First Internet Bancorp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this report. This discussion and analysis includes certain forward-looking statements that involve risks, uncertainties, and assumptions. You should review the “Risk Factors” sections of this report and our Annual Report on Form 10-K for the year ended December 31, 2025 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by such forward-looking statements. See also “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report. Overview First Internet Bancorp is a bank holding company headquartered in Fishers, Indiana that conducts its primary business activities through its wholly-owned subsidiary, First Internet Bank of Indiana (the “Bank”), an Indiana chartered bank. The Bank was the first state-chartered, Federal Deposit Insurance Corporation (“FDIC”) insured Internet bank and commenced banking operations in 1999. First Internet Bancorp was incorporated under the laws of the State of Indiana on September 15, 2005. On March 21, 2006, we consummated a plan of exchange by which we acquired all of the outstanding shares of the Bank. The Bank has three wholly-owned subsidiaries: First Internet Public Finance Corp., an Indiana corporation that provides a range of public and municipal finance lending and leasing products to governmental entities throughout the United States and acquires securities issued by state and local governments and other municipalities; JKH Realty Services, LLC, a Delaware limited liability company that manages other real estate owned properties as needed; and SPF15, Inc., an Indiana corporation that owns real estate used primarily for the Bank’s principal office. We offer a wide range of commercial, small business, consumer and municipal banking products and services. We conduct our consumer and small business deposit operations primarily through digital channels on a nationwide basis and have no traditional branch offices. Our consumer lending products are primarily originated on a nationwide basis through relationships with dealerships and financing partners. Our commercial banking products and services are delivered through a relationship banking model or through strategic partnerships and include commercial and industrial (“C&I”) lending, construction and investor commercial real estate lending, single tenant lease financing, public finance, specialty finance, small business lending, and commercial deposits and treasury management. Our C&I team provides credit solutions such as lines of credit, term loans, owner-occupied commercial real estate loans and corporate credit cards on a regional basis to commercial borrowers primarily in the Midwest and Southwest regions of the United States. We offer construction, investor commercial real estate loans and single tenant lease financing on a nationwide basis. Our public finance team provides a range of public and municipal lending and leasing products to government entities on a nationwide basis. Our specialty finance team manages our healthcare, franchise finance and equipment finance portfolios and our commercial deposits and treasury management team works with the other commercial teams to provide deposit products and treasury management services to our commercial and municipal lending customers as well as pursues commercial deposit opportunities in business segments where we have no credit relationships. We believe that we differentiate ourselves from larger financial institutions by providing a full suite of services to emerging small businesses and entrepreneurs on a nationwide basis. We are an active lender in the Small Business 43 Administration (“SBA”) 7(a) program, closing $72.5 million in SBA 7(a) loans during the three months ended March 31,2026. We also offer a top-ranked small business checking account product to our country’s entrepreneurs. We offer payment, deposit, card and lending products and services through partnerships with financial technology companies and platforms (“fintechs”). With the rapid evolution of technology that enables small businesses to manage their finances digitally, fintechs are addressing a significantly growing marketplace. Fintechs have created robust digital offerings, unburdened by legacy technology architecture, to address growing customer expectations. Through partnerships with selected fintechs, we believe our ability to win and retain small business relationships will be significantly enhanced. Furthermore, we believe partnering with select fintechs will allow us to further diversify our revenue sources, acquire deposits and pursue additional asset generation capabilities. As of March 31, 2026, the Company had consolidated assets of $5.7 billion, consolidated deposits of $5.0 billion and stockholders’ equity of $361.0 million. Results of Operations During the first quarter 2026, net income was $2.5 million, or $0.29 diluted earnings per share, compared to net income of $0.9 million, or $0.11 diluted earnings per share, during the first quarter 2025, representing an increase in net income of $1.6 million, or 166.1%, and an increase in diluted earnings per share of $0.18, or 163.6%. The $1.6 million increase in net income for the first quarter 2026 compared to the first quarter 2025 was due primarily to increases of $6.5 million, or 25.9%, in net interest income and $1.1 million, or 10.5%, in noninterest income, partially offset by increases of $4.4 million, or 36.6%, in the provision for credit losses and $1.5 million, or 6.2%, in noninterest expense, as well as a decrease of $0.2 million in income tax benefit. During the first quarter 2026, return on average assets (“ROAA”), return on average shareholders’ equity (“ROAE”), and return on average tangible common equity (“ROATCE”) were 0.18%, 2.72% and 2.75%, respectively, compared to 0.07%, 0.98% and 0.99%, respectively, for the first quarter 2025. During the first quarter 2026, pre-provision net revenue (“PPNR”) was $18.1 million, an increase of 51.2% from PPNR of $12.0 million for the first quarter 2025. The $6.1 million increase was due to an increase of $6.5 million, or 25.9%, in net interest income and an increase of $1.1 million, or 10.5%, in noninterest income, partially offset by an increase of $1.5 million, or 6.2%, in noninterest expense. Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Part I, Item 2 of this report, Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information. 44 Consolidated Average Balance Sheets and Net Interest Income Analyses For the periods presented, the following tables provide the average balances of interest-earning assets and interest-bearing liabilities and the related yields and cost of funds. The tables do not reflect any effect of income taxes except for net interest margin - FTE, as discussed below. Balances are based on the average of daily balances. Nonaccrual loans are included in average loan balances. Three Months Ended March 31, 2026 March 31, 2025 (dollars in thousands) Average Balance Interest /Dividends Yield / Cost Average Balance Interest /Dividends Yield /Cost Assets Interest-earning assets Loans, including loans held-for-sale $ 3,880,131 $ 60,839 6.36 % $ 4,242,933 $ 62,662 5.99 % Securities - taxable 943,079 9,496 4.08 % 820,175 8,463 4.18 % Securities - non-taxable 79,793 654 3.32 % 81,743 661 3.28 % Other earning assets 521,697 4,821 3.75 % 445,280 5,043 4.59 % Total interest-earning assets 5,424,700 75,810 5.67 % 5,590,131 76,829 5.57 % Allowance for credit losses - loans (56,106) (45,664) Noninterest-earning assets 267,052 225,913 Total assets $ 5,635,646 $ 5,770,380 Liabilities Interest-bearing liabilities Interest-bearing demand deposits $ 1,243,549 $ 8,168 2.66 % $ 956,322 $ 6,974 2.96 % Savings accounts 19,542 41 0.85 % 20,568 43 0.85 % Money market accounts 1,292,126 10,103 3.17 % 1,221,795 11,361 3.77 % Certificates and brokered deposits 2,188,972 22,047 4.08 % 2,617,293 29,248 4.53 % Total interest-bearing deposits 4,744,189 40,359 3.45 % 4,815,978 47,626 4.01 % Other borrowed funds 352,117 3,853 4.44 % 401,300 4,107 4.15 % Total interest-bearing liabilities 5,096,306 44,212 3.52 % 5,217,278 51,733 4.02 % Noninterest-bearing deposits 143,305 135,878 Other noninterest-bearing liabilities 21,759 25,189 Total liabilities 5,261,370 5,378,345 Shareholders’ equity 374,276 392,035 Total liabilities and shareholders’ equity $ 5,635,646 $ 5,770,380 Net interest income $ 31,598 $ 25,096 Interest rate spread 1 2.15% 1.55% Net interest margin 2 2.36% 1.82% Net interest margin - FTE 3 2.45% 1.91% 1 Yield on total interest-earning assets minus cost of total interest-bearing liabilities. 2 Net interest income divided by total average interest-earning assets (annualized). 3 On an FTE basis assuming a 21% tax rate. Net interest income is adjusted to reflect income from assets such as municipal loans and securities that are exempt from Federal income taxes. This is to recognize the income tax savings that facilitates a comparison between taxable and tax-exempt assets. The Company believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully-taxable equivalent basis, as these measures provide useful information to make peer comparisons. Net interest margin - FTE represents a non-GAAP financial measure. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of this measure to its most directly comparable GAAP measure. 45 Rate/Volume Analysis The following table illustrates the impact of changes in the volume of interest-earning assets and interest-bearing liabilities and interest rates on net interest income for the periods indicated. The change in interest not due solely to volume or rate has been allocated in proportion to the absolute dollar amounts of the change in each. Three Months Ended March 31, 2026 vs. March 31, 2025 Due to Changes in (amounts in thousands) Volume Rate Net Interest income Loans, including loans held-for-sale $ (19,288) $ 17,465 $ (1,823) Securities – taxable 2,305 (1,272) 1,033 Securities – non-taxable (48) 41 (7) Other earning assets 3,513 (3,735) (222) Total (13,518) 12,499 (1,019) Interest expense Interest-bearing deposits (701) (6,566) (7,267) Other borrowed funds (1,644) 1,390 (254) Total (2,345) (5,176) (7,521) (Decrease) increase in net interest income $ (11,173) $ 17,675 $ 6,502 Net interest income for the first quarter 2026 was $31.6 million, an increase of $6.5 million, or 25.9%, compared to $25.1 million for the first quarter 2025. The increase in net interest income was the result of a decrease of $7.5 million, or 14.5%, in total interest expense to $44.2 million for the first quarter 2026 from $51.7 million for the first quarter 2025, which was partially offset by a $1.0 million, or 1.3%, decrease in total interest income to $75.8 million for the first quarter 2026 from $76.8 million for the first quarter 2025. The decrease in total interest income for the first quarter 2026 compared to first quarter 2025 was due primarily to a decrease in interest earned on loans, resulting from a decrease of $362.8 million, or 8.6%, in the average balance of loans including loans held-for-sale, partially offset by an increase of 37 bps in the yield earned on loans, including loans held-for-sale. Additionally, the average balance of other earning assets increased $76.4 million, or 17.2%, while the yield on other earning assets decreased 84 bps. The decrease in the yield earned on other earning assets was due mainly to the impact of decreases in the Fed Funds rates on cash balances held at the Federal Reserve. The decrease in total interest income was partially offset by increases in interest income related to securities. The average balance of securities increased $121.0 million, or 13.4%, but was partially offset by a decrease of 8 bps in the yield earned on securities for the first quarter 2026 compared to the first quarter 2025. The yield on funded portfolio loan originations was 6.58% for the first quarter 2026, a decrease of 120 bps compared to the first quarter 2025, but still higher than the overall yield on the loan portfolio. The decrease in total interest expense for the first quarter 2026 compared to the first quarter 2025 was due primarily to decreases of $7.2 million, or 24.6%, in interest expense associated with certificates and brokered deposits, $1.2 million, or 11.1%, in interest expense associated with money market accounts and $0.3 million, or 6.2%, in other borrowed funds, partially offset by an increase of $1.2 million, or 17.1%, in interest expense associated with interest-bearing demand deposits. The decrease in interest expense related to certificates and brokered deposits was driven by a decrease of 45 bps in the cost of these deposits, as well as a decrease in the average balance of these deposits of $428.3 million, or 16.4%. The decrease in interest expense related to money market accounts was driven by a 60 bp decrease in the cost of these deposits, partially offset by an increase in the average balance of these deposits of $70.3 million, or 5.8%. The decrease in interest expense related to other borrowed funds was driven by a decrease in the average balance of $49.2 million, or 12.3%, partially offset by a 29 bp increase in the cost of these funds. The increase in interest expense related to interest-bearing demand deposits was driven by an increase in the average balance of $287.2 million, or 30%, partially offset by 30 bp decrease in the cost of these deposits. Overall, the cost of total interest-bearing liabilities for the first quarter 2026 decreased 50 bps to 3.52% from 4.02% for the first quarter 2025. Net interest margin (“NIM”) was 2.36% for the first quarter 2026 compared to 1.82% for the first quarter 2025, an increase of 54 bps. On a fully-taxable equivalent (“FTE”) basis, NIM was 2.45% for the first quarter 2026 compared to 1.91% for the first quarter 2025, an increase of 54 bps. The increase in the first quarter 2026 NIM and FTE NIM compared to the first 46 quarter 2025 reflects the combination of higher yields on loans and continued improvement in the cost of funds related to deposits. Noninterest Income The following table shows noninterest income for each of the periods presented. Three Months Ended (amounts in thousands) March 31, 2026 March 31, 2025 Service charges and fees $ 844 $ 265 Loan servicing revenue 2,856 1,983 Loan servicing asset revaluation (1,060) (1,181) Gain on sale of loans 7,377 8,647 Other 1,501 713 Total noninterest income $ 11,518 $ 10,427 During the first quarter 2026, noninterest income was $11.5 million, representing an increase of $1.1 million, or 10.5%, compared to $10.4 million of noninterest income for the first quarter 2025. The increase in noninterest income was driven primarily by increases in net loan servicing, other noninterest income and service charges and fees, partially offset by a decrease in gain on sale of loans. The increase of $1.0 million, or 123.9%, in net loan servicing was due to growth in the balance of the Company’s SBA 7(a) and single tenant lease financing servicing portfolios. The increase of $0.8 million, or 110.5%, in other noninterest income was due primarily to an increase in fintech partnership revenue. The increase of $0.6 million, or 218.5%, in service charges and fees reflects higher fees earned on fintech deposits moved off-balance sheet into deposit networks, which increased substantially from the prior year. The decrease in gain on sale of loans of $1.3 million, or 14.7%, was due primarily to a lower volume of SBA loans sold in the first quarter 2026 compared to the first quarter 2025, partially offset by a 27 bp increase in net premiums. Noninterest Expense The following table shows noninterest expense for each of the periods presented. Three Months Ended (amounts in thousands) March 31, 2026 March 31, 2025 Salaries and employee benefits $ 13,236 $ 13,107 Marketing, advertising and promotion 615 647 Consulting and professional services 1,080 1,228 Data processing 775 635 Loan expenses 2,179 1,531 Premises and equipment 3,676 3,115 Deposit insurance premium 1,487 1,398 Other 1,979 1,895 Total noninterest expense $ 25,027 $ 23,556 Noninterest expense for the first quarter 2026 was $25.0 million, representing an increase of $1.5 million, or 6.2%, compared to $23.6 million for the first quarter 2025. The increase in noninterest expense was due primarily to increases in loan expenses and premises and equipment. The increase of $0.6 million, or 42.3%, in loan expenses was due primarily to collection expense, as well as third party servicing associated with SBA and fintech lending. The increase of $0.6 million, or 18.0%, in premises and equipment was due primarily to continued investment in technology to enhance the user experience in consumer and small business banking. The Company recorded an income tax benefit of $0.7 million for the first quarter 2026, compared to an income tax benefit of $0.9 million for the first quarter 2025. 47 Financial Condition The following table shows summary balance sheet data for each of the periods presented. (amounts in thousands) Balance Sheet Data: March 31, 2026 December 31, 2025 Total assets $ 5,711,688 $ 5,571,647 Loans 3,775,870 3,746,728 Total securities 1,048,077 1,029,296 Loans held-for-sale 55,240 108,608 Noninterest-bearing deposits 149,505 146,879 Interest-bearing deposits 4,832,145 4,692,934 Total deposits 4,981,650 4,839,813 Advances from Federal Home Loan Bank 239,500 249,500 Total liabilities 5,350,734 5,211,880 Total shareholders’ equity 360,954 359,767 Total assets increased $140.0 million, or 2.5%, to $5.7 billion at March 31, 2026 compared to $5.6 billion at December 31, 2025. The increase was due primarily to an increase in deposits driven by growth in fintech partnerships, which was used in conjunction with on-balance sheet liquidity to fund loan growth, purchase securities and pay down higher cost certificates of deposits and FHLB advances. Total liabilities increased $138.9 million, or 2.7%, to $5.4 billion at March 31, 2026 compared to $5.2 billion at December 31, 2025. The increase was due mainly to an increase in total deposits. As of March 31, 2026, total shareholders’ equity was $361.0 million, an increase of $1.2 million, or 0.3%, compared to December 31, 2025. The increase in shareholders’ equity was due primarily to current period net income and was partially offset by an increase in accumulated other comprehensive loss as unrealized losses on debt securities increased during the quarter due to changes in market interest rates. Tangible common equity totaled $356.3 million as of March 31, 2026, representing an increase of $1.2 million, or 0.3%, compared to December 31, 2025. The ratio of total shareholders’ equity to total assets decreased to 6.32% as of March 31, 2026 from 6.46% as of December 31, 2025, and the ratio of tangible common equity to tangible assets decreased to 6.24% as of March 31, 2026 from 6.38% as of December 31, 2025. Book value per common share was $41.41 for both March 31, 2026 and December 31, 2025 and tangible book value per common share was $40.87 for both March 31, 2026 and December 31, 2025. The slight increase in total shareholders’ equity and tangible common equity was offset by a higher number of shares outstanding. Refer to the “Reconciliation of Non-GAAP Financial Measures” section of Part I, Item 2 of this report, Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information. 48 Loan Portfolio Analysis The following table shows a summary of the Company’s loan portfolio for each of the periods presented. (dollars in thousands) March 31, 2026 December 31, 2025 Commercial loans Commercial and industrial $ 225,425 6.0 % $ 221,714 5.9 % Owner-occupied commercial real estate 48,136 1.3 % 48,575 1.3 % Investor commercial real estate 598,933 15.9 % 647,394 17.3 % Construction 449,888 11.9 % 372,668 9.9 % Single tenant lease financing 254,044 6.7 % 222,925 5.9 % Public finance 441,734 11.7 % 442,234 11.8 % Healthcare finance 131,161 3.5 % 139,469 3.7 % Small business lending 1 433,964 11.5 % 430,024 11.5 % Franchise finance 389,249 10.3 % 417,045 11.1 % Total commercial loans 2,972,534 78.8 % 2,942,048 78.4 % Consumer loans Residential mortgage 338,058 9.0 % 343,110 9.2 % Home equity 14,219 0.4 % 14,725 0.4 % Other consumer loans 431,338 11.4 % 425,458 11.4 % Total consumer loans 783,615 20.8 % 783,293 21.0 % Total commercial and consumer loans 3,756,149 99.6 % 3,725,341 99.4 % Net deferred loan origination costs, premiums and discounts on purchased loans and other 2 19,721 0.4 % 21,387 0.6 % Total loans 3,775,870 100.0 % 3,746,728 100.0 % Allowance for credit losses - loans (56,496) (55,686) Net loans $ 3,719,374 $ 3,691,042 1 Balances include $59.5 million and $52.2 million that are guaranteed by the U.S. government as of March 31, 2026 and December 31, 2025, respectively. 2 Includes carrying value adjustments of $18.1 million and $19.1 million related to terminated interest rate swaps associated with public finance loans as of March 31, 2026 and December 31, 2025, respectively. Total loans were $3.8 billion as of March 31, 2026, an increase of $29.1 million, or 0.8%, compared to December 31, 2025. Total commercial loan balances were $3.0 billion as of March 31, 2026, an increase of $30.5 million, or 1.0%, from December 31, 2025. Total consumer loan balances were $783.6 million as of March 31, 2026, an increase of $0.3 million, or less than 0.1%, compared to December 31, 2025. Compared to December 31, 2025, the increase in commercial loan balances was driven by construction and single tenant lease financing loans, partially offset by early payoffs in investor commercial real estate and planned run-off in the franchise finance and healthcare finance portfolios. The slight increase in consumer loan balances was due primarily to origination activity in the other consumer loans portfolio. 49 Asset Quality Nonperforming loans are comprised of nonaccrual loans and loans 90 days past due and accruing. Nonperforming assets include nonperforming loans, other real estate owned (“OREO”) and other nonperforming assets, which consist of repossessed assets. The following table provides a summary of the Company’s nonperforming assets for each of the periods presented. (dollars in thousands) March 31, 2026 December 31, 2025 Nonaccrual loans Commercial loans: Commercial and industrial $ 261 $ 240 Single tenant lease financing 1,665 1,665 Healthcare finance 1,437 2,596 Small business lending 1 21,292 19,781 Franchise finance 23,350 26,978 Total commercial loans 48,005 51,260 Consumer loans: Residential mortgage 4,781 4,893 Other consumer loans 155 234 Total consumer loans 4,936 5,127 Total nonaccrual loans 52,941 56,387 Past due 90 days and accruing loans Commercial loans: Small business lending 268 — Franchise finance 6,779 1,144 Total commercial loans 7,047 1,144 Consumer loans: Residential mortgage 1,608 1,007 Total consumer loans 1,608 1,007 Total past due 90 days and accruing loans 8,655 2,151 Total nonperforming loans 61,596 58,538 Other real estate owned Small business lending 1,945 2,631 Total other real estate owned 1,945 2,631 Other nonperforming assets 150 186 Total nonperforming assets $ 63,691 $ 61,355 Total nonperforming loans to total loans 1.63 % 1.56 % Total nonperforming assets to total assets 1.12 % 1.10 % Allowance for credit losses - loans to total loans 1.50 % 1.49 % Nonaccrual loans to total loans 1.40 % 1.50 % Allowance for credit losses - loans to nonaccrual loans 106.7 % 98.8 % Allowance for credit losses - loans to nonperforming loans 91.7 % 95.1 % 1 Balances include $15.5 million and $13.6 million that are guaranteed by the U.S. government as of March 31, 2026 and December 31, 2025, respectively. Total nonperforming loans increased $3.1 million, or 5.2%, to $61.6 million as of March 31, 2026 compared to $58.5 million as of December 31, 2025 due primarily to an increase in accruing loans past due 90 days or more and nonperforming 50 loans in the small business lending portfolio, partially offset by decreases in nonperforming loans in the franchise finance and healthcare finance portfolios. Total nonperforming assets increased $2.3 million, or 3.8%, to $63.7 million as of March 31, 2026, compared to $61.4 million as of December 31, 2025, due primarily to the accruing loans past due 90 days or more mentioned above. As of March 31, 2026, the Company had two small business lending properties in OREO with carrying values of $1.9 million. As of December 31, 2025, the Company had three small business lending properties in OREO with a carrying value of $2.6 million. Allowance for Credit Losses - Loans The following table provides a rollforward of the allowance for credit losses for each of the periods presented; however, allocation of a portion of the allowance to one segment does not preclude its availability to absorb losses in other segments. Three Months Ended Year Ended (dollars in thousands) March 31, 2026 March 31, 2025 December 31, 2025 Balance, beginning of period $ 55,686 $ 44,769 $ 44,769 Provision charged to expense 16,606 12,121 71,921 Losses charged off Commercial and industrial (202) — (153) Healthcare finance (38) — — Small business lending (9,400) (3,668) (39,650) Franchise finance (6,047) (5,848) (21,754) Residential mortgage (80) (11) (75) Other consumer loans (573) (314) (1,457) Total losses charged off (16,340) (9,841) (63,089) Recoveries Commercial and industrial 11 2 21 Small business lending 360 133 1,681 Franchise finance 64 — 94 Residential mortgage — 6 19 Home equity 1 2 7 Other consumer loans 108 46 263 Total recoveries 544 189 2,085 Balance, end of period $ 56,496 $ 47,238 $ 55,686 Net charge-offs $ 15,796 $ 9,652 $ 61,004 Net charge-offs (recoveries) to average loans (annualized) Commercial and industrial 0.55 % (0.01 %) 0.11 % Healthcare finance 0.11 % 0.00 % 0.00 % Small business lending 7.12 % 3.79 % 8.16 % Franchise finance 5.96 % 4.49 % 4.48 % Total commercial net charge-offs 2.01 % 1.12 % 1.76 % Residential mortgage 0.10 % 0.01 % 0.02 % Home equity (0.03 %) (0.05 %) (0.04 %) Other consumer loans 0.65 % 0.36 % 0.41 % Total consumer net charge-offs 0.28 % 0.14 % 0.16 % Total net charge-offs to average loans 1.65 % 0.92 % 1.45 % 51 The allowance for credit losses - loans (“ACL”) was $56.5 million as of March 31, 2026, compared to $55.7 million as of December 31, 2025. The ACL as a percentage of total loans was 1.50% at March 31, 2026, compared to 1.49% at December 31, 2025. The ACL as a percentage of nonperforming loans decreased to 91.7% as of March 31, 2026, compared to 95.1% as of December 31, 2025, as the increase in nonperforming loans outweighed the increase in the ACL. Net charge-offs of $15.8 million were recognized during the first quarter 2026, resulting in net charge-offs to average loans of 1.65%, compared to net charge-offs of $9.7 million, or 0.92% of average loans, for the first quarter 2025. Net charge-offs in the first quarter 2026 were elevated as the Company continued to take action to resolve problem loans in the small business lending and franchise finance portfolios. The provision for credit losses - loans in the first quarter 2026 was $16.6 million, compared to $12.1 million for the first quarter 2025. The increase in the provision for credit losses - loans for the first quarter 2026 was driven primarily by the net charge-offs mentioned above and additional specific reserves related to franchise finance loans. 52 Investment Securities Portfolio The following tables show the amortized cost and approximate fair value of our investment securities portfolio by security type for each of the periods presented. (amounts in thousands) Amortized Cost March 31, 2026 December 31, 2025 Securities available-for-sale U.S. Government-sponsored agencies $ 59,556 $ 64,298 Municipal securities 59,677 64,777 Agency mortgage-backed securities - residential 422,344 409,718 Agency mortgage-backed securities - commercial 62,063 59,112 Private label mortgage-backed securities - residential 116,592 124,264 Asset-backed securities 39,403 42,492 Corporate securities 37,758 37,761 Total available-for-sale 797,393 802,422 Securities held-to-maturity, net carrying value Municipal securities 10,371 11,006 Agency mortgage-backed securities - residential 241,611 213,530 Agency mortgage-backed securities - commercial 5,616 5,635 Corporate securities 18,444 20,438 Total held-to-maturity, net carrying value 276,042 250,609 Total securities $ 1,073,435 $ 1,053,031 (amounts in thousands) Approximate Fair Value March 31, 2026 December 31, 2025 Securities available-for-sale U.S. Government-sponsored agencies $ 59,150 $ 63,764 Municipal securities 57,105 63,386 Agency mortgage-backed securities - residential 402,078 389,457 Agency mortgage-backed securities - commercial 61,167 58,477 Private label mortgage-backed securities - residential 115,746 123,673 Asset-backed securities 39,294 42,553 Corporate securities 37,495 37,377 Total available-for-sale 772,035 778,687 Securities held-to-maturity Municipal securities 9,839 10,551 Agency mortgage-backed securities - residential 230,079 203,715 Agency mortgage-backed securities - commercial 4,708 4,720 Corporate securities 17,790 19,829 Total held-to-maturity 262,416 238,815 Total securities $ 1,034,451 $ 1,017,502 The approximate fair value of available-for-sale investment securities decreased $6.7 million, or 0.9%, to $772.0 million as of March 31, 2026, compared to $778.7 million as of December 31, 2025. The decrease was due primarily to decreases of $7.9 million in private label mortgage-backed securities - residential, $6.3 million in municipal securities, $4.6 million in U.S. Government-sponsored agencies and $3.3 million in asset-backed securities, partially offset by increases of $12.6 million in agency mortgage-backed securities - residential and $2.7 million in agency mortgage-backed securities - commercial. The Company deployed available liquidity during the first quarter 2026 into new purchases of available-for-sale short-duration agency mortgage-backed securities - residential and agency mortgage-backed securities - commercial, which was partially offset by net pay down activity in other security types. As of March 31, 2026, the Company had securities with a net carrying value of $276.0 million designated as held-to-maturity, compared to $250.6 million as of December 31, 2025. The increase was due primarily to purchases of CRA-eligible agency mortgage-backed securities - residential made in the first quarter 2026. 53 Accrued Income and Other Assets Accrued income and other assets increased $1.5 million, or 1.7%, to $90.5 million at March 31, 2026, compared to $89.1 million at December 31, 2025. The increase was due primarily to increases of $1.3 million in various receivables, $0.5 million in deferred tax assets and $0.4 million in investments in fund partnerships, partially offset by a decrease of $0.6 million in prepaid assets. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities increased $7.4 million, or 48.5%, to $22.8 million at March 31, 2026, compared to $15.4 million at December 31, 2025. The increase was due primarily to an increase related to securities purchased at the end of March that did not settle until April and accrued interest, partially offset by decreases of $0.3 million in both unfunded commitments and the reserve for unfunded loan commitments. Deposits The following table shows the composition of the Company’s deposit base for each of the periods presented. (dollars in thousands) March 31, 2026 December 31, 2025 Noninterest-bearing deposits $ 149,505 3.0 % $ 146,879 3.0 % Interest-bearing demand deposits 1,358,028 27.3 % 1,120,850 23.2 % Savings accounts 20,344 0.4 % 18,991 0.4 % Money market accounts 1,325,382 26.6 % 1,272,845 26.3 % Certificates of deposits 1,869,181 37.5 % 2,004,909 41.4 % Brokered deposits 259,210 5.2 % 275,339 5.7 % Total deposits $ 4,981,650 100.0 % $ 4,839,813 100.0 % Total deposits increased $141.8 million, or 2.9%, to $5.0 billion as of March 31, 2026, compared to $4.8 billion as of December 31, 2025. The increase was due primarily to increases of $237.2 million, or 21.2%, in interest-bearing demand deposits and $52.5 million, or 4.1%, in money market accounts, partially offset by decreases of $135.8 million, or 6.8%, in certificates of deposits and $16.1 million, or 5.9%, in brokered deposits. The increase in interest-bearing demand deposits was driven by growth in fintech partnership deposits, which provided the ability to pay down higher-cost brokered deposits and certificates of deposits. Uninsured deposit balances represented 39% of total deposits at March 31, 2026, up from 33% at December 31, 2025. These balances include Indiana-based municipal deposits, which are insured by the Indiana Board for Depositories, as well as larger balance accounts under contractual agreements that only allow withdrawal under certain conditions. After subtracting these types of deposits, the adjusted uninsured deposit balance drops to 34% as of March 31, 2026, compared to 27% as of December 31, 2025. The increase in uninsured deposit balances was impacted by increases in fintech payment volumes experienced on the last day of the quarter. Regulatory Capital Requirements The Company and the Bank are subject to various regulatory capital requirements administered by state and federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors. The Basel III Capital Rules became effective for the Company and the Bank on January 1, 2015, subject to a phase-in period for certain provisions. Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios of Common Equity Tier 1 capital, Tier 1 capital and Total capital, as defined in the regulations, to risk-weighted assets, and of Tier 1 capital to adjusted quarterly average assets (“Leverage Ratio”). 54 The Basel III Capital Rules were fully phased in on January 1, 2019 and require the Company and the Bank to maintain: 1) a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 4.5%, plus a 2.5% “capital conservation buffer” (resulting in a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 7.0%); 2) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, plus the capital conservation buffer (resulting in a minimum Tier 1 capital ratio of 8.5%); 3) a minimum ratio of Total capital to risk-weighted assets of 8.0%, plus the capital conservation buffer (resulting in a minimum Total capital ratio of 10.5%); and 4) a minimum Leverage Ratio of 4.0%. The capital conservation buffer is designed to absorb losses during periods of economic stress. Failure to maintain the minimum Common Equity Tier 1 capital ratio plus the capital conservation buffer will result in potential restrictions on a banking institution’s ability to pay dividends, repurchase stock and/or pay discretionary compensation to its employees. The following tables present actual and required capital ratios as of March 31, 2026 and December 31, 2025 for the Company and the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of March 31, 2026 and December 31, 2025, which are based on the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules. Actual Minimum Capital Required - Basel III Minimum Required to be Considered Well Capitalized (dollars in thousands) Capital Amount Ratio Capital Amount Ratio Capital Amount Ratio As of March 31, 2026: Common equity tier 1 capital to risk-weighted assets Consolidated $ 350,456 8.97 % $ 273,388 7.00 % N/A N/A Bank 421,265 10.86 % 271,490 7.00 % $ 252,097 6.50 % Tier 1 capital to risk-weighted assets Consolidated 350,456 8.97 % 331,971 8.50 % N/A N/A Bank 421,265 10.86 % 329,666 8.50 % 310,274 8.00 % Total capital to risk-weighted assets Consolidated 488,370 12.50 % 410,082 10.50 % N/A N/A Bank 469,873 12.12 % 407,234 10.50 % 387,842 10.00 % Leverage ratio Consolidated 350,456 6.23 % 224,998 4.00 % N/A N/A Bank 421,265 7.53 % 223,849 4.00 % 279,811 5.00 % 55 Actual Minimum Capital Required - Basel III Minimum Required to be Considered Well Capitalized (dollars in thousands) Capital Amount Ratio Capital Amount Ratio Capital Amount Ratio As of December 31, 2025: Common equity tier 1 capital to risk-weighted assets Consolidated $ 350,350 8.97 % $ 273,335 7.00 % N/A N/A Bank 420,963 10.83 % 272,045 7.00 % $ 252,613 6.50 % Tier 1 capital to risk-weighted assets Consolidated 350,350 8.97 % 331,907 8.50 % N/A N/A Bank 420,963 10.83 % 330,340 8.50 % 310,908 8.00 % Total capital to risk-weighted assets Consolidated 488,170 12.50 % 410,003 10.50 % N/A N/A Bank 469,649 12.08 % 408,067 10.50 % 338,635 10.00 % Leverage ratio Consolidated 350,350 6.24 % 224,566 4.00 % N/A N/A Bank 420,963 7.53 % 223,717 4.00 % 279,646 5.00 % Shareholders’ Dividends The Company’s Board of Directors declared a cash dividend of $0.06 per share of common stock payable April 15, 2026 to shareholders of record as of March 31, 2026. The Company expects to continue to pay cash dividends on a quarterly basis; however, the declaration and amount of any future cash dividends will be subject to the sole discretion of the Board of Directors and will depend upon many factors, including the Company’s results of operations, financial condition, capital requirements, regulatory and contractual restrictions (including with respect to the Company’s outstanding subordinated debt), business strategy and other factors deemed relevant by the Board of Directors. As of March 31, 2026, the Company had $107.0 million principal amount of subordinated debt outstanding evidenced by the 2029 Notes, 2030 Note and 2031 Notes. The agreements that govern our outstanding subordinated debt prohibit the Company from paying any dividends on its common stock or making any other distributions to shareholders at any time when there shall have occurred, and be continuing to occur, an event of default under the applicable agreement. If an event of default were to occur and the Company did not cure it, the Company would be prohibited from paying any dividends or making any other distributions to shareholders or from redeeming or repurchasing any common stock. Capital Resources The Company believes it has sufficient liquidity and capital resources to meet its cash and capital expenditure requirements for the next twelve months and longer. The Company may explore strategic alternatives, including additional asset, deposit or revenue generation channels that complement our small business, commercial, consumer and fintech banking platforms, which may require additional capital. If the Company is unable to secure such capital at favorable terms, its ability to take advantage of such opportunities could be adversely affected. On October 20, 2025, the Board of Directors of the Company authorized the repurchase of up to $25.0 million of the Company's outstanding common stock from time to time on the open market or in privately negotiated transactions. Under the program, the Company repurchased 27,998 shares of common stock, at an average price of $18.64, for a total investment of $0.5 million as of March 31, 2026. The stock repurchase authorization is scheduled to expire on September 30, 2027. Various factors determine the amount and timing of our share repurchases, including our capital requirements, organic growth and other strategic opportunities, economic and market conditions (including the trading price of our stock), and regulatory and legal considerations. 56 Liquidity Liquidity management is the process used by the Company to manage the continuing flow of funds necessary to meet its financial commitments on a timely basis and at a reasonable cost while also maintaining safe and sound operations. Liquidity, represented by cash and investment securities, is a product of the Company’s operating, investing and financing activities. The primary sources of funds are deposits, principal and interest payments on loans and investment securities, maturing loans and investment securities, access to wholesale funding sources and collateralized borrowings. In addition, the Company may elect to hold certain deposit balances off-balance sheet, with optionality to bring them back onto the balance sheet as funding needs evolve. While scheduled payments and maturities of loans and investment securities are relatively predictable sources of funds, deposit flows are greatly influenced by interest rates, general economic conditions and competition. Therefore, the Company may supplement deposit growth and enhances interest rate risk management through borrowings and wholesale funding, which are generally advances from the Federal Home Loan Bank (“FHLB”) and brokered deposits. The Company holds cash and investment securities that qualify as liquid assets to maintain adequate liquidity to ensure safe and sound operations and meet its financial commitments. At March 31, 2026, on a consolidated basis, the Company had $1.4 billion in cash and cash equivalents and investment securities available-for-sale and $55.2 million in loans held-for-sale that were generally available for its cash needs. Additionally, the Company uses a custodial deposit arrangement for certain deposit programs whereby the Company, acting as custodian of account holder funds, places a portion of such account holder funds that are not needed to support near term liquidity needs at one or more third-party banks insured by the FDIC through the IntraFi One-Way Sell network. The Company remains the issuer of, and maintains the records for, all accounts under the applicable account holder agreements and, importantly, retains transactional authority to move funds on-and-off balance sheet as liquidity needs merit. Such off-balance sheet deposits totaled $1.5 billion at March 31, 2026 and $1.1 billion at December 31, 2025 and primarily consist of fintech partnership deposits. The Company can also generate funds from wholesale funding sources and collateralized borrowings. At March 31, 2026, the Bank had the ability to borrow an additional $1.7 billion from the FHLB, the Federal Reserve and correspondent bank Fed Funds lines of credit. The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its common shareholders and interest and principal on outstanding debt. The Company’s primary sources of funds are cash maintained at the holding company level and dividends from the Bank, the payment of which is subject to regulatory limits. At March 31, 2026, the Company, on an unconsolidated basis, had $9.0 million in cash for debt servicing and operating expenses. The Company uses its sources of funds primarily to meet ongoing financial commitments, including withdrawals by depositors, credit commitments to borrowers, operating expenses and capital expenditures. At March 31, 2026, approved outstanding loan commitments, including unused lines of credit and standby letters of credit, amounted to $610.6 million. Certificates of deposits and brokered deposits scheduled to mature in one year or less at March 31, 2026 totaled $1.4 billion. Management is not aware of any other events or regulatory requirements that, if implemented, are likely to have a material effect on either the Company’s or the Bank’s liquidity. 57 Reconciliation of Non-GAAP Financial Measures This Management’s Discussion and Analysis contains financial information determined by methods other than in accordance with GAAP. Non-GAAP financial measures, specifically tangible common equity, tangible assets, tangible book value per common share, tangible common equity to tangible assets, average tangible common equity, return on average tangible common equity, total interest income - FTE, net interest income - FTE, net interest margin - FTE and pre-provision net revenue are used by the Company’s management to measure the strength of its capital and analyze profitability, including its ability to generate earnings on tangible capital invested by its shareholders. The Company also believes that it is a standard practice in the banking industry to present total interest income, net interest income and net interest margin on a fully-taxable equivalent basis, as those measures provide useful information for peer comparisons. Although the Company believes these non-GAAP financial measures provide a greater understanding of its business, they should not be considered a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP financial measures that may be presented by other companies. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the following table for each of the periods presented. (dollars in thousands, except share and per share data) Three Months Ended March 31, 2026 March 31, 2025 Total equity - GAAP $ 360,954 $ 387,747 Adjustments: Goodwill (4,687) (4,687) Tangible common equity $ 356,267 $ 383,060 Total assets - GAAP $ 5,711,688 $ 5,851,608 Adjustments: Goodwill (4,687) (4,687) Tangible assets $ 5,707,001 $ 5,846,921 Common shares outstanding 8,716,662 8,697,085 Book value per common share $ 41.41 $ 44.58 Effect of goodwill (0.54) (0.54) Tangible book value per common share $ 40.87 $ 44.04 Total shareholders’ equity to assets 6.32 % 6.63 % Effect of goodwill (0.08 %) (0.08 %) Tangible common equity to tangible assets 6.24 % 6.55 % Total average equity - GAAP $ 374,276 $ 392,035 Adjustments: Average goodwill (4,687) (4,687) Average tangible common equity $ 369,589 $ 387,348 Return on average shareholders’ equity 2.72 % 0.98 % Effect of goodwill 0.03 % 0.01 % Return on average tangible common equity 2.75 % 0.99 % 58 (dollars in thousands, except share and per share data) Three Months Ended March 31, 2026 March 31, 2025 Total interest income $ 75,810 $ 76,829 Adjustments: Fully-taxable equivalent adjustments 1 1,160 1,169 Total interest income - FTE $ 76,970 $ 77,998 Net interest income $ 31,598 $ 25,096 Adjustments: Fully-taxable equivalent adjustments 1 1,160 1,169 Net interest income - FTE $ 32,758 $ 26,265 Net interest margin 2.36 % 1.82 % Effect of fully-taxable equivalent adjustments 1 0.09 % 0.09 % Net interest margin - FTE 2.45 % 1.91 % Net income-GAAP $ 2,509 $ 943 Adjustments :1 Provision for credit losses 16,305 11,933 Income tax benefit (725) (909) Pre-provision net revenue $ 18,089 $ 11,967 1 Assuming a 21% tax rate Critical Accounting Policies and Estimates There have been no material changes in the Company’s critical accounting policies or estimates from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2025, except as described below. Recent Accounting Pronouncements Refer to Note 15 to the condensed consolidated financial statements. 59