2,260,087	$	15,186	$	11,244	$	2,286,517


	June 30, 2020
(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		Non- accrual Loans		Total Loans 90 Days or More Past Due and Accruing
Commercial and industrial	$	80	$	—	$	212	$	292	$	81,395	$	81,687	$	299	$	—
Owner-occupied commercial real estate	—		—		2,066		2,066		84,831		86,897		2,066		—
Investor commercial real estate	—		—		—		—		13,286		13,286		—		—
Construction	—		—		—		—		77,591		77,591		—		—
Single tenant lease financing	—		—		4,680		4,680		975,612		980,292		4,680		—
Public finance	—		—		—		—		647,107		647,107		—		—
Healthcare finance	—		—		—		—		380,956		380,956		—		—
Small business lending	—		—		—		—		118,526		118,526		—		—
Residential mortgage	—		—		281		281		208,447		208,728		1,042		—
Home equity	—		—		—		—		22,640		22,640		—		—
Other consumer	80		56		25		161		291,471		291,632		108		—
Total	$	160	$	56	$	7,264	$	7,480	$	2,901,862	$	2,909,342	$	8,195	$	—


	December 31, 2019
(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		Non- accrual Loans		Total Loans 90 Days or More Past Due and Accruing
Commercial and industrial	$	15	$	96	$	122	$	233	$	96,187	$	96,420	$	226	$	—
Owner-occupied commercial real estate	—		—		464		464		86,262		86,726		464		—
Investor commercial real estate	—		—		—		—		12,567		12,567		—		—
Construction	—		—		—		—		60,274		60,274		—		—
Single tenant lease financing	—		4,680		—		4,680		991,199		995,879		4,680		—
Public finance	—		—		—		—		687,094		687,094		—		—
Healthcare finance	—		—		—		—		300,612		300,612		—		—
Small business lending	54				—		54		46,891		46,945		—		—
Residential mortgage	—		—		1,177		1,177		312,672		313,849		761		416
Home equity	—		—		—		—		24,306		24,306		—		—
Other consumer	240		107		—		347		294,962		295,309		33		—
Total	$	309	$	4,883	$	1,763	$	6,955	$	2,913,026	$	2,919,981	$	6,164	$	416

A loan is designated as impaired, in accordance with the impairment accounting guidance, when, based on current information or events, it is probable that the Company will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. Payments with delays generally not exceeding 90 days outstanding are not considered impaired. Certain nonaccrual and substantially all delinquent loans more than 90 days past due may be considered to be impaired. Generally, loans are placed on nonaccrual status at 90 days past due and accrued interest is reversed against earnings, unless the loan is well-secured and in the process of collection. The accrual of interest on impaired and nonaccrual loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due.


	June 30, 2020										December 31, 2019
(in thousands)	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Recorded Balance		Unpaid Principal Balance		Specific Allowance
Loans without a specific valuation allowance
Commercial and industrial	$	613	$	672	$	—	$	2,693	$	2,694	$	—
Owner-occupied commercial real estate	3,922		3,925		—		5,663		5,665		—





Residential mortgage	1,408		1,498		—		1,135		1,209		—

Other consumer	115		215		—		43		107		—
Total	6,058		6,310		—		9,534		9,675		—
Loans with a specific valuation allowance
Commercial and industrial	203		240		109		207		244		109



Single tenant lease financing	4,680		4,680		1,660		4,680		4,680		1,660





Total	4,883		4,920		1,769		4,887		4,924		1,769
Total impaired loans	$	10,941	$	11,230	$	1,769	$	14,421	$	14,599	$	1,769


	Three Months Ended														Six Months Ended
	June 30, 2020						June 30, 2019						June 30, 2020				June 30, 2019
(in thousands)	Average Balance		Interest Income		Average Balance		Interest Income		Average Balance		Interest Income		Average Balance		Interest Income
Loans without a specific valuation allowance
Commercial and industrial	$	594	$	18	$	4,053	$	86	$	1,330	$	36	$	4,376	$	167
Owner-occupied commercial real estate	3,923		29		2,723		66		4,573		31		2,464		93




Small business lending	—		—		—		—
Residential mortgage	1,352		—		3,538		—		1,313		—		2,796		—
Home equity	—		—		—		—		—		—		21		—
Other consumer	75		—		83		—		60		—		79		—
Total	5,944		47		10,397		152		7,276		67		9,736		260
Loans with a specific valuation allowance
Commercial and industrial	204		—		353		—		204		—		177		—



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





Total	4,884		—		353		—		4,884		—		177		—
Total impaired loans	$	10,828	$	47	$	10,750	$	152	$	12,160	$	67	$	9,913	$	260

The loan portfolio includes TDRs, which are loans that have been modified to grant economic concessions to borrowers who have experienced financial difficulties. These concessions typically result from loss mitigation efforts and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructuring and typically are returned to performing status after

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. If it is determined that the value of the modified loan is less than the recorded balance of the loan, impairment is recognized through a specific allowance or charge-off to the allowance. In periods subsequent to modification, all TDRs, including those that have payment defaults, are evaluated for possible impairment, and impairment is recognized through the allowance.

In the course of working with troubled borrowers, the Company may choose to restructure the contractual terms of certain loans in an effort to work out an alternative payment schedule with the borrower in order to optimize the collectability of the loan. Any loan modification is reviewed by the Company to identify whether a TDR has occurred when the Company grants a concession to the borrower that it would not otherwise consider based on economic or legal reasons related to a borrower’s financial difficulties. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status or the loan may be restructured to secure additional collateral and/or guarantees to support the debt, or a combination of the two.

There was one portfolio residential mortgage loan classified as a new TDR during the three and six months ended June 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 June 30, 2020. The modification consisted of an extension of the maturity date. There were four commercial and industrial loans classified as new TDRs during the three and six months ended June 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 June 30, 2019. 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 six months ended June 30, 2020 and 2019, respectively.

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.