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 principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective as of December 31, 2023. 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, 2023. 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, 2023, the Company’s internal control over financial reporting was effective based on those criteria. The Company’s internal control over financial reporting 51 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 There has been no change in the Company’s internal control over financial reporting during the quarter ended December 31, 2023, that has materially affected or is reasonably likely to materially affect, the Company's internal control over financial reporting. Item 9B. 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. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not Applicable. 52 PART III Certain information required by Part III is incorporated by reference from our definitive Proxy Statement for our 2024 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, 2023. 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 70 Chairman, Chief Executive Officer and Director Nicole S. Lorch 49 President, Chief Operating Officer and Secretary Kenneth J. Lovik 54 Executive Vice President and Chief Financial Officer David B. Becker has served as our Chairman of the Board since 2006, as our Chief Executive Officer since 2007, and as our President from 2007 to June 2021. Mr. Becker is the founder of the Bank and has served as an officer and director of the Bank since 1998. Nicole S. Lorch has served as Secretary since June of 2022 and as President and Chief Operating Officer since June 2021. Previously, she 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. 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 was an investment banker at Milestone Advisors LLC, Howe Barnes Hoefer & Arnett, Inc. and A.G. Edwards & Sons, Inc. 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 disclosures in the Proxy Statement under the headings “Proposal 1 - Election of Directors,” “Corporate Governance,” “Shareholder Proposals for 2024 Annual Meeting,” and, if applicable “Delinquent Section 16(a) Reports” are incorporated into this Item by reference. 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” (excluding information under the caption “Pay versus Performance”), the information regarding compensation committee interlocks and insider participation under the 53 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 Matters.” The independent registered public accounting firm is FORVIS, LLP (Public Company Accounting Oversight Board Firm ID No. 686 ) located in Indianapolis, Indiana. 54 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 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) 4.4 Third Supplemental Indenture, dated as of October 26, 2020, between First Internet Bancorp and U.S. Bank National Association, as trustee (including form of 6.0% Fixed-to-Floating Rate Subordinated Notes due 2030) (incorporated by reference to Exhibit 4.2 to current report on Form 8-K filed October 26, 2020) 4.5 Fourth Supplemental Indenture, dated as of August 16, 2021, 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 August 16, 2021) 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 3.75% Fixed-to-Floating Rate Subordinated Note due September 1, 2031 (incorporated by reference to Exhibit A-1 and Exhibit A-2 included in Exhibit 4.2 to current report on Form 8-K filed on August 16, 2021) 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 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)* 10.3 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)* 55 Exhibit No. Description 10.4 Amendment to Amended and Restated Employment Agreement among First Internet Bank of Indiana, First Internet Bancorp and David B. Becker dated April 20, 2022 (incorporated by reference to Exhibit 10.1 to current report on Form 8-K filed April 25, 2022)* 10.5 Employment Agreement among First Internet Bank of Indiana, First Internet Bancorp and Nicole S. Lorch dated April 20, 2022 (incorporated by reference to Exhibit 10.2 to current report on Form 8-K filed April 25, 2022)* 10.6 Employment Agreement among First Internet Bank of Indiana, First Internet Bancorp and Kenneth J. Lovik dated April 20, 2022 (incorporated by reference to Exhibit 10.3 to current report on Form 8-K filed April 25, 2022)* 10.7 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)* 10.8 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) 10.9 Form of Management Incentive Award Agreement - Restricted Stock Units under 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2022)* 10.10 Form of Management Incentive Award Agreement - Restricted Stock Units (performance based) under 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2021)* 10.11 Form of Subordinated Note Purchase Agreement, dated August 16,2021, by and among First Internet Bancorp and the Purchasers* (incorporated by reference to Exhibit 10.1 to current report on Form 8-K filed August 15, 2021) 10.12 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)* 10.13 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)* 10.14 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)* 21.1 List of Subsidiaries 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 97 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): (i) the Consolidated Balance Sheets at December 31, 2023 and 2022, (ii) the Consolidated Statements of Income for the fiscal years ended December 31, 2023, 2022, and 2021, (iii) the Consolidated Statements of Comprehensive Income for the fiscal years ended December 31, 2023, 2022, and 2021, (iv) the Consolidated Statements of Shareholders’ Equity for the fiscal years ended December 31, 2023, 2022, and 2021, (v) Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2023, 2022, and 2021, and (vi) 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. 56 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 13, 2024. FIRST INTERNET BANCORP By: /s/ David B. Becker David B. Becker, Chairman 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 13, 2024. /s/ David B. Becker /s/ Kenneth J. Lovik David B. Becker, Chairman and Chief Executive Officer (Principal Executive Officer) Kenneth J. Lovik, Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) * * Aasif M. Bade, Director Joseph A. Fenech, Director * * Justin P. Christian, Director Jean L. Wojtowicz, Director * * Ann Colussi Dee, Director John K. Keach, Jr., 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 57 Reports of Independent Registered Public Accounting Firm To the Shareholders, Board of Directors and Audit Committee First Internet Bancorp Fishers, Indiana Opinion on the Consolidated 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, 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 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. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. F-1 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. Indianapolis, Indiana March 13, 2024 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, 2023 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, 2023, 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 as of December 31, 2023 and 2022, and for each of the three years in the period ended December 31, 2023, and our report dated March 13, 2024, expressed an unqualified opinion on those financial statements. 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 reliable 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/ FORVIS, LLP Indianapolis, Indiana March 13, 2024 F-3 First Internet Bancorp Consolidated Balance Sheets (Amounts in thousands except share data) December 31, 2023 2022 Assets Cash and due from banks $ 8,269 $ 17,426 Interest-bearing demand deposits 397,629 239,126 Total cash and cash equivalents 405,898 256,552 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, 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 Loans 3,840,220 3,499,401 Allowance for credit losses - loans ( 38,774 ) ( 31,737 ) Net loans 3,801,446 3,467,664 Accrued interest receivable 26,746 21,069 Federal Home Loan Bank of Indianapolis stock 28,350 28,350 Cash surrender value of bank-owned life insurance 40,882 39,859 Premises and equipment, net 73,463 72,711 Goodwill 4,687 4,687 Servicing asset, at fair value 10,567 6,255 Other real estate owned 375 — Accrued income and other assets 51,098 44,894 Total assets $ 5,167,572 $ 4,543,104 Liabilities and shareholders’ equity Liabilities Noninterest-bearing deposits $ 123,464 $ 175,315 Interest-bearing deposits 3,943,509 3,265,930 Total deposits 4,066,973 3,441,245 Advances from Federal Home Loan Bank 614,934 614,928 Subordinated debt, net of unamortized discounts and debt issuance costs of $2,162 in 2023 and $2,468 in 2022 104,838 104,532 Accrued interest payable 3,848 2,913 Accrued expenses and other liabilities 14,184 14,512 Total liabilities 4,804,777 4,178,130 Commitments and Contingencies Shareholders’ equity Preferred stock, no par value; 4,913,779 shares authorized; issued and outstanding - none — — Voting common stock, no par value; 45,000,000 shares authorized; 8,644,451 and 9,065,883 shares issued and outstanding in 2023 and 2022, respectively 184,700 192,935 Nonvoting common stock, no par value; 86,221 shares authorized; issued and outstanding - none — — Retained earnings 207,470 205,675 Accumulated other comprehensive loss ( 29,375 ) ( 33,636 ) Total shareholders’ equity 362,795 364,974 Total liabilities and shareholders’ equity $ 5,167,572 $ 4,543,104 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, 2023 2022 2021 Interest income Loans $ 192,337 $ 140,600 $ 123,467 Securities – taxable 17,189 10,711 7,970 Securities – non-taxable 3,532 1,767 1,017 Other earning assets 26,384 3,830 1,429 Total interest income 239,442 156,908 133,883 Interest expense Deposits 143,363 41,832 29,822 Other borrowed funds 21,175 17,983 17,505 Total interest expense 164,538 59,815 47,327 Net interest income 74,904 97,093 86,556 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 Service charges and fees 851 1,071 1,114 Loan servicing revenue 3,833 2,573 1,934 Loan servicing asset revaluation ( 1,463 ) ( 1,639 ) ( 1,069 ) Mortgage banking activities 76 5,464 15,050 Gain on sale of loans 20,526 11,372 11,598 Gain on sale of premises and equipment — — 2,523 Other 2,302 2,416 1,694 Total noninterest income 26,125 21,257 32,844 Noninterest expense Salaries and employee benefits 45,322 41,553 38,223 Marketing, advertising and promotion 2,567 3,554 3,261 Consulting and professional fees 3,082 4,826 4,054 Data processing 2,373 1,989 1,649 Loan expenses 5,756 4,435 2,112 Premises and equipment 10,599 10,688 7,063 Deposit insurance premium 3,880 1,152 1,213 Other 5,857 5,076 4,223 Total noninterest expense 79,436 73,273 61,798 Income before income taxes 4,940 40,100 56,572 Income tax (benefit) provision ( 3,477 ) 4,559 8,458 Net income $ 8,417 $ 35,541 $ 48,114 Income per share of common stock Basic $ 0.95 $ 3.73 $ 4.85 Diluted 0.95 3.70 4.82 Weighted-average number of common shares outstanding Basic 8,837,558 9,530,921 9,918,083 Diluted 8,858,890 9,595,115 9,976,261 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, 2023 2022 2021 Net income $ 8,417 $ 35,541 $ 48,114 Other comprehensive income (loss) Securities available-for-sale 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 Reclassification of securities from available-for-sale to held-to-maturity — ( 5,402 ) — Amortization of net unrealized holding losses on securities transferred from available-for-sale to held-to-maturity 778 844 — Income tax provision (benefit) 198 ( 1,039 ) — Net effect on other comprehensive income (loss) 580 ( 3,519 ) — 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 See Notes to Consolidated Financial Statements F-6 First Internet Bancorp Consolidated Statements of Shareholders’ Equity (Amounts in thousands except share and per share data) Voting and Nonvoting Common Stock Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Equity Balance, January 1, 2021 $ 221,408 $ 126,732 $ ( 17,196 ) $ 330,944 Net income — 48,114 — 48,114 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 Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units 21 — — 21 Common stock redeemed for the net settlement of share-based awards ( 440 ) — — ( 440 ) Balance, December 31, 2021 $ 218,946 $ 172,431 $ ( 11,039 ) $ 380,338 Net income — 35,541 — 35,541 Other comprehensive loss — — ( 22,597 ) ( 22,597 ) Dividends declared ($0.24 per share) — ( 2,297 ) — ( 2,297 ) Repurchased shares of common stock (779,956) ( 27,780 ) — — ( 27,780 ) Recognition of the fair value of share-based compensation 2,035 — — 2,035 Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units 21 — — 21 Common stock redeemed for the net settlement of share-based awards ( 287 ) — — ( 287 ) 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 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 Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units 9 — — 9 Common stock redeemed for the net settlement of share-based awards ( 162 ) — — ( 162 ) 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 F-7 First Internet Bancorp Consolidated Statements of Cash Flows (Amounts in thousands) Year Ended December 31, 2023 2022 2021 Operating activities Net income $ 8,417 $ 35,541 $ 48,114 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,748 8,729 8,775 Increase in cash surrender value of bank-owned life insurance ( 1,023 ) ( 959 ) ( 948 ) Provision for credit losses 16,653 4,977 1,030 Share-based compensation expense 1,258 2,035 2,393 Loans originated for sale ( 328,146 ) ( 518,870 ) ( 814,671 ) Proceeds from sale of loans originated for sale 342,684 558,817 832,089 Gain on sale of loans ( 20,997 ) ( 17,473 ) ( 29,401 ) Decrease in fair value of loans held-for-sale 143 184 718 (Gain) loss on derivatives ( 384 ) ( 2,569 ) 1,513 Settlement of derivatives — — ( 1,859 ) Gain on sale of premises and equipment — — ( 2,523 ) Net change in servicing asset 1,463 1,639 1,069 Net deferred income tax ( 4,353 ) 4,632 2,434 Net change in other assets ( 6,625 ) 9,815 7,028 Net change in other liabilities ( 3,158 ) ( 3,775 ) ( 921 ) Net cash provided by operating activities 11,680 82,723 54,840 Investing activities Net loan activity, excluding sales and purchases ( 67,851 ) ( 214,761 ) 316,002 Proceeds from sales of other real estate owned — 1,188 — Net proceeds from sales of portfolio loans — 14,466 21,093 Maturities of securities available-for-sale 53,142 80,223 166,260 Purchase of securities available-for-sale ( 130,772 ) ( 12,969 ) ( 282,226 ) Maturities and calls of securities held-to-maturity 19,104 7,902 8,525 Purchase of securities held-to-maturity ( 53,573 ) ( 41,246 ) — Redemption of Federal Home Loan Bank of Indianapolis stock — 431 — Purchase of Federal Home Loan Bank of Indianapolis stock — ( 3,131 ) — Net proceeds from sale of premises and equipment — — 8,116 Purchase of premises and equipment ( 5,367 ) ( 17,517 ) ( 29,892 ) Loans purchased ( 284,722 ) ( 412,109 ) ( 168,438 ) Other investing activities ( 4,464 ) ( 3,510 ) 4,434 Net cash (used in) provided by investing activities ( 474,503 ) ( 601,033 ) 43,874 Financing activities Net change in deposits 623,818 262,286 ( 91,926 ) Cash dividends paid ( 2,156 ) ( 2,317 ) ( 2,415 ) Net proceeds from issuance of subordinated debt — — 58,658 Repayment of subordinated debt — — ( 35,000 ) Repurchase of common stock ( 9,340 ) ( 27,780 ) ( 4,436 ) Proceeds from advances from Federal Home Loan Bank 475,000 615,000 440,000 Repayment of advances from Federal Home Loan Bank ( 475,000 ) ( 515,000 ) ( 440,000 ) Other, net ( 153 ) ( 287 ) ( 441 ) Net cash provided by (used in) financing activities 612,169 331,902 ( 75,560 ) 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 Cash and cash equivalents, end of year $ 405,898 $ 256,552 $ 442,960 Supplemental disclosures of cash flows information Cash paid during the year for interest 163,604 58,920 46,748 Cash paid during the year for taxes 939 2,005 7,045 Loans transferred to other real estate owned 375 — 1,188 Loans transferred to held-for-sale from portfolio — 14,049 20,145 Cash dividends declared, not paid 519 544 585 Securities purchases settled in subsequent period 2,632 2,997 — Transfer of available-for-sale mortgage-backed securities to held-to-maturity mortgage-backed securities at fair value — 96,220 — 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 Company elected to and became a financial holding company, effective as of September 1, 2022. The Bank offers a wide range of commercial, small business, consumer and municipal banking products and services. The Bank conducts its consumer and small business deposit operations primarily through digital channels on a nationwide basis and has no traditional branch offices. 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. The Bank has three wholly owned subsidiaries. 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 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. 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, 2023 or 2022. 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. 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 the sale or disposal of securities 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 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. 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 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. F-10 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) 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. GAAP. 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. ACL - Loans 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 F-11 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 • 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 F-12 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) 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. 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 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. 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 individually evaluated and nonaccrual loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. F-13 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) 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 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 ACL. 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, 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. 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. F-14 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) 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 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, 2023 or 2022. 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 2019. 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-15 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, 2023 2022 2021 Basic earnings per share Net income available to common shareholders $ 8,417 $ 35,541 $ 48,114 Weighted average common shares 8,837,558 9,530,921 9,918,083 Basic earnings per common share $ 0.95 $ 3.73 $ 4.85 Diluted earnings per share Net income available to common shareholders $ 8,417 $ 35,541 $ 48,114 Weighted average common shares 8,837,558 9,530,921 9,918,083 Dilutive effect of equity compensation 21,332 64,194 58,178 Weighted average common and incremental shares 8,858,890 9,595,115 9,976,261 Diluted earnings per common share 1 $ 0.95 $ 3.70 $ 4.82 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 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 11. 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, 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 (loss) reported in the consolidated statements of 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-16 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Servicing Asset The servicing asset is related to small business lending loans sold. The servicing asset is recognized at the time of sale when servicing is retained and the income statement effect is 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. Note 2: Cash and Cash Equivalents At December 31, 2023, the Company’s interest-bearing and noninterest-bearing cash accounts at other institutions exceeded the limits for full FDIC insurance coverage by $ 8.6 million. In addition, approximately $ 382.2 million and $ 7.0 million of cash was held by the Federal Reserve Bank of Chicago and the FHLB of Indianapolis, 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 not currently 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, 2023 and 2022. December 31, 2023 Amortized Cost Gross Unrealized Fair Value Gains Losses Securities available-for-sale U.S. Government-sponsored agencies $ 96,404 $ 402 $ ( 1,629 ) $ 95,177 Municipal securities 69,494 356 ( 1,404 ) 68,446 Agency mortgage-backed securities - residential 1 237,798 101 ( 31,250 ) 206,649 Agency mortgage-backed securities - commercial 40,215 9 ( 1,339 ) 38,885 Private label mortgage-backed securities - residential 21,742 144 ( 1,107 ) 20,779 Asset-backed securities 8,071 17 ( 7 ) 8,081 Corporate securities 39,591 25 ( 2,778 ) 36,838 Total available-for-sale $ 513,315 $ 1,054 $ ( 39,514 ) $ 474,855 December 31, 2023 Amortized Cost Gross Unrealized Fair Value Allowance for Credit Losses Net Carrying Value Gains Losses Securities held-to-maturity Municipal securities $ 13,892 $ 1 $ ( 853 ) $ 13,040 $ ( 3 ) $ 13,889 Agency mortgage-backed securities - residential 166,750 4 ( 14,112 ) 152,642 — 166,750 Agency mortgage-backed securities - commercial 5,767 — ( 1,246 ) 4,521 — 5,767 Corporate securities 41,037 — ( 3,668 ) 37,369 ( 290 ) 40,747 Total held-to-maturity $ 227,446 $ 5 $ ( 19,879 ) $ 207,572 $ ( 293 ) $ 227,153 1 Includes $ 0.4 million of additional premium related to terminated interest rate swaps associated with agency mortgage-backed securities - residential as of December 31, 2023. F-17 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 Cost Gross Unrealized Fair Value Gains Losses Securities available-for-sale U.S. Government-sponsored agencies $ 35,606 $ — $ ( 1,797 ) $ 33,809 Municipal securities 68,958 458 ( 2,140 ) 67,276 Agency mortgage-backed securities - residential 1 252,066 — ( 36,974 ) 215,092 Agency mortgage-backed securities - commercial 17,142 — ( 1,302 ) 15,840 Private label mortgage-backed securities - residential 11,777 — ( 1,322 ) 10,455 Asset-backed securities 5,000 — ( 40 ) 4,960 Corporate securities 45,634 35 ( 2,717 ) 42,952 Total available-for-sale $ 436,183 $ 493 $ ( 46,292 ) $ 390,384 December 31, 2022 Amortized Cost Gross Unrealized Fair Value Gains Losses 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 Total held-to-maturity $ 189,168 $ — $ ( 20,685 ) $ 168,483 1 Includes $ 0.5 million of additional premium related to terminated interest rate swaps associated with agency mortgage-backed securities - residential as of December 31, 2022. F-18 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) The carrying value of securities at December 31, 2023 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 $ 550 $ 549 One to five years 31,401 31,865 Five to ten years 69,553 67,120 After ten years 103,985 100,927 205,489 200,461 Agency mortgage-backed securities - residential 237,798 206,649 Agency mortgage-backed securities - commercial 40,215 38,885 Private label mortgage-backed securities - residential 21,742 20,779 Asset-backed securities 8,071 8,081 Total $ 513,315 $ 474,855 Held-to-Maturity Amortized Cost Fair Value Within one year $ 995 $ 987 One to five years 6,129 5,952 Five to ten years 43,856 39,967 After ten years 3,949 3,503 54,929 50,409 Agency mortgage-backed securities - residential 166,750 152,642 Agency mortgage-backed securities - commercial 5,767 4,521 Total $ 227,446 $ 207,572 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. 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. U.S. Government-Sponsored Agencies, Municipal Securities, and Corporate Securities The unrealized losses on the Company’s investments in securities issued by U.S. Government-sponsored agencies, municipal organizations and corporate entities were caused primarily by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. The Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be upon maturity. F-19 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Agency Mortgage-Backed and Private Label Mortgage-Backed Securities The unrealized losses on the Company’s investments in agency mortgage-backed and private label mortgage-backed securities were caused primarily by interest rate changes. The Company expects to recover the amortized cost basis over the terms of the securities. The Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be upon maturity. The following tables show the securities portfolio’s gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2023 and 2022: December 31, 2023 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 $ 41,934 $ ( 161 ) $ 24,579 $ ( 1,468 ) $ 66,513 $ ( 1,629 ) Municipal securities 2,399 ( 103 ) 36,193 ( 1,301 ) 38,592 ( 1,404 ) Agency mortgage-backed securities - residential 1,089 ( 5 ) 194,095 ( 31,245 ) 195,184 ( 31,250 ) Agency mortgage-backed securities - commercial 21,561 ( 50 ) 14,217 ( 1,289 ) 35,778 ( 1,339 ) Private label mortgage-backed securities - residential 3,567 ( 29 ) 9,114 ( 1,078 ) 12,681 ( 1,107 ) Asset-backed securities 1,654 ( 7 ) — — 1,654 ( 7 ) Corporate securities 1,680 ( 365 ) 24,587 ( 2,413 ) 26,267 ( 2,778 ) Total $ 73,884 $ ( 720 ) $ 302,785 $ ( 38,794 ) $ 376,669 $ ( 39,514 ) December 31, 2022 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 $ 29,668 $ ( 1,008 ) $ 4,141 $ ( 789 ) $ 33,809 $ ( 1,797 ) Municipals 39,557 ( 1,766 ) 4,778 ( 374 ) 44,335 ( 2,140 ) 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 ) Total $ 278,784 $ ( 35,212 ) $ 80,514 $ ( 11,080 ) $ 359,298 $ ( 46,292 ) F-20 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) December 31, 2022 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 Municipals $ 8,160 $ ( 661 ) $ 4,258 $ ( 453 ) $ 12,418 $ ( 1,114 ) Agency mortgage-backed securities - residential 68,408 ( 8,848 ) 38,332 ( 6,264 ) 106,740 ( 15,112 ) Agency mortgage-backed securities - commercial 4,552 ( 1,266 ) — — 4,552 ( 1,266 ) 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 ) 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 Not Rated 1 — 172,517 172,517 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 Equity investments, largely comprised of non-marketable equity investments, are generally accounted for under equity security accounting. 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 or net asset value at December 31, 2023 and 2022 is reflected in the following table: (dollars in thousands) 2023 2022 GenOpp Financial Fund LP $ 2,102 $ 2,134 Total $ 2,102 $ 2,134 F-21 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) The carrying amount of the Company’s investments in non-marketable equity securities with no readily determinable fair value and amounts recognized in earnings on a cumulative basis as of December 31, 2023 and for the years ended December 31, 2023 and 2022 is reflected in the following table: (dollars in thousands ) 2023 2022 Carrying value 1 $ 12,374 $ 8,067 Carrying value adjustments — — Impairment — — Upward changes for observable prices — — Downward changes for observable prices — — Net change $ 12,374 $ 8,067 1 Exclusive of $ 11.5 million and $ 13.0 million in unfunded commitments as of December 31, 2023, and 2022, respectively. F-22 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, 2023 2022 Commercial loans Commercial and industrial $ 129,349 $ 126,108 Owner-occupied commercial real estate 57,286 61,836 Investor commercial real estate 132,077 93,121 Construction 261,750 181,966 Single tenant lease financing 936,616 939,240 Public finance 521,764 621,032 Healthcare finance 222,793 272,461 Small business lending 218,506 123,750 Franchise finance 525,783 299,835 Total commercial loans 3,005,924 2,719,349 Consumer loans Residential mortgage 395,648 383,948 Home equity 23,669 24,712 Other consumer 377,614 324,598 Total consumer loans 796,931 733,258 Total commercial and consumer loans 3,802,855 3,452,607 Net deferred loan origination costs, premiums and discounts on purchased loans, and other 1 37,365 46,794 Total loans 3,840,220 3,499,401 Allowance for credit losses ( 38,774 ) ( 31,737 ) Net loans $ 3,801,446 $ 3,467,664 1 Includes carrying value adjustment of $ 27.8 million and $ 32.5 million related to terminated interest rate swaps associated with public finance loans as of December 31, 2023 and December 31, 2022, respectively. The general risk characteristics specific to each loan portfolio segment are as follows: Commercial and Industrial: Commercial and industrial loans’ sources of repayment are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value. Loans are made for working capital, equipment purchases, or other purposes. Most commercial and industrial loans are secured by the assets being financed and may incorporate a personal guarantee. This portfolio segment is generally concentrated in the Midwest and Southwest regions of the United States. Owner-Occupied Commercial Real Estate: The primary source of repayment is the cash flow from the ongoing operations and activities conducted by the borrower, or an affiliate of the borrower, who owns the property. This portfolio segment is generally concentrated in the Midwest and Southwest regions of the United States and its loans are often secured by manufacturing and service facilities. F-23 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Investor Commercial Real Estate: These loans are made on a nationwide basis and are underwritten primarily based on the cash flow expected to be generated from the property and are secondarily supported by the value of the real estate. These loans typically incorporate a personal guarantee from the primary sponsor or sponsors. This portfolio segment generally involves larger loan amounts with repayment primarily dependent on the successful leasing and operation of the property securing the loan or the business conducted on the property securing the loan. Investor commercial real estate loans may be more adversely affected by changing economic conditions in the real estate markets, industry dynamics or the overall health of the local economy where the property is located. The properties securing the Company’s investor commercial real estate portfolio tend to be diverse in terms of property type. Management monitors and evaluates commercial real estate loans based on property financial performance, collateral value, guarantor strength, economic and industry conditions together with other risk grade criteria. As a general rule, the Company avoids financing special use projects unless other underwriting factors are present to mitigate these additional risks. Construction: Construction loans are made on a nationwide basis and are secured by land and related improvements and are made to assist in the construction of new structures, which may include commercial (retail, industrial, office, and multi-family) properties, land development for residential properties or single family residential properties offered for sale by the builder. These loans generally finance a variety of project costs, including land, site preparation, architectural services, construction, closing and soft costs and interim financing needs. The cash flows of builders, while initially predictable, may fluctuate with market conditions, and the value of the collateral securing these loans may be subject to fluctuations based on general economic changes. Single Tenant Lease Financing: These loans are made on a nationwide basis to owners of real estate subject to long-term lease arrangements with single tenant operators. The real estate is typically operated by regionally, nationally or globally branded businesses. The loans are underwritten based on the financial strength of the borrower, characteristics of the real estate, cash flows generated from the lease arrangements and the financial strength of the tenant. Similar to the other loan portfolio segments, management monitors and evaluates these loans based on borrower and tenant financial performance, collateral value, industry trends and other risk grade criteria. Public Finance: These loans are made on a nationwide basis to governmental and not-for-profit entities to provide both tax-exempt and taxable loans for a variety of purposes including: short-term cash-flow needs; debt refinancing; economic development; quality of life projects; infrastructure improvements; renewable energy projects; and equipment financing. The primary sources of repayment for public finance loans include pledged revenue sources including but not limited to: general obligations; property taxes; income taxes; tax increment revenue; utility revenue; gaming revenues; sales tax; and pledged general revenue. Certain loans may also include an additional collateral pledge of mortgaged property or a security interest in financed equipment. Healthcare Finance: These loans are made on a nationwide basis to healthcare providers, primarily dentists, for practice acquisition financing or refinancing that occasionally includes owner-occupied commercial real estate and equipment purchases. The sources of repayment are primarily based on the identified cash flows from operations of the borrower and related entities and secondarily on the underlying collateral provided by the borrower. F-24 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Small Business Lending: These loans are made on a nationwide basis to small businesses and generally carry a partial guaranty from the U.S. Small Business Administration (“SBA”) under its 7(a) loan program. We generally sell the government guaranteed portion of SBA loans into the secondary market while retaining the non-guaranteed portion of the loan and the servicing rights. Loans in the small business lending portfolio have sources of repayment that are primarily based on the identified cash flows of the borrower and secondarily on any underlying collateral provided by the borrower. Loans may, but do not always, have a collateral shortfall. For SBA loans where the guaranteed portion is retained, the SBA guaranty provides a tertiary source of repayment to the Bank in event of borrower default. Cash flows of borrowers, however, may not be as expected and collateral securing these loans may fluctuate in value. Loans are made for a broad array of purposes including, but not limited to, providing operating cash flow, funding ownership changes, and facilitating equipment and commercial real estate purchases. Franchise Finance: These loans are made on a nationwide basis through our partnership with ApplePie Capital, which through their deep relationships with franchise brands provides franchisees with financing options for new franchise units, recapitalization, expansion, equipment and working capital. The sources of repayment are either based on identified cash flows from existing operations of the borrower or pro forma cash flow for new franchise locations. Residential Mortgage: With respect to residential loans that are secured by 1-to-4 family residences and are generally owner occupied, the Company typically establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Repayment of these loans is primarily dependent on the financial circumstances of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in residential property values. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers in geographically diverse locations throughout the country. Home Equity: Home equity loans and lines of credit are typically secured by a subordinate interest in 1-to-4 family residences. The properties securing the home equity portfolio segment are generally geographically diverse as the Company offers these products on a nationwide basis. Repayment of these loans and lines of credit is primarily dependent on the financial circumstances of the borrowers and may be impacted by changes in unemployment levels and property values on residential properties, among other economic conditions in the market. Other Consumer: These loans primarily consist of consumer loans and credit cards. Consumer loans may be secured by consumer assets such as horse trailers or recreational vehicles. Some consumer loans are unsecured, such as small installment loans, home improvement loans and certain lines of credit. Repayment of consumer loans is primarily dependent upon the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers in geographically diverse locations throughout the country. Allowance for Credit Losses (“ACL”) Methodology The ACL for loans represents management's estimate of all expected credit losses over the expected life of the Company’s existing loan portfolio. Management estimates the ACL balance using relevant available information about the collectability of cash flows, from internal and external sources, including historical information relating to past events, current conditions, and reasonable and supportable forecasts of future economic conditions. When the Company is unable to forecast future economic events, management may revert to historical information. The Company's methodologies incorporate a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average. The ACL methodology may also consider other adjustments to address changes in conditions, trends, and circumstances such as local industry changes that could have a significant impact on the risk profile of the loan portfolio and provide for adjustments that may not be reflected and/or captured in the historical loss data. These factors include: lending policies, imprecision in forecasting future economic conditions, loan profile, lending staff, problem loan trends, loan review, collateral, credit concentration, or other internal and external factors. F-25 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) 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: • 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 • The effect of other external factors (i.e. competition, legal and regulatory requirements) on the level of estimated credit losses The ACL is measured on a collective or pool basis when similar risk characteristics exist. The Company segments its portfolio generally by Federal Financial Institutions Examination Council ("FFIEC") Call Report codes that align with its lines of business. Additional sub-segmentation may be utilized to identify groups of loans with unique risk characteristics relative to the rest of the portfolio. Loans that do not share similar risk characteristics are evaluated on an individual basis. These evaluations are typically performed on loans with a deteriorated internal risk rating. The allowance for credit loss is determined based on several methods, including estimating the fair value of the underlying collateral or the present value of expected cash flows. The Company relies on a third-party platform that offers multiple methodologies to measure historical life-of-loan losses. Modified Loans to Borrowers Experiencing Financial Difficulty The Company may make modifications to certain loans in order to alleviate temporary difficulties in the borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize potential losses to the Company. Modifications may include changes in the amortization terms of the loan, reductions in interest rates, acceptance of interest only payments, and/or reductions to the outstanding loan balance. Such loans are typically placed on nonaccrual status when there is doubt concerning the full repayment of principal and interest or the loan has been delinquent for a period of 90 days or more. These loans may be returned to accrual status when all contractual amounts past due have been brought current, and the borrower’s performance under the modified terms of the loan agreement and the ultimate collectability of all contractual amounts due under the modified terms is no longer in doubt. The Company typically measures the ACL on modified loans to borrowers experiencing financial difficulty on an individual basis when the loans are deemed to no longer share risk characteristics that are similar with other loans in the portfolio. The determination of the ACL for these loans is based on a discounted cash flow approach for both those measured collectively and individually, unless the loan is deemed collateral dependent, which requires measurement of the ACL based on the estimated expected fair value of the underlying collateral, less costs to sell. GAAP requires the Company to make certain disclosures related to these loans, including certain types of modifications, as well as how such loans have performed since their modifications. Provision for Credit Losses A provision for estimated losses on loans is charged to income based upon management’s evaluation of the potential losses. Such an evaluation, which includes a review of all loans for which full repayment may not be reasonably assured, considers, among other matters, the estimated net realizable value of the underlying collateral, as applicable, economic conditions, loan loss experience, and other factors that are particularly susceptible to changes that could result in a material adjustment in the near term. While management attempts to use the best information available in making its evaluations, future allowance adjustments may be necessary if economic conditions change substantially from the assumptions used in making the evaluations. F-26 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. The following tables present changes in the balance of the ACL during the twelve months ended December 31, 2023. Twelve Months Ended December 31, 2023 Balance, Beginning of Period Adoption of CECL (Credit) Provision Charged to Expense Losses Charged Off Recoveries Balance, End of Period Allowance for credit losses: Commercial and industrial $ 1,711 $ ( 120 ) $ 7,400 $ ( 7,049 ) $ 243 $ 2,185 Owner-occupied commercial real estate 651 62 112 — — 825 Investor commercial real estate 1,099 ( 191 ) 994 ( 591 ) — 1,311 Construction 2,074 ( 435 ) 528 — — 2,167 Single tenant lease financing 10,519 ( 346 ) ( 2,044 ) — — 8,129 Public finance 1,753 ( 135 ) ( 246 ) — — 1,372 Healthcare finance 2,997 1,034 ( 1,450 ) ( 605 ) — 1,976 Small business lending 2,168 334 6,539 ( 2,586 ) 77 6,532 Franchise finance 3,988 ( 313 ) 3,019 ( 331 ) — 6,363 Residential mortgage 1,559 406 224 ( 140 ) 5 2,054 Home equity 69 133 ( 37 ) — 6 171 Other consumer 3,149 2,533 415 ( 582 ) 174 5,689 Total $ 31,737 $ 2,962 $ 15,454 $ ( 11,884 ) $ 505 $ 38,774 Prior to the adoption of ASU 2016-13 on January 1, 2023, the Company calculated the allowance for loan losses using the incurred loss methodology. 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, 2022 and December 31, 2021. F-27 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Twelve Months Ended December 31, 2022 Balance, Beginning of Period Provision (Credit) Charged to Expense Losses Charged Off Recoveries Balance, End of Period Allowance for loan losses: Commercial and industrial $ 1,891 $ ( 185 ) $ — $ 5 $ 1,711 Owner-occupied commercial real estate 742 ( 91 ) — — 651 Investor commercial real estate 328 771 — — 1,099 Construction 1,612 462 — — 2,074 Single tenant lease financing 10,385 ( 1,097 ) — 1,231 10,519 Public finance 1,776 ( 23 ) — — 1,753 Healthcare finance 5,940 ( 2,943 ) — — 2,997 Small business lending 1,387 1,154 ( 402 ) 29 2,168 Franchise finance 1,083 2,905 — — 3,988 Residential mortgage 643 912 — 4 1,559 Home equity 64 ( 134 ) — 139 69 Other consumer 1,990 3,246 ( 2,358 ) 271 3,149 Total $ 27,841 $ 4,977 $ ( 2,760 ) $ 1,679 $ 31,737 Twelve Months Ended December 31, 2021 Balance, Beginning of Period Provision (Credit) Charged to Expense Losses Charged Off Recoveries Balance, End of Period Allowance for loan losses: Commercial and industrial $ 1,146 $ 684 $ ( 28 ) $ 89 $ 1,891 Owner-occupied commercial real estate 1,082 ( 340 ) — — 742 Investor commercial real estate 155 173 — — 328 Construction 1,192 420 — — 1,612 Single tenant lease financing 12,990 ( 214 ) ( 2,391 ) — 10,385 Public finance 1,732 44 — — 1,776 Healthcare finance 7,485 ( 1,545 ) — — 5,940 Small business lending 628 901 ( 222 ) 80 1,387 Franchise Finance — 1,083 — — 1,083 Residential mortgage 519 67 ( 6 ) 63 643 Home equity 48 60 ( 51 ) 7 64 Other consumer 2,507 ( 303 ) ( 529 ) 315 1,990 Total $ 29,484 $ 1,030 $ ( 3,227 ) $ 554 $ 27,841 In addition to the ACL, the Company established a reserve for off-balance sheet commitments, classified in other liabilities, as required by the adoption of the CECL methodology for measuring credit losses. This reserve is maintained at a level management believes to be sufficient to absorb losses arising from unfunded loan commitments. The day one entry for off-balance sheet commitments resulted in a reserve of $ 2.5 million. The adequacy of the reserve for unfunded commitments is determined quarterly based on methodology similar to the methodology for determining the ACL. The following table details activity in the provision for credit losses on off-balance sheet commitments for the twelve months ended December 31, 2023. F-28 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) (dollars in thousands) Pre-ASC 326 Adoption Impact of ASC 326 Adoption Provision for credit losses Balance December 31, 2023 Off-balance sheet commitments Commercial loans Commercial and industrial $ — $ 110 $ 123 $ 233 Owner-occupied commercial real estate — — 9 9 Investor commercial real estate — 9 ( 3 ) 6 Construction — 2,193 696 2,889 Healthcare finance — 2 ( 2 ) — Small business lending — — 541 541 Total commercial loans — 2,314 1,364 3,678 Consumer loans Residential mortgage — 127 ( 116 ) 11 Home equity — 52 ( 7 ) 45 Other consumer — 11 — 11 Total consumer loans — 190 ( 123 ) 67 Total allowance for off-balance sheet commitments $ — $ 2,504 $ 1,241 $ 3,745 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, 2022. Loans Allowance for Loan Losses December 31, 2022 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 $ 116,307 $ 9,801 $ 126,108 $ 1,660 $ 51 $ 1,711 Owner-occupied commercial real estate 60,266 1,570 61,836 651 — 651 Investor commercial real estate 93,121 — 93,121 1,099 — 1,099 Construction 181,966 — 181,966 2,074 — 2,074 Single tenant lease financing 939,240 — 939,240 10,519 — 10,519 Public finance 621,032 — 621,032 1,753 — 1,753 Healthcare finance 272,461 — 272,461 2,997 — 2,997 Small business lending 1 113,699 10,051 123,750 1,465 703 2,168 Franchise finance 299,835 — 299,835 3,988 — 3,988 Residential mortgage 380,272 3,676 383,948 1,559 — 1,559 Home equity 24,683 29 24,712 69 — 69 Other consumer 324,581 17 324,598 3,149 — 3,149 Total $ 3,427,463 $ 25,144 $ 3,452,607 $ 30,983 $ 754 $ 31,737 1 Balance is partially guaranteed by the U.S. government. F-29 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) The Company utilizes a risk grading matrix to assign a risk grade to each of its commercial loans. A description of the general characteristics of the risk grades is as follows: • “Pass” - Higher quality loans that do not fit any of the other categories described below. • “Special Mention” - Loans that possess some credit deficiency or potential weakness which deserve close attention. • “Substandard” - Loans that possess a defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans that are 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 Company does not risk grade its consumer loans. It classifies them as either performing or nonperforming. Below is a description of those classifications: • “Performing” - Loans that are accruing and full collection of principal and interest is expected. • “Nonperforming” - Loans that are 90 days delinquent or for which the full collection of principal and interest may be in doubt. F-30 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) The following table presents the credit risk profile of the Company’s commercial and consumer loan portfolios by loan class and by year of origination for the years indicated based on rating category and payment activity as of December 31, 2023. December 31, 2023 Term Loans (amortized cost basis by origination year) Revolving loans amortized cost basis Revolving loans converted to term (in thousands) 2023 2022 2021 2020 2019 Prior Total Commercial and industrial Pass $ 24,329 $ 19,382 $ 15,464 $ 2,502 $ 12,365 $ 8,703 $ 41,967 $ — $ 124,712 Special Mention — 4,637 — — — — — — 4,637 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total Commercial and industrial 24,329 24,019 15,464 2,502 12,365 8,703 41,967 — 129,349 Gross charge-offs — — 6,914 5 130 — — — 7,049 Owner-occupied commercial real estate Pass 1,492 10,731 7,990 6,591 5,255 12,485 — — 44,544 Special Mention — 584 922 8,392 — 1,189 — — 11,087 Substandard — — — — — 1,655 — — 1,655 Doubtful — — — — — — — — — Total owner-occupied commercial real estate 1,492 11,315 8,912 14,983 5,255 15,329 — — 57,286 Investor commercial real estate Pass 6,571 35,209 26,841 9,864 47,827 5,765 — — 132,077 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Total investor commercial real estate 6,571 35,209 26,841 9,864 47,827 5,765 — — 132,077 Gross charge-offs — — — — — 591 — — 591 Construction Pass 26,539 153,066 70,175 6,121 — — 5,849 — 261,750 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Total construction 26,539 153,066 70,175 6,121 — — 5,849 — 261,750 Single tenant lease financing Pass 52,360 221,964 89,075 65,863 142,023 346,695 — — 917,980 Special Mention — 4,362 6,698 3,032 — 4,544 — — 18,636 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total single tenant lease financing 52,360 226,326 95,773 68,895 142,023 351,239 — — 936,616 Public finance Pass 3,805 30,583 29,750 719 43,611 411,176 — — 519,644 Special Mention — — — — — 2,120 — — 2,120 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total public finance 3,805 30,583 29,750 719 43,611 413,296 — — 521,764 F-31 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) December 31, 2023 Term Loans (amortized cost basis by origination year) Revolving loans amortized cost basis Revolving loans converted to term (in thousands) 2023 2022 2021 2020 2019 Prior Total Healthcare finance Pass — — 9,955 124,654 63,486 23,484 — — 221,579 Special Mention — — — — 1,214 — — — 1,214 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total healthcare finance — — 9,955 124,654 64,700 23,484 — — 222,793 Gross charge-offs — — — — 605 — — — 605 Small business lending 1 Pass 119,149 42,077 15,180 13,948 4,582 9,215 5,388 — 209,539 Special Mention 343 496 — 341 265 698 — — 2,143 Substandard 1,095 1,854 52 1,777 1,155 417 474 — 6,824 Doubtful — — — — — — — — — Total small business lending 120,587 44,427 15,232 16,066 6,002 10,330 5,862 — 218,506 Gross charge-offs 67 739 416 1,364 — — — — 2,586 Franchise finance Pass 256,944 210,617 57,919 — — — — — 525,480 Special Mention — — — — — — — — — Substandard — — 303 — — — — — 303 Doubtful — — — — — — — — — Total franchise finance 256,944 210,617 58,222 — — — — — 525,783 Gross charge-offs — 331 — — — — — — 331 Consumer loans Residential mortgage Performing 14,942 195,453 91,010 30,092 13,072 48,330 — — 392,899 Nonperforming — 738 456 73 — 1,482 — — 2,749 Total residential mortgage 14,942 196,191 91,466 30,165 13,072 49,812 — — 395,648 Gross charge-offs — 53 70 — 17 — — — 140 Home equity Performing 1,369 1,997 436 467 141 585 16,896 1,778 23,669 Nonperforming — — — — — — — — — Total home equity 1,369 1,997 436 467 141 585 16,896 1,778 23,669 Other consumer Performing 115,736 106,883 41,598 26,527 27,087 58,902 795 — 377,528 Nonperforming — 53 — 5 15 13 — — 86 Total other consumer 115,736 106,936 41,598 26,532 27,102 58,915 795 — 377,614 Gross charge-offs 97 115 20 51 56 243 — — 582 Total Loans $ 624,674 $ 1,040,686 $ 463,824 $ 300,968 $ 362,098 $ 937,458 $ 71,369 $ 1,778 $ 3,802,855 Total gross charge-offs $ 164 $ 1,238 $ 7,420 $ 1,420 $ 808 $ 834 $ — $ — $ 11,884 1 Balance is partially guaranteed by the U.S. government. F-32 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) 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, 2022. December 31, 2022 (in thousands) Pass Special Mention Substandard Total Commercial and industrial $ 114,934 $ 1,373 $ 9,801 $ 126,108 Owner-occupied commercial real estate 50,721 9,546 1,569 61,836 Investor commercial real estate 93,121 — — 93,121 Construction 180,768 1,198 — 181,966 Single tenant lease financing 936,207 3,033 — 939,240 Public finance 618,752 2,280 — 621,032 Healthcare finance 271,085 1,376 — 272,461 Small business lending 1 107,885 5,814 10,051 123,750 Franchise finance 299,241 594 — 299,835 Total commercial loans $ 2,672,714 $ 25,214 $ 21,421 $ 2,719,349 1 Balance in “Substandard” is partially guaranteed by the U.S. government. December 31, 2022 (in thousands) Performing Nonperforming Total Residential mortgage $ 382,900 $ 1,048 $ 383,948 Home equity 24,712 — 24,712 Other consumer 324,581 17 324,598 Total $ 732,193 $ 1,065 $ 733,258 F-33 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) The following tables present the Company’s loan portfolio delinquency analysis as of December 31, 2023 and 2022. December 31, 2023 (in thousands) 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total loans Commercial and industrial $ 40 $ 21 $ — $ 61 $ 129,288 $ 129,349 Owner-occupied commercial real estate — — — — 57,286 57,286 Investor commercial real estate — — — — 132,077 132,077 Construction — — — — 261,750 261,750 Single tenant lease financing — — — — 936,616 936,616 Public finance — — — — 521,764 521,764 Healthcare finance — — — — 222,793 222,793 Small business lending 1 2,680 57 2,794 5,531 212,975 218,506 Franchise Finance — 2,923 303 3,226 522,557 525,783 Residential mortgage 70 709 1,663 2,442 393,206 395,648 Home equity — — — — 23,669 23,669 Other consumer 223 68 53 344 377,270 377,614 Total $ 3,013 $ 3,778 $ 4,813 $ 11,604 $ 3,791,251 $ 3,802,855 1 Balance is partially guaranteed by the U.S. government. December 31, 2022 (in thousands) 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total loans Commercial and industrial $ 81 $ — $ 51 $ 132 $ 125,976 $ 126,108 Owner-occupied commercial real estate — — — — 61,836 61,836 Investor commercial real estate — — — — 93,121 93,121 Construction — 1,198 — 1,198 180,768 181,966 Single tenant lease financing — — — — 939,240 939,240 Public finance — — — — 621,032 621,032 Healthcare finance — — — — 272,461 272,461 Small business lending 1 57 — 3,485 3,542 120,208 123,750 Franchise Finance 313 — — 313 299,522 299,835 Residential mortgage — 283 185 468 383,480 383,948 Home equity — — — — 24,712 24,712 Other consumer 91 10 — 101 324,497 324,598 Total $ 542 $ 1,491 $ 3,721 $ 5,754 $ 3,446,853 $ 3,452,607 1 Balance is partially guaranteed by the U.S. government. Loans are reclassified to non-accruing status when, in management’s judgment, the collateral value and financial condition of the borrower do not justify accruing interest. At the time the accrual is discontinued, all unpaid accrued interest is reversed against earnings. Interest income accrued in prior years, if any, is charged to the allowance for credit losses. Payments subsequently received on nonaccrual loans are applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable, typically after a minimum of nine consecutive months of performance. F-34 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) The following table summarizes the Company’s nonaccrual loans and loans past due 90 days or more and still accruing by loan class for the periods indicated: December 31, 2023 December 31, 2022 (in thousands) Nonaccrual Loans Nonaccrual Loans with no Allowance for Credit Losses Total Loans 90 Days or More Past Due and Accruing Nonaccrual Loans Nonaccrual Loans with no Allowance for Loan Losses Total Loans 90 Days or More Past Due and Accruing Commercial and industrial $ — $ — $ — $ 51 $ — $ — Owner-occupied commercial real estate — — — 1,570 1,570 — Small business lending 1 6,824 904 — 4,764 2,766 — Franchise finance 303 — — — Residential mortgage 1,911 1,911 838 1,048 1,048 79 Other consumer 86 86 — 17 17 — Total loans $ 9,124 $ 2,901 $ 838 $ 7,450 $ 5,401 $ 79 1 Balance is partially guaranteed by the U.S. government. There was $ 0.3 million and $ 0.2 million in interest income recognized on nonaccrual loans for the twelve months ended December 31, 2023 and December 31, 2022, respectively. Determining fair value for collateral dependent loans requires obtaining a current independent appraisal of the collateral and applying a discount factor, which includes selling costs if applicable, to the value. The fair value of real estate is generally based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis. Fair value on other collateral such as business assets is typically ascertained by assessing, either singularly or some combination of, asset appraisals, accounts receivable aging reports, inventory listings and/or customer financial statements. Both appraised values and values based on borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions. The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses as of December 31, 2023. December 31, 2023 (in thousands) Commercial Real Estate Residential Real Estate Other Total Allowance on Collateral Dependent Loans Commercial and industrial $ — $ — $ — $ — $ — Owner-occupied commercial real estate — — 1,654 1,654 — Small business lending 1 2,875 1,210 2,226 6,311 2,391 Residential mortgage — 1,911 — 1,911 — Other consumer loans — — 86 86 — Total loans $ 2,875 $ 3,121 $ 3,966 $ 9,962 $ 2,391 1 Balance is partially guaranteed by the U.S. government. F-35 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 31,2022. December 31, 2022 Recorded Balance Unpaid Principal Balance Specific Allowance Loans without a specific valuation allowance Commercial and industrial $ 9,750 $ 9,750 $ — Owner-occupied commercial real estate 1,570 1,779 — Small business lending 1 8,184 8,705 — Residential mortgage 3,676 3,835 — Home equity 29 29 — Other consumer 17 36 — Total 23,226 24,134 — Loans with a specific valuation allowance Commercial and industrial $ 51 $ 51 $ 51 Single tenant lease financing — — — Healthcare finance — — — Small business lending 1 1,867 1,867 703 Total 1,918 1,918 754 Total impaired loans $ 25,144 $ 26,052 $ 754 1 Balance is partially guaranteed by the U.S. government. The following table presents average balances and interest income recognized for impaired loans during the twelve months ended December 31, 2022, and 2021. December 31, 2022 December 31, 2021 Average Balance Interest Income Average Balance Interest Income Loans without a specific valuation allowance Commercial and industrial $ 3,676 $ 872 $ 194 $ 9 Owner-occupied commercial real estate 2,253 — 3,324 — Single tenant lease financing — — 75 5 Healthcare finance — — 252 — Small business lending 1 2,678 — 1,215 — Residential mortgage 3,529 25 2,264 67 Home equity 16 — 13 — Other consumer 8 — 29 — Total 12,160 897 7,366 81 Loans with a specific valuation allowance Commercial and industrial $ 411 $ — $ 675 $ — Owner-occupied commercial real estate — — 355 — Single tenant lease financing 410 — 3,931 — Healthcare finance 620 45 841 131 Small business lending 1 1,662 — 644 — Other consumer 50 — — — Total 3,153 45 6,446 131 Total impaired loans $ 15,313 $ 942 $ 13,812 $ 212 1 Balance is partially guaranteed by the U.S. government. F-36 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Loan Modifications to Borrowers Experiencing Financial Difficulty In January 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”), which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis. Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications to borrowers experiencing financial difficulty. Instead, these modifications are included in their respective loan pool and a historical loss rate is applied to the current loan balance to arrive at the quantitative baseline portion of the ACL. Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions and other actions intended to minimize loss and to avoid foreclosure or repossession of collateral. The Company did not have any loan modifications made to borrowers experiencing financial difficulty during the twelve months ended December 31, 2023. There were two portfolio residential mortgage loans classified as new TDRs during the twelve months ended December 31, 2022 with a pre-modification and post-modification outstanding recorded investment of $ 1 million. The Company did not allocate a specific allowance for loan losses (“ALLL”) for these loans as of December 31, 2022 and the modifications consisted of interest only payments for a period of time. There was one SBA loan classified as a new TDR during the twelve months ended December 31, 2022 with a pre-modification and post-modification outstanding recorded investment of $ 0.6 million and the modification consisted of a forbearance agreement. The company allocated a specific ALLL of $ 0.3 million for this loan. There were two portfolio residential mortgage loans classified as new TDRs during the twelve months ended December 31, 2021 with a pre-modification and post-modification outstanding recorded investment of $ 1.6 million. The Company did not allocate a specific ALLL for these loans as of December 31, 2021. The modifications consisted of interest-only payments for a period of time. There were no performing TDRs which had payment defaults within the twelve months following modification during the years ended December 31, 2022 and 2021. Other Real Estate Owned The Company had $ 0.4 million in OREO as of December 31, 2023, which consisted of two residential mortgage properties. The Company did not have any OREO as of December 31, 2022. There was one loan totaling $ 0.8 million and one loan totaling $ 0.1 million, in the process of foreclosure at December 31, 2023 and December 31, 2022, respectively. Note 5: Premises and Equipment The following table summarizes premises and equipment at December 31, 2023 and 2022. December 31, 2023 2022 Land $ 5,598 $ 5,598 Construction in process 1,119 714 Right of use leased asset 66 206 Building and improvements 60,699 57,505 Furniture and equipment 20,836 19,585 Less: accumulated depreciation ( 14,855 ) ( 10,897 ) $ 73,463 $ 72,711 F-37 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Note 6: Goodwill As of December 31, 2023 and 2022, 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, 2023, 2022 and 2021. 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, 2023 and no events or changes in circumstances have occurred since the August 31, 2023 annual impairment test that would suggest it was more likely than not goodwill impairment existed. Note 7: Servicing Asset Activity for the servicing asset and the related changes in fair value for the twelve months ended December 31, 2023, 2022 and 2021 are shown in the table below. Twelve Months Ended December 31, 2023 December 31, 2022 December 31, 2021 Beginning balance $ 6,255 $ 4,702 $ 3,569 Additions: Originated and purchased servicing 5,775 3,192 2,202 Subtractions: Paydowns ( 1,842 ) ( 1,075 ) ( 820 ) Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model 379 ( 564 ) ( 249 ) Loan servicing asset revaluation ( 1,463 ) ( 1,639 ) ( 1,069 ) Ending balance $ 10,567 $ 6,255 $ 4,702 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, 2023, 2022 and 2021 are shown in the table below. December 31, 2023 December 31, 2022 December 31, 2021 Loan portfolios serviced for: SBA guaranteed loans $ 531,927 $ 318,194 $ 230,514 Total $ 531,927 $ 318,194 $ 230,514 Loan servicing revenue totaled $ 3.8 million, $ 2.6 million and $ 1.9 million during the twelve months ended December 31, 2023, 2022 and 2021, respectively. Loan servicing asset revaluation, which represents paydowns and the change in fair value of the servicing asset, resulted in a $ 1.5 million, $ 1.6 million and $ 1.1 million downward valuation for twelve months ended December 31, 2023, 2022 and 2021, respectively. The fair value of servicing rights is highly sensitive to changes in underlying assumptions. Though fluctuations in prepayment speeds and changes in secondary market premiums generally have the most substantial impact on the fair value of servicing rights, other influencing factors include changing economic conditions, changes to the discount rate assumption and the weighted average life of the servicing portfolio. Measurement of fair value is limited to the conditions existing and the assumptions used as of a particular point in time; however, those assumptions may change over time. Refer to Note 16 - Fair Value of Financial Instruments for further details. F-38 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Note 8: Deposits The following table presents the composition of the Company’s deposit base as of December 31, 2023 and 2022. December 31, 2023 2022 Noninterest-bearing demand deposit accounts $ 123,464 $ 175,315 Interest-bearing demand deposit accounts 402,976 335,611 Savings accounts 21,364 44,819 Money market accounts 1,248,319 1,418,599 Banking-as-a-Service (“BaaS”) - brokered deposits 74,401 13,607 Certificates of deposits 1,605,156 874,490 Brokered deposits 591,293 578,804 Total deposits $ 4,066,973 $ 3,441,245 Time deposits greater than $250 $ 703,835 $ 484,700 The following table presents time deposit maturities by year as of December 31, 2023. Certificates of Deposits Brokered Certificates of Deposits 2024 $ 1,245,393 $ 87,030 2025 83,378 92,499 2026 63,319 35,430 2027 94,844 40,000 2028 118,222 6,500 Thereafter — 6,400 $ 1,605,156 $ 267,859 Note 9: FHLB Advances The Company had outstanding FHLB advances of $ 614.9 million as of December 31, 2023 and 2022. As of December 31, 2023, the stated interest rates on the Company’s outstanding FHLB advances ranged from 1.06 % to 5.53 %, with a weighted average interest rate of 3.04 %. 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 $ 330.3 million and $ 258.0 million as of December 31, 2023 and 2022, respectively, and commercial real estate loans pledged were approximately $ 932.4 million and $ 895.3 million as of December 31, 2023 and 2022, respectively. The fair value of investment securities pledged to the FHLB was approximately $ 662.1 million and $ 448.4 million as of December 31, 2023 and 2022, respectively. Based on this collateral and the Company’s holding of FHLB stock, the Company is eligible to borrow up to an additional $ 663.2 million at year-end 2023. As of December 31, 2023, the Company had $ 125.0 million of putable advances with the FHLB. F-39 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) The Company’s FHLB advances are scheduled to mature according to the following schedule: Amount 2024 $ 255,003 2025 90,000 2026 10,000 2027 100,000 2028 35,000 Thereafter 124,931 $ 614,934 Note 10: Subordinated Debt In June 2019, the Company issued $ 37.0 million aggregate principal amount of 6.0 % Fixed-to-Floating Rate Subordinated Notes due 2029 (the “2029 Notes”) in a public offering. The 2029 Notes initially bear a fixed interest rate of 6.0 % per year to, but excluding, June 30, 2024, and thereafter a floating rate equal to the then-current benchmark rate (initially three-month LIBOR rate) plus 4.11 %. All interest on the 2029 Notes is payable quarterly. The 2029 Notes are scheduled to mature on June 30, 2029. The 2029 Notes are unsecured subordinated obligations of the Company and may be repaid, without penalty, on any interest payment date on or after June 30, 2024. The 2029 Notes are intended to qualify as Tier 2 capital under regulatory guidelines. In October 2020, the Company entered into a term loan in the principal amount of $ 10.0 million, evidenced by a term note due 2030 (the “2030 Note”). The 2030 Note initially bears a fixed interest rate of 6.0 % per year to, but excluding, November 1, 2025 and thereafter at a floating rate equal to the then-current benchmark rate (initially three-month Term SOFR plus 5.795 %). The 2030 Note is scheduled to mature on November 1, 2030. The 2030 Note is an unsecured subordinated obligation of the Company and may be repaid, without penalty, on any interest payment date on or after November 1, 2025. The 2030 Note is intended to qualify as Tier 2 capital under regulatory guidelines. The Company used the net proceeds from the issuance of the 2030 Note to redeem a subordinated term note that had been entered into in October 2015. In August 2021, the Company issued $ 60.0 million aggregate principal amount of 3.75 % Fixed-to-Floating Rate Subordinated Notes due 2031 (the “2031 Notes”) in a private placement. The 2031 Notes initially bear a fixed interest rate of 3.75 % per year to, but excluding, September 1, 2026, and thereafter a floating rate equal to the then-current benchmark rate (initially three-month Term SOFR plus 3.11 %). The 2031 Notes are scheduled to mature on September 1, 2031. The 2031 Notes are unsecured subordinated obligations of the Company and may be repaid, without penalty, on any interest payment date on or after September 1, 2026. The 2031 Notes are intended to qualify as Tier 2 capital under regulatory guidelines. The Company used a portion of the net proceeds from the issuance of the 2031 Notes to redeem subordinated notes issued by the Company in 2016. Pursuant to the terms of a Registration Rights Agreement between the Company and the initial purchasers of the 2031 Notes, the Company offered to exchange the 2031 Notes for subordinated notes that are registered under the Securities Act of 1933, as amended, and have substantially the same terms as the 2031 Notes. On December 30, 2021, we completed an exchange of $ 59.3 million principal amount of the unregistered 2031 Notes for registered 2031 Notes in satisfaction of our obligations under the registration rights agreement. Holders of $ 0.7 million of unregistered 2031 Notes did not participate in the exchange. F-40 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) The following table presents the principal balance and unamortized discount and debt issuance costs for the 2029 Notes, the 2030 Note and the 2031 Notes as of December 31, 2023 and 2022. December 31, 2023 December 31, 2022 Principal Unamortized Discount and Debt Issuance Costs Principal Unamortized Discount and Debt Issuance Costs 2029 Notes $ 37,000 $ ( 862 ) $ 37,000 $ ( 1,020 ) 2030 Note 10,000 ( 160 ) 10,000 ( 184 ) 2031 Notes 60,000 ( 1,140 ) 60,000 ( 1,264 ) Total $ 107,000 $ ( 2,162 ) $ 107,000 $ ( 2,468 ) Note 11: Benefit Plans 401(k) Plan The Company has a 401(k) plan established for substantially all full-time and part-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 % up to the first 1 % of employee deferrals and then 50 % on deferrals of 2 % to 6 % equating to a maximum match of 3.5 % of an individual’s total eligible salary, as defined in the plan. The company match 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 $ 0.9 million in the twelve months ended December 31, 2023, 2022 and 2021, respectively. Employment Agreements The Company is party to certain employment agreements with each of its Chief Executive Officer, President and Chief Operating Officer and Executive Vice President and Chief Financial Officer. The employment agreements each provide for annual base salaries and annual bonuses, if any, as determined from time to time by the Compensation Committee of our Board of Directors. The annual bonuses are to be determined with reference to the achievement of annual performance objectives established by the Compensation Committee. The agreements also provide that each of the Chief Executive Officer, President and Chief Operating Officer and Executive Vice President and Chief Financial Officer, may be awarded additional compensation, benefits, or consideration as the Compensation Committee may determine. The agreements also provide for the continuation of salary and certain other benefits for a specified period of time upon termination of employment under certain circumstances, including resignation for “good reason,” termination by the Company without “cause” at any time or any termination of employment within twelve months following a “change in control,” along with other specific conditions. 2022 Equity Incentive Plan The First Internet Bancorp 2022 Equity Incentive Plan (the “2022 Plan”) was approved by our Board of Directors and ratified by our shareholders on May 16, 2022. The plan permits awards of incentive and non-statutory stock options, stock appreciation rights, restricted stock awards, stock unit awards, performance awards and other stock-based awards. All employees, consultants and advisors of the Company or any subsidiary, as well as all non-employee directors of the Company, are eligible to receive awards under the 2022 Plan. The 2022 Plan initially authorized the issuance of 400,000 new shares of the Company’s common stock plus all shares of common stock that remained available for future grants under the First Internet Bancorp 2013 Equity Incentive Plan (the “2013 Plan”). Award Activity Under 2022 Plan The Company recorded $ 0.8 million and $ 0.1 million of share-based compensation expense for the years ended December 31, 2023, and 2022, respectively, related to stock-based awards under the 2022 Plan. F-41 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) The following table summarizes the stock-based award activity under the 2022 Plan for the year ended December 31, 2023. 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, 2023 — $ — 3,558 $ 36.84 — $ — Granted 147,576 24.61 30,030 11.18 — — Forfeited — — — — — Vested — — ( 3,558 ) 36.84 Unvested at December 31, 2023 147,576 $ 24.61 30,030 $ 11.18 — $ — At December 31, 2023, the total unrecognized compensation cost related to unvested stock-based awards was $ 1.3 million with a weighted-average expense recognition period of 1.9 years. 2013 Equity Incentive Plan The 2013 Plan authorized the issuance of 750,000 shares of the Company’s common stock in the form of stock-based awards to employees, directors and other eligible persons. Although outstanding stock-based awards under the 2013 Plan remain in place according to their terms, our authority to grant new awards under the 2013 Plan terminated upon shareholder approval of the 2022 Plan. Award Activity Under 2013 Plan The Company recorded $ 0.4 million, $ 2.0 million and $ 2.4 million of share-based compensation expense for the years ended December 31, 2023, 2022 and 2021, respectively, related to stock-based awards under the 2013 Plan. The following table summarizes the stock-based award activity under the 2013 Plan for the year ended December 31, 2023: 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, 2023 101,734 $ 35.93 — $ — — $ — Granted — — — — — — Forfeited ( 278 ) 27.56 — — — Vested ( 47,471 ) 31.56 — — — Unvested at December 31, 2023 53,985 $ 39.86 — — $ — As of December 31, 2023, the total unrecognized compensation cost related to unvested awards was $ 0.6 million with a weighted-average expense recognition period of 1.1 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-42 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, 2023. Deferred Rights Outstanding, beginning of year 40,414 Granted 402 Released ( 12,278 ) Outstanding, end of year 28,538 All deferred stock rights granted during 2023 were additional rights issued in lieu of cash dividends payable on outstanding deferred stock rights. Note 12: Income Taxes The provision for income taxes consists of the following: December 31, 2023 2022 2021 Current $ 876 $ ( 73 ) $ 6,024 Deferred ( 4,353 ) 4,632 2,434 Total $ ( 3,477 ) $ 4,559 $ 8,458 Income tax provision is reconciled to the statutory 21 % rate applied to pre-tax income. December 31, 2023 2022 2021 Statutory rate times pre-tax income $ 1,037 $ 8,421 $ 11,880 (Subtract) add the tax effect of: Income from tax-exempt securities and loans ( 3,951 ) ( 4,190 ) ( 4,217 ) State income tax, net of federal tax effect ( 30 ) 592 865 Bank-owned life insurance ( 215 ) ( 201 ) ( 199 ) Tax credits ( 168 ) ( 143 ) ( 175 ) Other differences ( 150 ) 80 304 Total income taxes $ ( 3,477 ) $ 4,559 $ 8,458 F-43 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) The net deferred tax asset at December 31, 2023 and 2022 consists of the following: December 31, 2023 2022 Deferred tax assets (liabilities) Allowance for loan losses $ 9,847 $ 8,569 Net unrealized losses on available-for-sale securities and hedged items 8,776 10,047 Fair value adjustments ( 12,101 ) ( 12,097 ) Depreciation ( 4,306 ) ( 2,612 ) Deferred compensation and accrued payroll 1,228 1,574 Loan origination costs ( 1,379 ) ( 1,816 ) Prepaid assets ( 806 ) ( 813 ) Net operating loss 13,309 8,928 Tax credits 711 — Other 335 312 Total deferred tax assets, net $ 15,614 $ 12,092 As of December 31, 2023 and 2022 the Company had federal net operating loss (“NOL”) carryforwards of approximately $ 57.2 million and $ 40.5 million, respectively, and state NOL carryforwards of $ 8.5 million and $ 9.1 million, respectively. For federal income tax purposes, the NOL has no expiration period; however, for state income tax purposes, the NOL may have varying expiration periods. The Company expects to generate sufficient taxable income in the future to utilize the loss generated. Note 13: 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. Related party loans and extensions of credit at December 31, 2023 and 2022 totaled $ 45.9 million and $ 21.9 million, respectively. The following table presents the change in related party loans as of December 31, 2023 and 2022. Twelve Months Ended December 31, 2023 December 31, 2022 Balance at the beginning of period $ 21,860 $ 11,364 New Term Loans 19,139 21,810 Additions 4,956 — Repayment of term loans ( 12 ) ( 11,324 ) Changes in balances of revolving lines of credit ( 17 ) 10 Balance at end of period $ 45,926 $ 21,860 Deposits from related parties held by the Company at December 31, 2023 and 2022 totaled $ 28.3 million and $ 33.7 million, respectively. F-44 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Note 14: Regulatory Capital Requirements The Company and the Bank are subject to various regulatory capital requirements administered by state and federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors. The Basel III Capital Rules became effective for the Company and the Bank on January 1, 2015, subject to a phase-in period for certain provisions. Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios of Common Equity Tier 1 capital, Tier 1 capital and Total capital, as defined in the regulations, to risk-weighted assets, and of Tier 1 capital to adjusted quarterly average assets (“Leverage Ratio”). The Basel III Capital Rules were fully phased in on January 1, 2019 and require the Company and the Bank to maintain: 1) a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 4.5 %, plus a 2.5 % “capital conservation buffer” (resulting in a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 7.0 %); 2) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0 %, plus the capital conservation buffer (resulting in a minimum Tier 1 capital ratio of 8.5 %); 3) a minimum ratio of Total capital to risk-weighted assets of 8.0 %, plus the capital conservation buffer (resulting in a minimum Total capital ratio of 10.5 %); and 4) a minimum Leverage Ratio of 4.0 %. The capital conservation buffer is designed to absorb losses during periods of economic stress. Failure to maintain the minimum Common Equity Tier 1 capital ratio plus the capital conservation buffer will result in potential restrictions on a banking institution’s ability to pay dividends, repurchase stock and/or pay discretionary compensation to its employees. F-45 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, 2023 and 2022 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, 2023 and 2022 based on the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules. As permitted by the federal banking regulatory agencies, the Company has elected the option to delay the impact of the day one adoption of ASC 326. The transition adjustments of $ 4.5 million will be phased into the regulatory capital calculations over a three-year period, with 25% of the adjustment recognized in 2023, 50% of the adjustment recognized in 2024, 75% of the adjustment recognized in 2025 and 100% of the adjustment recognized in 2026. Actual Minimum Capital Required - Basel III Minimum Required to be Considered Well Capitalized Capital Amount Ratio Capital Amount Ratio Capital Amount Ratio As of December 31, 2023: Common equity tier 1 capital to risk-weighted assets Consolidated $ 381,001 9.60 % $ 277,914 7.00 % N/A N/A Bank 464,390 11.73 % 277,063 7.00 % $ 257,273 6.50 % Tier 1 capital to risk-weighted assets Consolidated 381,001 9.60 % 337,467 8.50 % N/A N/A Bank 464,390 11.73 % 336,434 8.50 % 316,644 8.00 % Total capital to risk-weighted assets Consolidated 525,283 13.23 % 416,870 10.50 % N/A N/A Bank 503,834 12.73 % 415,595 10.50 % 395,804 10.00 % Leverage ratio Consolidated 381,001 7.33 % 207,929 4.00 % N/A N/A Bank 464,390 8.95 % 207,479 4.00 % 259,349 5.00 % 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, 2022: Common equity tier 1 capital to risk-weighted assets Consolidated $ 390,150 10.93 % $ 249,795 7.00 % N/A N/A Bank 466,257 13.10 % 249,191 7.00 % $ 231,392 6.50 % Tier 1 capital to risk-weighted assets Consolidated 390,150 10.93 % 303,323 8.50 % N/A N/A Bank 466,257 13.10 % 302,590 8.50 % 284,790 8.00 % Total capital to risk-weighted assets Consolidated 526,419 14.75 % 374,693 10.50 % N/A N/A Bank 497,994 13.99 % 373,787 10.50 % 355,988 10.00 % Leverage ratio Consolidated 390,150 9.06 % 172,330 4.00 % N/A N/A Bank 466,257 10.84 % 172,093 4.00 % 215,116 5.00 % F-46 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Note 15: 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, 2023 and 2022, the Company had outstanding loan commitments totaling approximately $ 755.4 million and $ 485.4 million, respectively. Capital Commitments Capital expenditures were made in connection with the construction of the building where our corporate headquarters is located, along with an attached parking garage. The Company entered into construction-related contracts. As of December 31, 2023, the project was completed at a total cost of $ 67.2 million. There are no remaining capital commitments left at December 31, 2023. Note 16: 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. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. The Company did not own any securities classified within Level 1 of the hierarchy as of December 31, 2023 or December 31, 2022. Level 2 securities include U.S. Government-sponsored agencies, municipal securities, mortgage and asset-backed securities and corporate securities. Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Fair values are calculated using discounted cash flows. Discounted cash flows are calculated based off of the anticipated future cash flows updated to incorporate loss severities. Rating agency and industry research reports as well as default and deferral activity are reviewed and incorporated into the calculation. The Company did not own any securities classified within Level 3 of the hierarchy as of December 31, 2023 or 2022. 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-47 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 origination to maturity dates of the loans, the current age of the loans and the remaining term to maturity. The valuation methodology utilized for the servicing asset begins with generating estimated future cash flows for each servicing asset based on their unique characteristics and market-based assumptions for prepayment speeds and costs to service. The present value of the future cash flows is then calculated utilizing market-based discount rate assumptions (Level 3). Interest Rate Swap Agreements The fair values of interest rate swap agreements are estimated using current market interest rates as of the balance sheet date and calculated using discounted cash flows that are observable or that can be corroborated by observable market data (Level 2). Back-to-Back Swap Agreements The Company offers interest rate swaps to certain loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable-to-fixed interest rate contract with the customer. The Company also enters into an offsetting interest rate swap with a correspondent bank. These back-to-back swap agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. The fair value of these derivatives is based on a discounted cash flow approach. The fair value assets and liabilities of centrally cleared interest rate swaps are net of variation margin settled-to-market (Level 2). 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). F-48 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) The following tables present the fair value measurements of assets and liabilities recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2023 and 2022. December 31, 2023 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 $ 95,177 $ — $ 95,177 $ — Municipal securities 68,446 — 68,446 — Agency mortgage-backed securities - residential 206,649 — 206,649 — Agency mortgage-backed securities - commercial 38,885 — 38,885 Private label mortgage-backed securities - residential 20,779 — 20,779 — Asset-backed securities 8,081 — 8,081 — Corporate securities 36,838 — 36,838 — Total available-for-sale securities $ 474,855 $ — $ 474,855 $ — Servicing asset 10,567 — — 10,567 Interest rate swaps assets 5,139 — 5,139 — Interest rate swap agreements - assets (back-to-back) 677 — 677 — Interest rate swap agreements - liabilities (back-to-back) ( 677 ) — ( 677 ) — December 31, 2022 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 $ 33,809 $ — $ 33,809 $ — Municipal securities 67,276 — 67,276 — Agency mortgage-backed securities - residential 215,092 — 215,092 — Agency mortgage-backed securities - commercial 15,840 — 15,840 — Private label mortgage-backed securities - residential 10,455 — 10,455 — Asset-backed securities 4,960 — 4,960 — Corporate securities 42,952 — 42,952 — Total available-for-sale securities $ 390,384 $ — $ 390,384 $ — Servicing asset 6,255 — — 6,255 Interest rate swaps assets 8,645 — 8,645 — Loans held-for-sale (mandatory pricing agreements) 9,110 — 9,110 — Forward contracts 97 97 — — IRLCs 133 — — 133 F-49 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) 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, 2021 $ 3,569 $ 3,361 Total realized gains Additions 2,202 — Paydowns ( 820 ) Change in fair value ( 249 ) ( 2,643 ) Balance, December 31, 2021 4,702 718 Total realized gains Additions 3,192 — Paydowns ( 1,135 ) — Change in fair value ( 504 ) ( 585 ) Balance, December 31, 2022 6,255 133 Total realized gains Additions 5,775 — Paydowns ( 1,842 ) — Change in fair value 379 ( 133 ) Balance, December 31, 2023 $ 10,567 $ — 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. Collateral Dependent Loans Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. The amount of impairment may be determined based on the fair value of the underlying collateral, less costs to sell, the estimated present value of future cash flows or the loan’s observable market price. If the individually evaluated loan is identified as collateral dependent, the fair value of the underlying collateral, less costs to sell, is used to measure impairment. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. If the individually evaluated loan is not collateral dependent, the Company utilizes a discounted cash flow analysis to measure impairment. Individually evaluated loans with a specific valuation allowance based on the value of the underlying collateral or a discounted cash flow analysis are classified as Level 3 assets. The following table presents the fair value measurements of assets and liabilities recognized in the accompanying condensed consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurement falls at December 31, 2023 and December 31, 2022. December 31, 2023 Fair Value Measurements Using Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Collateral dependent loans 2,799 — — 2,799 F-50 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) December 31, 2022 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 1,164 — — 1,164 Significant (Level 3) Inputs The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements. (dollars in thousands) Fair Value at December 31, 2023 Valuation Technique Significant Unobservable Inputs Range Weighted-Average Range Collateral dependent loans $ 2,799 Fair value of collateral Discount for type of property and current market conditions 0 % - 90 % 28 % Servicing asset 10,567 Discounted cash flow Prepayment speeds Discount rate 0 % - 25 % 15 % 11.3 % 15 % (dollars in thousands) Fair Value at December 31, 2022 Valuation Technique Unobservable Inputs Range Weighted - Average Range Impaired loans $ 1,164 Fair value of collateral Discount for type of property and current market conditions 0 % - 25 % 20 % IRLCs 133 Discounted cash flow Loan closing rates 31 % - 100 % 89 % Servicing asset 6,255 Discounted cash flow Prepayment speeds Discount rate 0 % - 25 % 14 % 14.6 % 14 % 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. Securities Held-to-Maturity Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. The Company did not own any securities classified within Level 1 of the hierarchy as of December 31, 2023 or December 31, 2022. Level 2 securities include agency mortgage-backed securities - residential, municipal securities and corporate securities. Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Fair values are calculated using discounted cash flows. Discounted cash flows are calculated based off of F-51 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) 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, 2023 or December 31, 2022. Loans The fair value of loans is estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors. Accrued Interest Receivable The fair value of these financial instruments approximates carrying value. Federal Home Loan Bank of Indianapolis Stock The fair value of this financial instrument approximates carrying value. Deposits The fair value of noninterest-bearing and interest-bearing demand deposits, savings accounts 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, 2023 and 2022. F-52 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) The following tables provide the carrying amounts and estimated fair values of the Company's financial instruments at December 31, 2023 and 2022: December 31, 2023 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 $ 405,898 $ 405,898 $ 405,898 $ — $ — Securities held-to-maturity 227,153 207,572 — 207,572 — Loans held-for-sale (best efforts pricing agreements) 22,052 22,052 — 22,052 Net loans 3,801,446 3,611,909 — — 3,611,909 Accrued interest receivable 26,746 26,746 26,746 — — Federal Home Loan Bank of Indianapolis stock 28,350 28,350 — 28,350 — Deposits 4,066,973 4,059,447 1,796,123 — 2,263,324 Advances from Federal Home Loan Bank 614,934 605,366 — 605,366 — Subordinated debt 104,838 102,632 32,560 70,072 — Accrued interest payable 3,848 3,848 3,848 — — December 31, 2022 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 $ 256,552 $ 256,552 $ 256,552 $ — $ — Securities held-to-maturity 189,168 168,483 — 168,483 — Loans held-for-sale (best efforts pricing agreements) 12,401 12,401 — 12,401 — Net loans 3,467,664 3,225,845 — — 3,225,845 Accrued interest receivable 21,069 21,069 21,069 — — Federal Home Loan Bank of Indianapolis stock 28,350 28,350 — 28,350 — Deposits 3,441,245 3,415,390 1,974,344 — 1,441,046 Advances from Federal Home Loan Bank 614,928 596,455 — 596,455 — Subordinated debt 104,532 102,669 32,560 70,109 — Accrued interest payable 2,913 2,913 2,913 — — Note 17: Mortgage Banking Activities The Bank’s residential real estate lending business originated mortgage loans for customers and typically sold a majority of the originated loans into the secondary market. For most of the mortgages sold in the secondary market, the Bank hedged its mortgage banking pipeline by entering into forward contracts for the future delivery of mortgage loans to third party investors and entering into IRLCs with potential borrowers to fund specific mortgage loans that would be sold into the secondary market. To facilitate the hedging of the loans, the Bank elected the fair value option for loans originated and intended for sale in the secondary market under mandatory pricing agreements Changes in the fair value of loans held-for-sale, IRLCs and forward contracts are recorded in the mortgage banking activities line item within noninterest income. Refer to Note 18 for further information on derivative financial instruments. F-53 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) During the years ended December 31, 2023, 2022, and 2021, the Company originated mortgage loans held-for-sale of $ 36.3 million, $ 388.0 million, and $ 721.3 million, respectively, and received $ 46.5 million, $ 411.5 million, and $ 714.9 million from the sale of mortgage loans, respectively, into the secondary market. During the first quarter 2023, the Company made the decision to exit the residential mortgage business. The following table provides the components of income from mortgage banking activities for the years ended December 31, 2023, 2022, and 2021. Year Ended December 31, 2023 2022 2021 Gain on loans sold $ 471 $ 6,101 $ 17,803 Loss resulting from the change in fair value of loans held-for-sale ( 143 ) ( 184 ) ( 718 ) (Loss) gain resulting from the change in fair value of derivatives ( 252 ) ( 453 ) ( 2,035 ) Net revenue from mortgage banking activities $ 76 $ 5,464 $ 15,050 F-54 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Note 18: Derivative Financial Instruments The Company uses derivative financial instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income and the fair value of assets and liabilities. The Company enters into interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. Additionally, the Company entered into forward contracts for the future delivery of mortgage loans to third-party investors and entered into IRLCs with potential borrowers to fund specific mortgage loans that were sold into the secondary market. The forward contracts were entered into in order to economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans. The Company had various interest rate swap agreements designated and qualifying as accounting hedges during the reported periods. Designating an interest rate swap as an accounting hedge allows the Company to recognize gains and losses in the condensed consolidated statements of income within the same period that the hedged item affects earnings. The Company includes the gain or loss on the hedged items in the same line item as the offsetting loss or gain on the related interest rate swaps. For derivative instruments that are designated and qualify as cash flow hedges, any gains or losses related to changes in fair value are recorded in accumulated other comprehensive loss, net of tax. The fair value of interest rate swaps with a positive fair value are reported in accrued income and other assets in the condensed consolidated balance sheets, while interest rate swaps with a negative fair value are reported in accrued expenses and other liabilities in the condensed consolidated balance sheets. The Company offers interest rate swaps to certain loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable-to-fixed interest rate contract with the customer. The Company also enters into an offsetting interest rate swap with a correspondent bank. These back-to-back swap agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. The fair value of these derivatives is based on a discounted cash flow approach. The fair value assets and liabilities of centrally cleared interest rate swaps are net of variation margin settled-to-market. The IRLCs and forward contracts are not designated as accounting hedges and are recorded at fair value with changes in fair value reflected in noninterest income on the condensed consolidated statements of income. The fair value of derivative instruments with a positive fair value are reported in accrued income and other assets in the condensed consolidated balance sheets, while derivative instruments with a negative fair value are reported in accrued expenses and other liabilities in the condensed consolidated balance sheets. The following table presents amounts that were recorded 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, 2023 and 2022. 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, 2023 December 31, 2022 December 31, 2023 December 31, 2022 Securities available-for-sale 1 $ 69,504 $ 68,963 $ ( 1,143 ) $ ( 2,088 ) 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 $ 50.0 million at December 31, 2023 and 2022. 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, 2023 and December 31, 2022, identified by the underlying interest rate-sensitive instruments. F-55 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) December 31, 2023 Weighted Average Remaining Maturity (years) Weighted-Average Rate Instruments Associated With Notional Value Fair Value Receive Pay Securities available-for-sale $ 50,000 0.8 $ 1,153 3 month SOFR 2.33 % Total swap portfolio at December 31, 2023 $ 50,000 0.8 $ 1,153 3 month SOFR 2.33 % December 31, 2022 Weighted Average Remaining Maturity (years) Weighted-Average Rate Instruments Associated With Notional Value Fair Value Receive Pay Securities available-for-sale $ 50,000 1.8 $ 2,093 3 month LIBOR 2.33 % Total swap portfolio at December 31, 2022 $ 50,000 1.8 $ 2,093 3 month LIBOR 2.33 % In March 2021, the Company terminated the last layer of interest rate swaps associated with available-for-sale agency mortgage-backed securities - residential, which resulted in swap termination payments to counterparties totaling $ 1.9 million. The corresponding fair value hedging adjustment was allocated pro-rata to the underlying hedged securities and is being amortized over the remaining lives of the designated securities. During the year ended December 31, 2023, amortization expense totaling $ 0.4 million was recognized as a reduction to interest income on securities. In June 2020, the Company terminated all fair value hedging relationships associated with loans, which resulted in swap termination payments to counterparties totaling $ 46.1 million. The corresponding loan fair value hedging adjustment as of the date of termination is being amortized over the remaining lives of the designated loans, which have a weighted average term to maturity of 10.4 years as of December 31, 2023. During the years ended December 31, 2023 and 2022, amortization expense totaling $ 4.7 million and $ 4.9 million, respectively, related to these previously terminated fair value hedges was recognized as a reduction to interest income on loans. The following tables present a summary of interest rate swap derivatives designated as cash flow accounting hedges of variable-rate liabilities used in the Company's asset/liability management activities at December 31, 2023 and December 31, 2022. December 31, 2023 Weighted Average Remaining Maturity (years) Weighted-Average Rate Cash Flow Hedges Notional Value Fair Value Receive Pay Interest rate swaps $ 110,000 3.1 $ 3,596 3-month SOFR 2.88 % Interest rate swaps 40,000 0.4 390 Fed Funds Effective 2.78 % December 31, 2022 Weighted Average Remaining Maturity (years) Weighted-Average Rate Cash Flow Hedges Notional Value Fair Value Receive Pay Interest rate swaps $ 110,000 4.1 $ 4,787 3 month LIBOR 2.88 % Interest rate swaps 60,000 0.6 735 1 month LIBOR 2.88 % Interest rate swaps 40,000 1.4 1,030 Fed Funds Effective 2.78 % F-56 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) These derivative financial instruments were entered into for the purpose of managing the interest rate risk of certain assets and liabilities. The Company received $ 5.2 million and $ 7.7 million of cash collateral from counterparties as security for their obligations related to these swap transactions at December 31, 2023 and 2022, respectively. The Company had no pledged cash collateral as of December 31, 2023 and December 31, 2022 to counterparties on interest rate swap agreements as security for its obligations related to these agreements. Collateral posted and received is dependent on the market valuation of the underlying hedges. 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, 2023 and 2022. December 31, 2023 December 31, 2022 Notional Amount Fair Value Notional Amount Fair Value Asset Derivatives Derivatives designated as hedging instruments Interest rate swaps associated with securities available-for-sale $ 50,000 $ 1,153 $ 50,000 $ 2,093 Interest rate swaps associated with liabilities 150,000 3,986 210,000 6,552 Derivatives not designated as hedging instruments Back-to-back swaps 1,778 $ 677 — — IRLCs — — 14,862 133 Forward contracts — — 17,000 97 Total contracts $ 201,778 $ 5,816 $ 291,862 $ 8,875 Liability Derivatives Derivatives not designated as hedging instruments Back-to-back swaps 1,778 ( 677 ) — — Total contracts $ 1,778 $ ( 677 ) $ — $ — 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 and other factors from the date the Company entered into the IRLC and the balance sheet date. Refer to “Note 16 - Fair Value of Financial Instruments” for additional information. Back-to-back swaps consist of two interest-rate swaps (a customer swap and an offsetting counterparty swap). As a result of this offsetting relationship, no net gains or losses are recognized in income. The following table presents the effects of the Company's cash flow hedge relationships on the consolidated statements of comprehensive income during the twelve months ended December 31, 2023, 2022, and 2021. Amount of (Loss) gain recognized in Other Comprehensive Income in the Twelve Months Ended December 31, 2023 December 31, 2022 December 31, 2021 Interest rate swap agreements $ ( 2,566 ) $ 19,091 $ 11,138 The following table summarizes the periodic changes in the fair value of derivatives not designated as hedging instruments on the condensed consolidated statements of income for the twelve months ended December 31, 2023, 2022, and 2021. F-57 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Amount of (Loss) / Gain Recognized in the Twelve Months Ended December 31, 2023 December 31, 2022 December 31, 2021 Asset Derivatives Derivatives not designated as hedging instruments Forward contracts $ — $ 127 $ 610 Liability Derivatives Derivatives not designated as hedging instruments IRLCs $ ( 133 ) $ ( 585 ) $ ( 2,643 ) Forward contracts ( 119 ) — — 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, 2023, 2022, and 2021. Line item in the consolidated statements of income December 31, 2023 December 31, 2022 December 31, 2021 Interest income Loans $ — $ — $ — Securities - taxable — — ( 253 ) Securities - non-taxable 1,471 ( 244 ) ( 1,099 ) Total interest income 1,471 ( 244 ) ( 1,352 ) Interest expense Deposits ( 1,671 ) 1,125 2,775 Other borrowed funds ( 2,622 ) 1,110 3,028 Total interest expense ( 4,293 ) 2,235 5,803 Net interest income $ 5,764 $ ( 2,479 ) $ ( 7,155 ) Note 19: Shareholders’ Equity On October 20, 2021, the Company's Board of Directors approved a stock repurchase program authorizing the repurchase of up to $ 30.0 million of our outstanding common stock from time to time on the open market or in privately negotiated transactions. In October 2022, the Company’s Board of Directors increased the authorization to $ 35.0 million. The Company repurchased a total of 855,956 shares at an average price of $ 36.31 per share under the program through December 19, 2022. On December 19, 2022, the Company's Board of Directors approved a new stock repurchase program to replace the prior program. The new program authorized the repurchase of up to $ 25.0 million of our outstanding common stock from time to time on the open market or in privately negotiated transactions. The stock repurchase authorization is scheduled to expire on December 31, 2024. Under this program, the Company repurchased 502,525 shares of common stock at an average price of $ 18.40 per share during 2023, and 46,497 shares of common stock at an average price of $ 24.42 per share during 2022. As of December 31, 2023, the Company had $ 14.6 million of remaining authority under the program. F-58 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Note 20: 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 Unrealized Losses on Debt Securities Transferred from Available-for-Sale to Held-to-Maturity Cash Flow Hedges Total Balance, January 1, 2021 $ 468 $ — $ ( 17,664 ) $ ( 17,196 ) Net unrealized holding (losses) gains recorded within other comprehensive income before income tax ( 4,087 ) — 11,138 7,051 Other comprehensive (loss) income before tax ( 4,087 ) — 11,138 7,051 Income tax (benefit) provision ( 1,064 ) — 1,958 894 Other comprehensive (loss) income- net of tax ( 3,023 ) — 9,180 6,157 Balance, December 31, 2021 $ ( 2,555 ) $ — $ ( 8,484 ) $ ( 11,039 ) Net unrealized holding (losses) gains recorded within other comprehensive income before income tax ( 42,336 ) — 19,091 ( 23,245 ) Reclassification of securities available-for-sale to held-to-maturity — ( 5,402 ) — ( 5,402 ) Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity — 844 — 844 Other comprehensive (loss) income before tax ( 42,336 ) ( 4,558 ) 19,091 ( 27,803 ) Income tax (benefit) provision ( 9,060 ) ( 1,039 ) 4,893 ( 5,206 ) Other comprehensive (loss) income- net of tax ( 33,276 ) ( 3,519 ) 14,198 ( 22,597 ) Balance, December 31, 2022 $ ( 35,831 ) $ ( 3,519 ) $ 5,714 $ ( 33,636 ) Net unrealized holding gains (losses) recorded within other comprehensive income before income tax 7,339 — ( 2,566 ) 4,773 Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity — 778 — 778 Other comprehensive income (loss) before tax 7,339 778 ( 2,566 ) 5,551 Income tax provision (benefit) 1,682 198 ( 590 ) 1,290 Other comprehensive income (loss) - net of tax 5,657 580 ( 1,976 ) 4,261 Balance, December 31, 2023 $ ( 30,174 ) $ ( 2,939 ) $ 3,738 $ ( 29,375 ) Note 21: 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: F-59 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Condensed Balance Sheets Year Ended December 31, 2023 2022 Assets Cash and cash equivalents $ 11,593 $ 22,259 Investment in common stock of subsidiaries 444,221 440,645 Premises and equipment, net — 58 Accrued income and other assets 14,127 8,567 Total assets $ 469,941 $ 471,529 Liabilities and shareholders’ equity Subordinated debt, net of unamortized discounts and debt issuance costs of $2,162 in 2023 and $2,468 in 2022 $ 104,838 $ 104,532 Accrued expenses and other liabilities 2,308 2,023 Total liabilities 107,146 106,555 Shareholders’ equity 362,795 364,974 Total liabilities and shareholders’ equity $ 469,941 $ 471,529 Condensed Statements of Income Year Ended December 31, 2023 2022 2021 Income Dividends from bank subsidiary $ 12,000 $ 8,000 $ — Gain on sale of premises and equipment — — 2,523 Other 188 285 75 Total income 12,188 8,285 2,598 Expenses Interest on borrowings $ 5,376 $ 5,371 $ 5,892 Salaries and employee benefits 1,203 1,147 1,037 Consulting and professional fees 1,572 1,814 2,178 Premises and equipment 126 201 548 Other 280 134 363 Total expenses 8,557 8,667 10,018 Income (loss) before income tax and equity in undistributed net income of subsidiaries 3,631 ( 382 ) ( 7,420 ) Income tax benefit ( 1,817 ) ( 1,874 ) ( 1,687 ) Income (loss) before equity in undistributed net income of subsidiaries 5,448 1,492 ( 5,733 ) Equity in undistributed net income of subsidiaries 2,969 34,049 53,847 Net income $ 8,417 $ 35,541 $ 48,114 F-60 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, 2023 2022 2021 Net income $ 8,417 $ 35,541 $ 48,114 Other comprehensive income (loss) Securities available-for-sale 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 Reclassification of securities from available-for-sale to held-to-maturity — ( 5,402 ) — Amortization of net unrealized holding losses on securities transferred from available-for-sale to held-to-maturity 778 844 — Income tax provision (benefit) 198 ( 1,039 ) — Net effect on other comprehensive income (loss) 580 ( 3,519 ) — 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 F-61 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, 2023 2022 2021 Operating activities Net income $ 8,417 $ 35,541 $ 48,114 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of subsidiaries ( 2,969 ) ( 34,049 ) ( 53,847 ) Depreciation and amortization 318 329 1,081 Share-based compensation expense 256 795 835 Gain on sale of premises and equipment — — ( 2,523 ) Net change in other assets ( 1,819 ) 350 ( 31 ) Net change in other liabilities 358 ( 490 ) 775 Net cash provided by (used in) operating activities 4,561 2,476 ( 5,596 ) Investing activities Net proceeds from sale of premises and equipment — — 8,116 Other investing activities ( 3,578 ) ( 2,727 ) ( 3,561 ) Net cash (used in) provided by investing activities ( 3,578 ) ( 2,727 ) 4,555 Financing activities Cash dividends paid ( 2,156 ) ( 2,317 ) ( 2,415 ) Net proceeds from issuance of subordinated debt — — 58,658 Repayment of subordinated debt — — ( 35,000 ) Repayment of Bank loan — — ( 3,000 ) Repurchase of common stock ( 9,340 ) ( 27,780 ) ( 4,436 ) Other, net ( 153 ) ( 250 ) ( 441 ) Net cash (used in) provided by financing activities ( 11,649 ) ( 30,347 ) 13,366 Net (decrease) increase in cash and cash equivalents ( 10,666 ) ( 30,598 ) 12,325 Cash and cash equivalents at beginning of year 22,259 52,857 40,532 Cash and cash equivalents at end of year $ 11,593 $ 22,259 $ 52,857 The prior year Condensed Statements of Income and Condensed Statements of Cash Flows presented above were voluntarily revised to correct an immaterial error. As a result, the following changes were made to the 2022 statements: • Dividends received from subsidiary are presented in total income. • Equity in undistributed net income of subsidiaries reflects the difference in subsidiary income and dividends received. The above changes had no effect on 2022 net income. F-62 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) Note 22: 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. The Company formed a current expected credit losses (“CECL”) working group that discussed implementation matters related to the completeness and accuracy of historical data, model development and corporate governance documentation. The new allowance model estimates credit losses over the expected life of the portfolio and includes a qualitative framework to account for drivers of losses that the quantitative model does not capture. The CECL working group discussed results from parallel model runs for each portfolio segment, assumptions related to unfunded commitments and economic forecast factors. Model validation was completed by an independent third party in the fourth quarter 2022. The ASU allows for several different methods of calculating the Allowance for Credit Losses (“ACL”) and based on its analysis of observable data, the Company determined the discounted cash flow method to be the most appropriate for all its loan segments. F-63 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) The Company adopted this guidance on January 1, 2023 and recorded a $ 3.0 million pre-tax one-time cumulative effect adjustment to the ACL in retained earnings on the consolidated balance sheet as of the beginning of 2023, as is required in the guidance. In addition, the Company recorded a one-time $ 2.5 million pre-tax cumulative effect adjustment to the allowance for unfunded commitments in retained earnings on the consolidated balance sheet. The qualitative impact of the new accounting standard is directed by many of the same factors that impacted the previous methodology for calculating the ACL, including but not limited to, quality and experience of staff, changes in the value of collateral, concentrations of credit in loan types or industries and changes to lending policies. In addition, the Company also uses reasonable and supportable forecasts. Examples of this are regression analyses of data from the Federal Open Market Committee quarterly economic projections for change in real GDP, housing price index and national unemployment. The following table presents the impact of the adoption of ASC 326 as of January 1, 2023: January 1, 2023 (dollars in thousands) Pre-ASC 326 Adoption Impact of ASC 326 Adoption As Reported Under ASC 326 Assets: Commercial loans Commercial and industrial $ 1,711 $ ( 120 ) $ 1,591 Owner-occupied commercial real estate 651 62 713 Investor commercial real estate 1,099 ( 191 ) 908 Construction 2,074 ( 435 ) 1,639 Single tenant lease financing 10,519 ( 346 ) 10,173 Public finance 1,753 ( 135 ) 1,618 Healthcare finance 2,997 1,034 4,031 Small business lending 2,168 334 2,502 Franchise finance 3,988 ( 313 ) 3,675 Total commercial loans 26,960 ( 110 ) 26,850 Consumer loans Residential mortgage 1,559 406 1,965 Home equity 69 133 202 Other consumer 3,149 2,533 5,682 Total consumer loans 4,777 3,072 7,849 Total allowance for credit losses $ 31,737 $ 2,962 $ 34,699 Liabilities: Liability for off-balance sheet credit exposures $ — $ 2,504 $ 2,504 The Company also performed an assessment to determine if an allowance for credit loss was needed for available-for-sale and held-to-maturity securities. The Company analyzed available-for-sale securities investment securities that were in an unrealized loss position as of January 1, 2023 and determined the decline in fair value for those securities was not related to credit, but rather related to changes in interest rates and general market conditions. As such, no ACL was recorded for available-for-sale securities. The Company analyzed held-to-maturity securities and recorded a $ 0.3 million one-time cumulative adjustment to the allowance in retained earnings. ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (March 2020) and ASU 2022-06 - Deferral of sunset Date of Topic 848 In March 2020, FASB issued ASU 2020-04 to ease the potential burden in accounting for the transition away from the LIBOR on 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, 2024. The Company adopted this guidance in 2023 and it did not have a material impact on the condensed consolidated financial statements. F-64 First Internet Bancorp Notes to Consolidated Financial Statements (Tabular dollar amounts in thousands except per share data) ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (March 2022) In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the separate recognition and measurement guidance for Troubled Debt Restructurings ("TDRs") by creditors. The elimination of the TDR guidance may be adopted prospectively for loan modifications after adoption or on a modified retrospective basis, which would also apply to loans previously modified, resulting in a cumulative effect adjustment to retained earnings in the period of adoption for changes in the allowance for credit losses. The ASU requires an entity to disclose current-period gross write-offs by year of origination for financing receivables within the scope of Subtopic 326-20. This guidance is effective on January 1, 2023, with early adoption permitted. Using a prospective approach, the Company adopted this guidance on January 1, 2023 and it did not have a material impact on the condensed consolidated financial statements. ASU 2023-07 - Segment Reporting (Topic 280): Improvements to Reportable Segments (November 2023) In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segments. This ASU enhances financial reporting by requiring disclosure of incremental segment information on an annual and interim basis. The guidance is effective for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements. ASU 2023-09 - Income Taxes (Topic 740): Improvements to Income Tax Disclosures (December 2023) In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. This ASU enhances the transparency and usefulness of income tax disclosures, which addresses investor requests for more transparency about income tax disclosures related primarily to the rate reconciliation and income taxes paid information. The guidance is effective for annual periods beginning after December 15, 2024 with early adoption permitted. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements. F-65