First Internet Bancorp 10-Q

ITEM 1. FINANCIAL STATEMENTS First Internet Bancorp Condensed Consolidated Balance Sheets (Amounts in thousands except share data) March 31, 2024 December 31, 2023 (Unaudited) Assets Cash and due from banks $ 6,638 $ 8,269 Interest-bearing deposits 474,626 397,629 Total cash and cash equivalents 481,264 405,898 Securities available-for-sale, at fair value (amortized cost of $ 522,965 and $ 513,315 in 2024 and 2023, respectively) 482,431 474,855 Securities held-to-maturity, at amortized cost, net of allowance for credit losses of $ 0.2 million and $ 0.3 million in 2024 and 2023, respectively, (fair value of $ 214,220 and $ 207,572 in 2024 and 2023, respectively) 235,738 227,153 Loans held-for-sale 22,589 22,052 Loans 3,909,804 3,840,220 Allowance for credit losses - loans ( 40,891 ) ( 38,774 ) Net loans 3,868,913 3,801,446 Accrued interest receivable 26,809 26,746 Federal Home Loan Bank of Indianapolis stock 28,350 28,350 Cash surrender value of bank-owned life insurance 41,154 40,882 Premises and equipment, net 73,231 73,463 Goodwill 4,687 4,687 Servicing asset, at fair value 11,760 10,567 Other real estate owned 375 375 Accrued income and other assets 63,366 51,098 Total assets $ 5,340,667 $ 5,167,572 Liabilities and Shareholders’ Equity Liabilities Noninterest-bearing deposits $ 130,760 $ 123,464 Interest-bearing deposits 4,143,008 3,943,509 Total deposits 4,273,768 4,066,973 Advances from Federal Home Loan Bank 574,936 614,934 Subordinated debt, net of unamortized debt issuance costs of $ 2,085 and $ 2,162 in 2024 and 2023, respectively 104,915 104,838 Accrued interest payable 3,382 3,848 Accrued expenses and other liabilities 16,927 14,184 Total liabilities 4,973,928 4,804,777 Commitments and Contingencies Shareholders’ Equity Preferred stock, no par value; 4,913,779 shares authorized; issued and outstanding - none — — Voting common stock, no par value; 45,000,000 shares authorized; 8,655,854 and 8,644,451 shares issued and outstanding in 2024 and 2023, respectively 184,720 184,700 Nonvoting common stock, no par value; 86,221 shares authorized; issued and outstanding - none — — Retained earnings 212,121 207,470 Accumulated other comprehensive loss ( 30,102 ) ( 29,375 ) Total shareholders’ equity 366,739 362,795 Total liabilities and shareholders’ equity $ 5,340,667 $ 5,167,572 See Notes to Condensed Consolidated Financial Statements 1 First Internet Bancorp Condensed Consolidated Statements of Operations– Unaudited (Amounts in thousands except share and per share data) Three Months Ended March 31, 2024 March 31, 2023 Interest Income Loans $ 55,435 $ 43,843 Securities – taxable 5,694 3,606 Securities – non-taxable 969 798 Other earning assets 6,067 3,786 Total interest income 68,165 52,033 Interest Expense Deposits 42,129 27,270 Other borrowed funds 5,302 5,189 Total interest expense 47,431 32,459 Net Interest Income 20,734 19,574 Provision for credit losses - loans 2,582 9,373 Benefit for credit losses - debt securities held to maturity ( 62 ) — (Benefit) provision for credit losses - off-balance sheet commitments ( 72 ) 42 Net Interest Income After Provision for Credit Losses 18,286 10,159 Noninterest Income Service charges and fees 220 209 Loan servicing revenue 1,323 785 Loan servicing asset revaluation ( 434 ) ( 55 ) Mortgage banking activities — 76 Gain on sale of loans 6,536 4,061 Other 702 370 Total noninterest income 8,347 5,446 Noninterest Expense Salaries and employee benefits 11,796 11,794 Marketing, advertising and promotion 736 844 Consulting and professional services 853 926 Data processing 564 659 Loan expenses 1,445 1,977 Premises and equipment 2,826 2,777 Deposit insurance premium 1,145 543 Other 1,658 1,434 Total noninterest expense 21,023 20,954 Income (Loss) Before Income Taxes 5,610 ( 5,349 ) Income Tax Provision (Benefit) 429 ( 2,332 ) Net Income (Loss) $ 5,181 $ ( 3,017 ) Income (Loss) Per Share of Common Stock Basic $ 0.60 $ ( 0.33 ) Diluted $ 0.59 $ ( 0.33 ) Weighted-Average Number of Common Shares Outstanding Basic 8,679,429 9,024,072 Diluted 8,750,297 9,024,072 Dividends Declared Per Share $ 0.06 $ 0.06 See Notes to Condensed Consolidated Financial Statements 2 First Internet Bancorp Condensed Consolidated Statements of Comprehensive Income (Loss)– Unaudited (Amounts in thousands) Three Months Ended March 31, 2024 2023 Net income (loss) $ 5,181 $ ( 3,017 ) Other comprehensive (loss) income Securities available-for-sale Net unrealized holding (losses) gains recorded within other comprehensive (loss) income before income tax ( 2,074 ) 5,112 Income tax (benefit) provision ( 475 ) 1,170 Net effect on other comprehensive (loss) income ( 1,599 ) 3,942 Securities held-to-maturity Amortization of net unrealized holding losses on securities transferred from available-for-sale to held-to-maturity 234 158 Income tax provision 57 46 Net effect on other comprehensive (loss) income 177 112 Cash flow hedges Net unrealized holding gains (losses) on cash flow hedging derivatives recorded within other comprehensive (loss) income before income tax 902 ( 2,170 ) Income tax provision (benefit) 207 ( 499 ) Net effect on other comprehensive (loss) income 695 ( 1,671 ) Total other comprehensive (loss) income ( 727 ) 2,383 Comprehensive income (loss) $ 4,454 $ ( 634 ) See Notes to Condensed Consolidated Financial Statements 3 First Internet Bancorp Condensed Consolidated Statements of Changes in Shareholders’ Equity - Unaudited Three Months Ended March 31, 2024 and 2023 (Amounts in thousands except share and per share data) Voting and Nonvoting Common Stock Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Equity Balance, January 1, 2024 $ 184,700 $ 207,470 $ ( 29,375 ) $ 362,795 Net income — 5,181 — 5,181 Other comprehensive loss — — ( 727 ) ( 727 ) Dividends declared ($ 0.06 per share) — ( 530 ) — ( 530 ) Recognition of the fair value of share-based compensation 443 — — 443 Repurchased shares of common stock ( 10,500 ) ( 283 ) — — ( 283 ) Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units 2 — — 2 Common stock redeemed for the net settlement of share-based awards ( 142 ) — — ( 142 ) Balance, March 31, 2024 $ 184,720 $ 212,121 $ ( 30,102 ) $ 366,739 Balance, January 1, 2023 $ 192,935 $ 205,675 $ ( 33,636 ) $ 364,974 Impact of adoption of new accounting standards 1 — ( 4,491 ) — ( 4,491 ) Net income — ( 3,017 ) — ( 3,017 ) Other comprehensive income — — 2,383 2,383 Dividends declared ($ 0.06 per share) — ( 544 ) — ( 544 ) Recognition of the fair value of share-based compensation 372 — — 372 Repurchased shares of common stock ( 161,691 ) ( 4,002 ) — — ( 4,002 ) Deferred stock rights and restricted stock units issued in lieu of cash dividends payable on outstanding deferred stock rights and restricted stock units 3 — — 3 Common stock redeemed for the net settlement of share-based awards ( 106 ) — — ( 106 ) Balance, March 31, 2023 $ 189,202 $ 197,623 $ ( 31,253 ) $ 355,572 1 Reflects the impact of adopting Accounting Standards Update (“ASU”) 2016-13 . See Notes to Condensed Consolidated Financial Statements 4 First Internet Bancorp Condensed Consolidated Statements of Cash Flows – Unaudited (Amounts in thousands) Three Months Ended March 31, 2024 2023 Operating Activities Net income (loss) $ 5,181 $ ( 3,017 ) Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 1,866 1,058 Increase in cash surrender value of bank-owned life insurance ( 272 ) ( 246 ) Provision for credit losses 2,448 9,415 Share-based compensation expense 443 372 Loans originated for sale ( 80,454 ) ( 91,789 ) Proceeds from sale of loans 84,826 98,433 Gain on loans sold ( 6,536 ) ( 4,525 ) Decrease in fair value of loans held-for-sale — 136 Gain on derivatives 1,224 536 Loan servicing asset revaluation 434 55 Net change in accrued income and other assets ( 4,872 ) ( 2,444 ) Net change in accrued expenses and other liabilities ( 1,497 ) ( 2,086 ) Net cash provided by operating activities 2,791 5,898 Investing Activities Net loan activity, excluding purchases ( 39,598 ) ( 25,111 ) Maturities and calls of securities available-for-sale 15,891 9,448 Purchase of securities available-for-sale ( 22,689 ) ( 1,411 ) Maturities and calls of securities held-to-maturity 6,981 5,129 Purchase of securities held-to-maturity ( 15,221 ) ( 26,572 ) Purchase of premises and equipment ( 940 ) ( 2,704 ) Loans purchased ( 30,451 ) ( 90,029 ) Other investing activities ( 7,240 ) ( 1,315 ) Net cash used in investing activities ( 93,267 ) ( 132,565 ) Financing Activities Net increase in deposits 206,795 178,743 Cash dividends paid ( 519 ) ( 548 ) Repurchase of common stock ( 283 ) ( 4,002 ) Proceeds from advances from Federal Home Loan Bank 110,000 110,000 Repayment of advances from Federal Home Loan Bank ( 150,000 ) ( 110,000 ) Other, net ( 151 ) ( 106 ) Net cash provided by financing activities 165,842 174,087 Net Increase in Cash and Cash Equivalents 75,366 47,420 Cash and Cash Equivalents, Beginning of Period 405,898 256,552 Cash and Cash Equivalents, End of Period $ 481,264 $ 303,972 Supplemental Disclosures Cash paid during the period for interest 47,897 32,782 Cash paid during the period for taxes 86 285 Loans transferred to other real estate owned — 106 Cash dividends declared, paid in subsequent period 519 537 Securities purchased during the period, settled in subsequent period 3,327 8,344 See Notes to Condensed Consolidated Financial Statements 5 First Internet Bancorp Notes to Condensed Consolidated Financial Statements – Unaudited (Table amounts in thousands except share and per share data) Note 1: Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information or footnotes necessary for a complete presentation of financial condition, results of operations, changes in shareholders’ equity, or cash flows in accordance with GAAP. In our opinion, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation have been included. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results expected for the year ending December 31, 2024 or any other period. The March 31, 2024 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the First Internet Bancorp Annual Report on Form 10-K for the year ended December 31, 2023. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments, or assumptions that could have a material effect on the carrying value of certain assets and liabilities. These estimates, judgments, and assumptions affect the amounts reported in the condensed consolidated financial statements and the disclosures provided. The determination of the allowance for credit losses, income taxes, valuations and impairments of investment securities and goodwill, as well as fair value measurements of derivatives and loans held-for-sale are highly dependent upon management’s estimates, judgments, and assumptions, and changes in any of these could have a significant impact on the condensed consolidated financial statements. The condensed consolidated financial statements include the accounts of First Internet Bancorp (the “Company”), its wholly owned subsidiary, First Internet Bank of Indiana (the “Bank”), and the Bank’s three wholly owned subsidiaries, First Internet Public Finance Corp., JKH Realty Services, LLC and SPF15, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations, and cash flows of the Company. 6 Note 2: Earnings (Loss) Per Share Earnings (loss) per share of common stock are based on the weighted-average number of basic shares and dilutive shares outstanding during the period. The following is a reconciliation of the weighted-average common shares for the basic and diluted earnings (loss) per share computations for the three months ended March 31, 2024 and 2023. (dollars in thousands, except share and per share data) Three Months Ended March 31, 2024 2023 Basic earnings (loss) per share Net income (loss) $ 5,181 $ ( 3,017 ) Weighted-average common shares 8,679,429 9,024,072 Basic earnings (loss) per common share $ 0.60 $ ( 0.33 ) Diluted earnings per share Net income (loss) $ 5,181 $ ( 3,017 ) Weighted-average common shares 8,679,429 9,024,072 Dilutive effect of equity compensation 70,868 — Weighted-average common and incremental shares 8,750,297 9,024,072 Diluted earnings (loss) per common share 1 $ 0.59 $ ( 0.33 ) 1 Potential dilutive common shares are excluded from the computation of diluted EPS in the periods where the effect would be antidilutive. There were no antidilutive shares for the three months ended March 31, 2024. Since the Company was in a loss position for the three months ended March 31, 2023, basic net loss is the same as diluted net loss per share, as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive. 7 Note 3: Securities The following tables summarize securities AFS and securities HTM as of March 31, 2024 and December 31, 2023. March 31, 2024 Amortized Gross Unrealized Fair (in thousands) Cost Gains Losses Value Securities available-for-sale U.S. Government-sponsored agencies $ 93,323 $ 380 $ ( 1,602 ) $ 92,101 Municipal securities 69,289 120 ( 1,994 ) 67,415 Agency mortgage-backed securities - residential 1 253,181 133 ( 32,830 ) 220,484 Agency mortgage-backed securities - commercial 39,367 8 ( 1,294 ) 38,081 Private label mortgage-backed securities - residential 23,307 110 ( 1,151 ) 22,266 Asset-backed securities 7,417 43 ( 1 ) 7,459 Corporate securities 37,081 111 ( 2,567 ) 34,625 Total available-for-sale $ 522,965 $ 905 $ ( 41,439 ) $ 482,431 March 31, 2024 Amortized Cost Gross Unrealized Fair Value Allowance for Credit Losses Net Carrying Value (in thousands) Gains Losses Securities held-to-maturity Municipal securities $ 13,384 $ — $ ( 934 ) $ 12,450 $ ( 3 ) $ 13,381 Mortgage-backed securities - residential 178,800 — ( 16,885 ) 161,915 — 178,800 Mortgage-backed securities - commercial 5,752 — ( 1,192 ) 4,560 — 5,752 Corporate securities 38,033 — ( 2,738 ) 35,295 ( 228 ) 37,805 Total held-to-maturity $ 235,969 $ — $ ( 21,749 ) $ 214,220 $ ( 231 ) $ 235,738 1 Includes $ 0.3 million of additional premium related to terminated interest rate swaps associated with agency mortgage-backed securities - residential as of March 31, 2024. December 31, 2023 Amortized Gross Unrealized Fair (in thousands) Cost Gains Losses Value Securities available-for-sale U.S. Government-sponsored agencies $ 96,404 $ 402 $ ( 1,629 ) $ 95,177 Municipal securities 69,494 356 ( 1,404 ) 68,446 Agency mortgage-backed securities - residential 1 237,798 101 ( 31,250 ) 206,649 Agency mortgage-backed securities - commercial 40,215 9 ( 1,339 ) 38,885 Private label mortgage-backed securities - residential 21,742 144 ( 1,107 ) 20,779 Asset-backed securities 8,071 17 ( 7 ) 8,081 Corporate securities 39,591 25 ( 2,778 ) 36,838 Total available-for-sale $ 513,315 $ 1,054 $ ( 39,514 ) $ 474,855 8 December 31, 2023 Amortized Gross Unrealized Fair Allowance for Credit Losses Net Carrying Value (in thousands) Cost Gains Losses Value Securities held-to-maturity Municipal securities $ 13,892 $ 1 $ ( 853 ) $ 13,040 $ ( 3 ) $ 13,889 Agency mortgage-backed securities - residential 166,750 4 ( 14,112 ) 152,642 — $ 166,750 Agency mortgage-backed securities - commercial 5,767 — ( 1,246 ) 4,521 — $ 5,767 Corporate securities 41,037 — ( 3,668 ) 37,369 ( 290 ) $ 40,747 Total held-to-maturity $ 227,446 $ 5 $ ( 19,879 ) $ 207,572 $ ( 293 ) $ 227,153 1 Includes $ 0.4 million of additional premium related to terminated interest rate swaps associated with agency mortgage-backed securities - residential as of December 31, 2023. Accrued interest receivable on AFS and HTM securities at March 31, 2024 was $ 2.7 million and $ 1.1 million, respectively, compared to $ 2.9 million and $ 1.2 million, respectively, at December 31, 2023, and is included in accrued interest receivable on the condensed consolidated balance sheet. The Company elected to exclude all accrued interest receivable from securities when estimating credit losses. At both March 31, 2024 and December 31, 2023, over 95 % of mortgage-backed securities (including both AFS and HTM) held by the Company are issued by U.S. government-sponsored entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government and have a long history of no credit losses; therefore, the Company did not record an ACL on these securities. Additionally, the Company evaluated credit impairment for individual AFS securities that are in an unrealized loss position and determined that the unrealized losses are unrelated to credit quality and are primarily attributable to changes in interest rates and volatility in the financial markets. As the Company does not intend to sell the AFS securities that are in an unrealized loss position, and it is unlikely that it will be required to sell these securities before recovery of their amortized cost basis, the Company did not record an ACL on these securities. In accordance with the adoption of ASC 326, the Company also evaluated its HTM securities that are in an unrealized loss position and considered issuer bond ratings, historical loss rates for bond ratings and economic forecasts. As a result, the Company recorded in an initial ACL in retained earnings of $ 0.3 million on January 1, 2023. The Company reevaluated these securities at March 31, 2024 and determined no additional ACL was necessary. The carrying value of securities at March 31, 2024 is shown below by their contractual maturity date. Actual maturities will differ because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Available-for-Sale (in thousands) Amortized Cost Fair Value Within one year $ 301 $ 300 One to five years 29,713 30,124 Five to ten years 73,206 70,593 After ten years 96,473 93,124 199,693 194,141 Agency mortgage-backed securities - residential 253,181 220,484 Agency mortgage-backed securities - commercial 39,367 38,081 Private label mortgage-backed securities - residential 23,307 22,266 Asset-backed securities 7,417 7,459 Total $ 522,965 $ 482,431 9 Held-to-Maturity (in thousands) Amortized Cost Fair Value Within one year $ 1,006 $ 989 One to five years 11,117 10,870 Five to ten years 35,350 32,435 After ten years 3,944 3,451 51,417 47,745 Agency mortgage-backed securities - residential 178,800 161,915 Agency mortgage-backed securities - commercial 5,752 4,560 Total $ 235,969 $ 214,220 There were no gross gains or losses resulting from the sale of available-for-sale securities during the three months ended March 31, 2024 and March 31, 2023, respectively. Certain investments in debt securities are reported in the condensed consolidated financial statements at an amount less than their historical cost. The total fair value of these investments at March 31, 2024 and December 31, 2023 was $ 587.6 million and $ 578.9 million, which was approximately 84 % and 85 %, respectively, of the Company’s AFS and HTM securities portfolios. As of March 31, 2024, the Company’s security portfolio consisted of 530 securities, of which 469 were in an unrealized loss position. As of December 31, 2023, the Company’s security portfolio consisted of 512 securities, of which 434 were in an unrealized loss position. The unrealized losses are related to the categories noted below. U. S. Government-Sponsored Agencies, Municipal Securities and Corporate Securities The unrealized losses on the Company’s investments in securities issued by U.S. Government-sponsored agencies, municipal organizations and corporate entities were caused primarily by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. The Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be upon maturity. Agency Mortgage-Backed and Private Label Mortgage-Backed Securities The unrealized losses on the Company’s investments in agency mortgage-backed and private label mortgage-backed securities were caused primarily by interest rate changes. The Company expects to recover the amortized cost basis over the terms of the securities. The Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be upon maturity. The following tables show the securities portfolio’s gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2024 and December 31, 2023. 10 March 31, 2024 Less Than 12 Months 12 Months or Longer Total (in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Securities available-for-sale U.S. Government-sponsored agencies $ 41,680 $ ( 174 ) $ 22,167 $ ( 1,428 ) $ 63,847 $ ( 1,602 ) Municipal securities 4,438 ( 217 ) 44,268 ( 1,777 ) 48,706 ( 1,994 ) Agency mortgage-backed securities- residential 11,793 ( 105 ) 187,884 ( 32,725 ) 199,677 ( 32,830 ) Agency mortgage-backed securities- commercial 3,076 ( 13 ) 13,384 ( 1,281 ) 16,460 ( 1,294 ) Private label mortgage-backed securities - residential 5,095 ( 74 ) 11,623 ( 1,077 ) 16,718 ( 1,151 ) Asset-backed securities 1,523 ( 1 ) — — 1,523 ( 1 ) Corporate securities 4,350 ( 650 ) 22,122 ( 1,917 ) 26,472 ( 2,567 ) Total $ 71,955 $ ( 1,234 ) $ 301,448 $ ( 40,205 ) $ 373,403 $ ( 41,439 ) December 31, 2023 Less Than 12 Months 12 Months or Longer Total (in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Securities available-for-sale U.S. Government-sponsored agencies $ 41,934 $ ( 161 ) $ 24,579 $ ( 1,468 ) $ 66,513 $ ( 1,629 ) Municipal securities 2,399 ( 103 ) 36,193 ( 1,301 ) 38,592 ( 1,404 ) Agency mortgage-backed securities - residential 1,089 ( 5 ) 194,095 ( 31,245 ) 195,184 ( 31,250 ) Agency mortgage-backed securities - commercial 21,561 ( 50 ) 14,217 ( 1,289 ) 35,778 ( 1,339 ) Private label mortgage-backed securities - residential 3,567 ( 29 ) 9,114 ( 1,078 ) 12,681 ( 1,107 ) Asset-backed securities 1,654 ( 7 ) — — 1,654 ( 7 ) Corporate securities 1,680 ( 365 ) 24,587 ( 2,413 ) 26,267 ( 2,778 ) Total $ 73,884 $ ( 720 ) $ 302,785 $ ( 38,794 ) $ 376,669 $ ( 39,514 ) 11 The following table summarizes ratings for the Company’s HTM portfolio issued by state and political subdivisions and other securities as of March 31, 2024. Held-to-Maturity (in thousands) State and Municipal Other Total Aa1/AA+ $ 9,411 $ — $ 9,411 Aa2/AA 2,179 — 2,179 A1/A+ 1,794 — 1,794 A3/A- — 9,507 9,507 Baa1/BBB+ — 8,500 8,500 Baa2/BBB — 8,500 8,500 Baa3/BBB- — 9,526 9,526 Ba1/BB+ — 2,000 2,000 Not Rated 1 — 184,552 184,552 Total $ 13,384 $ 222,585 $ 235,969 1 HTM agency mortgage-backed securities - commercial and residential are listed under Other securities as not rated and have the explicit or implicit guarantee of the United States government. 12 Note 4: Loans Loan balances as of March 31, 2024 and December 31, 2023 are summarized in the table below. Categories of loans include: (in thousands) March 31, 2024 December 31, 2023 Commercial loans Commercial and industrial $ 133,897 $ 129,349 Owner-occupied commercial real estate 57,787 57,286 Investor commercial real estate 128,276 132,077 Construction 325,597 261,750 Single tenant lease financing 941,597 936,616 Public finance 498,262 521,764 Healthcare finance 213,332 222,793 Small business lending 239,263 218,506 Franchise finance 543,122 525,783 Total commercial loans 3,081,133 3,005,924 Consumer loans Residential mortgage 390,009 395,648 Home equity 22,753 23,669 Other consumer loans 380,675 377,614 Total consumer loans 793,437 796,931 Total commercial and consumer loans 3,874,570 3,802,855 Net deferred loan origination fees/costs and premiums/discounts on purchased loans and other 1 35,234 37,365 Total loans 3,909,804 3,840,220 Allowance for credit losses ( 40,891 ) ( 38,774 ) Net loans $ 3,868,913 $ 3,801,446 1 Includes carrying value adjustments of $ 26.9 million and $ 27.8 million related to terminated interest rate swaps associated with public finance loans as of March 31, 2024 and December 31, 2023, respectively. Risk characteristics of each loan portfolio segment are as follows: Commercial and Industrial: Commercial and industrial loans’ sources of repayment are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value. Loans are made for working capital, equipment purchases, or other purposes. Most commercial and industrial loans are secured by the assets being financed and may incorporate a personal guarantee. This portfolio segment is generally concentrated in the Midwest and Southwest regions of the United States. Owner-Occupied Commercial Real Estate: The primary source of repayment is the cash flow from the ongoing operations and activities conducted by the borrower, or an affiliate of the borrower, who owns the property. This portfolio segment is generally concentrated in the Midwest and Southwest regions of the United States and its loans are often secured by manufacturing and service facilities. 13 Investor Commercial Real Estate: These loans are made on a nationwide basis and are underwritten primarily based on the cash flow expected to be generated from the property and are secondarily supported by the value of the real estate. These loans typically incorporate a personal guarantee from the primary sponsor or sponsors. This portfolio segment generally involves larger loan amounts with repayment primarily dependent on the successful leasing and operation of the property securing the loan or the business conducted on the property securing the loan. Investor commercial real estate loans may be more adversely affected by changing economic conditions in the real estate markets, industry dynamics or the overall health of the local economy where the property is located. The properties securing the Company’s investor commercial real estate portfolio tend to be diverse in terms of property type. Management monitors and evaluates commercial real estate loans based on property financial performance, collateral value, guarantor strength, economic and industry conditions together with other risk grade criteria. As a general rule, the Company avoids financing special use projects unless other underwriting factors are present to mitigate these additional risks. Construction: Construction loans are made on a nationwide basis and are secured by land and related improvements and are made to assist in the construction of new structures, which may include commercial (retail, industrial, office, and multi-family) properties, land development for residential properties or single family residential properties offered for sale by the builder. These loans generally finance a variety of project costs, including land, site preparation, architectural services, construction, closing and soft costs and interim financing needs. The cash flows of builders, while initially predictable, may fluctuate with market conditions, and the value of the collateral securing these loans may be subject to fluctuations based on general economic changes. Single Tenant Lease Financing: These loans are made on a nationwide basis to owners of real estate subject to long-term lease arrangements with single tenant operators. The real estate is typically operated by regionally, nationally or globally branded businesses. The loans are underwritten based on the financial strength of the borrower, characteristics of the real estate, cash flows generated from the lease arrangements and the financial strength of the tenant. Similar to the other loan portfolio segments, management monitors and evaluates these loans based on borrower and tenant financial performance, collateral value, industry trends and other risk grade criteria. Public Finance: These loans are made on a nationwide basis to governmental and not-for-profit entities to provide both tax-exempt and taxable loans for a variety of purposes including: short-term cash-flow needs; debt refinancing; economic development; quality of life projects; infrastructure improvements; renewable energy projects; and equipment financing. The primary sources of repayment for public finance loans include pledged revenue sources including but not limited to: general obligations; property taxes; income taxes; tax increment revenue; utility revenue; gaming revenues; sales tax; and pledged general revenue. Certain loans may also include an additional collateral pledge of mortgaged property or a security interest in financed equipment. Healthcare Finance: These loans are made on a nationwide basis to healthcare providers, primarily dentists, for practice acquisition financing or refinancing that occasionally includes owner-occupied commercial real estate and equipment purchases. The sources of repayment are primarily based on the identified cash flows from operations of the borrower and related entities and secondarily on the underlying collateral provided by the borrower. Small Business Lending: These loans are made on a nationwide basis to small businesses and generally carry a partial guaranty from the U.S. Small Business Administration (“SBA”) under its 7(a) loan program. We generally sell the government guaranteed portion of SBA loans into the secondary market while retaining the non-guaranteed portion of the loan and the servicing rights. Loans in the small business lending portfolio have sources of repayment that are primarily based on the identified cash flows of the borrower and secondarily on any underlying collateral provided by the borrower. Loans may, but do not always, have a collateral shortfall. For SBA loans where the guaranteed portion is retained, the SBA guaranty provides a tertiary source of repayment to the Bank in event of borrower default. Cash flows of borrowers, however, may not be as expected and collateral securing these loans may fluctuate in value. Loans are made for a broad array of purposes including, but not limited to, providing operating cash flow, funding ownership changes, and facilitating equipment and commercial real estate purchases. Franchise Finance: These loans are made on a nationwide basis through our partnership with ApplePie Capital, which through their deep relationships with franchise brands provides franchisees with financing options for new franchise units, recapitalization, expansion, equipment and working capital. The sources of repayment are either based on identified cash flows from existing operations of the borrower or pro forma cash flow for new franchise locations. 14 Residential Mortgage: With respect to residential loans that are secured by 1-to-4 family residences and are generally owner occupied, the Company typically establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Repayment of these loans is primarily dependent on the financial circumstances of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in residential property values. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers in geographically diverse locations throughout the country. Home Equity: Home equity loans and lines of credit are typically secured by a subordinate interest in 1-to-4 family residences. The properties securing the home equity portfolio segment are generally geographically diverse as the Company offers these products on a nationwide basis. Repayment of these loans and lines of credit is primarily dependent on the financial circumstances of the borrowers and may be impacted by changes in unemployment levels and property values on residential properties, among other economic conditions in the market. Other Consumer: These loans primarily consist of consumer loans and credit cards. Consumer loans may be secured by consumer assets such as horse trailers or recreational vehicles. Some consumer loans are unsecured, such as small installment loans, home improvement loans and certain lines of credit. Repayment of consumer loans is primarily dependent upon the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers in geographically diverse locations throughout the country. Allowance for Credit Losses (“ACL”) Methodology The ACL for loans represents management's estimate of all expected credit losses over the expected life of the Company’s existing loan portfolio. Management estimates the ACL balance using relevant available information about the collectability of cash flows, from internal and external sources, including historical information relating to past events, current conditions, and reasonable and supportable forecasts of future economic conditions. When the Company is unable to forecast future economic events, management may revert to historical information. The Company's methodologies incorporate a one-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average. The ACL methodology may also consider other adjustments to address changes in conditions, trends, and circumstances such as local industry changes that could have a significant impact on the risk profile of the loan portfolio and provide for adjustments that may not be reflected and/or captured in the historical loss data. These factors include: lending policies, imprecision in forecasting future economic conditions, loan profile, lending staff, problem loan trends, loan review, collateral, credit concentration, or other internal and external factors. The Company also includes qualitative adjustments to the allowance based on factors and considerations that have not otherwise been fully accounted for. Qualitative adjustments include, but are not limited to: • Changes in lending policies and procedures, including changes in underwriting standards and collections, charge-offs and recovery practices • Changes in international, national, regional and local conditions • Changes in the nature and volume of the portfolio and terms of loans • Changes in the experience, depth and ability of lending management • Changes in the volume and severity of past due loans and other similar conditions • Changes in the quality of the organization’s loan review system • Changes in the value of underlying collateral for collateral dependent loans • The existence and effect of any concentrations of credit and changes in the levels of such concentrations • The effect of other external factors (i.e. competition, legal and regulatory requirements) on the level of estimated credit losses The ACL is measured on a collective or pool basis when similar risk characteristics exist. The Company segments its portfolio generally by Federal Financial Institutions Examination Council ("FFIEC") Call Report codes that align with its lines of business. Additional sub-segmentation may be utilized to identify groups of loans with unique risk characteristics relative to the rest of the portfolio. 15 Loans that do not share similar risk characteristics are evaluated on an individual basis. These evaluations are typically performed on loans with a deteriorated internal risk rating. The allowance for credit loss is determined based on several methods, including estimating the fair value of the underlying collateral or the present value of expected cash flows. The Company relies on a third-party platform that offers multiple methodologies to measure historical life-of-loan losses. Modified Loans to Borrowers Experiencing Financial Difficulty The Company may make modifications to certain loans in order to alleviate temporary difficulties in the borrower’s financial condition and/or constraints on the borrower’s ability to repay the loan, and to minimize potential losses to the Company. Modifications may include changes in the amortization terms of the loan, reductions in interest rates, acceptance of interest only payments, and/or reductions to the outstanding loan balance. Such loans are typically placed on nonaccrual status when there is doubt concerning the full repayment of principal and interest or the loan has been delinquent for a period of 90 days or more. These loans may be returned to accrual status when all contractual amounts past due have been brought current, and the borrower’s performance under the modified terms of the loan agreement and the ultimate collectability of all contractual amounts due under the modified terms is no longer in doubt. The Company typically measures the ACL on modified loans to borrowers experiencing financial difficulty on an individual basis when the loans are deemed to no longer share risk characteristics that are similar with other loans in the portfolio. The determination of the ACL for these loans is based on a discounted cash flow approach for both those measured collectively and individually, unless the loan is deemed collateral dependent, which requires measurement of the ACL based on the estimated expected fair value of the underlying collateral, less costs to sell. GAAP requires the Company to make certain disclosures related to these loans, including certain types of modifications, as well as how such loans have performed since their modifications. Provision for Credit Losses A provision for estimated losses on loans is charged to income based upon management’s evaluation of the potential losses. Such an evaluation, which includes a review of all loans for which full repayment may not be reasonably assured, considers, among other matters, the estimated net realizable value of the underlying collateral, as applicable, economic conditions, loan loss experience, and other factors that are particularly susceptible to changes that could result in a material adjustment in the near term. While management attempts to use the best information available in making its evaluations, future allowance adjustments may be necessary if economic conditions change substantially from the assumptions used in making the evaluations. Policy for Charging Off Loans The Company’s policy is to charge off a loan at any point in time when it no longer can be considered a bankable asset, meaning collectible within the parameters of policy. A secured loan is generally charged down to the estimated fair value of the collateral, less costs to sell, no later than when it is 120 days past due as to principal or interest. An unsecured loan generally is charged off no later than when it is 180 days past due as to principal or interest. A home improvement loan generally is charged off no later than when it is 90 days past due as to principal or interest. 16 The following tables present changes in the balance of the ACL during the three months ended March 31, 2024 and 2023. (in thousands) Three Months Ended March 31, 2024 Allowance for credit losses: Balance, Beginning of Period (Credit) Provision Charged to Expense Losses Charged Off Recoveries Balance, End of Period Commercial and industrial $ 2,185 $ ( 387 ) $ — $ 2 $ 1,800 Owner-occupied commercial real estate 825 ( 56 ) — — 769 Investor commercial real estate 1,311 ( 513 ) — — 798 Construction 2,167 775 — — 2,942 Single tenant lease financing 8,129 342 — — 8,471 Public finance 1,372 ( 36 ) — — 1,336 Healthcare finance 1,976 ( 59 ) — — 1,917 Small business lending 6,532 2,585 ( 289 ) 40 8,868 Franchise finance 6,363 ( 197 ) — — 6,166 Residential mortgage 2,054 ( 41 ) ( 69 ) 1 1,945 Home equity 171 ( 48 ) — 2 125 Other consumer loans 5,689 217 ( 175 ) 23 5,754 Total $ 38,774 $ 2,582 $ ( 533 ) $ 68 $ 40,891 (in thousands) Three Months Ended March 31, 2023 Allowance for credit losses: Balance, Beginning of Period Adoption of CECL (Credit) Provision Charged to Expense Losses Charged Off Recoveries Balance, End of Period Commercial and industrial $ 1,711 $ ( 120 ) $ 6,810 $ ( 6,965 ) $ 1 $ 1,437 Owner-occupied commercial real estate 651 62 ( 1 ) — — 712 Investor commercial real estate 1,099 ( 191 ) 368 — — 1,276 Construction 2,074 ( 435 ) ( 88 ) — — 1,551 Single tenant lease financing 10,519 ( 346 ) 100 — — 10,273 Public finance 1,753 ( 135 ) ( 48 ) — — 1,570 Healthcare finance 2,997 1,034 ( 336 ) — — 3,695 Small business lending 2,168 334 ( 105 ) ( 60 ) 3 2,340 Franchise finance 3,988 ( 313 ) 997 — — 4,672 Residential mortgage 1,559 406 594 — 2 2,561 Home equity 69 133 51 — 1 254 Other consumer loans 3,149 2,533 1,031 ( 232 ) 57 6,538 Total $ 31,737 $ 2,962 $ 9,373 $ ( 7,257 ) $ 64 $ 36,879 Accrued interest receivable on loans totaled $ 20.5 million and $ 20.9 million at March 31, 2024 and December 31, 2023, respectively, and is excluded from the estimate of credit losses. The Company made the accounting policy election to not measure an ACL for accrued interest receivable. Accrued interest deemed uncollectible will be written off through interest income. 17 In addition to the ACL, the Company established a reserve for off-balance sheet commitments, classified in other liabilities, as required by the adoption of the CECL methodology for measuring credit losses. This reserve is maintained at a level management believes to be sufficient to absorb losses arising from unfunded loan commitments. The day one entry for off-balance sheet commitments resulted in a reserve of $ 2.5 million. The adequacy of the reserve for unfunded commitments is determined quarterly based on methodology similar to the methodology for determining the ACL. The following tables detail activity in the provision (benefit) for credit losses on off-balance sheet commitments for the three months ended March 31, 2024 and 2023. (in thousands) Balance December 31, 2023 Provision (Benefit) for credit losses Balance March 31, 2024 Off-balance sheet commitments Commercial loans Commercial and industrial $ 233 $ ( 40 ) $ 193 Owner-occupied commercial real estate 9 ( 9 ) — Investor commercial real estate 6 ( 6 ) — Construction 2,889 381 3,270 Small business lending 541 ( 382 ) 159 Total commercial loans 3,678 ( 56 ) 3,622 Consumer loans Residential mortgage 11 ( 6 ) 5 Home equity 45 ( 10 ) 35 Other consumer 11 — 11 Total consumer loans 67 ( 16 ) 51 Total allowance for off-balance sheet commitments $ 3,745 $ ( 72 ) $ 3,673 (in thousands) Pre-ASC 326 Adoption Impact of ASC 326 Adoption Provision (Benefit) for credit losses Balance, March 31, 2023 Off-balance sheet commitments Commercial loans Commercial and industrial $ — $ 110 $ 39 $ 149 Owner-occupied commercial real estate — — 8 8 Investor commercial real estate — 9 39 48 Construction — 2,193 ( 39 ) 2,154 Healthcare finance — 2 — 2 Total commercial loans — 2,314 47 2,361 Consumer loans Residential mortgage — 127 ( 14 ) 113 Home equity — 52 10 62 Other consumer — 11 ( 1 ) 10 Total consumer loans — 190 ( 5 ) 185 Total allowance for off-balance sheet commitments $ — $ 2,504 $ 42 $ 2,546 18 The Company utilizes a risk grading matrix to assign a risk grade to each of its commercial loans. A description of the general characteristics of the risk grades is as follows: • “Pass” - Higher quality loans that do not fit any of the other categories described below. • “Special Mention” - Loans that possess some credit deficiency or potential weakness, which deserve close attention. • “Substandard” - Loans that possess a defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. • “Doubtful” - Such loans have been placed on nonaccrual status and may be heavily dependent upon collateral possessing a value that is difficult to determine or based upon some near-term event that lacks clear certainty. These loans have all of the weaknesses of those classified as Substandard; however, based on existing conditions, these weaknesses make full collection of the principal balance highly improbable. • “Loss” - Loans that are considered uncollectible and of such little value that continuing to carry them as assets is not warranted. The Company does not risk grade its consumer loans. It classifies them as either performing or nonperforming. Below is a description of those classifications: • “Performing” - Loans that are accruing and full collection of principal and interest is expected. • “Nonperforming” - Loans that are 90 days delinquent or for which the full collection of principal and interest may be in doubt. 19 The following tables present the credit risk profile of the Company’s commercial and consumer loan portfolios by loan class and by year of origination for the years indicated based on rating category and payment activity as of March 31, 2024 and December 31, 2023. March 31, 2024 Term Loans (amortized cost basis by origination year) Revolving loans amortized cost basis Revolving loans converted to term (in thousands) 2024 2023 2022 2021 2020 Prior Total Commercial and industrial Pass $ 7,904 $ 26,273 $ 18,942 $ 15,382 $ 2,464 $ 20,586 $ 37,884 $ — $ 129,435 Special Mention — — 4,462 — — — — — 4,462 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total commercial and industrial 7,904 26,273 23,404 15,382 2,464 20,586 37,884 — 133,897 Year-to-date gross charge-offs — — — — — — — — — Owner-occupied commercial real estate Pass 2,275 1,484 10,668 7,882 5,861 16,958 — — 45,128 Special Mention — — 580 913 8,331 1,180 — — 11,004 Substandard — — — — — 1,655 — — 1,655 Doubtful — — — — — — — — — Total owner-occupied commercial real estate 2,275 1,484 11,248 8,795 14,192 19,793 — — 57,787 Year-to-date gross charge-offs — — — — — — — — — Investor commercial real estate Pass — 2,852 35,232 27,142 9,800 53,250 — — 128,276 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Total investor commercial real estate — 2,852 35,232 27,142 9,800 53,250 — — 128,276 Year-to-date gross charge-offs — — — — — — — — — Construction Pass 2,195 63,557 174,215 77,364 2,426 — 5,840 — 325,597 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Total construction 2,195 63,557 174,215 77,364 2,426 — 5,840 — 325,597 Year-to-date gross charge-offs — — — — — — — — — Single tenant lease financing Pass 16,533 52,217 222,230 89,441 65,372 479,092 — — 924,885 Special Mention — — 2,604 5,272 1,174 7,662 — — 16,712 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total single tenant lease financing 16,533 52,217 224,834 94,713 66,546 486,754 — — 941,597 Year-to-date gross charge-offs — — — — — — — — — Public finance Pass 1,272 3,323 17,740 28,790 719 444,298 — — 496,142 Special Mention — — — — — 2,120 — — 2,120 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total public finance 1,272 3,323 17,740 28,790 719 446,418 — — 498,262 Year-to-date gross charge-offs — — — — — — — — — 20 March 31, 2024 Term Loans (amortized cost basis by origination year) Revolving loans amortized cost basis Revolving loans converted to term (in thousands) 2024 2023 2022 2021 2020 Prior Total Healthcare finance Pass — — — 9,719 119,549 83,354 — — 212,622 Special Mention — — — — — 710 — — 710 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total healthcare finance — — — 9,719 119,549 84,064 — — 213,332 Year-to-date gross charge-offs — — — — — — — — — Small business lending 1 Pass 23,351 118,895 36,277 13,994 12,070 13,420 7,481 — 225,488 Special Mention — 2,422 287 204 383 946 — — 4,242 Substandard — 2,736 3,143 52 1,585 1,551 466 — 9,533 Doubtful — — — — — — — — — Total small business lending 23,351 124,053 39,707 14,250 14,038 15,917 7,947 — 239,263 Year-to-date gross charge-offs — 46 235 8 — — — 289 Franchise finance Pass 25,091 256,701 203,240 56,290 — — — — 541,322 Special Mention — 281 669 — — — — — 950 Substandard — — 555 295 — — — — 850 Doubtful — — — — — — — — — Total franchise finance 25,091 256,982 204,464 56,585 — — — — 543,122 Year-to-date gross charge-offs — — — — — — — — — Consumer loans Residential mortgage Performing — 13,983 193,699 90,365 29,784 59,638 — — 387,469 Nonperforming — — 1,189 448 170 733 — — 2,540 Total residential mortgage — 13,983 194,888 90,813 29,954 60,371 — — 390,009 Year-to-date gross charge-offs — — 13 56 — — — — 69 Home equity Performing — 1,307 1,942 429 454 680 16,180 1,761 22,753 Nonperforming — — — — — — — — — Total home equity — 1,307 1,942 429 454 680 16,180 1,761 22,753 Year-to-date gross charge-offs — — — — — — — — — Other consumer Performing 20,534 112,174 102,027 39,591 25,131 80,260 829 — 380,546 Nonperforming — 69 — 16 4 40 — — 129 Total other consumer 20,534 112,243 102,027 39,607 25,135 80,300 829 — 380,675 Gross charge-offs — 39 64 24 1 47 — — 175 Total Loans $ 99,155 $ 658,274 $ 1,029,701 $ 463,589 $ 285,277 $ 1,268,133 $ 68,680 $ 1,761 $ 3,874,570 Total year-to-date gross charge-offs $ — $ 85 $ 312 $ 80 $ 9 $ 47 $ — $ — $ 533 1 Balance in “Substandard” is partially guaranteed by the U.S. government. 21 December 31, 2023 Term Loans (amortized cost basis by origination year) Revolving loans amortized cost basis Revolving loans converted to term (in thousands) 2023 2022 2021 2020 2019 Prior Total Commercial and industrial Pass $ 24,329 $ 19,382 $ 15,464 $ 2,502 $ 12,365 $ 8,703 $ 41,967 $ — $ 124,712 Special Mention — 4,637 — — — — — — 4,637 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total commercial and industrial 24,329 24,019 15,464 2,502 12,365 8,703 41,967 — 129,349 Year-to-date gross charge-offs — — 6,914 5 130 — — — 7,049 Owner-occupied commercial real estate Pass 1,492 10,731 7,990 6,591 5,255 12,485 — — 44,544 Special Mention — 584 922 8,392 — 1,189 — — 11,087 Substandard — — — — — 1,655 — — 1,655 Doubtful — — — — — — — — — Total owner-occupied commercial real estate 1,492 11,315 8,912 14,983 5,255 15,329 — — 57,286 Year-to-date gross charge-offs — — — — — — — — — Investor commercial real estate Pass 6,571 35,209 26,841 9,864 47,827 5,765 — — 132,077 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Total investor commercial real estate 6,571 35,209 26,841 9,864 47,827 5,765 — — 132,077 Year-to-date gross charge-offs — — — — — 591 — — 591 Construction Pass 26,539 153,066 70,175 6,121 — — 5,849 — 261,750 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Total construction 26,539 153,066 70,175 6,121 — — 5,849 — 261,750 Year-to-date gross charge-offs — — — — — — — — — Single tenant lease financing Pass 52,360 221,964 89,075 65,863 142,023 346,695 — — 917,980 Special Mention — 4,362 6,698 3,032 — 4,544 — — 18,636 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total single tenant lease financing 52,360 226,326 95,773 68,895 142,023 351,239 — — 936,616 Year-to-date gross charge-offs — — — — — — — — — Public finance Pass 3,805 30,583 29,750 719 43,611 411,176 — — 519,644 Special Mention — — — — — 2,120 — — 2,120 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total public finance 3,805 30,583 29,750 719 43,611 413,296 — — 521,764 Year-to-date gross charge-offs — — — — — — — — — 22 December 31, 2023 Term Loans (amortized cost basis by origination year) Revolving loans amortized cost basis Revolving loans converted to term (in thousands) 2023 2022 2021 2020 2019 Prior Total Healthcare finance Pass — — 9,955 124,654 63,486 23,484 — — 221,579 Special Mention — — — — 1,214 — — — 1,214 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total healthcare finance — — 9,955 124,654 64,700 23,484 — — 222,793 Year-to-date gross charge-offs — — — — 605 — — — 605 Small business lending 1 Pass 119,149 42,077 15,180 13,948 4,582 9,215 5,388 — 209,539 Special Mention 343 496 — 341 265 698 — — 2,143 Substandard 1,095 1,854 52 1,777 1,155 417 474 — 6,824 Doubtful — — — — — — — — — Total small business lending 120,587 44,427 15,232 16,066 6,002 10,330 5,862 — 218,506 Year-to-date gross charge-offs 67 739 416 1,364 — — — — 2,586 Franchise finance Pass 256,944 210,617 57,919 — — — — — 525,480 Special Mention — — — — — — — — — Substandard — — 303 — — — — — 303 Doubtful — — — — — — — — — Total franchise finance 256,944 210,617 58,222 — — — — — 525,783 Year-to-date gross charge-offs — 331 — — — — — — 331 Consumer loans Residential mortgage Performing 14,942 195,453 91,010 30,092 13,072 48,330 — — 392,899 Nonperforming — 738 456 73 — 1,482 — — 2,749 Total residential mortgage 14,942 196,191 91,466 30,165 13,072 49,812 — — 395,648 Year-to-date gross charge-offs — 53 70 — 17 — — — 140 Home equity Performing 1,369 1,997 436 467 141 585 16,896 1,778 23,669 Nonperforming — — — — — — — — — Total home equity 1,369 1,997 436 467 141 585 16,896 1,778 23,669 Year-to-date gross charge-offs — — — — — — — — — Other consumer Performing 115,736 106,883 41,598 26,527 27,087 58,902 795 — 377,528 Nonperforming — 53 — 5 15 13 — — 86 Total other consumer 115,736 106,936 41,598 26,532 27,102 58,915 795 — 377,614 Year-to-date gross charge-offs 97 115 20 51 56 243 — — 582 Total Loans $ 624,674 $ 1,040,686 $ 463,824 $ 300,968 $ 362,098 $ 937,458 $ 71,369 $ 1,778 $ 3,802,855 Total year-to-date gross charge-offs $ 164 $ 1,238 $ 7,420 $ 1,420 $ 808 $ 834 $ — $ — $ 11,884 1 Balance in “Substandard” is partially guaranteed by the U.S. government. 23 The following tables present the Company’s loan portfolio delinquency analysis as of March 31, 2024 and December 31, 2023. March 31, 2024 (in thousands) 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total Loans Commercial and industrial $ 8 $ — $ — $ 8 $ 133,889 $ 133,897 Owner-occupied commercial real estate — — — — 57,787 57,787 Investor commercial real estate — — — — 128,276 128,276 Construction — — — — 325,597 325,597 Single tenant lease financing — — — — 941,597 941,597 Public finance — — — — 498,262 498,262 Healthcare finance — — — — 213,332 213,332 Small business lending 1 7,674 824 3,032 11,530 227,733 239,263 Franchise finance 3,772 1,168 850 5,790 537,332 543,122 Residential mortgage — 1,345 1,473 2,818 387,191 390,009 Home equity — — — — 22,753 22,753 Other consumer 202 48 48 298 380,377 380,675 Total $ 11,656 $ 3,385 $ 5,403 $ 20,444 $ 3,854,126 $ 3,874,570 1 Balance is partially guaranteed by the U.S. government. December 31, 2023 (in thousands) 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total Loans Commercial and industrial $ 40 $ 21 $ — $ 61 $ 129,288 $ 129,349 Owner-occupied commercial real estate — — — — 57,286 57,286 Investor commercial real estate — — — — 132,077 132,077 Construction — — — — 261,750 261,750 Single tenant lease financing — — — — 936,616 936,616 Public finance — — — — 521,764 521,764 Healthcare finance — — — — 222,793 222,793 Small business 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. Loans are reclassified to a non-accruing status when, in management’s judgment, the collateral value and financial condition of the borrower do not justify accruing interest. At the time the accrual is discontinued, all unpaid accrued interest is reversed against earnings. Interest income accrued in prior years, if any, is charged to the allowance for credit losses. Payments subsequently received on nonaccrual loans are applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable, typically after a minimum of nine consecutive months of performance. There was no interest income recognized on nonaccrual loans for the three months ended March 31, 2024 and 2023. 24 The following table summarizes the Company’s nonaccrual loans and loans past due 90 days or more and still accruing by loan class for the periods indicated: March 31, 2024 December 31, 2023 (in thousands) Nonaccrual Loans Nonaccrual Loans with no Allowance for Credit Losses Total Loans 90 Days or More Past Due and Accruing Nonaccrual Loans Nonaccrual Loans with no Allowance for Credit Losses Total Loans 90 Days or More Past Due and Accruing Commercial and industrial $ — $ — $ — $ — $ — $ — Small business lending 1 9,532 654 — 6,824 904 — Franchise finance 295 — 555 303 — — Residential mortgage 2,309 2,309 230 1,911 1,911 838 Other consumer 129 129 — 86 86 — Total loans $ 12,265 $ 3,092 $ 785 $ 9,124 $ 2,901 $ 838 1 Balance is partially guaranteed by the U.S. government. Determining fair value for collateral dependent loans requires obtaining a current independent appraisal of the collateral and applying a discount factor, which includes selling costs if applicable, to the value. The fair value of real estate is generally based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis. Fair value on other collateral such as business assets is typically ascertained by assessing, either singularly or some combination of, asset appraisals, accounts receivable aging reports, inventory listings and/or customer financial statements. Both appraised values and values based on borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions. The following tables present the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses as of March 31, 2024 and December 31, 2023. March 31, 2024 (in thousands) Commercial Real Estate Residential Real Estate Other Total Allowance on Collateral Dependent Loans Commercial and industrial $ — $ — $ — $ — $ — Owner-occupied commercial real estate — — 1,654 1,654 — Small business lending 1 1,284 — 4,527 5,811 2,671 Residential mortgage — 2,309 — 2,309 — Other consumer loans — — 129 129 — Total loans $ 1,284 $ 2,309 $ 6,310 $ 9,903 $ 2,671 1 Balance is partially guaranteed by the U.S. government. December 31, 2023 (in thousands) Commercial Real Estate Residential Real Estate Other Total Allowance on Collateral Dependent Loans Commercial and industrial $ — $ — $ — $ — $ — Owner-occupied commercial real estate — — 1,654 1,654 — Small business 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. 25 Loan Modifications to Borrowers Experiencing Financial Difficulty In January 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt restructurings and Vintage Disclosures” (“ASU 2022-02”), which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis. Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications to borrowers experiencing financial difficulty. Instead, these modifications are included in their respective loan pool and a historical loss rate is applied to the current loan balance to arrive at the quantitative baseline portion of the ACL. Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions and other actions intended to minimize loss and to avoid foreclosure or repossession of collateral. The Company did not have any loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2024 and 2023. Other Real Estate Owned The Company had $ 0.4 million in other real estate owned (“OREO”) as of March 31, 2024 and December 31, 2023, which consisted of two residential mortgage properties. There were two loans totaling $ 0.5 million and one loan totaling $ 0.8 million, in the process of foreclosure at March 31, 2024 and December 31, 2023, respectively. 26 Note 5: Premises and Equipment The following table summarizes premises and equipment at March 31, 2024 and December 31, 2023. (in thousands) March 31, 2024 December 31, 2023 Land $ 5,598 $ 5,598 Construction in process 1,599 1,119 Right of use leased asset 41 66 Building and improvements 60,854 60,699 Furniture and equipment 21,127 20,836 Less: accumulated depreciation ( 15,988 ) ( 14,855 ) Total $ 73,231 $ 73,463 Note 6: Goodwill As of March 31, 2024 and December 31, 2023, the carrying amount of goodwill was $ 4.7 million. There have been no changes in the carrying amount of goodwill for the three months ended March 31, 2024 or March 31, 2023. Goodwill is assessed for impairment annually as of August 31, or more frequently if events occur or circumstances change that indicate an impairment may exist. When assessing goodwill for impairment, first, a qualitative assessment can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment. Goodwill was assessed for impairment using a quantitative test performed as of August 31, 2023. The estimated fair value of the reporting unit exceeded the net carrying value, and therefore no goodwill impairment existed as of that date. Note 7: Servicing Asset Activity for the servicing asset and the related changes in fair value for the three months ended March 2024 and 2023 are shown in the table below. Three Months Ended (in thousands) March 31, 2024 March 31, 2023 Balance, beginning of period $ 10,567 $ 6,255 Additions: Originated 1,627 1,112 Subtractions Paydowns: ( 612 ) ( 339 ) Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model 178 284 Loan servicing asset revaluation $ ( 434 ) $ ( 55 ) Balance, end of period $ 11,760 $ 7,312 27 Loans serviced for others are not included in the condensed consolidated balance sheets. The unpaid principal balances of these loans serviced for others as of March 31, 2024 and December 31, 2023 are shown in the table below. (in thousands) March 31, 2024 December 31, 2023 Loan portfolios serviced for: SBA guaranteed loans $ 599,396 $ 531,927 Total $ 599,396 $ 531,927 Loan servicing revenue totaled $ 1.3 million and $ 0.8 million for the three months ended March 31, 2024 and March 31, 2023, respectively. Loan servicing asset revaluation, which represents the change in fair value of the servicing asset, resulted in a $ 0.4 million and $ 0.1 million downward valuation for the three months ended March 31, 2024 and March 31, 2023, respectively. The fair value of servicing rights is highly sensitive to changes in underlying assumptions. Though fluctuations in prepayment speeds and changes in secondary market premiums generally have the most substantial impact on the fair value of servicing rights, other influencing factors include changing economic conditions, changes to the discount rate assumption and the weighted average life of the servicing portfolio. Measurement of fair value is limited to the conditions existing and the assumptions used as of a particular point in time; however, those assumptions may change over time. Refer to Note 11 - Fair Value of Financial Instruments for further details. Note 8: Subordinated Debt In June 2019, the Company issued $ 37.0 million aggregate principal amount of 6.0 % Fixed-to-Floating Rate Subordinated Notes due 2029 (the “2029 Notes”) in a public offering. The 2029 Notes initially bear a fixed interest rate of 6.0 % per year to, but excluding, June 30, 2024, and thereafter a floating rate equal to three-month Term SOFR plus 4.376 %. All interest on the 2029 Notes is payable quarterly. The 2029 Notes are scheduled to mature on June 30, 2029. The 2029 Notes are unsecured subordinated obligations of the Company and may be repaid, without penalty, on any interest payment date on or after June 30, 2024. The 2029 Notes are intended to qualify as Tier 2 capital under regulatory guidelines. In October 2020, the Company entered into a term loan in the principal amount of $ 10.0 million, evidenced by a term note due 2030 (the “2030 Note”). The 2030 Note initially bears a fixed interest rate of 6.0 % per year to, but excluding, November 1, 2025 and thereafter at a floating rate equal to the then-current benchmark rate (initially three-month Term SOFR plus 5.795 %). The 2030 Note is scheduled to mature on November 1, 2030. The 2030 Note is an unsecured subordinated obligation of the Company and may be repaid, without penalty, on any interest payment date on or after November 1, 2025. The 2030 Note is intended to qualify as Tier 2 capital under regulatory guidelines. The Company used the net proceeds from the issuance of the 2030 Note to redeem a subordinated term note that had been entered into in October 2015. In August 2021, the Company issued $ 60.0 million aggregate principal amount of 3.75 % Fixed-to-Floating Rate Subordinated Notes due 2031 (the “2031 Notes”) in a private placement. The 2031 Notes initially bear a fixed interest rate of 3.75 % per year to, but excluding, September 1, 2026, and thereafter a floating rate equal to the then-current benchmark rate (initially three-month Term SOFR plus 3.11 %). The 2031 Notes are scheduled to mature on September 1, 2031. The 2031 Notes are unsecured subordinated obligations of the Company and may be repaid, without penalty, on any interest payment date on or after September 1, 2026. The 2031 Notes are intended to qualify as Tier 2 capital under regulatory guidelines. The Company used a portion of the net proceeds from the issuance of the 2031 Notes to redeem subordinated notes issued by the Company in 2016. Pursuant to the terms of a Registration Rights Agreement between the Company and the initial purchasers of the 2031 Notes, the Company offered to exchange the 2031 Notes for subordinated notes that are registered under the Securities Act of 1933, as amended, and have substantially the same terms as the 2031 Notes. On December 30, 2021, we completed an exchange of $ 59.3 million principal amount of the unregistered 2031 Notes for registered 2031 Notes in satisfaction of our obligations under the registration rights agreement. Holders of $ 0.7 million of unregistered 2031 Notes did not participate in the exchange. 28 The following table presents the principal balance and unamortized discount and debt issuance costs for the 2029 Notes, the 2030 Note, and the 2031 Notes as of March 31, 2024 and December 31, 2023. March 31, 2024 December 31, 2023 (in thousands) Principal Unamortized Discount and Debt Issuance Costs Principal Unamortized Discount and Debt Issuance Costs 2029 Notes $ 37,000 $ ( 822 ) $ 37,000 $ ( 862 ) 2030 Notes 10,000 ( 155 ) 10,000 ( 160 ) 2031 Notes 60,000 ( 1,108 ) 60,000 ( 1,140 ) Total $ 107,000 $ ( 2,085 ) $ 107,000 $ ( 2,162 ) Note 9: Benefit Plans Employment Agreements The Company is party to certain employment agreements with each of its Chief Executive Officer, President and Chief Operating Officer and Executive Vice President and Chief Financial Officer. The employment agreements each provide for annual base salaries and annual bonuses, if any, as determined from time to time by the Compensation Committee of our Board of Directors. The annual bonuses are to be determined with reference to the achievement of annual performance objectives established by the Compensation Committee. The agreements also provide that each of the Chief Executive Officer, President and Chief Operating Officer and Executive Vice President and Chief Financial Officer, may be awarded additional compensation, benefits, or consideration as the Compensation Committee may determine. The agreements also provide for the continuation of salary and certain other benefits for a specified period of time upon termination of employment under certain circumstances, including resignation for “good reason,” termination by the Company without “cause” at any time or any termination of employment within twelve months following a “change in control,” along with other specific conditions. 2022 Equity Incentive Plan The First Internet Bancorp 2022 Equity Incentive Plan (the “2022 Plan”) was approved by our Board of Directors and ratified by our shareholders on May 16, 2022. The plan permits awards of incentive and non-statutory stock options, stock appreciation rights, restricted stock awards, stock unit awards, performance awards and other stock-based awards. All employees, consultants and advisors of the Company or any subsidiary, as well as all non-employee directors of the Company, are eligible to receive awards under the 2022 Plan. The 2022 Plan initially authorized the issuance of 400,000 new shares of the Company’s common stock plus all shares of common stock that remained available for future grants under the First Internet Bancorp 2013 Equity Incentive Plan (the “2013 Plan”). Award Activity Under 2022 Plan The Company recorded $ 0.4 million and $ 0.1 million o f share-based compensation expense for the three months ended March 31, 2024, and 2023, respectively, related to stock-based awards under the 2022 Plan . The following table summarizes the stock-based award activity under the 2022 Plan for the three months ended March 31, 2024. Restricted Stock Units Weighted-Average Grant Date Fair Value Per Share Restricted Stock Awards Weighted-Average Grant Date Fair Value Per Share Deferred Stock Units Weighted-Average Grant Date Fair Value Per Share Unvested at December 31, 2023 72,354 $ 24.61 30,030 $ 11.18 — $ — Granted 75,222 24.13 — — — — Vested ( 14,294 ) 24.52 — — — — Unvested at March 31, 2024 133,282 $ 24.35 30,030 $ 11.18 — $ — 29 At March 31, 2024, the total unrecognized compensation cost related to unvested stock-based awards under the 2022 Plan was $ 2.8 million with a weighted-average expense recognition period of 2.4 years. 2013 Equity Incentive Plan The 2013 Plan authorized the issuance of 750,000 shares of the Company’s common stock in the form of stock-based awards to employees, directors, and other eligible persons. Although outstanding stock-based awards under the 2013 Plan remain in place according to their terms, our authority to grant new awards under the 2013 Plan terminated upon shareholder approval of the 2022 Plan. Award Activity Under 2013 Plan The Company recorded $ 0.1 million and $ 0.4 million of share-based compensation expense for the three months ended March 31, 2024 and 2023, respectively, related to stock-based awards under the 2013 Plan . The following table summarizes the stock-based award activity under the 2013 Plan for the three months ended March 31, 2024. Restricted Stock Units Weighted-Average Grant Date Fair Value Per Share Restricted Stock Awards Weighted-Average Grant Date Fair Value Per Share Deferred Stock Units Weighted-Average Grant Date Fair Value Per Share Unvested at December 31, 2023 53,985 $ 39.86 — $ — — $ — Cancelled/Forfeited ( 22,685 ) 30.45 — — — — Vested ( 8,089 ) 46.64 — — — — Unvested at March 31, 2024 23,211 $ 46.69 — $ — — $ — At March 31, 2024, the total unrecognized compensation cost related to unvested stock-based awards under the 2013 Plan was $ 0.3 million with a weighted-average expense recognition period of 0.8 years. Directors Deferred Stock Plan Until January 2014, the Company had a practice of granting awards under a stock compensation plan for members of the Board of Directors (“Directors Deferred Stock Plan”). The Company reserved 180,000 shares of common stock that could have been issued pursuant to the Directors Deferred Stock Plan. The plan provided directors the option to elect to receive up to 100 % of their annual retainer in either common stock or deferred stock rights. Deferred stock rights were to be settled in common stock following the end of the deferral period payable on the basis of one share of common stock for each deferred stock right. The following table summarizes the status of deferred stock rights related to the Directors Deferred Stock Plan for the three months ended March 31, 2024. Deferred Stock Rights Outstanding, beginning of period 28,538 Granted 72 Outstanding, end of period 28,610 All deferred stock rights granted during the 2024 period were additional rights issued in lieu of cash dividends payable on outstanding deferred stock rights. 30 Note 10: Commitments and Credit Risk In the normal course of business, the Company makes various commitments to extend credit which are not reflected in the accompanying condensed consolidated financial statements. At March 31, 2024 and December 31, 2023, the Company had outstanding loan commitments totaling approximately $ 726.5 million and $ 755.4 million, respectively. Note 11: Fair Value of Financial Instruments ASC Topic 820, Fair Value Measurement , defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets or liabilities Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. Available-for-Sale Securities Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. The Company did not own any securities classified within Level 1 of the hierarchy as of March 31, 2024 or December 31, 2023. Level 2 securities include U.S. Government-sponsored agencies, municipal securities, mortgage and asset-backed securities and corporate securities. Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Fair values are calculated using discounted cash flows. Discounted cash flows are calculated based off of the anticipated future cash flows updated to incorporate loss severities. Rating agency and industry research reports as well as default and deferral activity are reviewed and incorporated into the calculation. The Company did not own any securities classified within Level 3 of the hierarchy as of March 31, 2024 or December 31, 2023. Loans Held-for-Sale (mandatory pricing agreements) The fair value of loans held-for-sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan (Level 2). Servicing Asset Fair value is based on a loan-by-loan basis taking into consideration the origination to maturity dates of the loans, the current age of the loans and the remaining term to maturity. The valuation methodology utilized for the servicing asset begins with generating estimated future cash flows for each servicing asset based on their unique characteristics and market-based assumptions for prepayment speeds and costs to service. The present value of the future cash flows is then calculated utilizing market-based discount rate assumptions (Level 3). Interest Rate Swap Agreements 31 The fair values of interest rate swap agreements are estimated using current market interest rates as of the balance sheet date and calculated using discounted cash flows that are observable or that can be corroborated by observable market data (Level 2). Back-to-Back Swap Agreements The Company offers interest rate swaps to certain loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable-to-fixed interest rate contract with the customer. The Company also enters into an offsetting interest rate swap with a correspondent bank. These back-to-back swap agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. The fair value of these derivatives is based on a discounted cash flow approach. The fair value assets and liabilities of centrally cleared interest rate swaps are net of variation margin settled-to-market (Level 2). Interest Rate Lock Commitments The fair values of IRLCs are determined using the projected sale price of individual loans based on changes in market interest rates, projected pull-through rates (the probability that an IRLC will ultimately result in an originated loan), the reduction in the value of the applicant’s option due to the passage of time, and the remaining origination costs to be incurred based on management’s estimate of market costs (Level 3). The following tables present the fair value measurements of assets and liabilities recognized in the accompanying condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2024 and December 31, 2023. March 31, 2024 Fair Value Measurements Using (in thousands) Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) U.S. Government-sponsored agencies $ 92,101 $ — $ 92,101 $ — Municipal securities 67,415 — 67,415 — Agency mortgage-backed securities - residential 220,484 — 220,484 — Agency mortgage-backed securities - commercial 38,081 — 38,081 — Private label mortgage-backed securities - residential 22,266 — 22,266 — Asset-backed securities 7,459 — 7,459 — Corporate securities 34,625 — 34,625 — Total available-for-sale securities $ 482,431 $ — $ 482,431 $ — Servicing asset 11,760 — — 11,760 Interest rate swap agreements 5,807 — 5,807 — Interest rate swap agreements - assets (back-to-back) 158 — 158 — Interest rate swap agreements - liabilities (back-to-back) ( 158 ) — ( 158 ) — 32 December 31, 2023 Fair Value Measurements Using (in thousands) Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) U.S. Government-sponsored agencies $ 95,177 $ — $ 95,177 $ — Municipal securities 68,446 — 68,446 — Agency mortgage-backed securities - residential 206,649 — 206,649 — Agency mortgage-backed securities - commercial 38,885 — 38,885 — Private label mortgage-backed securities - residential 20,779 — 20,779 — Asset-backed securities 8,081 — 8,081 — Corporate securities 36,838 — 36,838 — Total available-for-sale securities $ 474,855 $ — $ 474,855 $ — Servicing asset 10,567 — — 10,567 Interest rate swap agreements 5,139 — 5,139 — Interest rate swap agreements - assets (back-to-back) 677 — 677 — Interest rate swap agreements - liabilities (back-to-back) ( 677 ) — ( 677 ) — The following tables reconcile the beginning and ending balances of recurring fair value measurements recognized in the accompanying condensed consolidated balance sheets using significant unobservable (Level 3) inputs for the three months ended March 31, 2024 and 2023. Three Months Ended (in thousands) Servicing Asset Interest Rate Lock Commitments Balance as of January 1, 2024 $ 10,567 $ — Total realized gains Additions: Originated 1,627 — Subtractions: Paydowns ( 612 ) — Change in fair value 178 — Balance, March 31, 2024 $ 11,760 $ — Balance as of January 1, 2023 $ 6,255 $ 133 Total realized gains Additions: Originated 1,112 — Subtractions: Paydowns ( 339 ) — Change in fair value 284 ( 133 ) Balance, March 31, 2023 $ 7,312 $ — 33 The following describes the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis, as well as the general classification of such assets pursuant to the valuation hierarchy. Individually Analyzed Collateral Dependent Loans Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. The amount of impairment may be determined based on the fair value of the underlying collateral, less costs to sell, the estimated present value of future cash flows or the loan’s observable market price. If the individually analyzed loan is identified as collateral dependent, the fair value of the underlying collateral, less costs to sell, is used to measure impairment. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. If the individually analyzed loan is not collateral dependent, the Company utilizes a discounted cash flow analysis to measure impairment. Individually analyzed loans with a specific valuation allowance based on the value of the underlying collateral or a discounted cash flow analysis are classified as Level 3 assets. The following table presents the fair value measurements of assets and liabilities recognized in the accompanying condensed consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurement falls at March 31, 2024 and December 31, 2023. March 31, 2024 (in thousands) Fair Value Measurements Using Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Collateral dependent loans $ 2,724 $ — $ — $ 2,724 December 31, 2023 (in thousands) Fair Value Measurements Using Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Collateral dependent loans $ 2,799 $ — $ — $ 2,799 Significant Unobservable (Level 3) Inputs The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements. (dollars in thousands) Fair Value at March 31, 2024 Valuation Technique Significant Unobservable Inputs Range Weighted-Average Range Collateral dependent loans $ 2,724 Fair value of collateral Discount for type of property and current market conditions 0 %- 90 % 26 % Servicing asset 11,760 Discounted cash flow Prepayment speeds Discount rate 0 % - 25 % 15 % 11.6 % 15 % 34 (dollars in thousands) Fair Value at December 31, 2023 Valuation Technique Significant Unobservable Inputs Range Weighted-Average Range Collateral dependent loans $ 2,799 Fair value of collateral Discount for type of property and current market conditions 0 % - 90 % 28 % Servicing asset 10,567 Discounted cash flow Prepayment speeds Discount rate 0 % - 25 % 15 % 11.3 % 15 % The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying condensed consolidated balance sheets at amounts other than fair value. Cash and Cash Equivalents For these instruments, the carrying amount is a reasonable estimate of fair value. Securities Held-to-Maturity Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid mutual funds. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include agency mortgage-backed securities - residential, municipal securities and corporate securities. Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Fair values are calculated using discounted cash flows. Discounted cash flows are calculated based off of the anticipated future cash flows updated to incorporate loss severities. Rating agency and industry research reports as well as default and deferral activity are reviewed and incorporated into the calculation. The Company did not own any securities classified within Level 3 of the hierarchy as of March 31, 2024 or December 31, 2023. Loans Held-for-Sale (best efforts pricing agreements) The fair value of these loans approximates carrying value. Loans The fair value of loans is estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors. Accrued Interest Receivable The fair value of these financial instruments approximates carrying value. Federal Home Loan Bank of Indianapolis Stock The fair value of this financial instrument approximates carrying value. Deposits The fair value of noninterest-bearing and interest-bearing demand deposits, savings and money market accounts approximates carrying value. The fair value of fixed maturity certificates of deposit and brokered deposits are estimated using rates currently offered for deposits of similar remaining maturities. 35 Advances from Federal Home Loan Bank The fair value of fixed rate advances is estimated using rates currently available for advances with similar remaining maturities. The carrying value of variable rate advances approximates fair value. Subordinated Debt The fair value of the Company’s publicly traded subordinated debt is obtained from quoted market prices. The fair value of the Company’s remaining subordinated debt is estimated using discounted cash flow analysis, based on current borrowing rates for similar types of debt instruments. Accrued Interest Payable The fair value of these financial instruments approximates carrying value. Commitments The fair value of commitments to extend credit are based on fees currently charged to enter into similar agreements with similar maturities and interest rates. The Company determined that the fair value of commitments was zero based on the contractual value of outstanding commitments at each of March 31, 2024 and December 31, 2023. The following tables present the carrying value and estimated fair value of all financial assets and liabilities that are not measured at fair value on a recurring basis at March 31, 2024 and December 31, 2023. March 31, 2024 Fair Value Measurements Using (in thousands) Carrying Amount Fair Value Quoted Prices In Active Market for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash and cash equivalents $ 481,264 $ 481,264 $ 481,264 $ — $ — Securities held-to-maturity, net 235,738 214,220 — 214,220 — Loans held-for-sale (best efforts pricing agreements) 22,589 22,589 — 22,589 — Net loans 3,868,913 3,685,416 — — 3,685,416 Accrued interest receivable 26,809 26,809 26,809 — — Federal Home Loan Bank of Indianapolis stock 28,350 28,350 — 28,350 — Deposits 4,273,768 4,253,825 1,829,073 — 2,424,752 Advances from Federal Home Loan Bank 574,936 564,384 — 564,384 — Subordinated debt 104,915 104,576 34,514 70,062 — Accrued interest payable 3,382 3,382 3,382 — — 36 December 31, 2023 Fair Value Measurements Using (in thousands) Carrying Amount Fair Value Quoted Prices In Active Market for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash and cash equivalents $ 405,898 $ 405,898 $ 405,898 $ — $ — Securities held-to-maturity 227,153 207,572 — 207,572 — Loans held-for-sale (best efforts pricing agreements) 22,052 22,052 — 22,052 — Net loans 3,801,446 3,611,909 — — 3,611,909 Accrued interest receivable 26,746 26,746 26,746 — — Federal Home Loan Bank of Indianapolis stock 28,350 28,350 — 28,350 — Deposits 4,066,973 4,059,447 1,796,123 — 2,263,324 Advances from Federal Home Loan Bank 614,934 605,366 — 605,366 — Subordinated debt 104,838 102,632 32,560 70,072 — Accrued interest payable 3,848 3,848 3,848 — — Note 12: Mortgage Banking Activities The Bank’s residential real estate lending business originated mortgage loans for customers and typically sold a majority of the originated loans into the secondary market. For most of the mortgages sold in the secondary market, the Bank hedged its mortgage banking pipeline by entering into forward contracts for the future delivery of mortgage loans to third party investors and entering into IRLCs with potential borrowers to fund specific mortgage loans that would be sold into the secondary market. To facilitate the hedging of the loans, the Bank elected the fair value option for loans originated and intended for sale in the secondary market under mandatory pricing agreements. Changes in the fair value of loans held-for-sale, IRLCs and forward contracts are recorded in the mortgage banking activities line item within noninterest income. Refer to Note 13 for further information on derivative financial instruments. During the three months ended March 31, 2024, the Company had no mortgage loans held-for-sale or sold mortgage loans into the secondary market. During the three months ended March 31, 2023, the Company originated $ 36.3 million of mortgage loans held-for-sale and sold $ 43.5 million of mortgage loans, respectively, into the secondary market. During the first quarter 2023, the Company made the decision to exit the residential mortgage business. The following table presents the components of income from mortgage banking activities for the three months ended March 31, 2024 and 2023. Three Months Ended March 31, (in thousands) 2024 2023 Gain on loans sold $ — $ 464 Loss resulting from the change in fair value of loans held-for-sale — ( 136 ) Loss resulting from the change in fair value of derivatives — ( 252 ) Net revenue from mortgage banking activities $ — $ 76 Fluctuations in interest rates and changes in IRLC and loan volume within the mortgage banking pipeline may cause volatility in the fair value of loans held-for-sale and the fair value of derivatives used to hedge the mortgage banking pipeline. 37 Note 13: Derivative Financial Instruments The Company uses derivative financial instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income and the fair value of assets and liabilities. The Company enters into interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. Additionally, the Company entered into forward contracts for the future delivery of mortgage loans to third-party investors and entered into IRLCs with potential borrowers to fund specific mortgage loans that were sold into the secondary market. The forward contracts were entered into in order to economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans. The Company had various interest rate swap agreements designated and qualifying as accounting hedges during the reported periods. Designating an interest rate swap as an accounting hedge allows the Company to recognize gains and losses in the condensed consolidated statements of income within the same period that the hedged item affects earnings. The Company includes the gain or loss on the hedged items in the same line item as the offsetting loss or gain on the related interest rate swaps. For derivative instruments that are designated and qualify as cash flow hedges, any gains or losses related to changes in fair value are recorded in accumulated other comprehensive loss, net of tax. The fair value of interest rate swaps with a positive fair value are reported in accrued income and other assets in the condensed consolidated balance sheets, while interest rate swaps with a negative fair value are reported in accrued expenses and other liabilities in the condensed consolidated balance sheets. The Company offers interest rate swaps to certain loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable-to-fixed interest rate contract with the customer. The Company also enters into an offsetting interest rate swap with a correspondent bank. These back-to-back swap agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. The fair value of these derivatives is based on a discounted cash flow approach. The fair value assets and liabilities of centrally cleared interest rate swaps are net of variation margin settled-to-market. The IRLCs and forward contracts are not designated as accounting hedges and are recorded at fair value with changes in fair value reflected in noninterest income on the condensed consolidated statements of income. The fair value of derivative instruments with a positive fair value are reported in accrued income and other assets in the condensed consolidated balance sheets, while derivative instruments with a negative fair value are reported in accrued expenses and other liabilities in the condensed consolidated balance sheets. The following table presents amounts that were recorded on the condensed consolidated balance sheets related to cumulative basis adjustments for interest rate swap derivatives designated as fair value accounting hedges as of March 31, 2024 and December 31, 2023. (in thousands) Carrying amount of the hedged asset Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets Line item in the condensed consolidated balance sheets in which the hedged item is included March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023 Securities available-for-sale 1 $ 69,298 $ 69,504 $ ( 910 ) $ ( 1,143 ) 1 These amounts include the amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. The designated hedged items were $ 50.0 million at both March 31, 2024 and December 31, 2023. The following tables present a summary of interest rate swap derivatives designated as fair value accounting hedges of fixed-rate receivables used in the Company’s asset/liability management activities at March 31, 2024 and December 31, 2023, identified by the underlying interest rate-sensitive instruments. 38 (dollars in thousands) March 31, 2024 Notional Value Weighted- Average Remaining Maturity (years) Weighted-Average Ratio Instruments Associated With Fair Value Receive Pay Securities available-for-sale $ 50,000 0.6 $ 919 3-month SOFR 2.33 % Total swap portfolio at March 31, 2024 $ 50,000 0.6 $ 919 3-month SOFR 2.33 % (dollars in thousands) December 31, 2023 Notional Value Weighted- Average Remaining Maturity (years) Weighted-Average Ratio Instruments Associated With Fair Value Receive Pay Securities available-for-sale $ 50,000 0.8 $ 1,153 3-month SOFR 2.33 % Total swap portfolio at December 31, 2023 $ 50,000 0.8 $ 1,153 3-month SOFR 2.33 % In March 2021, the Company terminated the last layer of interest rate swaps associated with available-for-sale agency mortgage-backed securities - residential, which resulted in swap termination payments to counterparties totaling $ 1.9 million. The corresponding fair value hedging adjustment was allocated pro-rata to the underlying hedged securities and is being amortized over the remaining lives of the designated securities. The Company had amortization expense totaling less than $ 0.1 million for both the three months ended March 31, 2024 and 2023, was recognized as a reduction to interest income on securities. In June 2020, the Company terminated all fair value hedging relationships associated with loans, which resulted in swap termination payments to counterparties totaling $ 46.1 million. The corresponding loan fair value hedging adjustment as of the date of termination is being amortized over the remaining lives of the designated loans, which have a weighted average term to maturity of 10.2 years as of March 31, 2024. The Company had amortization expense totaling $ 0.9 million and $ 1.0 million for the three months ended March 31, 2024 and 2023, respectively, related to these previously terminated fair value hedges recognized as a reduction to interest income on loans. The following tables present a summary of interest rate swap derivatives designated as cash flow accounting hedges of variable-rate liabilities used in the Company’s asset/liability management activities at March 31, 2024 and December 31, 2023. (dollars in thousands) March 31, 2024 Notional Value Weighted- Average Remaining Maturity (years) Weighted-Average Ratio Cash Flow Hedges Fair Value Receive Pay Interest rate swaps $ 110,000 2.8 $ 4,715 3-month SOFR 2.88 % Interest rate swaps 40,000 0.2 174 Fed Funds Effective 2.78 % (dollars in thousands) December 31, 2023 Notional Value Weighted- Average Remaining Maturity (years) Weighted-Average Ratio Cash Flow Hedges Fair Value Receive Pay Interest rate swaps $ 110,000 3.1 $ 3,596 3-month SOFR 2.88 % Interest rate swaps 40,000 0.4 390 Fed Funds Effective 2.78 % These derivative financial instruments were entered into for the purpose of managing the interest rate risk of certain assets and liabilities. The Company received $ 6.1 million and $ 5.2 million of cash collateral from counterparties as security for their obligations related to these swap transactions at March 31, 2024 and December 31, 2023. The Company had no pledged cash collateral as of March 31, 2024 and December 31, 2023 to counterparties on interest rate swap agreements as security for its obligations related to these agreements. Collateral posted and received is dependent on the market valuation of the underlying hedges. 39 The following table presents the notional amount and fair value of interest rate swaps utilized by the Company at March 31, 2024 and December 31, 2023. March 31, 2024 December 31, 2023 (in thousands) Notional Amount Fair Value Notional Amount Fair Value Asset Derivatives Derivatives designated as hedging instruments Interest rate swaps associated with securities available-for-sale $ 50,000 $ 919 $ 50,000 $ 1,153 Interest rate swaps associated with liabilities 150,000 4,889 150,000 3,986 Derivatives not designated as hedging instruments Back-to-back swaps $ 6,453 $ 158 $ 1,778 $ 677 Total contracts $ 206,453 $ 5,966 $ 201,778 $ 5,816 Liability Derivatives Derivatives not designated as hedging instruments Back-to-back swaps $ 6,453 $ ( 158 ) $ 1,778 $ ( 677 ) Total contracts $ 6,453 $ ( 158 ) $ 1,778 $ ( 677 ) The fair value of interest rate swaps was estimated using a discounted cash flow method that incorporates current market interest rates as of the balance sheet date. Back-to-back swaps consist of two interest-rate swaps (a customer swap and an offsetting counterparty swap). As a result of this offsetting relationship, no net gains or losses are recognized in income. The following table presents the effects of the Company’s cash flow hedge relationships on the condensed consolidated statements of comprehensive income during the three months ended March 31, 2024 and 2023. Amount of Gain (Loss) Recognized in Other Comprehensive (Loss) Income in The Three Months Ended (in thousands) March 31, 2024 March 31, 2023 Interest rate swap agreements $ 902 $ ( 2,170 ) The following table summarizes the periodic changes in the fair value of derivatives not designated as hedging instruments on the condensed consolidated statements of income for the three months ended March 31, 2024 and 2023. Amount of Gain / (Loss) Recognized in the Three Months Ended (in thousands) March 31, 2024 March 31, 2023 Liability Derivatives Derivatives not designated as hedging instruments IRLCs $ — $ ( 133 ) Forward contracts — ( 119 ) 40 The following table presents the effects of the Company’s interest rate swap agreements on the condensed consolidated statements of operations during the three months ended March 31, 2024 and 2023. (in thousands) Line item in the condensed consolidated statements of operations Three Months Ended March 31, 2024 March 31, 2023 Interest income Securities - non-taxable 414 294 Total interest income 414 294 Interest expense Deposits ( 255 ) ( 418 ) Other borrowed funds ( 762 ) ( 522 ) Total interest expense ( 1,017 ) ( 940 ) Net interest income $ 1,431 $ 1,234 41 Note 14: Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss, included in stockholders' equity, for the three months ended March 31, 2024 and 2023, respectively, are presented in the table below. (in thousands) Unrealized Losses On Debt Securities Unrealized Losses On Debt Securities Transferred From Available-For-Sale To Held-To-Maturity Cash Flow Hedges Total Balance, January 1, 2024 $ ( 30,174 ) $ ( 2,939 ) $ 3,738 $ ( 29,375 ) Other comprehensive (loss) income before reclassifications from accumulated other comprehensive loss before tax ( 2,074 ) — 902 ( 1,172 ) Reclassifications from accumulated other comprehensive loss to earnings before tax — 234 234 Other comprehensive (loss) gain before tax ( 2,074 ) 234 902 ( 938 ) Income tax (benefit) provision ( 475 ) 57 207 ( 211 ) Other comprehensive (loss) income - net of tax ( 1,599 ) 177 695 ( 727 ) Balance, March 31, 2024 $ ( 31,773 ) $ ( 2,762 ) $ 4,433 $ ( 30,102 ) Balance, January 1, 2023 $ ( 35,831 ) $ ( 3,519 ) $ 5,714 $ ( 33,636 ) Other comprehensive income (loss) before reclassifications from accumulated other comprehensive loss before tax 5,112 — ( 2,170 ) 2,942 Reclassifications from accumulated other comprehensive loss to earnings before tax — 158 — 158 Other comprehensive gain (loss) before tax 5,112 158 ( 2,170 ) 3,100 Income tax provision (benefit) 1,170 46 ( 499 ) 717 Other comprehensive income (loss) - net of tax 3,942 112 ( 1,671 ) 2,383 Balance, March 31, 2023 $ ( 31,889 ) $ ( 3,407 ) $ 4,043 $ ( 31,253 ) Details About Accumulated Other Comprehensive Loss Components Amounts Reclassified from Accumulated Other Comprehensive Loss for the Affected Line Item in the Statements of Operations Three Months Ended March 31, 2024 Three Months Ended March 31, 2023 Reclassifications from accumulated other comprehensive loss to earnings before tax $ ( 234 ) ( 158 ) Interest income (loss) Total amount reclassified before tax ( 234 ) ( 158 ) Income (loss) before income taxes Tax benefit ( 57 ) ( 46 ) Income tax provision (benefit) Total reclassifications from accumulated other comprehensive loss $ ( 177 ) $ ( 112 ) Net income (loss) 42 Note 15: Recent Accounting Pronouncements ASU 2023-02 - Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (March 2023) In March 2023, the FASB issued ASU No. 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. This ASU permits companies to account for tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. The Company adopted this guidance on January 1, 2024 and it did not have a material impact on its consolidated financial statements. ASU 2023-07 - Segment Reporting (Topic 280): Improvements to Reportable Segments (November 2023) In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segments. This ASU enhances financial reporting by requiring disclosure of incremental segment information on an annual and interim basis. The guidance is effective for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements. ASU 2023-09 - Income Taxes (Topic 740): Improvements to Income Tax Disclosures (December 2023) In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. This ASU enhances the transparency and usefulness of income tax disclosures, which addresses investor requests for more transparency about income tax disclosures related primarily to the rate reconciliation and income taxes paid information. The guidance is effective for annual periods beginning after December 15, 2024 with early adoption permitted. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements.