First Internet Bancorp (INBK), the parent company of First Internet Bank, has emerged as a formidable player in the digital banking space, showcasing its ability to adapt and capitalize on the evolving financial services landscape. With a rich history spanning over two decades, the company has skillfully navigated the challenges of the modern banking industry, delivering consistent growth and shareholder value.
Business Overview and History
First Internet Bancorp was incorporated under the laws of the State of Indiana on September 15, 2000, as the holding company for First Internet Bank of Indiana. The bank, which commenced operations in 1999, was the first state-chartered, FDIC-insured Internet bank. In March 2006, First Internet Bancorp consummated a plan of exchange by which it acquired all of the outstanding shares of First Internet Bank of Indiana.
The bank has three wholly-owned subsidiaries - First Internet Public Finance Corp., JKH Realty Services, LLC, and SPF15, Inc. Over the years, First Internet Bancorp has expanded its commercial, small business, consumer and municipal banking products and services. The company conducts its consumer and small business deposit operations primarily through digital channels on a nationwide basis, without traditional branch offices. Its commercial banking products and services are delivered through a relationship banking model or strategic partnerships.
In 2020, the company established a franchise finance business in partnership with ApplePie Capital, a company that specializes in providing financing to franchisees across the United States. This expanded First Internet Bancorp's geographic footprint and diversified its revenue streams. However, in 2023 the company faced some challenges with credit quality in this franchise finance portfolio, requiring it to take elevated provisions and charge-offs.
As of 2023, First Internet Bancorp had consolidated assets of $5.2 billion, consolidated deposits of $4.1 billion, and stockholders' equity of $362.8 million, demonstrating its growth and resilience over its 20+ year history.
Financial Performance and Ratios
First Internet Bancorp's financial performance has been impressive, with the company reporting consistent growth in both revenue and net income over the past few years. For the fiscal year 2023, the company reported annual revenue of $95.31 million and net income of $8.42 million. The company's annual operating cash flow stood at $11.68 million, with free cash flow of $6.31 million.
In the most recent quarter (Q4 2024), INBK reported revenue of $93.7 million, representing a significant year-over-year increase of 45.1%. Net income for the quarter was $7.3 million, a slight decrease of 4.2% compared to the same period last year, primarily due to elevated net charge-offs in the SBA portfolio.
Financials
The company's strong financial position is further evident in its robust liquidity and solvency ratios. As of the latest reporting period, First Internet Bancorp's current ratio stood at 1.07, indicating a healthy ability to meet its short-term obligations. The company's quick ratio was 0.95, further demonstrating its liquidity position. The debt-to-equity ratio, a measure of financial leverage, was 1.98, suggesting a well-balanced capital structure.
Liquidity
First Internet Bancorp maintains a strong liquidity position, ensuring it can meet its financial obligations and capitalize on growth opportunities. As of the most recent quarter-end, the company had $405.9 million in cash and cash equivalents. Additionally, INBK had $1.3 billion in available credit lines from the Federal Home Loan Bank and other correspondent banks, providing a solid foundation for its operations and future expansion plans.
Diversified Revenue Streams and Loan Portfolio
One of the key strengths of First Internet Bancorp is its diversified revenue streams and loan portfolio. The company's non-interest income, which includes gains from the sale of SBA loans, loan servicing revenue, and fintech partnership fees, has become an increasingly significant contributor to its overall revenue.
The company's loan portfolio is well-diversified, with a balanced mix of commercial and consumer loans. As of March 31, 2024, the company's commercial loan portfolio, which includes segments such as commercial and industrial (C&I), construction, and investor commercial real estate, represented a significant portion of the total loan book.
The C&I loan portfolio totaled $133.9 million, or 3.4% of total loans. The construction and investor commercial real estate loan portfolios amounted to $325.6 million and $128.28 million, respectively, representing 8.3% and 3.3% of total loans. The single tenant lease financing portfolio reached $941.6 million, accounting for 24.1% of total loans.
In the public finance sector, INBK's portfolio totaled $498.26 million, or 12.7% of total loans. The healthcare finance portfolio, established through a strategic partnership with Provide, Inc., amounted to $213.33 million, or 5.5% of total loans. The small business lending portfolio, including SBA 7(a) loans, reached $239.26 million, or 6.1% of total loans. The franchise finance portfolio, developed in partnership with ApplePie Capital, totaled $543.12 million, representing 13.9% of total loans.
On the consumer side, INBK's residential mortgage portfolio totaled $390.01 million, or 10% of total loans. The home equity portfolio amounted to $22.75 million, or 0.6% of total loans. Other consumer loans, including loans secured by consumer assets and unsecured consumer loans, reached $380.68 million, accounting for 9.7% of total loans.
Navigating the Digital Transformation
First Internet Bancorp's success can be attributed to its ability to navigate the ongoing digital transformation in the banking industry. The company's strong focus on technology and innovation has allowed it to develop a robust digital platform, offering a seamless customer experience across multiple touchpoints, including mobile banking, online account opening, and a user-friendly website.
Moreover, the company's strategic partnerships with fintech companies have further strengthened its digital capabilities, enabling it to offer cutting-edge products and services to its customers. These collaborations have also contributed to the company's non-interest income, as it continues to leverage its fintech partnerships to generate additional revenue streams.
Regulatory Compliance and Risk Management
As a regulated financial institution, First Internet Bancorp operates in a complex regulatory environment. The company has maintained a strong focus on compliance, ensuring that its operations adhere to the various rules and regulations governing the banking industry. The company's robust risk management framework, which includes comprehensive policies and procedures, has also been instrumental in mitigating potential risks and safeguarding the company's financial stability.
Deposits and Funding
As of March 31, 2024, INBK had total deposits of $4.27 billion, an increase of $206.8 million, or 5.1%, compared to December 31, 2023. This growth was driven by a $133.8 million, or 8.3%, increase in certificates of deposit, as well as a $33.5 million, or 45%, increase in brokered deposits through the Bank-as-a-Service (BaaS) platform. Noninterest-bearing deposits totaled $130.76 million, or 3.1% of total deposits, while interest-bearing deposits amounted to $4.14 billion, or 96.9% of total deposits.
In addition to deposits, INBK utilizes other funding sources, such as advances from the Federal Home Loan Bank, which totaled $574.94 million as of March 31, 2024. The company also has $107 million in outstanding subordinated debt, comprised of the 2029 Notes, 2030 Note, and 2031 Notes, which are intended to qualify as Tier 2 capital under regulatory guidelines.
Future Outlook and Challenges
Looking ahead, First Internet Bancorp remains well-positioned to capitalize on the continued growth of the digital banking landscape. The company's investment in technology, combined with its diversified business model and strong financial performance, positions it to navigate the evolving industry landscape.
For 2025, INBK is forecasting loan growth in the range of 10-12% and deposit growth in the range of 5-7%. The company expects annual net interest income to increase in the mid-30% range over 2024, with fully taxable equivalent net interest margin projected to increase throughout the year and reach 2.20-2.30% by Q4 2025. Annual core non-interest income is expected to be up 9-12% over 2024, while annual provision for credit losses is forecasted to be 15-20% higher than 2024. Annual non-interest expense is anticipated to increase by 10-15%.
INBK is targeting $600 million of SBA loan originations for 2025, building on its strong performance in 2024 when it became the 8th largest SBA 7(a) lender in the nation. The company also expects continued declines in deposit costs as the last two Federal Reserve rate cuts are fully incorporated and over $750 million of CDs mature over the next 6 months.
However, the company, like other financial institutions, faces various challenges, including intense competition from both traditional banks and emerging fintech players, as well as ongoing regulatory changes and economic uncertainty. Navigating these challenges will require the company to maintain its agility, innovation, and strategic decision-making capabilities.
Conclusion
First Internet Bancorp's two-decade journey of innovation and growth has solidified its position as a leading player in the digital banking space. The company's diversified revenue streams, robust loan portfolio, and strong focus on technology have enabled it to deliver consistent financial performance and shareholder value. As the banking industry continues to evolve, First Internet Bancorp's ability to adapt and capitalize on emerging opportunities will be key to its long-term success. With a clear strategy for growth and a strong foundation in digital banking, INBK is well-positioned to continue its trajectory of success in the coming years.