What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-03-15 compared with 2020-03-12 · 622 added, 421 removed, 1386 unchanged (43% of the section changed)

6 unchanged sentences

The Company performed an evaluation under the supervision and with the participation of management, including the Company’s principal executive officer and principal financial officer, to assess the effectiveness of the design and operation of our 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 as of December 31, 2019 .

Based on that evaluation, our management, including our

principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective as of December 31, 2020.

Report of Management's Assessment of Internal Control Over Financial Reporting

12 unchanged sentences

Our executive officers are as follows:

Chairman, President, Chief Executive Officer and Director

Executive Vice President and Chief Financial Officer

Executive Vice President and Chief Operating Officer

Charles Perfetti

Executive Vice President and Secretary

Name Age Position

Becker 67 Chairman, President, Chief Executive Officer and Director

Lovik 51 Executive Vice President and Chief Financial Officer

Lorch 46 Executive Vice President and Chief Operating Officer

Charles Perfetti 76 Executive Vice President and Secretary

Becker has served as our Chairman of the Board since 2006 and as our President and Chief Executive Officer since 2007.

33 unchanged sentences

(b) Exhibits:

Articles of Incorporation of First Internet Bancorp (incorporated by reference to Exhibit 3.1 to registration statement filed on Form 10 filed November 30, 2012)

Amended and Restated Bylaws of First Internet Bancorp as amended March 18, 2013 (incorporated by reference to Exhibit 3.2 to annual report on Form 10-K for the year ended December 31, 2012)

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)

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)

Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934

5 unchanged sentences

Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to current report on Form 8-K filed June 12, 2019

T hird Supplemental Indenture, dated as of October 26, 2020, between First Internet Banc orp and U.S.

Bank National Association , as trustee (including form of 6.0% Fixed-to-Floating Rate Subordinated Notes due 2030) (in corporated by reference to Exhibit 4.2 to current report on Form 8-K filed October 26, 2020)

Form of Global Note representing 6.0% Subordinated Notes due 2026 (incorporated by reference to Exhibit A included in Exhibit 4.2 to current report on Form 8-K filed on September 30, 2016)

10 unchanged sentences

Becker dated March 28, 2013 (incorporated by reference to Exhibit 10.4 to annual report on Form 10-K for the year ended December 31, 2012)*

Lease dated as of March 6, 2013, by and between First Internet Bancorp and First Internet Bank of Indiana (incorporated by reference to Exhibit 10.2 to current report on Form 8-K filed March 11, 2013)

First Amendment to Office Lease dated as of July 1, 2015, by and between First Internet Bancorp and First Internet Bank of Indiana (incorporated by reference to Exhibit 10.1 to quarterly report on Form 10-Q filed August 5, 2015)

Second Amendment to Office Lease dated as of July 1, 2016, by and between First Internet Bancorp and First Internet Bank of Indiana (incorporated by reference to Exhibit 10.2 to quarterly report on Form 10-Q filed August 2, 2016)

Third Amendment to Office Lease dated as of May 1, 2018, by and between First Internet Bancorp and First Internet Bank of Indiana

Fourth Amendment to Office Lease dated as of February 1, 2020, by and between First Internet Bancorp and First Internet Bank of Indiana

Form of Non-Employee Director Restricted Stock Award Agreement under 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to quarterly report on Form 10-Q filed May 4, 2016)*

Loan Agreement dated as of March 6, 2013, by and between First Internet Bancorp and First Internet Bank of Indiana (incorporated by reference to Exhibit 10.1 to current report on Form 8-K filed March 11, 2013)

First, Second and Third Acknowledgment, Confirmation and Amendment between First Internet Bank of Indiana and First Internet Bancorp executed March 6, 2014, March 6, 2015 and February 26, 2016, respectively (incorporated by reference to Exhibit 10.15 to annual report on Form 10-K for the fiscal year ended December 31, 2015)

Fourth Acknowledgment, Confirmation and Amendment between First Internet Bank of Indiana and First Internet Bancorp executed February 21, 2017 (incorporated by reference to Exhibit 10.14 to annual report on Form 10-K for the fiscal year ended December 31, 2016)

First Internet Bancorp Annual Bonus Plan (incorporated by reference to Exhibit 10.1 to quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2017)*

Form of Subordinated Note Purchase Agreement, dated as of October 26, 2020, between First Internet Bancorp and the purchaser thereunder (incorporated by reference to Exhibit 10.1 to current report on Form 8-K filed October 26, 2020)

List of Subsidiaries (incorporated by reference to Exhibit 21.1 to annual report on Form 10-K for the fiscal year ended December 31, 2018)

4 unchanged sentences

Section 1350 Certifications

Financial statements from the Annual Report on Form 10-K of First Internet Bancorp for the period ended December 31, 2019, filed with the SEC on March 12, 2020, formatted in Extensible Business Reporting Language (XBRL):

101 Financial statements from the Annual Report on Form 10-K of First Internet Bancorp for the period ended December 31, 2020, filed with the SEC on March 15, 2021, formatted in inline extensible Business Reporting Language (XBRL):

(i) the Consolidated Balance Sheets at December 31, 2020 and 2019, (ii) the Consolidated Statements of Income for the fiscal years ended December 31, 2020, 2019, and 2018, (iii) the Consolidated Statements of Comprehensive Income for the fiscal years ended December, 2020, 2019, and 2018, (iv) the Consolidated Statements of Shareholders’ Equity for the fiscal years ended December 31, 2020, 2019, and 2018, (v) Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2020, 2019, and 2018, and (iv) Notes to Consolidated Financial Statements.

104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

__________________________________

5 unchanged sentences

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 15, 2021.

/s/ Kenneth J.

Becker /s/ Kenneth J.

Chairman, President,

4 unchanged sentences

(Principal Financial Officer and Principal Accounting Officer)

Ana Dutra, Director

Keach, Jr., Director

Lovejoy, Director

Murtlow, Director

Smith, Director

Whitney, Jr., Director

1 unchanged sentence

Wojtowicz, Director

_____________________________

Becker, by signing his name hereto, does hereby sign this document on behalf of each of the above-named directors of the Registrant pursuant to powers of attorney duly executed by such persons.

7 unchanged sentences

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 11, 2020, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2020, based on criteria and established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) our report dated March 15, 2021, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting .

Basis for Opinion

9 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which it relates.

As described in Note 4 to the consolidated financial statements, the Company’s consolidated allowance for loan losses (ALLL) was $29.48 million at December 31, 2020.

The Company also describes in Note 1 of the consolidated financial statements the "Allowance for Loan Losses Methodology" accounting policy around this estimate.

The ALLL is an estimate of losses inherent in the loan portfolio.

The determination of the reserve requires significant judgment reflecting the Company’s best estimate of probable loan losses.

The ALLL is established as losses are estimated to have occurred through a provision for loan losses charged to income.

Loan losses are charged against the allowance when management determines that an outstanding loan will not be collected.

Subsequent recoveries, if any, are credited to the allowance.

The ALLL is evaluated on a regular basis by management and is based on management’s periodic review of the collectability of the loans in light of historical experiences, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions.

This evaluation is inherently subjective as it requires estimates that are susceptible to revision as more information becomes available.

The ALLL consists of specific and general components.

The specific component relates to loans that are classified as impaired and an allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan.

The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.

The historical charge-off experience is determined by portfolio segment and is based on an analysis of historical loss activity over a time period that represents the economic life cycle of the loan segment.

Other adjustments for each segment, such as qualitative or environmental considerations may be added to the allowance for each loan segment after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

The primary reason for our determination that the ALLL is a critical audit matter is that it involved significant judgment and complex review.

There is a high degree of subjectivity in evaluating management’s estimate, such as evaluating management's assessment of economic conditions and other environmental factors, including the impact of the COVID-19 pandemic on the loan portfolio, evaluating the adequacy of specific allowances associated with impaired loans and assessing the appropriateness of loan grades.

Our audit procedures related to the estimated allowance for loan losses included:

• Testing the design and operating effectiveness of internal controls, including those related to technology, over the ALLL.

• Testing clerical and computational accuracy of the company’s ALLL calculation.

• Testing the completeness and accuracy of underlying data utilized in the ALLL, including reports used in management review controls over the ALLL.

• Evaluating the qualitative and environmental adjustments to the historical loss rates, including assessing the basis for the adjustments and the reasonableness and directional consistency of those adjustments, including the reliability and relevance of the significant assumptions and underlying data.

• Evaluating the appropriateness of loan grades and assessing the reasonableness of specific impairments on loans.

We have served as the Company's auditor since 2004.

39 unchanged sentences

Loans held-for-sale (includes $26,341 in 2020 and $56,097 in 2019 at fair value) 39,584 56,097

3,059,231 2,963,547

Allowance for loan losses

( 29,484 ) ( 21,840 )

Net loans 3,029,747 2,941,707

Accrued interest receivable 17,416 18,607

2 unchanged sentences

Premises and equipment, net 37,590 14,630

Servicing asset

Goodwill 4,687 4,687

Servicing asset, at fair value 3,569 2,481

Other real estate owned — 2,065

Accrued income and other assets 64,304 67,066

Total assets $ 4,246,156 $ 4,100,083

Liabilities and shareholders’ equity

20 unchanged sentences

Accumulated other comprehensive loss

( 17,196 ) ( 14,191 )

Total shareholders’ equity 330,944 304,913

5 unchanged sentences

Year Ended December 31,

2020 2019 2018

Interest income

Loans $ 120,628 $ 122,228 $ 99,082

Securities – taxable 11,123 13,807 10,630

3 unchanged sentences

Interest expense

Deposits 55,976 69,313 42,484

Other borrowed funds 16,342 15,134 10,716

6 unchanged sentences

Loan servicing revenue 1,159 166 —

Loan servicing asset revaluation ( 432 ) — —

Mortgage banking activities 24,693 11,541 5,718

Gain on sale of loans 8,298 2,074 503

Loss on sale of securities

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

Other 1,655 2,581 1,605

Total noninterest income 36,336 16,789 8,760

8 unchanged sentences

Write-down of other real estate owned 2,065 — 2,423

Other 4,423 3,709 2,936

Total noninterest expense 57,654 46,634 43,183

1 unchanged sentence

Income tax provision 4,445 1,917 2,052

Net income $ 29,453 $ 25,239 $ 21,900

Income per share of common stock

Basic $ 2.99 $ 2.51 $ 2.31

Diluted 2.99 2.51 2.30

Weighted-average number of common shares outstanding

Basic 9,840,205 10,041,581 9,490,506

Diluted 9,842,425 10,044,483 9,508,653

Dividends declared per share $ 0.24 $ 0.24 $ 0.24

4 unchanged sentences

Year Ended December 31,

Other comprehensive income (loss)

2020 2019 2018

Net income $ 29,453 $ 25,239 $ 21,900

Other comprehensive (loss) income

Net unrealized holding gains (losses) on securities available-for-sale recorded within other comprehensive income before income tax 6,551 12,072 ( 10,466 )

Reclassification adjustment for losses realized

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

Net unrealized holding losses on cash flow hedging derivatives recorded within other comprehensive income before income tax ( 10,248 ) ( 9,071 ) ( 4,358 )

Other comprehensive income (loss) before tax

Income tax provision (benefit)

Other comprehensive income (loss) - net of tax

Other comprehensive (loss) income before tax ( 3,836 ) 3,459 ( 14,824 )

Income tax (benefit) provision ( 831 ) 1,109 ( 4,365 )

Other comprehensive (loss) income - net of tax ( 3,005 ) 2,350 ( 10,459 )

Comprehensive income $ 26,448 $ 27,589 $ 11,441

3 unchanged sentences

(Amounts in thousands except per share data)

Stock Retained

Earnings Accumulated

Comprehensive

1 unchanged sentence

Balance, January 1, 2018 $ 172,043 $ 57,103 $ ( 5,019 ) $ 224,127

Other comprehensive income

Impact of adoption of new accounting standards (1)

1,063 ( 1,063 ) —

Net income — 21,900 — 21,900

Other comprehensive loss — — ( 10,459 ) ( 10,459 )

Dividends declared ($0.24 per share) — ( 2,377 ) ( 2,377 )

Net cash proceeds from common stock issuance 54,334 — — 54,334

Repurchase of common stock ( 216 ) — — ( 216 )

Recognition of the fair value of share-based compensation 1,596 — — 1,596

3 unchanged sentences

Impact of adoption of new accounting standards (2)

Other comprehensive loss

— ( 821 ) — ( 821 )

Net income — 25,239 — 25,239

Other comprehensive income — — 2,350 2,350

Dividends declared ($0.24 per share) — ( 2,426 ) — ( 2,426 )

Net cash proceeds from common stock issuance

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

3 unchanged sentences

Balance, December 31, 2019 $ 219,423 $ 99,681 $ ( 14,191 ) $ 304,913

Impact of adoption of new accounting standards (2)

Other comprehensive income

Net income — 29,453 — 29,453

Other comprehensive loss — — ( 3,005 ) ( 3,005 )

Dividends declared ($0.24 per share) — ( 2,402 ) — ( 2,402 )

Repurchase of common stock

Recognition of the fair value of share-based compensation 2,110 — — 2,110

11 unchanged sentences

Year Ended December 31,

2020 2019 2018

Operating activities

Net income $ 29,453 $ 25,239 $ 21,900

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Amortization of operating lease right-of-use assets

Depreciation and amortization 7,831 6,926 5,667

3 unchanged sentences

Share-based compensation expense 2,110 1,680 1,596

Loss from sale of available-for-sale securities

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

Loans originated for sale ( 1,009,266 ) ( 627,597 ) ( 364,630 )

1 unchanged sentence

Gain on sale of loans ( 31,124 ) ( 12,349 ) ( 6,605 )

Increase in fair value of loans held-for-sale

Decrease (increase) in fair value of loans held-for-sale 94 ( 538 ) ( 57 )

(Gain) loss on derivatives ( 2,069 ) ( 671 ) 501

Settlement of derivatives ( 46,109 ) — —

Net change in servicing assets ( 1,088 ) ( 2,481 ) —

2 unchanged sentences

Net change in other liabilities ( 4,983 ) 5,999 ( 83 )

Net cash (used in) provided by operating activities

Net cash provided by (used in) operating activities 13,068 ( 43,577 ) 29,356

Investing activities

Net loan activity, excluding sales and purchases 46,787 ( 191,070 ) ( 463,528 )

Net change in interest-bearing deposits

Purchase of bank owned life insurance

Proceeds from sales of other real estate owned — 554 332

18 unchanged sentences

Repayment of advances from Federal Home Loan Bank ( 440,000 ) ( 605,000 ) ( 260,000 )

Other, net ( 152 ) ( 329 ) ( 210 )

Net cash provided by financing activities 124,186 495,499 750,088

10 unchanged sentences

Cash dividends declared, not paid 588 585 611

Security purchases settled in subsequent period 5,547 — —

Transfer of mutual fund securities to other assets — — 2,932

Transfer of available-for-sale municipal securities to held-to-maturity municipal securities 4,479 — —

See Notes to Consolidated Financial Statements

53 unchanged sentences

Loans that management intends to hold until maturity are reported at their outstanding principal balance adjusted for unearned income, charge-offs, the allowance for loan losses (“ALLL”), any unamortized deferred fees or costs on originated loans, unamortized premiums or discounts on purchased loans and carrying value adjustments related to interest rate swaps associated with loans.

For loans recorded at cost, interest income is accrued based on the unpaid principal balance.

Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.

First Internet Bancorp

1 unchanged sentence

(Tabular dollar amounts in thousands except per share data)

For loans recorded at cost, interest income is accrued based on the unpaid principal balance.

Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.

Allowance for Loan Losses Methodology

20 unchanged sentences

The Company also factors in the following qualitative considerations:

Changes in policies and procedures;

Changes in national, regional, and local economic and business conditions;

Changes in the composition and size of the portfolio and in the terms of loans;

Changes in the experience, ability, and depth of lending management and other relevant staff;

Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;

Changes in national, regional, and local unemployment rates;

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

Changes in the nature and volume of the portfolio, and in the terms of loans;

Changes in the risk grades assigned to loans;

The levels of and trends in charge-offs and recoveries;

The levels of and trends in delinquencies, nonaccrual loans, and impaired loans;

First Internet Bancorp

1 unchanged sentence

(Tabular dollar amounts in thousands except per share data)

Changes in the quality of the Company’s loan review system;

Changes in the value of underlying collateral for collateral-dependent loans;

The existence and effect of any concentration of credit and changes in the level of such concentrations;

The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio.

Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices.

Provision for Loan Losses

18 unchanged sentences

The loan portfolio includes certain loans that have been modified in a TDR, where economic concessions have been granted to borrowers who have experienced financial difficulties.

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

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

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

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

2 unchanged sentences

In periods subsequent to modification, all TDRs, including those that have payment defaults, are evaluated for possible impairment, and impairment is recognized through the ALLL.

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Policy for Charging Off Loans

22 unchanged sentences

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

The fair value of interest rate swaps with a positive fair value are reported in accrued income and other assets in the consolidated balance sheets while interest rate swaps with a negative fair value are reported in accrued expenses and other liabilities in the consolidated balance sheets.

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 in the 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 consolidated balance sheets, while derivative instruments with a negative fair value are reported in accrued expenses and other liabilities in the consolidated balance sheets.

First Internet Bancorp

1 unchanged sentence

(Tabular dollar amounts in thousands except per share data)

swaps with a positive fair value are reported in accrued income and other assets in the consolidated balance sheets while interest rate swaps with a negative fair value are reported in accrued expenses and other liabilities in the consolidated balance sheets.

Fair Value Measurements

3 unchanged sentences

ASC Topic 820 describes three levels of inputs that may be used to measure fair value:

Quoted prices in active markets for identical assets or liabilities

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities;

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

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value 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

There were no transfers that occurred and, therefore, recognized, between any of the fair value hierarchy levels at December 31, 2020 or 2019.

16 unchanged sentences

Year Ended December 31,

2020 2019 2018

Basic earnings per share

5 unchanged sentences

Weighted-average common shares 9,840,205 10,041,581 9,490,506

Dilutive effect of warrants

Dilutive effect of equity compensation 2,220 2,902 18,147

1 unchanged sentence

Diluted earnings per common share (1)

$ 2.99 $ 2.51 $ 2.30

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

14 unchanged sentences

The Company recognizes tax-free income from the periodic increases in the cash surrender value of these policies and from death benefits.

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Goodwill is tested at least annually for impairment.

1 unchanged sentence

Subsequent increases in goodwill value are not recognized in the consolidated financial statements.

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Servicing Asset

1 unchanged sentence

Servicing assets are recorded at fair value in accordance with ASC 860.

Fair value is based on a third-party valuation model that calculates the present value of estimated future loan servicing revenue.

Fair value is based on a third-party valuation model that calculates the present value of net servicing revenue.

Reclassifications

4 unchanged sentences

In addition, approximately $ 15.5 million and $ 246.7 million of cash was held by the FHLB of Indianapolis and Federal Reserve Bank of Chicago, respectively, which are not federally insured.

The Company is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank.

The reserve required at December 31, 2019 was $ 1.7 million .

The Federal Reserve Act authorizes the Federal Reserve Board to establish reserve requirements within specified ranges for the purpose of implementing monetary policy on certain types of deposits and other liabilities of depository institutions.

On March 15, 2020, the Federal Reserve Board reduced requirement ratios to zero percent effective March 26, 2020.

As such, the Company is no longer required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank.

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

December 31, 2020

Gross Unrealized

Amortized Gross Unrealized Fair

Cost Gains Losses Value

Securities available-for-sale

2 unchanged sentences

Agency mortgage-backed securities

241,795 4,591 ( 2,465 ) 243,921

Private label mortgage-backed securities

57,268 850 ( 2 ) 58,116

Asset-backed securities

5,000 — ( 39 ) 4,961

Corporate securities 48,419 771 ( 1,594 ) 47,596

Total available-for-sale $ 497,004 $ 7,107 $ ( 6,483 ) $ 497,628

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

December 31, 2020

Gross Unrealized

Amortized Gross Unrealized Fair

Cost Gains Losses Value

Securities held-to-maturity

2 unchanged sentences

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

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

December 31, 2019

Gross Unrealized

Amortized Gross Unrealized Fair

Cost Gains Losses Value

Securities available-for-sale

2 unchanged sentences

Agency mortgage-backed securities

264,142 1,304 ( 4,006 ) 261,440

Private label mortgage-backed securities

63,704 97 ( 188 ) 63,613

Asset-backed securities

5,000 — ( 45 ) 4,955

Corporate securities 38,632 220 ( 1,532 ) 37,320

1 unchanged sentence

December 31, 2019

Gross Unrealized

Amortized Gross Unrealized Fair

Cost Gains Losses Value

Securities held-to-maturity

9 unchanged sentences

After ten years 85,895 88,778

192,941 190,630

Agency mortgage-backed securities 241,795 243,921

1 unchanged sentence

Asset-backed securities 5,000 4,961

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Total $ 497,004 $ 497,628

Held-to-Maturity

2 unchanged sentences

After ten years 12,199 12,600

There were no gross realized gains resulting from sales of available-for-sale securities recognized during the twelve months ended December 31, 2019, 2018, and 2017.

There were gross realized losses of $0.5 million , $0.0 million , and $0.0 million resulting from sales of available-for-sale securities recognized during the twelve months ended December 31, 2019 , 2018 , and 2017 , respectively.

Total $ 68,223 $ 69,452

There were gross realized gains of $ 0.1 million and gross realized losses of $ 0.5 million resulting from sales of available-for-sale securities recognized during the twelve months ended December 31, 2020 and 2019, respectively.

There were no gross realized gains or losses resulting from the sale of available-for-sale securities recognized during the twelve months ended December 31, 2018.

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

As of December 31, 2020, the fair value of available-for-sale investment securities pledged as collateral was $ 354.6 million.

9 unchanged sentences

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

Because the Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2019 .

Because the Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost bases, which may not be until maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2020.

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

1 unchanged sentence

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

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Because the Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost bases, which may not be until maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2020.

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 December 31, 2020 and 2019:

December 31, 2020

Less Than 12 Months

12 Months or Longer

Less Than 12 Months 12 Months or Longer Total

Value Unrealized

Securities available-for-sale

2 unchanged sentences

Agency mortgage-backed securities

38,987 ( 276 ) 45,297 ( 2,189 ) 84,284 ( 2,465 )

Private label mortgage-backed securities

1,277 ( 1 ) 558 ( 1 ) 1,835 ( 2 )

Asset-backed securities

— — 4,961 ( 39 ) 4,961 ( 39 )

Corporate securities — — 20,406 ( 1,594 ) 20,406 ( 1,594 )

Total $ 58,995 $ ( 391 ) $ 147,092 $ ( 6,092 ) $ 206,087 $ ( 6,483 )

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

December 31, 2020

Less Than 12 Months

12 Months or Longer

Less Than 12 Months 12 Months or Longer Total

Value Unrealized

Securities held-to-maturity

Corporate securities 17,456 ( 126 ) 2,999 ( 1 ) 20,455 ( 127 )

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

December 31, 2019

Less Than 12 Months

12 Months or Longer

Less Than 12 Months 12 Months or Longer Total

Value Unrealized

Securities available-for-sale

Government-sponsored agencies $ 4,820 $ ( 61 ) $ 62,182 $ ( 1,881 ) $ 67,002 $ ( 1,942 )

Municipals 1,279 ( 1,501 ) — — 1,279 ( 1,501 )

Agency mortgage-backed securities

91,159 ( 829 ) 83,212 ( 3,177 ) 174,371 ( 4,006 )

Private label mortgage-backed securities 30,077 ( 180 ) 2,884 ( 8 ) 32,961 ( 188 )

Asset-backed securities

— — 4,955 ( 45 ) 4,955 ( 45 )

Corporate securities — — 22,985 ( 1,532 ) 22,985 ( 1,532 )

Total $ 127,335 $ ( 2,571 ) $ 176,218 $ ( 6,643 ) $ 303,553 $ ( 9,214 )

December 31, 2019

Less Than 12 Months

12 Months or Longer

Less Than 12 Months 12 Months or Longer Total

Value Unrealized

Securities held-to-maturity

1 unchanged sentence

Corporate securities 13,977 ( 132 ) — — 13,977 ( 132 )

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Total $ 13,977 $ ( 132 ) $ — $ — $ 13,977 $ ( 132 )

Amounts reclassified from accumulated other comprehensive loss and the affected line items in the consolidated statements of income during the years ended December 31, 2020, 2019 and 2018 were as follows:

Details About Accumulated Other Comprehensive Loss Components

Amounts Reclassified from

Details About Accumulated Other Comprehensive Loss Components Amounts Reclassified from

Accumulated Other Comprehensive Loss

for the Year Ended December 31,

Affected Line Item in the

for the Year Ended December 31, Affected Line Item in the

Statements of Income

2020 2019 2018

Unrealized gains and losses on securities available-for-sale

Loss realized in earnings

Loss on sale of securities

Total reclassified amount before tax

Income before income taxes

Income tax provision

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

Total reclassified amount before tax 139 ( 458 ) — Income before income taxes

Tax expense (benefit) 38 ( 124 ) — Income tax provision

Total reclassifications out of accumulated other comprehensive loss

$ 101 $ ( 334 ) $ — Net Income

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Categories of loans include:

3 unchanged sentences

Investor commercial real estate 13,902 12,567

Construction 110,385 60,274

Single tenant lease financing 950,172 995,879

5 unchanged sentences

Residential mortgage 186,787 313,849

Home equity 19,857 24,306

Other consumer 275,692 295,309

2 unchanged sentences

Net deferred loan origination costs and premiums and discounts on purchased loans and other (1)

61,264 43,566

Total loans 3,059,231 2,963,547

Allowance for loan losses ( 29,484 ) ( 21,840 )

(1) Includes carrying value adjustments of $21.4 million and $5.0 million as of December 31, 2019 and 2018, respectively, related to interest rate swaps associated with public finance loans.

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Net loans $ 3,029,747 $ 2,941,707

(1) Includes carrying value adjustments of $ 42.7 million related to terminated interest rate swaps associated with public finance loans as of December 31, 2020 and $ 21.4 million as of December 31, 2019 related to interest rate swaps associated with public finance loans.

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

8 unchanged sentences

This portfolio segment is generally concentrated in Central Indiana and adjacent markets and the greater Phoenix, Arizona market and its loans are often secured by manufacturing and service facilities, as well as office buildings.

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Investor Commercial Real Estate:

23 unchanged sentences

infrastructure improvements;

and equipment financing.

energy conservation;

renewable energy and equipment financing.

The primary sources of repayment for public finance loans include pledged revenue sources including but not limited to:

7 unchanged sentences

Certain loans may also include an additional collateral pledge of mortgaged property or a security interest in financed equipment.

Public finance loans have been completed primarily in the Midwest, with plans to continue expanding nationwide.

Public finance lending has been conducted primarily in the Midwest, but continues to expand nationwide.

Healthcare Finance:

These loans are made to healthcare providers, primarily dentists, for practice acquisition refinancing that occasionally includes owner-occupied commercial real estate and equipment purchases.

The sources of repayment are primarily based on the identified cash flows from operations of the borrower and related entities if the real estate is held in a separate entity and secondarily on the underlying collateral provided by the borrower.

This portfolio segment

These loans are made to healthcare providers, primarily dentists, for practice acquisition financing or refinancing that occasionally includes owner-occupied commercial real estate and equipment purchases.

This portfolio segment was initially concentrated in the Western United States but has been growing rapidly throughout the rest of the country with the addition of a growing sales force located in Eastern and Midwestern markets.

First Internet Bancorp

1 unchanged sentence

(Tabular dollar amounts in thousands except per share data)

was initially concentrated in the Western United States but has been growing rapidly throughout the rest of the country with the addition of a growing sales force located in Eastern and Midwestern markets.

Small Business Lending:

These loans are to small businesses and generally carry a partial guaranty from the U.S.

Small Business Administration ("SBA").

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.

1 unchanged sentence

Loans may, but do not always, have a collateral shortfall.

An SBA guaranty provides a tertiary source or 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.

For SBA loans where the guaranteed portion is retained, the SBA guaranty provides a tertiary source of repayment to the Bank in event of borrower default.

Cash flows of borrowers, however, may not be as expected and collateral securing these loans may fluctuate in value.

Loans are made for a broad array of purposes including, but not limited to, providing operating cash flow, funding ownership changes, and facilitating equipment purchases.

These loans also include loans originated by the Bank under the SBA’s Paycheck Protection Program, which are fully guaranteed by the SBA.

This portfolio segment has an emerging geography, with a nationwide focus.

13 unchanged sentences

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.

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

The following tables present changes in the balance of the ALLL during the twelve months ended December 31, 2020, 2019, and 2018.

Twelve Months Ended December 31, 2020

Balance, beginning of period

Provision (credit) charged to expense

Losses charged off

Balance, end of period

Balance, beginning of period Provision (credit) charged to expense Losses charged off Recoveries Balance, end of period

Allowance for loan losses:

2 unchanged sentences

Investor commercial real estate 109 46 — — 155

Construction 380 812 — — 1,192

Single tenant lease financing 11,175 1,815 — — 12,990

3 unchanged sentences

Residential mortgage 657 ( 122 ) ( 20 ) 4 519

Home equity 46 ( 9 ) — 11 48

Other consumer 2,510 447 ( 804 ) 354 2,507

Total $ 21,840 $ 9,325 $ ( 2,162 ) $ 481 $ 29,484

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Twelve Months Ended December 31, 2019

Balance, beginning of period

Provision (credit) charged to expense

Losses charged off

Balance, end of period

Balance, beginning of period Provision (credit) charged to expense Losses charged off Recoveries Balance, end of period

Allowance for loan losses:

2 unchanged sentences

Investor commercial real estate 61 48 — — 109

Construction 251 129 — — 380

Single tenant lease financing 8,827 2,348 — — 11,175

3 unchanged sentences

Residential mortgage 1,079 ( 350 ) ( 76 ) 4 657

Home equity 53 51 ( 68 ) 10 46

Other consumer 2,321 1,194 ( 1,292 ) 287 2,510

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Total $ 17,896 $ 5,966 $ ( 2,357 ) $ 335 $ 21,840

Twelve Months Ended December 31, 2018

Balance, beginning of period

Provision (credit) charged to expense

Losses charged off

Balance, end of period

Balance, beginning of period Provision (credit) charged to expense Losses charged off Recoveries Balance, end of period

Allowance for loan losses:

2 unchanged sentences

Investor commercial real estate 85 ( 24 ) — — 61

Construction 423 ( 172 ) — — 251

Single tenant lease financing 7,872 955 — — 8,827

3 unchanged sentences

Residential mortgage 956 127 ( 9 ) 5 1,079

Home equity 70 ( 33 ) — 16 53

Other consumer 1,751 1,459 ( 1,176 ) 287 2,321

Total $ 14,970 $ 3,892 $ ( 1,277 ) $ 311 $ 17,896

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2020 and 2019.

First Internet Bancorp

1 unchanged sentence

(Tabular dollar amounts in thousands except per share data)

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2019 and 2018 .

Allowance for Loan Losses

December 31, 2019

Ending Balance:

Collectively Evaluated for Impairment

Ending Balance:

Individually Evaluated for Impairment

Ending Balance

Ending Balance:

Collectively Evaluated for Impairment

Ending Balance:

Individually Evaluated for Impairment

Ending Balance

Loans Allowance for Loan Losses

December 31, 2020 Ending Balance:

Collectively Evaluated for Impairment Ending Balance:

Individually Evaluated for Impairment Ending Balance Ending Balance:

Collectively Evaluated for Impairment Ending Balance:

Individually Evaluated for Impairment Ending Balance

Commercial and industrial $ 74,870 $ 517 $ 75,387 $ 1,146 $ — $ 1,146

1 unchanged sentence

Investor commercial real estate 13,902 — 13,902 155 — 155

Construction 110,385 — 110,385 1,192 — 1,192

Single tenant lease financing 942,848 7,324 950,172 9,900 3,090 12,990

3 unchanged sentences

Residential mortgage 185,241 1,546 186,787 519 — 519

Home equity 19,857 — 19,857 48 — 48

Other consumer 275,642 50 275,692 2,507 — 2,507

Allowance for Loan Losses

December 31, 2018

Ending Balance:

Collectively Evaluated for Impairment

Ending Balance:

Individually Evaluated for Impairment

Ending Balance

Ending Balance:

Collectively Evaluated for Impairment

Ending Balance:

Individually Evaluated for Impairment

Ending Balance

Total $ 2,985,682 $ 12,285 $ 2,997,967 $ 26,394 $ 3,090 $ 29,484

Loans Allowance for Loan Losses

December 31, 2019 Ending Balance:

Collectively Evaluated for Impairment Ending Balance:

Individually Evaluated for Impairment Ending Balance Ending Balance:

Collectively Evaluated for Impairment Ending Balance:

Individually Evaluated for Impairment Ending Balance

Commercial and industrial $ 93,520 $ 2,900 $ 96,420 $ 1,412 $ 109 $ 1,521

1 unchanged sentence

Investor commercial real estate 12,567 — 12,567 109 — 109

Construction 60,274 — 60,274 380 — 380

Single tenant lease financing 991,199 4,680 995,879 9,515 1,660 11,175

3 unchanged sentences

Residential mortgage 312,714 1,135 313,849 657 — 657

Home equity 24,306 — 24,306 46 — 46

Other consumer 295,266 43 295,309 2,510 — 2,510

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Total $ 2,905,560 $ 14,421 $ 2,919,981 $ 20,071 $ 1,769 $ 21,840

The Company utilizes a risk grading matrix to assign a risk grade to each of its commercial loans.

2 unchanged sentences

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

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

• “Substandard” - Loans that possess a defined weakness or weaknesses that jeopardize the liquidation of the debt.

7 unchanged sentences

December 31, 2020

Special Mention

Pass Special Mention Substandard Total

Commercial and industrial $ 74,138 $ 732 $ 517 $ 75,387

1 unchanged sentence

Investor commercial real estate 13,902 — — 13,902

Construction 110,385 — — 110,385

Single tenant lease financing 932,830 10,018 7,324 950,172

4 unchanged sentences

December 31, 2020

Performing Nonaccrual Total

Residential mortgage $ 185,604 $ 1,183 $ 186,787

Home equity 19,857 — 19,857

Other consumer 275,646 46 275,692

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

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

December 31, 2019

Special Mention

Pass Special Mention Substandard Total

Commercial and industrial $ 89,818 $ 3,973 $ 2,629 $ 96,420

1 unchanged sentence

Investor commercial real estate 12,567 — — 12,567

Construction 60,274 — — 60,274

Single tenant lease financing 983,448 7,751 4,680 995,879

3 unchanged sentences

Total commercial loans $ 2,260,087 $ 15,186 $ 11,244 $ 2,286,517

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

December 31, 2019

Performing Nonaccrual Total

Residential mortgage $ 313,088 $ 761 $ 313,849

Home equity 24,306 — 24,306

Other consumer 295,276 33 295,309

Total $ 632,670 $ 794 $ 633,464

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

December 31, 2020

Past Due 60-89

Past Due 90 Days

Past Due Total

Past Due Current Total loans Nonaccrual

Loans Total Loans

Due and Accruing

2 unchanged sentences

Investor commercial real estate — — — — 13,902 13,902 — —

Construction — — — — 110,385 110,385 — —

Single tenant lease financing — — 4,680 4,680 945,492 950,172 7,116 —

3 unchanged sentences

Residential mortgage 49 — 269 318 186,469 186,787 1,183 —

Home equity — 15 — 15 19,842 19,857 — —

Other consumer 176 51 5 232 275,460 275,692 46 —

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Total $ 225 $ 66 $ 4,954 $ 5,245 $ 2,992,722 $ 2,997,967 $ 10,183 $ —

December 31, 2019

Past Due 60-89

Past Due 90 Days

Past Due Total

Past Due Current Total loans Nonaccrual

Loans Total Loans

Commercial and industrial $ 15 $ 96 $ 122 $ 233 $ 96,187 $ 96,420 $ 226 $ —

1 unchanged sentence

Investor commercial real estate — — — — 12,567 12,567 — —

Construction — — — — 60,274 60,274 — —

Single tenant lease financing — 4,680 — 4,680 991,199 995,879 4,680 —

3 unchanged sentences

Residential mortgage — — 1,177 1,177 312,672 313,849 761 416

Home equity — — — — 24,306 24,306 — —

Other consumer 240 107 — 347 294,962 295,309 33 —

Total $ 309 $ 4,883 $ 1,763 $ 6,955 $ 2,913,026 $ 2,919,981 $ 6,164 $ 416

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

The following tables present the Company’s impaired loans as of December 31, 2020 and 2019.

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Balance Unpaid

Balance Specific

Allowance Recorded

Balance Unpaid

Balance Specific

Loans without a specific valuation allowance

1 unchanged sentence

Owner-occupied commercial real estate 1,838 1,850 — 5,663 5,665 —

Small business lending

Single tenant lease financing 1,315 1,334 — — — —

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

Residential mortgage 1,546 1,652 — 1,135 1,209 —

Other consumer 50 120 — 43 107 —

Total 6,276 6,483 — 9,534 9,675 —

Loans with a specific valuation allowance

1 unchanged sentence

Single tenant lease financing 6,009 6,036 3,090 4,680 4,680 1,660

Residential mortgage — — — — — —

Total 6,009 6,036 3,090 4,887 4,924 1,769

Total impaired loans $ 12,285 $ 12,519 $ 3,090 $ 14,421 $ 14,599 $ 1,769

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

The following table presents average balances and interest income recognized for impaired loans during the twelve months ended December 31, 2020, 2019, and 2018.

Twelve Months Ended

December 31, 2019

December 31, 2018

December 31, 2017

December 31, 2020 December 31, 2019 December 31, 2018

Balance Interest

Income Average

Balance Interest

Income Average

Balance Interest

Loans without a specific valuation allowance

1 unchanged sentence

Owner-occupied commercial real estate 3,790 60 3,292 170 833 44

Healthcare finance 386 16 — — — —

Small business lending — — 331 94 60 15

Residential mortgage 1,333 — 2,265 — 720 —

Home equity — — 10 — 61 —

Other consumer 57 — 68 1 108 —

Total 6,603 133 9,259 554 7,743 485

Loans with a specific valuation allowance

1 unchanged sentence

Single tenant lease financing 5,671 4 1,464 — — —

Total 5,840 7 2,541 — — —

Total impaired loans $ 12,443 $ 140 $ 11,800 $ 554 $ 7,743 $ 485

The Company had $0.0 million and $0.6 million in residential mortgage other real estate owned as of December 31, 2019 and December 31, 2018 , respectively.

There were no loans in the process of foreclosure at December 31, 2019 and December 31, 2018 , respectively.

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

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

Troubled Debt Restructurings

2 unchanged sentences

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

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

4 unchanged sentences

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

There were three commercial and industrial loan classified as new TDRs during the twelve months ended December 31, 2020 with a pre-modification and post-modification outstanding recorded investment of $ 2.6 million.

The Company did not allocate a specific allowance for these loans as of December 31, 2020 and the modifications consisted of interest only payments for a period of time and an extension of the maturity date.

There were four commercial and industrial loans classified as new TDRs during the twelve months ended December 31, 2019 with a pre-modification and post-modification outstanding recorded investment of $ 2.0 million.

The Company did not allocate a specific allowance for those loans as of December 31, 2019 and the modifications consisted of interest-only payments for a period of time.

The Company did not allocate a specific allowance for these loans as of December 31, 2019 and the modifications consisted of interest only payments for a period of time.

There were no loans classified as new TDRs during the twelve months ended December 31, 2018.

There were no performing TDRs which had payment defaults within the twelve months following modification during the years ended December 31, 2020, 2019 and 2018.

Non-TDR Loan Modifications due to COVID-19

The “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” was issued by our banking regulators on March 22, 2020.

This guidance encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19.

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

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

As of December 31, 2020, the Company had $ 11.9 million in non-TDR loan modifications due to COVID-19.

Small Business Administration Paycheck Protection Program

Section 1102 of the CARES Act created the PPP, which is jointly administered by the SBA and the Department of the Treasury.

The PPP is designed to provide economic relief to small businesses nationwide adversely impacted by COVID-19.

On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act was enacted, extending the Authority to continue to make PPP loans, including a provision for second draw PPP loans, through March 31, 2021.

These loans may be 100% forgiven if certain conditions, including predefined SBA approved use of the funds and certain borrower certifications, are satisfied and are fully guaranteed by the SBA.

As a preferred SBA lender, we assisted our clients in participating in the PPP to help them maintain their workforces in an uncertain and challenging environment.

The loans bear an interest rate of 1.00 % and we received weighted average origination fees of 3.86 % of the amount funded, or approximately $ 2.3 million in total.

The Company received this fee revenue from the SBA in late June and it will be deferred over the life of the PPP loans and recognized as interest income.

As of December 31, 2020, we had 376 PPP loans totaling $ 50.6 million outstanding.

First Internet Bancorp

1 unchanged sentence

(Tabular dollar amounts in thousands except per share data)

There were two commercial and industrial loans classified as new TDRs during the twelve months ended December 31, 2017 with a pre-modification and post-modification outstanding recorded investment of $1.8 million .

These loans were paid-in-full in the fourth quarter of 2017.

The 2017 modifications consisted of maturity date amendments and certain other term modifications.

There were no performing TDRs which had payment defaults within the twelve months following modification during the years ended December 31, 2019, 2018 and 2017.

Premises and Equipment

The following table summarizes premises and equipment at December 31, 2019 and 2018 .

The following table summarizes p remises and equipment at December 31, 2020 and 2019.

Land $ 2,500 $ 2,500

Construction in process 28,956 4,386

Right of use leased asset 819 1,602

2 unchanged sentences

accumulated depreciation ( 10,973 ) ( 9,165 )

$ 37,590 $ 14,630

During 2018, the Bank's subsidiary, SPF15, Inc., (“SPF15”) acquired several parcels of land consisting of approximately 3.3 acres located in Fishers, Indiana for approximately $ 10.2 million, inclusive of acquisition costs.

4 unchanged sentences

Site demolition has been completed and construction of a multi-use development, to include the Company's future headquarters, began on October 7, 2019.

Development of the site is estimated to be substantially completed by September 30, 2021.

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

Subsequent to the end of fiscal 2020, on February 16, 2021, the Company entered into an agreement to sell its current headquarters and certain equipment currently located in the building to a third party.

The sale price is $8.9 million in cash payable in full at closing.

The closing remains subject to customary conditions.

At December 31, 2020 the net book value of the land, building and improvements was $5.4 million.

As a part of the sale agreement, the buyer has agreed to lease the office building back to the Company through December 31, 2021, with an option to extend up to 90 days beyond that date.

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

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

2 unchanged sentences

Refer to Note 22 for further information regarding transition guidance related to the new standard.

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

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

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

3 unchanged sentences

The following table shows the components of lease expense.

(in thousands)

Twelve Months Ended

December 31, 2019

December 31, 2018

December 31, 2017

(in thousands) Twelve Months Ended

December 31, 2020 December 31, 2019 December 31, 2018

Operating lease cost $ 913 $ 758 $ 724

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

(in thousands)

Twelve Months Ended

December 31, 2019

(in thousands) Twelve Months Ended

December 31, 2020 December 31, 2019

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

6 unchanged sentences

(dollars in thousands)

December 31, 2019

December 31, 2020 December 31, 2019

Operating lease right-of-use assets $ 819 $ 1,602

4 unchanged sentences

Operating leases 2.0 % 2.0 %

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

The following table shows the future minimum payments of operating leases with initial or remaining terms of one year or more as of December 31, 2020.

3 unchanged sentences

Less imputed interest ( 17 )

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

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

2 unchanged sentences

The annual test indicated no impairment existed as of August 31, 2020 and no events or changes in circumstances have occurred since the August 31, 2020 annual impairment test that would suggest it was more likely than not goodwill impairment existed.

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Servicing Asset

Activity for the servicing asset and the related changes in fair value for the twelve months ended December 31, 2020 and 2019 are shown in the table below.

(in thousands) Twelve Months Ended

December 31, 2020 December 31, 2019

Beginning balance $ 2,481 $ —

Additions 1,520 2,481

Changes in fair value ( 432 ) —

Ending balance $ 3,569 $ 2,481

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

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

(in thousands)

December 31, 2020 December 31, 2019

Loan portfolios serviced for:

SBA guaranteed loans $ 165,961 $ 103,981

Total $ 165,961 $ 103,981

Loan servicing revenue totaled $ 1.2 million during the twelve months ended December 31, 2020.

There was $ 0.2 million of loan servicing revenue during the twelve months ended December 31, 2019.

Loan servicing asset revaluation, which represents the change in fair value of the servicing asset, resulted in a $ 0.4 million downward valuation for twelve months ended December 31, 2020.

There was no loan servicing asset revaluation during the twelve months ended December 31, 2019.

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 17 - Fair Value of Financial Instruments for further details.

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

The following table presents the composition of the Company’s deposit base as of December 31, 2020 and 2019.

8 unchanged sentences

The following table presents time deposit maturities by year as of December 31, 2020.

2021 $ 883,461

Thereafter 250

FHLB Advances

6 unchanged sentences

As of December 31, 2020, the Company had $ 305.0 million of putable advances with the FHLB.

The Company’s FHLB advances are scheduled to mature according to the following schedule:

2021 $ 110,000

Thereafter 134,896

First Internet Bancorp

1 unchanged sentence

(Tabular dollar amounts in thousands except per share data)

The Company’s FHLB advances are scheduled to mature according to the following schedule:

Net deferred prepayment gain on advance restructure

Subordinated Debt

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

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

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

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

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

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

Subsequent to the end of the fiscal year, the Company redeemed the 2025 Note on January 4, 2021.

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

13 unchanged sentences

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

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

The following table presents the principal balance and unamortized discount and debt issuance costs for the 2025 Note, the 2026 Notes and the 2029 Notes as of December 31, 2019 and 2018 .

December 31, 2019

December 31, 2018

Unamortized Discount and Debt Issuance Costs

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 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 the 2025 Note as discussed above.

The following table presents the principal balance and unamortized discount and debt issuance costs for the 2025 Note, the 2026 Notes, the 2029 Note and the 2030 Notes as of December 31, 2020 and 2019.

December 31, 2020 December 31, 2019

Principal Unamortized Discount and Debt Issuance Costs Principal Unamortized Discount and Debt Issuance Costs

2025 Note $ 10,000 ( 114 ) 10,000 ( 138 )

2026 Notes 25,000 ( 715 ) 25,000 ( 839 )

2029 Notes 37,000 ( 1,337 ) 37,000 ( 1,495 )

2030 Notes 10,000 ( 231 ) — —

Total $ 82,000 ( 2,397 ) 72,000 ( 2,472 )

Benefit Plans

1 unchanged sentence

Employee contributions are limited to the maximum established by the Internal Revenue Service on an annual basis.

The Company has elected to match contributions equal to 100% of the first 1% of employee deferrals and then 50% on deferrals over 1% up to a maximum of 6% of an individual’s total eligible salary, as defined in the plan, which vests immediately.

Discretionary employer-matching contributions begin vesting after one year at a rate of 50% per year of employment and are fully vested after the completion of two years of employment.

The Company has elected to match contributions equal to 100 % of the first 1 % of employee deferrals and then 50 % on

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

deferrals over 1 % up to a maximum of 6 % of an individual’s total eligible salary, as defined in the plan, which vests immediately.

Discretionary employer-matching contributions begin vesting immediately at a rate of 50 % per year of employment and are fully vested after the completion of two years of employment.

Contributions totaled approximately $ 0.8 million, $ 0.6 million and $ 0.5 million in the twelve months ended December 31, 2020, 2019 and 2018, respectively.

9 unchanged sentences

The Company recorded $ 2.1 million, $ 1.7 million, and $ 1.6 million of share-based compensation expense for the years ended December 31, 2020, 2019, and 2018, respectively, related to awards made under the 2013 Plan.

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

The following table summarizes the status of the 2013 Plan awards as of December 31, 2020, and activity for the year ended December 31, 2020:

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 Unit

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 Unit

Unvested at January 1, 2020 107,244 $ 29.03 — $ — — $ —

Granted 66,895 27.56 16,090 25.58 12 17.87

Vested ( 61,154 ) 29.77 ( 14,452 ) 25.35 ( 12 ) 17.87

Forfeited — — ( 1,638 ) 27.56 — —

Unvested at December 31, 2020 112,985 $ 27.76 — $ — — $ —

5 unchanged sentences

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

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

The following table summarizes the status of deferred stock rights related to the Directors Deferred Stock Plan for the year ended December 31, 2020.

4 unchanged sentences

The provision for income taxes consists of the following:

Net deferred tax asset revaluation

The Tax Cuts and Jobs Act of 2017 ("Tax Act") was enacted on December 22, 2017.

Among other changes, the Tax Act reduced the federal corporate tax rate from 35% to 21%.

Deferred tax assets and liabilities, as of December 31, 2017, were revalued based on the rate expected to reverse in the future, which was 21%.

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

2020 2019 2018

Current $ 8,563 $ 6,319 $ 1,074

Deferred ( 4,118 ) ( 4,402 ) 978

Total $ 4,445 $ 1,917 $ 2,052

Income tax provision is reconciled to the statutory rate applied to pre-tax income.

The statutory rate was 21 %, 21 % and 21 % at December 31, 2020, 2019 and 2018, respectively.

2020 2019 2018

Statutory rate times pre-tax income $ 7,119 $ 5,703 $ 5,030

3 unchanged sentences

Bank-owned life insurance ( 200 ) ( 198 ) ( 200 )

Net deferred tax asset revaluation

Tax credits ( 178 ) ( 181 ) ( 180 )

Other differences 403 189 71

3 unchanged sentences

Allowance for loan losses $ 7,961 $ 5,897

Unrealized loss on available-for-sale securities

Net unrealized losses on available for sale securities and hedged items 5,800 5,021

Fair value adjustments 1,117 ( 1,011 )

Depreciation ( 107 ) ( 257 )

Deferred compensation and accrued payroll 1,533 1,358

1 unchanged sentence

Prepaid assets ( 553 ) ( 449 )

Net operating loss

Other 337 513

Total deferred tax assets, net $ 14,807 $ 9,891

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Related Party Transactions

4 unchanged sentences

Deposits from related parties held by the Company at December 31, 2020 and 2019 totaled $ 33.0 million and $ 28.3 million, respectively.

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Regulatory Capital Requirements

9 unchanged sentences

and 4) a minimum Leverage Ratio of 4.0 %.

The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and was phased in over a four -year period, increasing by increments of that amount on each subsequent January 1 until it reached 2.5% on January 1, 2019.

The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625 % level and was phased in over a four -year period, increasing by increments of that amount on each subsequent January 1 until it reached 2.5 % on January 1, 2019 and was fully phased in.

The capital conservation buffer is designed to absorb losses during periods of economic stress.

6 unchanged sentences

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.

Minimum Capital Required - Basel III

Minimum Required to be Considered Well Capitalized

Capital Amount

Actual Minimum Capital Required - Basel III Minimum Required to be Considered Well Capitalized

Capital Amount Ratio Capital Amount Ratio Capital Amount Ratio

As of December 31, 2020:

Common equity tier 1 capital to risk-weighted assets

Consolidated $ 342,159 11.31 % $ 211,828 7.00 % N/A N/A

Bank 377,678 12.49 % 211,612 7.00 % 196,497 6.50 %

Tier 1 capital to risk-weighted assets

Consolidated 342,159 11.31 % 257,220 8.50 % N/A N/A

Bank 377,678 12.49 % 256,957 8.50 % 241,842 8.00 %

Total capital to risk-weighted assets

Consolidated 451,246 14.91 % 317,742 10.50 % N/A N/A

Bank 407,162 13.47 % 317,418 10.50 % 302,303 10.00 %

Leverage ratio

Minimum Capital Required - Basel III Phase-In Schedule

Minimum Capital Required - Basel III

Minimum Required to be Considered Well Capitalized

Capital Amount

Consolidated 342,159 7.95 % 172,154 4.00 % N/A N/A

Bank 377,678 8.78 % 172,036 4.00 % 215,045 5.00 %

Actual Minimum Capital Required - Basel III Minimum Required to be Considered Well Capitalized

Capital Amount Ratio Capital Amount Ratio Capital Amount Ratio

As of December 31, 2019:

Common equity tier 1 capital to risk-weighted assets

Consolidated $ 313,803 10.84 % $ 202,661 7.00 % N/A N/A

Bank 341,242 11.80 % 202,480 7.00 % 188,017 6.50 %

Tier 1 capital to risk-weighted assets

Consolidated 313,803 10.84 % 246,088 8.50 % N/A N/A

Bank 341,242 11.80 % 245,869 8.50 % 231,406 8.00 %

Total capital to risk-weighted assets

Consolidated 405,171 13.99 % 303,991 10.50 % N/A N/A

Bank 363,082 12.55 % 303,720 10.50 % 289,257 10.00 %

Leverage ratio

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Consolidated 313,803 7.64 % 164,219 4.00 % N/A N/A

Bank 341,242 8.32 % 164,121 4.00 % 205,151 5.00 %

Commitments and Credit Risk

1 unchanged sentence

At December 31, 2020 and 2019, the Company had outstanding loan commitments totaling approximately $ 263.9 million and $ 254.4 million, respectively.

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

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

As of December 31, 2019 , the Company has committed to contribute up to $2.3 million of capital to the SBIC Fund.

The Company's total commitment to the SBIC Fund is $ 4.0 million.

As of December 31, 2020, the Company had contributed $ 2.5 million of capital, leaving a remaining commitment of $ 1.5 million.

Capital Commitments

7 unchanged sentences

The standard describes three levels of inputs that may be used to measure fair value:

Quoted prices in active markets for identical assets or liabilities

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities;

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

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value 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 consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

11 unchanged sentences

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

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).

First Internet Bancorp

1 unchanged sentence

(Tabular dollar amounts in thousands except per share data)

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

8 unchanged sentences

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).

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

The following tables present the fair value measurements of assets and liabilities recognized in the accompanying 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 December 31, 2020 and 2019.

1 unchanged sentence

Fair Value Measurements Using

Quoted Prices

Value Quoted Prices

(Level 1) Significant

(Level 2) Significant

Government-sponsored agencies $ 60,545 $ — $ 60,545 $ —

1 unchanged sentence

Agency mortgage-backed securities

243,921 — 243,921 —

Private-label mortgage-backed securities 58,116 — 58,116 —

Asset-backed securities

4,961 — 4,961 —

Corporate securities 47,596 — 47,596 —

4 unchanged sentences

Forward contracts ( 640 ) ( 640 ) — —

IRLCs 3,361 — — 3,361

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

December 31, 2019

Fair Value Measurements Using

Quoted Prices

Value Quoted Prices

(Level 1) Significant

(Level 2) Significant

Government-sponsored agencies $ 75,872 $ — $ 75,872 $ —

1 unchanged sentence

Agency mortgage-backed securities

261,440 — 261,440 —

Private-label mortgage-backed securities 63,613 — 63,613 —

Asset-backed securities

4,955 — 4,955 —

Corporate securities 37,320 37,320

Total available-for-sale securities $ 540,852 $ — $ 540,852 $ —

Interest rate swaps assets

Servicing asset 2,481 — — 2,481

Interest rate swaps liabilities ( 37,786 ) — ( 37,786 ) —

1 unchanged sentence

Forward contracts ( 153 ) ( 153 ) — —

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

IRLCs 910 — — 910

The following table reconciles the beginning and ending balances of recurring fair value measurements recognized in the accompanying consolidated balance sheets using significant unobservable (Level 3) inputs.

Interest Rate

Servicing Asset Interest Rate Lock Commitments

Balance as of January 1, 2018 $ — $ 551

Total realized gains (losses)

Included in net income

Total realized losses

Additions — ( 162 )

Balance, December 31, 2018 — 389

Total realized gains

Included in net income

Additions 2,481 521

Balance, December 31, 2019 2,481 910

Total realized gains

Included in net income

Additions 1,520 2,451

Change in fair value ( 432 ) —

Balance, December 31, 2020 $ 3,569 $ 3,361

6 unchanged sentences

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

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

Fair Value Measurements Using

Quoted Prices

Impaired loans

Other Real Estate Owned

Other real estate owned is a level 3 asset that is adjusted to fair value less estimated selling costs, upon transfer to other real estate owned.

When a current appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value as a result of known changes in the market or the collateral and

First Internet Bancorp

1 unchanged sentence

(Tabular dollar amounts in thousands except per share data)

there is no observable market price, such valuation inputs result in a fair value measurement.

To the extent a negotiated sales price or reduced listing price represents a significant discount to an observable market price, such valuation input would result in a fair value measurement that is also considered a Level 3 measurement.

The following tables present the fair value measurements of assets and liabilities recognized in the accompanying consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2019 and 2018 .

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

Fair Value Measurements Using

Quoted Prices

Other real estate owned

Value Quoted Prices

(Level 1) Significant

(Level 2) Significant

Impaired loans 4,026 — — 4,026

Fair Value Measurements Using

Value Quoted Prices

(Level 1) Significant

(Level 2) Significant

Impaired loans 3,019 — — 3,019

Unobservable (Level 3) Inputs

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

Fair Value at

December 31, 2019

(dollars in thousands) Fair Value at

December 31, 2020 Valuation

Technique Significant Unobservable

Inputs Range Weighted-Average Range

Impaired loans

6 unchanged sentences

Prepayment speeds

Fair Value at

December 31, 2018

Other real estate owned

Fair value of collateral

Discount to reflect current market conditions

Discounted cash flow

Loan closing rates

Discount rate

(dollars in thousands) Fair Value at

December 31, 2019 Valuation

Technique Unobservable

Inputs Range Weighted - Average Range

Impaired loans $ 3,019 Fair value of collateral Discount to reflect current market conditions 10 % 10 %

IRLCs 910 Discounted cash flow Loan closing rates 50 % - 100 %

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

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

1 unchanged sentence

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

Held-to-Maturity Securities

Fair values are determined by using models that are based on security-specific details, as well as relevant industry and economic factors.

The most significant of these inputs are quoted market prices, and interest rate spreads on relevant benchmark securities.

First Internet Bancorp

1 unchanged sentence

(Tabular dollar amounts in thousands except per share data)

Held-to-Maturity Securities

Fair values are determined by using models that are based on security-specific details, as well as relevant industry and economic factors.

The most significant of these inputs are quoted market prices, and interest rate spreads on relevant benchmark securities.

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

The fair value of these loans approximates carrying value.

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

21 unchanged sentences

Fair Value Measurements Using

Quoted Prices

Amount Fair Value Quoted Prices

(Level 1) Significant

(Level 2) Significant

Cash and cash equivalents $ 419,806 $ 419,806 $ 419,806 $ — $ —

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

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

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

Accrued interest receivable 17,416 17,416 17,416 — —

Federal Home Loan Bank of Indianapolis stock 25,650 25,650 — 25,650 —

Deposits 3,270,885 3,307,038 1,679,164 — 1,627,874

Advances from Federal Home Loan Bank 514,916 541,945 — 541,945 —

3 unchanged sentences

Fair Value Measurements Using

Quoted Prices

Amount Fair Value Quoted Prices

(Level 1) Significant

(Level 2) Significant

Cash and cash equivalents $ 327,361 $ 327,361 $ 327,361 $ — $ —

Securities held-to-maturity 61,878 62,560 — 62,560 —

Net loans 2,941,707 2,876,688 — — 2,876,688

Accrued interest receivable 18,607 18,607 18,607 — —

Federal Home Loan Bank of Indianapolis stock 25,650 25,650 — 25,650 —

Deposits 3,153,963 3,232,065 1,002,141 — 2,229,924

Advances from Federal Home Loan Bank 514,910 520,950 — 520,950 —

11 unchanged sentences

During the years ended December 31, 2020, 2019, and 2018, the Company originated mortgage loans held-for-sale of $ 878.2 million, $ 627.6 million, and $ 364.6 million, respectively, and received $ 923.8 million, $ 601.2 million, and $ 376.5 million from the sale of mortgage loans, respectively, into the secondary market.

During 2019, the Company sold $100.5 million of residential mortgage loans that were originally held for investment.

There were no comparable sales in 2018.

During 2017, the Company sold $42.3 million of residential mortgage loans that were originally held for investment.

The following table provides the components of income from mortgage banking activities for the years ended December 31, 2020, 2019, and 2018.

Year Ended December 31,

2020 2019 2018

Gain on loans sold $ 22,826 $ 10,275 $ 6,102

Gain resulting from the change in fair value of loans held-for-sale

(Loss) Gain resulting from the change in fair value of loans held-for-sale ( 94 ) 538 57

Gain (loss) resulting from the change in fair value of derivatives 1,961 728 ( 441 )

16 unchanged sentences

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

Carrying amount of the hedged assets

Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets

Carrying amount of the hedged assets Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets

Line item in the consolidated balance sheet in which the hedged item is included

December 31, 2019

December 31, 2018

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019

Loans $ — $ 474,957 $ — $ 21,440

Securities available-for-sale 1

124,210 151,538 6,064 2,802

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 amounts of the designated hedged items were $ 88.2 million and $ 88.2 million, at December 31, 2020 and 2019, respectively.

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 December 31, 2020 and December 31, 2019, identified by the underlying interest rate-sensitive instruments.

December 31, 2020 Weighted Average Remaining Maturity (years) Weighted-Average Rate

Instruments Associated With

Notional Value Fair Value Receive Pay

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

Total swap portfolio at December 31, 2020 $ 88,200 3.1 $ ( 6,072 ) 3 month LIBOR 2.54 %

First Internet Bancorp

1 unchanged sentence

(Tabular dollar amounts in thousands except per share data)

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 December 31, 2019 and December 31, 2018, identified by the underlying interest rate-sensitive instruments.

December 31, 2019

Weighted Average Remaining Maturity (years)

Weighted-Average Rate

Instruments Associated With

Notional Value

3 month LIBOR

Securities available-for-sale

3 month LIBOR

Total swap portfolio at December 31, 2019

3 month LIBOR

December 31, 2018

Weighted Average Remaining Maturity (years)

Weighted-Average Rate

December 31, 2019 Weighted Average Remaining Maturity (years) Weighted-Average Rate

Instruments Associated With

Notional Value

3 month LIBOR

Securities available-for-sale

3 month LIBOR

Total swap portfolio at December 31, 2018

3 month LIBOR

Notional Value Fair Value Receive Pay

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

Securities available-for-sale 88,200 4.1 ( 2,806 ) 3 month LIBOR 2.54 %

Total swap portfolio at December 31, 2019 $ 515,646 5.3 $ ( 24,357 ) 3 month LIBOR 2.80 %

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 13.1 years as of December 31, 2020.

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 December 31, 2020 and December 31, 2019.

December 31, 2019

Weighted Average Remaining Maturity (years)

Weighted-Average Rate

December 31, 2020 Weighted Average Remaining Maturity (years) Weighted-Average Rate

Cash Flow Hedges

Notional Value

Interest rate swaps

3 month LIBOR

Interest rate swaps

1 month LIBOR

December 31, 2018

Weighted Average Remaining Maturity (years)

Weighted-Average Rate

Notional Value Fair Value Receive Pay

Interest rate swaps $ 110,000 6.1 $ ( 15,727 ) 3 month LIBOR 2.88 %

Interest rate swaps 100,000 3.0 ( 7,951 ) 1 month LIBOR 2.88 %

December 31, 2019 Weighted Average Remaining Maturity (years) Weighted-Average Rate

Cash Flow Hedges

Notional Value

Interest rate swaps

3 month LIBOR

Interest rate swaps

1 month LIBOR

Notional Value Fair Value Receive Pay

Interest rate swaps $ 110,000 7.1 $ ( 8,390 ) 3 month LIBOR 2.88 %

Interest rate swaps 100,000 4.0 ( 5,040 ) 1 month LIBOR 2.88 %

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

1 unchanged sentence

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

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

First Internet Bancorp

1 unchanged sentence

(Tabular dollar amounts in thousands except per share data)

The following table presents the notional amount and fair value of interest rate swaps, IRLCs and forward contracts utilized by the Company at December 31, 2019 and 2018 .

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Value Notional

Asset Derivatives

Derivatives designated as hedging instruments

Interest rate swaps associated with loans

Interest rate swaps associated with securities available-for-sale

Derivatives not designated as hedging instruments

IRLCs 108,095 3,361 56,256 910

Total contracts $ 108,095 $ 3,361 $ 56,256 $ 910

10 unchanged sentences

The following table presents the effects of the Company's cash flow hedge relationships on the consolidated statements of comprehensive income during the twelve months ended December 31, 2020, 2019, and 2018.

Amount of Loss Recognized in Other Comprehensive Income in the Twelve Months Ended

December 31, 2019

December 31, 2018

December 31, 2017

Amount of Gain (loss) Recognized in Other Comprehensive Income in the Twelve Months Ended

December 31, 2020 December 31, 2019 December 31, 2018

Interest rate swap agreements $ ( 10,248 ) $ ( 9,071 ) $ ( 4,358 )

1 unchanged sentence

Amount of (loss) / gain recognized in the twelve months ended

December 31, 2019

December 31, 2018

December 31, 2017

December 31, 2020 December 31, 2019 December 31, 2018

Asset Derivatives

Derivatives not designated as hedging instruments

IRLCs 2,451 521 ( 162 )

Forward contracts ( 487 ) 207 ( 279 )

3 unchanged sentences

The following table presents the effects of the Company's interest rate swap agreements on the consolidated statements of income during the twelve months ended December 31, 2020, 2019, and 2018.

Line item in the consolidated statements of income

Twelve Months Ended

December 31, 2019

December 31, 2018

December 31, 2017

Line item in the consolidated statements of income Twelve Months Ended

December 31, 2020 December 31, 2019 December 31, 2018

Interest income

Loans $ ( 2,445 ) $ ( 1,533 ) $ ( 100 )

Securities - taxable ( 722 ) ( 127 ) ( 153 )

1 unchanged sentence

Total interest income

( 3,908 ) ( 1,624 ) ( 230 )

Interest expense

Deposits 2,273 618 151

Other borrowed funds 2,374 473 177

Total interest expense

4,647 1,091 328

Net interest income

$ ( 8,555 ) $ ( 2,715 ) $ ( 558 )

Shareholders’ Equity

1 unchanged sentence

The Company received net proceeds of approximately $ 54.3 million after deducting underwriting discounts and commissions and offering expenses.

In September 2017, the Company completed an underwritten public offering of 1,895,750 shares of its common stock at a price of $29.00 per share.

The Company received net proceeds of approximately $51.6 million after deducting underwriting discounts and commissions and offering expenses.

First Internet Bancorp

1 unchanged sentence

(Tabular dollar amounts in thousands except per share data)

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive loss, included in stockholders' equity, are presented in the table below.

Available-For-Sale Securities

Cash Flow Hedges

Available-For-Sale Securities Cash Flow Hedges Total

Balance, January 1, 2018 $ ( 5,019 ) $ — $ ( 5,019 )

Net change in unrealized gain

Reclassification of net loss realized and included in earnings

Accumulated other comprehensive loss before income tax

Income tax provision

Balance, December 31, 2017

Net change in unrealized loss

Reclassification of certain tax effects 1

Accumulated other comprehensive loss before income tax

( 1,063 ) — ( 1,063 )

Net unrealized holding losses recorded within other comprehensive income before income tax ( 10,466 ) ( 4,358 ) ( 14,824 )

Other comprehensive loss before tax ( 10,466 ) ( 4,358 ) ( 14,824 )

Income tax benefit ( 3,189 ) ( 1,176 ) ( 4,365 )

Other comprehensive loss - net of tax ( 7,277 ) ( 3,182 ) ( 10,459 )

Balance, December 31, 2018 $ ( 13,359 ) $ ( 3,182 ) $ ( 16,541 )

Net change in unrealized gain (loss)

Net unrealized holding gains (losses) recorded within other comprehensive income before income tax 12,072 ( 9,071 ) 3,001

Reclassification of net loss realized and included in earnings 458 — 458

Accumulated other comprehensive loss before income tax

Other comprehensive income (loss) before tax 12,530 ( 9,071 ) 3,459

Income tax provision (benefit) 3,559 ( 2,450 ) 1,109

Other comprehensive income (loss) - net of tax 8,971 ( 6,621 ) 2,350

Balance, December 31, 2019 $ ( 4,388 ) $ ( 9,803 ) $ ( 14,191 )

Net unrealized holding gains (losses) recorded within other comprehensive income before income tax 6,551 ( 10,248 ) ( 3,697 )

Reclassification of adjustment for gains realized ( 139 ) — ( 139 )

Other comprehensive income (loss) before income tax 6,412 ( 10,248 ) ( 3,836 )

Income tax provision (benefit) 1,556 ( 2,387 ) ( 831 )

Other comprehensive income (loss) - net of tax 4,856 ( 7,861 ) ( 3,005 )

Balance, December 31, 2020 $ 468 $ ( 17,664 ) $ ( 17,196 )

1 Represents the reclassification of stranded income tax effects to Retained Earnings upon adoption of ASU 2018-02 and ASU 2016-01.

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Condensed Financial Information (Parent Company Only)

6 unchanged sentences

Accrued income and other assets 2,658 2,156

Total assets $ 415,563 $ 379,326

Liabilities and shareholders’ equity

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Total liabilities and shareholders’ equity $ 415,563 $ 379,326

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Condensed Statements of Income

Year Ended December 31,

2020 2019 2018

Interest on borrowings $ 4,924 $ 3,804 $ 2,616

2 unchanged sentences

Premises and equipment 295 285 285

Other 361 408 315

Total expenses 8,162 6,911 4,738

3 unchanged sentences

Equity in undistributed net income of subsidiaries 35,526 30,367 25,466

Net income $ 29,453 $ 25,239 $ 21,900

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Condensed Statements of Comprehensive Income

Year Ended December 31,

Other comprehensive income (loss)

2020 2019 2018

Net income $ 29,453 $ 25,239 $ 21,900

Other comprehensive (loss) income

Net unrealized holding gains (losses) on securities available-for-sale recorded within other comprehensive income before income tax 6,551 12,072 ( 10,466 )

Reclassification adjustment for losses realized

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

Net unrealized holding losses on cash flow hedging derivatives recorded within other comprehensive income before income tax ( 10,248 ) ( 9,071 ) ( 4,358 )

Other comprehensive income (loss) before tax

Income tax provision (benefit)

Other comprehensive income (loss) - net of tax

Other comprehensive (loss) income before tax ( 3,836 ) 3,459 ( 14,824 )

Income tax (benefit) provision ( 831 ) 1,109 ( 4,365 )

Other comprehensive (loss) income - net of tax ( 3,005 ) 2,350 ( 10,459 )

Comprehensive income $ 26,448 $ 27,589 $ 11,441

4 unchanged sentences

Year Ended December 31,

2020 2019 2018

Operating activities

Net income $ 29,453 $ 25,239 $ 21,900

Adjustments to reconcile net income to net cash provided by operating activities:

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Repurchase of common stock — ( 9,784 ) ( 216 )

Other, net ( 152 ) ( 93 ) ( 210 )

Net cash provided by financing activities 7,264 22,823 48,378

Net (decrease) increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents 2,229 ( 6,978 ) 12,471

Cash and cash equivalents at beginning of year 38,303 45,281 32,810

6 unchanged sentences

2020 September 30,

2020 June 30,

2020 March 31,

Income Statement Data:

8 unchanged sentences

Income tax provision 3,055 1,395 ( 268 ) 263

Net income $ 11,090 $ 8,411 $ 3,932 $ 6,019

Per Share Data:

Basic $ 1.12 $ 0.86 $ 0.40 $ 0.62

Diluted $ 1.12 $ 0.86 $ 0.40 $ 0.62

Weighted average common shares outstanding

Basic 9,883,609 9,773,175 9,768,227 9,721,485

Diluted 9,914,022 9,773,224 9,768,227 9,750,528

Three Months Ended

2019 September 30,

2019 June 30,

2019 March 31,

Income Statement Data:

8 unchanged sentences

Income tax (benefit) provision 602 449 340 526

Net income $ 7,096 $ 6,326 $ 6,121 $ 5,696

Per Share Data:

Basic $ 0.72 $ 0.63 $ 0.60 $ 0.56

Diluted $ 0.72 $ 0.63 $ 0.60 $ 0.56

Weighted average common shares outstanding

Basic 9,825,784 9,979,603 10,148,285 10,217,637

Diluted 9,843,829 9,980,612 10,148,285 10,230,531

First Internet Bancorp

2 unchanged sentences

Recent Accounting Pronouncements

ASU 2016-02 - Leases (Topic 842) (February 2016)

In February 2016, the Financial Accounting Standards Board (“FASB”) amended its standards with respect to the accounting for leases.

This ASU replaces all current GAAP guidance on this topic and requires that an operating lease be recognized by the lessee on the balance sheet as a “right-of-use” asset along with a corresponding liability representing the rent obligation.

Key aspects of current lessor accounting remain unchanged from existing guidance.

The amended standard has resulted in an increase to assets and liabilities recognized and, therefore, increased risk-weighted assets for regulatory capital purposes.

In July 2018, the FASB issued ASU 2018-10 - Codification Improvements to Topic 842 , Leases and ASU 2018-11, Leases (Topic 842):

Targeted Improvements .

ASU 2018-11 allows entities adopting ASU 2016-02 to choose an additional (and optional) transition method, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company elected the optional transition method permitted by ASU 2018-11, which allowed the Company to recognize and measure leases that exist at the application date.

Under this method, an entity must recognize and measure leases that exist at the application date and prior comparative periods are not adjusted.

The new ASU provides a number of optional practical expedients in transition.

The Company has elected the practical expedients that allowed the Company to retain the classifications of existing leases, rather than re-assessing if existing leases have initial direct costs, and to use hindsight when determining the lease term and assessment of impairment.

The Company also elected a practical expedient to not assess whether existing or expired land easements that were not previously accounted for as leases under ASC Topic 840 contain a lease.

The Company adopted the guidance on January 1, 2019 using the optional transition method and the adoption of the guidance did not have a material impact on the consolidated financial statements.

As a result, the Company recognized a $2.1 million increase in assets and liabilities on the consolidated balance sheets.

Refer to Note 6 for additional information.

In March 2019, the FASB issued ASU 2019-01 - Leases (Topic 842):

Codification Improvements .

This ASU (1) states that for lessors that are not manufacturers or dealers, the fair value of the underlying asset is its cost, less any volume or trade discounts, as long as there is not a significant amount of time between acquisition of the asset and lease commencement;

(2) clarifies that lessors in the scope of ASC Topic 942, such as the Company, must classify principal payments received from sales-type and direct financing leases in investing activities in the statements of cash flows;

and (3) clarifies the transition guidance related to certain interim disclosures provided in the year of adoption.

To coincide with the adoption of ASU 2016-02, the Company elected to early adopt ASU 2019-01 on January 1, 2019.

The adoption of the guidance did not have a material impact on the consolidated financial statements.

ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326):

2 unchanged sentences

To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

The amendments affect entities holding financial assets that are not accounted for at fair value through net income.

16 unchanged sentences

This increases the comparability of financial statement information provided by institutions that otherwise would have reported similar financial instruments using different measurement methodologies, potentially decreasing costs for financial statement preparers while providing more useful information to investors and other users.

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

For public business entities that are SEC filers, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

9 unchanged sentences

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

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

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

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

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

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

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

Early adoption is permitted.

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

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

6 unchanged sentences

The adoption of this guidance did not have a material impact on the consolidated financial statements.

ASU 2018-16 - Derivatives and Hedging (Topic 815):

Inclusion of the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap (“OIS”) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes (October 2018)

The amendments in this ASU allow all entities that elect to apply hedge accounting to benchmark interest rate hedges under ASC Topic 815, Derivatives and Hedging , to use the OIS rate based on SOFR as a benchmark interest rate, in addition to the four eligible benchmark interest rates.

The Company adopted this ASU effective December 31, 2018 and it did not have a material impact on the consolidated financial statements.

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

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

6 unchanged sentences

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

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

In March 2020 in connection with the implementation of the CARES Act and related provisions, the Company adopted the temporary relief issued under the CARES Act, thereby suspending the guidance in ASC 310-40 on accounting for TDRs to loan modifications related to COVID-19.

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

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

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

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

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

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

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

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

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

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

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

What changed 10-K

Item 9A. Controls and Procedures