First Internet Bancorp 10-Q

ITEM 1. FINANCIAL STATEMENTS First Internet Bancorp Condensed Consolidated Balance Sheets (Amounts in thousands except share data) March 31, 2025 December 31, 2024 (Unaudited) Assets Cash and due from banks $ 6,344 $ 9,249 Interest-bearing deposits 388,110 457,161 Total cash and cash equivalents 394,454 466,410 Securities available-for-sale, at fair value (amortized cost of $ 716,860 and $ 626,854 in 2025 and 2024, respectively) 681,785 587,355 Securities held-to-maturity, at amortized cost, net of allowance for credit losses of $ 0.1 million and $ 0.2 million in 2025 and 2024, respectively, (fair value of $ 259,116 and $ 228,851 in 2025 and 2024, respectively) 276,542 249,796 Loans held-for-sale 31,738 54,695 Loans 4,254,412 4,170,646 Allowance for credit losses - loans ( 47,238 ) ( 44,769 ) Net loans 4,207,174 4,125,877 Accrued interest receivable 29,022 28,180 Federal Home Loan Bank of Indianapolis stock 28,350 28,350 Cash surrender value of bank-owned life insurance 41,675 41,394 Premises and equipment, net 70,461 71,453 Goodwill 4,687 4,687 Servicing asset, at fair value 17,445 16,389 Other real estate owned 1,518 272 Accrued income and other assets 66,757 63,001 Total assets $ 5,851,608 $ 5,737,859 Liabilities and Shareholders’ Equity Liabilities Noninterest-bearing deposits $ 151,815 $ 136,451 Interest-bearing deposits 4,793,810 4,796,755 Total deposits 4,945,625 4,933,206 Advances from Federal Home Loan Bank 395,000 295,000 Subordinated debt, net of unamortized debt issuance costs of $ 1,772 and $ 1,850 in 2025 and 2024, respectively 105,228 105,150 Accrued interest payable 1,645 2,495 Accrued expenses and other liabilities 16,363 17,945 Total liabilities 5,463,861 5,353,796 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; 8,697,085 and 8,667,894 shares issued and outstanding in 2025 and 2024, respectively 185,873 186,094 Nonvoting common stock, no par value; 86,221 shares authorized; issued and outstanding - none — — Retained earnings 231,031 230,622 Accumulated other comprehensive loss ( 29,157 ) ( 32,653 ) Total shareholders’ equity 387,747 384,063 Total liabilities and shareholders’ equity $ 5,851,608 $ 5,737,859 See Notes to Condensed Consolidated Financial Statements 1 First Internet Bancorp Condensed Consolidated Statements of Income – Unaudited (Amounts in thousands except share and per share data) Three Months Ended March 31, 2025 2024 Interest Income Loans $ 62,662 $ 55,435 Securities – taxable 8,463 5,694 Securities – non-taxable 661 969 Other earning assets 5,043 6,067 Total interest income 76,829 68,165 Interest Expense Deposits 47,626 42,129 Other borrowed funds 4,107 5,302 Total interest expense 51,733 47,431 Net Interest Income 25,096 20,734 Provision for credit losses - loans 12,121 2,582 Benefit for credit losses - debt securities held to maturity ( 20 ) ( 62 ) Benefit for credit losses - off-balance sheet commitments ( 168 ) ( 72 ) Net Interest Income After Provision for Credit Losses 13,163 18,286 Noninterest Income Service charges and fees 265 220 Loan servicing revenue 1,983 1,323 Loan servicing asset revaluation ( 1,181 ) ( 434 ) Gain on sale of loans 8,647 6,536 Other 713 702 Total noninterest income 10,427 8,347 Noninterest Expense Salaries and employee benefits 13,107 11,796 Marketing, advertising and promotion 647 736 Consulting and professional services 1,228 853 Data processing 635 564 Loan expenses 1,531 1,445 Premises and equipment 3,115 2,826 Deposit insurance premium 1,398 1,145 Other 1,895 1,658 Total noninterest expense 23,556 21,023 Income Before Income Taxes 34 5,610 Income Tax (Benefit) Provision ( 909 ) 429 Net Income $ 943 $ 5,181 Income Per Share of Common Stock Basic $ 0.11 $ 0.60 Diluted $ 0.11 $ 0.59 Weighted-Average Number of Common Shares Outstanding Basic 8,715,655 8,679,429 Diluted 8,784,970 8,750,297 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 – Unaudited (Amounts in thousands) Three Months Ended March 31, 2025 2024 Net income $ 943 $ 5,181 Other comprehensive income Securities available-for-sale Net unrealized holding gains (losses) recorded within other comprehensive income (loss) before income tax 4,424 ( 2,074 ) Income tax provision (benefit) 1,017 ( 475 ) Net effect on other comprehensive income (loss) 3,407 ( 1,599 ) Securities held-to-maturity Amortization of net unrealized holding losses on securities transferred from available-for-sale to held-to-maturity 120 234 Income tax provision 31 57 Net effect on other comprehensive income 89 177 Cash flow hedges Net unrealized holding gains on cash flow hedging derivatives recorded within other comprehensive income before income tax — 902 Income tax provision — 207 Net effect on other comprehensive income — 695 Total other comprehensive income (loss) 3,496 ( 727 ) Comprehensive income $ 4,439 $ 4,454 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, 2025 and 2024 (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, 2025 $ 186,094 $ 230,622 $ ( 32,653 ) $ 384,063 Net income — 943 — 943 Other comprehensive income — — 3,496 3,496 Dividends declared ($ 0.06 per share) — ( 534 ) — ( 534 ) Recognition of the fair value of share-based compensation 1 — — 1 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 ( 224 ) — — ( 224 ) Balance, March 31, 2025 $ 185,873 $ 231,031 $ ( 29,157 ) $ 387,747 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 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, 2025 2024 Operating Activities Net income $ 943 $ 5,181 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,070 1,866 Increase in cash surrender value of bank-owned life insurance ( 281 ) ( 272 ) Provision for credit losses 11,933 2,448 Share-based compensation expense 1 443 Loans originated for sale ( 112,404 ) ( 80,454 ) Proceeds from sale of loans 141,771 84,826 Gain on loans sold ( 8,647 ) ( 6,536 ) Gain on sale of other real estate owned ( 19 ) — (Gain) loss on derivatives ( 216 ) 1,224 Loan servicing asset revaluation 1,181 434 Net change in accrued income and other assets ( 366 ) ( 4,872 ) Net change in accrued expenses and other liabilities ( 2,141 ) ( 1,497 ) Net cash provided by operating activities 32,825 2,791 Investing Activities Net loan activity, excluding purchases ( 58,029 ) ( 39,598 ) Proceeds from sale of other real estate owned 291 — Maturities and calls of securities available-for-sale 25,528 15,891 Purchase of securities available-for-sale ( 115,680 ) ( 22,689 ) Maturities and calls of securities held-to-maturity 7,324 6,981 Purchase of securities held-to-maturity ( 33,629 ) ( 15,221 ) Purchase of premises and equipment ( 184 ) ( 940 ) Loans purchased ( 36,907 ) ( 30,451 ) Other investing activities ( 5,160 ) ( 7,240 ) Net cash used in investing activities ( 216,446 ) ( 93,267 ) Financing Activities Net increase in deposits 12,419 206,795 Cash dividends paid ( 520 ) ( 519 ) Repurchase of common stock — ( 283 ) Proceeds from advances from Federal Home Loan Bank 100,000 110,000 Repayment of advances from Federal Home Loan Bank — ( 150,000 ) Other, net ( 234 ) ( 151 ) Net cash provided by financing activities 111,665 165,842 Net (Decrease) Increase in Cash and Cash Equivalents ( 71,956 ) 75,366 Cash and Cash Equivalents, Beginning of Period 466,410 405,898 Cash and Cash Equivalents, End of Period $ 394,454 $ 481,264 Supplemental Disclosures Cash paid during the period for interest 52,583 47,897 Cash paid during the period for taxes 146 86 Loans transferred to other real estate owned 1,518 — Cash dividends declared, paid in subsequent period 522 519 Securities purchased during the period, settled in subsequent period — 3,327 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, 2025 are not necessarily indicative of the results expected for the year ending December 31, 2025 or any other period. The March 31, 2025 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, 2024. 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 Company utilizes processes that involve the use of significant estimates and the judgment of management in determining the amount of the Company’s allowance for credit losses (“ACL”) 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 Per Share Earnings 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 per share computations for the three months ended March 31, 2025 and 2024. (dollars in thousands, except share and per share data) Three Months Ended March 31, 2025 2024 Basic earnings per share Net income $ 943 $ 5,181 Weighted-average common shares 8,715,655 8,679,429 Basic earnings per common share $ 0.11 $ 0.60 Diluted earnings per share Net income $ 943 $ 5,181 Weighted-average common shares 8,715,655 8,679,429 Dilutive effect of equity compensation 69,315 70,868 Weighted-average common and incremental shares 8,784,970 8,750,297 Diluted earnings per common share 1 $ 0.11 $ 0.59 1 Potential dilutive common shares are excluded from the computation of diluted EPS in the periods where the effect would be antidilutive. There were 3,916 weighted-average antidilutive shares excluded from the computation of diluted EPS for the three months ended March 31, 2025 and no antidilutive shares for the three months ended March 31, 2024. 7 Note 3: Securities The following tables summarize securities available-for-sale and securities held-to-maturity as of March 31, 2025 and December 31, 2024. March 31, 2025 Amortized Cost Gross Unrealized Fair Value (amounts in thousands) Gains Losses Securities available-for-sale U.S. Government-sponsored agencies $ 79,021 $ 545 $ ( 1,288 ) $ 78,278 Municipal securities 65,344 — ( 4,347 ) 60,997 Agency mortgage-backed securities - residential 1 398,021 599 ( 27,577 ) 371,043 Agency mortgage-backed securities - commercial 64,827 177 ( 1,070 ) 63,934 Private label mortgage-backed securities - residential 43,947 207 ( 835 ) 43,319 Asset-backed securities 21,662 30 ( 15 ) 21,677 Corporate securities 44,038 167 ( 1,668 ) 42,537 Total available-for-sale $ 716,860 $ 1,725 $ ( 36,800 ) $ 681,785 March 31, 2025 Amortized Cost Gross Unrealized Fair Value Allowance for Credit Losses Net Carrying Value (amounts in thousands) Gains Losses Securities held-to-maturity Municipal securities $ 12,218 $ — $ ( 817 ) $ 11,401 $ ( 3 ) $ 12,215 Agency mortgage-backed securities - residential 232,235 449 ( 14,970 ) 217,714 — 232,235 Agency mortgage-backed securities - commercial 5,687 — ( 979 ) 4,708 — 5,687 Corporate securities 26,536 — ( 1,243 ) 25,293 ( 131 ) 26,405 Total held-to-maturity $ 276,676 $ 449 $ ( 18,009 ) $ 259,116 $ ( 134 ) $ 276,542 1 Includes $ 0.2 million of additional premium related to terminated interest rate swaps associated with agency mortgage-backed securities - residential as of March 31, 2025. December 31, 2024 Amortized Cost Gross Unrealized Fair Value (amounts in thousands) Gains Losses Securities available-for-sale U.S. Government-sponsored agencies $ 83,811 $ 487 $ ( 1,482 ) $ 82,816 Municipal securities 67,441 — ( 3,787 ) 63,654 Agency mortgage-backed securities - residential 1 300,914 460 ( 31,733 ) 269,641 Agency mortgage-backed securities - commercial 64,214 276 ( 1,159 ) 63,331 Private label mortgage-backed securities - residential 46,623 186 ( 988 ) 45,821 Asset-backed securities 23,802 62 ( 43 ) 23,821 Corporate securities 40,049 71 ( 1,849 ) 38,271 Total available-for-sale $ 626,854 $ 1,542 $ ( 41,041 ) $ 587,355 8 December 31, 2024 Amortized Cost Gross Unrealized Fair Value Allowance for Credit Losses Net Carrying Value (amounts in thousands) Gains Losses Securities held-to-maturity Municipal securities $ 12,846 $ — $ ( 921 ) $ 11,925 $ ( 3 ) $ 12,843 Agency mortgage-backed securities - residential 201,840 102 ( 17,530 ) 184,412 — 201,840 Agency mortgage-backed securities - commercial 5,705 — ( 1,157 ) 4,548 — 5,705 Corporate securities 29,559 — ( 1,593 ) 27,966 ( 151 ) 29,408 Total held-to-maturity $ 249,950 $ 102 $ ( 21,201 ) $ 228,851 $ ( 154 ) $ 249,796 1 Includes $ 0.3 million of additional premium related to terminated interest rate swaps associated with agency mortgage-backed securities - residential as of December 31, 2024. Accrued interest receivable on AFS and HTM securities at March 31, 2025 was $ 2.7 million and $ 1.1 million, respectively, compared to $ 2.8 million and $ 1.1 million, respectively, at December 31, 2024, 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 March 31, 2025 and December 31, 2024, approximately 94 % and 92 %, respectively, 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. 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. The ACL on HTM securities at March 31, 2025 was $ 0.1 million, compared to $ 0.2 million at December 31, 2024. The carrying value of securities at March 31, 2025 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 (amounts in thousands) Amortized Cost Fair Value Within one year $ 10,370 $ 10,353 One to five years 23,878 23,838 Five to ten years 77,154 74,094 After ten years 77,001 73,527 188,403 181,812 Agency mortgage-backed securities - residential 398,021 371,043 Agency mortgage-backed securities - commercial 64,827 63,934 Private label mortgage-backed securities - residential 43,947 43,319 Asset-backed securities 21,662 21,677 Total $ 716,860 $ 681,785 9 Held-to-Maturity (amounts in thousands) Amortized Cost Fair Value Within one year $ 1,705 $ 1,691 One to five years 21,180 20,805 Five to ten years 12,380 11,157 After ten years 3,489 3,041 38,754 36,694 Agency mortgage-backed securities - residential 232,235 217,714 Agency mortgage-backed securities - commercial 5,687 4,708 Total $ 276,676 $ 259,116 No available-for-sale securities were sold during the three months ended March 31, 2025 and March 31, 2024. As such, the Company did not realize any gains or losses related to the sale of available-for-sale securities during either time period. 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, 2025 and December 31, 2024 was $ 677.0 million and $ 603.9 million, which was approximately 71 % and 72 %, respectively, of the Company’s AFS and HTM securities portfolios. As of March 31, 2025, the Company’s security portfolio consisted of 606 positions, of which 487 were in an unrealized loss position. As of December 31, 2024, the Company’s security portfolio consisted of 579 positions, of which 482 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 more likely than not 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, Private Label Mortgage-Backed Securities and Asset-Backed Securities The unrealized losses on the Company’s investments in agency mortgage-backed, private label mortgage-backed securities and asset-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 more likely than not that the Company will be required to sell the investments, before recovery of their amortized cost basis, which may be upon maturity. 10 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, 2025 and December 31, 2024. March 31, 2025 Less Than 12 Months 12 Months or Longer Total (amounts in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Securities available-for-sale U.S. Government-sponsored agencies $ 15,149 $ ( 100 ) $ 27,600 $ ( 1,188 ) $ 42,749 $ ( 1,288 ) Municipal securities 7,092 ( 68 ) 52,685 ( 4,279 ) 59,777 ( 4,347 ) Agency mortgage-backed securities- residential 99,306 ( 255 ) 168,456 ( 27,322 ) 267,762 ( 27,577 ) Agency mortgage-backed securities- commercial 29,111 ( 105 ) 10,610 ( 965 ) 39,721 ( 1,070 ) Private label mortgage-backed securities - residential 10,434 ( 9 ) 7,312 ( 826 ) 17,746 ( 835 ) Asset-backed securities 12,309 ( 15 ) — — 12,309 ( 15 ) Corporate securities — — 27,347 ( 1,668 ) 27,347 ( 1,668 ) Total $ 173,401 $ ( 552 ) $ 294,010 $ ( 36,248 ) $ 467,411 $ ( 36,800 ) December 31, 2024 Less Than 12 Months 12 Months or Longer Total (amounts in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Securities available-for-sale U.S. Government-sponsored agencies $ 16,856 $ ( 111 ) $ 29,748 $ ( 1,371 ) $ 46,604 $ ( 1,482 ) Municipal securities 8,504 ( 54 ) 52,649 ( 3,733 ) 61,153 ( 3,787 ) Agency mortgage-backed securities - residential 41,005 ( 179 ) 169,483 ( 31,554 ) 210,488 ( 31,733 ) Agency mortgage-backed securities - commercial 18,141 ( 37 ) 12,027 ( 1,122 ) 30,168 ( 1,159 ) Private label mortgage-backed securities - residential 3,003 ( 14 ) 7,450 ( 974 ) 10,453 ( 988 ) Asset-backed securities 10,299 ( 43 ) — — 10,299 ( 43 ) Corporate securities 2,994 ( 6 ) 27,179 ( 1,843 ) 30,173 ( 1,849 ) Total $ 100,802 $ ( 444 ) $ 298,536 $ ( 40,597 ) $ 399,338 $ ( 41,041 ) 11 The following tables summarize ratings for the Company’s HTM portfolio as of March 31, 2025 and December 31, 2024. March 31, 2025 Held-to-Maturity (amounts in thousands) Municipal Securities Mortgage-Backed Securities - Residential Mortgage-Backed Securities - Commercial Corporate Securities Total AAA equivalent - agency $ — $ 232,235 $ 5,687 $ — $ 237,922 Aa1/AA+ 8,252 — — — 8,252 Aa2/AA 2,173 — — — 2,173 Aa3/AA- 1,793 — — — 1,793 A2/A — — — 5,000 5,000 Baa1/BBB+ — — — 8,500 8,500 Baa2/BBB — — — 5,500 5,500 Baa3/BBB- — — — 5,536 5,536 Ba1/BB+ — — — 2,000 2,000 Total $ 12,218 $ 232,235 $ 5,687 $ 26,536 $ 276,676 December 31, 2024 Held-to-Maturity (amounts in thousands) Municipal Securities Mortgage-Backed Securities - Residential Mortgage-Backed Securities - Commercial Corporate Securities Total AAA equivalent - agency $ — $ 201,840 $ 5,705 $ — $ 207,545 Aa1/AA+ 8,878 — — — 8,878 Aa2/AA 2,175 — — — 2,175 Aa3/AA- 1,793 — — — 1,793 A2/A — — — 5,000 5,000 Baa1/BBB+ — — — 8,500 8,500 Baa2/BBB — — — 5,500 5,500 Baa3/BBB- — — — 8,559 8,559 Ba1/BB+ — — — 2,000 2,000 Total $ 12,846 $ 201,840 $ 5,705 $ 29,559 $ 249,950 There were no amounts reclassified from accumulated other comprehensive loss to the consolidated statements of income during the three months ended March 31, 2025 and December 31, 2024. 12 Note 4: Loans Loan balances as of March 31, 2025 and December 31, 2024 are summarized in the table below. Categories of loans include: (amounts in thousands) March 31, 2025 December 31, 2024 Commercial loans Commercial and industrial $ 140,239 $ 120,175 Owner-occupied commercial real estate 49,954 53,591 Investor commercial real estate 297,874 269,431 Construction 471,082 413,523 Single tenant lease financing 950,814 949,748 Public finance 482,558 485,867 Healthcare finance 171,430 181,427 Small business lending 1 353,408 331,914 Franchise finance 514,700 536,909 Total commercial loans 3,432,059 3,342,585 Consumer loans Residential mortgage 367,722 375,160 Home equity 17,421 18,274 Other consumer loans 412,553 407,947 Total consumer loans 797,696 801,381 Total commercial and consumer loans 4,229,755 4,143,966 Net deferred loan origination costs, premiums and discounts on purchased loans, and other 2 24,657 26,680 Total loans 4,254,412 4,170,646 Allowance for credit losses ( 47,238 ) ( 44,769 ) Net loans $ 4,207,174 $ 4,125,877 1 Balances include $ 37.6 million and $ 34.0 million that is guaranteed by the U.S. government as of March 31, 2025 and December 31, 2024, respectively. 2 Includes carrying value adjustment of $ 22.1 million and $ 22.9 million related to terminated interest rate swaps associated with public finance loans as of March 31, 2025 and December 31, 2024, respectively. The general risk characteristics specific to each loan portfolio segment are as follows: Commercial and Industrial: Commercial and industrial loans’ sources of repayment are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value. Loans are made for working capital, equipment purchases, or other purposes. Most commercial and industrial loans are secured by the assets being financed and may incorporate a personal guarantee. This portfolio segment is generally concentrated in the Midwest and Southwest regions of the United States. Owner-Occupied Commercial Real Estate: The primary source of repayment is the cash flow from the ongoing operations and activities conducted by the borrower, or an affiliate of the borrower, who owns the property. This portfolio segment is generally concentrated in the Midwest and Southwest regions of the United States and its loans are often secured by manufacturing and service facilities. 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, other-than-insignificant payment delays, reductions in interest rates, acceptance of interest only payments, and/or reductions to the outstanding loan balance. Such loans may be 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, 2025 and 2024. (amounts in thousands) Three Months Ended March 31, 2025 Allowance for credit losses: Balance, Beginning of Period Provision (Credit) Charged to Expense Losses Charged Off Recoveries Balance, End of Period Commercial and industrial $ 1,265 $ 93 $ — $ 2 $ 1,360 Owner-occupied commercial real estate 528 ( 58 ) — — 470 Investor commercial real estate 1,149 ( 290 ) — — 859 Construction 1,984 183 — — 2,167 Single tenant lease financing 4,782 ( 469 ) — — 4,313 Public finance 703 ( 174 ) — — 529 Healthcare finance 1,412 ( 102 ) — — 1,310 Small business lending 16,161 4,929 ( 3,668 ) 133 17,555 Franchise finance 8,976 8,072 ( 5,848 ) — 11,200 Residential mortgage 2,136 ( 241 ) ( 11 ) 6 1,890 Home equity 106 ( 12 ) — 2 96 Other consumer loans 5,567 190 ( 314 ) 46 5,489 Total $ 44,769 $ 12,121 $ ( 9,841 ) $ 189 $ 47,238 (amounts in thousands) Three Months Ended March 31, 2024 Allowance for credit losses: Balance, Beginning of Period Provision (Credit) 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 Accrued interest receivable on loans totaled $ 24.0 million and $ 23.8 million at March 31, 2025 and December 31, 2024, 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. 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 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 (benefit) provision for credit losses on off-balance sheet commitments for the three ended March 31, 2025 and 2024. 17 (amounts in thousands) Balance December 31, 2024 (Benefit) Provision for Credit Losses Balance March 31, 2025 Off-balance sheet commitments Commercial loans Commercial and industrial $ 233 $ ( 63 ) $ 170 Owner-occupied commercial real estate 11 ( 11 ) — Investor commercial real estate 1 — 1 Construction 1,568 ( 94 ) 1,474 Single tenant lease financing 19 ( 7 ) 12 Small business lending 263 11 274 Total commercial loans 2,095 ( 164 ) 1,931 Consumer loans Residential mortgage 1 — 1 Home equity 35 ( 3 ) 32 Other consumer 9 ( 1 ) 8 Total consumer loans 45 ( 4 ) 41 Total allowance for off-balance sheet commitments $ 2,140 $ ( 168 ) $ 1,972 (amounts in thousands) Balance December 31, 2023 (Benefit) Provision 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 18 The Company utilizes a risk grading matrix to assign a risk grade to each of its commercial loans, which are evaluated annually. 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, 2025 and December 31, 2024. March 31, 2025 Term Loans (amortized cost basis by origination year) Revolving loans amortized cost basis Revolving loans converted to term (amounts in thousands) 2025 2024 2023 2022 2021 Prior Total Commercial and industrial Pass $ 15,965 $ 21,234 $ 8,120 $ 12,772 $ 1,037 $ 19,638 $ 51,987 $ — $ 130,753 Special Mention — 45 158 5,017 4,266 — — — 9,486 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total commercial and industrial 15,965 21,279 8,278 17,789 5,303 19,638 51,987 — 140,239 Year-to-date gross charge-offs — — — — — — — — — Owner-occupied commercial real estate Pass — 6,636 1,448 5,319 4,422 19,809 — — 37,634 Special Mention — — — 566 879 9,220 — — 10,665 Substandard — — — — — 1,655 — — 1,655 Doubtful — — — — — — — — — Total owner-occupied commercial real estate — 6,636 1,448 5,885 5,301 30,684 — — 49,954 Year-to-date gross charge-offs — — — — — — — — — Investor commercial real estate Pass — 69,372 3,925 92,083 92,050 36,713 — — 294,143 Special Mention — — — — — 3,731 — — 3,731 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total investor commercial real estate — 69,372 3,925 92,083 92,050 40,444 — — 297,874 Year-to-date gross charge-offs — — — — — — — — — Construction Pass 6,986 60,689 229,510 151,321 19,957 687 1,932 — 471,082 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Total construction 6,986 60,689 229,510 151,321 19,957 687 1,932 — 471,082 Year-to-date gross charge-offs — — — — — — — — — Single tenant lease financing Pass 14,079 81,509 46,518 205,540 86,290 486,855 — — 920,791 Special Mention — 642 — 14,002 4,276 11,103 — — 30,023 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total single tenant lease financing 14,079 82,151 46,518 219,542 90,566 497,958 — — 950,814 Year-to-date gross charge-offs — — — — — — — — — Public finance Pass 10,933 54,326 1,290 5,600 11,015 397,434 — — 480,598 Special Mention — — — — — 1,960 — — 1,960 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total public finance 10,933 54,326 1,290 5,600 11,015 399,394 — — 482,558 Year-to-date gross charge-offs — — — — — — — — — 20 March 31, 2025 Term Loans (amortized cost basis by origination year) Revolving loans amortized cost basis Revolving loans converted to term (amounts in thousands) 2025 2024 2023 2022 2021 Prior Total Healthcare finance Pass — — — — 8,713 160,318 — — 169,031 Special Mention — — — — — 2,399 — — 2,399 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total healthcare finance — — — — 8,713 162,717 — — 171,430 Year-to-date gross charge-offs — — — — — — — — — Small business lending Pass 28,733 137,985 88,792 28,777 10,030 16,810 18,954 — 330,081 Special Mention — 1,028 4,459 1,103 — 1,548 959 — 9,097 Substandard — 2,951 6,103 1,213 279 1,945 1,739 — 14,230 Doubtful — — — — — — — — — Total small business lending 28,733 141,964 99,354 31,093 10,309 20,303 21,652 — 353,408 Year-to-date gross charge-offs — 1,117 2,280 149 73 49 — — 3,668 Franchise finance Pass 793 64,339 218,471 164,109 40,722 — — — 488,434 Special Mention — — 1,618 4,944 4,020 — — — 10,582 Substandard — 370 7,254 5,089 2,646 — — — 15,359 Doubtful — — 325 — — — — — 325 Total franchise finance 793 64,709 227,668 174,142 47,388 — — — 514,700 Year-to-date gross charge-offs — — 2,118 3,257 473 — — — 5,848 Consumer loans Residential mortgage Performing — 6,433 13,056 177,999 84,579 80,954 — — 363,021 Nonperforming — — — 2,308 607 1,786 — — 4,701 Total residential mortgage — 6,433 13,056 180,307 85,186 82,740 — — 367,722 Year-to-date gross charge-offs — — — 11 — — — — 11 Home equity Performing — — 898 1,393 349 864 13,018 899 17,421 Nonperforming — — — — — — — — — Total home equity — — 898 1,393 349 864 13,018 899 17,421 Year-to-date gross charge-offs — — — — — — — — — Other consumer Performing 25,106 98,611 92,206 85,278 31,341 79,036 811 — 412,389 Nonperforming — — 25 83 10 46 — — 164 Total other consumer 25,106 98,611 92,231 85,361 31,351 79,082 811 — 412,553 Year-to-date gross charge-offs — 14 95 63 — 142 — — 314 Total Loans $ 102,595 $ 606,170 $ 724,176 $ 964,516 $ 407,488 $ 1,334,511 $ 89,400 $ 899 $ 4,229,755 Total year-to-date gross charge-offs $ — $ 1,131 $ 4,493 $ 3,480 $ 546 $ 191 $ — $ — $ 9,841 21 December 31, 2024 Term Loans (amortized cost basis by origination year) Revolving loans amortized cost basis Revolving loans converted to term (amounts in thousands) 2024 2023 2022 2021 2020 Prior Total Commercial and industrial Pass $ 23,539 $ 8,501 $ 13,853 $ 5,418 $ 2,362 $ 17,829 $ 44,000 $ — $ 115,502 Special Mention 47 164 4,462 — — — — — 4,673 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total commercial and industrial 23,586 8,665 18,315 5,418 2,362 17,829 44,000 — 120,175 Year-to-date gross charge-offs — — — — — — — — — Owner-occupied commercial real estate Pass 7,410 1,458 5,366 6,438 5,716 14,793 — — 41,181 Special Mention — — 570 888 8,144 1,153 — — 10,755 Substandard — — — — — 1,655 — — 1,655 Doubtful — — — — — — — — — Total owner-occupied commercial real estate 7,410 1,458 5,936 7,326 13,860 17,601 — — 53,591 Year-to-date gross charge-offs — — — — — — — — — Investor commercial real estate Pass 71,430 3,849 88,290 65,050 9,607 27,474 — — 265,700 Special Mention — — — — — 3,731 — — 3,731 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total investor commercial real estate 71,430 3,849 88,290 65,050 9,607 31,205 — — 269,431 Year-to-date gross charge-offs — — — — — — — — — Construction Pass 35,177 186,979 140,299 47,598 1,622 — 1,848 — 413,523 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Total construction 35,177 186,979 140,299 47,598 1,622 — 1,848 — 413,523 Year-to-date gross charge-offs — — — — — — — — — Single tenant lease financing Pass 79,872 46,674 211,005 88,192 63,506 437,564 — — 926,813 Special Mention 644 — 9,696 3,460 — 9,135 — — 22,935 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total single tenant lease financing 80,516 46,674 220,701 91,652 63,506 446,699 — — 949,748 Year-to-date gross charge-offs — — — — — 195 — — 195 Public finance Pass 55,306 1,290 7,790 12,050 463 407,008 — — 483,907 Special Mention — — — — — 1,960 — — 1,960 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total public finance 55,306 1,290 7,790 12,050 463 408,968 — — 485,867 Year-to-date gross charge-offs — — — — — — — — — 22 December 31, 2024 Term Loans (amortized cost basis by origination year) Revolving loans amortized cost basis Revolving loans converted to term (amounts in thousands) 2024 2023 2022 2021 2020 Prior Total Healthcare finance Pass — — — 8,969 104,427 67,413 — — 180,809 Special Mention — — — — — 618 — — 618 Substandard — — — — — — — — — Doubtful — — — — — — — — — Total healthcare finance — — — 8,969 104,427 68,031 — — 181,427 Year-to-date gross charge-offs — — — — — — — — — Small business lending Pass 138,044 94,556 30,486 11,715 9,687 9,896 17,197 — 311,581 Special Mention 1,022 4,691 927 — 354 1,213 697 — 8,904 Substandard 2,940 3,909 1,457 258 970 1,001 894 — 11,429 Doubtful — — — — — — — — — Total small business lending 142,006 103,156 32,870 11,973 11,011 12,110 18,788 — 331,914 Year-to-date gross charge-offs 1,093 4,600 3,038 567 619 524 — — 10,441 Franchise finance Pass 67,065 230,425 172,830 42,869 — — — — 513,189 Special Mention — 1,978 5,084 6,275 — — — — 13,337 Substandard — 3,543 6,367 473 — — — — 10,383 Doubtful — — — — — — — — — Total franchise finance 67,065 235,946 184,281 49,617 — — — — 536,909 Year-to-date gross charge-offs — 1,171 — 295 — — — — 1,466 Consumer loans Residential mortgage Performing 3,577 13,533 183,484 86,213 28,655 55,615 — — 371,077 Nonperforming — — 1,671 609 69 1,734 — — 4,083 Total residential mortgage 3,577 13,533 185,155 86,822 28,724 57,349 — — 375,160 Year-to-date gross charge-offs — — 101 58 — — — — 159 Home equity Performing — 992 1,450 356 414 530 13,621 911 18,274 Nonperforming — — — — — — — — — Total home equity — 992 1,450 356 414 530 13,621 911 18,274 Year-to-date gross charge-offs — — — — — — — — — Other consumer Performing 101,965 97,832 88,872 33,177 20,918 64,251 870 — 407,885 Nonperforming — — 38 11 1 12 — — 62 Total other consumer 101,965 97,832 88,910 33,188 20,919 64,263 870 — 407,947 Year-to-date gross charge-offs 157 242 300 127 1 182 — — 1,009 Total Loans $ 588,038 $ 700,374 $ 973,997 $ 420,019 $ 256,915 $ 1,124,585 $ 79,127 $ 911 $ 4,143,966 Total year-to-date gross charge-offs $ 1,250 $ 6,013 $ 3,439 $ 1,047 $ 620 $ 901 $ — $ — $ 13,270 23 The following tables present the Company’s loan portfolio delinquency, including nonperforming loans, as of March 31, 2025 and December 31, 2024. March 31, 2025 (amounts 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 $ 158 $ — $ — $ 158 $ 140,081 $ 140,239 Owner-occupied commercial real estate — — — — 49,954 49,954 Investor commercial real estate 235 — — 235 297,639 297,874 Construction — — — — 471,082 471,082 Single tenant lease financing — — — — 950,814 950,814 Public finance — — — — 482,558 482,558 Healthcare finance — — — — 171,430 171,430 Small business lending 9,878 5,032 7,019 21,929 331,479 353,408 Franchise finance 8,818 7,078 13,466 29,362 485,338 514,700 Residential mortgage 617 1,679 3,478 5,774 361,948 367,722 Home equity 183 — — 183 17,238 17,421 Other consumer 210 202 145 557 411,996 412,553 Total $ 20,099 $ 13,991 $ 24,108 $ 58,198 $ 4,171,557 $ 4,229,755 December 31, 2024 (amounts 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 $ — $ — $ — $ — $ 120,175 $ 120,175 Owner-occupied commercial real estate — — — — 53,591 53,591 Investor commercial real estate — — — — 269,431 269,431 Construction — — — — 413,523 413,523 Single tenant lease financing — — — — 949,748 949,748 Public finance — — — — 485,867 485,867 Healthcare finance — — — — 181,427 181,427 Small business lending 11,817 1,310 5,587 18,714 313,200 331,914 Franchise finance 9,431 3,279 9,849 22,559 514,350 536,909 Residential mortgage 648 1,711 3,815 6,174 368,986 375,160 Home equity — — — — 18,274 18,274 Other consumer 194 196 27 417 407,530 407,947 Total $ 22,090 $ 6,496 $ 19,278 $ 47,864 $ 4,096,102 $ 4,143,966 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. 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, 2025 December 31, 2024 (amounts 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 Small business lending $ 12,658 $ 4,923 $ 845 $ 11,429 $ 4,778 $ 1,320 Franchise finance 15,684 325 — 10,382 — — Residential mortgage 4,702 4,702 156 4,083 4,083 1,142 Other consumer 164 164 34 61 61 4 Total loans $ 33,208 $ 10,114 $ 1,035 $ 25,955 $ 8,922 $ 2,466 There was $ 0.1 million and $ 0.7 million in interest income recognized on nonaccrual loans for the three months ended March 31, 2025 and 2024, respectively. Determining fair value for collateral dependent loans requires obtaining a current independent appraisal of the collateral and applying a discount factor, which includes selling costs if applicable, to the value. The fair value of real estate is generally based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis. Fair value on other collateral such as business assets is typically ascertained by assessing, either singularly or some combination of, asset appraisals, accounts receivable aging reports, inventory listings and/or customer financial statements. Both appraised values and values based on borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions. The following tables present the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses as of March 31, 2025 and December 31, 2024. March 31, 2025 (amounts in thousands) Commercial Real Estate Residential Real Estate Other (Includes Equipment, Machinery and Other Assets) Total Allowance on Collateral Dependent Loans Owner-occupied commercial real estate $ 1,654 $ — $ — $ 1,654 $ — Small business lending 1 1,041 — 10,322 11,363 4,934 Franchise finance — — 312 312 252 Residential mortgage — 4,702 — 4,702 — Other consumer loans — 69 61 130 — Total loans $ 2,695 $ 4,771 $ 10,695 $ 18,161 $ 5,186 1 Balance includes $ 3.8 million of loans guaranteed by the U.S. government. 25 December 31, 2024 (amounts in thousands) Commercial Real Estate Residential Real Estate Other (Includes Equipment, Machinery and Other Assets) Total Allowance on Collateral Dependent Loans Owner-occupied commercial real estate $ 1,654 $ — $ — $ 1,654 $ — Small business lending 1 723 — 8,571 9,294 4,167 Franchise finance — — 3,468 3,468 679 Residential mortgage — 4,083 — 4,083 — Other consumer loans — — 22 22 — Total loans $ 2,377 $ 4,083 $ 12,061 $ 18,521 $ 4,846 1 Balance includes $ 3.5 million of loans guaranteed by the U.S. government. Loan Modifications to Borrowers Experiencing Financial Difficulty The Company may agree to modify the contractual terms of a loan to a borrower experiencing financial difficulty as a part of ongoing loss mitigation strategies. These modifications may include interest rate reductions, principal or interest forgiveness, other-than-insignificant payment delays, term extensions and other actions intended to minimize loss and to avoid foreclosure or repossession of collateral. The Company had two loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2025. The Company did not have any loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2024. The following table presents loans that were both experiencing financial difficulty and modified during the three months ended March 31, 2025. Three Months Ended March 31, 2025 (dollars in thousands) Payment Delay Total Modification by Loan Class % of Class of Loans Healthcare finance 2,658 2,658 1.6 % Total $ 2,658 $ 2,658 The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of loans that were modified within the twelve months ended March 31, 2025. (amounts in thousands) Current 30 - 89 Days Past Due 90+ Days Past Due Investor commercial real estate $ 3,731 $ — $ — Healthcare finance 2,658 — — Franchise finance 1,163 4,020 — Total $ 7,552 $ 4,020 $ — No modified loans had a default during the three months ended March 31, 2025. Other Real Estate Owned The Company had $ 1.5 million in other real estate owned (“OREO”) as of March 31, 2025, which consisted of two Small Business Administration loan properties. The Company had $ 0.3 million in OREO as of December 31, 2024, which consisted of one residential mortgage property. There were eleven loans totaling $ 3.2 million and nine loans totaling $ 2.1 million, in the process of foreclosure at March 31, 2025 and December 31, 2024, respectively. 26 Note 5: Premises and Equipment The following table summarizes premises and equipment at March 31, 2025 and December 31, 2024. (amounts in thousands) March 31, 2025 December 31, 2024 Land $ 5,598 $ 5,598 Construction in process 89 20 Right of use leased asset 163 188 Building and improvements 63,082 63,069 Furniture and equipment 22,150 22,047 Less: accumulated depreciation ( 20,621 ) ( 19,469 ) Total $ 70,461 $ 71,453 Note 6: Goodwill As of March 31, 2025 and December 31, 2024, 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, 2025 or March 31, 2024. 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 qualitative test performed as of August 31, 2024. 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 31, 2025 and 2024 are shown in the table below. Three Months Ended (amounts in thousands) March 31, 2025 March 31, 2024 Balance, beginning of period $ 16,389 $ 10,567 Additions: Originated 2,237 1,627 Subtractions: Paydowns ( 964 ) ( 612 ) Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model ( 217 ) 178 Loan servicing asset revaluation $ ( 1,181 ) $ ( 434 ) Balance, end of period $ 17,445 $ 11,760 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, 2025 and December 31, 2024 are shown in the table below. (amounts in thousands) March 31, 2025 December 31, 2024 Loan portfolios serviced for: SBA guaranteed loans $ 939,362 $ 862,089 Total $ 939,362 $ 862,089 Loan servicing revenue totaled $ 2.0 million and $ 1.3 million for the three months ended March 31, 2025 and March 31, 2024, respectively. Loan servicing asset revaluation, which represents the change in fair value of the servicing asset, resulted in a $ 1.2 million and $ 0.4 million downward valuation for the three months ended March 31, 2025 and March 31, 2024, 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 bear interest at 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 at any time, without penalty. 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 at 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, 2025 and December 31, 2024. March 31, 2025 December 31, 2024 (amounts in thousands) Principal Unamortized Discount and Debt Issuance Costs Principal Unamortized Discount and Debt Issuance Costs 2029 Notes $ 37,000 $ ( 664 ) $ 37,000 $ ( 703 ) 2030 Note 10,000 ( 131 ) 10,000 ( 137 ) 2031 Notes 60,000 ( 977 ) 60,000 ( 1,010 ) Total $ 107,000 $ ( 1,772 ) $ 107,000 $ ( 1,850 ) 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”). 29 Award Activity Under 2022 Plan The Company recorded less than $ 0.1 million and $ 0.1 million o f share-based compensation expense for the three months ended March 31, 2025, and March 31, 2024, 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, 2025. (dollars in thousands, except per share data) 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, 2024 130,748 $ 24.35 12,040 $ 31.46 — $ — Granted 54,948 34.76 — — — — Vested ( 28,192 ) 24.32 — — — — Unvested at March 31, 2025 157,504 $ 27.97 12,040 $ 31.46 — $ — At March 31, 2025, the total unrecognized compensation cost related to unvested stock-based awards under the 2022 Plan was $ 3.3 million with a weighted-average expense recognition period of 2.2 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 less than $ 0.1 million and $ 0.4 million of share-based compensation expense for the three months ended March 31, 2025 and 2024, 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, 2025. (dollars in thousands, except per share data) 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, 2024 22,997 $ 46.71 — $ — — $ — Vested ( 7,871 ) 46.71 — — — — Unvested at March 31, 2025 15,126 $ 46.71 — $ — — $ — At March 31, 2025, there were no unrecognized compensation costs related to unvested stock-based awards under the 2013 Plan. 30 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, 2025. Deferred Stock Rights Outstanding, beginning of period 28,821 Granted 48 Outstanding, end of period 28,869 All deferred stock rights granted during the 2025 period were additional rights issued in lieu of cash dividends payable on outstanding deferred stock rights. 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, 2025 and December 31, 2024, the Company had outstanding loan commitments totaling approximately $ 626.2 million and $ 667.7 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, 2025 and December 31, 2024. 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. 31 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, 2025 or December 31, 2024. 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 Back-to-Back 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). 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, 2025 and December 31, 2024. March 31, 2025 Fair Value Measurements Using (amounts 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 $ 78,278 $ — $ 78,278 $ — Municipal securities 60,997 — 60,997 — Agency mortgage-backed securities - residential 371,043 — 371,043 — Agency mortgage-backed securities - commercial 63,934 — 63,934 — Private label mortgage-backed securities - residential 43,319 — 43,319 — Asset-backed securities 21,677 — 21,677 — Corporate securities 42,537 — 42,537 — Total available-for-sale securities $ 681,785 $ — $ 681,785 $ — Servicing asset 17,445 — — 17,445 Interest rate swap agreements - assets (back-to-back) 308 — 308 — Interest rate swap agreements - liabilities (back-to-back) ( 308 ) — ( 308 ) — 32 December 31, 2024 Fair Value Measurements Using (amounts 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 $ 82,816 $ — $ 82,816 $ — Municipal securities 63,654 — 63,654 — Agency mortgage-backed securities - residential 269,641 — 269,641 — Agency mortgage-backed securities - commercial 63,331 — 63,331 — Private label mortgage-backed securities - residential 45,821 — 45,821 — Asset-backed securities 23,821 — 23,821 — Corporate securities 38,271 — 38,271 — Total available-for-sale securities $ 587,355 $ — $ 587,355 $ — Servicing asset 16,389 — — 16,389 Interest rate swap agreements - assets (back-to-back) 200 — 200 — Interest rate swap agreements - liabilities (back-to-back) ( 200 ) — ( 200 ) — 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, 2025 and 2024. Three Months Ended (amounts in thousands) Servicing Asset Balance as of January 1, 2025 $ 16,389 Total realized gains Additions: Originated 2,237 Subtractions: Paydowns ( 964 ) Change in fair value ( 217 ) Balance, March 31, 2025 $ 17,445 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 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, 2025 and December 31, 2024. March 31, 2025 (amounts 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 $ 1,844 $ — $ — $ 1,844 December 31, 2024 (amounts 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 $ 4,296 $ — $ — $ 4,296 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, 2025 Valuation Technique Significant Unobservable Inputs Range Weighted-Average Range Collateral dependent loans $ 1,844 Fair value of collateral Discount for type of property and current market conditions 0 %- 81 % 24.5 % Servicing asset 17,445 Discounted cash flow Prepayment speeds Discount rate 0 % - 25 % 14 % 11.8 % 14 % 34 (dollars in thousands) Fair Value at December 31, 2024 Valuation Technique Significant Unobservable Inputs Range Weighted-Average Range Collateral dependent loans $ 4,296 Fair value of collateral Discount for type of property and current market conditions 0 % - 75 % 24.2 % Servicing asset 16,389 Discounted cash flow Prepayment speeds Discount rate 0 % - 25 % 14 % 11.7 % 14 % 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, 2025 or December 31, 2024. Loans Held-for-Sale For loans that are sold in an active secondary market, the fair value of these loans is estimated based on secondary market price indications for loans with similar interest rate and maturity characteristics. The fair value of other loans held-for-sale approximates carrying value. Net 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, 2025 and December 31, 2024. 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, 2025 and December 31, 2024. March 31, 2025 Fair Value Measurements Using (amounts 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 $ 394,454 $ 394,454 $ 394,454 $ — $ — Securities held-to-maturity, net 276,542 259,116 — 259,116 — Loans held-for-sale 31,738 33,930 — 33,930 — Net loans 4,207,174 4,045,036 — — 4,045,036 Accrued interest receivable 29,022 29,022 29,022 — — Federal Home Loan Bank of Indianapolis stock 28,350 28,350 — 28,350 — Deposits 4,945,625 4,955,263 2,569,222 — 2,386,041 Advances from Federal Home Loan Bank 395,000 394,883 — 394,883 — Subordinated debt 105,228 103,644 37,059 66,585 — Accrued interest payable 1,645 1,645 1,645 — — 36 December 31, 2024 Fair Value Measurements Using (amounts 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 $ 466,410 $ 466,410 $ 466,410 $ — $ — Securities held-to-maturity 249,796 228,851 — 228,851 — Loans held-for-sale 54,695 58,510 — 58,510 — Net loans 4,125,877 3,935,009 — — 3,935,009 Accrued interest receivable 28,180 28,180 28,180 — — Federal Home Loan Bank of Indianapolis stock 28,350 28,350 — 28,350 — Deposits 4,933,206 4,943,961 2,236,724 — 2,707,237 Advances from Federal Home Loan Bank 295,000 291,208 — 291,208 — Subordinated debt 105,150 103,062 37,059 66,003 — Accrued interest payable 2,495 2,495 2,495 — — Note 12: Derivative Financial Instruments The Company uses derivative financial instruments from time to time 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. The Company entered 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. In December 2024, the Company terminated interest rate swaps utilized as cash flow hedges against Federal Home Loan Bank advances, which resulted in swap termination receipts from counterparties of $ 2.9 million. As the Company had no further liability exposure to the underlying index hedged, the Company reclassified this amount from accumulated other comprehensive loss to the consolidated statements of income and recognized a gain on termination of interest rate swaps for the year ended December 31, 2024. In November 2024, the Company’s interest rate swap derivative designated as fair value hedges matured. As a result, the Company has no remaining fair value hedge exposure at December 31, 2024. 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, 2025 and 2024, which 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 9.4 years as of March 31, 2025. The Company had amortization expense totaling $ 0.9 million for both the three months ended March 31, 2025 and 2024, related to these previously terminated fair value hedges which was recognized as a reduction to interest income on loans. 37 The following table presents the notional amount and fair value of interest rate swaps utilized by the Company at March 31, 2025 and December 31, 2024. March 31, 2025 December 31, 2024 (amounts in thousands) Notional Amount Fair Value Notional Amount Fair Value Asset Derivatives Derivatives not designated as hedging instruments Back-to-back swaps $ 34,106 $ 308 $ 27,214 $ 200 Total contracts $ 34,106 $ 308 $ 27,214 $ 200 Liability Derivatives Derivatives not designated as hedging instruments Back-to-back swaps $ 34,106 $ ( 308 ) $ 27,214 $ ( 200 ) Total contracts $ 34,106 $ ( 308 ) $ 27,214 $ ( 200 ) 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 Company received no cash collateral from counterparties as security for their obligations related to these swap transactions at March 31, 2025 and December 31, 2024. As of March 31, 2025, the Company pledged cash collateral of $ 0.3 million to counterparties as security for its obligations related to these agreements. The Company had no pledged cash collateral as of December 31, 2024 to counterparties as security for its obligations related to these agreements. Collateral posted and received is dependent on the market valuation of the underlying hedges. The following table presents the effects of the Company’s cash flow hedge relationships on the condensed consolidated statements of comprehensive income during the three months ended March 31, 2025 and 2024. Amount of Gain Recognized in Other Comprehensive Income for the Three Months Ended (amounts in thousands) March 31, 2025 March 31, 2024 Interest rate swap agreements $ — $ 902 The Company had no 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, 2025 and 2024. 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, 2025 and 2024. (amounts in thousands) Three Months Ended Line Item in the Condensed Consolidated Statements of Income March 31, 2025 March 31, 2024 Interest income Securities - non-taxable $ — $ 414 Total interest income — 414 Interest expense Deposits — ( 255 ) Other borrowed funds — ( 762 ) Total interest expense — ( 1,017 ) Net interest income $ — $ 1,431 38 Note 13: Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss, included in shareholders' equity, for the three months ended March 31, 2025 and 2024, respectively, are presented in the table below. (amounts 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, 2025 $ ( 30,413 ) $ ( 2,240 ) $ — $ ( 32,653 ) Other comprehensive income before reclassifications from accumulated other comprehensive loss before tax 4,424 — — 4,424 Reclassifications from accumulated other comprehensive income to earnings before tax — 120 — 120 Other comprehensive gain before tax 4,424 120 — 4,544 Income tax provision 1,017 31 — 1,048 Other comprehensive income - net of tax 3,407 89 — 3,496 Balance, March 31, 2025 $ ( 27,006 ) $ ( 2,151 ) $ — $ ( 29,157 ) 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 ) Amounts Reclassified from Accumulated Other Comprehensive Income for the Three Months Ended Affected Line Item in the Statements of Operations (amounts in thousands) March 31, 2025 March 31, 2024 Details About Accumulated Other Comprehensive Loss Components Reclassifications from accumulated other comprehensive income to earnings before tax $ ( 120 ) ( 234 ) Interest income Total amount reclassified before tax ( 120 ) ( 234 ) Income before income taxes Tax benefit ( 31 ) ( 57 ) Income tax (benefit) provision Total reclassifications from accumulated other comprehensive income $ ( 89 ) $ ( 177 ) Net income 39 Note 14: Segment Information The Company operates as a single reportable segment, managing the business and assessing financial performance on a consolidated basis. While there are several lines of business within the operating segment, they are closely interrelated and cannot operate independently. Accordingly, the Chief Operating Decision Maker (“CODM”) evaluates operations and financial performance on a Company-wide basis and all of the Company’s operations are aggregated into one reportable operating segment. The CODM regularly receives and reviews the Company’s net income on a consolidated basis and uses key metrics to evaluate the overall performance of the Company and make decisions regarding the allocation of resources. Additionally, the CODM reviews budget-to-actual variances to analyze these profit measures as a single operating segment. The function of the CODM is performed by the Finance Committee. This Committee consists of the highest level of management that is responsible for the Company’s overall resource allocation and performance. The Finance Committee includes the Chairman and Chief Executive Officer, President and Chief Operating Officer and Executive Vice President and Chief Financial Officer. Note 15: Recent Accounting Pronouncements 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. ASU 2024-03 - Income Statement-Reporting Comprehensive Income - Expense Disaggregations Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (November 2024) In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregations Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires additional disclosures of the nature of expenses included in the Company’s income statement. The new standard requires disclosures about specific types of expenses included the income statement. The guidance is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. The Company is currently evaluating the impact of this ASU on its consolidated financial statements. 2024 with early adoption permitted. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements.