What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2024-03-13 compared with 2023-03-14 · 655 added, 414 removed, 1656 unchanged (39% of the section changed)

2 unchanged sentences

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.

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.

7 unchanged sentences

Based on that assessment, management concluded that, as of December 31, 2023, 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, 2022 has been audited by FORVIS, LLP, an independent registered public accounting firm, as stated in its report appearing on page F-2.

The Company’s internal control over financial reporting

as of December 31, 2023 has been audited by FORVIS, LLP, an independent registered public accounting firm, as stated in its report appearing on page F-2.

Changes in Internal Control Over Financial Reporting

1 unchanged sentence

Other Information

None of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act) adopted , modified, or terminated any contract, instruction, or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Securities Exchange Act or any non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the fiscal quarter ended December 31, 2023.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

47 unchanged sentences

Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to current report on Form 8-K filed on September 30, 2016)

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 on June 12, 2019)

Third Supplemental Indenture, dated as of October 26, 2020, between First Internet Bancorp and U.S.

14 unchanged sentences

Lovik dated April 20, 2022 (incorporated by reference to Exhibit 10.3 to current report on Form 8-K filed April 25, 2022)*

Form of Non-Employee Director Restricted Stock Award Agreement under 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2022)*

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)*

4 unchanged sentences

First Internet Bancorp 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to current report on Form 8-K filed May 17, 2022)*

Form of Non-Employee Director Restricted Stock Award Agreement under 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2023)*

Form of Management Incentive Award Agreement - Restricted Stock Units under 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2023)*

List of Subsidiaries

4 unchanged sentences

Section 1350 Certifications

Compensation Recoupment Policy

101 Financial statements from the Annual Report on Form 10-K of First Internet Bancorp for the period ended December 31, 2023, filed with the SEC on March 13, 2024, formatted in inline extensible Business Reporting Language (XBRL):

15 unchanged sentences

Bade, Director

Lovejoy, Director

Fenech, Director

Christian, Director

9 unchanged sentences

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of First Internet Bancorp (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows9F for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

We have audited the accompanying consolidated balance sheets of First Internet Bancorp (the “Company”) as of December 31, 2023 and 2022, and 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, 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, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 14, 2023 expressed an unqualified opinion thereon .

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, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 13, 2024, expressed an unqualified opinion thereon .

Emphasis of Matter

As discussed in Note 1, Note 4, and Note 22 to the consolidated financial statements, in 2023, the Company changed its method of accounting for credit losses on financial instruments due to the adoption of Accounting Standards Codification Topic 326:

Financial Instruments – Credit Losses .

Our opinion is not modified with respect to this matter.

Basis for Opinion

13 unchanged sentences

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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowances for Loan Losses

Description of the Matter

As described in Note 4 to the financial statements, the Company’s consolidated allowance for loan losses (ALLL) was $31.74 million at December 31, 2022.

The Company also describes in Note 1 of the 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, evaluating the adequacy of specific allowances associated with impaired loans and assessing the appropriateness of loan grades.

How We Addressed the Matter in Our Audit

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/ FORVIS, LLP (Formerly, BKD, LLP)

Allowance for Credit Losses (ACL) – Loans – Qualitative Adjustments

As described in Note 1, Note 4, and Note 22 of the consolidated financial statements and referred to in the change in accounting principle explanatory paragraph above, on January 1, 2023, the Company adopted ASU 2016-13 :

Financial Instruments - Credit losses (“ASC 326”):

Measurement of Credit Losses on Financial Instruments , as amended, which replaces the incurred loss methodology with an expected credit loss (“CECL”) methodology.

As of December 31, 2023, the ACL on loans was $38,774,000.

The ACL for loans represents management's estimate of all expected credit losses over the expected life of the Company’s existing loan portfolio.

Management estimates the ACL balance using relevant available information about the collectability of cash flows, from internal and external sources, including historical information relating to past events, current conditions, and reasonable and supportable forecasts of future economic conditions.

When the Company is unable to forecast future economic events, management may revert to historical information.

The Company utilized a discounted cash flow (“DCF”) method to estimate the quantitative portion of the allowance for credit losses for loans evaluated on a collective pooled basis.

Due to its minimal loss history, the Company elected to use peer data for a more reasonable calculation.

The Company also includes qualitative adjustments to the allowance based on factors and considerations that have not otherwise been fully accounted for.

We have identified auditing the qualitative adjustments as a critical audit matter as management’s determination of the qualitative adjustments used in the ACL is subjective and involves significant management judgments;

and our audit procedures related to the qualitative adjustments involved a high degree of auditor judgment and required significant audit effort, including the need to involve more experienced audit personnel.

The primary procedures we performed to address this critical audit matter included:

• Testing the design and operating effectiveness of controls over the qualitative adjustments used in the ACL calculation including controls addressing the:

◦ Significant assumptions and judgments applied in the development of the qualitative adjustments.

◦ Mathematical accuracy of the qualitative adjustments applied to the loan segments in the ACL calculation.

• Substantively testing management's determination of the qualitative adjustments used in the ACL estimate, including:

◦ Testing management’s process for developing the qualitative adjustments, which included assessing the relevance and reliability of data used to develop the qualitative adjustments, including evaluating their judgments and assumptions for reasonableness.

Among other procedures, our evaluation considered evidence from internal and external sources.

◦ Analytically evaluating the qualitative adjustments for directional consistency, testing for reasonableness, and obtaining evidence for significant changes.

◦ Testing the mathematical accuracy of the qualitative adjustments applied to the loan segments in the ACL calculation.

/s/ FORVIS, LLP

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

28 unchanged sentences

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/ FORVIS, LLP (Formerly BKD, LLP)

/s/ FORVIS, LLP

Indianapolis, Indiana

7 unchanged sentences

Securities available-for-sale - at fair value (amortized cost of $513,315 in 2023 and $436,183 in 2022) 474,855 390,384

Securities held-to-maturity - at amortized cost (fair value of $168,483 in 2022 and $61,468 in 2021) 189,168 59,565

Loans held-for-sale (includes $9,110 in 2022 and $23,233 in 2021 at fair value) 21,511 47,745

3,499,401 2,887,662

Allowance for loan losses

Securities held-to-maturity - at amortized cost, net of allowance for credit losses of $0.3 million in 2023 (fair value of $207,572 in 2023 and $168,483 in 2022) 227,153 189,168

Loans held-for-sale (includes $9,110 at fair value in 2022) 22,052 21,511

3,840,220 3,499,401

Allowance for credit losses - loans ( 38,774 ) ( 31,737 )

Net loans 3,801,446 3,467,664

50 unchanged sentences

Net interest income 74,904 97,093 86,556

Provision for loan losses 4,977 1,030 9,325

Net interest income after provision for loan losses 92,116 85,526 55,216

Provision for credit losses - loans 15,454 4,977 1,030

Benefit for credit losses - debt securities held-to-maturity ( 42 ) — —

Provision for credit losses - off-balance sheet commitments 1,241 — —

Net interest income after provision for credit losses 58,251 92,116 85,526

Noninterest income

4 unchanged sentences

Gain on sale of loans 20,526 11,372 11,598

Gain on sale of securities — — 139

Gain on sale of premises and equipment — — 2,523

9 unchanged sentences

Deposit insurance premium 3,880 1,152 1,213

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

Other 5,857 5,076 4,223

1 unchanged sentence

Income before income taxes 4,940 40,100 56,572

Income tax provision 4,559 8,458 4,445

Income tax (benefit) provision ( 3,477 ) 4,559 8,458

Net income $ 8,417 $ 35,541 $ 48,114

13 unchanged sentences

Net income $ 8,417 $ 35,541 $ 48,114

Other comprehensive (loss) income

Other comprehensive income (loss)

Securities available-for-sale

Net unrealized holding (losses) gains on securities available-for-sale recorded within other comprehensive income before income tax ( 42,336 ) ( 4,087 ) 6,551

Reclassification adjustment for gains realized — — ( 139 )

Income tax (benefit) provision ( 9,060 ) ( 1,064 ) 1,556

Net effect on other comprehensive (loss) income ( 33,276 ) ( 3,023 ) 4,856

Net unrealized holding gains (losses) on securities available-for-sale recorded within other comprehensive income before income tax 7,339 ( 42,336 ) ( 4,087 )

Income tax provision (benefit) 1,682 ( 9,060 ) ( 1,064 )

Net effect on other comprehensive income (loss) 5,657 ( 33,276 ) ( 3,023 )

Securities held-to-maturity

1 unchanged sentence

Amortization of net unrealized holding losses on securities transferred from available-for-sale to held-to-maturity 778 844 —

Income tax benefit ( 1,039 ) — —

Net effect on other comprehensive loss ( 3,519 ) — —

Cash flow hedges

Net unrealized holding gains (losses) on cash flow hedging derivatives recorded within other comprehensive income before income tax 19,091 11,138 ( 10,248 )

Income tax provision (benefit) 198 ( 1,039 ) —

Net effect on other comprehensive income (loss) 580 ( 3,519 ) —

Total other comprehensive (loss) income ( 22,597 ) 6,157 ( 3,005 )

Cash flow hedges

Net unrealized holding (losses) gains on cash flow hedging derivatives recorded within other comprehensive income before income tax ( 2,566 ) 19,091 11,138

Income tax (benefit) provision ( 590 ) 4,893 1,958

Net effect on other comprehensive (loss) income ( 1,976 ) 14,198 9,180

Total other comprehensive income (loss) 4,261 ( 22,597 ) 6,157

Comprehensive income $ 12,678 $ 12,944 $ 54,271

2 unchanged sentences

Consolidated Statements of Shareholders’ Equity

(Amounts in thousands except per share data)

(Amounts in thousands except share and per share data)

Stock Retained

4 unchanged sentences

Net income — 48,114 — 48,114

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

Other comprehensive income — — 6,157 6,157

Dividends declared ($0.24 per share) — ( 2,415 ) — ( 2,415 )

Repurchased shares of common stock (100,000) ( 4,436 ) — — ( 4,436 )

Recognition of the fair value of share-based compensation 2,393 — — 2,393

3 unchanged sentences

Net income — 35,541 — 35,541

Other comprehensive income — — 6,157 6,157

Other comprehensive loss — — ( 22,597 ) ( 22,597 )

Dividends declared ($0.24 per share) — ( 2,297 ) — ( 2,297 )

4 unchanged sentences

Balance, December 31, 2022 $ 192,935 $ 205,675 $ ( 33,636 ) $ 364,974

Impact of adoption of new accounting standards (1)

— ( 4,491 ) — ( 4,491 )

Net income — 8,417 — 8,417

Other comprehensive loss — — ( 22,597 ) ( 22,597 )

Other comprehensive income — — 4,261 4,261

Dividends declared ($0.24 per share) — ( 2,131 ) — ( 2,131 )

Repurchased shares of common stock (502,525) ( 9,248 ) — — ( 9,248 )

Excise tax on repurchase of common stock ( 92 ) ( 92 )

Recognition of the fair value of share-based compensation 1,258 — — 1,258

2 unchanged sentences

Balance, December 31, 2023 $ 184,700 $ 207,470 $ ( 29,375 ) $ 362,795

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

See Notes to Consolidated Financial Statements

6 unchanged sentences

Net income $ 8,417 $ 35,541 $ 48,114

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

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

Depreciation and amortization 5,748 8,729 8,775

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

Increase in cash surrender value of bank-owned life insurance ( 1,023 ) ( 959 ) ( 948 )

Provision for loan losses 4,977 1,030 9,325

Provision for credit losses 16,653 4,977 1,030

Share-based compensation expense 1,258 2,035 2,393

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

Loans originated for sale ( 328,146 ) ( 518,870 ) ( 814,671 )

15 unchanged sentences

Maturities of securities available-for-sale 53,142 80,223 166,260

Proceeds from sales of securities available-for-sale — — 16,986

Purchase of securities available-for-sale ( 130,772 ) ( 12,969 ) ( 282,226 )

18 unchanged sentences

Net cash provided by (used in) financing activities 612,169 331,902 ( 75,560 )

Net (decrease) increase in cash and cash equivalents ( 186,408 ) 23,154 92,445

Net increase (decrease) in cash and cash equivalents 149,346 ( 186,408 ) 23,154

Cash and cash equivalents, beginning of year 256,552 442,960 419,806

8 unchanged sentences

Transfer of available-for-sale mortgage-backed securities to held-to-maturity mortgage-backed securities at fair value — 96,220 —

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

See Notes to Consolidated Financial Statements

10 unchanged sentences

The Bank conducts its consumer and small business deposit operations primarily through digital channels on a nationwide basis and has no traditional branch offices.

Consumer lending products are primarily originated on a nationwide basis through relationships with dealerships and financing partners.

The Bank is subject to competition from other financial institutions.

10 unchanged sentences

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.

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 credit 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.

7 unchanged sentences

• 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.

15 unchanged sentences

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.

The Company also earns noninterest income through a variety of financial and transaction services provided to commercial 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.

1 unchanged sentence

In certain circumstances, noninterest income is reported net of associated expenses.

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 any carrying value adjustments related to terminated interest rate swaps associated with 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 credit losses (“ACL”), any unamortized deferred fees or costs on originated loans, unamortized premiums or discounts on purchased loans and any carrying value adjustments related to terminated 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 recorded in accordance with our revenue recognition policy.

First Internet Bancorp

1 unchanged sentence

(Tabular dollar amounts in thousands except per share data)

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

Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are recorded in accordance with our revenue recognition policy.

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:

Loans are segmented by type of loan.

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.

All criticized, classified and impaired loans are tested for impairment by applying one of three methodologies:

Present value of future cash flows;

Fair value of collateral less costs to sell;

The loan’s observable market price.

All troubled debt restructurings (“TDR”) are considered impaired loans.

Loans tested for impairment are removed from other pools to prevent layering (double-counting).

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:

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

Changes in national, regional, and local unemployment rates;

Adoption of new accounting standards

ASU 2016 - 13

On January 1, 2023, the Company adopted ASU 2016-03 Financial Instruments - Credit losses (“ASC 326”):

Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with an expected credit loss (“CECL”) methodology.

The CECL estimate is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities.

It also applies to off-balance sheet credit exposures, including loan commitments, standby letters of credit, financial guarantees and other similar instruments.

Additionally, ASC 326 resulted in changes to the accounting for available-for-sale debt securities.

The Company adopted ASC 326 for all financial assets measured at amortized cost, available-for-sale securities and off-balance sheet credit exposures.

Results for reporting periods beginning after January 1, 2023 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable U.S.

The Company recorded a net decrease to retained earnings of $ 4.5 million as of January 1, 2023 for the cumulative effect of adopting ASC 326.

The net adjustment to allowance for credit losses (“ACL”) includes $ 2.3 million related to loans, $ 1.9 million related to off-balance sheet credit exposures and $ 0.3 million related to held-to-maturity debt securities.

ACL - Available-For-Sale (“AFS”) Debt Securities

For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income.

For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors, such as interest rates or market conditions.

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded.

Changes in the ACL are recorded as a provision for, or recovery of, credit loss expense.

Losses are charged against the allowance when management believes that uncollectibility of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on AFS debt securities totaled $ 2.9 million at December 31, 2023 and is excluded from the estimate of credit losses.

The Company made the policy election to exclude accrued interest from the amortized cost basis of AFS debt securities and report accrued interest separately on the condensed consolidated balance sheet.

ACL - Held-To-Maturity (“HTM”) Debt Securities

Management measures expected credit losses on HTM debt securities on a collective basis by major security type.

Accrued interest receivable on HTM debt securities totaled $ 1.2 million at December 31, 2023 and is excluded from the estimate of credit losses.

The Company made the accounting policy election to not measure an ACL for accrued interest.

Accrued interest deemed uncollectible will be written off through interest income.

The HTM securities portfolio includes municipal securities, residential mortgage-backed-securities, commercial mortgage-backed securities and corporate securities.

All residential and commercial mortgage-backed securities are U.S.

government issued or sponsored and substantially all municipal and corporate securities are rated investment grade or above.

The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

At the time of adoption, the estimated reserve was $ 0.3 million.

The ACL for loans represents management's estimate of all expected credit losses over the expected life of the Company’s existing loan portfolio.

Management estimates the ACL balance using relevant available information about

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

the collectability of cash flows, from internal and external sources, including historical information relating to past events, current conditions, and reasonable and supportable forecasts of future economic conditions.

When the Company is unable to forecast future economic events, management may revert to historical information.

Accrued interest receivable on loans totaled $ 20.9 million and is excluded from the estimate of credit losses.

The Company made the accounting policy election to not measure an ACL for accrued interest receivable.

Accrued interest deemed uncollectible will be written off through interest income.

ACL - Loans - Collectively Evaluated

The ACL is measured on a collective pool basis when similar risk characteristics exist.

The Company utilized a discounted cash flow (“DCF”) method to estimate the quantitative portion of the allowance for credit losses for loans evaluated on a collective pooled basis.

For each segment, a loss driver analysis was performed in order to identify loss drivers and create a regression model for use in forecasting cash flows.

In creating the DCF model, the Company has established a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average.

Due to its minimal loss history, the Company elected to use peer data for a more conservative calculation.

Key inputs into the DCF model include loan-level detail, including the amortized cost basis of individual loans, payment structure, loss history, and forecasted loss drivers.

The Company utilizes a third party to provide economic forecasts under various scenarios, which are assessed quarterly considering the scenarios in the context of the current economic environment and loss risk.

Expected credit losses are estimated over the contractual term of the loans and adjusted for prepayments when appropriate.

The contractual term excludes extensions, renewals, and modifications unless the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

Additional key assumptions in the DCF model include the probability of default (“PD”), loss given default (“LGD”), and prepayment/curtailment rates.

The Company utilizes the model-driven PD and a LGD derived from a method referred to as Frye Jacobs.

The Frye Jacobs method is a mathematical formula that traces the relationship between LGD and PD over time and projects the LGD based on the level of PD forecasted.

In all cases, the Frye Jacobs method is utilized to calculate LGDs during the forecast period, reversion period and long-term historical average.

Prepayment and curtailment rates were calculated through third party analysis of the Company’s own data.

Qualitative factors for the DCF include the following:

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

• Changes in international, national, regional and local conditions

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

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

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

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

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

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

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

Changes in the risk grades assigned to loans;

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

• The effect of other external factors (i.e.

competition, legal and regulatory requirements) on the level of estimated credit losses

ACL - Loans - Individually Evaluated

Loans that do not share risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation.

The Company has determined that any loans which have been placed on nonaccrual status will be

First Internet Bancorp

1 unchanged sentence

(Tabular dollar amounts in thousands except per share data)

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

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.

individually evaluated.

Individual analysis will establish a specific reserve for loans, if necessary.

Specific reserves on nonaccrual loans are typically based on management’s best estimate of the fair value of collateral securing these loans, adjusted for selling costs as necessary.

ACL - Off-Balance Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company.

The ACL for off-balance sheet credit exposure is recorded as a liability and adjusted as a provision for credit loss expense.

The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

Funding rates are based on a historical analysis of the Company’s portfolio, while estimates of credit losses are determined using the same loss rates as funded loans.

Regulatory Capital

As permitted by the federal banking regulatory agencies, the Company has elected the option to delay the impact of the day one adoption of ASC 326.

Refer to “Note 14.

Regulatory Capital Requirements” for details of the phase-in transition adjustments.

Modified Loans to Borrowers Experiencing Financial Difficulty

Concurrent with the adoption of ASU 2016-03, the Company adopted ASU 2022-02 “Financial Instruments-Credit Losses (ASC 326):

Troubled Debt Restructurings and Vintage Disclosures,” as amended.

The update eliminated the accounting guidance for troubled debt restructurings (“TDRs”) by creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.

Provision for Credit Losses

A provision for estimated credit losses 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.

3 unchanged sentences

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.

Placing a 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 not exceeding 90 days outstanding generally are not considered impaired.

Certain nonaccrual and substantially all delinquent loans more than 90 days past due may be considered to be impaired.

Individually Evaluated Loans

A loan is individually evaluated, 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 not exceeding 90 days outstanding generally are not individually evaluated.

Certain nonaccrual and substantially all delinquent loans more than 90 days past due may be individually evaluated.

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.

The accrual of interest on individually evaluated and nonaccrual loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due.

First Internet Bancorp

1 unchanged sentence

(Tabular dollar amounts in thousands except per share data)

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.

Individually evaluated loans include nonperforming loans and also include loans 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 individually evaluated 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.

Policy for Charging Off Loans

11 unchanged sentences

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.

When property is acquired, it is recorded at its fair value at the date of acquisition with any resulting write-down charged against the ACL.

Any subsequent deterioration of the property is charged directly to operating expense.

3 unchanged sentences

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.

Additionally, prior to the Company’s decision to exit its consumer mortgage business in the first quarter 2023, we entered into forward contracts related to our mortgage banking business to hedge the exposures we had from commitments to extend new residential mortgage loans to our customers and from our mortgage loans held-for-sale.

The forward contracts were entered into in order to economically hedge the effect of changed interest rates resulted 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 in the income statement within the same period that the hedged item affects earnings.

2 unchanged sentences

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

First Internet Bancorp

1 unchanged sentence

(Tabular dollar amounts in thousands except per share data)

sheets, while derivative instruments 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.

Fair Value Measurements

38 unchanged sentences

$ 0.95 $ 3.70 $ 4.82

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 2,646 , 28 and 18,524 for the years ended December 31, 2022, 2021 and 2020, respectively.

1 Potential dilutive common shares are excluded from the computation of diluted earnings per share in the periods where the effect would be antidilutive.

Excluded from the computation of diluted earnings per share were weighted average antidilutive shares totaling 20,797 , 2,646 and 28 for the years ended December 31, 2023, 2022 and 2021, respectively.

Share-based Compensation

4 unchanged sentences

Other comprehensive income (loss) includes unrealized gains and losses on securities available-for-sale, unrealized gains and losses on the transfer of securities available-for-sale to securities held-to-maturity, 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.

Reclassification adjustments have been determined for all components of other comprehensive income (loss) reported in the consolidated statements of shareholders’ equity.

Statements of Cash Flows

16 unchanged sentences

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 2021 and 2020 financial statements to conform to the 2022 financial statement presentation.

These reclassifications had no effect on net income.

Cash and Cash Equivalents

6 unchanged sentences

December 31, 2023

Amortized Gross Unrealized Fair

Cost Gains Losses Value

Amortized Cost Gross Unrealized Fair Value

Securities available-for-sale

9 unchanged sentences

Total available-for-sale $ 513,315 $ 1,054 $ ( 39,514 ) $ 474,855

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

December 31, 2023

Amortized Gross Unrealized Fair

Cost Gains Losses Value

Amortized Cost Gross Unrealized Fair Value Allowance for Credit Losses Net Carrying Value

Securities held-to-maturity

5 unchanged sentences

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

First Internet Bancorp

Notes to Consolidated Financial Statements

(Tabular dollar amounts in thousands except per share data)

Accrued interest receivable on AFS and HTM securities at December 31, 2023 was $ 2.9 million and $ 1.2 million, respectively, and is included in accrued interest receivable on the condensed consolidated balance sheet.

The Company elected to exclude all accrued interest receivable from securities when estimating credit losses.

Over 95% of mortgage-backed securities (including both AFS and HTM) held by the Company are issued by U.S.

government-sponsored entities and agencies.

These securities are either explicitly or implicitly guaranteed by the U.S.

government and have a long history of no credit losses;

therefore, the Company did not record an ACL on these securities.

Additionally, the Company evaluated credit impairment for individual AFS securities that are in an unrealized loss position and determined that the unrealized losses are unrelated to credit quality and are primarily attributable to changes in interest rates and volatility in the financial markets.

As the Company does not intend to sell the AFS securities that are in an unrealized loss position, and it is unlikely that it will be required to sell these securities before recovery of their amortized cost basis, the Company did not record an ACL on these securities.

In accordance with the adoption of ASC 326, the Company also evaluated its HTM securities that are in an unrealized loss position and considered issuer bond ratings, historical loss rates for bond ratings and economic forecasts.

As a result, the Company recorded in an initial ACL in retained earnings of $ 0.3 million on January 1, 2023.

The Company reevaluated these securities at December 31, 2023 and determined no additional ACL was necessary.

December 31, 2022

Amortized Gross Unrealized Fair

Cost Gains Losses Value

Amortized Cost Gross Unrealized Fair Value

Securities available-for-sale

10 unchanged sentences

December 31, 2022

Amortized Gross Unrealized Fair

Cost Gains Losses Value

Amortized Cost Gross Unrealized Fair Value

Securities held-to-maturity

Municipal securities $ 13,946 $ — $ ( 1,114 ) $ 12,832

Agency mortgage-backed securities - residential 121,853 — ( 15,112 ) 106,741

Agency mortgage-backed securities - commercial 5,818 — ( 1,266 ) 4,552

Corporate securities 47,551 — ( 3,193 ) 44,358

18 unchanged sentences

Held-to-Maturity

Within one year $ 995 $ 987

One to five years 6,129 5,952

5 unchanged sentences

Total $ 227,446 $ 207,572

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, 2022 and December 31, 2021.

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

As of December 31, 2022, the fair value of available-for-sale investment securities pledged as collateral was $ 328.7 million.

The Company pledged the securities for various types of transactions, including FHLB advances, deposits and derivative financial instruments.

There were no gross realized gains or losses resulting from the sale of AFS securities recognized during the twelve months ended December 31, 2023, December 31, 2022 and December 31, 2021.

As of December 31, 2023, the fair value of AFS securities pledged as collateral was $ 662.1 million.

The Company pledged these securities to both the FHLB and the Fed Discount Window to increase the Company’s borrowing capacity and provide collateral for existing FHLB advances.

Certain investments in debt securities are reported in the consolidated financial statements at an amount less than their historical cost.

As of December 31, 2022 and 2021, the Company had 434 and 179 securities, respectively, with market values below their cost basis.

The total fair value of these investments at December 31, 2022 and 2021 was $ 527.4 million and $ 403.2 million, which is approximately 94 % and 61 %, respectively, of the Company’s available-for-sale and held-to-maturity securities portfolio.

These declines resulted primarily 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.

The total fair value of these investments at December 31, 2023 and 2022 was $ 578.9 million and $ 527.4 million, which is approximately 85 % and 94 %, respectively, of the Company’s AFS and HTM securities portfolios.

As of December 31, 2023, the Company’s securities portfolio consisted of 512 securities, of which 434 were in an unrealized loss position.

As of December 31, 2022, the Company’s security portfolio consisted of 445 securities, of which 434 were in an unrealized loss position.

The unrealized losses are related to the categories noted below.

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

Government-sponsored agencies, municipal organizations and corporate entities were caused primarily by interest rate changes.

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

The Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be upon maturity.

First Internet Bancorp

1 unchanged sentence

(Tabular dollar amounts in thousands except per share data)

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, 2022.

Agency Mortgage-Backed and Private Label Mortgage-Backed Securities

The unrealized losses on the Company’s investments in agency mortgage-backed and private label mortgage-backed securities were caused 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, 2022.

The unrealized losses on the Company’s investments in agency mortgage-backed and private label mortgage-backed securities were caused primarily by interest rate changes.

The Company expects to recover the amortized cost basis over the terms of the securities.

The 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, 2023 and 2022:

19 unchanged sentences

Value Unrealized

Securities held-to-maturity

Securities available-for-sale

Government-sponsored agencies $ 29,668 $ ( 1,008 ) $ 4,141 $ ( 789 ) $ 33,809 $ ( 1,797 )

Municipals 39,557 ( 1,766 ) 4,778 ( 374 ) 44,335 ( 2,140 )

Mortgage-backed securities - residential 68,408 ( 8,848 ) 38,332 ( 6,264 ) 106,740 ( 15,112 )

Mortgage-backed securities - commercial 4,552 ( 1,266 ) — — 4,552 ( 1,266 )

Agency mortgage-backed securities - residential 170,026 ( 29,690 ) 45,066 ( 7,284 ) 215,092 ( 36,974 )

Agency mortgage-backed securities - commercial 10,560 ( 926 ) 5,280 ( 376 ) 15,840 ( 1,302 )

Private label mortgage-backed securities - residential 2,445 ( 330 ) 8,010 ( 992 ) 10,455 ( 1,322 )

Asset-backed securities

4,960 ( 40 ) — — 4,960 ( 40 )

Corporate securities 21,568 ( 1,452 ) 13,239 ( 1,265 ) 34,807 ( 2,717 )

8 unchanged sentences

Value Unrealized

Securities available-for-sale

Government-sponsored agencies $ 2,921 $ ( 79 ) $ 40,305 $ ( 1,058 ) $ 43,226 $ ( 1,137 )

Securities held-to-maturity

Municipals $ 8,160 $ ( 661 ) $ 4,258 $ ( 453 ) $ 12,418 $ ( 1,114 )

1 unchanged sentence

Agency mortgage-backed securities - commercial 4,552 ( 1,266 ) — — 4,552 ( 1,266 )

Private label mortgage-backed securities - residential 374 ( 3 ) — — 374 ( 3 )

Corporate securities 36,866 ( 2,685 ) 7,492 ( 508 ) 44,358 ( 3,193 )

Total $ 117,986 $ ( 13,460 ) $ 50,082 $ ( 7,225 ) $ 168,068 $ ( 20,685 )

Amounts reclassified from accumulated other comprehensive loss and the affected line items in the consolidated statements of income during the years ended December 31, 2022, 2021 and 2020 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

The following table summarizes ratings for the Company’s HTM portfolio issued by state and political subdivisions and other securities as of December 31, 2023.

Securities Held-to-Maturity

(in thousands) State and Municipal Other Total

Aaa/AAA $ — $ — $ —

Aa1/AA+ 9,917 — 9,917

Aa2/AA 1,538 — 1,538

A1/A+ 1,794 — 1,794

A2/A 643 5,000 5,643

A3/A- — 4,509 4,509

Baa1/BBB+ — 8,500 8,500

Baa2/BBB — 8,500 8,500

Baa3/BBB- — 12,528 12,528

Ba1/BB+ — 2,000 2,000

— 172,517 172,517

Unrealized gains on securities available-for-sale

Gain realized in earnings $ — $ — $ 139 Gain on sale of securities

Total reclassified amount before tax — — 139 Income before income taxes

Tax expense — — 38 Income tax provision

Total reclassifications out of accumulated other comprehensive loss

$ — $ — $ 101 Net Income

Total $ 13,892 $ 213,554 $ 227,446

1 HTM agency mortgage-backed securities - commercial and residential are listed under Other securities as not rated.

There were no amounts reclassified from accumulated other comprehensive loss to the condensed consolidated statements of income during the twelve months ended December 31, 2023, 2022 and 2021.

Equity Investments

1 unchanged sentence

The following tables provide additional information related to investments accounted for under this method.

The carrying amount of each equity investment with a readily determinable fair value at December 31, 2022 and 2021 is reflected in the following table:

The carrying amount of each equity investment with a readily determinable fair value or net asset value at December 31, 2023 and 2022 is reflected in the following table:

(dollars in thousands) 2023 2022

38 unchanged sentences

Total loans 3,840,220 3,499,401

Allowance for loan losses ( 31,737 ) ( 27,841 )

Allowance for credit losses ( 38,774 ) ( 31,737 )

Net loans $ 3,801,446 $ 3,467,664

9 unchanged sentences

The primary source of repayment is the cash flow from the ongoing operations and activities conducted by the borrower, or an affiliate of the borrower, who owns the property.

This portfolio segment is generally concentrated in the Midwest and Southwest regions of the United States and its loans are often secured by manufacturing and service facilities, as well as office buildings.

This portfolio segment is generally concentrated in the Midwest and Southwest regions of the United States and its loans are often secured by manufacturing and service facilities.

First Internet Bancorp

2 unchanged sentences

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 are made on a nationwide basis and are underwritten primarily based on the cash flow expected to be generated from the property and are secondarily supported by the value of the real estate.

These loans typically incorporate a personal guarantee from the primary sponsor or sponsors.

1 unchanged sentence

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 Midwest and Southwest regions of the United States.

The properties securing the Company’s investor commercial real estate portfolio tend to be diverse in terms of property type.

Management monitors and evaluates commercial real estate loans based on property financial performance, collateral value, guarantor strength, economic and industry conditions together with other risk grade criteria.

1 unchanged sentence

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, and multi-family) properties, land development for residential properties or single family residential properties offered for sale by the builder.

Construction loans are made on a nationwide basis and are secured by land and related improvements and are made to assist in the construction of new structures, which may include commercial (retail, industrial, office, and multi-family) properties, land development for residential properties or single family residential properties offered for sale by the builder.

These loans generally finance a variety of project costs, including land, site preparation, architectural services, construction, closing and soft costs and interim financing needs.

The cash flows of builders, while initially predictable, may fluctuate with market conditions, and the value of the collateral securing these loans may be subject to fluctuations based on general economic changes.

This portfolio segment is generally concentrated in the Midwest and Southwest regions of the United States.

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.

These loans are made on a nationwide basis to owners of real estate subject to long-term lease arrangements with single tenant operators.

The real estate is typically operated by regionally, nationally or globally branded businesses.

33 unchanged sentences

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.

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

Franchise Finance:

15 unchanged sentences

Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers in geographically diverse locations throughout the country.

Allowance for Credit Losses (“ACL”) Methodology

The ACL for loans represents management's estimate of all expected credit losses over the expected life of the Company’s existing loan portfolio.

When the Company is unable to forecast future economic events, management may revert to historical information.

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

The ACL methodology may also consider other adjustments to address changes in conditions, trends, and circumstances such as local industry changes that could have a significant impact on the risk profile of the loan portfolio and provide for adjustments that may not be reflected and/or captured in the historical loss data.

These factors include:

lending policies, imprecision in forecasting future economic conditions, loan profile, lending staff, problem loan trends, loan review, collateral, credit concentration, or other internal and external factors.

First Internet Bancorp

1 unchanged sentence

(Tabular dollar amounts in thousands except per share data)

The following tables present changes in the balance of the ALLL during the twelve months ended December 31, 2022, 2021, and 2020

The Company also includes qualitative adjustments to the ACL based on factors and considerations that have not otherwise been fully accounted for.

Qualitative adjustments include, but are not limited to: