First Internet Bancorp(INBK) - 2025 Q1 - Quarterly Report

Cover Page & General Information This section provides general information and filing details for the Company's Quarterly Report on Form 10-Q Form 10-Q Filing Details This section details the Quarterly Report on Form 10-Q for First Internet Bancorp, including its accelerated filer status and outstanding common stock as of May 2, 2025 - Filing Type: Quarterly Report on Form 10-Q for the period ended March 31, 2025[2] - Registrant: First Internet Bancorp (Commission File Number 001-35750)[3] - Filer Status: Accelerated Filer[5] Common Stock Issued & Outstanding | Metric | Value | |:---|:---| | Common Stock Issued & Outstanding (as of May 2, 2025) | 8,697,085 shares | Cautionary Note Regarding Forward-Looking Statements This section advises on the forward-looking nature of statements within the report and the inherent risks and uncertainties Forward-Looking Statements Disclosure This section advises readers that the report contains forward-looking statements based on current expectations regarding business strategies, results, and future performance - The report contains forward-looking statements about business strategies, results, and future performance[7] - Statements are subject to risks and uncertainties including economic conditions, interest rate changes, credit quality, regulatory changes, and competitive factors[7] - The Company disclaims any obligation to publicly release revisions to forward-looking statements[8] PART I. FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis of the Company's financial condition and results of operations ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements of First Internet Bancorp, including balance sheets, income statements, and cash flows - Unaudited condensed consolidated financial statements are presented in conformity with U.S. GAAP for interim financial information[24] - Management's estimates and judgments, particularly for the allowance for credit losses, could materially affect financial statements[25] - The consolidated statements include First Internet Bancorp, First Internet Bank of Indiana, and its three wholly-owned subsidiaries[26] Condensed Consolidated Balance Sheets The condensed consolidated balance sheets provide a snapshot of the Company's financial position as of March 31, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | |:---|:---|:---|:---|:---| | Total assets | $5,851,608 | $5,737,859 | $113,749 | 2.0% | | Total deposits | $4,945,625 | $4,933,206 | $12,419 | 0.3% | | Total liabilities | $5,463,861 | $5,353,796 | $110,065 | 2.1% | | Total shareholders' equity | $387,747 | $384,063 | $3,684 | 1.0% | | Net loans | $4,207,174 | $4,125,877 | $81,297 | 2.0% | | Securities available-for-sale | $681,785 | $587,355 | $94,430 | 16.1% | | Securities held-to-maturity | $276,542 | $249,796 | $26,746 | 10.7% | Condensed Consolidated Statements of Income The condensed consolidated statements of income show a significant decrease in net income for the three months ended March 31, 2025, compared to the same period in 2024 Condensed Consolidated Statements of Income | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | |:---|:---|:---|:---|:---| | Total interest income | $76,829 | $68,165 | $8,664 | 12.7% | | Total interest expense | $51,733 | $47,431 | $4,302 | 9.1% | | Net Interest Income | $25,096 | $20,734 | $4,362 | 21.1% | | Provision for credit losses - loans | $12,121 | $2,582 | $9,539 | 369.4% | | Total noninterest income | $10,427 | $8,347 | $2,080 | 24.9% | | Total noninterest expense | $23,556 | $21,023 | $2,533 | 12.0% | | Net Income | $943 | $5,181 | $(4,238) | -81.8% | | Basic EPS | $0.11 | $0.60 | $(0.49) | -81.7% | | Diluted EPS | $0.11 | $0.59 | $(0.48) | -81.4% | | Dividends Declared Per Share | $0.06 | $0.06 | $0.00 | 0.0% | Condensed Consolidated Statements of Comprehensive Income Comprehensive income for the three months ended March 31, 2025, was $4.4 million, slightly down from $4.5 million in the prior year Condensed Consolidated Statements of Comprehensive Income | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | |:---|:---|:---| | Net income | $943 | $5,181 | | Net effect on other comprehensive income (loss) - Securities available-for-sale | $3,407 | $(1,599) | | Net effect on other comprehensive income - Securities held-to-maturity | $89 | $177 | | Net effect on other comprehensive income - Cash flow hedges | $0 | $695 | | Total other comprehensive income (loss) | $3,496 | $(727) | | Comprehensive income | $4,439 | $4,454 | Condensed Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased to $387.7 million as of March 31, 2025, from $384.1 million at the beginning of the year Condensed Consolidated Statements of Changes in Shareholders' Equity | Metric | Balance, January 1, 2025 (in thousands) | Balance, March 31, 2025 (in thousands) | |:---|:---|:---| | Voting and Nonvoting Common Stock | $186,094 | $185,873 | | Retained Earnings | $230,622 | $231,031 | | Accumulated Other Comprehensive Loss | $(32,653) | $(29,157) | | Total Shareholders' Equity | $384,063 | $387,747 | - Net income contributed $943 thousand to retained earnings[20] - Other comprehensive income added $3,496 thousand to shareholders' equity[20] - Dividends declared ($0.06 per share) reduced retained earnings by $534 thousand[20] Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $32.8 million for Q1 2025, while investing activities used more cash and financing activities decreased Condensed Consolidated Statements of Cash Flows | Activity | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | |:---|:---|:---|:---|\ | Net cash provided by operating activities | $32,825 | $2,791 | $30,034 | | Net cash used in investing activities | $(216,446) | $(93,267) | $(123,179) | | Net cash provided by financing activities | $111,665 | $165,842 | $(54,177) | | Net (Decrease) Increase in Cash and Cash Equivalents | $(71,956) | $75,366 | $(147,322) | | Cash and Cash Equivalents, End of Period | $394,454 | $481,264 | $(86,810) | - Cash paid for interest increased to $52.6 million in Q1 2025 from $47.9 million in Q1 2024[23] Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures and explanations for the condensed consolidated financial statements, covering accounting policies, estimates, and specific financial instrument details Note 1: Basis of Presentation The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and SEC rules - Financial statements conform to U.S. GAAP for interim reporting and SEC regulations[24] - Preparation involves significant estimates and judgments, especially for the allowance for credit losses[25] - Consolidated entities include First Internet Bancorp, First Internet Bank of Indiana, and its three wholly-owned subsidiaries[26] Note 2: Earnings Per Share Earnings per share calculations are based on weighted-average basic and diluted shares outstanding, showing a significant decrease in Q1 2025 Earnings Per Share | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | |:---|:---|:---| | Net income | $943 | $5,181 | | Weighted-average common shares (Basic) | 8,715,655 | 8,679,429 | | Basic earnings per common share | $0.11 | $0.60 | | Weighted-average common and incremental shares (Diluted) | 8,784,970 | 8,750,297 | | Diluted earnings per common share | $0.11 | $0.59 | - 3,916 weighted-average antidilutive shares were excluded from diluted EPS computation for Q1 2025[30] Note 3: Securities The Company's securities portfolio includes available-for-sale (AFS) and held-to-maturity (HTM) securities, with unrealized losses primarily due to interest rate changes Securities Portfolio Fair Value | Security Type | March 31, 2025 (Fair Value, in thousands) | December 31, 2024 (Fair Value, in thousands) | |:---|:---|:---| | Total available-for-sale | $681,785 | $587,355 | | Total held-to-maturity | $259,116 | $228,851 | - Approximately 94% of mortgage-backed securities (AFS and HTM) are issued by U.S. government-sponsored entities, with no recorded ACL due to low credit loss history[34] - Unrealized losses on AFS securities are primarily due to interest rate changes, not credit quality, and the Company does not intend to sell them before recovery of amortized cost[35][41][42] Securities in Unrealized Loss Position | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | |:---|:---|:---| | Total AFS & HTM securities in unrealized loss position (Fair Value) | $677,000 | $603,900 | | Number of AFS & HTM positions in unrealized loss | 487 | 482 | Note 4: Loans Total loans increased to $4.25 billion as of March 31, 2025, with commercial loans constituting 80.7% of the portfolio Loan Portfolio Composition | Loan Category | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | % of Total Loans (Mar 31, 2025) | |:---|:---|:---|:---| | Commercial loans | $3,432,059 | $3,342,585 | 80.7% | | Consumer loans | $797,696 | $801,381 | 18.7% | | Total loans | $4,254,412 | $4,170,646 | 100.0% | - ACL methodology uses a one-year reasonable and supportable forecast, reverting to historical averages, and includes qualitative adjustments for changing conditions[59][60][61] - Loans are charged off when no longer considered bankable, typically at 120-180 days past due depending on loan type[68] Loan Quality Metrics | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | |:---|:---|:---| | Allowance for credit losses - loans | $47,238 | $44,769 | | Total nonperforming loans | $34,243 | $28,421 | | Total nonperforming assets | $35,921 | $28,905 | | ACL to total loans | 1.11% | 1.07% | | ACL to nonaccrual loans | 142.2% | 172.5% | | Net charge-offs (Q1 2025) | $9,652 | $9,407 (Q4 2024) | | Net charge-offs to average loans (annualized, Q1 2025) | 0.92% | 0.91% (Q4 2024) | - The Company had two loan modifications for borrowers experiencing financial difficulty in Q1 2025, totaling $2.7 million[88][89] - Other Real Estate Owned (OREO) increased to $1.5 million (two SBA properties) at March 31, 2025, from $0.3 million (one residential mortgage property) at December 31, 2024[91] Note 5: Premises and Equipment Net premises and equipment decreased slightly to $70.5 million at March 31, 2025, from $71.5 million at December 31, 2024 Premises and Equipment, Net | Category | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | |:---|:---|:---| | Total Premises and equipment, net | $70,461 | $71,453 | Note 6: Goodwill The carrying amount of goodwill remained stable at $4.7 million as of March 31, 2025, with no impairment identified Goodwill | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | |:---|:---|:---| | Goodwill | $4,687 | $4,687 | - No changes in goodwill carrying amount for Q1 2025 or Q1 2024[94] - Qualitative assessment as of August 31, 2024, found no goodwill impairment[95] Note 7: Servicing Asset The servicing asset increased to $17.4 million at March 31, 2025, with increased loan servicing revenue offset by revaluation adjustments Servicing Asset Activity | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | |:---|:---|:---|\ | Balance, beginning of period | $16,389 | $10,567 | | Originated additions | $2,237 | $1,627 | | Paydowns subtractions | $(964) | $(612) | | Loan servicing asset revaluation | $(1,181) | $(434) | | Balance, end of period | $17,445 | $11,760 | Unpaid Principal Balance of SBA Guaranteed Loans Serviced | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | |:---|:---|:---| | Unpaid principal balance of SBA guaranteed loans serviced for others | $939,362 | $862,089 | - Loan servicing revenue was $2.0 million in Q1 2025, up from $1.3 million in Q1 2024[99] Note 8: Subordinated Debt The Company has $107.0 million in principal amount of subordinated debt outstanding, consisting of 2029, 2030, and 2031 Notes Subordinated Debt Outstanding | Subordinated Debt | Principal (March 31, 2025, in thousands) | Unamortized Discount and Debt Issuance Costs (March 31, 2025, in thousands) | |:---|:---|:---| | 2029 Notes | $37,000 | $(664) | | 2030 Note | $10,000 | $(131) | | 2031 Notes | $60,000 | $(977) | | Total | $107,000 | $(1,772) | - All subordinated debt is unsecured and intended to qualify as Tier 2 capital[101][102][103] Note 9: Benefit Plans The Company has employment agreements with key executives and equity incentive plans for stock-based awards, with share-based compensation expense significantly lower in Q1 2025 - Employment agreements for CEO, President/COO, and EVP/CFO include base salaries, annual bonuses, and termination benefits[106][107] - The 2022 Equity Incentive Plan authorized 400,000 new shares for awards to employees, consultants, advisors, and non-employee directors[108] Share-Based Compensation Expense | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | |:---|:---|:---| | Share-based compensation expense (2022 Plan) | < $0.1 million | $0.1 million | | Share-based compensation expense (2013 Plan) | < $0.1 million | $0.4 million | - Total unrecognized compensation cost for unvested 2022 Plan awards was $3.3 million with a 2.2-year recognition period as of March 31, 2025[111] - The Directors Deferred Stock Plan granted 48 additional deferred stock rights in Q1 2025 in lieu of cash dividends[118] Note 10: Commitments and Credit Risk The Company had outstanding loan commitments totaling $626.2 million as of March 31, 2025, a decrease from December 31, 2024 Outstanding Loan Commitments | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | |:---|:---|:---| | Outstanding loan commitments | $626,200 | $667,700 | Note 11: Fair Value of Financial Instruments This note details the Company's fair value measurements, categorizing assets and liabilities into a three-level hierarchy based on input observability - Fair value hierarchy categorizes inputs into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 prices), and Level 3 (unobservable inputs)[124] - Available-for-sale securities are primarily Level 2, valued using matrix pricing[123] - Servicing asset fair value is based on discounted cash flows using market-based prepayment speeds and discount rates (Level 3)[126][138] - Collateral dependent loans are measured for impairment based on the fair value of underlying collateral (Level 3)[133][135][138] Fair Value Measurements | Asset/Liability | March 31, 2025 Fair Value (in thousands) | Level | |:---|:---|:---|\ | Total available-for-sale securities | $681,785 | Level 2 | | Servicing asset | $17,445 | Level 3 | | Interest rate swap agreements - assets (back-to-back) | $308 | Level 2 | | Interest rate swap agreements - liabilities (back-to-back) | $(308) | Level 2 | Collateral Dependent Loans | Asset | March 31, 2025 Fair Value (in thousands) | Level | |:---|:---|:---|\ | Collateral dependent loans | $1,844 | Level 3 | Note 12: Derivative Financial Instruments The Company uses interest rate swaps to manage interest rate risk, primarily through back-to-back swaps not designated as hedging instruments - Company uses derivative financial instruments to manage interest rate risk[156] - Back-to-back swap agreements are used to offset each other, providing fixed interest payments for customers on variable rate loans[157] - All fair value and cash flow hedges matured or were terminated in 2024, with no such hedges remaining as of March 31, 2025[158][159][251] Derivative Financial Instruments | Derivative Type | Notional Amount (March 31, 2025, in thousands) | Fair Value (March 31, 2025, in thousands) | |:---|:---|:---|\ | Back-to-back swaps (Asset Derivatives) | $34,106 | $308 | | Back-to-back swaps (Liability Derivatives) | $34,106 | $(308) | Note 13: Accumulated Other Comprehensive Loss Accumulated other comprehensive loss decreased to $(29.2) million at March 31, 2025, primarily due to unrealized gains on debt securities Accumulated Other Comprehensive Loss | Component | Balance, January 1, 2025 (in thousands) | Balance, March 31, 2025 (in thousands) | |:---|:---|:---|\ | Unrealized Losses On Debt Securities | $(30,413) | $(27,006) | | Unrealized Losses On Debt Securities Transferred From Available-For-Sale To Held-To Maturity | $(2,240) | $(2,151) | | Cash Flow Hedges | $0 | $0 | | Total | $(32,653) | $(29,157) | - Other comprehensive income before reclassifications was $4.4 million for Q1 2025[170] Note 14: Segment Information The Company operates as a single reportable segment, with the Chief Operating Decision Maker (CODM) evaluating performance on a consolidated basis - The Company operates as a single reportable segment[172] - The Finance Committee, comprising top management, acts as the CODM, evaluating consolidated performance and allocating resources[174] Note 15: Recent Accounting Pronouncements The Company is evaluating the impact of two new ASUs: ASU 2023-09 (Income Taxes) and ASU 2024-03 (Income Statement-Reporting Comprehensive Income - Expense Disaggregations Disclosures) - ASU 2023-09 (Income Taxes) enhances income tax disclosures, effective for annual periods after December 15, 2024[175] - ASU 2024-03 (Income Statement-Reporting Comprehensive Income) requires additional expense disaggregation disclosures, effective for annual periods after December 15, 2026[176] - The Company is currently evaluating the impact of both ASUs[175][176] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the Company's financial condition and results of operations, highlighting key trends, significant changes, and future outlook Overview First Internet Bancorp operates primarily through its wholly-owned subsidiary, First Internet Bank of Indiana, offering a wide range of banking products digitally and through strategic partnerships - First Internet Bancorp operates through First Internet Bank of Indiana, the first state-chartered, FDIC-insured Internet bank, established in 1999[178] - The Bank offers commercial, small business, consumer, and municipal banking products primarily through digital channels nationwide, without traditional branch offices[180] - The Company is a top SBA 7(a) lender, closing $113.8 million in Q1 2025 and ranking 8th largest for the SBA's fiscal year-to-date 2025[182] - Strategic partnerships with fintech companies are utilized to diversify revenue, acquire deposits, and generate assets[183] Consolidated Financial Snapshot | Metric | March 31, 2025 (in thousands) | |:---|:---|\ | Consolidated assets | $5,900,000 | | Consolidated deposits | $4,900,000 | | Stockholders' equity | $387,700 | Results of Operations Net income for Q1 2025 significantly decreased by 81.8% to $0.9 million ($0.11 diluted EPS) compared to Q1 2024 Net Income and EPS | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change (in thousands) | % Change | |:---|:---|:---|:---|:---|\ | Net income | $943 | $5,181 | $(4,238) | -81.8% | | Diluted EPS | $0.11 | $0.59 | $(0.48) | -81.4% | - Decrease in net income primarily driven by a $9.5 million (387.5%) increase in provision for credit losses and a $2.5 million (12.0%) increase in noninterest expense[186] - Partially offset by a $4.4 million (21.0%) increase in net interest income and a $2.1 million (24.9%) increase in noninterest income, plus a $1.3 million income tax benefit[186] Profitability Ratios | Metric | Q1 2025 | Q1 2024 | |:---|:---|:---|\ | Return on average assets (ROAA) | 0.07% | 0.40% | | Return on average shareholders' equity (ROAE) | 0.98% | 5.64% | | Return on average tangible common equity (ROATCE) | 0.99% | 5.71% | Pre-tax, Pre-provision Income | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change (in thousands) | % Change | |:---|:---|:---|:---|:---|\ | Pre-tax, pre-provision income (PTPP) | $12,000 | $8,100 | $3,900 | 48.5% | Consolidated Average Balance Sheets and Net Interest Income Analyses Net interest income for Q1 2025 increased by 21.0% to $25.1 million, driven by higher interest income and an improved net interest margin Net Interest Income Analysis | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change (in thousands) | % Change | |:---|:---|:---|:---|:---|\ | Net Interest Income | $25,096 | $20,734 | $4,362 | 21.0% | | Total Interest Income | $76,829 | $68,165 | $8,664 | 12.7% | | Total Interest Expense | $51,733 | $47,431 | $4,302 | 9.1% | - Increase in interest income due to 26 bps increase in loan yield and 9.0% ($350.3 million) increase in average loan balance, plus 28.2% ($198.4 million) increase in average securities balance and 29 bps increase in securities yield[194] - New origination yields (7.78% in Q1 2025) remained above overall loan portfolio yield, despite 100 bps Fed rate cuts in H2 2024[194] - Increase in interest expense primarily from interest-bearing demand deposits (up $4.9 million, 233.5%) and certificates/brokered deposits (up $2.9 million, 10.8%), partially offset by decreases in money market accounts and other borrowed funds[195] - Overall cost of total interest-bearing liabilities decreased 4 bps to 4.02% in Q1 2025[196] Net Interest Margin | Metric | Q1 2025 | Q1 2024 | Change (bps) | |:---|:---|:---|:---|\ | Net Interest Margin (NIM) | 1.82% | 1.66% | 16 | | Net Interest Margin - FTE | 1.91% | 1.75% | 16 | Noninterest Income Noninterest income increased by 24.9% to $10.4 million in Q1 2025, primarily driven by a significant increase in gain on sale of loans Noninterest Income Breakdown | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change (in thousands) | % Change | |:---|:---|:---|:---|:---|\ | Total noninterest income | $10,427 | $8,347 | $2,080 | 24.9% | | Gain on sale of loans | $8,647 | $6,536 | $2,111 | 32.3% | | Loan servicing revenue | $1,983 | $1,323 | $660 | 49.9% | | Loan servicing asset revaluation | $(1,181) | $(434) | $(747) | 172.1% | - Increase in gain on sale of loans due to 36.2% increase in SBA 7(a) guaranteed loan sales volume, partially offset by 36 bps decrease in net premium[199] Noninterest Expense Noninterest expense increased by 12.0% to $23.6 million in Q1 2025, mainly due to higher salaries, professional services, and premises costs Noninterest Expense Breakdown | Metric | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change (in thousands) | % Change | |:---|:---|:---|:---|:---|\ | Total noninterest expense | $23,556 | $21,023 | $2,533 | 12.0% | | Salaries and employee benefits | $13,107 | $11,796 | $1,311 | 11.1% | | Consulting and professional services | $1,228 | $853 | $375 | 44.0% | | Premises and equipment | $3,115 | $2,826 | $289 | 10.2% | | Deposit insurance premium | $1,398 | $1,145 | $253 | 22.1% | - Increase in salaries and employee benefits due to higher small business lending incentive compensation and staff additions[201] - Increase in consulting and professional fees due to increased legal and audit fees[201] Financial Condition Total assets increased by 2.0% to $5.9 billion at March 31, 2025, driven by deposit growth, which funded loan growth and securities purchases Financial Condition Summary | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | |:---|:---|:---|:---|:---|\ | Total assets | $5,851,608 | $5,737,859 | $113,749 | 2.0% | | Total shareholders' equity | $387,747 | $384,063 | $3,684 | 1.0% | | Tangible common equity | $383,060 | $379,376 | $3,684 | 1.0% | - Asset increase primarily due to deposit growth from fintech partnerships, used to fund loan growth, securities purchases, and pay down higher-cost CDs/brokered deposits[204] Equity Ratios and Book Value | Metric | March 31, 2025 | December 31, 2024 | Change | |:---|:---|:---|:---|\ | Total shareholders' equity to total assets | 6.63% | 6.69% | -0.06% | | Tangible common equity to tangible assets | 6.55% | 6.62% | -0.07% | | Book value per common share | $44.58 | $44.31 | $0.27 | | Tangible book value per share | $44.04 | $43.77 | $0.27 | Loan Portfolio Analysis Total loans grew by 2.0% to $4.3 billion at March 31, 2025, with commercial loans increasing and consumer loans decreasing Loan Portfolio Growth | Loan Category | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | |:---|:---|:---|:---|:---|\ | Total loans | $4,254,412 | $4,170,646 | $83,766 | 2.0% | | Total commercial loans | $3,432,059 | $3,342,585 | $89,474 | 2.7% | | Total consumer loans | $797,696 | $801,381 | $(3,685) | -0.5% | - Commercial loan growth driven by construction, investor commercial real estate, small business lending, and commercial and industrial portfolios[208] - Offset by decreases in franchise finance, healthcare finance, owner-occupied commercial real estate, and public finance portfolios[208] - Consumer loan decrease primarily due to residential mortgage portfolio runoff, partially offset by other consumer loan originations[208] Asset Quality Total nonperforming loans increased by 20.5% to $34.2 million at March 31, 2025, and total nonperforming assets increased by 24.3% to $35.9 million Nonperforming Assets | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | |:---|:---|:---|:---|:---|\ | Total nonperforming loans | $34,243 | $28,421 | $5,822 | 20.5% | | Total nonperforming assets | $35,921 | $28,905 | $7,016 | 24.3% | | Nonaccrual loans | $33,208 | $25,955 | $7,253 | 27.9% | | Past Due 90 days and accruing loans | $1,035 | $2,466 | $(1,431) | -58.0% | | Other real estate owned | $1,518 | $272 | $1,246 | 458.1% | - Increase in nonperforming loans primarily in franchise finance and small business lending[211] - OREO increased to $1.5 million (two SBA properties) from $0.3 million (one residential mortgage property)[211] Nonperforming Ratios | Ratio | March 31, 2025 | December 31, 2024 | |:---|:---|:---|\ | Total nonperforming loans to total loans | 0.80% | 0.68% | | Total nonperforming assets to total assets | 0.61% | 0.50% | Allowance for Credit Losses - Loans The Allowance for Credit Losses (ACL) increased to $47.2 million at March 31, 2025, reflecting specific reserves for problem loans and overall portfolio growth Allowance for Credit Losses Activity | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | |:---|:---|:---|:---|:---|\ | Balance, beginning of period | $44,769 | $45,721 | $(952) | -2.1% | | Provision charged to expense | $12,121 | $8,455 | $3,666 | 43.4% | | Total losses charged off | $9,841 | $9,481 | $360 | 3.8% | | Total recoveries | $189 | $74 | $115 | 155.4% | | Balance, end of period | $47,238 | $44,769 | $2,469 | 5.5% | | Net charge-offs | $9,652 | $9,407 | $245 | 2.6% | - ACL increase reflects specific reserves for franchise finance ($2.5 million) and small business lending ($0.8 million) loans placed on nonaccrual, and overall loan portfolio growth[213] ACL Ratios | Ratio | March 31, 2025 | December 31, 2024 | |:---|:---|:---|\ | ACL as a percentage of total loans | 1.11% | 1.07% | | ACL as a percentage of nonperforming loans | 138.0% | 157.5% | - Net charge-offs of $9.7 million in Q1 2025 (0.92% of average loans) were elevated due to actions to resolve problem loans in small business lending and franchise finance[214] - Provision for credit losses - loans increased to $12.1 million in Q1 2025 from $2.6 million in Q1 2024, driven by elevated net charge-offs, additional specific reserves, and loan portfolio growth[215][216] Investment Securities Portfolio The fair value of available-for-sale (AFS) investment securities increased by 16.1% to $681.8 million at March 31, 2025, primarily due to new purchases Investment Securities Portfolio | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | |:---|:---|:---|:---|:---|\ | Total available-for-sale (Fair Value) | $681,785 | $587,355 | $94,430 | 16.1% | | Total held-to-maturity (Net Carrying Value) | $276,542 | $249,796 | $26,746 | 10.7% | - Increase in AFS securities primarily from purchases of variable-rate agency mortgage-backed securities - residential[219] - Increase in HTM securities primarily from purchases of CRA-eligible agency mortgage-backed securities - residential[219] Accrued Income and Other Assets Accrued income and other assets increased by 6.0% to $66.8 million at March 31, 2025, mainly due to increases in equity fund investments and prepaid assets Accrued Income and Other Assets | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | |:---|:---|:---|:---|:---|\ | Accrued income and other assets | $66,757 | $63,001 | $3,756 | 6.0% | - Increase primarily due to $4.1 million in equity fund investments, $0.8 million in prepaid assets, and $0.1 million in deferred tax assets and derivative assets[220] Accrued Expenses and Other Liabilities Accrued expenses and other liabilities decreased by 8.8% to $16.4 million at March 31, 2025, primarily due to a decrease in accrued salary and benefits Accrued Expenses and Other Liabilities | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | |:---|:---|:---|:---|:---|\ | Accrued expenses and other liabilities | $16,363 | $17,945 | $(1,582) | -8.8% | - Decrease primarily due to $3.1 million decrease in accrued salary and benefits[221] Deposits Total deposits increased by 0.3% to $4.9 billion at March 31, 2025, driven by growth in interest-bearing demand, money market, and noninterest-bearing deposits Deposit Composition | Deposit Type | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | |:---|:---|:---|:---|:---|\ | Total deposits | $4,945,625 | $4,933,206 | $12,419 | 0.3% | | Noninterest-bearing deposits | $151,815 | $136,451 | $15,364 | 11.3% | | Interest-bearing demand deposits | $1,103,540 | $896,661 | $206,879 | 23.1% | | Money market accounts | $1,292,235 | $1,183,789 | $108,446 | 9.2% | | Brokered deposits | $346,602 | $563,027 | $(216,425) | -38.4% | | Certificates of deposits | $2,029,801 | $2,133,455 | $(103,654) | -4.9% | - Growth in interest-bearing demand deposits primarily from fintech partnership deposits[223] - Uninsured deposit balances represented 27% of total deposits at March 31, 2025 (adjusted to 22% after excluding Indiana municipal deposits and large accounts with withdrawal restrictions)[224] Regulatory Capital Requirements The Company and the Bank maintain capital ratios above the minimum Basel III requirements and well-capitalized thresholds as of March 31, 2025 - Company and Bank are subject to Basel III Capital Rules, fully phased in on January 1, 2019[226][227] - Minimum ratios include 7.0% Common Equity Tier 1, 8.5% Tier 1, 10.5% Total capital (including 2.5% capital conservation buffer), and 4.0% Leverage Ratio[227] Consolidated Capital Ratios | Capital Ratio (Consolidated) | Actual (March 31, 2025) | Minimum Required - Basel III | |:---|:---|:---|\ | Common equity tier 1 capital to risk-weighted assets | 9.15% | 7.00% | | Tier 1 capital to risk-weighted assets | 9.15% | 8.50% | | Total capital to risk-weighted assets | 12.52% | 10.50% | | Leverage ratio | 6.87% | 4.00% | - The Company elected to delay the impact of ASC 326 adoption on regulatory capital, phasing in adjustments over three years[230] Shareholders' Dividends The Board of Directors declared a cash dividend of $0.06 per share for Q1 2025, with future dividends subject to discretion and restrictions Cash Dividend Declared | Metric | Q1 2025 | |:---|:---|\ | Cash dividend declared per share | $0.06 | - Future dividends are subject to Board discretion, financial condition, capital requirements, and regulatory/contractual restrictions[233] - Agreements governing $107.0 million subordinated debt prohibit dividend payments if an event of default occurs and is continuing[234] Capital Resources The Company believes it has sufficient liquidity and capital for the next twelve months and beyond, with a stock repurchase program having expired in 2024 - Company believes it has sufficient liquidity and capital resources for the next twelve months and longer[235] - A stock repurchase program, authorizing up to $25.0 million, expired on December 31, 2024[236] Stock Repurchase Program Summary | Metric | Value | |:---|:---|\ | Shares repurchased under program | 559,522 shares | | Average repurchase price | $19.06 | | Total investment in repurchases | $10.7 million | Liquidity The Company manages liquidity through deposits, loan/security payments, and wholesale funding, with $2.1 billion in total available funds as of March 31, 2025 - Primary sources of funds include deposits, loan/investment payments, maturing assets, and wholesale funding (FHLB advances, brokered deposits)[238] Liquid Assets | Metric | March 31, 2025 (in thousands) | |:---|:---|\ | Cash and cash equivalents | $394,454 | | Investment securities available-for-sale | $681,785 | | Loans held-for-sale | $31,738 | | Total liquid assets | ~$1,107,977 | - Additional borrowing capacity of $1.7 billion from FHLB, Federal Reserve, and correspondent bank lines[239] - Total available funds (cash + borrowing capacity) of $2.1 billion, representing 194% of adjusted uninsured deposit balances[239] - Outstanding loan commitments and unused lines of credit totaled $626.2 million[241] - Certificates of deposits and brokered deposits maturing in one year or less totaled $1.4 billion[241] Reconciliation of Non-GAAP Financial Measures This section provides reconciliations of non-GAAP financial measures, such as tangible common equity and FTE net interest income/margin, to their most directly comparable GAAP measures - Non-GAAP measures like tangible common equity, tangible assets, and FTE net interest income/margin are used to assess capital strength and profitability[244] - These measures are not GAAP substitutes but provide greater understanding and facilitate peer comparisons[244] Non-GAAP Financial Measures Reconciliation | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | |:---|:---|:---|\ | Tangible common equity | $383,060 | $379,376 | | Tangible assets | $5,846,921 | $5,733,172 | | Tangible book value per common share | $44.04 | $43.77 | | Tangible common equity to tangible assets | 6.55% | 6.62% | | Net interest income - FTE | $26,265 | $24,703 | | Net interest margin - FTE | 1.91% | 1.75% | Critical Accounting Policies and Estimates There have been no material changes to 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, 2024 - No material changes to critical accounting policies or estimates since the 2024 Annual Report on Form 10-K[249] Recent Accounting Pronouncements Refers to Note 15 of the condensed consolidated financial statements for details on recent accounting pronouncements - Refer to Note 15 for details on recent accounting pronouncements[250] Off-Balance Sheet Arrangements The Company engages in off-balance sheet arrangements, primarily loan commitments and interest rate swap agreements, with no fair value or cash flow hedges as of March 31, 2025 - Off-balance sheet arrangements include commitments to extend credit and interest rate swap agreements[251] - No interest rate swaps were classified as fair value or cash flow hedges at March 31, 2025, as all matured or were terminated in 2024[251] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section details the Company's management of market risk, primarily interest rate risk, through income simulation and Economic Value of Equity (EVE) sensitivity analysis Market Risk Management The Company's primary market risk is interest rate risk, managed through income simulation models and Economic Value of Equity (EVE) sensitivity analysis - Primary market risk is interest rate risk, affecting earnings and equity value[253] - Interest rate risk is monitored using income simulation models (forecasting NII) and EVE sensitivity analysis (impact on long-term cash flows, income, and capital)[254] NII and EVE Sensitivity (Instantaneous Shift) | Metric | Implied Forward Curve -200 Basis Points | Implied Forward Curve -100 Basis Points | Base Implied Forward Curve | Implied Forward Curve +50 Basis Points | Implied Forward Curve +100 Basis Points | |:---|:---|:---|:---|:---|:---|\ | NII - Year 1 (Instantaneous Shift) | 13.76% | 7.60% | N/A | (4.76%) | (9.00%) | | EVE (Instantaneous Shift) | 20.39% | 12.49% | N/A | (7.52%) | (15.00%) | NII and EVE Sensitivity (Gradual Shift) | Metric | Implied Forward Curve -200 Basis Points | Implied Forward Curve -100 Basis Points | Base Implied Forward Curve | Implied Forward Curve +50 Basis Points | Implied Forward Curve +100 Basis Points | |:---|:---|:---|:---|:---|:---|\ | NII - Year 1 (Gradual Shift) | 3.18% | 0.73% | N/A | (3.37%) | (5.00%) | | EVE (Gradual Shift) | 18.99% | 11.67% | N/A | (6.85%) | (14.00%) | - Balance sheet strategies to manage NII and EVE volatility include increasing variable-rate loans, selling fixed-rate loans, increasing low-cost deposits, extending wholesale funding duration, and using derivative strategies[260] ITEM 4. CONTROLS AND PROCEDURES This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures The Company's management concluded that its disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2025 - Disclosure controls and procedures are designed to provide reasonable assurance of timely and accurate reporting under the Exchange Act[256] - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2025[257] - No material changes in internal control over financial reporting during Q1 2025[258] PART II. OTHER INFORMATION This part covers various other information, including legal proceedings, risk factors, sales of equity securities, defaults, mine safety, and exhibits ITEM 1. LEGAL PROCEEDINGS Neither the Company nor its subsidiaries are party to any material legal proceedings, though the Bank is involved in legal actions arising from normal business activities - No material legal proceedings for the Company or its subsidiaries[261] - The Bank is a party to legal actions arising from normal business activities[261] ITEM 1A. RISK FACTORS There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to risk factors since the 2024 Annual Report on Form 10-K[262] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section states that there were no unregistered sales of equity securities or use of proceeds to report - None[263] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section states that there were no defaults upon senior securities to report - None[264] ITEM 4. MINE SAFETY DISCLOSURES This section states that mine safety disclosures are not applicable to the Company - Not Applicable[265] ITEM 5. OTHER INFORMATION This section states that there is no other information to report - None[266] ITEM 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including articles of incorporation, bylaws, certifications, and Inline XBRL documents - Exhibits include Amended and Restated Articles of Incorporation and Bylaws[267] - Certifications from the Chief Executive Officer and Chief Financial Officer (Rule 13a-14(a)/15d-14(a) and Section 1350) are filed electronically[267] - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbases) are filed electronically[267] SIGNATURES The report is duly signed on May 7, 2025, by David B. Becker, Chairman and Chief Executive Officer, and Kenneth J. Lovik, Executive Vice President and Chief Financial Officer - Report signed by David B. Becker, Chairman and CEO, and Kenneth J. Lovik, EVP and CFO[271] - Signing date: May 7, 2025[271]