First Internet Bancorp 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures The Company maintains disclosure controls and procedures that are designed to ensure that information the Company is required to disclose in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time period specified in SEC rules and forms. These controls and procedures are also designed to ensure that such information is accumulated and communicated to management, including our principal executive and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating disclosure controls and procedures, the Company has recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management is required to apply judgment in evaluating its controls and procedures. The Company performed an evaluation under the supervision and with the participation of management, including the 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 43 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 Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, including accounting and other internal control systems that, in the opinion of management, provide reasonable assurance that (1) transactions are properly authorized, (2) the assets are properly safeguarded, and (3) transactions are properly recorded and reported to permit the preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States. The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on that assessment, management concluded that, as of December 31, 2020, the Company’s internal control over financial reporting was effective based on those criteria. The Company’s internal control over financial reporting as of December 31, 2020 has been audited by BKD, LLP, an independent registered public accounting firm, as stated in its report appearing on page F-2. Changes in Internal Control Over Financial Reporting There has been no change in the Company’s internal control over financial reporting during the quarter ended December 31, 2020, that has materially affected or is reasonably likely to materially affect, the Company's internal control over financial reporting. Item 9B. Other Information None. 44 PART III Certain information required by Part III is incorporated by reference from our definitive Proxy Statement for our 2021 Annual Meeting of Shareholders (the “Proxy Statement”), which we intend to file with the SEC pursuant to Regulation 14A within 120 days after December 31, 2020. Except for those portions specifically incorporated by reference from our Proxy Statement, no other portions of the Proxy Statement are deemed to be filed as part of this report. Item 10. Directors, Executive Officers and Corporate Governance Information about our Executive Officers Our executive officers are as follows: Name Age Position David B. Becker 67 Chairman, President, Chief Executive Officer and Director Kenneth J. Lovik 51 Executive Vice President and Chief Financial Officer Nicole S. Lorch 46 Executive Vice President and Chief Operating Officer C. Charles Perfetti 76 Executive Vice President and Secretary David B. Becker has served as our Chairman of the Board since 2006 and as our President and Chief Executive Officer since 2007. Mr. Becker is the founder of the Bank and has served as an officer and director of the Bank since 1998. Kenneth J. Lovik has served as Executive Vice President and Chief Financial Officer of the Company since January 2017. Mr. Lovik joined the Company in August 2014 as Senior Vice President and Chief Financial Officer. Previously, he served as Senior Vice President, Investor Relations and Corporate Development, at First Financial Bancorp, a publicly traded bank holding company headquartered in Cincinnati, Ohio, from February 2013 to May 2014. Prior to that, he served as its Vice President, Investor Relations and Corporate Development, from 2010 to February 2013. Before First Financial Bancorp, he served as Vice President – Investment Banking at Milestone Advisors, LLC from October 2008 to September 2009 and in the same position at Howe Barnes Hoefer & Arnett, Inc. from 2004 to 2008. Nicole S. Lorch has served as Executive Vice President and Chief Operating Officer since January 2017. Ms. Lorch joined the Company as Director of Marketing in 1999 and served as Vice President, Marketing & Technology from 2003 to 2011 and Senior Vice President, Retail Banking from 2011 to January 2017. She previously served as Director of Marketing at Virtual Financial Services, an online banking services provider, from 1996 to 1999. C. Charles Perfetti has served as Executive Vice President since January 2017 and Secretary since May 2014. He previously served as Senior Vice President from 2012 until January 2017. Mr. Perfetti joined First Internet Bancorp in 2007 upon our acquisition of Landmark Financial Corporation, where he had served as President from 1989 to 2007. He previously conducted independent real estate and government consulting and served as the Chief Investment Manager of the State of Indiana from 1979 to 1986. Executive officers are elected annually by our Board of Directors and serve a one-year period or until their successors are elected. None of the above-identified executive officers are related to each other or to any of our directors. Code of Business Conduct and Ethics We have adopted a code of business conduct and ethics that applies to all of our directors and officers and other employees, including our principal executive officer and principal financial officer. This code is publicly available through the Corporate Governance section of our website at www.firstinternetbancorp.com. To the extent permissible under applicable law, the rules of the SEC or Nasdaq listing standards, we intend to post on our website any amendment to the code of business conduct and ethics, or any grant of a waiver from a provision of the code of business conduct and ethics, that requires disclosure under applicable law, the rules of the SEC or Nasdaq listing standards. The disclosure in the Proxy Statement under the headings “Proposal No. 1 - Election of Directors,” “Corporate Governance,” “Shareholder proposals for 2021 Annual Meeting,” and, if applicable “Delinquent Section 16(a) Reports” is incorporated into this Item by reference. 45 Item 11. Executive Compensation Incorporated into this Item by reference is the information in the Proxy Statement regarding the compensation of our named executive officers appearing under the heading “Executive Compensation,” the information regarding compensation committee interlocks and insider participation under the heading “Corporate Governance” and the information regarding compensation of non-employee directors under the heading “Director Compensation.” Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Incorporated into this Item by reference is the information in the Proxy Statement appearing under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information.” Item 13. Certain Relationships and Related Transactions, and Director Independence Incorporated into this Item by reference is the information in the Proxy Statement regarding director independence and related person transactions under the heading “Corporate Governance.” Item 14. Principal Accountant Fees and Services Incorporated into this Item by reference is the information in the Proxy Statement under the heading “Audit-Related Matters.” 46 PART IV Item 15. Exhibits and Financial Statement Schedules (a) Documents Filed as Part of this annual report on Form 10-K: 1. See our financial statements beginning on page F-1. (b) Exhibits: Exhibit No. Description 3.1 Amended and Restated Articles of Incorporation of First Internet Bancorp (incorporated by reference to Exhibit 3.1 to current report on Form 8-K filed May 21, 2020) 3.2 Amended and Restated Bylaws of First Internet Bancorp (incorporated by reference to Exhibit 3.2 to current report on Form 8-K filed May 21, 2020) 4.1 Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934 4.2 Subordinated Indenture, dated as of September 30, 2016, between First Internet Bancorp and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to current report on Form 8-K filed on September 30, 2016) 4.3 First Supplemental Indenture, dated as of September 30, 2016, between First Internet Bancorp and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to current report on Form 8-K filed on September 30, 2016) 4.4 Second Supplemental Indenture, dated as of June 12, 2019, between First Internet Bancorp and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to current report on Form 8-K filed June 12, 2019 4.5 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) 4.6 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) 4.7 Form of Senior Indenture (incorporated by reference to Exhibit 4.5 to registration statement on Form S-3 (Registration No. 333-219841) filed August 9, 2017) 4.8 Form of Subordinated Indenture (incorporated by reference to Exhibit 4.6 to registration statement on Form S-3 (Registration No. 333-219841) filed August 9, 2017) 10.1 First Internet Bancorp 2013 Equity Incentive Plan (incorporated by reference to Appendix A to the definitive proxy statement on Schedule 14A filed April 9, 2013)* 10.2 Form of Restricted Stock Agreement under 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to current report on Form 8-K filed July 26, 2013)* 10.3 Form of Management Incentive Award Agreement - Restricted Stock Units under 2013 Equity Incentive Plan for awards on or before January 21, 2019 (incorporated by reference to Exhibit 10.2 to quarterly report on form 10-Q for the fiscal quarter ended March 31, 2017)* 10.4 Form of Management Incentive Award Agreement - Restricted Stock Units under 2013 Equity Incentive Plan for awards after January 21, 2019 (incorporated by reference to Exhibit 10.1 to quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2019)* 10.5 First Internet Bancorp 2011 Directors’ Deferred Stock Plan (incorporated by reference to Exhibit 10.2 to registration statement on Form 10 filed November 30, 2012)* 10.6 Amended and Restated Employment Agreement among First Internet Bank of Indiana, First Internet Bancorp and David B. 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)* 47 Exhibit No. Description 10.7 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)* 10.8 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) 10.9 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)* 10.10 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) 21.1 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) 23.1 Consent of Independent Registered Public Accounting Firm 24.1 Powers of Attorney 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer 32.1 Section 1350 Certifications 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) __________________________________ *Management contract, compensatory plan or arrangement required to be filed as an exhibit. Item 16. Form 10-K Summary. None. 48 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 15, 2021. FIRST INTERNET BANCORP By: /s/ David B. Becker David B. Becker, Chairman, President and Chief Executive Officer 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/ David B. Becker /s/ Kenneth J. Lovik David B. Becker, Chairman, President, Chief Executive Officer and Director (Principal Executive Officer) Kenneth J. Lovik, Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) * * Ana Dutra, Director John K. Keach, Jr., Director * * David R. Lovejoy, Director Michael L. Smith, Director * * Ralph R. Whitney, Jr., Director Jerry Williams, Director * Jean L. Wojtowicz, Director * David B. 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. By: /s/ David B. Becker David B. Becker, Attorney-in-Fact 49 Reports of Independent Registered Public Accounting Firm To the Shareholders, Board of Directors and Audit Committee First Internet Bancorp Fishers, Indiana Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of First Internet Bancorp (Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). 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, 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 These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. F-1 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. /s/ BKD, LLP We have served as the Company's auditor since 2004. Indianapolis, Indiana March 15, 2021 F-2 Reports of Independent Registered Public Accounting Firm To the Shareholders, Board of Directors and Audit Committee First Internet Bancorp Fishers, Indiana Opinion on the Internal Control over Financial Reporting We have audited First Internet Bancorp’s (the "Company") internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated financial statements of the Company and our report dated March 15, 2021, expressed an unqualified opinion thereon. Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management’s Assessment of Internal Control Over Financial Reporting . Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definitions and Limitations of Internal Control over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. /s/ BKD, LLP Indianapolis, Indiana March 15, 2021 F-3 First Internet Bancorp Consolidated Balance Sheets (Amounts in thousands except share data) December 31, 2020 2019 Assets Cash and due from banks $ 7,367 $ 5,061 Interest-bearing demand deposits 412,439 322,300 Total cash and cash equivalents 419,806 327,361 Securities available-for-sale - at fair value (amortized cost of $497,004 in 2020 and $546,640 in 2019) 497,628 540,852 Securities held-to-maturity - at amortized cost (fair value of $69,452 in 2020 and $62,560 in 2019) 68,223 61,878 Loans held-for-sale (includes $26,341 in 2020 and $56,097 in 2019 at fair value) 39,584 56,097 Loans 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 Federal Home Loan Bank of Indianapolis stock 25,650 25,650 Cash surrender value of bank-owned life insurance 37,952 37,002 Premises and equipment, net 37,590 14,630 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 Liabilities Noninterest-bearing deposits $ 96,753 $ 57,115 Interest-bearing deposits 3,174,132 3,096,848 Total deposits 3,270,885 3,153,963 Advances from Federal Home Loan Bank 514,916 514,910 Subordinated debt, net of unamortized discounts and debt issuance costs of $2,397 in 2020 and $2,472 in 2019 79,603 69,528 Accrued interest payable 1,439 3,767 Accrued expenses and other liabilities 48,369 53,002 Total liabilities 3,915,212 3,795,170 Commitments and Contingencies Shareholders’ equity Preferred stock, no par value; 4,913,779 shares authorized; issued and outstanding - none — — Voting common stock, no par value; 45,000,000 shares authorized; 9,800,569 and 9,741,800 shares issued and outstanding in 2020 and 2019, respectively 221,408 219,423 Nonvoting common stock, no par value; 86,221 shares authorized; issued and outstanding - none — — Retained earnings 126,732 99,681 Accumulated other comprehensive loss ( 17,196 ) ( 14,191 ) Total shareholders’ equity 330,944 304,913 Total liabilities and shareholders’ equity $ 4,246,156 $ 4,100,083 See Notes to Consolidated Financial Statements F-4 First Internet Bancorp Consolidated Statements of Income (Amounts in thousands except share and per share data) Year Ended December 31, 2020 2019 2018 Interest income Loans $ 120,628 $ 122,228 $ 99,082 Securities – taxable 11,123 13,807 10,630 Securities – non-taxable 1,728 2,595 2,810 Other earning assets 3,380 8,784 2,945 Total interest income 136,859 147,414 115,467 Interest expense Deposits 55,976 69,313 42,484 Other borrowed funds 16,342 15,134 10,716 Total interest expense 72,318 84,447 53,200 Net interest income 64,541 62,967 62,267 Provision for loan losses 9,325 5,966 3,892 Net interest income after provision for loan losses 55,216 57,001 58,375 Noninterest income Service charges and fees 824 885 934 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 Gain (loss) on sale of securities 139 ( 458 ) — Other 1,655 2,581 1,605 Total noninterest income 36,336 16,789 8,760 Noninterest expense Salaries and employee benefits 34,231 27,014 23,174 Marketing, advertising and promotion 1,654 1,800 2,468 Consulting and professional fees 3,511 3,669 3,055 Data processing 1,528 1,338 1,233 Loan expenses 2,036 1,142 942 Premises and equipment 6,396 6,059 4,996 Deposit insurance premium 1,810 1,903 1,956 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 Income before income taxes 33,898 27,156 23,952 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 See Notes to Consolidated Financial Statements F-5 First Internet Bancorp Consolidated Statements of Comprehensive Income (Amounts in thousands) Year Ended December 31, 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 (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 (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 See Notes to Consolidated Financial Statements F-6 First Internet Bancorp Consolidated Statements of Shareholders’ Equity (Amounts in thousands except per share data) Voting and Nonvoting Common Stock Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Equity Balance, January 1, 2018 $ 172,043 $ 57,103 $ ( 5,019 ) $ 224,127 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 Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units 40 — — 40 Common stock redeemed for the net settlement of share-based awards ( 210 ) — — ( 210 ) Balance, December 31, 2018 $ 227,587 $ 77,689 $ ( 16,541 ) $ 288,735 Impact of adoption of new accounting standards (2) — ( 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 ) Repurchase of common stock ( 9,784 ) — — ( 9,784 ) Recognition of the fair value of share-based compensation 1,680 — — 1,680 Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units 34 — — 34 Common stock redeemed for the net settlement of share-based awards ( 94 ) — — ( 94 ) Balance, December 31, 2019 $ 219,423 $ 99,681 $ ( 14,191 ) $ 304,913 Net income — 29,453 — 29,453 Other comprehensive loss — — ( 3,005 ) ( 3,005 ) Dividends declared ($0.24 per share) — ( 2,402 ) — ( 2,402 ) Recognition of the fair value of share-based compensation 2,110 — — 2,110 Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units 27 — — 27 Common stock redeemed for the net settlement of share-based awards ( 152 ) — — ( 152 ) Balance, December 31, 2020 $ 221,408 $ 126,732 $ ( 17,196 ) $ 330,944 (1) Represents the impact of adopting Accounting Standards Update ("ASU") 2018-02 and ASU 2016-01. ASU 2018-02 increased retained earnings and accumulated other comprehensive loss by $ 1.1 million. ASU 2016-01 decreased retained earnings and accumulated other comprehensive loss by $ 0.1 million. (2) Represents the impact of adopting ASU 2017-08 . See Notes to Consolidated Financial Statements F-7 First Internet Bancorp Consolidated Statements of Cash Flows (Amounts in thousands) 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: Depreciation and amortization 7,831 6,926 5,667 Write-down of other real estate owned 2,065 — 2,423 Increase in cash surrender value of bank-owned life insurance ( 950 ) ( 943 ) ( 954 ) Provision for loan losses 9,325 5,966 3,892 Share-based compensation expense 2,110 1,680 1,596 (Gain) loss from sale of available-for-sale securities ( 139 ) 458 — Loans originated for sale ( 1,009,266 ) ( 627,597 ) ( 364,630 ) Proceeds from sale of loans originated for sale 1,054,873 601,215 376,535 Gain on sale of loans ( 31,124 ) ( 12,349 ) ( 6,605 ) 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 ) — Deferred income tax ( 4,118 ) ( 4,402 ) 978 Net change in other assets 7,163 ( 42,079 ) ( 11,807 ) Net change in other liabilities ( 4,983 ) 5,999 ( 83 ) 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 ) Proceeds from sales of other real estate owned — 554 332 Net proceeds from sales of portfolio loans 207,475 293,708 41,916 Maturities of securities available-for-sale 179,724 92,610 62,507 Proceeds from sales of securities available-for-sale 16,986 30,137 — Purchase of securities available-for-sale ( 144,091 ) ( 171,997 ) ( 87,993 ) Purchase of securities held-to-maturity ( 2,000 ) ( 39,208 ) ( 3,554 ) Purchase of Federal Home Loan Bank of Indianapolis stock — ( 2,025 ) ( 4,050 ) Purchase of premises and equipment ( 25,559 ) ( 4,105 ) ( 2,219 ) Loans purchased ( 324,131 ) ( 332,945 ) ( 171,958 ) Other investing activities — 11,068 ( 10,166 ) Net cash used in investing activities ( 44,809 ) ( 313,273 ) ( 638,713 ) Financing activities Net increase in deposits 116,922 482,612 586,410 Cash dividends paid ( 2,349 ) ( 2,418 ) ( 2,230 ) Net proceeds from issuance of subordinated debt 9,765 35,418 — Repayment of subordinated debt — — ( 3,000 ) Net proceeds from common stock issuance — — 54,334 Repurchase of common stock — ( 9,784 ) ( 216 ) Proceeds from advances from Federal Home Loan Bank 440,000 595,000 375,000 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 Net increase in cash and cash equivalents 92,445 138,649 140,731 Cash and cash equivalents, beginning of year 327,361 188,712 47,981 Cash and cash equivalents, end of year $ 419,806 $ 327,361 $ 188,712 Supplemental disclosures of cash flows information Initial recognition of right-of-use asset $ — $ 2,096 $ — Initial recognition of operating lease liabilities — 2,096 — Cash paid during the year for interest 74,646 81,788 52,403 Cash paid during the year for taxes 5,912 4,561 485 Loans transferred to other real estate owned — — 227 Loans transferred to held-for-sale from portfolio 204,647 291,152 16,065 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 F-8 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Note 1: Basis of Presentation and Summary of Significant Accounting Policies The accounting policies of First Internet Bancorp and its subsidiaries (the “Company”) conform to accounting principles generally accepted in the United States of America (“GAAP”). A summary of the Company’s significant accounting policies follows: Description of Business The Company was incorporated on September 15, 2005 , and consummated a plan of exchange on March 21, 2006, by which the Company became a bank holding company and 100 % owner of First Internet Bank of Indiana (the “Bank”). The Bank provides commercial and retail banking services, with operations conducted on the Internet at www.firstib.com and primarily through its corporate office located in Fishers, Indiana as well as a loan production office in Tempe, Arizona. The majority of the Bank’s income is derived from commercial lending, retail lending, and mortgage banking activities. The Bank is subject to competition from other financial institutions. The Bank is regulated by certain state and federal agencies and undergoes periodic examinations by those regulatory authorities. JKH Realty Services, LLC was established on August 20, 2012 as a single member limited liability company wholly owned by the Bank to manage other real estate owned properties as needed. First Internet Public Finance Corp., a wholly-owned subsidiary of the Bank, was incorporated on March 6, 2017 and was established to provide municipal finance lending and leasing products to government entities and to purchase, manage, service, and safekeep municipal securities. SPF15, Inc., a wholly-owned subsidiary of the Bank, was incorporated on August 31, 2018 and was established to acquire and hold real estate. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its direct and indirect subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company’s business activities are currently limited to one reporting unit and reportable segment, which is commercial banking. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company utilizes processes that involve the use of significant estimates and the judgment of management in determining the amount of the Company’s allowance for loan losses, income taxes, valuation and impairments of investment securities and goodwill, as well as fair value measurements of derivatives, loans held-for-sale and other real estate owned. Actual results could differ from those estimates. Securities The Company classifies its securities in one of three categories and accounts for the investments as follows: • Securities that the Company has the positive intent and ability to hold to maturity are classified as “held-to-maturity” and reported at amortized cost. • Securities that are acquired and held principally for the purpose of selling them in the near term with the objective of generating economic profits on short-term differences in market characteristics are classified as “trading securities” and reported at fair value, with unrealized gains and losses included in earnings. The Company had no securities classified as “trading securities” at December 31, 2020 or 2019. F-9 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) • Securities not classified as either “held-to-maturity” or “trading securities” are classified as “available-for-sale” and reported at fair value, with unrealized gains and losses, after applicable taxes, excluded from earnings and reported in a separate component of shareholders’ equity. Declines in the value of debt securities and marketable equity securities that are considered to be other-than-temporary are recorded as an other-than-temporary impairment of securities available-for-sale with other-than-temporary impairment losses recorded in the consolidated statements of income. Interest and dividend income, adjusted by amortization of premium or discount, is included in earnings using the effective interest rate method. Purchases and sales of securities are recorded in the consolidated balance sheets on the trade date. Gains and losses from security sales or disposals are recognized as of the trade date in the consolidated statements of income for the period in which securities are sold or otherwise disposed of. Gains and losses on sales of securities are determined using the specific-identification method. Loans Held-for-Sale Loans originated and intended for sale in the secondary market under best-efforts pricing agreements are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income. Loans originated and intended for sale in the secondary market under mandatory pricing agreements are carried at fair value to facilitate hedging of the loans. Gains and losses resulting from changes in fair value are recognized in noninterest income. Gains and losses on loan sales are recorded in noninterest income, and direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan. Revenue Recognition The Company recognizes revenues as they are earned based on contractual terms, as transactions occur, or as services are provided and collectability is reasonably assured. The Company's principal source of revenue is interest income from loans and leases and investment securities. Interest income on loans is accrued as earned using the interest method based on unpaid principal balances except for interest on loans in nonaccrual status. Interest on loans in nonaccrual status is recorded as a reduction of loan principal when received. Premiums and discounts are amortized using the effective interest rate method. Loan fees, net of certain direct origination costs, primarily salaries and wages, are deferred and amortized to interest income as a yield adjustment over the life of the loan. The Company also earns noninterest income through a variety of financial and transaction services provided to corporate and consumer clients such as deposit account, debit card, mortgage banking, portfolio loan sales and sales of the government-guaranteed portion of U.S. Small Business Administration loans. Revenue is recorded for noninterest income based on the contractual terms for the service or transaction performed. In certain circumstances, noninterest income is reported net of associated expenses. Loans 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. F-10 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Allowance for Loan Losses Methodology Company policy is designed to maintain an adequate ALLL. Primary responsibility for ensuring that the Company has processes in place to consistently assess the adequacy of the ALLL rests with the Board of Directors (the “Board”). The Board has charged management with responsibility for establishing the methodology to be used and to assess the adequacy of the ALLL. The Board reviews recommendations from management on a quarterly basis to adjust the allowance as appropriate. The methodology employed by management for each portfolio segment, at a minimum, contains the following: 1. Loans are segmented by type of loan. 2. The required ALLL for types of performing homogeneous loans which do not have a specific reserve is determined by applying a factor based on historical losses averaged over the past sixteen quarters. In those instances where the Company’s historical experience is not available, management develops factors based on industry experience and best practices. 3. All criticized, classified and impaired loans are tested for impairment by applying one of three methodologies: a. Present value of future cash flows; b. Fair value of collateral less costs to sell; or c. The loan’s observable market price. 4. All troubled debt restructurings (“TDR”) are considered impaired loans. 5. Loans tested for impairment are removed from other pools to prevent layering (double-counting). 6. The required ALLL for each group of loans are added together to determine the total required ALLL for the Company. The required ALLL is compared to the existing ALLL to determine the provision required to increase the ALLL or credit to decrease the ALLL. The historical loss experience is determined by portfolio segment and considers two weighted average net charge-off trends: 1) the Company’s average loss history over the previous sixteen quarters; and 2) the average loss history over the previous sixteen quarters for a peer group. Management believes the historical loss experience methodology is appropriate in the current economic environment, as it captures loss rates that are comparable to the current period being analyzed. The Company also factors in the following qualitative considerations: 1. Changes in national, regional, and local economic and business conditions; 2. Changes in national, regional, and local unemployment rates; 3. The existence and effect of any concentrations of credit, and changes in the levels of such concentrations; 4. Changes in the nature and volume of the portfolio, and in the terms of loans; 5. Changes in the risk grades assigned to loans; 6. The levels of and trends in charge-offs and recoveries; 7. The levels of and trends in delinquencies, nonaccrual loans, and impaired loans; and F-11 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) 8. Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices. Provision for Loan Losses A provision for estimated losses on loans is charged to income based upon management’s evaluation of the potential losses. Such an evaluation, which includes a review of all loans for which full repayment may not be reasonably assured, considers, among other matters, the estimated net realizable value of the underlying collateral, as applicable, economic conditions, loan loss experience, and other factors that are particularly susceptible to changes that could result in a material adjustment in the near term. While management attempts to use the best information available in making its evaluations, future allowance adjustments may be necessary if economic conditions change substantially from the assumptions used in making the evaluations. Nonaccrual Loans Any loan which becomes 90 days delinquent or for which the full collection of principal and interest may be in doubt will be considered for nonaccrual status. At the time a loan is placed on nonaccrual status, all accrued but unpaid interest will be reversed from interest income. Placing the loan on nonaccrual status does not relieve the borrower of the obligation to repay interest. A loan placed on nonaccrual status may be restored to accrual status when all delinquent principal and interest has been brought current, and the Company expects full payment of the remaining contractual principal and interest. Impaired Loans A loan is designated as impaired, in accordance with the impairment accounting guidance when, based on current information or events, it is probable that the Company will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. Payments with delays generally not exceeding 90 days outstanding are not considered impaired. Certain nonaccrual and substantially all delinquent loans more than 90 days past due may be considered to be impaired. Generally, loans are placed on nonaccrual status at 90 days past due and accrued interest is reversed against earnings, unless the loan is well secured and in the process of collection. The accrual of interest on impaired and nonaccrual loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. Impaired loans include nonperforming loans but also include loans modified in TDRs where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance, or other actions intended to maximize collection. Accounting Standards Codification (“ASC”) Topic 310, Receivables , requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loans’ effective interest rates or the fair value of the underlying collateral, less costs to sell, and allows existing methods for recognizing interest income. Troubled Debt Restructurings 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 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. When loans are modified in a TDR, any possible impairment similar to other impaired loans is evaluated based on either the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, or the current fair value of the collateral, less selling costs for collateral-dependent loans. If it is determined that the value of the modified loan is less than the recorded balance of the loan, impairment is recognized through a specific ALLL or charge-off to the ALLL. 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. F-12 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Policy for Charging Off Loans The Company’s policy is to charge off a loan at any point in time when it no longer can be considered a bankable asset, meaning collectible within the parameters of policy. A secured loan is generally charged down to the estimated fair value of the collateral, less costs to sell, no later than when it is 120 days past due as to principal or interest. An unsecured loan generally is charged off no later than when it is 180 days past due as to principal or interest. A home improvement loan generally is charged off no later than when it is 90 days past due as to principal or interest. Federal Home Loan Bank (“FHLB”) of Indianapolis Stock Federal law requires a member institution of the FHLB system to hold common stock of its district FHLB according to a predetermined formula. This investment is stated at cost, which represents redemption value, and may be pledged as collateral for FHLB advances. Premises and Equipment Premises and equipment is stated at cost, less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives, which range from three to five years for software and equipment, ten years for land improvements, and 39 years for buildings. Other Real Estate Owned Other real estate owned represents real estate acquired through foreclosure or deed in lieu of foreclosure and is recorded at its fair value less estimated costs to sell. When property is acquired, it is recorded at its fair value at the date of acquisition with any resulting write-down charged against the ALLL. Any subsequent deterioration of the property is charged directly to operating expense. Costs relating to the development and improvement of other real estate owned are capitalized, whereas costs relating to holding and maintaining the property are charged to expense as incurred. Derivative Financial Instruments The Company uses derivative financial instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income and the fair value of assets and liabilities. The Company enters into interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. Additionally, the Company enters into forward contracts for the future delivery of mortgage loans to third-party investors and enters into interest rate lock commitments ("IRLCs") with potential borrowers to fund specific mortgage loans that will be sold into the secondary market. The forward contracts are entered into in order to economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans. Designating an interest rate swap as an accounting hedge allows the Company to recognize gains and losses, less any ineffectiveness, in the income statement within the same period that the hedged item affects earnings. The Company includes the gain or loss on the hedged items in the same line item as the offsetting loss or gain on the related interest rate swaps. For derivative instruments that are designated and qualify as cash flow hedges, any gains or losses related to changes in fair value are recorded in accumulated other comprehensive loss, net of tax. The fair value of interest rate swaps with a positive fair value are reported in accrued income and other assets in the 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. F-13 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Fair Value Measurements The Company records or discloses certain assets and liabilities at fair value. ASC Topic 820, Fair Value Measurements , defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are classified within one of three levels in a valuation hierarchy. ASC Topic 820 describes three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets or liabilities Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities There were no transfers that occurred and, therefore, recognized, between any of the fair value hierarchy levels at December 31, 2020 or 2019. Income Taxes Deferred income tax assets and liabilities reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and the basis of such assets and liabilities as measured by tax laws and regulations. Deferred income tax expense or benefit is based upon the change in deferred tax assets and liabilities from period to period, subject to an ongoing assessment of realization of deferred tax assets. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company files income tax returns in the U.S. federal, Indiana, and other state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local examinations by tax authorities for years before 2017. ASC Topic 740-10, Accounting for Uncertainty in Income Taxes , prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company did not identify any material uncertain tax positions that it believes should be recognized in the consolidated financial statements. F-14 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Earnings Per Share Earnings per share of common stock is based on the weighted-average number of basic shares and dilutive shares outstanding during the year. The following is a reconciliation of the weighted-average common shares for the basic and diluted earnings per share computations. Year Ended December 31, 2020 2019 2018 Basic earnings per share Net income available to common shareholders $ 29,453 $ 25,239 $ 21,900 Weighted-average common shares 9,840,205 10,041,581 9,490,506 Basic earnings per common share $ 2.99 $ 2.51 $ 2.31 Diluted earnings per share Net income available to common shareholders $ 29,453 $ 25,239 $ 21,900 Weighted-average common shares 9,840,205 10,041,581 9,490,506 Dilutive effect of equity compensation 2,220 2,902 18,147 Weighted-average common and incremental shares 9,842,425 10,044,483 9,508,653 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. Excluded from the computation of diluted EPS were weighted-average antidilutive shares totaling 18,524 and 15,758 for the years ended December 31, 2020 and 2019, respectively. Share-based Compensation The Company has a share-based compensation plan using the fair value recognition provisions of ASC Topic 718, Compensation - Stock Compensation . The plan is described more fully in Note 12. Comprehensive Income Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available-for-sale and unrealized gains and losses on cash flow hedges. Reclassification adjustments have been determined for all components of other comprehensive income or loss reported in the consolidated statements of changes in shareholders’ equity. Statements of Cash Flows Cash and cash equivalents are defined to include cash on-hand, noninterest and interest-bearing amounts due from other banks and federal funds sold. Generally, federal funds are sold for one-day periods. The Company reports net cash flows for customer loan transactions and deposit transactions. Bank-Owned Life Insurance Bank-owned life insurance policies are carried at their cash surrender value. The Company recognizes tax-free income from the periodic increases in the cash surrender value of these policies and from death benefits. Goodwill Goodwill is tested at least annually for impairment. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the consolidated financial statements. F-15 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Servicing Asset Servicing assets are related to small business lending loans sold and are recognized at the time of sale when servicing is retained with the income statement effect recorded in loan servicing revenue. 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 net servicing revenue. Reclassifications Certain reclassifications have been made to the 2019 and 2018 financial statements to conform to the 2020 financial statement presentation. These reclassifications had no effect on net income. Note 2: Cash and Cash Equivalents At December 31, 2020, the Company’s interest-bearing and noninterest-bearing cash accounts at other institutions exceeded the limits for full FDIC insurance coverage by $ 150.1 million. 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 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. Note 3: Securities The following tables summarize securities available-for-sale and securities held-to-maturity as of December 31, 2020 and 2019. December 31, 2020 Amortized Gross Unrealized Fair Cost Gains Losses Value Securities available-for-sale U.S. Government-sponsored agencies $ 61,765 $ 432 $ ( 1,652 ) $ 60,545 Municipal securities 82,757 463 ( 731 ) 82,489 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 December 31, 2020 Amortized Gross Unrealized Fair Cost Gains Losses Value Securities held-to-maturity Municipal securities $ 14,571 $ 746 $ — $ 15,317 Corporate securities 53,652 610 ( 127 ) 54,135 Total held-to-maturity $ 68,223 $ 1,356 $ ( 127 ) $ 69,452 F-16 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) December 31, 2019 Amortized Gross Unrealized Fair Cost Gains Losses Value Securities available-for-sale U.S. Government-sponsored agencies $ 77,715 $ 99 $ ( 1,942 ) $ 75,872 Municipal securities 97,447 1,706 ( 1,501 ) 97,652 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 Total available-for-sale $ 546,640 $ 3,426 $ ( 9,214 ) $ 540,852 December 31, 2019 Amortized Gross Unrealized Fair Cost Gains Losses Value Securities held-to-maturity Municipal securities $ 10,142 $ 226 $ — $ 10,368 Corporate securities 51,736 588 ( 132 ) 52,192 Total held-to-maturity $ 61,878 $ 814 $ ( 132 ) $ 62,560 The carrying value of securities at December 31, 2020 is shown below by their contractual maturity date. Actual maturities will differ because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Available-for-Sale Amortized Cost Fair Value Within one year $ — $ — One to five years 30,834 27,004 Five to ten years 76,212 74,848 After ten years 85,895 88,778 192,941 190,630 Agency mortgage-backed securities 241,795 243,921 Private label mortgage-backed securities 57,268 58,116 Asset-backed securities 5,000 4,961 Total $ 497,004 $ 497,628 Held-to-Maturity Amortized Cost Fair Value One to five years $ 2,865 $ 2,987 Five to ten years 53,159 53,865 After ten years 12,199 12,600 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. F-17 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. The Company pledged the securities for various types of transactions, including FHLB advances, derivative financial instruments and to collateralize municipal deposits. Certain investments in debt securities are reported in the consolidated financial statements at an amount less than their historical cost. Total fair value of these investments at December 31, 2020 and 2019 was $ 226.5 million and $ 317.5 million, which is approximately 40 % and 53 %, respectively, of the Company’s available-for-sale and held-to-maturity securities portfolio. These declines primarily resulted from fluctuations in market interest rates after purchase. Management believes the declines in fair value for these securities are temporary. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced with the resulting loss recognized in net income in the period the other-than-temporary impairment is identified. U.S. Government-Sponsored Agencies, Municipal Securities, and Corporate Securities The unrealized losses on the Company’s investments in securities issued by U.S. Government-sponsored agencies, municipal organizations and corporate entities were caused by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost 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 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 The unrealized losses on the Company’s investments in agency mortgage-backed, private-label mortgage-backed and asset-backed securities were caused by interest rate changes. The Company expects to recover the amortized cost bases over the term of the securities. 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 Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Securities available-for-sale U.S. Government-sponsored agencies $ — $ — $ 52,351 $ ( 1,652 ) $ 52,351 $ ( 1,652 ) Municipal securities 18,731 ( 114 ) 23,519 ( 617 ) 42,250 ( 731 ) 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 ) F-18 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 Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses 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 Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Securities available-for-sale U.S. 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 Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Securities held-to-maturity Municipal securities $ — $ — $ — $ — $ — $ — Corporate securities 13,977 ( 132 ) — — 13,977 ( 132 ) 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 Accumulated Other Comprehensive Loss 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 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 F-19 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Note 4: Loans Categories of loans include: December 31, 2020 2019 Commercial loans Commercial and industrial $ 75,387 $ 96,420 Owner-occupied commercial real estate 89,785 86,726 Investor commercial real estate 13,902 12,567 Construction 110,385 60,274 Single tenant lease financing 950,172 995,879 Public finance 622,257 687,094 Healthcare finance 528,154 300,612 Small business lending 125,589 46,945 Total commercial loans 2,515,631 2,286,517 Consumer loans Residential mortgage 186,787 313,849 Home equity 19,857 24,306 Other consumer 275,692 295,309 Total consumer loans 482,336 633,464 Total commercial and consumer loans 2,997,967 2,919,981 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 ) 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: Commercial and Industrial: Commercial and industrial loans’ sources of repayment are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value. Loans are made for working capital, equipment purchases, or other purposes. Most commercial and industrial loans are secured by the assets being financed and may incorporate a personal guarantee. This portfolio segment is generally concentrated in Central Indiana and adjacent markets and the greater Phoenix, Arizona market. Owner-Occupied Commercial Real Estate: The primary source of repayment is the cash flow from the ongoing operations and activities conducted by the borrower, or an affiliate of the borrower, who owns the property. This portfolio segment is generally concentrated in Central Indiana and adjacent markets and the greater Phoenix, Arizona market and its loans are often secured by manufacturing and service facilities, as well as office buildings. F-20 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Investor Commercial Real Estate: These loans are underwritten primarily based on the cash flow expected to be generated from the property and are secondarily supported by the value of the real estate. These loans typically incorporate a personal guarantee from the primary sponsor or sponsors. This portfolio segment generally involves larger loan amounts with repayment primarily dependent on the successful leasing and operation of the property securing the loan or the business conducted on the property securing the loan. Investor commercial real estate loans may be more adversely affected by changing economic conditions in the real estate markets, industry dynamics or the overall health of the local economy where the property is located. The properties securing the Company’s investor commercial real estate portfolio tend to be diverse in terms of property type and are generally located in the state of Indiana or markets immediately adjacent to Indiana. Management monitors and evaluates commercial real estate loans based on property financial performance, collateral value, guarantor strength, economic and industry conditions together with other risk grade criteria. As a general rule, the Company avoids financing special use projects or properties outside of its designated market areas unless other underwriting factors are present to mitigate these additional risks. Construction: Construction loans are secured by land and related improvements and are made to assist in the construction of new structures, which may include commercial (retail, industrial, office, multi-family) properties or single family residential properties offered for sale by the builder. These loans generally finance a variety of project costs, including land, site preparation, architectural services, construction, closing and soft costs and interim financing needs. The cash flows of builders, while initially predictable, may fluctuate with market conditions, and the value of the collateral securing these loans may be subject to fluctuations based on general economic changes. This portfolio segment is generally concentrated in Central Indiana. Single Tenant Lease Financing: These loans are made on a nationwide basis to property owners of real estate subject to long-term lease arrangements with single tenant operators. The real estate is typically operated by regionally, nationally or globally branded businesses. The loans are underwritten based on the financial strength of the borrower, characteristics of the real estate, cash flows generated from the lease arrangements and the financial strength of the tenant. Similar to the other loan portfolio segments, management monitors and evaluates these loans based on borrower and tenant financial performance, collateral value, industry trends and other risk grade criteria. Public Finance: These loans are made to governmental and not-for-profit entities to provide both tax-exempt and taxable loans for a variety of purposes including: short-term cash-flow needs; debt refinancing; economic development; quality of life projects; infrastructure improvements; 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: general obligations; property taxes; income taxes; tax increment revenue; utility revenue; gaming revenues; sales tax; and pledged general revenue. Certain loans may also include an additional collateral pledge of mortgaged property or a security interest in financed equipment. Public finance 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 financing or refinancing that occasionally includes owner-occupied commercial real estate and equipment purchases. The sources of repayment are primarily based on the identified cash flows from operations of the borrower and related entities if the real estate is held in a separate entity and secondarily on the underlying collateral provided by the borrower and guarantor resources. 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. F-21 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Small Business Lending: These loans are to small businesses and generally carry a partial guaranty from the U.S. Small Business Administration ("SBA") under its 7(a) loan program. We generally sell the government guaranteed portion of SBA loans into the secondary market while retaining the non-guaranteed portion of the loan and the servicing rights. Loans in the small business lending portfolio have sources of repayment that are primarily based on the identified cash flows of the borrower and secondarily on any underlying collateral provided by the borrower. Loans may, but do not always, have a collateral shortfall. For SBA loans where the guaranteed portion is retained, the SBA guaranty provides a tertiary source of repayment to the Bank in event of borrower default. Cash flows of borrowers, however, may not be as expected and collateral securing these loans may fluctuate in value. Loans are made for a broad array of purposes including, but not limited to, providing operating cash flow, funding ownership changes, and facilitating equipment purchases. These loans also include loans originated by the Bank under the SBA’s Paycheck Protection Program, which are fully guaranteed by the SBA. This portfolio segment has an emerging geography, with a nationwide focus. Residential Mortgage: With respect to residential loans that are secured by 1 to 4 family residences and are generally owner occupied, the Company typically establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Repayment of these loans is primarily dependent on the financial circumstances of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in residential property values. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers in geographically diverse locations throughout the country. Home Equity: Home equity loans and lines of credit are typically secured by a subordinate interest in 1 to 4 family residences. The properties securing the home equity portfolio segment are generally geographically diverse as the Company offers these products on a nationwide basis. Repayment of these loans and lines of credit is primarily dependent on the financial circumstances of the borrowers and may be impacted by changes in unemployment levels and property values on residential properties, among other economic conditions in the market. Other Consumer: These loans primarily consist of consumer loans and credit cards. Consumer loans may be secured by consumer assets such as horse trailers or recreational vehicles. Some consumer loans are unsecured, such as small installment loans, home improvement loans and certain lines of credit. Repayment of consumer loans is primarily dependent upon the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers in geographically diverse locations throughout the country. 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 Recoveries Balance, end of period Allowance for loan losses: Commercial and industrial $ 1,521 $ 80 $ ( 461 ) $ 6 $ 1,146 Owner-occupied commercial real estate 561 545 ( 24 ) — 1,082 Investor commercial real estate 109 46 — — 155 Construction 380 812 — — 1,192 Single tenant lease financing 11,175 1,815 — — 12,990 Public finance 1,580 152 — — 1,732 Healthcare finance 3,247 4,894 ( 743 ) 87 7,485 Small business lending 54 665 ( 110 ) 19 628 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 F-22 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 Recoveries Balance, end of period Allowance for loan losses: Commercial and industrial $ 1,384 $ 1,029 $ ( 921 ) $ 29 $ 1,521 Owner-occupied commercial real estate 783 ( 222 ) — — 561 Investor commercial real estate 61 48 — — 109 Construction 251 129 — — 380 Single tenant lease financing 8,827 2,348 — — 11,175 Public finance 1,670 ( 90 ) — — 1,580 Healthcare finance 1,264 1,983 — — 3,247 Small business lending 203 ( 154 ) — 5 54 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 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 Recoveries Balance, end of period Allowance for loan losses: Commercial and industrial $ 1,724 $ ( 251 ) $ ( 92 ) $ 3 $ 1,384 Owner-occupied commercial real estate 762 21 — — 783 Investor commercial real estate 85 ( 24 ) — — 61 Construction 423 ( 172 ) — — 251 Single tenant lease financing 7,872 955 — — 8,827 Public finance 959 711 — — 1,670 Healthcare finance 313 951 — — 1,264 Small business lending 55 148 — — 203 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. F-23 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) 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 Owner-occupied commercial real estate 87,947 1,838 89,785 1,082 — 1,082 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 Public finance 622,257 — 622,257 1,732 — 1,732 Healthcare finance 527,144 1,010 528,154 7,485 — 7,485 Small business lending 125,589 — 125,589 628 — 628 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 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 Owner-occupied commercial real estate 81,063 5,663 86,726 561 — 561 Investor commercial real estate 12,567 — 12,567 109 — 109 Construction 60,274 — 60,274 380 — 380 Single tenant lease financing 991,199 4,680 995,879 9,515 1,660 11,175 Public finance 687,094 — 687,094 1,580 — 1,580 Healthcare finance 300,612 — 300,612 3,247 — 3,247 Small business lending 46,945 — 46,945 54 — 54 Residential mortgage 312,714 1,135 313,849 657 — 657 Home equity 24,306 — 24,306 46 — 46 Other consumer 295,266 43 295,309 2,510 — 2,510 Total $ 2,905,560 $ 14,421 $ 2,919,981 $ 20,071 $ 1,769 $ 21,840 The Company utilizes a risk grading matrix to assign a risk grade to each of its commercial loans. A description of the general characteristics of the risk grades is as follows: • “Pass” - Higher quality loans that do not fit any of the other categories described below. • “Special Mention” - Loans that possess some credit deficiency or potential weakness which deserve close attention. F-24 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. Loans characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. • “Doubtful” - Such loans have been placed on nonaccrual status and may be heavily dependent upon collateral possessing a value that is difficult to determine or based upon some near-term event which lacks clear certainty. These loans have all of the weaknesses of those classified as Substandard; however, based on existing conditions, these weaknesses make full collection of the principal balance highly improbable. • “Loss” - Loans that are considered uncollectible and of such little value that continuing to carry them as assets is not warranted. The following tables present the credit risk profile of the Company’s commercial and consumer loan portfolios based on rating category and payment activity as of December 31, 2020 and 2019. December 31, 2020 Pass Special Mention Substandard Total Commercial and industrial $ 74,138 $ 732 $ 517 $ 75,387 Owner-occupied commercial real estate 84,292 3,655 1,838 89,785 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 Public finance 622,257 — — 622,257 Healthcare finance 526,517 627 1,010 528,154 Small business lending 117,474 2,930 5,185 125,589 Total commercial loans $ 2,481,795 $ 17,962 $ 15,874 $ 2,515,631 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 Total $ 481,107 $ 1,229 $ 482,336 December 31, 2019 Pass Special Mention Substandard Total Commercial and industrial $ 89,818 $ 3,973 $ 2,629 $ 96,420 Owner-occupied commercial real estate 79,329 3,462 3,935 86,726 Investor commercial real estate 12,567 — — 12,567 Construction 60,274 — — 60,274 Single tenant lease financing 983,448 7,751 4,680 995,879 Public finance 687,094 — — 687,094 Healthcare finance 300,612 — — 300,612 Small business lending 46,945 — — 46,945 Total commercial loans $ 2,260,087 $ 15,186 $ 11,244 $ 2,286,517 F-25 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 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total loans Nonaccrual Loans Total Loans 90 Days or More Past Due and Accruing Commercial and industrial $ — $ — $ — $ — $ 75,387 $ 75,387 $ — $ — Owner-occupied commercial real estate — — — — 89,785 89,785 1,838 — 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 — Public finance — — — — 622,257 622,257 — — Healthcare finance — — — — 528,154 528,154 — — Small business lending — — — — 125,589 125,589 — — 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 — Total $ 225 $ 66 $ 4,954 $ 5,245 $ 2,992,722 $ 2,997,967 $ 10,183 $ — December 31, 2019 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total loans Nonaccrual Loans Total Loans 90 Days or More Past Due and Accruing Commercial and industrial $ 15 $ 96 $ 122 $ 233 $ 96,187 $ 96,420 $ 226 $ — Owner-occupied commercial real estate — — 464 464 86,262 86,726 464 — Investor commercial real estate — — — — 12,567 12,567 — — Construction — — — — 60,274 60,274 — — Single tenant lease financing — 4,680 — 4,680 991,199 995,879 4,680 — Public finance — — — — 687,094 687,094 — — Healthcare finance — — — — 300,612 300,612 — — Small business lending 54 — — 54 46,891 46,945 — — Residential mortgage — — 1,177 1,177 312,672 313,849 761 416 Home equity — — — — 24,306 24,306 — — Other consumer 240 107 — 347 294,962 295,309 33 — Total $ 309 $ 4,883 $ 1,763 $ 6,955 $ 2,913,026 $ 2,919,981 $ 6,164 $ 416 F-26 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, 2020 December 31, 2019 Recorded Balance Unpaid Principal Balance Specific Allowance Recorded Balance Unpaid Principal Balance Specific Allowance Loans without a specific valuation allowance Commercial and industrial $ 517 $ 517 $ — $ 2,693 $ 2,694 $ — Owner-occupied commercial real estate 1,838 1,850 — 5,663 5,665 — 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 Commercial and industrial $ — $ — $ — $ 207 $ 244 $ 109 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 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, 2020 December 31, 2019 December 31, 2018 Average Balance Interest Income Average Balance Interest Income Average Balance Interest Income Loans without a specific valuation allowance Commercial and industrial $ 1,037 $ 57 $ 3,293 $ 289 $ 5,961 $ 426 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 Commercial and industrial 169 3 1,077 — — — 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 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 The loan portfolio includes TDRs, which are loans that have been modified to grant economic concessions to borrowers who have experienced financial difficulties. These concessions typically result from loss mitigation efforts and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructuring and typically are returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally not less than six consecutive months. F-27 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. If it is determined that the value of the modified loan is less than the recorded balance of the loan, impairment is recognized through a specific allowance or charge-off to the allowance. In periods subsequent to modification, all TDRs, including those that have payment defaults, are evaluated for possible impairment, and impairment is recognized through the allowance. In the course of working with troubled borrowers, the Company may choose to restructure the contractual terms of certain loans in an effort to work out an alternative payment schedule with the borrower in order to optimize the collectability of the loan. Any loan modification is reviewed by the Company to identify whether a TDR has occurred when the Company grants a concession to the borrower that it would not otherwise consider based on economic or legal reasons related to a borrower’s financial difficulties. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status or the loan may be restructured to secure additional collateral and/or guarantees to support the debt, or a combination of the two. There 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 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. U.S. 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. F-28 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Note 5: Premises and Equipment The following table summarizes p remises and equipment at December 31, 2020 and 2019. December 31, 2020 2019 Land $ 2,500 $ 2,500 Construction in process 28,956 4,386 Right of use leased asset 819 1,602 Building and improvements 5,819 5,618 Furniture and equipment 10,671 9,689 Less: 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. Pursuant to a Land Acquisition Agreement with the City of Fishers, Indiana (the “City”), and its Redevelopment Commission, among others, the City agreed to reimburse SPF15 for the purchase price and other specified land acquisition costs. The Land Acquisition Agreement was replaced by a Project Agreement in December 2018, which extended the reimbursement deadline to October 31, 2019 and made additional financial incentives available to the Company for constructing an office building and associated parking garage on the property. As contemplated under the Project Agreement, the City transferred to SPF15 two additional parcels of land consisting of approximately 0.75 acres and SPF15 transferred to the Fishers Town Hall Building Corporation and third parties a certain parcel of land consisting of approximately 1.65 acres in connection with the development of the property. On October 25, 2019, the City satisfied its reimbursement obligation, resulting in the payment of SPF15 of an aggregate of $ 11.1 million for purchase prices and other specified land acquisition costs. 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 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. Note 6: Leases 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. On January 1, 2019, the Company adopted ASU 2016-02 - Leases (Topic 842) and elected the optional transition method, which allows the Company to not separate non-lease components from the associated lease component if certain conditions are met. In addition, the Company elected not to adjust prior comparative periods. 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 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. F-29 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) The following table shows the components of lease expense. (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, 2020 December 31, 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases 982 814 The following table shows the operating leases’ impact on the consolidated balance sheets. The Company elected not to include short-term leases (leases with original terms of 12 months or less) or equipment leases, as those amounts are insignificant. The Company’s leases do not provide an implicit rate. The discount rate utilized to determine the present value of lease payments is the Company’s incremental borrowing rate based on the information available at the lease inception date. The incremental borrowing rate is the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. (dollars in thousands) December 31, 2020 December 31, 2019 Operating lease right-of-use assets $ 819 $ 1,602 Operating lease liabilities 819 1,602 Weighted-average remaining lease term (years) Operating leases 2 2.4 Weighted-average discount rate Operating leases 2.0 % 2.0 % F-30 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. (in thousands) Twelve months ended December 31, 2020 2021 $ 423 2022 238 2023 116 2024 — 2025 — Thereafter — Total lease payments 777 Less imputed interest ( 17 ) Total $ 760 Note 7: Goodwill As of December 31, 2020 and 2019, the carrying amount of goodwill was $ 4.7 million. There have been no changes in the carrying amount of goodwill for the three years ended December 31, 2020, 2019, and 2018. Goodwill is tested for impairment on an annual basis as of August 31, or whenever events or changes in circumstances indicate the carrying amount of goodwill exceeds its implied fair value. 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. F-31 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Note 8: 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. F-32 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Note 9: Deposits The following table presents the composition of the Company’s deposit base as of December 31, 2020 and 2019. December 31, 2020 2019 Noninterest-bearing demand deposit accounts $ 96,753 $ 57,115 Interest-bearing demand deposit accounts 188,645 129,020 Regular savings accounts 43,200 29,616 Money market accounts 1,350,566 786,390 Certificates of deposits 1,289,319 1,613,453 Brokered deposits 302,402 538,369 Total deposits $ 3,270,885 $ 3,153,963 Time deposits (in the amount of $250 or more) $ 403,253 $ 536,028 The following table presents time deposit maturities by year as of December 31, 2020. 2021 $ 883,461 2022 242,053 2023 99,488 2024 74,215 2025 26,424 Thereafter 250 $ 1,325,891 Note 10: FHLB Advances The Company had outstanding FHLB advances of $ 514.9 million and $ 514.9 million as of December 31, 2020 and 2019, respectively. As of December 31, 2020, the stated interest rates on the Company’s outstanding FHLB advances ranged from 0.24 % to 3.26 %, with a weighted average interest rate of 1.30 %. All advances are collateralized by residential mortgage loans and commercial real estate loans pledged and held by the Company and investment securities pledged by the Company and held in safekeeping with the FHLB. Residential mortgage loans pledged were approximately $ 125.1 million and $ 166.6 million as of December 31, 2020 and 2019, respectively, and commercial real estate loans pledged were approximately $ 960.5 million and $ 956.3 million as of December 31, 2020 and 2019, respectively. The fair value of investment securities pledged to the FHLB was approximately $ 351.0 million and $ 356.8 million as of December 31, 2020 and 2019, respectively. Based on this collateral and the Company’s holdings of FHLB stock, the Company is eligible to borrow up to an additional $ 474.3 million at year-end 2020. 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: Amount 2021 $ 110,000 2022 — 2023 35,000 2024 145,020 2025 90,000 Thereafter 134,896 $ 514,916 F-33 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Note 11: 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 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. The 2026 Notes initially bear a fixed interest rate of 6.00 % per year to, but excluding, September 30, 2021, and thereafter a floating rate equal to the then-current three-month London Interbank Offered Rate (“LIBOR”) plus 485 basis points. LIBOR will be phased-out after 2021 and the transition to another benchmark rate could have an adverse effect on the 2026 Notes. Refer to Part I Item 1A. Risk Factors for more information on the LIBOR phase out. All interest on the 2026 Notes is payable quarterly. The 2026 Notes are scheduled to mature on September 30, 2026. The 2026 Notes are unsecured subordinated obligations of the Company and may be repaid, without penalty, on any interest payment date on or after September 30, 2021. The 2026 Notes are intended to qualify as Tier 2 capital under regulatory guidelines. In June 2019, the Company issued $ 37.0 million aggregate principal amount of 6.0 % Fixed-to-Floating Rate Subordinated Notes due 2029 (the “2029 Notes”) in a public offering. The 2029 Notes initially bear a fixed interest rate of 6.0 % per year to, but excluding, June 30, 2024, and thereafter a floating rate equal to the then-current benchmark rate (initially three-month LIBOR rate) plus 411 basis points. All interest on the 2029 Notes is payable quarterly. The 2029 Notes are scheduled to mature on June 30, 2029. The 2029 Notes are unsecured subordinated obligations of the Company and may be repaid, without penalty, on any interest payment date on or after June 30, 2024. The 2029 Notes are intended to qualify as Tier 2 capital under regulatory guidelines. In October 2020, the Company entered into a term loan in the principal amount of $ 10.0 million, evidenced by a term note due 2030 (the “2030 Note”). The 2030 Note initially bears a fixed interest rate of 6.0 % per year to, but excluding, November 1, 2025 and thereafter at a floating rate equal to the then-current benchmark rate (initially three-month Term SOFR plus 5.795 %). The 2030 Note is 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 ) Note 12: Benefit Plans 401(k) Plan The Company has a 401(k) plan established for substantially all full-time employees, as defined in the plan. 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 F-34 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. Employment Agreement The Company has entered into an employment agreement with its Chief Executive Officer that provides for an annual base salary and an annual bonus, if any, as determined from time to time by the Compensation Committee. The annual bonus is to be determined with reference to the achievement of annual performance objectives established by the Compensation Committee for the Chief Executive Officer and other senior officers. The agreement also provides that the Chief Executive Officer may be awarded additional compensation, benefits or consideration as the Compensation Committee may determine. The agreement provides for the continuation of salary and certain other benefits for a specified period of time upon termination of his employment under certain circumstances, including his resignation for "good reason" or termination by the Company without "cause" at any time or any termination of his employment for any reason within twelve months following a "change in control," along with other specific conditions. 2013 Equity Incentive Plan The 2013 Equity Incentive Plan (“2013 Plan”) authorizes the issuance of up to 750,000 shares of the Company’s common stock in the form of equity-based awards to employees, directors, and other eligible persons. Under the terms of the 2013 Plan, the pool of shares available for issuance may be used for available types of equity awards under the 2013 Plan, which includes stock options, stock appreciation rights, restricted stock awards, stock unit awards, and other share-based awards. All employees, consultants, and advisors of the Company or any subsidiary, as well as all non-employee directors of the Company, are eligible to receive awards under the 2013 Plan. 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. 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 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 — $ — — $ — As of December 31, 2020, the total unrecognized compensation cost related to unvested awards was $ 2.1 million, with a weighted-average expense recognition period of 1.6 years. Directors Deferred Stock Plan Until January 1, 2014, the Company had a stock compensation plan for non-employee members of the Board of Directors (“Directors Deferred Stock Plan”). The Company reserved 180,000 shares of common stock that could have been issued pursuant to the Directors Deferred Stock Plan. The plan provided directors the option to elect to receive up to 100 % of their annual retainer in either common stock or deferred stock rights. Deferred stock rights were to be settled in common stock following the end of the deferral period payable on the basis of one share of common stock for each deferred stock right. F-35 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. Deferred Rights Outstanding, beginning of year 84,505 Granted 852 Exercised — Outstanding, end of year 85,357 All deferred stock rights granted during 2020 were additional rights issued in lieu of cash dividends payable on outstanding deferred stock rights. Note 13: Income Taxes The provision for income taxes consists of the following: December 31, 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. December 31, 2020 2019 2018 Statutory rate times pre-tax income $ 7,119 $ 5,703 $ 5,030 (Subtract) add the tax effect of: Income from tax-exempt securities and loans ( 4,464 ) ( 4,881 ) ( 3,833 ) State income tax, net of federal tax effect 1,765 1,285 1,164 Bank-owned life insurance ( 200 ) ( 198 ) ( 200 ) Tax credits ( 178 ) ( 181 ) ( 180 ) Other differences 403 189 71 Total income taxes $ 4,445 $ 1,917 $ 2,052 The net deferred tax asset at December 31, 2020 and 2019 consists of the following: December 31, 2020 2019 Deferred tax assets (liabilities) Allowance for loan losses $ 7,961 $ 5,897 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 Loan origination costs ( 1,281 ) ( 1,181 ) Prepaid assets ( 553 ) ( 449 ) Other 337 513 Total deferred tax assets, net $ 14,807 $ 9,891 F-36 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Note 14: Related Party Transactions In the normal course of business, the Company may enter into transactions with various related parties. In management’s opinion, such loans, other extensions of credit, and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management’s opinion, these loans did not involve more than the normal risk of collectability or present other unfavorable features. Management evaluated related party loans and extensions of credit at December 31, 2020 and 2019, and deemed the balances immaterial. Deposits from related parties held by the Company at December 31, 2020 and 2019 totaled $ 33.0 million and $ 28.3 million, respectively. Note 15: Regulatory Capital Requirements The Company and the Bank are subject to various regulatory capital requirements administered by state and federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors. The Basel III Capital Rules became effective for the Company and the Bank on January 1, 2015, subject to a phase-in period for certain provisions. Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios of Common Equity Tier 1 capital, Tier 1 capital and Total capital, as defined in the regulations, to risk-weighted assets, and of Tier 1 capital to adjusted quarterly average assets (“Leverage Ratio”). The Basel III Capital Rules were fully phased in on January 1, 2019 and require the Company and the Bank to maintain: 1) a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 4.5 %, plus a 2.5 % “capital conservation buffer” (resulting in a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 7.0 %); 2) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0 %, plus the capital conservation buffer (resulting in a minimum Tier 1 capital ratio of 8.5 %); 3) a minimum ratio of Total capital to risk-weighted assets of 8.0 %, plus the capital conservation buffer (resulting in a minimum Total capital ratio of 10.5 %); and 4) a minimum Leverage Ratio of 4.0 %. The 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. Failure to maintain the minimum Common Equity Tier 1 capital ratio plus the capital conservation buffer will result in potential restrictions on a banking institution’s ability to pay dividends, repurchase stock and/or pay discretionary compensation to its employees. F-37 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) The following tables present actual and required capital ratios as of December 31, 2020 and 2019 for the Company and the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of December 31, 2020 and 2019 based on the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules. 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 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 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 % Note 16: Commitments and Credit Risk In the normal course of business, the Company makes various commitments to extend credit which are not reflected in the accompanying consolidated financial statements. At December 31, 2020 and 2019, the Company had outstanding loan commitments totaling approximately $ 263.9 million and $ 254.4 million, respectively. F-38 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”). 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 Capital expenditures contracted for at the balance sheet date but not yet recognized in the financial statements are associated with the construction of premises intended to house our future corporate headquarters. The Company has entered into construction-related contracts in the amount of $ 65.1 million. As of December 31, 2020, $ 37.9 million of such contract commitments had not yet been incurred. These commitments are due within 2 years. Note 17: Fair Value of Financial Instruments ASC Topic 820, Fair Value Measurements , defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASU Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets or liabilities Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. Available-for-Sale Securities Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid mutual funds. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include U.S. Government-sponsored agencies, municipal securities, mortgage and asset-backed securities and certain corporate securities. Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but also on the investment securities’ relationship to other benchmark quoted investment securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Fair values are calculated using discounted cash flows. Discounted cash flows are calculated based off of the anticipated future cash flows updated to incorporate loss severities. Rating agency and industry research reports as well as default and deferral activity are reviewed and incorporated into the calculation. The Company did not own any securities classified within Level 3 of the hierarchy as of 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). F-39 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Servicing Asset Fair value is based on a loan-by-loan basis taking into consideration the original to maturity of the loans, the current age of the loans and the remaining term to maturity. The valuation methodology utilized for the servicing assets begins with generating estimated future cash flows for each servicing asset, based on their unique characteristics and market-based assumptions for prepayment speeds and costs to service. The present value of the future cash flows is then calculated utilizing market-based discount rate assumptions (Level 3). Interest Rate Swap Agreements The fair values of interest rate swap agreements are estimated using current market interest rates as of the balance sheet date and calculated using discounted cash flows that are observable or that can be corroborated by observable market data (Level 2). Forward Contracts The fair values of forward contracts on to-be-announced securities are determined using quoted prices in active markets, or benchmarked thereto (Level 1). Interest Rate Lock Commitments The fair values of IRLCs are determined using the projected sale price of individual loans based on changes in market interest rates, projected pull-through rates (the probability that an IRLC will ultimately result in an originated loan), the reduction in the value of the applicant’s option due to the passage of time, and the remaining origination costs to be incurred based on management’s estimate of market costs (Level 3). The following tables present the fair value measurements of assets and liabilities recognized in the accompanying 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. December 31, 2020 Fair Value Measurements Using Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) U.S. Government-sponsored agencies $ 60,545 $ — $ 60,545 $ — Municipal securities 82,489 — 82,489 — 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 — Total available-for-sale securities $ 497,628 $ — $ 497,628 $ — Servicing asset 3,569 — — 3,569 Interest rate swaps liabilities ( 17,606 ) — ( 17,606 ) — Loans held-for-sale (mandatory pricing agreements) 26,341 — 26,341 — Forward contracts ( 640 ) ( 640 ) — — IRLCs 3,361 — — 3,361 F-40 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) December 31, 2019 Fair Value Measurements Using Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) U.S. Government-sponsored agencies $ 75,872 $ — $ 75,872 $ — Municipal securities 97,652 — 97,652 — 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 $ — Servicing asset 2,481 — — 2,481 Interest rate swaps liabilities ( 37,786 ) — ( 37,786 ) — Loans held-for-sale (mandatory pricing agreements) 56,097 — 56,097 — Forward contracts ( 153 ) ( 153 ) — — 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. Servicing Asset Interest Rate Lock Commitments Balance as of January 1, 2018 $ — $ 551 Total realized losses Additions — ( 162 ) Balance, December 31, 2018 — 389 Total realized gains Additions 2,481 521 Balance, December 31, 2019 2,481 910 Total realized gains Additions 1,520 2,451 Change in fair value ( 432 ) — Balance, December 31, 2020 $ 3,569 $ 3,361 The following describes the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis, as well as the general classification of such assets pursuant to the valuation hierarchy. Impaired Loans (Collateral Dependent) Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. The amount of the impairment may be determined based on the fair value of the underlying collateral, less costs to sell, the estimated present value of future cash flows or the loan’s observable market price. If the impaired loan is identified as collateral dependent, the fair value of the underlying collateral, less costs to sell, is used to measure impairment. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. If the impaired loan is not collateral dependent, the Company utilizes a discounted cash flow analysis to measure impairment. F-41 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) 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. 2020 Fair Value Measurements Using Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Impaired loans 4,026 — — 4,026 2019 Fair Value Measurements Using Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) 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. (dollars in thousands) Fair Value at December 31, 2020 Valuation Technique Significant Unobservable Inputs Range Weighted-Average Range Impaired loans $ 4,026 Fair value of collateral Discount for type of property and current market conditions 10 % 10 % IRLCs 3,361 Discounted cash flow Loan closing rates 44 % - 100 % 87 % Servicing asset 3,569 Discounted cash flow Prepayment speeds Discount rate 0 % - 25 % 10 % 12.1 % 10 % (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 % 84 % Servicing asset 2,481 Discounted cash flow Prepayment speeds 0 % - 25 % 13.5 % 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: Cash and Cash Equivalents For these instruments, the carrying amount is a reasonable estimate of fair value. F-42 First Internet Bancorp Notes to Consolidated Financial Statements (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. Loans The fair value of loans is estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors. Accrued Interest Receivable The fair value of these financial instruments approximates carrying value. Federal Home Loan Bank of Indianapolis Stock The fair value approximates carrying value. Deposits The fair value of noninterest-bearing and interest-bearing demand deposits, savings and money market accounts approximates carrying value. The fair value of fixed maturity certificates of deposit and brokered deposits are estimated using rates currently offered for deposits of similar remaining maturities. Advances from Federal Home Loan Bank The fair value of fixed rate advances is estimated using rates currently offered for similar remaining maturities. The carrying value of variable rate advances approximates fair value. Subordinated Debt The fair value of the Company’s publicly traded subordinated debt is obtained from quoted market prices. The fair value of the Company’s remaining subordinated debt is estimated using discounted cash flow analysis, based on current borrowing rates for similar types of debt instruments. Accrued Interest Payable The fair value of these financial instruments approximates carrying value. Commitments The fair value of commitments to extend credit are based on fees currently charged to enter into similar agreements with similar maturities and interest rates. The Company determined that the fair value of commitments was zero based on the contractual value of outstanding commitments at December 31, 2020 and 2019. F-43 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) The following tables summarize the carrying value and estimated fair value of all financial assets and liabilities at December 31, 2020 and 2019: December 31, 2020 Fair Value Measurements Using Carrying Amount Fair Value Quoted Prices In Active Market for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash and cash equivalents $ 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 — Subordinated debt 79,603 83,682 63,325 20,357 — Accrued interest payable 1,439 1,439 1,439 — — December 31, 2019 Fair Value Measurements Using Carrying Amount Fair Value Quoted Prices In Active Market for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash and cash equivalents $ 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 — Subordinated debt 69,528 75,206 64,996 10,210 — Accrued interest payable 3,767 3,767 3,767 — — Note 18: Mortgage Banking Activities The Company’s residential real estate lending business originates mortgage loans for customers and sells a majority of the originated loans into the secondary market. The Company hedges its mortgage banking pipeline by entering into forward contracts for the future delivery of mortgage loans to third-party investors and entering into IRLCs with potential borrowers to fund specific mortgage loans that will be sold into the secondary market. To facilitate the hedging of the loans, the Company has elected the fair value option for loans originated and intended for sale in the secondary market under mandatory pricing agreements. Changes in the fair value of loans held-for-sale, IRLCs and forward contracts are recorded in the mortgage banking activities line item within noninterest income. Refer to Note 19 for further information on derivative financial instruments. F-44 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) 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. 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 (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 ) Net revenue from mortgage banking activities $ 24,693 $ 11,541 $ 5,718 F-45 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Note 19: Derivative Financial Instruments The Company uses derivative financial instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income and the fair value of assets and liabilities. The Company enters into interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. Additionally, the Company enters into forward contracts for the future delivery of mortgage loans to third-party investors and enters into IRLCs with potential borrowers to fund specific mortgage loans that will be sold into the secondary market. The forward contracts are entered into in order to economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans. The Company entered into various interest rate swap agreements designated and qualifying as accounting hedges during the reported periods. Designating an interest rate swap as an accounting hedge allows the Company to recognize gains and losses, less any ineffectiveness, in the income statement within the same period that the hedged item affects earnings. The Company includes the gain or loss on the hedged items in the same line item as the offsetting loss or gain on the related interest rate swaps. For derivative instruments that are designated and qualify as cash flow hedges, any gains or losses related to changes in fair value are recorded in accumulated other comprehensive loss, net of tax. The fair value of interest rate swaps with a positive fair value are reported in accrued income and other assets in the 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. 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 Line item in the consolidated balance sheet in which the hedged item is included 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 % F-46 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) December 31, 2019 Weighted Average Remaining Maturity (years) Weighted-Average Rate Instruments Associated With 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, 2020 Weighted Average Remaining Maturity (years) Weighted-Average Rate Cash Flow Hedges 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 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. The Company pledged $ 30.6 million and $ 42.3 million of cash collateral to counterparties as security for its obligations related to these interest rate swap transactions at December 31, 2020 and 2019, respectively. Collateral posted and received is dependent on the market valuation of the underlying hedges. The following table presents the notional amount and fair value of interest rate swaps, IRLCs and forward contracts utilized by the Company at December 31, 2020 and 2019. F-47 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) December 31, 2020 December 31, 2019 Notional Amount Fair Value Notional Amount Fair Value Asset Derivatives Derivatives not designated as hedging instruments IRLCs 108,095 3,361 56,256 910 Total contracts $ 108,095 $ 3,361 $ 56,256 $ 910 Liability Derivatives Derivatives designated as hedging instruments Interest rate swaps associated with loans $ — $ — $ 427,446 $ ( 21,551 ) Interest rate swaps associated with securities available-for-sale 88,200 ( 6,072 ) 88,200 ( 2,806 ) Interest rate swaps associated with liabilities 210,000 23,678 210,000 ( 13,429 ) Derivatives not designated as hedging instruments Forward contracts 107,500 ( 640 ) 115,000 ( 153 ) Total contracts $ 405,700 $ 16,966 $ 840,646 $ ( 37,939 ) The fair values of interest rate swaps were estimated using a discounted cash flow method that incorporates current market interest rates as of the balance sheet date. Fair values of IRLCs and forward contracts were estimated using changes in mortgage interest rates from the date the Company entered into the IRLC and the balance sheet date. The following table presents the effects of the Company's cash flow hedge relationships on the consolidated statements of comprehensive income during the twelve months ended December 31, 2020, 2019, and 2018. 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 ) The following table summarizes the periodic changes in the fair value of the derivative financial instruments on the consolidated statements of income for the twelve months ended December 31, 2020, 2019, and 2018. Amount of (loss) / gain recognized in the twelve months ended 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 ) F-48 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) 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, 2020 December 31, 2019 December 31, 2018 Interest income Loans $ ( 2,445 ) $ ( 1,533 ) $ ( 100 ) Securities - taxable ( 722 ) ( 127 ) ( 153 ) Securities - non-taxable ( 741 ) 36 23 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 ) Note 20: Shareholders’ Equity In June 2018, the Company completed an underwritten public offering of 1,730,750 shares of its common stock at a price of $ 33.25 per share. The Company received net proceeds of approximately $ 54.3 million after deducting underwriting discounts and commissions and offering expenses. F-49 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Note 21: 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 Total Balance, January 1, 2018 $ ( 5,019 ) $ — $ ( 5,019 ) Reclassification of certain tax effects 1 ( 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 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 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. F-50 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Note 22: Condensed Financial Information (Parent Company Only) Presented below is condensed financial information as to financial position, results of operations, and cash flows of the Company on a non-consolidated basis: Condensed Balance Sheets Year Ended December 31, 2020 2019 Assets Cash and cash equivalents $ 40,532 $ 38,303 Investment in common stock of subsidiaries 366,463 332,352 Premises and equipment, net 5,910 6,515 Accrued income and other assets 2,658 2,156 Total assets $ 415,563 $ 379,326 Liabilities and shareholders’ equity Subordinated debt, net of unamortized discounts and debt issuance costs of $2,397 in 2020 and $2,472 in 2019 $ 79,603 $ 69,528 Note payable to the Bank 3,000 3,000 Accrued expenses and other liabilities 2,016 1,885 Total liabilities 84,619 74,413 Shareholders’ equity 330,944 304,913 Total liabilities and shareholders’ equity $ 415,563 $ 379,326 Condensed Statements of Income Year Ended December 31, 2020 2019 2018 Expenses Interest on borrowings $ 4,924 $ 3,804 $ 2,616 Salaries and employee benefits 904 804 564 Consulting and professional fees 1,678 1,610 958 Premises and equipment 295 285 285 Other 361 408 315 Total expenses 8,162 6,911 4,738 Loss before income tax and equity in undistributed net income of subsidiaries ( 8,162 ) ( 6,911 ) ( 4,738 ) Income tax benefit ( 2,089 ) ( 1,783 ) ( 1,172 ) Loss before equity in undistributed net income of subsidiaries ( 6,073 ) ( 5,128 ) ( 3,566 ) Equity in undistributed net income of subsidiaries 35,526 30,367 25,466 Net income $ 29,453 $ 25,239 $ 21,900 F-51 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, 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 (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 (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 F-52 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Condensed Statements of Cash Flows 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: Equity in undistributed net income of subsidiaries ( 35,526 ) ( 30,367 ) ( 25,466 ) Depreciation and amortization 711 647 568 Share-based compensation expense 518 288 243 Net change in other assets ( 502 ) ( 508 ) 1,769 Net change in other liabilities 311 ( 87 ) 79 Net cash used in operating activities ( 5,035 ) ( 4,788 ) ( 907 ) Investing activities Capital contribution to the Bank — ( 25,000 ) ( 35,000 ) Purchase of premises and equipment — ( 13 ) — Net cash used in investing activities — ( 25,013 ) ( 35,000 ) Financing activities Cash dividends paid ( 2,349 ) ( 2,418 ) ( 2,230 ) Net proceeds from issuance of subordinated debt 9,765 35,418 — Repayment of subordinated debt — — ( 3,000 ) Principal payment on loan from the Bank — ( 300 ) ( 300 ) Net proceeds from common stock issuance — — 54,334 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 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 Cash and cash equivalents at end of year $ 40,532 $ 38,303 $ 45,281 F-53 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Note 23: Quarterly Financial Data (unaudited) Three Months Ended December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 Income Statement Data: Interest income $ 33,643 $ 32,750 $ 34,222 $ 36,244 Interest expense 14,778 16,518 19,796 21,226 Net interest income 18,865 16,232 14,426 15,018 Provision for loan losses 2,864 2,509 2,491 1,461 Net interest income after provision for loan losses 16,001 13,723 11,935 13,557 Noninterest income 12,657 12,495 4,973 6,211 Noninterest expense 14,513 16,412 13,244 13,486 Income before income taxes 14,145 9,806 3,664 6,282 Income tax provision 3,055 1,395 ( 268 ) 263 Net income $ 11,090 $ 8,411 $ 3,932 $ 6,019 Per Share Data: Net income 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 December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 Income Statement Data: Interest income $ 37,877 $ 37,694 $ 36,844 $ 34,999 Interest expense 22,503 22,450 20,739 18,755 Net interest income 15,374 15,244 16,105 16,244 Provision for loan losses 468 2,824 1,389 1,285 Net interest income after provision for loan losses 14,906 12,420 14,716 14,959 Noninterest income 5,405 5,558 3,454 2,372 Noninterest expense 12,613 11,203 11,709 11,109 Income before income taxes 7,698 6,775 6,461 6,222 Income tax (benefit) provision 602 449 340 526 Net income $ 7,096 $ 6,326 $ 6,121 $ 5,696 Per Share Data: Net income 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 F-54 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Note 24: Recent Accounting Pronouncements ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (June 2016) The main objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. 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. The amendments affect entities holding financial assets that are not accounted for at fair value through net income. The amendments affect loans, debt securities, off-balance-sheet credit exposures, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update affect an entity to varying degrees depending on the credit quality of the assets held by the entity, their duration, and how the entity applies current GAAP. There is diversity in practice in applying the incurred loss methodology, which means that before transition some entities may be more aligned under current GAAP than others to the new measure of expected credit losses. The following describes the main provisions of this update. • Assets Measured at Amortized Cost: The amendments in this update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The statements of income reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increase or decrease of credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. • Available-for-Sale Debt Securities: Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. Available-for-sale accounting recognizes that value may be realized either through collection of contractual cash flows or through sale of the security. Therefore, the amendments limit the amount of the allowance for credit losses to the amount by which fair value is below amortized cost because the classification as available-for-sale is premised on an investment strategy that recognizes that the investment could be sold at fair value if cash collection would result in the realization of an amount less than fair value. • In May 2019, the FASB issued ASU 2019-05 - Financial Instruments - Credit Losses (Topic 326) - Targeted Transition Relief . This ASU allows an option for preparers to irrevocably elect the fair value option, on an instrument-by-instrument basis, for eligible financial assets measured at amortized cost basis upon adoption of the credit losses standard. 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. F-55 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. All entities may early adopt the amendments in this update as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In November 2019, the FASB issued ASU 2019-10 - Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) - Effective Dates. This ASU delayed the effective date for smaller reporting companies to fiscal years beginning after December 15, 2022. An entity will apply the amendments in this update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). A prospective transition approach is required for debt securities for which an OTTI had been recognized before the effective date. The effect of a prospective transition approach is to maintain the same amortized cost basis before and after the effective date of this update. The Company does not expect to early adopt and is currently evaluating the impact of the amendments on the Company’s consolidated financial statements. The Company currently cannot determine or reasonably quantify the impact of the adoption of the amendments due to the complexity and extensive changes. The Company intends to develop processes and procedures prior to the effective date to ensure it is fully compliant with the amendments at the adoption date. The Company has formed an implementation committee and has engaged a third-party consultant to assist in developing current expected credit losses (“CECL”) models using appropriate methodologies. ASU 2017-04 - Intangibles - Goodwill and other (Topic 350) - Simplifying the Test for Goodwill Impairment” (January 2017) The amendments in this update simplify the goodwill impairment test by eliminating Step 2 of the goodwill impairment process, which requires an entity to determine the implied fair value of its goodwill by assigning fair value to all its assets and liabilities. Under the new guidance, an entity will record an impairment charge if a reporting unit’s carrying amount exceeds its fair value. Entities still have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment is necessary. The amendments in this ASU are effective for smaller reporting companies for annual and interim impairment tests performed in periods beginning after December 15, 2022. Early adoption is permitted. The Company adopted this guidance effective July 1, 2020 and it did not have a material impact on the consolidated financial statements. ASU 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (August 2018) The amendments in this update modify the disclosure requirements on fair value measurements in ASC Topic 820. This ASU eliminates the requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. In addition, this ASU requires entities that calculate net asset value to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly. This ASU also adds new requirements, which include the disclosure of the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this ASU were effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2019. The adoption of this guidance did not have a material impact on the consolidated financial statements. F-56 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) The amendments in this ASU clarify or correct the guidance in ASC Topic 326, Topic 815 and Topic 825. With respect to Topic 326, ASU 2019-04 addresses a number of issues as it relates to the CECL standard including consideration of accrued interest, recoveries, variable-rate financial instruments, prepayments, extension and renewal options, among other things, in the measurement of expected credit losses. The amendments to Topic 326 have the same effective dates as ASU 2016-13 and the Company is currently evaluating the potential impact of these amendments on the consolidated financial statements. With respect to Topic 815, ASU 2019-04 clarifies issues related to partial-term hedges, hedged debt securities, and transitioning from a quantitative method of assessing hedge effectiveness to a more simplified method. The amendments to Topic 815 are effective for interim and annual reporting periods beginning after December 15, 2019 and are not expected to have a material impact on the consolidated financial statements. With respect to Topic 825, ASU 2019-04 addresses the scope of the guidance, the requirement for remeasurement under ASC Topic 820 when using the measurement alternative, certain disclosure requirements, and which equity securities must be remeasured at historical exchanges rates. The amendments to Topic 825 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. F-57