UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended March 31, 2024

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From ________ to ________.

Commission File Number 001-35750 

First Internet Bancorp

(Exact Name of Registrant as Specified in Its Charter)

Indiana	20-3489991
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
8701 East 116th Street Fishers, IN	46038
(Address of Principal Executive Offices)	(Zip Code)

(317) 532-7900

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbols	Name of each exchange on which registered
Common Stock, without par value	INBK	The Nasdaq Stock Market LLC
6.0% Fixed to Floating Subordinated Notes due 2029	INBKZ	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ¨	Accelerated Filer þ
Non-accelerated Filer ¨	Smaller Reporting Company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of May 3, 2024, the registrant had 8,655,854 shares of common stock issued and outstanding.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts, but rather statements based on the current expectations of First Internet Bancorp and its consolidated subsidiaries (the “Company,” “we,” “our,” or “us”) regarding our business strategies, intended results and future performance, including without limitation statements concerning the financial condition, results of operations, trends in lending policies and loan programs, plans and prospective business partnerships, objectives, future performance and business of the Company. Forward-looking statements are generally preceded by terms such as “acquire”, “anticipate,” “attempt,” “believe,” “can,” “change,” “continue,” “could,” “decline,” “decrease,” “differentiate,” “diversify,” “driving,” “effort,” “emerging,” “estimate,” “expect,” “grow,” “increase,” “intend,” “likely,” “may,” “objective,” “plan,” “position,” “potential,” “preliminary,” “pursue,” “remain,” “retain,” “should,” “slowest,” “succeed,” “will,” “win,” “would” or other similar expressions. Such statements are subject to certain risks and uncertainties, including without limitation: changes in market rates and prices that may adversely impact the value of securities, loans, deposits and other financial instruments and the interest rate sensitivity of our balance sheet; changing bank regulatory conditions, policies or programs, whether arising as a result of new legislation or regulatory initiatives, that could lead to restrictions on activities of banks generally or First Internet Bank (the “Bank”) in particular; more restrictive regulatory capital requirements; increased costs, including deposit insurance premiums; other general economic conditions, whether national or regional, and conditions in the lending markets in which we participate that may have an adverse effect on the demand for our loans and other products; our credit quality and related levels of nonperforming assets and credit losses, and the value and salability of the real estate that is the collateral for our loans; failures or breaches of or interruptions in the communication and information systems on which we rely to conduct our business that could reduce our revenues, increase our costs or lead to disruptions in our business; our dependence on capital distributions from the Bank; results of examinations of us by our regulators, including the possibility that our regulators may, among other things, require us to increase our allowance for credit losses or to write-down assets; regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products; our liquidity requirements being adversely affected by changes in our assets and liabilities; the effect of legislative or regulatory developments, including changes in laws concerning taxes, banking, securities, insurance and other aspects of the financial services industry; competitive factors among financial services organizations, including product and pricing pressures and our ability to attract, develop and retain qualified banking professionals; the growth and profitability of noninterest or fee income being less than expected; the loss of any key members of senior management; the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board, the Securities and Exchange Commission (the “SEC”), the Public Company Accounting Oversight Board and other regulatory agencies; and the effect of fiscal and governmental policies of the United States federal government. Additional factors that may affect our results include those discussed in this Quarterly Report on Form 10-Q and our most recent Annual Report on Form 10-K under the heading “Risk Factors” and in other reports filed with the SEC. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The factors listed above could affect our financial performance and could cause our actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

Except as required by law, we do not undertake, and specifically disclaim any obligation, to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

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PART I

ITEM 1.    FINANCIAL STATEMENTS 

First Internet Bancorp

Condensed Consolidated Balance Sheets

(Amounts in thousands except share data)

	March 31, 2024		December 31, 2023
	(Unaudited)
Assets
Cash and due from banks	$	6,638	$	8,269
Interest-bearing deposits	474,626		397,629
Total cash and cash equivalents	481,264		405,898
Securities available-for-sale, at fair value (amortized cost of $522,965 and $513,315 in 2024 and 2023, respectively)	482,431		474,855
Securities held-to-maturity, at amortized cost, net of allowance for credit losses of $0.2 million and $0.3 million in 2024 and 2023, respectively, (fair value of $214,220 and $207,572 in 2024 and 2023, respectively)	235,738		227,153
Loans held-for-sale	22,589		22,052
Loans	3,909,804		3,840,220
Allowance for credit losses - loans	(40,891)		(38,774)
Net loans	3,868,913		3,801,446
Accrued interest receivable	26,809		26,746
Federal Home Loan Bank of Indianapolis stock	28,350		28,350
Cash surrender value of bank-owned life insurance	41,154		40,882
Premises and equipment, net	73,231		73,463
Goodwill	4,687		4,687
Servicing asset, at fair value	11,760		10,567
Other real estate owned	375		375
Accrued income and other assets	63,366		51,098
Total assets	$	5,340,667	$	5,167,572
Liabilities and Shareholders’ Equity
Liabilities
Noninterest-bearing deposits	$	130,760	$	123,464
Interest-bearing deposits	4,143,008		3,943,509
Total deposits	4,273,768		4,066,973
Advances from Federal Home Loan Bank	574,936		614,934
Subordinated debt, net of unamortized debt issuance costs of $2,085 and $2,162 in 2024 and 2023, respectively	104,915		104,838
Accrued interest payable	3,382		3,848
Accrued expenses and other liabilities	16,927		14,184
Total liabilities	4,973,928		4,804,777
Commitments and Contingencies
Shareholders’ Equity
Preferred stock, no par value; 4,913,779 shares authorized; issued and outstanding - none	—		—
Voting common stock, no par value; 45,000,000 shares authorized; 8,655,854 and 8,644,451 shares issued and outstanding in 2024 and 2023, respectively	184,720		184,700
Nonvoting common stock, no par value; 86,221 shares authorized; issued and outstanding - none	—		—
Retained earnings	212,121		207,470
Accumulated other comprehensive loss	(30,102)		(29,375)
Total shareholders’ equity	366,739		362,795
Total liabilities and shareholders’ equity	$	5,340,667	$	5,167,572

See Notes to Condensed Consolidated Financial Statements

1

First Internet Bancorp

Condensed Consolidated Statements of Operations– Unaudited

(Amounts in thousands except share and per share data)

	Three Months Ended
	March 31, 2024		March 31, 2023
Interest Income
Loans	$	55,435	$	43,843
Securities – taxable	5,694		3,606
Securities – non-taxable	969		798
Other earning assets	6,067		3,786
Total interest income	68,165		52,033
Interest Expense
Deposits	42,129		27,270
Other borrowed funds	5,302		5,189
Total interest expense	47,431		32,459
Net Interest Income	20,734		19,574
Provision for credit losses - loans	2,582		9,373
Benefit for credit losses - debt securities held to maturity	(62)		—
(Benefit) provision for credit losses - off-balance sheet commitments	(72)		42
Net Interest Income After Provision for Credit Losses	18,286		10,159
Noninterest Income
Service charges and fees	220		209
Loan servicing revenue	1,323		785
Loan servicing asset revaluation	(434)		(55)
Mortgage banking activities	—		76
Gain on sale of loans	6,536		4,061
Other	702		370
Total noninterest income	8,347		5,446
Noninterest Expense
Salaries and employee benefits	11,796		11,794
Marketing, advertising and promotion	736		844
Consulting and professional services	853		926
Data processing	564		659
Loan expenses	1,445		1,977
Premises and equipment	2,826		2,777
Deposit insurance premium	1,145		543
Other	1,658		1,434
Total noninterest expense	21,023		20,954
Income (Loss) Before Income Taxes	5,610		(5,349)
Income Tax Provision (Benefit)	429		(2,332)
Net Income (Loss)	$	5,181	$	(3,017)
Income (Loss) Per Share of Common Stock
Basic	$	0.60	$	(0.33)
Diluted	$	0.59	$	(0.33)
Weighted-Average Number of Common Shares Outstanding
Basic	8,679,429		9,024,072
Diluted	8,750,297		9,024,072
Dividends Declared Per Share	$	0.06	$	0.06

See Notes to Condensed Consolidated Financial Statements

2

First Internet Bancorp

Condensed Consolidated Statements of Comprehensive Income (Loss)– Unaudited

(Amounts in thousands)

	Three Months Ended March 31,
	2024		2023
Net income (loss)	$	5,181	$	(3,017)
Other comprehensive (loss) income
Securities available-for-sale
Net unrealized holding (losses) gains recorded within other comprehensive (loss) income before income tax	(2,074)		5,112
Income tax (benefit) provision	(475)		1,170
Net effect on other comprehensive (loss) income	(1,599)		3,942
Securities held-to-maturity
Amortization of net unrealized holding losses on securities transferred from available-for-sale to held-to-maturity	234		158
Income tax provision	57		46
Net effect on other comprehensive (loss) income	177		112
Cash flow hedges
Net unrealized holding gains (losses) on cash flow hedging derivatives recorded within other comprehensive (loss) income before income tax	902		(2,170)
Income tax provision (benefit)	207		(499)
Net effect on other comprehensive (loss) income	695		(1,671)
Total other comprehensive (loss) income	(727)		2,383
Comprehensive income (loss)	$	4,454	$	(634)

 See Notes to Condensed Consolidated Financial Statements

3

First Internet Bancorp

Condensed Consolidated Statements of Changes in Shareholders’ Equity - Unaudited

Three Months Ended March 31, 2024 and 2023

(Amounts in thousands except share and per share data)

	Voting and Nonvoting Common Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
Balance, January 1, 2024	$	184,700	$	207,470	$	(29,375)	$	362,795
Net income	—		5,181		—		5,181
Other comprehensive loss	—		—		(727)		(727)
Dividends declared ($0.06 per share)	—		(530)		—		(530)
Recognition of the fair value of share-based compensation	443		—		—		443
Repurchased shares of common stock (10,500)	(283)		—		—		(283)
Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units	2		—		—		2
Common stock redeemed for the net settlement of share-based awards	(142)		—		—		(142)
Balance, March 31, 2024	$	184,720	$	212,121	$	(30,102)	$	366,739
Balance, January 1, 2023	$	192,935	$	205,675	$	(33,636)	$	364,974
Impact of adoption of new accounting standards 1	—		(4,491)		—		(4,491)
Net income	—		(3,017)		—		(3,017)
Other comprehensive income	—		—		2,383		2,383
Dividends declared ($0.06 per share)	—		(544)		—		(544)
Recognition of the fair value of share-based compensation	372		—		—		372
Repurchased shares of common stock (161,691)	(4,002)		—		—		(4,002)
Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units	3		—		—		3
Common stock redeemed for the net settlement of share-based awards	(106)		—		—		(106)
Balance, March 31, 2023	$	189,202	$	197,623	$	(31,253)	$	355,572

1 Reflects the impact of adopting Accounting Standards Update (“ASU”) 2016-13.

See Notes to Condensed Consolidated Financial Statements

4

First Internet Bancorp

Condensed Consolidated Statements of Cash Flows – Unaudited

(Amounts in thousands)

	Three Months Ended March 31,
	2024		2023
Operating Activities
Net income (loss)	$	5,181	$	(3,017)
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	1,866		1,058
Increase in cash surrender value of bank-owned life insurance	(272)		(246)
Provision for credit losses	2,448		9,415
Share-based compensation expense	443		372
Loans originated for sale	(80,454)		(91,789)
Proceeds from sale of loans	84,826		98,433
Gain on loans sold	(6,536)		(4,525)
Decrease in fair value of loans held-for-sale	—		136
Gain on derivatives	1,224		536
Loan servicing asset revaluation	434		55
Net change in accrued income and other assets	(4,872)		(2,444)
Net change in accrued expenses and other liabilities	(1,497)		(2,086)
Net cash provided by operating activities	2,791		5,898
Investing Activities
Net loan activity, excluding purchases	(39,598)		(25,111)
Maturities and calls of securities available-for-sale	15,891		9,448
Purchase of securities available-for-sale	(22,689)		(1,411)
Maturities and calls of securities held-to-maturity	6,981		5,129
Purchase of securities held-to-maturity	(15,221)		(26,572)
Purchase of premises and equipment	(940)		(2,704)
Loans purchased	(30,451)		(90,029)
Other investing activities	(7,240)		(1,315)
Net cash used in investing activities	(93,267)		(132,565)
Financing Activities
Net increase in deposits	206,795		178,743
Cash dividends paid	(519)		(548)
Repurchase of common stock	(283)		(4,002)
Proceeds from advances from Federal Home Loan Bank	110,000		110,000
Repayment of advances from Federal Home Loan Bank	(150,000)		(110,000)
Other, net	(151)		(106)
Net cash provided by financing activities	165,842		174,087
Net Increase in Cash and Cash Equivalents	75,366		47,420
Cash and Cash Equivalents, Beginning of Period	405,898		256,552
Cash and Cash Equivalents, End of Period	$	481,264	$	303,972
Supplemental Disclosures
Cash paid during the period for interest	47,897		32,782
Cash paid during the period for taxes	86		285
Loans transferred to other real estate owned	—		106
Cash dividends declared, paid in subsequent period	519		537
Securities purchased during the period, settled in subsequent period	3,327		8,344

See Notes to Condensed Consolidated Financial Statements

5

First Internet Bancorp

Notes to Condensed Consolidated Financial Statements – Unaudited

(Table amounts in thousands except share and per share data)

Note 1:        Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information or footnotes necessary for a complete presentation of financial condition, results of operations, changes in shareholders’ equity, or cash flows in accordance with GAAP. 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 months ended March 31, 2024 are not necessarily indicative of the results expected for the year ending December 31, 2024 or any other period. The March 31, 2024 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, 2023.

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. These estimates, judgments, and assumptions affect the amounts reported in the condensed consolidated financial statements and the disclosures provided. The determination of the allowance for credit losses, income taxes, valuations and impairments of investment securities and goodwill, as well as fair value measurements of derivatives and loans held-for-sale are highly dependent upon management’s estimates, judgments, and assumptions, and changes in any of these could have a significant impact on the condensed consolidated financial statements.

The condensed consolidated financial statements include the accounts of First Internet Bancorp (the “Company”), its wholly owned subsidiary, First Internet Bank of Indiana (the “Bank”), and the Bank’s three wholly owned subsidiaries, First Internet Public Finance Corp., JKH Realty Services, LLC and SPF15, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations, and cash flows of the Company.

6

Note 2:        Earnings (Loss) Per Share

Earnings (loss) 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 (loss) per share computations for the three months ended March 31, 2024 and 2023. 

(dollars in thousands, except share and per share data)	Three Months Ended March 31,
	2024		2023
Basic earnings (loss) per share
Net income (loss)	$	5,181	$	(3,017)
Weighted-average common shares	8,679,429		9,024,072
Basic earnings (loss) per common share	$	0.60	$	(0.33)
Diluted earnings per share
Net income (loss)	$	5,181	$	(3,017)
Weighted-average common shares	8,679,429		9,024,072
Dilutive effect of equity compensation	70,868		—
Weighted-average common and incremental shares	8,750,297		9,024,072
Diluted earnings (loss) per common share 1	$	0.59	$	(0.33)

1 Potential dilutive common shares are excluded from the computation of diluted EPS in the periods where the effect would be antidilutive. There were no antidilutive shares for the three months ended March 31, 2024. Since the Company was in a loss position for the three months ended March 31, 2023, basic net loss is the same as diluted net loss per share, as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive.

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Note 3:         Securities

The following tables summarize securities AFS and securities HTM as of March 31, 2024 and December 31, 2023.

	March 31, 2024
	Amortized		Gross Unrealized				Fair
(in thousands)	Cost		Gains		Losses		Value
Securities available-for-sale
U.S. Government-sponsored agencies	$	93,323	$	380	$	(1,602)	$	92,101
Municipal securities	69,289		120		(1,994)		67,415
Agency mortgage-backed securities - residential 1	253,181		133		(32,830)		220,484
Agency mortgage-backed securities - commercial	39,367		8		(1,294)		38,081
Private label mortgage-backed securities - residential	23,307		110		(1,151)		22,266
Asset-backed securities	7,417		43		(1)		7,459
Corporate securities	37,081		111		(2,567)		34,625
Total available-for-sale	$	522,965	$	905	$	(41,439)	$	482,431

	March 31, 2024
	Amortized Cost		Gross Unrealized				Fair Value		Allowance for Credit Losses		Net Carrying Value
(in thousands)			Gains		Losses
Securities held-to-maturity
Municipal securities	$	13,384	$	—	$	(934)	$	12,450	$	(3)	$	13,381
Mortgage-backed securities - residential	178,800		—		(16,885)		161,915		—		178,800
Mortgage-backed securities - commercial	5,752		—		(1,192)		4,560		—		5,752
Corporate securities	38,033		—		(2,738)		35,295		(228)		37,805
Total held-to-maturity	$	235,969	$	—	$	(21,749)	$	214,220	$	(231)	$	235,738

1 Includes $0.3 million of additional premium related to terminated interest rate swaps associated with agency mortgage-backed securities - residential as of March 31, 2024.

	December 31, 2023
	Amortized		Gross Unrealized				Fair
(in thousands)	Cost		Gains		Losses		Value
Securities available-for-sale
U.S. Government-sponsored agencies	$	96,404	$	402	$	(1,629)	$	95,177
Municipal securities	69,494		356		(1,404)		68,446
Agency mortgage-backed securities - residential 1	237,798		101		(31,250)		206,649
Agency mortgage-backed securities - commercial	40,215		9		(1,339)		38,885
Private label mortgage-backed securities - residential	21,742		144		(1,107)		20,779
Asset-backed securities	8,071		17		(7)		8,081
Corporate securities	39,591		25		(2,778)		36,838
Total available-for-sale	$	513,315	$	1,054	$	(39,514)	$	474,855

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	December 31, 2023
	Amortized		Gross Unrealized				Fair		Allowance for Credit Losses		Net Carrying Value
(in thousands)	Cost		Gains		Losses		Value
Securities held-to-maturity
Municipal securities	$	13,892	$	1	$	(853)	$	13,040	$	(3)	$	13,889
Agency mortgage-backed securities - residential	166,750		4		(14,112)		152,642		—		$	166,750
Agency mortgage-backed securities - commercial	5,767		—		(1,246)		4,521		—		$	5,767
Corporate securities	41,037		—		(3,668)		37,369		(290)		$	40,747
Total held-to-maturity	$	227,446	$	5	$	(19,879)	$	207,572	$	(293)	$	227,153

1 Includes $0.4 million of additional premium related to terminated interest rate swaps associated with agency mortgage-backed securities - residential as of December 31, 2023.

Accrued interest receivable on AFS and HTM securities at March 31, 2024 was $2.7 million and $1.1 million, respectively, compared to $2.9 million and $1.2 million, respectively, at December 31, 2023, and is included in accrued interest receivable on the condensed consolidated balance sheet. The Company elected to exclude all accrued interest receivable from securities when estimating credit losses.

At both March 31, 2024 and December 31, 2023, over 95% of mortgage-backed securities (including both AFS and HTM) held by the Company are issued by U.S. government-sponsored entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government and have a long history of no credit losses; therefore, the Company did not record an ACL on these securities.

Additionally, the Company evaluated credit impairment for individual AFS securities that are in an unrealized loss position and determined that the unrealized losses are unrelated to credit quality and are primarily attributable to changes in interest rates and volatility in the financial markets. As the Company does not intend to sell the AFS securities that are in an unrealized loss position, and it is unlikely that it will be required to sell these securities before recovery of their amortized cost basis, the Company did not record an ACL on these securities.

In accordance with the adoption of ASC 326, the Company also evaluated its HTM securities that are in an unrealized loss position and considered issuer bond ratings, historical loss rates for bond ratings and economic forecasts. As a result, the Company recorded in an initial ACL in retained earnings of $0.3 million on January 1, 2023. The Company reevaluated these securities at March 31, 2024 and determined no additional ACL was necessary.

The carrying value of securities at March 31, 2024 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.

	Available-for-Sale
(in thousands)	Amortized Cost		Fair Value
Within one year	$	301	$	300
One to five years	29,713		30,124
Five to ten years	73,206		70,593
After ten years	96,473		93,124
	199,693		194,141
Agency mortgage-backed securities - residential	253,181		220,484
Agency mortgage-backed securities - commercial	39,367		38,081
Private label mortgage-backed securities - residential	23,307		22,266
Asset-backed securities	7,417		7,459
Total	$	522,965	$	482,431

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	Held-to-Maturity
(in thousands)	Amortized Cost		Fair Value
Within one year	$	1,006	$	989
One to five years	11,117		10,870
Five to ten years	35,350		32,435
After ten years	3,944		3,451
	51,417		47,745
Agency mortgage-backed securities - residential	178,800		161,915
Agency mortgage-backed securities - commercial	5,752		4,560
Total	$	235,969	$	214,220

There were no gross gains or losses resulting from the sale of available-for-sale securities during the three months ended March 31, 2024 and March 31, 2023, respectively.

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 March 31, 2024 and December 31, 2023 was $587.6 million and $578.9 million, which was approximately 84% and 85%, respectively, of the Company’s AFS and HTM securities portfolios. As of March 31, 2024, the Company’s security portfolio consisted of 530 securities, of which 469 were in an unrealized loss position. As of December 31, 2023, the Company’s security portfolio consisted of 512 securities, of which 434 were in an unrealized loss position. The unrealized losses are related to the categories noted below.

U. S. Government-Sponsored Agencies, Municipal Securities and Corporate Securities

The unrealized losses on the Company’s investments in securities issued by U.S. Government-sponsored agencies, municipal organizations and corporate entities were caused primarily by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. 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 basis, which may be upon maturity.

Agency Mortgage-Backed and Private Label Mortgage-Backed Securities

The unrealized losses on the Company’s investments in agency mortgage-backed and private label mortgage-backed securities were caused primarily by interest rate changes. The Company expects to recover the amortized cost basis over the terms of the securities. 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 basis, which may be upon maturity.

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 March 31, 2024 and December 31, 2023.

10

	March 31, 2024
	Less Than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities available-for-sale
U.S. Government-sponsored agencies	$	41,680	$	(174)	$	22,167	$	(1,428)	$	63,847	$	(1,602)
Municipal securities	4,438		(217)		44,268		(1,777)		48,706		(1,994)
Agency mortgage-backed securities- residential	11,793		(105)		187,884		(32,725)		199,677		(32,830)
Agency mortgage-backed securities- commercial	3,076		(13)		13,384		(1,281)		16,460		(1,294)
Private label mortgage-backed securities - residential	5,095		(74)		11,623		(1,077)		16,718		(1,151)
Asset-backed securities	1,523		(1)		—		—		1,523		(1)
Corporate securities	4,350		(650)		22,122		(1,917)		26,472		(2,567)
Total	$	71,955	$	(1,234)	$	301,448	$	(40,205)	$	373,403	$	(41,439)

	December 31, 2023
	Less Than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities available-for-sale
U.S. Government-sponsored agencies	$	41,934	$	(161)	$	24,579	$	(1,468)	$	66,513	$	(1,629)
Municipal securities	2,399		(103)		36,193		(1,301)		38,592		(1,404)
Agency mortgage-backed securities - residential	1,089		(5)		194,095		(31,245)		195,184		(31,250)
Agency mortgage-backed securities - commercial	21,561		(50)		14,217		(1,289)		35,778		(1,339)
Private label mortgage-backed securities - residential	3,567		(29)		9,114		(1,078)		12,681		(1,107)
Asset-backed securities	1,654		(7)		—		—		1,654		(7)
Corporate securities	1,680		(365)		24,587		(2,413)		26,267		(2,778)
Total	$	73,884	$	(720)	$	302,785	$	(38,794)	$	376,669	$	(39,514)

11

The following table summarizes ratings for the Company’s HTM portfolio issued by state and political subdivisions and other securities as of March 31, 2024.

	Held-to-Maturity
(in thousands)	State and Municipal		Other		Total
Aa1/AA+	$	9,411	$	—	$	9,411
Aa2/AA	2,179		—		2,179
A1/A+	1,794		—		1,794
A3/A-	—		9,507		9,507
Baa1/BBB+	—		8,500		8,500
Baa2/BBB	—		8,500		8,500
Baa3/BBB-	—		9,526		9,526
Ba1/BB+	—		2,000		2,000
Not Rated 1	—		184,552		184,552
Total	$	13,384	$	222,585	$	235,969

1 HTM agency mortgage-backed securities - commercial and residential are listed under Other securities as not rated and have the explicit or implicit guarantee of the United States government.

12

Note 4:        Loans

Loan balances as of March 31, 2024 and December 31, 2023 are summarized in the table below. Categories of loans include:

(in thousands)	March 31, 2024		December 31, 2023
Commercial loans
Commercial and industrial	$	133,897	$	129,349
Owner-occupied commercial real estate	57,787		57,286
Investor commercial real estate	128,276		132,077
Construction	325,597		261,750
Single tenant lease financing	941,597		936,616
Public finance	498,262		521,764
Healthcare finance	213,332		222,793
Small business lending	239,263		218,506
Franchise finance	543,122		525,783
Total commercial loans	3,081,133		3,005,924
Consumer loans
Residential mortgage	390,009		395,648
Home equity	22,753		23,669
Other consumer loans	380,675		377,614
Total consumer loans	793,437		796,931
Total commercial and consumer loans	3,874,570		3,802,855
Net deferred loan origination fees/costs and premiums/discounts on purchased loans and other1	35,234		37,365
Total loans	3,909,804		3,840,220
Allowance for credit losses	(40,891)		(38,774)
Net loans	$	3,868,913	$	3,801,446

1 Includes carrying value adjustments of $26.9 million and $27.8 million related to terminated interest rate swaps associated with public finance loans as of March 31, 2024 and December 31, 2023, respectively. 

Risk characteristics of each loan portfolio segment are as follows:

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 the Midwest and Southwest regions of the United States.

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 the Midwest and Southwest regions of the United States and its loans are often secured by manufacturing and service facilities.

13

Investor Commercial Real Estate: These loans are made on a nationwide basis and 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. 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 unless other underwriting factors are present to mitigate these additional risks.

Construction: Construction loans are made on a nationwide basis and 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, and multi-family) properties, land development for residential 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.

Single Tenant Lease Financing: These loans are made on a nationwide basis to 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 on a nationwide basis 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; renewable energy projects; 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.

Healthcare Finance: These loans are made on a nationwide basis to healthcare providers, primarily dentists, for practice acquisition financing or 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 and secondarily on the underlying collateral provided by the borrower.

Small Business Lending: These loans are made on a nationwide basis 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 and commercial real estate purchases.

Franchise Finance: These loans are made on a nationwide basis through our partnership with ApplePie Capital, which through their deep relationships with franchise brands provides franchisees with financing options for new franchise units, recapitalization, expansion, equipment and working capital. The sources of repayment are either based on identified cash flows from existing operations of the borrower or pro forma cash flow for new franchise locations.

14

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. Repayment can also be impacted by changes in residential property values. 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.

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.

Allowance for Credit Losses (“ACL”) Methodology

The ACL for loans represents management's estimate of all expected credit losses over the expected life of the Company’s existing loan portfolio. Management estimates the ACL balance using relevant available information about the collectability of cash flows, from internal and external sources, including historical information relating to past events, current conditions, and reasonable and supportable forecasts of future economic conditions. When the Company is unable to forecast future economic events, management may revert to historical information.

The Company's methodologies incorporate a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average.

The ACL methodology may also consider other adjustments to address changes in conditions, trends, and circumstances such as local industry changes that could have a significant impact on the risk profile of the loan portfolio and provide for adjustments that may not be reflected and/or captured in the historical loss data. These factors include: lending policies, imprecision in forecasting future economic conditions, loan profile, lending staff, problem loan trends, loan review, collateral, credit concentration, or other internal and external factors.

The Company also includes qualitative adjustments to the allowance based on factors and considerations that have not otherwise been fully accounted for. Qualitative adjustments include, but are not limited to:

•Changes in lending policies and procedures, including changes in underwriting standards and collections, charge-offs and recovery practices

•Changes in international, national, regional and local conditions

•Changes in the nature and volume of the portfolio and terms of loans

•Changes in the experience, depth and ability of lending management

•Changes in the volume and severity of past due loans and other similar conditions

•Changes in the quality of the organization’s loan review system

•Changes in the value of underlying collateral for collateral dependent loans

•The existence and effect of any concentrations of credit and changes in the levels of such concentrations

•The effect of other external factors (i.e. competition, legal and regulatory requirements) on the level of estimated credit losses

The ACL is measured on a collective or pool basis when similar risk characteristics exist. The Company segments its portfolio generally by Federal Financial Institutions Examination Council ("FFIEC") Call Report codes that align with its lines of business. Additional sub-segmentation may be utilized to identify groups of loans with unique risk characteristics relative to the rest of the portfolio.

15

Loans that do not share similar risk characteristics are evaluated on an individual basis. These evaluations are typically performed on loans with a deteriorated internal risk rating. The allowance for credit loss is determined based on several methods, including estimating the fair value of the underlying collateral or the present value of expected cash flows.

The Company relies on a third-party platform that offers multiple methodologies to measure historical life-of-loan losses.

Modified Loans to Borrowers Experiencing Financial Difficulty

The Company may make modifications to certain loans in order to alleviate temporary difficulties in the borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize potential losses to the Company. Modifications may include changes in the amortization terms of the loan, reductions in interest rates, acceptance of interest only payments, and/or reductions to the outstanding loan balance. Such loans are typically placed on nonaccrual status when there is doubt concerning the full repayment of principal and interest or the loan has been delinquent for a period of 90 days or more. These loans may be returned to accrual status when all contractual amounts past due have been brought current, and the borrower’s performance under the modified terms of the loan agreement and the ultimate collectability of all contractual amounts due under the modified terms is no longer in doubt. The Company typically measures the ACL on modified loans to borrowers experiencing financial difficulty on an individual basis when the loans are deemed to no longer share risk characteristics that are similar with other loans in the portfolio. The determination of the ACL for these loans is based on a discounted cash flow approach for both those measured collectively and individually, unless the loan is deemed collateral dependent, which requires measurement of the ACL based on the estimated expected fair value of the underlying collateral, less costs to sell. GAAP requires the Company to make certain disclosures related to these loans, including certain types of modifications, as well as how such loans have performed since their modifications.

Provision for Credit Losses

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.

Policy for Charging Off Loans

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.

16

The following tables present changes in the balance of the ACL during the three months ended March 31, 2024 and 2023. 

(in thousands)	Three Months Ended March 31, 2024
Allowance for credit losses:	Balance, Beginning of Period		(Credit) Provision Charged to Expense		Losses Charged Off		Recoveries		Balance, End of Period
Commercial and industrial	$	2,185	$	(387)	$	—	$	2	$	1,800
Owner-occupied commercial real estate	825		(56)		—		—		769
Investor commercial real estate	1,311		(513)		—		—		798
Construction	2,167		775		—		—		2,942
Single tenant lease financing	8,129		342		—		—		8,471
Public finance	1,372		(36)		—		—		1,336
Healthcare finance	1,976		(59)		—		—		1,917
Small business lending	6,532		2,585		(289)		40		8,868
Franchise finance	6,363		(197)		—		—		6,166
Residential mortgage	2,054		(41)		(69)		1		1,945
Home equity	171		(48)		—		2		125
Other consumer loans	5,689		217		(175)		23		5,754
Total	$	38,774	$	2,582	$	(533)	$	68	$	40,891

(in thousands)	Three Months Ended March 31, 2023
Allowance for credit losses:	Balance, Beginning of Period		Adoption of CECL		(Credit) Provision Charged to Expense		Losses Charged Off		Recoveries		Balance, End of Period
Commercial and industrial	$	1,711	$	(120)	$	6,810	$	(6,965)	$	1	$	1,437
Owner-occupied commercial real estate	651		62		(1)		—		—		712
Investor commercial real estate	1,099		(191)		368		—		—		1,276
Construction	2,074		(435)		(88)		—		—		1,551
Single tenant lease financing	10,519		(346)		100		—		—		10,273
Public finance	1,753		(135)		(48)		—		—		1,570
Healthcare finance	2,997		1,034		(336)		—		—		3,695
Small business lending	2,168		334		(105)		(60)		3		2,340
Franchise finance	3,988		(313)		997		—		—		4,672
Residential mortgage	1,559		406		594		—		2		2,561
Home equity	69		133		51		—		1		254
Other consumer loans	3,149		2,533		1,031		(232)		57		6,538
Total	$	31,737	$	2,962	$	9,373	$	(7,257)	$	64	$	36,879

Accrued interest receivable on loans totaled $20.5 million and $20.9 million at March 31, 2024 and December 31, 2023, respectively, and is excluded from the estimate of credit losses. The Company made the accounting policy election to not measure an ACL for accrued interest receivable. Accrued interest deemed uncollectible will be written off through interest income.

17

In addition to the ACL, the Company established a reserve for off-balance sheet commitments, classified in other liabilities, as required by the adoption of the CECL methodology for measuring credit losses. This reserve is maintained at a level management believes to be sufficient to absorb losses arising from unfunded loan commitments. The day one entry for off-balance sheet commitments resulted in a reserve of $2.5 million. The adequacy of the reserve for unfunded commitments is determined quarterly based on methodology similar to the methodology for determining the ACL. The following tables detail activity in the provision (benefit) for credit losses on off-balance sheet commitments for the three months ended March 31, 2024 and 2023.

(in thousands)	Balance December 31, 2023		Provision (Benefit) for credit losses		Balance March 31, 2024
Off-balance sheet commitments
Commercial loans
Commercial and industrial	$	233	$	(40)	$	193
Owner-occupied commercial real estate	9		(9)		—
Investor commercial real estate	6		(6)		—
Construction	2,889		381		3,270
Small business lending	541		(382)		159
Total commercial loans	3,678		(56)		3,622
Consumer loans
Residential mortgage	11		(6)		5
Home equity	45		(10)		35
Other consumer	11		—		11
Total consumer loans	67		(16)		51
Total allowance for off-balance sheet commitments	$	3,745	$	(72)	$	3,673

(in thousands)	Pre-ASC 326 Adoption		Impact of ASC 326 Adoption		Provision (Benefit) for credit losses		Balance, March 31, 2023
Off-balance sheet commitments
Commercial loans
Commercial and industrial	$	—	$	110	$	39	$	149
Owner-occupied commercial real estate	—		—		8		8
Investor commercial real estate	—		9		39		48
Construction	—		2,193		(39)		2,154
Healthcare finance	—		2		—		2
Total commercial loans	—		2,314		47		2,361
Consumer loans
Residential mortgage	—		127		(14)		113
Home equity	—		52		10		62
Other consumer	—		11		(1)		10
Total consumer loans	—		190		(5)		185
Total allowance for off-balance sheet commitments	$	—	$	2,504	$	42	$	2,546

18

The Company utilizes a risk grading matrix to assign a risk grade to each of its commercial loans. A description of the general characteristics of the risk grades is as follows:

•“Pass” - Higher quality loans that do not fit any of the other categories described below.

•“Special Mention” - Loans that possess some credit deficiency or potential weakness, which deserve close attention.

•“Substandard” - Loans that possess a defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

•“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.

•“Loss” - Loans that are considered uncollectible and of such little value that continuing to carry them as assets is not warranted.

The Company does not risk grade its consumer loans. It classifies them as either performing or nonperforming. Below is a description of those classifications:

•“Performing” - Loans that are accruing and full collection of principal and interest is expected.

•“Nonperforming” - Loans that are 90 days delinquent or for which the full collection of principal and interest may be in doubt.

19

The following tables present the credit risk profile of the Company’s commercial and consumer loan portfolios by loan class and by year of origination for the years indicated based on rating category and payment activity as of March 31, 2024 and December 31, 2023.

	March 31, 2024
	Term Loans (amortized cost basis by origination year)												Revolving loans amortized cost basis		Revolving loans converted to term
(in thousands)	2024		2023		2022		2021		2020		Prior						Total
Commercial and industrial
Pass	$	7,904	$	26,273	$	18,942	$	15,382	$	2,464	$	20,586	$	37,884	$	—	$	129,435
Special Mention	—		—		4,462		—		—		—		—		—		4,462
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial and      industrial	7,904		26,273		23,404		15,382		2,464		20,586		37,884		—		133,897
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Owner-occupied commercial real estate
Pass	2,275		1,484		10,668		7,882		5,861		16,958		—		—		45,128
Special Mention	—		—		580		913		8,331		1,180		—		—		11,004
Substandard	—		—		—		—		—		1,655		—		—		1,655
Doubtful	—		—		—		—		—		—		—		—		—
Total owner-occupied      commercial real estate	2,275		1,484		11,248		8,795		14,192		19,793		—		—		57,787
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Investor commercial real estate
Pass	—		2,852		35,232		27,142		9,800		53,250		—		—		128,276
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total investor commercial real      estate	—		2,852		35,232		27,142		9,800		53,250		—		—		128,276
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Construction
Pass	2,195		63,557		174,215		77,364		2,426		—		5,840		—		325,597
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total construction	2,195		63,557		174,215		77,364		2,426		—		5,840		—		325,597
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Single tenant lease financing
Pass	16,533		52,217		222,230		89,441		65,372		479,092		—		—		924,885
Special Mention	—		—		2,604		5,272		1,174		7,662		—		—		16,712
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total single tenant lease      financing	16,533		52,217		224,834		94,713		66,546		486,754		—		—		941,597
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Public finance
Pass	1,272		3,323		17,740		28,790		719		444,298		—		—		496,142
Special Mention	—		—		—		—		—		2,120		—		—		2,120
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total public finance	1,272		3,323		17,740		28,790		719		446,418		—		—		498,262
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—

20

	March 31, 2024
	Term Loans (amortized cost basis by origination year)												Revolving loans amortized cost basis		Revolving loans converted to term
(in thousands)	2024		2023		2022		2021		2020		Prior						Total
Healthcare finance
Pass	—		—		—		9,719		119,549		83,354		—		—		212,622
Special Mention	—		—		—		—		—		710		—		—		710
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total healthcare finance	—		—		—		9,719		119,549		84,064		—		—		213,332
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Small business lending 1
Pass	23,351		118,895		36,277		13,994		12,070		13,420		7,481		—		225,488
Special Mention	—		2,422		287		204		383		946		—		—		4,242
Substandard	—		2,736		3,143		52		1,585		1,551		466		—		9,533
Doubtful	—		—		—		—		—		—		—		—		—
Total small business lending	23,351		124,053		39,707		14,250		14,038		15,917		7,947		—		239,263
Year-to-date gross charge-offs	—		46		235				8		—		—		—		289
Franchise finance
Pass	25,091		256,701		203,240		56,290		—		—		—		—		541,322
Special Mention	—		281		669		—		—		—		—		—		950
Substandard	—		—		555		295		—		—		—		—		850
Doubtful	—		—		—		—		—		—		—		—		—
Total franchise finance	25,091		256,982		204,464		56,585		—		—		—		—		543,122
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Consumer loans
Residential mortgage
Performing	—		13,983		193,699		90,365		29,784		59,638		—		—		387,469
Nonperforming	—		—		1,189		448		170		733		—		—		2,540
Total residential mortgage	—		13,983		194,888		90,813		29,954		60,371		—		—		390,009
Year-to-date gross charge-offs	—		—		13		56		—		—		—		—		69
Home equity
Performing	—		1,307		1,942		429		454		680		16,180		1,761		22,753
Nonperforming	—		—		—		—		—		—		—		—		—
Total home equity	—		1,307		1,942		429		454		680		16,180		1,761		22,753
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Other consumer
Performing	20,534		112,174		102,027		39,591		25,131		80,260		829		—		380,546
Nonperforming	—		69		—		16		4		40		—		—		129
Total other consumer	20,534		112,243		102,027		39,607		25,135		80,300		829		—		380,675
Gross charge-offs	—		39		64		24		1		47		—		—		175
Total Loans	$	99,155	$	658,274	$	1,029,701	$	463,589	$	285,277	$	1,268,133	$	68,680	$	1,761	$	3,874,570
Total year-to-date gross charge-offs	$	—	$	85	$	312	$	80	$	9	$	47	$	—	$	—	$	533

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

21

	December 31, 2023
	Term Loans (amortized cost basis by origination year)												Revolving loans amortized cost basis		Revolving loans converted to term
(in thousands)	2023		2022		2021		2020		2019		Prior						Total
Commercial and industrial
Pass	$	24,329	$	19,382	$	15,464	$	2,502	$	12,365	$	8,703	$	41,967	$	—	$	124,712
Special Mention	—		4,637		—		—		—		—		—		—		4,637
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial and      industrial	24,329		24,019		15,464		2,502		12,365		8,703		41,967		—		129,349
Year-to-date gross charge-offs	—		—		6,914		5		130		—		—		—		7,049
Owner-occupied commercial real estate
Pass	1,492		10,731		7,990		6,591		5,255		12,485		—		—		44,544
Special Mention	—		584		922		8,392		—		1,189		—		—		11,087
Substandard	—		—		—		—		—		1,655		—		—		1,655
Doubtful	—		—		—		—		—		—		—		—		—
Total owner-occupied      commercial real estate	1,492		11,315		8,912		14,983		5,255		15,329		—		—		57,286
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Investor commercial real estate
Pass	6,571		35,209		26,841		9,864		47,827		5,765		—		—		132,077
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total investor commercial real      estate	6,571		35,209		26,841		9,864		47,827		5,765		—		—		132,077
Year-to-date gross charge-offs	—		—		—		—		—		591		—		—		591
Construction
Pass	26,539		153,066		70,175		6,121		—		—		5,849		—		261,750
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total construction	26,539		153,066		70,175		6,121		—		—		5,849		—		261,750
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Single tenant lease financing
Pass	52,360		221,964		89,075		65,863		142,023		346,695		—		—		917,980
Special Mention	—		4,362		6,698		3,032		—		4,544		—		—		18,636
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total single tenant lease      financing	52,360		226,326		95,773		68,895		142,023		351,239		—		—		936,616
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Public finance
Pass	3,805		30,583		29,750		719		43,611		411,176		—		—		519,644
Special Mention	—		—		—		—		—		2,120		—		—		2,120
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total public finance	3,805		30,583		29,750		719		43,611		413,296		—		—		521,764
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—

22

	December 31, 2023
	Term Loans (amortized cost basis by origination year)												Revolving loans amortized cost basis		Revolving loans converted to term
(in thousands)	2023		2022		2021		2020		2019		Prior						Total
Healthcare finance
Pass	—		—		9,955		124,654		63,486		23,484		—		—		221,579
Special Mention	—		—		—		—		1,214		—		—		—		1,214
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total healthcare finance	—		—		9,955		124,654		64,700		23,484		—		—		222,793
Year-to-date gross charge-offs	—		—		—		—		605		—		—		—		605
Small business lending 1
Pass	119,149		42,077		15,180		13,948		4,582		9,215		5,388		—		209,539
Special Mention	343		496		—		341		265		698		—		—		2,143
Substandard	1,095		1,854		52		1,777		1,155		417		474		—		6,824
Doubtful	—		—		—		—		—		—		—		—		—
Total small business lending	120,587		44,427		15,232		16,066		6,002		10,330		5,862		—		218,506
Year-to-date gross charge-offs	67		739		416		1,364		—		—		—		—		2,586
Franchise finance
Pass	256,944		210,617		57,919		—		—		—		—		—		525,480
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		303		—		—		—		—		—		303
Doubtful	—		—		—		—		—		—		—		—		—
Total franchise finance	256,944		210,617		58,222		—		—		—		—		—		525,783
Year-to-date gross charge-offs	—		331		—		—		—		—		—		—		331
Consumer loans
Residential mortgage
Performing	14,942		195,453		91,010		30,092		13,072		48,330		—		—		392,899
Nonperforming	—		738		456		73		—		1,482		—		—		2,749
Total residential mortgage	14,942		196,191		91,466		30,165		13,072		49,812		—		—		395,648
Year-to-date gross charge-offs	—		53		70		—		17		—		—		—		140
Home equity
Performing	1,369		1,997		436		467		141		585		16,896		1,778		23,669
Nonperforming	—		—		—		—		—		—		—		—		—
Total home equity	1,369		1,997		436		467		141		585		16,896		1,778		23,669
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—		—
Other consumer
Performing	115,736		106,883		41,598		26,527		27,087		58,902		795		—		377,528
Nonperforming	—		53		—		5		15		13		—		—		86
Total other consumer	115,736		106,936		41,598		26,532		27,102		58,915		795		—		377,614
Year-to-date gross charge-offs	97		115		20		51		56		243		—		—		582
Total Loans	$	624,674	$	1,040,686	$	463,824	$	300,968	$	362,098	$	937,458	$	71,369	$	1,778	$	3,802,855
Total year-to-date gross charge-offs	$	164	$	1,238	$	7,420	$	1,420	$	808	$	834	$	—	$	—	$	11,884

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

23

The following tables present the Company’s loan portfolio delinquency analysis as of March 31, 2024 and December 31, 2023. 

	March 31, 2024
(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days  or More Past Due		Total  Past Due		Current		Total Loans
Commercial and industrial	$	8	$	—	$	—	$	8	$	133,889	$	133,897
Owner-occupied commercial real estate	—		—		—		—		57,787		57,787
Investor commercial real estate	—		—		—		—		128,276		128,276
Construction	—		—		—		—		325,597		325,597
Single tenant lease financing	—		—		—		—		941,597		941,597
Public finance	—		—		—		—		498,262		498,262
Healthcare finance	—		—		—		—		213,332		213,332
Small business lending1	7,674		824		3,032		11,530		227,733		239,263
Franchise finance	3,772		1,168		850		5,790		537,332		543,122
Residential mortgage	—		1,345		1,473		2,818		387,191		390,009
Home equity	—		—		—		—		22,753		22,753
Other consumer	202		48		48		298		380,377		380,675
Total	$	11,656	$	3,385	$	5,403	$	20,444	$	3,854,126	$	3,874,570

1 Balance is partially guaranteed by the U.S. government.

	December 31, 2023
(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days  or More Past Due		Total  Past Due		Current		Total Loans
Commercial and industrial	$	40	$	21	$	—	$	61	$	129,288	$	129,349
Owner-occupied commercial real estate	—		—		—		—		57,286		57,286
Investor commercial real estate	—		—		—		—		132,077		132,077
Construction	—		—		—		—		261,750		261,750
Single tenant lease financing	—		—		—		—		936,616		936,616
Public finance	—		—		—		—		521,764		521,764
Healthcare finance	—		—		—		—		222,793		222,793
Small business lending1	2,680		57		2,794		5,531		212,975		218,506
Franchise finance	—		2,923		303		3,226		522,557		525,783
Residential mortgage	70		709		1,663		2,442		393,206		395,648
Home equity	—		—		—		—		23,669		23,669
Other consumer	223		68		53		344		377,270		377,614
Total	$	3,013	$	3,778	$	4,813	$	11,604	$	3,791,251	$	3,802,855

1 Balance is partially guaranteed by the U.S. government.

Loans are reclassified to a non-accruing status when, in management’s judgment, the collateral value and financial condition of the borrower do not justify accruing interest. At the time the accrual is discontinued, all unpaid accrued interest is reversed against earnings. Interest income accrued in prior years, if any, is charged to the allowance for credit losses. Payments subsequently received on nonaccrual loans are applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable, typically after a minimum of nine consecutive months of performance. There was no interest income recognized on nonaccrual loans for the three months ended March 31, 2024 and 2023.

24

The following table summarizes the Company’s nonaccrual loans and loans past due 90 days or more and still accruing by loan class for the periods indicated:

	March 31, 2024						December 31, 2023
(in thousands)	Nonaccrual Loans		Nonaccrual Loans with no Allowance for Credit Losses		Total Loans 90 Days or More Past Due and Accruing		Nonaccrual Loans		Nonaccrual Loans with no Allowance for Credit Losses		Total Loans 90 Days or More Past Due and Accruing
Commercial and industrial	$	—	$	—	$	—	$	—	$	—	$	—
Small business lending1	9,532		654		—		6,824		904		—
Franchise finance	295		—		555		303		—		—
Residential mortgage	2,309		2,309		230		1,911		1,911		838
Other consumer	129		129		—		86		86		—
Total loans	$	12,265	$	3,092	$	785	$	9,124	$	2,901	$	838

1 Balance is partially guaranteed by the U.S. government.

Determining fair value for collateral dependent loans requires obtaining a current independent appraisal of the collateral and applying a discount factor, which includes selling costs if applicable, to the value. The fair value of real estate is generally based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis. Fair value on other collateral such as business assets is typically ascertained by assessing, either singularly or some combination of, asset appraisals, accounts receivable aging reports, inventory listings and/or customer financial statements. Both appraised values and values based on borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions.

The following tables present the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses as of March 31, 2024 and December 31, 2023.

	March 31, 2024
(in thousands)	Commercial Real Estate		Residential Real Estate		Other		Total		Allowance on Collateral Dependent Loans
Commercial and industrial	$	—	$	—	$	—	$	—	$	—
Owner-occupied commercial real estate	—		—		1,654		1,654		—
Small business lending1	1,284		—		4,527		5,811		2,671
Residential mortgage	—		2,309		—		2,309		—
Other consumer loans	—		—		129		129		—
Total loans	$	1,284	$	2,309	$	6,310	$	9,903	$	2,671

1 Balance is partially guaranteed by the U.S. government.

	December 31, 2023
(in thousands)	Commercial Real Estate		Residential Real Estate		Other		Total		Allowance on Collateral Dependent Loans
Commercial and industrial	$	—	$	—	$	—	$	—	$	—
Owner-occupied commercial real estate	—		—		1,654		1,654		—
Small business lending1	2,875		1,210		2,226		6,311		2,391
Residential mortgage	—		1,911		—		1,911		—
Other consumer loans	—		—		86		86		—
Total loans	$	2,875	$	3,121	$	3,966	$	9,962	$	2,391

1 Balance is partially guaranteed by the U.S. government.

25

Loan Modifications to Borrowers Experiencing Financial Difficulty

In January 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt restructurings and Vintage Disclosures” (“ASU 2022-02”), which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis. Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications to borrowers experiencing financial difficulty. Instead, these modifications are included in their respective loan pool and a historical loss rate is applied to the current loan balance to arrive at the quantitative baseline portion of the ACL.

Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions and other actions intended to minimize loss and to avoid foreclosure or repossession of collateral. The Company did not have any loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2024 and 2023.

Other Real Estate Owned

The Company had $0.4 million in other real estate owned (“OREO”) as of March 31, 2024 and December 31, 2023, which consisted of two residential mortgage properties. There were two loans totaling $0.5 million and one loan totaling $0.8 million, in the process of foreclosure at March 31, 2024 and December 31, 2023, respectively.

26

Note 5:        Premises and Equipment

The following table summarizes premises and equipment at March 31, 2024 and December 31, 2023.

(in thousands)	March 31, 2024		December 31, 2023
Land	$	5,598	$	5,598
Construction in process	1,599		1,119
Right of use leased asset	41		66
Building and improvements	60,854		60,699
Furniture and equipment	21,127		20,836
Less: accumulated depreciation	(15,988)		(14,855)
Total	$	73,231	$	73,463

  

Note 6:        Goodwill        

As of March 31, 2024 and December 31, 2023, 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, 2024 or March 31, 2023. 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. When assessing goodwill for impairment, first, a qualitative assessment can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment.

Goodwill was assessed for impairment using a quantitative test performed as of August 31, 2023. The estimated fair value of the reporting unit exceeded the net carrying value, and therefore no goodwill impairment existed as of that date.

Note 7:        Servicing Asset

Activity for the servicing asset and the related changes in fair value for the three months ended March 2024 and 2023 are shown in the table below.

	Three Months Ended
(in thousands)	March 31, 2024		March 31, 2023
Balance, beginning of period	$	10,567	$	6,255
Additions:
Originated	1,627		1,112
Subtractions
Paydowns:	(612)		(339)
Changes in fair value due to changes in valuation inputs or assumptions used in       the valuation model	178		284
Loan servicing asset revaluation	$	(434)	$	(55)
Balance, end of period	$	11,760	$	7,312

27

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 March 31, 2024 and December 31, 2023 are shown in the table below.

(in thousands)	March 31, 2024		December 31, 2023
Loan portfolios serviced for:
SBA guaranteed loans	$	599,396	$	531,927
Total	$	599,396	$	531,927

Loan servicing revenue totaled $1.3 million and $0.8 million for the three months ended March 31, 2024 and March 31, 2023, respectively. Loan servicing asset revaluation, which represents the change in fair value of the servicing asset, resulted in a $0.4 million and $0.1 million downward valuation for the three months ended March 31, 2024 and March 31, 2023, respectively.

The fair value of servicing rights is highly sensitive to changes in underlying assumptions. Though fluctuations in prepayment speeds and changes in secondary market premiums generally have the most substantial impact on the fair value of servicing rights, other influencing factors include changing economic conditions, changes to the discount rate assumption and the weighted average life of the servicing portfolio. Measurement of fair value is limited to the conditions existing and the assumptions used as of a particular point in time; however, those assumptions may change over time. Refer to Note 11 - Fair Value of Financial Instruments for further details.

Note 8:        Subordinated Debt

In June 2019, the Company issued $37.0 million aggregate principal amount of 6.0% Fixed-to-Floating Rate Subordinated Notes due 2029 (the “2029 Notes”) in a public offering. The 2029 Notes initially bear a fixed interest rate of 6.0% per year to, but excluding, June 30, 2024, and thereafter a floating rate equal to three-month Term SOFR plus 4.376%. All interest on the 2029 Notes is payable quarterly. The 2029 Notes are scheduled to mature on June 30, 2029. The 2029 Notes are unsecured subordinated obligations of the Company and may be repaid, without penalty, on any interest payment date on or after June 30, 2024. The 2029 Notes are intended to qualify as Tier 2 capital under regulatory guidelines.

In October 2020, the Company entered into a term loan in the principal amount of $10.0 million, evidenced by a term note due 2030 (the “2030 Note”). The 2030 Note 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 Note is scheduled to mature on November 1, 2030. The 2030 Note is 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 Note is intended to qualify as Tier 2 capital under regulatory guidelines. The Company used the net proceeds from the issuance of the 2030 Note to redeem a subordinated term note that had been entered into in October 2015.

In August 2021, the Company issued $60.0 million aggregate principal amount of 3.75% Fixed-to-Floating Rate Subordinated Notes due 2031 (the “2031 Notes”) in a private placement. The 2031 Notes initially bear a fixed interest rate of 3.75% per year to, but excluding, September 1, 2026, and thereafter a floating rate equal to the then-current benchmark rate (initially three-month Term SOFR plus 3.11%). The 2031 Notes are scheduled to mature on September 1, 2031. The 2031 Notes are unsecured subordinated obligations of the Company and may be repaid, without penalty, on any interest payment date on or after September 1, 2026. The 2031 Notes are intended to qualify as Tier 2 capital under regulatory guidelines. The Company used a portion of the net proceeds from the issuance of the 2031 Notes to redeem subordinated notes issued by the Company in 2016. Pursuant to the terms of a Registration Rights Agreement between the Company and the initial purchasers of the 2031 Notes, the Company offered to exchange the 2031 Notes for subordinated notes that are registered under the Securities Act of 1933, as amended, and have substantially the same terms as the 2031 Notes. On December 30, 2021, we completed an exchange of $59.3 million principal amount of the unregistered 2031 Notes for registered 2031 Notes in satisfaction of our obligations under the registration rights agreement. Holders of $0.7 million of unregistered 2031 Notes did not participate in the exchange.

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The following table presents the principal balance and unamortized discount and debt issuance costs for the 2029 Notes, the 2030 Note, and the 2031 Notes as of March 31, 2024 and December 31, 2023.

	March 31, 2024				December 31, 2023
(in thousands)	Principal		Unamortized Discount and Debt Issuance Costs		Principal		Unamortized Discount and Debt Issuance Costs
2029 Notes	$	37,000	$	(822)	$	37,000	$	(862)
2030 Notes	10,000		(155)		10,000		(160)
2031 Notes	60,000		(1,108)		60,000		(1,140)
Total	$	107,000	$	(2,085)	$	107,000	$	(2,162)

Note 9:        Benefit Plans

Employment Agreements

The Company is party to certain employment agreements with each of its Chief Executive Officer, President and Chief Operating Officer and Executive Vice President and Chief Financial Officer. The employment agreements each provide for annual base salaries and annual bonuses, if any, as determined from time to time by the Compensation Committee of our Board of Directors. The annual bonuses are to be determined with reference to the achievement of annual performance objectives established by the Compensation Committee. The agreements also provide that each of the Chief Executive Officer, President and Chief Operating Officer and Executive Vice President and Chief Financial Officer, may be awarded additional compensation, benefits, or consideration as the Compensation Committee may determine.

The agreements also provide for the continuation of salary and certain other benefits for a specified period of time upon termination of employment under certain circumstances, including resignation for “good reason,” termination by the Company without “cause” at any time or any termination of employment within twelve months following a “change in control,” along with other specific conditions.

2022 Equity Incentive Plan

The First Internet Bancorp 2022 Equity Incentive Plan (the “2022 Plan”) was approved by our Board of Directors and ratified by our shareholders on May 16, 2022. The plan permits awards of incentive and non-statutory stock options, stock appreciation rights, restricted stock awards, stock unit awards, performance awards and other stock-based awards. 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 2022 Plan. The 2022 Plan initially authorized the issuance of 400,000 new shares of the Company’s common stock plus all shares of common stock that remained available for future grants under the First Internet Bancorp 2013 Equity Incentive Plan (the “2013 Plan”).

Award Activity Under 2022 Plan

The Company recorded $0.4 million and $0.1 million of share-based compensation expense for the three months ended March 31, 2024, and 2023, respectively, related to stock-based awards under the 2022 Plan.

The following table summarizes the stock-based award activity under the 2022 Plan for the three months ended March 31, 2024.

	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
Unvested at December 31, 2023	72,354	$	24.61	30,030	$	11.18	—	$	—
Granted	75,222	24.13		—	—		—	—
Vested	(14,294)	24.52		—	—		—	—
Unvested at March 31, 2024	133,282	$	24.35	30,030	$	11.18	—	$	—

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At March 31, 2024, the total unrecognized compensation cost related to unvested stock-based awards under the 2022 Plan was $2.8 million with a weighted-average expense recognition period of 2.4 years.

2013 Equity Incentive Plan

The 2013 Plan authorized the issuance of 750,000 shares of the Company’s common stock in the form of stock-based awards to employees, directors, and other eligible persons. Although outstanding stock-based awards under the 2013 Plan remain in place according to their terms, our authority to grant new awards under the 2013 Plan terminated upon shareholder approval of the 2022 Plan.

Award Activity Under 2013 Plan

The Company recorded $0.1 million and $0.4 million of share-based compensation expense for the three months ended March 31, 2024 and 2023, respectively, related to stock-based awards under the 2013 Plan.

The following table summarizes the stock-based award activity under the 2013 Plan for the three months ended March 31, 2024.

	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
Unvested at December 31, 2023	53,985	$	39.86	—	$	—	—	$	—
Cancelled/Forfeited	(22,685)	30.45		—	—		—	—
Vested	(8,089)	46.64		—	—		—	—
Unvested at March 31, 2024	23,211	$	46.69	—	$	—	—	$	—

At March 31, 2024, the total unrecognized compensation cost related to unvested stock-based awards under the 2013 Plan was $0.3 million with a weighted-average expense recognition period of 0.8 years.

Directors Deferred Stock Plan

Until January 2014, the Company had a practice of granting awards under a stock compensation plan for members of the Board of Directors (“Directors Deferred Stock Plan”). The Company reserved 180,000 shares of common stock that could have been issued pursuant to the Directors Deferred Stock Plan. The plan provided directors the option to elect to receive up to 100% of their annual retainer in either common stock or deferred stock rights. 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 three months ended March 31, 2024.

	Deferred Stock Rights
Outstanding, beginning of period	28,538
Granted	72
Outstanding, end of period	28,610

All deferred stock rights granted during the 2024 period were additional rights issued in lieu of cash dividends payable on outstanding deferred stock rights.

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Note 10:        Commitments and Credit Risk

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 March 31, 2024 and December 31, 2023, the Company had outstanding loan commitments totaling approximately $726.5 million and $755.4 million, respectively.

Note 11:        Fair Value of Financial Instruments

ASC Topic 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1    Quoted prices in active markets for identical assets or liabilities

Level 2    Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3    Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

Available-for-Sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. The Company did not own any securities classified within Level 1 of the hierarchy as of March 31, 2024 or December 31, 2023.

Level 2 securities include U.S. Government-sponsored agencies, municipal securities, mortgage and asset-backed securities and corporate securities. Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities.

In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Fair values are calculated using discounted cash flows. Discounted cash flows are calculated based off of the anticipated future cash flows updated to incorporate loss severities. 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 March 31, 2024 or December 31, 2023.

Loans Held-for-Sale (mandatory pricing agreements)

The fair value of loans held-for-sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan (Level 2).

Servicing Asset

Fair value is based on a loan-by-loan basis taking into consideration the origination to maturity dates of the loans, the current age of the loans and the remaining term to maturity. The valuation methodology utilized for the servicing asset begins with generating estimated future cash flows for each servicing asset based on their unique characteristics and market-based assumptions for prepayment speeds and costs to service. The present value of the future cash flows is then calculated utilizing market-based discount rate assumptions (Level 3).

Interest Rate Swap Agreements

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The fair values of interest rate swap agreements are estimated using current market interest rates as of the balance sheet date and calculated using discounted cash flows that are observable or that can be corroborated by observable market data (Level 2).

Back-to-Back Swap Agreements

The Company offers interest rate swaps to certain loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable-to-fixed interest rate contract with the customer. The Company also enters into an offsetting interest rate swap with a correspondent bank. These back-to-back swap agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. The fair value of these derivatives is based on a discounted cash flow approach. The fair value assets and liabilities of centrally cleared interest rate swaps are net of variation margin settled-to-market (Level 2).

Interest Rate Lock Commitments

The fair values of 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 March 31, 2024 and December 31, 2023.

			March 31, 2024  Fair Value Measurements Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government-sponsored agencies	$	92,101	$	—	$	92,101	$	—
Municipal securities	67,415		—		67,415		—
Agency mortgage-backed securities - residential	220,484		—		220,484		—
Agency mortgage-backed securities - commercial	38,081		—		38,081		—
Private label mortgage-backed securities - residential	22,266		—		22,266		—
Asset-backed securities	7,459		—		7,459		—
Corporate securities	34,625		—		34,625		—
Total available-for-sale securities	$	482,431	$	—	$	482,431	$	—
Servicing asset	11,760		—		—		11,760
Interest rate swap agreements	5,807		—		5,807		—
Interest rate swap agreements - assets (back-to-back)	158		—		158		—
Interest rate swap agreements - liabilities (back-to-back)	(158)		—		(158)		—

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			December 31, 2023 Fair Value Measurements Using
(in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government-sponsored agencies	$	95,177	$	—	$	95,177	$	—
Municipal securities	68,446		—		68,446		—
Agency mortgage-backed securities - residential	206,649		—		206,649		—
Agency mortgage-backed securities - commercial	38,885		—		38,885		—
Private label mortgage-backed securities - residential	20,779		—		20,779		—
Asset-backed securities	8,081		—		8,081		—
Corporate securities	36,838		—		36,838		—
Total available-for-sale securities	$	474,855	$	—	$	474,855	$	—
Servicing asset	10,567		—		—		10,567
Interest rate swap agreements	5,139		—		5,139		—
Interest rate swap agreements - assets (back-to-back)	677		—		677		—
Interest rate swap agreements - liabilities (back-to-back)	(677)		—		(677)		—

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 months ended March 31, 2024 and 2023.

	Three Months Ended
(in thousands)	Servicing Asset		Interest Rate Lock Commitments
Balance as of January 1, 2024	$	10,567	$	—
Total realized gains
Additions:
Originated	1,627		—
Subtractions:
Paydowns	(612)		—
Change in fair value	178		—
Balance, March 31, 2024	$	11,760	$	—
Balance as of January 1, 2023	$	6,255	$	133
Total realized gains
Additions:
Originated	1,112		—
Subtractions:
Paydowns	(339)		—
Change in fair value	284		(133)
Balance, March 31, 2023	$	7,312	$	—

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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.

Individually Analyzed Collateral Dependent Loans

Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. The amount of impairment may be determined based on the fair value of the underlying collateral, less costs to sell, the estimated present value of future cash flows or the loan’s observable market price.

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

Individually analyzed 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 March 31, 2024 and December 31, 2023.

			March 31, 2024
(in thousands)			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Collateral dependent loans	$	2,724	$	—	$	—	$	2,724

			December 31, 2023
(in thousands)			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Collateral dependent loans	$	2,799	$	—	$	—	$	2,799

 Significant Unobservable (Level 3) Inputs

The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.

(dollars in thousands)	Fair Value at March 31, 2024		Valuation Technique	Significant Unobservable Inputs	Range	Weighted-Average Range
Collateral dependent loans	$	2,724	Fair value of collateral	Discount for type of property and current market conditions	0%- 90%	26%
Servicing asset	11,760		Discounted cash flow	Prepayment speeds Discount rate	0% - 25% 15%	11.6% 15%

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(dollars in thousands)	Fair Value at December 31, 2023		Valuation Technique	Significant Unobservable Inputs	Range	Weighted-Average Range
Collateral dependent loans	$	2,799	Fair value of collateral	Discount for type of property and current market conditions	0% - 90%	28%
Servicing asset	10,567		Discounted cash flow	Prepayment speeds Discount rate	0% - 25% 15%	11.3% 15%

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.

Cash and Cash Equivalents

For these instruments, the carrying amount is a reasonable estimate of fair value.

Securities Held-to-Maturity

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid mutual funds. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.

Level 2 securities include agency mortgage-backed securities - residential, municipal securities and corporate securities. Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities.

In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Fair values are calculated using discounted cash flows. Discounted cash flows are calculated based off of the anticipated future cash flows updated to incorporate loss severities. 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 March 31, 2024 or December 31, 2023.

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

The fair value of these loans approximates carrying value.

Loans

The fair value of loans is estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.

Accrued Interest Receivable

The fair value of these financial instruments approximates carrying value.

Federal Home Loan Bank of Indianapolis Stock

The fair value of this financial instrument approximates carrying value.

Deposits 

The fair value of noninterest-bearing and interest-bearing demand deposits, savings and money market accounts approximates carrying value. The fair value of fixed maturity certificates of deposit and brokered deposits are estimated using rates currently offered for deposits of similar remaining maturities.

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Advances from Federal Home Loan Bank

The fair value of fixed rate advances is estimated using rates currently available for advances with similar remaining maturities. The carrying value of variable rate advances approximates fair value.

Subordinated Debt

The fair value of the Company’s publicly traded subordinated debt is obtained from quoted market prices. The fair value of the Company’s remaining subordinated debt is estimated using discounted cash flow analysis, based on current borrowing rates for similar types of debt instruments.

 Accrued Interest Payable

The fair value of these financial instruments approximates carrying value.

Commitments

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 March 31, 2024 and December 31, 2023.

The following tables present the carrying value and estimated fair value of all financial assets and liabilities that are not measured at fair value on a recurring basis at March 31, 2024 and December 31, 2023.

	March 31, 2024 Fair Value Measurements Using
(in thousands)	Carrying Amount		Fair Value		Quoted Prices In Active Market for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	481,264	$	481,264	$	481,264	$	—	$	—
Securities held-to-maturity, net	235,738		214,220		—		214,220		—
Loans held-for-sale (best efforts pricing agreements)	22,589		22,589		—		22,589		—
Net loans	3,868,913		3,685,416		—		—		3,685,416
Accrued interest receivable	26,809		26,809		26,809		—		—
Federal Home Loan Bank of Indianapolis stock	28,350		28,350		—		28,350		—
Deposits	4,273,768		4,253,825		1,829,073		—		2,424,752
Advances from Federal Home Loan Bank	574,936		564,384		—		564,384		—
Subordinated debt	104,915		104,576		34,514		70,062		—
Accrued interest payable	3,382		3,382		3,382		—		—

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	December 31, 2023 Fair Value Measurements Using
(in thousands)	Carrying Amount		Fair Value		Quoted Prices In Active Market for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	405,898	$	405,898	$	405,898	$	—	$	—
Securities held-to-maturity	227,153		207,572		—		207,572		—
Loans held-for-sale (best efforts pricing agreements)	22,052		22,052		—		22,052		—
Net loans	3,801,446		3,611,909		—		—		3,611,909
Accrued interest receivable	26,746		26,746		26,746		—		—
Federal Home Loan Bank of Indianapolis stock	28,350		28,350		—		28,350		—
Deposits	4,066,973		4,059,447		1,796,123		—		2,263,324
Advances from Federal Home Loan Bank	614,934		605,366		—		605,366		—
Subordinated debt	104,838		102,632		32,560		70,072		—
Accrued interest payable	3,848		3,848		3,848		—		—

Note 12:        Mortgage Banking Activities

The Bank’s residential real estate lending business originated mortgage loans for customers and typically sold a majority of the originated loans into the secondary market. For most of the mortgages sold in the secondary market, the Bank hedged its mortgage banking pipeline by entering into forward contracts for the future delivery of mortgage loans to third party investors and entering into IRLCs with potential borrowers to fund specific mortgage loans that would be sold into the secondary market. To facilitate the hedging of the loans, the Bank elected the fair value option for loans originated and intended for sale in the secondary market under mandatory pricing agreements. Changes in the fair value of loans held-for-sale, IRLCs and forward contracts are recorded in the mortgage banking activities line item within noninterest income. Refer to Note 13 for further information on derivative financial instruments. 

During the three months ended March 31, 2024, the Company had no mortgage loans held-for-sale or sold mortgage loans into the secondary market. During the three months ended March 31, 2023, the Company originated $36.3 million of mortgage loans held-for-sale and sold $43.5 million of mortgage loans, respectively, into the secondary market. During the first quarter 2023, the Company made the decision to exit the residential mortgage business.

The following table presents the components of income from mortgage banking activities for the three months ended March 31, 2024 and 2023.

	Three Months Ended March 31,
(in thousands)	2024		2023
Gain on loans sold	$	—	$	464
Loss resulting from the change in fair value of loans held-for-sale	—		(136)
Loss resulting from the change in fair value of derivatives	—		(252)
Net revenue from mortgage banking activities	$	—	$	76

Fluctuations in interest rates and changes in IRLC and loan volume within the mortgage banking pipeline may cause volatility in the fair value of loans held-for-sale and the fair value of derivatives used to hedge the mortgage banking pipeline.

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Note 13:        Derivative Financial Instruments

The Company uses derivative financial instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income and the fair value of assets and liabilities. The Company enters into interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. Additionally, the Company entered into forward contracts for the future delivery of mortgage loans to third-party investors and entered into IRLCs with potential borrowers to fund specific mortgage loans that were sold into the secondary market. The forward contracts were entered into in order to economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans.

The Company had various interest rate swap agreements designated and qualifying as accounting hedges during the reported periods. Designating an interest rate swap as an accounting hedge allows the Company to recognize gains and losses in the condensed consolidated statements of income within the same period that the hedged item affects earnings. The Company includes the gain or loss on the hedged items in the same line item as the offsetting loss or gain on the related interest rate swaps. For derivative instruments that are designated and qualify as cash flow hedges, any gains or losses related to changes in fair value are recorded in accumulated other comprehensive loss, net of tax. The fair value of interest rate swaps with a positive fair value are reported in accrued income and other assets in the condensed consolidated balance sheets, while interest rate swaps with a negative fair value are reported in accrued expenses and other liabilities in the condensed consolidated balance sheets.

The Company offers interest rate swaps to certain loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable-to-fixed interest rate contract with the customer. The Company also enters into an offsetting interest rate swap with a correspondent bank. These back-to-back swap agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. The fair value of these derivatives is based on a discounted cash flow approach. The fair value assets and liabilities of centrally cleared interest rate swaps are net of variation margin settled-to-market.

The IRLCs and forward contracts are not designated as accounting hedges and are recorded at fair value with changes in fair value reflected in noninterest income on the condensed consolidated statements of income. 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 March 31, 2024 and December 31, 2023.

(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	March 31, 2024		December 31, 2023		March 31, 2024		December 31, 2023
Securities available-for-sale 1	$	69,298	$	69,504	$	(910)	$	(1,143)

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. The designated hedged items were $50.0 million at both March 31, 2024 and December 31, 2023.

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, 2024 and December 31, 2023, identified by the underlying interest rate-sensitive instruments.

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(dollars in thousands) March 31, 2024	Notional Value		Weighted- Average Remaining Maturity (years)			Weighted-Average Ratio
Instruments Associated With				Fair Value		Receive	Pay
Securities available-for-sale	$	50,000	0.6	$	919	3-month SOFR	2.33	%
Total swap portfolio at March 31, 2024	$	50,000	0.6	$	919	3-month SOFR	2.33	%

(dollars in thousands) December 31, 2023	Notional Value		Weighted- Average Remaining Maturity (years)			Weighted-Average Ratio
Instruments Associated With				Fair Value		Receive	Pay
Securities available-for-sale	$	50,000	0.8	$	1,153	3-month SOFR	2.33	%
Total swap portfolio at December 31, 2023	$	50,000	0.8	$	1,153	3-month SOFR	2.33	%

In March 2021, the Company terminated the last layer of interest rate swaps associated with available-for-sale agency mortgage-backed securities - residential, which resulted in swap termination payments to counterparties totaling $1.9 million. The corresponding fair value hedging adjustment was allocated pro-rata to the underlying hedged securities and is being amortized over the remaining lives of the designated securities. The Company had amortization expense totaling less than $0.1 million for both the three months ended March 31, 2024 and 2023, was recognized as a reduction to interest income on securities.

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, which have a weighted average term to maturity of 10.2 years as of March 31, 2024. The Company had amortization expense totaling $0.9 million and $1.0 million for the three months ended March 31, 2024 and 2023, respectively, related to these previously terminated fair value hedges recognized as a reduction to interest income on loans.

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 March 31, 2024 and December 31, 2023.

(dollars in thousands) March 31, 2024	Notional Value		Weighted- Average Remaining Maturity (years)			Weighted-Average Ratio
Cash Flow Hedges				Fair Value		Receive	Pay
Interest rate swaps	$	110,000	2.8	$	4,715	3-month SOFR	2.88	%
Interest rate swaps	40,000		0.2	174		Fed Funds Effective	2.78	%

(dollars in thousands) December 31, 2023	Notional Value		Weighted- Average Remaining Maturity (years)			Weighted-Average Ratio
Cash Flow Hedges				Fair Value		Receive	Pay
Interest rate swaps	$	110,000	3.1	$	3,596	3-month SOFR	2.88	%
Interest rate swaps	40,000		0.4	390		Fed Funds Effective	2.78	%

These derivative financial instruments were entered into for the purpose of managing the interest rate risk of certain assets and liabilities. The Company received $6.1 million and $5.2 million of cash collateral from counterparties as security for their obligations related to these swap transactions at March 31, 2024 and December 31, 2023. The Company had no pledged cash collateral as of March 31, 2024 and December 31, 2023 to counterparties on interest rate swap agreements as security for its obligations related to these agreements. Collateral posted and received is dependent on the market valuation of the underlying hedges.

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The following table presents the notional amount and fair value of interest rate swaps utilized by the Company at March 31, 2024 and December 31, 2023.

	March 31, 2024				December 31, 2023
(in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Asset Derivatives
Derivatives designated as hedging instruments
Interest rate swaps associated with securities available-for-sale	$	50,000	$	919	$	50,000	$	1,153
Interest rate swaps associated with liabilities	150,000		4,889		150,000		3,986
Derivatives not designated as hedging instruments
Back-to-back swaps	$	6,453	$	158	$	1,778	$	677
Total contracts	$	206,453	$	5,966	$	201,778	$	5,816
Liability Derivatives
Derivatives not designated as hedging instruments
Back-to-back swaps	$	6,453	$	(158)	$	1,778	$	(677)
Total contracts	$	6,453	$	(158)	$	1,778	$	(677)

The fair value of interest rate swaps was estimated using a discounted cash flow method that incorporates current market interest rates as of the balance sheet date.

Back-to-back swaps consist of two interest-rate swaps (a customer swap and an offsetting counterparty swap). As a result of this offsetting relationship, no net gains or losses are recognized in income.

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, 2024 and 2023.

	Amount of Gain (Loss) Recognized in Other Comprehensive (Loss) Income in The Three Months Ended
(in thousands)	March 31, 2024		March 31, 2023
Interest rate swap agreements	$	902	$	(2,170)

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 months ended March 31, 2024 and 2023.

	Amount of Gain / (Loss) Recognized in the Three Months Ended
(in thousands)	March 31, 2024		March 31, 2023
Liability Derivatives
Derivatives not designated as hedging instruments
IRLCs	$	—	$	(133)
Forward contracts	—		(119)

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The following table presents the effects of the Company’s interest rate swap agreements on the condensed consolidated statements of operations during the three months ended March 31, 2024 and 2023.

(in thousands) Line item in the condensed consolidated statements of operations	Three Months Ended
	March 31, 2024		March 31, 2023
Interest income
Securities - non-taxable	414		294
Total interest income	414		294
Interest expense
Deposits	(255)		(418)
Other borrowed funds	(762)		(522)
Total interest expense	(1,017)		(940)
Net interest income	$	1,431	$	1,234

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Note 14:     Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, included in stockholders' equity, for the three months ended March 31, 2024 and 2023, respectively, are presented in the table below.

(in thousands)	Unrealized Losses On Debt Securities		Unrealized Losses On Debt Securities Transferred From Available-For-Sale To Held-To-Maturity		Cash Flow Hedges		Total
Balance, January 1, 2024	$	(30,174)	$	(2,939)	$	3,738	$	(29,375)
Other comprehensive (loss) income before reclassifications from accumulated other comprehensive loss before tax	(2,074)		—		902		(1,172)
Reclassifications from accumulated other comprehensive loss to earnings before tax	—		234				234
Other comprehensive (loss) gain before tax	(2,074)		234		902		(938)
Income tax (benefit) provision	(475)		57		207		(211)
Other comprehensive (loss) income - net of tax	(1,599)		177		695		(727)
Balance, March 31, 2024	$	(31,773)	$	(2,762)	$	4,433	$	(30,102)
Balance, January 1, 2023	$	(35,831)	$	(3,519)	$	5,714	$	(33,636)
Other comprehensive income (loss) before reclassifications from accumulated other comprehensive loss before tax	5,112		—		(2,170)		2,942
Reclassifications from accumulated other comprehensive loss to earnings before tax	—		158		—		158
Other comprehensive gain (loss) before tax	5,112		158		(2,170)		3,100
Income tax provision (benefit)	1,170		46		(499)		717
Other comprehensive income (loss) - net of tax	3,942		112		(1,671)		2,383
Balance, March 31, 2023	$	(31,889)	$	(3,407)	$	4,043	$	(31,253)

Details About Accumulated Other Comprehensive Loss Components	Amounts Reclassified from Accumulated Other Comprehensive Loss for the				Affected Line Item in the Statements of Operations
	Three Months Ended March 31, 2024		Three Months Ended March 31, 2023
Reclassifications from accumulated other comprehensive loss to earnings before tax	$	(234)	(158)		Interest income (loss)
Total amount reclassified before tax	(234)		(158)		Income (loss) before income taxes
Tax benefit	(57)		(46)		Income tax provision (benefit)
Total reclassifications from accumulated other comprehensive loss	$	(177)	$	(112)	Net income (loss)

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Note 15:     Recent Accounting Pronouncements

ASU 2023-02 - Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (March 2023)

In March 2023, the FASB issued ASU No. 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. This ASU permits companies to account for tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. The Company adopted this guidance on January 1, 2024 and it did not have a material impact on its consolidated financial statements.

ASU 2023-07 - Segment Reporting (Topic 280): Improvements to Reportable Segments (November 2023)

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segments. This ASU enhances financial reporting by requiring disclosure of incremental segment information on an annual and interim basis. The guidance is effective for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements.

ASU 2023-09 - Income Taxes (Topic 740): Improvements to Income Tax Disclosures (December 2023)

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. This ASU enhances the transparency and usefulness of income tax disclosures, which addresses investor requests for more transparency about income tax disclosures related primarily to the rate reconciliation and income taxes paid information. The guidance is effective for annual periods beginning after December 15, 2024 with early adoption permitted. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements.

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this report. This discussion and analysis includes certain forward-looking statements that involve risks, uncertainties, and assumptions. You should review the “Risk Factors” sections of this report and our Annual Report on Form 10-K for the year ended December 31, 2023 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by such forward-looking statements. See also “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report.

Overview

    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. The Bank was the first state-chartered, Federal Deposit Insurance Corporation (“FDIC”) insured Internet bank and commenced banking operations in 1999. First Internet Bancorp was incorporated under the laws of the State of Indiana on September 15, 2005. On March 21, 2006, we consummated a plan of exchange by which we acquired all of the outstanding shares of the Bank.

    The Bank has three wholly-owned subsidiaries: First Internet Public Finance Corp., an Indiana corporation that provides a range of public and municipal finance lending and leasing products to governmental entities throughout the United States and acquires securities issued by state and local governments and other municipalities; JKH Realty Services, LLC, a Delaware limited liability company that manages other real estate owned properties as needed; and SPF15, Inc., an Indiana corporation that owns real estate used primarily for the Bank’s principal office.

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We offer a wide range of commercial, small business, consumer and municipal banking products and services. We conduct our consumer and small business deposit operations primarily through digital channels on a nationwide basis and have no traditional branch offices. Our consumer lending products are primarily originated on a nationwide basis through relationships with dealerships and financing partners.

Our commercial banking products and services are delivered through a relationship banking model or through strategic partnerships and include commercial and industrial (“C&I”), construction and investor commercial real estate, single tenant lease financing, public finance, healthcare finance, small business lending, franchise finance and commercial deposits and treasury management. Our C&I team provides credit solutions such as lines of credit, term loans, owner-occupied commercial real estate loans and corporate credit cards on a regional basis to commercial borrowers primarily in the Midwest and Southwest regions of the United States. We offer construction, investor commercial real estate loans, as well as single tenant lease financing on a nationwide basis. Our public finance team provides a range of public and municipal lending and leasing products to government entities on a nationwide basis. Our healthcare finance team was established in conjunction with our strategic partnership with Provide, Inc. (formerly known as Lendeavor, Inc.), a San Francisco-based technology-enabled lender to healthcare practices, which provided lending on a nationwide basis for healthcare practice finance or acquisition, acquisition or refinancing of owner-occupied commercial real estate and equipment purchases. In the third quarter 2021, Provide was acquired by a super-regional financial institution. Subsequent to Provide being acquired, the acquiring institution has retained most, if not all, of Provide’s loan origination activity and our healthcare finance loan balances have declined. Our franchise finance business was established in July 2021 in conjunction with our business relationship with ApplePie Capital, a company that specializes in providing financing to franchisees in various industry segments across the United States. Our commercial deposits and treasury management team works with the other commercial teams to provide deposit products and treasury management services to our commercial and municipal lending customers as well as pursues commercial deposit opportunities in business segments where we have no credit relationships.

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 $98.3 million in SBA 7(a) loans during the three months ended March 31, 2024, and currently rank as one of the top 10 largest SBA 7(a) lenders for the SBA’s year-to-date 2024 fiscal year. We also offer a top-ranked small business checking account product to our country’s entrepreneurs. We continue to scale up this business with the goal of driving increased earnings and profitability in future periods.

We also offer payment, deposit, card and lending products and services through partnerships with financial technology companies and platforms (“fintechs”). With the rapid evolution of technology that enables consumers and 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. Through 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.

As of March 31, 2024, the Company had consolidated assets of $5.3 billion, consolidated deposits of $4.3 billion and stockholders’ equity of $366.7 million.

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Results of Operations

During the first quarter 2024, net income was $5.2 million, or $0.59 diluted earnings per share, compared to a net loss of $3.0 million, or $0.33 diluted loss per share, during the first quarter 2023, representing an increase in net income of $8.2 million and an increase in diluted earnings per share of $0.92.

The $8.2 million increase in net income for the first quarter 2024 compared to the first quarter 2023 was due primarily to a $7.0 million, or 74.0%, decrease in the provision for credit losses, an increase of $2.9 million, or 53.3%, in noninterest income and a $1.2 million, or 5.9%, increase in net interest income, partially offset by a $2.8 million increase in income tax expense.

During the first quarter 2024, return on average assets (“ROAA”), return on average shareholders’ equity (“ROAE”), and return on average tangible common equity (“ROATCE”) were 0.40%, 5.64%, and 5.71%, respectively, compared to (0.26%), (3.37%), and (3.41%), respectively, for the first quarter 2023.

During the first quarter 2023, the Company had a partial charge-off of a C&I participation loan of $6.9 million, $3.1 million of mortgage operations and exit costs and $0.1 million of mortgage revenue. Excluding these items, adjusted net income for the first quarter 2023 was $4.8 million and adjusted diluted earnings per share was $0.53. Additionally, for the first quarter 2023, adjusted ROAA, adjusted ROAE and adjusted ROATCE were 0.43%, 5.36% and 5.44%, respectively.

Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Part I, Item 2 of this report, Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information.

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Consolidated Average Balance Sheets and Net Interest Income Analyses

For the periods presented, the following tables provide the average balances of interest-earning assets and interest-bearing liabilities and the related yields and cost of funds. The tables do not reflect any effect of income taxes except for net interest margin - FTE, as discussed below. Balances are based on the average of daily balances. Nonaccrual loans are included in average loan balances.

	Three Months Ended
	March 31, 2024						December 31, 2023						March 31, 2023
(dollars in thousands)	Average Balance		Interest /Dividends		Yield /Cost		Average Balance		Interest /Dividends		Yield /Cost		Average Balance		Interest /Dividends		Yield /Cost
Assets
Interest-earning assets
Loans, including loans held-for-sale	$	3,892,589	$	55,435	5.73	%	$	3,799,932	$	52,690	5.50	%	$	3,583,218	$	43,843	4.96	%
Securities - taxable	627,216		5,694		3.65	%	611,664		5,447		3.53	%	511,923		3,606		2.86	%
Securities - non-taxable	76,293		969		5.11	%	71,804		962		5.32	%	73,347		798		4.41	%
Other earning assets	434,118		6,067		5.62	%	500,733		7,173		5.68	%	331,294		3,786		4.63	%
Total interest-earning assets	5,030,216		68,165		5.45	%	4,984,133		66,272		5.28	%	4,499,782		52,033		4.69	%
Allowance for credit losses - loans	(38,611)						(36,792)						(35,075)
Noninterest-earning assets	216,331						206,944						182,449
Total assets	$	5,207,936					$	5,154,285					$	4,647,156
Liabilities
Interest-bearing liabilities
Interest-bearing demand deposits	$	415,106	$	2,091	2.03	%	$	382,427	$	1,646	1.71	%	$	333,642	$	900	1.09	%
Savings accounts	22,521		48		0.86	%	22,394		48		0.85	%	38,482		82		0.86	%
Money market accounts	1,217,966		12,671		4.18	%	1,225,781		12,739		4.12	%	1,377,600		12,300		3.62	%
BaaS - brokered deposits	85,366		931		4.39	%	62,098		685		4.38	%	14,741		138		3.80	%
Certificates and brokered deposits	2,246,050		26,388		4.73	%	2,242,819		25,960		4.59	%	1,647,504		13,850		3.41	%
Total interest-bearing deposits	3,987,009		42,129		4.25	%	3,935,519		41,078		4.14	%	3,411,969		27,270		3.24	%
Other borrowed funds	716,735		5,302		2.98	%	719,733		5,387		2.97	%	719,499		5,189		2.92	%
Total interest-bearing liabilities	4,703,744		47,431		4.06	%	4,655,252		46,465		3.96	%	4,131,468		32,459		3.19	%
Noninterest-bearing deposits	113,341						123,351						134,988
Other noninterest-bearing liabilities	21,480						22,645						17,427
Total liabilities	4,838,565						4,801,248						4,283,883
Shareholders’ equity	369,371						353,037						363,273
Total liabilities and shareholders’ equity	$	5,207,936					$	5,154,285					$	4,647,156
Net interest income			$	20,734					$	19,807					$	19,574
Interest rate spread 1					1.39%						1.32%						1.50	%
Net interest margin 2					1.66%						1.58%						1.76	%
Net interest margin - FTE 3					1.75%						1.68%						1.89	%

1 Yield on total interest-earning assets minus cost of total interest-bearing liabilities.

2 Net interest income divided by total average interest-earning assets (annualized).

3 On an FTE basis assuming a 21% tax rate. Net interest income is adjusted to reflect income from assets such as municipal loans and securities that are exempt from Federal income taxes. This is to recognize the income tax savings that facilitates a comparison between taxable and tax-exempt assets. The Company believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully-taxable equivalent basis, as these measures provide useful information to make peer comparisons. Net interest margin - FTE represents a non-GAAP financial measure. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of this measure to its most directly comparable GAAP measure.

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Rate/Volume Analysis 

The following table illustrates the impact of changes in the volume of interest-earning assets and interest-bearing liabilities and interest rates on net interest income for the periods indicated. The change in interest not due solely to volume or rate has been allocated in proportion to the absolute dollar amounts of the change in each. 

	Three Months Ended March 31, 2024 vs. December 31, 2023 Due to Changes in						Three Months Ended March 31, 2024 vs. March 31, 2023 Due to Changes in
(in thousands)	Volume		Rate		Net		Volume		Rate		Net
Interest income
Loans, including loans held-for-sale	$	1,011	$	1,734	$	2,745	$	4,143	$	7,449	$	11,592
Securities – taxable	106		141		247		938		1,150		2,088
Securities – non-taxable	189		(182)		7		35		136		171
Other earning assets	(1,025)		(81)		(1,106)		1,351		930		2,281
Total	281		1,612		1,893		6,467		9,665		16,132
Interest expense
Interest-bearing deposits	347		704		1,051		5,214		9,645		14,859
Other borrowed funds	(127)		42		(85)		(119)		232		113
Total	220		746		966		5,095		9,877		14,972
Increase (decrease) in net interest income	$	61	$	866	$	927	$	1,372	$	(212)	$	1,160

Net interest income for the first quarter 2024 was $20.7 million, an increase of $1.2 million, or 5.9%, compared to $19.6 million for the first quarter 2023. The increase in net interest income was the result of a $16.1 million, or 31.0%, increase in total interest income to $68.2 million for the first quarter 2024 from $52.0 million for the first quarter 2023, partially offset by a $15.0 million, or 46.1%, increase in total interest expense to $47.4 million for the first quarter 2024 from $32.5 million for the first quarter 2023.

The increase in total interest income for the first quarter 2024 compared to first quarter 2023 was due primarily to an increase in interest earned on loans, resulting from an increase of 77 bps in the yield on loans, including loans held-for-sale, as well as an increase of $309.4 million, or 8.6%, in the average balance of loans, including loans held-for-sale. The yield earned on other earning assets also increased 99 bps and the average balance of other earning assets increased $102.8 million, or 31.0%. The increase in the average balance of other earning assets was due primarily to carrying higher cash balances. The average balance of securities increased $118.2 million, or 20.2%, while the yield earned on the securities portfolio increased 76 bps for the first quarter 2024 compared to the first quarter 2023. The increase in the yields earned on loans, other earning assets and securities was due to the impact of the continued elevated interest rate environment on both existing and newly-originated interest-earnings assets. As a result of the higher interest rate environment, the yield on funded portfolio originations was 8.84% in the first quarter 2024, an increase of 108 bps compared to the first quarter 2023.

The increase in total interest expense for the first quarter 2024 compared to the first quarter 2023 was due primarily to increases of $12.5 million, or 90.5%, in interest expense associated with certificates and brokered deposits. The increase in interest expense related to certificates and brokered deposits was driven by an increase of 132 bps in the cost of these deposits, as well as an increase of $598.5 million, or 36.3%, in the average balance of these deposits. The increase in the average balance of these deposits was driven by strong consumer and small business demand for certificates of deposits, partially offset by lower brokered deposit balances as the Company used on-balance sheet liquidity to pay down balances throughout 2023 and the first quarter 2024. Overall, the cost of total interest-bearing liabilities for the first quarter 2024 increased 87 bps to 4.06% from 3.19% for the first quarter 2023. The increase in the cost of funds for the three months ended March 31, 2024 reflects the impact of the continued elevated interest rate environment throughout 2023 and into 2024.

Net interest margin (“NIM”) was 1.66% for the first quarter 2024 compared to 1.76% for the first quarter 2023, a decrease of 10 bps. On a fully-taxable equivalent (“FTE”) basis, NIM was 1.75% for the first quarter 2023 compared to 1.89% for the first quarter 2023, a decrease of 14 bps. The decrease in the first quarter 2024 NIM and FTE NIM compared to the first quarter 2023 reflects the increase in the cost of interest-bearing liabilities of 87 bps, partially offset by the increase in earning asset yields noted above.

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Noninterest Income

The following table presents noninterest income for the last five completed fiscal quarters.

	Three Months Ended
(in thousands)	March 31, 2024		December 31, 2023		September 30, 2023		June 30, 2023		March 31, 2023
Service charges and fees	$	220	$	216	$	208	$	218	$	209
Loan servicing revenue	1,323		1,134		1,064		850		785
Loan servicing asset revaluation	(434)		(793)		(257)		(358)		(55)
Mortgage banking activities	—		—		—		—		76
Gain on sale of loans	6,536		6,028		5,569		4,868		4,061
Other	702		816		823		293		370
Total noninterest income	$	8,347	$	7,401	$	7,407	$	5,871	$	5,446

During the first quarter 2024, noninterest income was $8.3 million, representing an increase of $2.9 million, or 53.3%, compared to $5.4 million for the first quarter 2023. The increase in noninterest income was due primarily to increases in gain on sale of loans, other income and net loan servicing revenue, partially offset by a decrease in revenue from mortgage banking activities. The increase of $2.5 million, or 60.9%, in gain on sale of loans was due to an increase in U.S. Small Business Administration (“SBA”) 7(a) guaranteed loan sales, as well as an increase in gain on sale margins. The increase of $0.3 million, or 89.7%, in other income is due primarily to income from fund investments. The increase in loan servicing revenue was due primarily to growth in the balance of the Company’s SBA 7 (a) servicing portfolio. The decrease in mortgage banking revenue was due to the Company’s exit from the mortgage business in the first quarter 2023.

Noninterest Expense

The following table presents noninterest expense for the last five completed fiscal quarters.

	Three Months Ended
(in thousands)	March 31, 2024		December 31, 2023		September 30, 2023		June 30, 2023		March 31, 2023
Salaries and employee benefits	$	11,796	$	11,055	$	11,767	$	10,706	$	11,794
Marketing, advertising and promotion	736		518		500		705		844
Consulting and professional services	853		893		552		711		926
Data processing	564		493		701		520		659
Loan expenses	1,445		1,371		1,336		1,072		1,977
Premises and equipment	2,826		2,846		2,315		2,661		2,777
Deposit insurance premium	1,145		1,334		1,067		936		543
Other	1,658		1,546		1,518		1,359		1,434
Total noninterest expense	$	21,023	$	20,056	$	19,756	$	18,670	$	20,954

Noninterest expense for the first quarter 2024 and 2023 was $21.0 million, comparable to the first quarter 2023. The increase of less than $0.1 million, or 0.3%, was due primarily to a $0.6 million increase in deposit insurance premium and a $0.2 million increase in other, partially offset by a $0.5 million decrease in loan expenses, $0.1 million decrease in marketing, advertising and promotion expense and a $0.1 million decrease in data processing. The increase in deposit insurance premium was due primarily to year-over-year asset growth and changes in the composition of the loans and deposit portfolios. The increase in other expense was due to various expenses, none of which were individually significant. The decrease in loan expenses was due primarily to expenses incurred in the first quarter 2023 as a result of the Company’s exit from the mortgage business, partially offset by higher third-party loan servicing fees and other miscellaneous lending costs. The decrease in marketing, advertising and promotion expense was due primarily to cost savings from the Company’s exit from the mortgage business in the first quarter 2023. The decrease in data processing was due primarily to variable deposit activity-based expenses.

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In the first quarter 2023, the Company incurred $2.2 million in severance costs as a result of its decision to exit the mortgage business. Excluding these costs, salaries and employee benefits increased $2.2 million, or 22.4%, in the first quarter 2024, compared to the first quarter 2023. The increase was due primarily to continued staffing growth and higher incentive compensation in small business lending, as well as higher incentive compensation accruals based on the increase in net income in the first quarter 2024 compared to first quarter 2023.

The Company recorded an income provision tax provision of $0.4 million and an effective tax rate of 7.6% for the first quarter 2024, compared to an income tax benefit of $2.3 million for the first quarter 2023.

Financial Condition

The following table presents summary balance sheet data for the last five completed fiscal quarters.

(in thousands)
Balance Sheet Data:	March 31, 2024		December 31, 2023		September 30, 2023		June 30, 2023		March 31, 2023
Total assets	$	5,340,667	$	5,167,572	$	5,169,023	$	4,947,049	$	4,721,319
Loans	3,909,804		3,840,220		3,735,068		3,646,832		3,607,242
Total securities	718,169		702,008		682,755		609,999		606,594
Loans held-for-sale	22,589		22,052		31,669		32,001		18,144
Noninterest-bearing deposits	130,760		123,464		125,265		119,291		140,449
Interest-bearing deposits	4,143,008		3,943,509		3,958,280		3,735,017		3,481,841
Total deposits	4,273,768		4,066,973		4,083,545		3,854,308		3,622,290
Advances from Federal Home Loan Bank	574,936		614,934		614,933		614,931		614,929
Total shareholders’ equity	366,739		362,795		347,744		354,332		355,572

Total assets increased $173.1 million, or 3.3%, to $5.3 billion at March 31, 2024 compared to $5.2 billion at December 31, 2023. The increase was due primarily to increases in cash balances and loans, driven by growth in deposit balances of $206.8 million, or 5.1%.

As of March 31, 2024, total shareholders’ equity was $366.7 million, an increase of $3.9 million, or 1.1%, compared to December 31, 2023. The increase in shareholders’ equity was due primarily to the net income earned during the quarter, partially offset by an increase in accumulated other comprehensive loss. Tangible common equity totaled $362.1 million as of March 31, 2024, representing an increase of $3.9 million, or 1.1%, compared to December 31, 2023. The ratio of total shareholders’ equity to total assets decreased to 6.87% as of March 31, 2024 from 7.02% as of December 31, 2023, and the ratio of tangible common equity to tangible assets decreased to 6.79% as of March 31, 2024 from 6.94% as of December 31, 2023.

Book value per common share increased 1.0% to $42.37 as of March 31, 2024 from $41.97 as of December 31, 2023. Tangible book value per share increased 1.0% to $41.83 as of March 31, 2024 from $41.43 as of December 31, 2023. The increase in both book value per common share and tangible book value per share was driven primarily by the increase in total shareholders’ equity and tangible common equity. Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Part I, Item 2 of this report, Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information.

49

Loan Portfolio Analysis

    The following table presents a summary of the Company’s loan portfolio for the last five completed fiscal quarters.

(dollars in thousands)	March 31, 2024				December 31, 2023				September 30, 2023				June 30, 2023				March 31, 2023
Commercial loans
Commercial and industrial	$	133,897	3.4	%	$	129,349	3.4	%	$	114,265	3.1	%	$	112,423	3.1	%	$	113,198	3.1	%
Owner-occupied commercial real estate	57,787		1.5	%	57,286		1.5	%	58,486		1.6	%	59,564		1.6	%	59,643		1.7	%
Investor commercial real estate	128,276		3.3	%	132,077		3.4	%	129,831		3.5	%	137,504		3.8	%	142,174		3.9	%
Construction	325,597		8.3	%	261,750		6.8	%	252,105		6.7	%	192,453		5.3	%	158,147		4.4	%
Single tenant lease financing	941,597		24.1	%	936,616		24.4	%	933,873		25.0	%	947,466		25.9	%	952,533		26.4	%
Public finance	498,262		12.7	%	521,764		13.6	%	535,960		14.3	%	575,541		15.8	%	604,898		16.8	%
Healthcare finance	213,332		5.5	%	222,793		5.8	%	235,622		6.3	%	245,072		6.7	%	256,670		7.1	%
Small business lending	239,263		6.1	%	218,506		5.7	%	192,996		5.2	%	170,550		4.7	%	136,382		3.8	%
Franchise finance	543,122		13.9	%	525,783		13.7	%	455,094		12.2	%	390,479		10.6	%	382,161		10.6	%
Total commercial loans	3,081,133		78.8	%	3,005,924		78.3	%	2,908,232		77.9	%	2,831,052		77.5	%	2,805,806		77.8	%
Consumer loans
Residential mortgage	390,009		10.0	%	395,648		10.3	%	393,501		10.5	%	396,154		10.9	%	392,062		10.9	%
Home equity	22,753		0.6	%	23,669		0.6	%	23,544		0.6	%	24,375		0.7	%	26,160		0.7	%
Other consumer	380,675		9.7	%	377,614		9.8	%	369,451		9.9	%	352,124		9.7	%	338,133		9.4	%
Total consumer loans	793,437		20.3	%	796,931		20.7	%	786,496		21.0	%	772,653		21.3	%	756,355		21.0	%
Net deferred loan origination costs, premiums and discounts on purchased loans and other 1	35,234		0.9	%	37,365		1.0	%	40,340		1.1	%	43,127		1.2	%	45,081		1.2	%
Total loans	3,909,804		100.0	%	3,840,220		100.0	%	3,735,068		100.0	%	3,646,832		100.0	%	3,607,242		100.0	%
Allowance for credit losses - loans	(40,891)				(38,774)				(36,452)				(36,058)				(36,879)
Net loans	$	3,868,913			$	3,801,446			$	3,698,616			$	3,610,774			$	3,570,363

1 Includes carrying value adjustments of $26.9 million, $27.8 million, $29.0 million, $30.5 million and $31.5 million related to terminated interest rate swaps associated with public finance loans as of March 31, 2024, December 31, 2023, September 30, 2023, June 30, 2023 and March 31, 2023, respectively. 

Total loans were $3.9 billion as of March 31, 2024, an increase of $69.6 million, or 1.8%, compared to December 31, 2023. Total commercial loan balances were $3.1 billion as of March 31, 2024, up $75.2 million, or 2.5%, from December 31, 2023. Total consumer loan balances were $793.4 million as of March 31, 2024, a decrease of $3.5 million, or 0.4%, compared to December 31, 2023. Compared to December 31, 2023, the increase in commercial loan balances was driven by growth in the construction, small business lending and franchise finance portfolios. These increases were partially offset by a decrease in the fixed-rate public finance portfolio, as well as continued runoff in the healthcare finance portfolio. The slight decrease in consumer loan balances was due primarily to a decrease in the residential mortgage portfolio, partially offset by an increase in the trailers portfolio.

50

Asset Quality

Nonperforming loans are comprised of nonaccrual loans and loans 90 days past due and accruing. Nonperforming assets include nonperforming loans, other real estate owned and other nonperforming assets, which consist of repossessed assets. The following table provides a summary of the Company’s nonperforming assets for the last five completed fiscal quarters.

(dollars in thousands)	March 31, 2024			December 31, 2023			September 30, 2023			June 30, 2023			March 31, 2023
Nonaccrual loans
Commercial loans:
Commercial and industrial	$	—		$	—		$	—		$	—		$	2,836
Owner-occupied commercial real estate	—			—			—			1,405			1,441
Small business lending 1	9,532			6,824			4,443			3,729			3,797
Franchise finance	295			303			—			—			—
Total commercial loans	9,827			7,127			4,443			5,134			8,074
Consumer loans:
Residential mortgage	2,309			1,911			1,354			992			1,006
Other consumer	129			86			88			101			141
Total consumer loans	2,438			1,997			1,442			1,093			1,147
Total nonaccrual loans	12,265			9,124			5,885			6,227			9,221
Past Due 90 days and accruing loans
Commercial loans:
Franchise finance	230			—			—			—			—
Total commercial loans	230			—			—			—			—
Consumer loans:
Residential mortgage	555			838			—			—			—
Total consumer loans	555			838			—			—			—
Total past due 90 days and accruing loans	785			838			—			—			—
Total nonperforming loans	13,050			9,962			5,885			6,227			9,221
Other real estate owned
Residential mortgage	375			375			106			106			106
Total other real estate owned	375			375			106			106			106
Other nonperforming assets	—			17			78			64			19
Total nonperforming assets	$	13,425		$	10,354		$	6,069		$	6,397		$	9,346
Total nonperforming loans to total loans 2	0.33		%	0.26		%	0.16		%	0.17		%	0.26		%
Total nonperforming assets to total assets 2	0.25		%	0.20		%	0.12		%	0.13		%	0.20		%
Allowance for credit losses to total loans	1.05		%	1.01		%	0.98		%	0.99		%	1.02		%
Nonaccrual loans to total loans	0.31		%	0.24		%	0.16		%	0.17		%	0.26		%
Allowance for credit losses to nonperforming loans 2	333.4		%	425.0		%	619.4		%	579.1		%	400.0		%

1 Balance of loans are partially guaranteed by the U.S. government.

2 Includes the impact of nonperforming small business lending loans, which are guaranteed by the U.S. government.

Total nonperforming loans increased $3.1 million, or 31.0%, to $13.1 million as of March 31, 2024 compared to $10.0 million as of December 31, 2023 due primarily to an increase in nonperforming loans in small business lending and residential mortgage loans during the quarter. Total nonperforming assets increased $3.1 million, or 30.0%, to $13.4 million as of March 31, 2024, compared to $10.4 million as of December 31, 2023, due primarily to the increases in nonperforming small business lending and residential mortgage loans mentioned above. The Company had two residential mortgage properties in OREO with a carrying value of $0.4 million at both March 31, 2024 and December 31, 2023.

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Allowance for Credit Losses - Loans

The following table provides a rollforward of the allowance for credit losses for the last five completed fiscal quarters.

	Three Months Ended
(dollars in thousands)	March 31, 2024			December 31, 2023			September 30, 2023			June 30, 2023			March 31, 2023
Balance, beginning of period	$	38,774		$	36,452		$	36,058		$	36,879		$	31,737
Adoption of ASU 2016-13 (CECL)	—			—			—			—			2,962
Balance, beginning of period	38,774			36,452			36,058			36,879			34,699
Provision charged to expense	2,582			3,478			1,850			753			9,373
Losses charged off
Commercial and industrial	—			—			—			—			6,965
Investor commercial real estate	—			—			591			—			—
Healthcare finance	—			580			—			25			—
Small business lending	289			417			751			1,358			60
Franchise finance	—			—			—			331			—
Residential mortgage	69			84			56			—			—
Other consumer	175			164			120			150			232
Total losses charged off	533			1,245			1,518			1,864			7,257
Recoveries
Commercial and industrial	2			23			2			217			1
Small business lending	40			23			14			37			3
Residential mortgage	1			1			1			1			2
Home equity	2			1			2			2			1
Other consumer	23			41			43			33			57
Total recoveries	68			89			62			290			64
Balance, end of period	$	40,891		$	38,774		$	36,452		$	36,058		$	36,879
Net charge-offs	$	465		$	1,156		$	1,456		$	1,574		$	7,193
Net charge-offs (recoveries) to average loans (annualized)
Commercial and industrial	(0.01		%)	(0.02		%)	0.00		%	(0.46		%)	27.16		%
Investor commercial real estate	0.00		%	0.00		%	0.59		%	0.00		%	0.00		%
Healthcare finance	0.00		%	0.25		%	0.00		%	0.02		%	0.00		%
Small business lending	0.40		%	0.17		%	0.50		%	1.50		%	0.15		%
Franchise finance	0.00		%	0.00		%	0.00		%	0.17		%	0.00		%
Total commercial net charge-offs	0.03		%	0.03		%	0.06		%	0.10		%	1.02		%
Residential mortgage	0.07		%	0.08		%	0.06		%	0.00		%	0.00		%
Home equity	(0.03		%)	0.00		%	(0.01		%)	(0.02		%)	(0.02		%)
Other consumer	0.21		%	0.22		%	0.18		%	0.21		%	0.25		%
Total consumer net charge-offs	0.11		%	0.03		%	0.02		%	0.03		%	0.09		%
Total net charge-offs to average loans	0.05		%	0.12		%	0.16		%	0.17		%	0.82		%

    The allowance for credit losses - loans (“ACL”) was $40.9 million as of March 31, 2024, compared to $38.8 million as of December 31, 2023. The increase in the ACL reflects the addition of specific reserves on nonperforming small business lending loans, as well as loan growth, partially offset by the positive impact of economic data on forecasted loss rates and qualitative factors on other portfolios. The ACL as a percentage of total loans was 1.05% at March 31, 2024, compared to 1.01% at December 31, 2023. The ACL as a percentage of nonperforming loans decreased to 333.4% as of March 31, 2024, compared to 425.0% as of December 31, 2023, due primarily to the increase in the nonperforming loans.

Net charge-offs of $0.5 million were recognized during the first quarter 2024, resulting in net charge-offs to average loans of 0.05%, compared to net charge-offs of $7.2 million, or 0.82% of average loans, for the first quarter 2023. The decrease

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in net charge-offs was due primarily to a $6.9 million partial charge-off of a C&I participation loan that was placed on nonaccrual status during the first quarter 2023, partially offset by an increase in charge-offs in small business lending.

The provision for credit losses - loans in the first quarter 2024 was $2.6 million, compared to $9.4 million for the first quarter 2023. The decrease in the provision for credit losses - loans for the first quarter 2024 was driven primarily by the partial charge-off of the C&I participation loan mentioned above that occurred in the first quarter 2023, partially offset by the specific reserves related to small business lending and growth in certain loan portfolios.

Investment Securities Portfolio

The following tables present the amortized cost and approximate fair value of our investment securities portfolio by security type for the last five completed fiscal quarters.   

(in thousands)
Amortized Cost	March 31, 2024		December 31, 2023		September 30, 2023		June 30, 2023		March 31, 2023
Securities available-for-sale
U.S. Government-sponsored agencies	$	93,323	$	96,404	$	98,594	$	41,024	$	38,675
Municipal securities	69,289		69,494		69,031		68,931		69,243
Agency mortgage-backed securities - residential	253,181		237,798		235,468		239,263		249,795
Agency mortgage-backed securities - commercial	39,367		40,215		37,931		16,311		16,739
Private label mortgage-backed securities - residential	23,307		21,742		20,292		14,749		11,445
Asset-backed securities	7,417		8,071		6,713		1,000		5,000
Corporate securities	37,081		39,591		39,603		43,613		45,623
Total available-for-sale	522,965		513,315		507,632		424,891		436,520
Securities held-to-maturity, net carrying value
Municipal securities	13,381		13,889		13,900		13,913		13,932
Agency mortgage-backed securities - residential	178,800		166,750		170,524		169,186		146,809
Agency mortgage-backed securities - commercial	5,752		5,767		5,782		5,795		5,806
Corporate securities	37,805		40,747		41,722		41,711		44,214
Total held-to-maturity, net carrying value	235,738		227,153		231,928		230,605		210,761
Total securities	$	758,703	$	740,468	$	739,560	$	655,496	$	647,281

(in thousands)
Approximate Fair Value	March 31, 2024		December 31, 2023		September 30, 2023		June 30, 2023		March 31, 2023
Securities available-for-sale
U.S. Government-sponsored agencies	$	92,101	$	95,177	$	97,178	$	39,474	$	37,047
Municipal securities	67,415		68,446		62,772		67,209		68,636
Agency mortgage-backed securities - residential	220,484		206,649		193,096		204,141		216,752
Agency mortgage-backed securities - commercial	38,081		38,885		36,163		14,891		15,530
Private label mortgage-backed securities - residential	22,266		20,779		18,576		13,415		10,275
Asset-backed securities	7,459		8,081		6,703		1,000		4,998
Corporate securities	34,625		36,838		36,339		39,264		42,595
Total available-for-sale	482,431		474,855		450,827		379,394		395,833
Securities held-to-maturity
Municipal securities	12,450		13,040		12,449		12,950		13,144
Agency mortgage-backed securities - residential	161,915		152,642		147,412		153,593		133,267
Agency mortgage-backed securities - commercial	4,560		4,521		4,190		4,551		4,703
Corporate securities	35,295		37,369		37,599		37,549		41,349
Total held-to-maturity	214,220		207,572		201,650		208,643		192,463
Total securities	$	696,651	$	682,427	$	652,477	$	588,037	$	588,296

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The approximate fair value of available-for-sale investment securities increased $7.6 million, or 1.6%, to $482.4 million as of March 31, 2024, compared to $474.9 million as of December 31, 2023. The increase was due primarily to increases of $13.8 million in agency mortgage-backed securities - residential, $1.5 million in private label mortgage-backed securities - residential, partially offset by decreases of $3.1 million in U.S. Government-sponsored agencies, $2.2 million in corporate securities, and $1.0 million in municipal securities. This increase was caused primarily by new purchase activity within certain available-for-sale portfolios, partially offset by a decline in fair value resulting from an increase in market interest rates, as well as net paydown activity. As of March 31, 2024, the Company had securities with a net carrying value of $235.7 million designated as held-to-maturity compared to $227.2 million as of December 31, 2023. The increase was due primarily to purchases of CRA-eligible agency mortgage-backed securities - residential.

Accrued Income and Other Assets

    Accrued income and other assets increased $12.3 million, or 24.0%, to $63.4 million at March 31, 2024 compared to $51.1 million at December 31, 2023. The increase was due primarily to a $6.6 million increase in equity investments and a $1.2 million increase in prepaid assets.

Accrued Expenses and Other Liabilities

    Accrued expenses and other liabilities increased $2.7 million, or 19.3%, to $16.9 million at March 31, 2024, compared to $14.2 million at December 31, 2023. The increase was due primarily to an increase of $4.4 million in accrued expenses related to a security that was purchased in the first quarter 2024, but settled in the subsequent quarter, partially offset by decreases of $1.2 million in accrued salary and benefits and $0.5 million in derivative liability due to changes in fair value.

Deposits  

The following table presents the composition of the Company’s deposit base for the last five completed fiscal quarters.

(dollars in thousands)	March 31, 2024				December 31, 2023				September 30, 2023				June 30, 2023				March 31, 2023
Noninterest-bearing deposits	$	130,760	3.1	%	$	123,464	3.0	%	$	125,265	3.1	%	$	119,291	3.1	%	$	140,449	3.9	%
Interest-bearing demand deposits	423,529		9.9	%	402,976		9.9	%	374,915		9.2	%	398,899		10.3	%	351,641		9.7	%
Savings accounts	23,554		0.6	%	21,364		0.5	%	23,811		0.6	%	28,239		0.7	%	32,762		0.9	%
Money market accounts	1,251,230		29.2	%	1,248,319		30.8	%	1,222,511		29.9	%	1,232,719		32.0	%	1,254,013		34.6	%
BaaS - brokered deposits	107,911		2.5	%	74,401		1.8	%	41,884		1.0	%	25,549		0.7	%	25,725		0.7	%
Certificates of deposits	1,738,996		40.7	%	1,605,156		39.5	%	1,624,447		39.8	%	1,366,409		35.5	%	1,170,094		32.3	%
Brokered deposits	597,788		14.0	%	591,293		14.5	%	670,712		16.4	%	683,202		17.7	%	647,606		17.9	%
Total deposits	$	4,273,768	100.0	%	$	4,066,973	100.0	%	$	4,083,545	100.0	%	$	3,854,308	100.0	%	$	3,622,290	100.0	%

Total deposits increased $206.8 million, or 5.1%, to $4.3 billion as of March 31, 2024, compared to $4.1 billion as of December 31, 2023. This increase was due primarily to increases of $133.8 million, or 8.3%, in certificates of deposits, $33.5 million, or 45.0%, in BaaS - brokered deposits and $20.6 million, or 5.1%, in interest-bearing demand deposits. The increase in certificates of deposits and brokered deposits was due primarily to strong consumer and small business demand for certificates of deposits in 2024. The increase in interest-bearing demand deposits was due primarily to growth in fintech partnership deposits. The increase in BaaS - brokered deposits was driven by higher payments volumes.

Uninsured deposit balances represented 26% of total deposits at March 31, 2024, up from 25% at December 31, 2023. These balances include Indiana-based municipal deposits, which are insured by the Indiana Board for Depositories, as well as larger balance accounts under contractual agreements that only allow withdrawal under certain conditions. After subtracting these types of deposits, the adjusted uninsured deposit balance drops to 20%, compared to 19% as of December 31, 2023.

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Regulatory Capital Requirements

The Company and the Bank are subject to various regulatory capital requirements administered by state and federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.

The Basel III Capital Rules became effective for the Company and the Bank on January 1, 2015, subject to a phase-in period for certain provisions. Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios of Common Equity Tier 1 capital, Tier 1 capital and Total capital, as defined in the regulations, to risk-weighted assets, and of Tier 1 capital to adjusted quarterly average assets (“Leverage Ratio”).

The Basel III Capital Rules were fully phased in on January 1, 2019 and require the Company and the Bank to maintain: 1) a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 4.5%, plus a 2.5% “capital conservation buffer” (resulting in a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 7.0%); 2) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, plus the capital conservation buffer (resulting in a minimum Tier 1 capital ratio of 8.5%); 3) a minimum ratio of Total capital to risk-weighted assets of 8.0%, plus the capital conservation buffer (resulting in a minimum Total capital ratio of 10.5%); and 4) a minimum Leverage Ratio of 4.0%.

The capital conservation buffer is designed to absorb losses during periods of economic stress. Failure to maintain the minimum Common Equity Tier 1 capital ratio plus the capital conservation buffer will result in potential restrictions on a banking institution’s ability to pay dividends, repurchase stock and/or pay discretionary compensation to its employees.

The following tables present actual and required capital ratios as of March 31, 2024 and December 31, 2023 for the Company and the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of March 31, 2024 and December 31, 2023, which are based on the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.

As permitted by the federal banking regulatory agencies, the Company elected the option to delay the impact of the day one adoption of ASC 326. The transition adjustments of $4.5 million will be phased into the regulatory capital calculations over a three-year period, with 25% of the adjustment recognized in 2023, 50% of the adjustment recognized in 2024, 75% of the adjustment recognized in 2025 and 100% of the adjustment recognized in 2026.

	Actual				Minimum Capital Required - Basel III				Minimum Required to be Considered Well Capitalized
(dollars in thousands)	Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio
As of March 31, 2024:
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	383,580	9.52	%	$	282,102	7.00	%	N/A		N/A
Bank	465,510		11.60	%	280,854		7.00	%	$	260,793	6.50	%
Tier 1 capital to risk-weighted assets
Consolidated	383,580		9.52	%	342,553		8.50	%	N/A		N/A
Bank	465,510		11.60	%	341,038		8.50	%	320,976		8.00	%
Total capital to risk-weighted assets
Consolidated	531,045		13.18	%	423,153		10.50	%	N/A		N/A
Bank	508,060		12.66	%	421,282		10.50	%	401,221		10.00	%
Leverage ratio
Consolidated	383,580		7.33	%	209,373		4.00	%	N/A		N/A
Bank	465,510		8.92	%	208,711		4.00	%	260,889		5.00	%

55

	Actual				Minimum Capital Required - Basel III				Minimum Required to be Considered Well Capitalized
(dollars in thousands)	Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio
As of December 31, 2023:
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	381,001	9.60	%	$	277,914	7.00	%	N/A		N/A
Bank	464,390		11.73	%	277,063		7.00	%	$	257,273	6.50	%
Tier 1 capital to risk-weighted assets
Consolidated	381,001		9.60	%	337,467		8.50	%	N/A		N/A
Bank	464,390		11.73	%	336,434		8.50	%	316,644		8.00	%
Total capital to risk-weighted assets
Consolidated	525,283		13.23	%	416,870		10.50	%	N/A		N/A
Bank	503,834		12.73	%	415,595		10.50	%	395,804		10.00	%
Leverage ratio
Consolidated	381,001		7.33	%	207,929		4.00	%	N/A		N/A
Bank	464,390		8.95	%	207,479		4.00	%	259,349		5.00	%

Shareholders’ Dividends

The Company’s Board of Directors declared a cash dividend of $0.06 per share of common stock payable April 15, 2024 to shareholders of record as of March 28, 2024. The Company expects to continue to pay cash dividends on a quarterly basis; however, the declaration and amount of any future cash dividends will be subject to the sole discretion of the Board of Directors and will depend upon many factors, including the Company’s results of operations, financial condition, capital requirements, regulatory and contractual restrictions (including with respect to the Company’s outstanding subordinated debt), business strategy and other factors deemed relevant by the Board of Directors.

As of March 31, 2024, the Company had $107.0 million principal amount of subordinated debt outstanding evidenced by the 2029 Notes, 2030 Note and 2031 Notes. The agreements that govern our outstanding subordinated debt prohibit the Company from paying any dividends on its common stock or making any other distributions to shareholders at any time when there shall have occurred, and be continuing to occur, an event of default under the applicable agreement. If an event of default were to occur and the Company did not cure it, the Company would be prohibited from paying any dividends or making any other distributions to shareholders or from redeeming or repurchasing any common stock.

Capital Resources

The Company believes it has sufficient liquidity and capital resources to meet its cash and capital expenditure requirements for the next twelve months and longer. The Company may explore strategic alternatives, including additional asset, deposit or revenue generation channels that complement our small business, commercial and consumer banking platforms, which may require additional capital. If the Company is unable to secure such capital at favorable terms, its ability to take advantage of such opportunities could be adversely affected.

On December 19, 2022, the Company's Board of Directors approved a new stock repurchase program to replace the prior program. The new program authorized the repurchase of up to $25.0 million of our outstanding common stock from time to time on the open market or in privately negotiated transactions. The stock repurchase authorization is scheduled to expire on December 31, 2024. Under this program, the Company repurchased 559,522 shares of common stock through March 31, 2024, at an average price of $19.06, for a total investment of $10.7 million.

Various factors determine the amount and timing of our share repurchases, including our capital requirements, organic growth and other strategic opportunities, economic and market conditions (including the trading price of our stock), and regulatory and legal considerations. See Part II, Item 2, of this report for information regarding recent repurchase activity and our remaining authority under the program.

56

Liquidity

Liquidity management is the process used by the Company to manage the continuing flow of funds necessary to meet its financial commitments on a timely basis and at a reasonable cost while also maintaining safe and sound operations. Liquidity, represented by cash and investment securities, is a product of the Company’s operating, investing and financing activities. The primary sources of funds are deposits, principal and interest payments on loans and investment securities, maturing loans and investment securities, access to wholesale funding sources and collateralized borrowings. While scheduled payments and maturities of loans and investment securities are relatively predictable sources of funds, deposit flows are greatly influenced by interest rates, general economic conditions and competition. Therefore, the Company supplements deposit growth and enhances interest rate risk management through borrowings and wholesale funding, which are generally advances from the Federal Home Loan Bank and brokered deposits.

The Company holds cash and investment securities that qualify as liquid assets to maintain adequate liquidity to ensure safe and sound operations and meet its financial commitments. At March 31, 2024, on a consolidated basis, the Company had $963.7 million in cash and cash equivalents and investment securities available-for-sale and $22.6 million in loans held-for-sale that were generally available for its cash needs. The Company can also generate funds from wholesale funding sources and collateralized borrowings. At March 31, 2024, the Bank had the ability to borrow an additional $1.3 billion from the FHLB, the Federal Reserve and correspondent bank Fed Funds lines of credit, which when combined with cash balances, totaled $1.7 billion and represented 203% of adjusted uninsured deposit balances.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its common shareholders and interest and principal on outstanding debt. The Company’s primary sources of funds are cash maintained at the holding company level and dividends from the Bank, the payment of which is subject to regulatory limits. At March 31, 2024, the Company, on an unconsolidated basis, had $7.0 million in cash for debt servicing and operating expenses.

The Company uses its sources of funds primarily to meet ongoing financial commitments, including withdrawals by depositors, credit commitments to borrowers, operating expenses and capital expenditures. At March 31, 2024, approved outstanding loan commitments, including unused lines of credit and standby letters of credit, amounted to $726.5 million. Certificates of deposits and brokered deposits scheduled to mature in one year or less at March 31, 2024 totaled $1.3 billion.

Management is not aware of any other events or regulatory requirements that, if implemented, are likely to have a material effect on either the Company’s or the Bank’s liquidity.

57

Reconciliation of Non-GAAP Financial Measures

This Management’s Discussion and Analysis contains financial information determined by methods other than in accordance with GAAP. Non-GAAP financial measures, specifically tangible common equity, tangible assets, tangible book value per common share, tangible common equity to tangible assets, average tangible common equity, return on average tangible common equity, total interest income - FTE, net interest income - FTE, net interest margin - FTE, adjusted total revenue, adjusted noninterest income, adjusted noninterest expense, adjusted income before income taxes, adjusted income tax provision (benefit), adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average shareholders’ equity and adjusted return on average tangible common equity are used by the Company’s management to measure the strength of its capital and analyze profitability, including its ability to generate earnings on tangible capital invested by its shareholders. The Company also believes that it is a standard practice in the banking industry to present total interest income, net interest income and net interest margin on a fully-taxable equivalent basis, as those measures provide useful information for peer comparisons. Although the Company believes these non-GAAP financial measures provide a greater understanding of its business, they should not be considered a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP financial measures that may be presented by other companies. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the following table for the last five completed fiscal quarters.

(dollars in thousands, except share and per share data)	Three Months Ended
	March 31, 2024			December 31, 2023			September 30, 2023			June 30, 2023			March 31, 2023
Total equity - GAAP	$	366,739		$	362,795		$	347,744		$	354,332		$	355,572
Adjustments:
Goodwill	(4,687)			(4,687)			(4,687)			(4,687)			(4,687)
Tangible common equity	$	362,052		$	358,108		$	343,057		$	349,645		$	350,885
Total assets - GAAP	$	5,340,667		$	5,167,572		$	5,169,023		$	4,947,049		$	4,721,319
Adjustments:
Goodwill	(4,687)			(4,687)			(4,687)			(4,687)			(4,687)
Tangible assets	$	5,335,980		$	5,162,885		$	5,164,336		$	4,942,362		$	4,716,632
Common shares outstanding	8,655,854			8,644,451			8,669,673			8,774,507			8,943,477
Book value per common share	$	42.37		$	41.97		$	40.11		$	40.38		$	39.76
Effect of goodwill	(0.54)			(0.54)			(0.54)			(0.53)			(0.53)
Tangible book value per common share	$	41.83		$	41.43		$	39.57		$	39.85		$	39.23
Total shareholders’ equity to assets	6.87		%	7.02		%	6.73		%	7.16		%	7.53		%
Effect of goodwill	(0.08		%)	(0.08		%)	(0.09		%)	(0.09		%)	(0.09		%)
Tangible common equity to tangible assets	6.79		%	6.94		%	6.64		%	7.07		%	7.44		%
Total average equity - GAAP	$	369,371		$	353,037		$	356,701		$	358,312		$	363,273
Adjustments:
Average goodwill	(4,687)			(4,687)			(4,687)			(4,687)			(4,687)
Average tangible common equity	$	364,684		$	348,350		$	352,014		$	353,625		$	358,586
Return on average shareholders’ equity	5.64		%	4.66		%	3.79		%	4.35		%	(3.37		%)
Effect of goodwill	0.07		%	0.06		%	0.05		%	0.05		%	(0.04		%)
Return on average tangible common equity	5.71		%	4.72		%	3.84		%	4.40		%	(3.41		%)

58

(dollars in thousands, except share and per share data)	Three Months Ended
	March 31, 2024			December 31, 2023			September 30, 2023			June 30, 2023			March 31, 2023
Total interest income	$	68,165		$	66,272		$	63,015		$	58,122		$	52,033
Adjustments:
Fully-taxable equivalent adjustments 1	1,190			1,238			1,265			1,347			1,383
Total interest income - FTE	$	69,355		$	67,510		$	64,280		$	59,469		$	53,416
Net interest income	$	20,734		$	19,807		$	17,378		$	18,145		$	19,574
Adjustments:
Fully-taxable equivalent adjustments 1	1,190			1,238			1,265			1,347			1,383
Net interest income - FTE	$	21,924		$	21,045		$	18,643		$	19,492		$	20,957
Net interest margin	1.66		%	1.58		%	1.39		%	1.53		%	1.76		%
Effect of fully-taxable equivalent adjustments 1	0.09		%	0.10		%	0.10		%	0.11		%	0.13		%
Net interest margin - FTE	1.75		%	1.68		%	1.49		%	1.64		%	1.89		%
1 Assuming a 21% tax rate

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(dollars in thousands, except share and per share data)	Three Months Ended
	March 31, 2024		December 31, 2023		September 30, 2023		June 30, 2023		March 31, 2023
Total Revenue- GAAP	$	29,081	$	27,208	$	24,785	$	24,016	$	25,020
Adjustments:
Mortgage-related revenue	—		—		—		—		(65)
Adjusted total revenue	$	29,081	$	27,208	$	24,785	$	24,016	$	24,955
Noninterest income - GAAP	$	8,347	$	7,401	$	7,407	$	5,871	$	5,446
Adjustments:
Mortgage-related revenue	—		—		—		—		(65)
Adjusted noninterest income	$	8,347	$	7,401	$	7,407	$	5,871	$	5,381
Noninterest expense - GAAP	$	21,023	$	20,056	$	19,756	$	18,670	$	20,954
Adjustments:
Mortgage-related costs	—		—		—		—		(3,052)
Adjusted noninterest expense	$	21,023	$	20,056	$	19,756	$	18,670	$	17,902
Income (loss) before income taxes - GAAP	$	5,610	$	3,558	$	3,083	$	3,648	$	(5,349)
Adjustments:1
Mortgage-related revenue	—		—		—		—		(65)
Mortgage-related costs	—		—		—		—		3,052
Partial charge-off of C&I participation loan	—		—		—		—		6,914
Adjusted income before income taxes	$	5,610	$	3,558	$	3,083	$	3,648	$	4,552
Income tax provision (benefit) - GAAP	$	429	$	(585)	$	(326)	$	(234)	$	(2,332)
Adjustments:1
Mortgage-related revenue	—		—		—		—		(14)
Mortgage-related costs	—		—		—		—		641
Partial charge-off of C&I participation loan	—		—		—		—		1,452
Adjusted income tax provision (benefit)	$	429	$	(585)	$	(326)	$	(234)	$	(253)
1 Assuming a 21% tax rate

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(dollars in thousands, except share and per share data)	Three Months Ended
	March 31, 2024			December 31, 2023			September 30, 2023			June 30, 2023			March 31, 2023
Net income (loss) - GAAP	$	5,181		$	4,143		$	3,409		$	3,882		$	(3,017)
Adjustments:
Mortgage-related revenue	—			—			—			—			(51)
Mortgage-related costs	—			—			—			—			2,411
Partial charge-off of C&I participation loan	—			—			—			—			5,462
Adjusted net income	$	5,181		$	4,143		$	3,409		$	3,882		$	4,805
Diluted average common shares outstanding	8,750,297			8,720,078			8,767,217			8,908,180			9,024,072
Diluted earnings (loss) per share - GAAP	$	0.59		$	0.48		$	0.39		$	0.44		$	(0.33)
Adjustments:
Mortgage-related revenue	—			—			—			—			(0.01)
Mortgage-related costs	—			—			—			—			0.27
Effect of partial charge-off of C&I participation loan	—			—			—			—			0.60
Adjusted diluted earnings per share	$	0.59		$	0.48		$	0.39		$	0.44		$	0.53
Return on average assets	0.40		%	0.32		%	0.26		%	0.32		%	(0.26		%)
Effect of mortgage-related costs	0.00		%	0.00		%	0.00		%	0.00		%	0.21		%
Effect of partial charge-off of C&I participation loan	0.00		%	0.00		%	0.00		%	0.00		%	0.48		%
Adjusted return on average assets	0.40		%	0.32		%	0.26		%	0.32		%	0.43		%
Return on average shareholders' equity	5.64		%	4.66		%	3.79		%	4.35		%	(3.37		%)
Effect of mortgage-related revenue	0.00		%	0.00		%	0.00		%	0.00		%	(0.06		%)
Effect of mortgage-related costs	0.00		%	0.00		%	0.00		%	0.00		%	2.69		%
Effect of partial charge-off of C&I participation loan	0.00		%	0.00		%	0.00		%	0.00		%	6.10		%
Adjusted return on average shareholders' equity	5.64		%	4.66		%	3.79		%	4.35		%	5.36		%
Return on average tangible common equity	5.71		%	4.72		%	3.84		%	4.40		%	(3.41		%)
Effect of mortgage-related revenue	0.00		%	0.00		%	0.00		%	0.00		%	(0.06		%)
Effect of mortgage-related costs	0.00		%	0.00		%	0.00		%	0.00		%	2.73		%
Effect of partial charge-off of C&I participation loan	0.00		%	0.00		%	0.00		%	0.00		%	6.18		%
Adjusted return on average tangible common equity	5.71		%	4.72		%	3.84		%	4.40		%	5.44		%

Critical Accounting Policies and Estimates

There have been no material changes in the Company’s critical accounting policies or estimates from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2023.

Recent Accounting Pronouncements

Refer to Note 15 to the condensed consolidated financial statements.

Off-Balance Sheet Arrangements

In the ordinary course of business, the Company enters into financial transactions to extend credit, interest rate swap agreements and forms of commitments that may be considered off-balance sheet arrangements. Interest rate swaps are arranged to receive hedge accounting treatment and are classified as either fair value or cash flow hedges. Fair value hedges are purchased to convert certain fixed rate assets to floating rate. Cash flow hedges are used to convert certain variable rate liabilities into fixed rate liabilities. At both March 31, 2024 and December 31, 2023, the Company had interest rate swaps with notional amounts of $200.0 million. Refer to Note 13 to the condensed consolidated financial statements for additional information about derivative financial instruments.

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, foreign exchange rates and equity prices. The primary source of market risk for the Company is interest rate risk, which can be defined as the risk to earnings and the value of our equity resulting from changes in market interest rates. Interest rate risk arises in the normal course of business to the extent that there are timing and volume differences between the amount of interest-earning assets and the amount of interest-bearing liabilities that are prepaid, withdrawn, re-priced or mature in specified periods. We seek to achieve consistent growth in net interest income and equity while managing volatility arising from shifts in market interest rates.

We monitor the Company’s interest rate risk position using income simulation models and economic value of equity (“EVE”) sensitivity analysis that capture both short-term and long-term interest rate risk exposure. Income simulation involves forecasting net interest income (“NII”) under a variety of interest rate scenarios. We use EVE sensitivity analysis to understand the impact of changes in interest rates on long-term cash flows, income and capital. EVE is calculated by discounting the cash flows for all balance sheet instruments under different interest-rate scenarios. Modeling the sensitivity of NII and EVE to changes in market interest rates is highly dependent on the assumptions incorporated into the modeling process, especially those pertaining to non-maturity deposit accounts. These assumptions are reviewed and refined on an ongoing basis by the Company. We continually model our NII and EVE positions with various interest rate scenarios and assumptions of future balance sheet composition. We utilize implied forward rates as its base case scenario which reflects market expectations for rate increases over the next 24 months. Presented below is the estimated impact on our NII and EVE position as of March 31, 2024, assuming a static balance sheet and instantaneous parallel shifts in interest rates:

	% Change from Base Case for Instantaneous Parallel Changes in Rates
	Implied Forward Curve -200 Basis Points		Implied Forward Curve -100 Basis Points		Base Implied Forward Curve		Implied Forward Curve +50 Basis Points		Implied Forward Curve +100 Basis Points
NII - Year 1	18.55	%	10.54	%	N/A		(3.95	%)	(7.98	%)
NII - Year 2	46.34	%	40.20	%	30.66	%	26.43	%	22.01	%
EVE	30.44	%	17.27	%	N/A		(7.57	%)	(15.12	%)

To supplement the instantaneous rate shocks required by regulatory guidance, we also calculate our interest rate risk position assuming a gradual change in market interest rates. This gradual change is commonly referred to as a “rate ramp” and evenly allocates a change in interest rates over a specified time period.

Presented below is the estimated impact on the Company’s NII and EVE position as of March 31, 2024, assuming a static balance sheet and gradual parallel shifts in interest rates:

	% Change from Base Case for Gradual Changes in Rates
	Implied Forward Curve -200 Basis Points		Implied Forward Curve -100 Basis Points		Base Implied Forward Curve		Implied Forward Curve +50 Basis Points		Implied Forward Curve +100 Basis Points
NII - Year 1	8.34	%	4.31	%	N/A		(2.48	%)	(5.10	%)
NII - Year 2	47.53	%	40.40	%	30.66	%	24.79	%	18.59	%
EVE	28.20	%	16.03	%	N/A		(8.55	%)	(17.05	%)

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The NII and EVE figures presented in the tables above are reflective of a static balance sheet, and do not incorporate either balance sheet growth or contraction, or strategies to increase net interest income while managing volatility arising from shifts in market interest rates. As such, it is likely that actual results will differ from what is presented in the tables above. Balance sheet strategies to achieve such objectives may include:

•Increasing the proportion of low-duration or variable-rate loans to total loans, including organic growth in small business, construction or C&I lending, and declines in longer-term loan portfolios

•Selling longer-term fixed rate loans

•Increasing the proportion of lower cost non-maturity deposits to total deposits

•Extending the duration of wholesale funding

•Executing derivative strategies to synthetically extend liabilities or shorten asset duration

•Repositioning the investment portfolio to manage its duration

ITEM 4.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. These controls and procedures are also designed to provide reasonable assurance that such information is accumulated and communicated to management, including the principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating disclosure controls and procedures, the Company has recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management is required to apply judgment in evaluating its controls and procedures.

The Company performed an evaluation under the supervision and with the participation of management, including the principal executive and principal financial officers, to assess the effectiveness of the design and operation of its disclosure controls and procedures under the Exchange Act. Based on that evaluation, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2024.

Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the quarter ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

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PART II

ITEM 1.    LEGAL PROCEEDINGS

Neither we nor any of our subsidiaries are party to any material legal proceedings. From time to time, the Bank is a party to legal actions arising from its normal business activities.

ITEM 1A.    RISK FACTORS

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2023.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Repurchases of Common Stock

In December 2022, the Company’s Board of Directors approved a stock repurchase program authorizing the repurchase of up to $25.0 million of the Company’s outstanding stock from time to time on the open market or in privately negotiated transactions. The stock repurchase program is scheduled to expire on December 31, 2023. Under this program, the Company has repurchased 559,522 shares of common stock through March 31, 2024, at an average price of $19.06, for a total investment of $10.7 million.

The following table presents information with respect to purchases of the Company’s common stock made by or on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3), during the first quarter 2024.

(dollars in thousands, except per share data)	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased As Part of Publicly Announced Programs	Approximate Dollar Value Of Shares That May Yet Be Purchased Under The Program
January 1, 2024 - January 31, 2024	10,500	$	26.94	10,500	$	14,334
February 1, 2024 - February 29, 2024	—	$	—	—	$	14,334
March 1, 2024 - March 31, 2024	—	$	—	—	$	14,334
Total	10,500			10,500

Limitations on the Payment of Dividends

The ability of the Company to make capital distributions, including paying dividends and repurchasing shares, depends upon our receipt of dividends from the Bank. The ability of the Bank to pay dividends is limited by state and federal laws and regulations, including the requirement for the Bank to obtain the prior approval of the Indiana Department of Financial Institutions (“DFI”) before paying a dividend that, together with other dividends it has paid during a calendar year, would exceed the sum of its net income for the year to date combined with its retained net income for the previous two years. 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. In addition, under the Basel III Capital Rules, 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.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.    MINE SAFETY DISCLOSURES

Not Applicable.

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ITEM 5.    OTHER INFORMATION

None.

ITEM 6.    EXHIBITS 

Exhibit No.	Description	Method of Filing
3.1	Amended and Restated Articles of Incorporation of First Internet Bancorp (incorporated by reference to Exhibit 3.1 to current report on Form 8-K filed May 21, 2020)	Incorporated by Reference
3.2	Amended and Restated Bylaws of First Internet Bancorp (incorporated by reference to Exhibit 3.2 to current report on Form 8-K filed May 21, 2020)	Incorporated by Reference
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer	Filed Electronically
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer	Filed Electronically
32.1	Section 1350 Certifications	Filed Electronically
101	Inline XBRL Instance Document (does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document)	Filed Electronically
101.SCH	Inline XBRL Taxonomy Extension Schema	Filed Electronically
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase	Filed Electronically
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase	Filed Electronically
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase	Filed Electronically
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase	Filed Electronically
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)	Filed Electronically

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

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SIGNATURES

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

		FIRST INTERNET BANCORP
5/8/2024	By	/s/ David B. Becker
		David B. Becker, Chairman and Chief Executive Officer (on behalf of Registrant)
5/8/2024	By	/s/ Kenneth J. Lovik
		Kenneth J. Lovik, Executive Vice President and Chief Financial Officer (principal financial officer)

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