Business Overview and History
First Internet Bancorp (INBK) has established itself as a leading internet-based bank, leveraging its innovative digital platform to serve customers nationwide. With a steadfast focus on strategic growth and prudent risk management, the company has consistently delivered impressive financial results, even in the face of challenging economic environments.
First Internet Bancorp was incorporated under the laws of the State of Indiana on September 15, 2000. On March 21, 2006, the company consummated a plan of exchange by which it acquired all of the outstanding shares of First Internet Bank of Indiana. First Internet Bank was the first state-chartered, Federal Deposit Insurance Corporation (FDIC) insured Internet bank and commenced banking operations in 1999.
The company offers a wide range of commercial, small business, consumer and municipal banking products and services. It conducts its consumer and small business deposit operations primarily through digital channels on a nationwide basis and has no traditional branch offices. The company's consumer lending products are primarily originated on a nationwide basis through relationships with dealerships and financing partners.
First Internet Bancorp's commercial banking products and services are delivered through a relationship banking model or through strategic partnerships and include commercial and industrial (C&I), construction and investor commercial real estate, single tenant lease financing, public finance, healthcare finance, small business lending, franchise finance and commercial deposits and treasury management. The company's 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.
In 2021, the company established a franchise finance business in conjunction with its business relationship with ApplePie Capital, a company that specializes in providing financing to franchisees in various industry segments across the United States. The company also offers payment, deposit, card and lending products and services through partnerships with financial technology companies and platforms.
As of the latest quarter, the bank had total assets of $5.3 billion, with a diverse loan portfolio and a strong deposit base.
Financials
Financial Performance and Ratios
Over the past several years, First Internet Bancorp has demonstrated robust financial performance, delivering consistent growth in both top-line revenue and bottom-line earnings. In the most recent fiscal year (2023), the company reported annual revenue of $95.31 million, down from $113.92 million in the prior year. Annual net income declined from $35.54 million to $8.42 million during this period, primarily attributable to one-time charges and adjustments. The company's operating cash flow for 2023 was $11.68 million, with free cash flow of $6.31 million.
However, the company has shown significant improvement in its most recent quarter (Q3 2024). Quarterly revenue reached $33.79 million, up 36.3% year-over-year, while net income rose to $7.0 million, a 21.0% increase quarter-over-quarter. This marks the fourth consecutive quarter of double-digit earnings growth for the company. The increase in revenue and net income was driven by continued expansion of non-interest income, particularly gain on sale revenue from the growing SBA lending business. Net interest income also increased due to higher yields on the loan portfolio.
The bank's key financial ratios highlight its strong position. As of the latest quarter, First Internet Bancorp's return on assets (ROA) stood at 0.40%, return on equity (ROE) was 5.64%, and the efficiency ratio was 78.4%. The company's capital ratios also remained solid, with a Tier 1 capital ratio of 9.37% and a total risk-based capital ratio of 12.66%.
Liquidity
Liquidity and Solvency
First Internet Bancorp maintains a strong liquidity position, with a loan-to-deposit ratio of 84% as of the latest quarter. The bank's cash and cash equivalents totaled $405.90 million, representing approximately 7.7% of total assets. Additionally, the company had $718.17 million in investment securities, providing further balance sheet flexibility.
In terms of solvency, First Internet Bancorp's debt-to-equity ratio was 1.61 as of the latest quarter, indicating a moderate level of leverage. The company's interest coverage ratio, a measure of its ability to service its debt, stood at 0.21, suggesting ample capacity to meet its financial obligations. The current ratio and quick ratio both stand at 0.39, reflecting the nature of the banking business where deposits are considered short-term liabilities.
First Internet Bancorp has significant additional borrowing capacity, with the ability to borrow an additional $1.3 billion from the Federal Home Loan Bank (FHLB), Federal Reserve, and correspondent bank Fed Funds lines of credit.
Lending and Deposit Trends
First Internet Bancorp's loan portfolio has demonstrated steady growth, with total loans reaching $3.91 billion as of the latest quarter, up from $3.84 billion in the previous quarter. The bank's loan mix is diversified, with commercial loans accounting for 78.8% of the portfolio and consumer loans comprising the remaining 20.3%.
The commercial loan portfolio, totaling $3.08 billion, includes several lending verticals:
- Commercial and Industrial (C&I) Loans - Construction Loans - Investor Commercial Real Estate Loans - Single Tenant Lease Financing Loans - Public Finance Loans - Healthcare Finance Loans - Small Business Lending - Franchise Finance Loans
The consumer loan portfolio, totaling $793.4 million, includes:
- Residential Mortgage Loans - Home Equity Loans and Lines of Credit - Other Consumer Loans
On the deposit front, the company has experienced robust growth, with total deposits reaching $4.27 billion as of the latest quarter, up from $4.07 billion in the prior quarter. The deposit base is well-diversified, with 69.3% in time deposits, 29.2% in interest-bearing demand deposits, and the remaining 1.5% in noninterest-bearing deposits.
Nonperforming Assets and Credit Quality
First Internet Bancorp's asset quality metrics have remained relatively stable, with nonperforming loans to total loans at 0.56% and nonperforming assets to total assets at 0.39% as of the latest quarter. The company's allowance for credit losses stood at 1.13% of total loans, reflecting its prudent risk management practices.
The bank's net charge-offs to average loans ratio was 0.15% in the latest quarter, a slight increase from the previous quarter but still within the company's target range. First Internet Bancorp's credit quality has been a key strength, allowing it to navigate economic cycles without significant deterioration in its loan portfolio.
Strategic Initiatives and Outlook
First Internet Bancorp has consistently demonstrated its ability to capitalize on emerging market opportunities and adapt to changing economic conditions. The company's strategic focus on small business lending, particularly through its Small Business Administration (SBA) lending platform, has been a significant driver of growth. In the latest quarter, the bank originated over $163 million in SBA loans, a 42% increase from the previous quarter, and set a new quarterly record for gain on sale revenue from these transactions. Year-to-date, SBA loan originations are up 35%, with loan sale volume up almost 60% compared to 2023.
Looking ahead, First Internet Bancorp remains well-positioned to continue its growth trajectory. For the fourth quarter of 2024, the company expects net interest income to increase 10-15% on a quarterly basis, with net interest margin rebounding to the range of 1.8%-1.85% on a fully taxable equivalent basis.
For the full year 2025, First Internet Bancorp is targeting SBA loan originations of around $600 million, up from an expected $525-$530 million in 2024. Total loan growth is projected at 7-9% for the year. On the expense side, the company anticipates 7-8% expense growth in 2025, driven by continued investments in the SBA platform and risk management.
The bank's strong liquidity position, diversified loan portfolio, and prudent risk management practices position it to navigate potential economic headwinds. Additionally, the company's ongoing investments in technology and digital capabilities are expected to enhance its operational efficiency and customer experience, further solidifying its competitive advantage in the internet banking space.
Conclusion
First Internet Bancorp's consistent financial performance, prudent risk management, and strategic focus on high-growth business lines have positioned the company as a leader in the digital banking landscape. With a strong balance sheet, diversified revenue streams, and a proven track record of navigating challenging market conditions, First Internet Bancorp is well-equipped to continue delivering value to its shareholders in the years to come. The company's recent financial results and positive outlook for future growth underscore its potential for sustained success in the evolving financial services industry.