First Internet Bancorp(INBK) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides First Internet Bancorp's unaudited condensed consolidated financial statements and detailed notes for the period ended June 30, 2025 ITEM 1. FINANCIAL STATEMENTS This section details the unaudited condensed consolidated financial statements and accompanying notes for First Internet Bancorp as of June 30, 2025 Condensed Consolidated Balance Sheets The balance sheets show total assets increased to $6.07 billion, driven by deposit growth, with a slight rise in shareholders' equity | Metric | June 30, 2025 (Unaudited) ($) | December 31, 2024 ($) | | :----------------------------------- | :-------------------------- | :------------------ | | Total Assets | $6,072,573 | $5,737,859 | | Total Deposits | $5,298,789 | $4,933,206 | | Total Liabilities | $5,682,334 | $5,353,796 | | Total Shareholders' Equity | $390,239 | $384,063 | - Total assets increased by $334.7 million (5.8%) to $6.07 billion as of June 30, 2025, compared to December 31, 2024, primarily due to an increase in deposits[12][227] - Total deposits increased by $365.6 million (7.4%) to $5.30 billion as of June 30, 2025, driven by growth in interest-bearing demand deposits and money market accounts, partially offset by a decrease in brokered deposits[12][250] Condensed Consolidated Statements of Income – Unaudited Net income significantly decreased for Q2 and H1 2025, primarily due to increased provision for credit losses | Metric | Three Months Ended June 30, 2025 (in thousands $) | Three Months Ended June 30, 2024 (in thousands $) | Six Months Ended June 30, 2025 (in thousands $) | Six Months Ended June 30, 2024 (in thousands $) | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Interest Income | $80,886 | $70,961 | $157,715 | $139,126 | | Total Interest Expense| $52,896 | $49,634 | $104,629 | $97,065 | | Net Interest Income | $27,990 | $21,327 | $53,086 | $42,061 | | Provision for Credit Losses - Loans | $13,596 | $3,920 | $25,717 | $6,502 | | Total Noninterest Income | $5,557 | $11,033 | $15,984 | $19,380 | | Total Noninterest Expense | $21,800 | $22,336 | $45,357 | $43,359 | | Net Income | $193 | $5,775 | $1,136 | $10,956 | | Basic EPS | $0.02 | $0.67 | $0.13 | $1.26 | | Diluted EPS | $0.02 | $0.67 | $0.13 | $1.25 | - Net income for Q2 2025 decreased by 96.7% to $0.2 million ($0.02 diluted EPS) from $5.8 million ($0.67 diluted EPS) in Q2 2024, primarily due to a significant increase in provision for credit losses and a decrease in noninterest income[14][195][196] - For the six months ended June 30, 2025, net income decreased by 89.6% to $1.1 million ($0.13 diluted EPS) from $11.0 million ($1.25 diluted EPS) in the prior year, driven by increased provision for credit losses and noninterest expense, and decreased noninterest income[14][195][197] Condensed Consolidated Statements of Comprehensive Income – Unaudited Total other comprehensive income improved significantly, driven by unrealized gains on available-for-sale securities | Metric | Three Months Ended June 30, 2025 (in thousands $) | Three Months Ended June 30, 2024 (in thousands $) | Six Months Ended June 30, 2025 (in thousands $) | Six Months Ended June 30, 2024 (in thousands $) | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $193 | $5,775 | $1,136 | $10,956 | | Total other comprehensive income (loss) | $2,590 | $(485) | $6,086 | $(1,212) | | Comprehensive income | $2,783 | $5,290 | $7,222 | $9,744 | - Total other comprehensive income significantly improved, moving from a loss of $485 thousand in Q2 2024 to a gain of $2,590 thousand in Q2 2025, primarily due to net unrealized holding gains on available-for-sale securities[17] Condensed Consolidated Statements of Changes in Shareholders' Equity - Unaudited Shareholders' equity increased, primarily due to net income and other comprehensive income contributions | Metric | June 30, 2025 (in thousands $) | December 31, 2024 (in thousands $) | | :-------------------- | :------------ | :---------------- | | Balance, January 1 | $384,063 | $362,795 | | Net income | $1,136 | $10,956 | | Other comprehensive income (loss) | $6,086 | $(1,212) | | Dividends declared | $(1,068) | $(1,061) | | Balance, June 30 | $390,239 | $371,953 | - Shareholders' equity increased to $390.2 million as of June 30, 2025, from $384.1 million at December 31, 2024, primarily driven by net income and other comprehensive income[20][22][228] Condensed Consolidated Statements of Cash Flows – Unaudited Operating cash flow shifted to a net use, while investing and financing activities saw increased cash utilization and provision | Metric | Six Months Ended June 30, 2025 (in thousands $) | Six Months Ended June 30, 2024 (in thousands $) | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash (used in) provided by operating activities | $(57,347) | $18,816 | | Net cash used in investing activities | $(296,498) | $(193,391) | | Net cash provided by financing activities | $333,796 | $165,463 | | Net Decrease in Cash and Cash Equivalents | $(20,049) | $(9,112) | | Cash and Cash Equivalents, End of Period | $446,361 | $396,786 | - Operating activities shifted from providing $18.8 million in cash in H1 2024 to using $57.3 million in H1 2025, largely due to changes in loans originated for sale and net income[24] - Net cash used in investing activities increased to $296.5 million in H1 2025 from $193.4 million in H1 2024, driven by higher net loan activity and increased purchases of available-for-sale securities[24] - Financing activities provided $333.8 million in cash in H1 2025, up from $165.5 million in H1 2024, primarily due to a significant net increase in deposits[24] Notes to Condensed Consolidated Financial Statements – Unaudited Detailed notes explain the basis of financial statement presentation, significant accounting policies, and specific financial instrument details Note 1: Basis of Presentation Financial statements adhere to GAAP and SEC rules, with critical management estimates, especially for ACL, impacting reported amounts - The financial statements are prepared in accordance with U.S. GAAP for interim financial information and SEC rules, and include normal recurring adjustments[25] - Management's estimates, judgments, and assumptions, especially regarding the Allowance for Credit Losses (ACL), can materially affect the carrying value of assets and liabilities[26] - The consolidated entities include First Internet Bancorp, First Internet Bank of Indiana, and its three wholly-owned subsidiaries: First Internet Public Finance Corp., JKH Realty Services, LLC, and SPF15, Inc[27] Note 2: Earnings Per Share Earnings per share significantly decreased for both Q2 and H1 2025, reflecting lower net income over the periods | Metric | Three Months Ended June 30, 2025 ($) | Three Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic earnings per common share | $0.02 | $0.67 | $0.13 | $1.26 | | Diluted earnings per common share | $0.02 | $0.67 | $0.13 | $1.25 | | Weighted-average common shares (Basic) | 8,733,559 (shares) | 8,594,315 (shares) | 8,724,657 (shares) | 8,684,093 (shares) | | Weighted-average common and incremental shares (Diluted) | 8,760,374 (shares) | 8,656,215 (shares) | 8,784,005 (shares) | 8,750,017 (shares) | - Diluted EPS decreased from $0.67 in Q2 2024 to $0.02 in Q2 2025, and from $1.25 in H1 2024 to $0.13 in H1 2025[31] Note 3: Securities The securities portfolio grew, with AFS and HTM securities increasing, and unrealized losses primarily due to interest rate changes | Security Type | June 30, 2025 Fair Value (in thousands $) | December 31, 2024 Fair Value (in thousands $) | | :--------------------------- | :----------------------- | :--------------------------- | | Securities available-for-sale| $644,657 | $587,355 | | Securities held-to-maturity | $254,667 | $228,851 | | Total Securities | $899,324 | $816,206 | - Approximately 94% of mortgage-backed securities (AFS and HTM) are issued by U.S. government-sponsored entities, with no credit losses recorded due to explicit or implicit guarantees[36] - Unrealized losses on AFS and HTM securities are primarily attributed to changes in interest rates and market volatility, not credit quality, and the Company does not intend to sell these securities before recovery of their amortized cost basis[37][38][43][44] - The ACL on HTM securities decreased from $0.2 million at December 31, 2024, to $0.1 million at June 30, 2025[38] Note 4: Loans The loan portfolio expanded, but nonperforming loans and net charge-offs significantly increased, particularly in commercial segments | Loan Category | June 30, 2025 (in thousands $) | December 31, 2024 (in thousands $) | | :--------------------------- | :------------ | :---------------- | | Total Commercial Loans | $3,540,306 | $3,342,585 | | Total Consumer Loans | $797,171 | $801,381 | | Total Loans | $4,362,562 | $4,170,646 | | Allowance for Credit Losses | $(46,517) | $(44,769) | - Total loans increased by $191.9 million (4.6%) to $4.36 billion as of June 30, 2025, driven by growth in investor commercial real estate, commercial and industrial, small business lending, and single tenant lease financing[49][232] - Nonperforming loans increased by $15.1 million (53.2%) to $43.5 million as of June 30, 2025, primarily due to increases in franchise finance, single tenant lease financing, and small business lending portfolios[234] Net Charge-offs and Provision for Credit Losses | Metric | Three Months Ended June 30, 2025 (in thousands $) | Six Months Ended June 30, 2025 (in thousands $) | | :-------------------- | :------------------------------- | :----------------------------- | | Net Charge-offs | $14,317 | $23,969 | | Provision for Credit Losses - Loans | $13,596 | $25,717 | Note 5: Premises and Equipment Net premises and equipment saw a slight decrease to $69.9 million as of June 30, 2025 | Category | June 30, 2025 (in thousands $) | December 31, 2024 (in thousands $) | | :---------------------- | :------------ | :---------------- | | Total Premises and Equipment, net | $69,930 | $71,453 | Note 6: Goodwill Goodwill remained constant at $4.7 million with no impairment, though future economic declines pose a risk - The carrying amount of goodwill was $4.7 million as of June 30, 2025, with no changes or impairment recognized during the period[103] - A qualitative assessment as of August 31, 2024, determined no goodwill impairment, but future declines in economic, market, or business conditions, or elevated net charge-offs, could pose an impairment risk[104] Note 7: Servicing Asset The servicing asset balance increased to $16.7 million, with revaluation impacting net loan servicing revenue | Metric | Three Months Ended June 30, 2025 (in thousands $) | Six Months Ended June 30, 2025 (in thousands $) | | :-------------------- | :------------------------------- | :----------------------------- | | Loan servicing revenue| $1,979 | $3,962 | | Loan servicing asset revaluation | $(1,153) | $(2,334) | | Balance, end of period| $16,736 | $16,736 | - The fair value of servicing rights is highly sensitive to changes in prepayment speeds, secondary market premiums, economic conditions, and discount rates[109] Note 8: Subordinated Debt The Company holds $107.0 million in unsecured subordinated debt, qualifying as Tier 2 capital under regulatory guidelines | Subordinated Debt | Principal Balance (June 30, 2025) (in thousands $) | | :------------------------------- | :-------------------------------- | | 2029 Notes | $37,000 | | 2030 Note | $10,000 | | 2031 Notes | $60,000 | | Total | $107,000 | - All subordinated debt is unsecured, subordinated, and intended to qualify as Tier 2 capital under regulatory guidelines[110][111][112] Note 9: Benefit Plans Share-based compensation expense under the 2022 Equity Incentive Plan was $0.5 million for Q2 2025 - The Company recorded $0.5 million in share-based compensation expense for Q2 2025 and $0.4 million for Q2 2024 under the 2022 Equity Incentive Plan[118] - As of June 30, 2025, total unrecognized compensation cost for unvested stock-based awards under the 2022 Plan was $3.2 million, with a weighted-average expense recognition period of 1.9 years[120] - The 2013 Equity Incentive Plan has no outstanding awards, and no unrecognized compensation costs remain[121][124] Note 10: Commitments and Credit Risk Outstanding loan commitments decreased to $584.5 million, representing off-balance sheet credit risk exposures | Metric | June 30, 2025 (in thousands $) | December 31, 2024 (in thousands $) | | :-------------------- | :------------ | :---------------- | | Outstanding Loan Commitments | $584,500 | $667,700 | Note 11: Fair Value of Financial Instruments Fair value measurements are categorized into a three-level hierarchy, with Level 2 for AFS securities and Level 3 for servicing assets - Fair value measurements are classified into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 prices), and Level 3 (unobservable inputs)[133] - Available-for-sale securities are primarily Level 2, with fair values estimated using pricing models or quoted prices of similar securities[131][132] - The servicing asset and collateral-dependent loans are classified as Level 3, relying on unobservable inputs such as prepayment speeds, discount rates, and collateral valuation discounts[135][144][148] Note 12: Derivative Financial Instruments The Company uses back-to-back interest rate swaps for risk management, with no designated hedges as of June 30, 2025 - The Company uses derivative financial instruments, primarily back-to-back interest rate swaps, to manage interest rate risk[164][165] - As of June 30, 2025, the Company had no interest rate swaps designated as fair value or cash flow hedges, following the maturity of fair value hedges and termination of cash flow hedges in late 2024[166][167][278] Derivative Financial Instruments | Derivative Type | Notional Amount (June 30, 2025) (in thousands $) | Fair Value (June 30, 2025) (in thousands $) | | :----------------------------- | :------------------------------ | :------------------------- | | Back-to-back swaps (Asset) | $39,648 | $273 | | Back-to-back swaps (Liability) | $39,648 | $(273) | Note 13: Accumulated Other Comprehensive Loss Accumulated other comprehensive loss decreased to $(26.6) million, driven by unrealized gains on debt securities | Component | Balance, January 1, 2025 (in thousands $) | Balance, June 30, 2025 (in thousands $) | | :----------------------- | :----------------------- | :--------------------- | | Unrealized Losses On Debt Securities | $(30,413) | $(24,514) | | Unrealized Losses On Debt Securities Transferred From Available-For-Sale To Held-To-Maturity | $(2,240) | $(2,053) | | Cash Flow Hedges | $0 | $0 | | Total | $(32,653) | $(26,567) | - Other comprehensive income (net of tax) for the six months ended June 30, 2025, was $6.1 million, a significant improvement from a loss of $1.2 million in the prior year, mainly due to unrealized gains on debt securities[179] Note 14: Segment Information The Company operates as a single reportable segment, with the Finance Committee serving as the Chief Operating Decision Maker - The Company operates as a single reportable segment because its lines of business are closely interrelated and managed on a consolidated basis[182] - The Finance Committee, consisting of the Chairman and CEO, President and COO, and EVP and CFO, acts as the Chief Operating Decision Maker (CODM)[184] Note 15: Recent Accounting Pronouncements The Company is evaluating the impact of ASU 2023-09 (Income Taxes) and ASU 2024-03 (Income Statement) on its financial statements - ASU 2023-09 (Income Taxes) enhances income tax disclosures and is effective for annual periods beginning after December 15, 2024[185] - ASU 2024-03 (Income Statement-Reporting Comprehensive Income) requires disaggregation of income statement expenses and is effective for annual periods beginning after December 15, 2026[186] - The Company is currently evaluating the impact of both ASUs on its condensed consolidated financial statements[185][186] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses financial performance, highlighting decreased net income due to credit losses, alongside changes in portfolios and capital Overview First Internet Bancorp operates as a digital-first bank nationwide, with $6.1 billion in assets and $5.3 billion in deposits - First Internet Bancorp conducts primary business through First Internet Bank of Indiana, operating nationwide via digital channels with no traditional branch offices[188][190] - The Company offers a wide range of commercial, small business, consumer, and municipal banking products, including C&I, construction, investor commercial real estate, single tenant lease financing, public finance, healthcare finance, small business lending, and franchise finance[190][191] - As of June 30, 2025, consolidated assets were $6.1 billion, consolidated deposits $5.3 billion, and stockholders' equity $390.2 million[194] Results of Operations Net income sharply declined for Q2 and H1 2025 due to higher credit loss provisions, despite increased PTPP income | Metric | Q2 2025 Net Income (in thousands $) | Q2 2024 Net Income (in thousands $) | H1 2025 Net Income (in thousands $) | H1 2024 Net Income (in thousands $) | | :-------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Net Income | $193 | $5,775 | $1,136 | $10,956 | | Diluted EPS | $0.02 | $0.67 | $0.13 | $1.25 | | Provision for Credit Losses | $13,596 | $3,920 | $25,717 | $6,502 | | Noninterest Income | $5,557 | $11,033 | $15,984 | $19,380 | | Net Interest Income | $27,990 | $21,327 | $53,086 | $42,061 | - Pre-tax, pre-provision income (PTPP) increased by 17.2% to $11.7 million for Q2 2025 and by 31.1% to $23.7 million for H1 2025, reflecting growth in net interest income and managed noninterest expense[199][200] | Metric | Q2 2025 (%) | Q2 2024 (%) | H1 2025 (%) | H1 2024 (%) | | :----- | :------ | :------ | :------ | :------ | | ROAA | 0.01% | 0.44% | 0.04% | 0.42% | | ROAE | 0.20% | 6.28% | 0.58% | 5.96% | | ROATCE | 0.20% | 6.36% | 0.59% | 6.04% | Consolidated Average Balance Sheets and Net Interest Income Analyses Net interest income and margin improved, driven by higher interest income from loans and securities, despite increased interest expense | Metric | Q2 2025 (in thousands $) | Q2 2024 (in thousands $) | H1 2025 (in thousands $) | H1 2024 (in thousands $) | | :-------------------- | :------ | :------ | :------ | :------ | | Net Interest Income | $27,990 | $21,327 | $53,086 | $42,061 | | Interest Rate Spread | 1.69% | 1.51% | 1.62% | 1.40% | | Net Interest Margin | 1.96% | 1.67% | 1.89% | 1.67% | | Net Interest Margin - FTE | 2.04% | 1.76% | 1.97% | 1.76% | - The increase in net interest income was primarily due to a 14.0% increase in total interest income for Q2 2025 and a 13.4% increase for H1 2025, driven by higher yields and average balances of loans and securities[208][209][210][211] - The cost of total interest-bearing liabilities decreased by 18 bps to 3.96% for Q2 2025 and by 11 bps to 3.99% for H1 2025, contributing to NIM expansion[214] Rate/Volume Analysis Net interest income growth was primarily driven by favorable rate changes in loans and securities, offsetting volume impacts | Change in Net Interest Income | Due to Volume (Q2 2025 vs Q2 2024) (in thousands $) | Due to Rate (Q2 2025 vs Q2 2024) (in thousands $) | Net Change (Q2 2025 vs Q2 2024) (in thousands $) | | :------------------------------------------- | :--------------------------------- | :------------------------------- | :------------------------------ | | Loans, including loans held-for-sale | $7,134 | $2,457 | $9,591 | | Securities – taxable | $1,923 | $663 | $2,586 | | Interest-bearing deposits | $20,992 | $(18,693) | $2,299 | | Other borrowed funds | $(3,687) | $4,650 | $963 | | Total Net Interest Income | $(8,756) | $15,419 | $6,663 | - For Q2 2025, the increase in net interest income was primarily driven by a $15.4 million increase due to rate changes, partially offset by an $8.8 million decrease due to volume changes[208] - For H1 2025, the increase in net interest income was primarily driven by a $12.2 million increase due to rate changes, partially offset by a $1.2 million decrease due to volume changes[208] Noninterest Income Noninterest income decreased significantly due to lower gain on sale of loans, partially offset by other revenue growth | Metric | Q2 2025 (in thousands $) | Q2 2024 (in thousands $) | H1 2025 (in thousands $) | H1 2024 (in thousands $) | | :-------------------- | :------ | :------ | :------ | :------ | | Total Noninterest Income | $5,557 | $11,033 | $15,984 | $19,380 | | Gain on sale of loans | $1,673 | $8,292 | $10,320 | $14,828 | | Other | $2,780 | $1,854 | $3,493 | $2,556 | | Loan servicing revenue| $1,979 | $1,470 | $3,962 | $2,793 | | Loan servicing asset revaluation | $(1,153) | $(829) | $(2,334) | $(1,263) | - The $6.6 million (79.8%) decrease in gain on sale of loans for Q2 2025 was due to a process change to hold SBA 7(a) guaranteed loans for a longer period before selling them[219] - Other noninterest income increased by $0.9 million (49.9%) in Q2 2025 due to a planned distribution from a fund investment[219] Noninterest Expense Noninterest expense saw a slight Q2 decrease but an H1 increase, driven by varied changes in salaries and other expenses | Metric | Q2 2025 (in thousands $) | Q2 2024 (in thousands $) | H1 2025 (in thousands $) | H1 2024 (in thousands $) | | :-------------------- | :------ | :------ | :------ | :------ | | Total Noninterest Expense | $21,800 | $22,336 | $45,357 | $43,359 | | Salaries and employee benefits | $10,867 | $12,462 | $23,974 | $24,258 | | Other | $2,274 | $1,714 | $4,170 | $3,372 | | Deposit insurance premium | $1,564 | $1,172 | $2,962 | $2,317 | - The $1.6 million (12.8%) decrease in salaries and employee benefits for Q2 2025 was primarily due to a reduction in incentive compensation[223] - The $0.8 million (23.7%) increase in other expense for H1 2025 was primarily due to higher fintech volume activity[224] Financial Condition Total assets grew to $6.1 billion, funded by deposit growth, while shareholders' equity increased due to reduced AOCL | Metric | June 30, 2025 (in thousands $) | December 31, 2024 (in thousands $) | | :-------------------- | :------------ | :---------------- | | Total assets | $6,072,573 | $5,737,859 | | Total deposits | $5,298,789 | $4,933,206 | | Total shareholders' equity | $390,239 | $384,063 | | Tangible common equity| $385,552 | $379,365 | - Total assets increased by $334.7 million (5.8%) to $6.1 billion, primarily due to deposit growth funding loan growth and securities purchases[227] - Total shareholders' equity increased by $6.2 million (1.6%) to $390.2 million, mainly due to a decrease in accumulated other comprehensive loss[228] Loan Portfolio Analysis The loan portfolio expanded to $4.4 billion, primarily driven by commercial loan growth in key segments | Loan Category | June 30, 2025 (in thousands $) | % of Total Loans | December 31, 2024 (in thousands $) | % of Total Loans | | :--------------------------- | :------------ | :--------------- | :---------------- | :--------------- | | Total Commercial Loans | $3,540,306 | 81.2% | $3,342,585 | 80.2% | | Total Consumer Loans | $797,171 | 18.2% | $801,381 | 19.2% | | Total Loans | $4,362,562 | 100.0% | $4,170,646 | 100.0% | - Total loans increased by $191.9 million (4.6%) to $4.4 billion as of June 30, 2025[232] - Commercial loan growth was driven by investor commercial real estate, C&I, small business lending, and single tenant lease financing, partially offset by decreases in construction, franchise finance, and healthcare finance[232] Asset Quality Asset quality deteriorated, with nonperforming loans and assets significantly increasing across several loan categories | Metric | June 30, 2025 (in thousands $) | December 31, 2024 (in thousands $) | | :-------------------- | :------------ | :---------------- | | Total Nonaccrual Loans| $41,155 | $25,955 | | Total Past Due 90 Days and Accruing Loans | $2,386 | $2,466 | | Total Nonperforming Loans | $43,541 | $28,421 | | Total Other Real Estate Owned | $1,730 | $272 | | Total Nonperforming Assets | $45,539 | $28,905 | - Total nonperforming loans increased by $15.1 million (53.2%) to $43.5 million, driven by franchise finance, single tenant lease financing, and small business lending[234] - The ratio of total nonperforming loans to total loans increased to 1.00% from 0.68%, and total nonperforming assets to total assets increased to 0.75% from 0.50%[234] Allowance for Credit Losses - Loans ACL for loans increased to $46.5 million, driven by elevated net charge-offs and higher provision for credit losses | Metric | June 30, 2025 (in thousands $) | December 31, 2024 (in thousands $) | | :-------------------- | :------------ | :---------------- | | Balance, end of period| $46,517 | $44,769 | | Net charge-offs (Q2) | $14,317 | $1,406 | | Net charge-offs (H1) | $23,969 | $1,871 | | Provision charged to expense (Q2) | $13,596 | $3,920 | | Provision charged to expense (H1) | $25,717 | $6,502 | - The ACL as a percentage of nonperforming loans decreased to 106.8% as of June 30, 2025, from 157.5% at December 31, 2024, as nonperforming loans grew faster than the ACL[237] - Net charge-offs in Q2 2025 were $14.3 million (1.31% of average loans), significantly higher than $1.4 million (0.14%) in Q2 2024, mainly from small business lending ($11.9 million) and franchise finance ($2.2 million)[238][239] Investment Securities Portfolio The investment securities portfolio grew to $899.3 million, driven by increases in both AFS and HTM securities | Security Type | June 30, 2025 Fair Value (in thousands $) | December 31, 2024 Fair Value (in thousands $) | | :--------------------------- | :----------------------- | :--------------------------- | | Total available-for-sale | $644,657 | $587,355 | | Total held-to-maturity | $254,667 | $228,851 | | Total securities | $899,324 | $816,206 | - The fair value of AFS investment securities increased by $57.3 million (9.8%) to $644.7 million, primarily due to an $88.4 million increase in agency mortgage-backed securities - residential[246] - Held-to-maturity securities increased to $271.7 million (net carrying value), mainly due to purchases of CRA-eligible agency mortgage-backed securities - residential[246] Accrued Income and Other Assets Accrued income and other assets increased to $72.6 million, primarily due to equity fund investments and prepaid assets | Metric | June 30, 2025 (in thousands $) | December 31, 2024 (in thousands $) | | :-------------------- | :------------ | :---------------- | | Accrued income and other assets | $72,619 | $63,001 | - The increase was primarily driven by a $5.3 million increase in equity fund investments, $3.3 million in prepaid assets, and $0.8 million in deferred tax assets[247] Accrued Expenses and Other Liabilities Accrued expenses and other liabilities decreased to $12.1 million, mainly due to lower accrued salary and benefits | Metric | June 30, 2025 (in thousands $) | December 31, 2024 (in thousands $) | | :-------------------- | :------------ | :---------------- | | Accrued expenses and other liabilities | $12,124 | $17,945 | - The decrease was primarily due to a $5.1 million decrease in accrued salary and benefits and a $0.8 million decrease in other liabilities[248] Deposits Total deposits grew to $5.3 billion, driven by interest-bearing demand and money market accounts, reducing brokered deposits | Deposit Type | June 30, 2025 (in thousands $) | % of Total Deposits | December 31, 2024 (in thousands $) | % of Total Deposits | | :-------------------------- | :------------ | :------------------ | :---------------- | :------------------ | | Noninterest-bearing deposits| $145,166 | 2.7% | $136,451 | 2.8% | | Interest-bearing demand deposits | $1,458,123 | 27.5% | $896,661 | 18.2% | | Money market accounts | $1,210,960 | 22.9% | $1,183,789 | 24.0% | | Certificates of deposits | $2,146,356 | 40.5% | $2,133,455 | 43.2% | | Brokered deposits | $317,282 | 6.0% | $563,027 | 11.4% | | Total deposits | $5,298,789 | 100.0% | $4,933,206 | 100.0% | - Total deposits increased by $365.6 million (7.4%) to $5.3 billion, primarily due to a $561.5 million (62.6%) increase in interest-bearing demand deposits, largely from fintech partnerships[250] - Brokered deposits decreased by $245.7 million (43.7%), as the Company utilized growth in other deposit types to pay down higher-cost brokered deposits[250] - Uninsured deposit balances represented 27% of total deposits at June 30, 2025, up from 25% at December 31, 2024[251] Regulatory Capital Requirements The Company and Bank met all Basel III regulatory capital requirements as of June 30, 2025, despite slight ratio decreases - The Company and Bank are subject to Basel III Capital Rules, requiring minimum ratios for Common Equity Tier 1 (7.0%), Tier 1 (8.5%), Total Capital (10.5%), and Leverage Ratio (4.0%), including a 2.5% capital conservation buffer[254] | Capital Ratio | Consolidated (June 30, 2025) (%) | Bank (June 30, 2025) (%) | Minimum Required - Basel III (%) | | :---------------------------- | :----------------------------- | :------------------- | :--------------------------- | | Common equity tier 1 to risk-weighted assets | 8.90% | 10.56% | 7.00% | | Tier 1 capital to risk-weighted assets | 8.90% | 10.56% | 8.50% | | Total capital to risk-weighted assets | 12.16% | 11.63% | 10.50% | | Leverage ratio | 6.69% | 7.93% | 4.00% | - Both the consolidated Company and the Bank exceeded all minimum and well-capitalized regulatory capital requirements as of June 30, 2025[258] Shareholders' Dividends A $0.06 cash dividend was declared for Q2 2025, with future dividends subject to Board discretion and financial factors - A cash dividend of $0.06 per common share was declared, payable July 15, 2025[260] - Future dividend declarations are subject to Board discretion and depend on financial condition, capital requirements, and regulatory/contractual restrictions, including those related to $107.0 million in outstanding subordinated debt[260][261] Capital Resources The Company maintains sufficient liquidity and capital, with a prior $10.7 million stock repurchase program now expired - 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[262] - A stock repurchase program authorized up to $25.0 million, under which $10.7 million was repurchased, expired on December 31, 2024[263] Liquidity The Company maintains strong liquidity with $2.3 billion in available funds, covering 200% of adjusted uninsured deposits - As of June 30, 2025, the Company had $1.1 billion in cash and cash equivalents and available-for-sale investment securities[266] - The Bank had an additional $1.9 billion in borrowing capacity from FHLB, Federal Reserve, and correspondent bank lines of credit, bringing total available funds to $2.3 billion, or 200% of adjusted uninsured deposit balances[266] - Outstanding loan commitments totaled $584.5 million, and certificates of deposits and brokered deposits maturing within one year were $1.5 billion[268] Reconciliation of Non-GAAP Financial Measures This section reconciles non-GAAP financial measures like tangible common equity to GAAP, used for capital and profitability assessment - Non-GAAP measures like tangible common equity, tangible assets, and adjusted profitability metrics are used by management to assess capital strength and profitability[271] | Metric | June 30, 2025 (in thousands $) | December 31, 2024 (in thousands $) | | :-------------------- | :------------ | :---------------- | | Tangible common equity| $385,552 | $379,365 | | Tangible assets | $6,067,886 | $5,733,172 | | Tangible book value per common share | $44.25 | $43.77 | | Tangible common equity to tangible assets | 6.35% | 6.62% | | Adjusted Metric | Q2 2025 (in thousands $) | Q2 2024 (in thousands $) | H1 2025 (in thousands $) | H1 2024 (in thousands $) | | :-------------------- | :------ | :------ | :------ | :------ | | Adjusted Net Income | $193 | $6,227 | $1,136 | $11,408 | | Adjusted Diluted EPS | $0.02 | $0.72 | $0.13 | $1.30 | | Adjusted ROAA | 0.01% | 0.48% | 0.04% | 0.43% | | Adjusted ROAE | 0.20% | 6.77% | 0.58% | 6.20% | | Adjusted ROATCE | 0.20% | 6.85% | 0.59% | 6.29% | Critical Accounting Policies and Estimates No material changes occurred in critical accounting policies or estimates since the December 31, 2024 Annual Report - No material changes to critical accounting policies or estimates from the Annual Report on Form 10-K for the year ended December 31, 2024[276] Recent Accounting Pronouncements Refer to Note 15 for details on recent accounting pronouncements, including ASU 2023-09 and ASU 2024-03 - Refer to Note 15 for details on recent accounting pronouncements, including ASU 2023-09 and ASU 2024-03[277] Off-Balance Sheet Arrangements Off-balance sheet arrangements include loan commitments and interest rate swaps, with no designated hedges as of June 30, 2025 - The Company enters into off-balance sheet arrangements, including commitments to extend credit and interest rate swap agreements[278] - As of June 30, 2025, and December 31, 2024, the Company had no interest rate swaps classified as fair value or cash flow hedges due to the maturity of fair value hedges in November 2024 and termination of cash flow hedges in December 2024[278] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company manages primary market risk, interest rate risk, through income simulation and EVE sensitivity analysis - The primary market risk for the Company is interest rate risk, managed using income simulation models and Economic Value of Equity (EVE) sensitivity analysis[279][280] Estimated Impact on NII and EVE (Instantaneous Parallel Shifts) | Metric | Implied Forward Curve -200 Basis Points (%) | Implied Forward Curve -100 Basis Points (%) | Implied Forward Curve +50 Basis Points (%) | Implied Forward Curve +100 Basis Points (%) | | :------- | :-------------------------------------- | :-------------------------------------- | :------------------------------------- | :-------------------------------------- | | NII - Year 1 | 11.04% | 5.85% | (3.77%) | (7.00%) | | NII - Year 2 | 16.86% | 15.75% | 8.67% | 5.00% | | EVE | 18.46% | 11.10% | (6.66%) | (13.00%) | - Balance sheet strategies to manage interest rate risk include increasing low-duration/variable-rate loans, selling longer-term fixed-rate loans, increasing lower-cost non-maturity deposits, extending wholesale funding duration, executing derivative strategies, and repositioning the investment portfolio[282][286] ITEM 4. CONTROLS AND PROCEDURES Management concluded disclosure controls and procedures were effective, with no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures Management assessed and confirmed the effectiveness of disclosure controls and procedures as of June 30, 2025 - Disclosure controls and procedures are designed to provide reasonable assurance that required information is recorded, processed, summarized, and reported timely[282] - Management, including the principal executive and financial officers, assessed and concluded the disclosure controls and procedures were effective as of June 30, 2025[283] Changes in Internal Control over Financial Reporting No material changes occurred in internal control over financial reporting during the quarter ended June 30, 2025 - There were no changes in the Company's internal control over financial reporting during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting[284] PART II. OTHER INFORMATION This section provides other required information, including legal proceedings, risk factors, and exhibit listings ITEM 1. LEGAL PROCEEDINGS Neither the Company nor its subsidiaries are party to any material legal proceedings as of the reporting date - Neither the Company nor its subsidiaries are party to any material legal proceedings[287] - The Bank is occasionally involved in legal actions arising from its normal business activities[287] ITEM 1A. RISK FACTORS No material changes to risk factors have occurred since the Annual Report on Form 10-K for December 31, 2024 - No material changes to risk factors from the Annual Report on Form 10-K for the year ended December 31, 2024[288] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS No unregistered sales of equity securities or use of proceeds are reported for the current period - None to report[289] ITEM 3. DEFAULTS UPON SENIOR SECURITIES No defaults upon senior securities are reported for the current period - None to report[290] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the Company's operations or business activities - Not Applicable[291] ITEM 5. OTHER INFORMATION No other information is reported under this item for the current period - None to report[292] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including organizational documents and certifications | Exhibit No. | Description | Method of Filing | | :------------ | :------------------------------------------------------------------------------------------------------------------------------------- | :----------------- | | 3.1 | Amended and Restated Articles of Incorporation of First Internet Bancorp | Incorporated by Reference | | 3.2 | Amended and Restated Bylaws of First Internet Bancorp | Incorporated by Reference | | 31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | Filed Electronically | | 31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | Filed Electronically | | 32.1 | Section 1350 Certifications | Filed Electronically | | 101 | Inline XBRL Instance Document (does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document) | Filed Electronically | | 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | Filed Electronically |