As an industry-leading digital bank, First Internet Bancorp (INBK) has established itself as a formidable player in the financial services landscape. With a relentless focus on innovation, strategic partnerships, and disciplined execution, the company has navigated the challenges of the past years to emerge as a diversified banking powerhouse primed for sustained growth.
Business Overview A Remarkable Transformation
First Internet Bancorp's journey is one of remarkable transformation. Founded in 2005, the company became a bank holding company in 2006 when it acquired First Internet Bank of Indiana, which was established in 1999 as the first state-chartered, FDIC-insured internet bank in the United States. From its inception, INBK has embraced a branchless model, allowing it to scale operations and customer base across the country efficiently.
In its early years, INBK focused on offering a wide range of consumer and small business banking products and services through its nationwide digital platform. This innovative approach set the foundation for the company's future growth and diversification. Over the next decade, INBK strategically expanded its commercial banking capabilities, adding teams and expertise in areas such as commercial and industrial lending, commercial real estate lending, public finance, healthcare finance, and franchise finance.
The company's resilience was put to the test during the 2008 financial crisis. While many traditional banks struggled, INBK was able to maintain strong asset quality and profitability throughout the downturn by prudently underwriting loans and diversifying its revenue streams. This demonstrated the strength and adaptability of the company's business model, setting the stage for future growth.
In the 2010s, INBK continued to invest heavily in technology and expand its suite of digital banking products and services. The company also placed a strategic emphasis on partnerships with financial technology (fintech) companies, allowing it to reach new customer segments and further diversify its revenue sources. This included the launch of a successful business-to-business banking platform that provided payment, deposit, and lending products to fintech firms, showcasing INBK's commitment to innovation and adaptability in the evolving financial landscape.
Under the visionary leadership of Chairman and CEO David Becker, INBK has strategically expanded its offerings, forged key partnerships, and cultivated a diverse loan portfolio to deliver consistent and impressive financial results. The company's commercial banking division now accounts for over 80% of its loan portfolio, highlighting the successful execution of its diversification strategy.
Financials
The company's strategic initiatives have paid dividends, as evidenced by its financial performance. In the fiscal year 2024, INBK reported net income of $25.3 million, or $2.88 per diluted share, a remarkable turnaround from the $8.4 million, or $0.95 per diluted share, reported in the previous year. This impressive earnings growth was driven by a 17% increase in net interest income, a 81.2% surge in non-interest income, and disciplined expense management.
For the most recent quarter, INBK reported revenue of $77.8 million and net income of $7.3 million. The company's return on average assets for the twelve months ended December 31, 2024, was 0.46%, while the return on average equity stood at 6.70%. These metrics underscore the company's ability to generate solid returns despite the challenging operating environment.
Diversifying Revenue Streams A Winning Strategy
INBK's success can be attributed to its relentless pursuit of diversification, both in its loan portfolio and its revenue streams. The company's strategic partnerships with financial technology (fintech) companies have been a particularly fruitful avenue for growth, enabling INBK to expand its deposit base and offer innovative products and services to a wider customer base.
The company's small business lending division has been a standout performer, with SBA loan originations totaling almost $540 million in 2024, a 45% increase over the previous year. This business line has not only driven impressive loan growth but also contributed significantly to the company's non-interest income, comprising one-third of INBK's total adjusted revenue in 2024, up from 26% in 2023.
Furthermore, INBK's construction and investor commercial real estate lending teams have also experienced robust growth, with balances increasing by $81 million in the fourth quarter of 2024. The company's public finance and single-tenant lease financing divisions have also been steady contributors, showcasing the breadth and depth of INBK's commercial banking capabilities.
Navigating Challenges with Resilience
While INBK has enjoyed considerable success, the company has not been immune to the challenges faced by the banking industry. In 2023, the company encountered an increase in non-performing loans within its small business lending portfolio, leading to elevated provision for credit losses and net charge-offs during the fourth quarter of 2024.
However, INBK's management team has demonstrated its ability to navigate these headwinds with resilience. The company's thorough analysis of the small business lending portfolio revealed no underlying industry or geographic concentrations, with the majority of the issues stemming from the lingering effects of the pandemic and natural disasters. By proactively addressing these problem loans, INBK has positioned itself to enter 2025 with a strengthened and de-risked portfolio.
Importantly, the company's overall credit quality metrics remain strong, with non-performing loans to total loans at just 68 basis points and non-performing assets to total assets at 50 basis points as of the end of 2024. This performance compares favorably to INBK's peers, underscoring the company's prudent risk management practices and the inherent strength of its diversified business model.
Enhancing Shareholder Value Disciplined Capital Allocation
INBK's commitment to shareholder value creation is evident in its disciplined approach to capital allocation. The company has consistently maintained solid capital ratios, with a common equity Tier 1 capital ratio of 9.3% as of the end of 2024. This strong capital position has enabled INBK to opportunistically deploy capital, including the repurchase of $10.7 million of its common stock during 2024.
Liquidity
Moreover, INBK has demonstrated its ability to effectively manage its balance sheet, as evidenced by the 8% increase in net interest income and a 5-basis-point improvement in net interest margin during the fourth quarter of 2024. The company's focus on optimizing its funding mix, including the strategic deployment of excess liquidity to pay down higher-cost wholesale borrowings, has been a key driver of this performance.
Looking Ahead Poised for Continued Growth
As INBK enters 2025, the company is well-positioned to capitalize on the favorable interest rate environment and the continued strength of its diversified business model. The company's guidance for the upcoming year reflects its confidence in its ability to deliver sustained earnings growth, with projections for a mid-30% increase in net interest income and a full-year net interest margin in the range of 2.20% to 2.30% by the fourth quarter of 2025.
Furthermore, INBK's pipeline of small business lending opportunities remains robust, with the company targeting $600 million in SBA loan originations for 2025. The company's fintech partnerships are also expected to contribute to its non-interest income growth, with management forecasting a 9% to 12% increase in core non-interest income over 2024 levels.
For 2025, INBK is providing comprehensive guidance across various key metrics. The company expects loan growth in the range of 10% to 12% and deposit growth between 5% and 7%. Annual net interest income is projected to increase in the mid-30% range compared to 2024. The fully taxable equivalent net interest margin is anticipated to improve throughout the year, reaching 2.20% to 2.30% by the fourth quarter of 2025. Core non-interest income is expected to grow by 9% to 12% over 2024 levels. The company also forecasts a 15% to 20% increase in the annual provision for credit losses compared to 2024, while non-interest expenses are projected to rise by 10% to 15%. It's worth noting that this guidance assumes the Federal Reserve will maintain constant interest rates throughout 2025. Additionally, the company expects the quarterly earnings per share distribution to be lighter in the first and second quarters, with higher earnings in the latter part of 2025.
While the banking industry may face continued headwinds, INBK's proven ability to navigate challenges, its diversified revenue streams, and its disciplined approach to capital management position the company as a formidable player in the financial services landscape. As INBK continues to execute on its strategic initiatives, shareholders can look forward to the company's sustained growth and value creation in the years ahead.
Business Segments and Operations
First Internet Bancorp operates primarily through its wholly-owned subsidiary, First Internet Bank of Indiana. The bank's operations are organized into key business segments that contribute to its overall success and diversification strategy.
The Commercial Lending segment is a cornerstone of INBK's operations, offering a wide array of commercial loan products. These include commercial and industrial (C&I) loans, owner-occupied commercial real estate loans, investor commercial real estate loans, construction loans, single tenant lease financing, public finance loans, healthcare finance loans, small business loans, and franchise finance loans. The bank provides these lending products on a nationwide basis, with a particular focus on the Midwest and Southwest regions for its C&I and owner-occupied CRE portfolios. As of December 31, 2024, the commercial loan portfolio totaled $3.34 billion, representing 80.2% of the bank's total loan portfolio.
The Consumer Lending segment encompasses residential mortgage loans, home equity loans and lines of credit, and other consumer loans such as auto and recreational vehicle loans. These consumer loans are primarily originated on a nationwide basis. As of the end of 2024, the consumer loan portfolio stood at $801.4 million, accounting for 19.2% of the total loan portfolio.
The Deposits and Treasury Management segment is crucial for funding the bank's lending activities. INBK gathers deposits primarily through digital channels on a nationwide basis. The product offerings include noninterest-bearing accounts, interest-bearing demand accounts, savings accounts, money market accounts, certificates of deposit, and brokered deposits. As of December 31, 2024, total deposits reached $4.93 billion. Additionally, the bank provides treasury management services to its commercial and municipal customers, further diversifying its revenue streams.
Human Capital
As of December 31, 2024, First Internet Bancorp employed a workforce of 326 people, consisting of 323 full-time and 3 part-time employees. The company recognizes the importance of maintaining a talented, diverse, and engaged workforce to support its business model and effectively serve its customers. Key human capital initiatives include employee training and development, community involvement, and fostering a strong corporate culture focused on innovation and empowerment.
The diverse lending and deposit gathering platforms, coupled with INBK's focus on technology and digital banking, have enabled the company to scale its operations efficiently and generate strong financial results. The growth and profitability of the bank's commercial lending, consumer lending, and deposit gathering activities have been the primary drivers of its favorable financial metrics and position the company well for continued success in the evolving banking landscape.