First Internet Bancorp (NASDAQ: INBKZ)

First Internet Bancorp (INBK) is a financial holding company that operates primarily through its wholly-owned subsidiary, First Internet Bank of Indiana. Headquartered in Fishers, Indiana, the company has grown to become one of the largest digital banks in the United States since its incorporation in 2005.

First Internet Bancorp's main business activities revolve around various commercial, small business, consumer, and municipal banking products and services. Its primary products include commercial and industrial loans, construction and investor commercial real estate loans, single tenant lease financing, public finance, healthcare finance, small business lending, franchise finance, and commercial deposits and treasury management. The company also offers payment, deposit, card, and lending products and services through partnerships with financial technology companies and platforms.

The company operates in a highly competitive market, competing with other digital banks, fintech companies, super-regional, regional, and community banks, as well as life insurance companies and commercial mortgage-backed securities lenders. First Internet Bancorp's competitive advantages lie in its ability to offer a full suite of services to emerging small businesses and entrepreneurs on a nationwide basis, its top-ranked small business checking account product, and its partnerships with fintech companies and platforms.

First Internet Bancorp's customer base includes small businesses, entrepreneurs, and individuals across the United States. Its commercial banking products and services are delivered through a relationship banking model or through strategic partnerships, while its consumer lending products are primarily originated on a nationwide basis through relationships with dealerships and financing partners.

The company has a strong human capital strategy, focusing on diversity, equity, and inclusion. It has implemented various initiatives to promote diversity and inclusion, including employee-led business resource groups, tuition reimbursement, a robust internal training program, and leadership training and coaching. First Internet Bancorp is also committed to community service, allowing paid volunteer time and sponsoring community initiatives such as Junior Achievement Biztown and Habitat for Humanity.

In terms of regulation and supervision, First Internet Bancorp is subject to the oversight of the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Indiana Department of Financial Institutions (DFI). The company is required to maintain minimum levels of capital and liquidity and is subject to regular examination and reporting requirements. Its capital levels are subject to the Basel III regulatory capital reforms, which require banking organizations to hold more capital and maintain higher quality capital.

As of December 31, 2023, First Internet Bancorp had consolidated assets of $5.2 billion, consolidated deposits of $4.1 billion, and shareholders' equity of $362.8 million. The company was well-capitalized, with a Tier 1 Capital ratio of 8.50% and a leverage ratio of 5.00%. Its capital conservation buffer was also in compliance with regulatory requirements.

First Internet Bancorp's commercial banking segment is a significant part of its business, accounting for approximately 78.3% of its total loan portfolio as of December 31, 2023. This segment includes commercial and industrial loans, construction and investor commercial real estate loans, single tenant lease financing, public finance, healthcare finance, small business lending, franchise finance, and commercial deposits and treasury management. The company's commercial loans are primarily extended to small-to medium-sized businesses, which are often dependent on the successful operation and management of the underlying business or assets. First Internet Bancorp's failure to manage this commercial loan growth and the related risks could have a material adverse effect on its business, financial condition, and results of operations.

The company's real estate lending activities, and its exposure to fluctuations in real estate collateral values, are significant and may increase as its assets increase. At December 31, 2023, approximately 45.6% of the company's loans held for investment portfolio was comprised of commercial, residential mortgage, and home equity loans with real estate as the primary component of collateral. If the value of real estate serving as collateral for its loans declines materially, a significant part of its loan portfolio could become under-collateralized and losses incurred upon borrower defaults would increase.

First Internet Bancorp relies heavily on electronic communications and information systems to conduct its operations and store sensitive data. While the company employs an in-depth approach that leverages people, processes, and technology to manage and maintain cybersecurity controls, the threat from cyber-attacks remains severe due to their rapidly evolving nature and sophistication.

First Internet Bancorp faces various risks that could negatively impact its business, financial condition, and results of operations. These risks include economic conditions, competition, reputational risk, credit risks, and cybersecurity risks. The company is also subject to regulatory scrutiny and may be required to maintain higher levels of capital than it would otherwise be expected to maintain.