What changed in this filing

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Item 1. Business

2022-03-15 compared with 2021-03-15 · 166 added, 128 removed, 249 unchanged (54% of the section changed)

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First Internet Bancorp is a bank holding company with $4.2 billion in total assets as of December 31, 2021, that conducts its primary business activities through its wholly-owned subsidiary, First Internet Bank of Indiana, an Indiana chartered bank.

First Internet Bank of Indiana is the first state-chartered, Federal Deposit Insurance Corporation (“FDIC”) insured Internet bank and commenced banking operations in 1999.

First Internet Bancorp is incorporated under the laws of the State of Indiana on September 15, 2005.

First Internet Bank of Indiana was the first state-chartered, Federal Deposit Insurance Corporation (“FDIC”) insured Internet bank and commenced banking operations in 1999.

First Internet Bancorp was incorporated under the laws of the State of Indiana on September 15, 2005.

On March 21, 2006, we consummated a plan of exchange by which we acquired all of the outstanding shares of the Bank.

The Company has two wholly-owned subsidiaries:

the Bank and FC Subsidiary, Inc., a Georgia corporation, formed in connection with our pending acquisition of First Century Bancorp.

(“First Century”).

The Bank has three wholly-owned subsidiaries:

First Internet Public Finance Corp., which provides a range of public and municipal finance lending and leasing products to governmental entities throughout the United States and acquires securities issued by state and local governments and other municipalities;

JKH Realty Services, LLC, which manages other real estate owned properties as needed;

and SPF15 Inc., which was established to acquire and hold real estate.

First Internet Public Finance Corp., an Indiana corporation, which provides a range of public and municipal finance lending and leasing products to governmental entities throughout the United States and acquires securities issued by state and local governments and other municipalities;

JKH Realty Services, LLC, a Delaware limited liability company, which manages other real estate owned properties as needed;

and SPF15 Inc., an Indiana corporation, which was established to acquire and hold real estate used primarily for the Bank’s principal office.

We offer a wide range of commercial, small business, consumer and municipal banking products and services.

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Our consumer lending products are primarily originated on a nationwide basis through relationships with dealerships and financing partners.

Our commercial banking products and services are delivered through a relationship banking model and include commercial real estate (“CRE”) banking, commercial and industrial (“C&I”) banking, public finance, healthcare finance, small business lending and commercial deposits and treasury management.

Through our CRE team, we offer single tenant lease financing on a nationwide basis in addition to traditional investor CRE and construction loans primarily within Central Indiana and adjacent markets.

Our C&I banking team provides credit solutions such as lines of credit, term loans, owner-occupied CRE loans and corporate credit cards to commercial borrowers located primarily in Central Indiana, Phoenix, Arizona and adjacent markets.

Within CRE banking, we offer single tenant lease financing on a nationwide basis in addition to traditional investor CRE and construction loans primarily within Central Indiana or a regional basis.

Our C&I banking team provides credit solutions such as lines of credit, term loans, owner-occupied CRE loans and corporate credit cards on a regional basis to commercial borrowers located primarily in the Midwest and Southwest regions of the United States.

Our public finance team provides a range of public and municipal lending and leasing products to government entities on a nationwide basis.

Our healthcare finance team was established in conjunction with our strategic partnership with Provide, Inc.

(formerly known as Lendeavor, Inc.), a San Francisco-based technology-enabled lender to healthcare practices, and provides lending on a nationwide basis for healthcare practice finance or acquisition, acquisition or refinancing of owner-occupied CRE and equipment purchases.

Our healthcare finance team was established in conjunction with a strategic partnership with Provide, Inc.

(formerly known as Lendeavor, Inc.), a San Francisco-based technology-enabled lender to healthcare practices, which provided lending on a nationwide basis for healthcare practice finance or acquisition, acquisition or refinancing of owner-occupied CRE and equipment purchases.

In the third quarter 2021, Provide, Inc.

was acquired by a super-regional financial institution.

It is our expectation that the acquiring institution will retain most, if not all, of Provide’s loan origination activity and that our healthcare finance loan balances may decline.

Our franchise finance business was established in July 2021 in conjunction with our business relationship with ApplePie Capital, a financial technology (“fintech”) company that specializes in providing financing to franchisees in various industry segments.

Our commercial deposits and treasury management team works with the other commercial teams to provide deposit products and treasury management services to our commercial and municipal lending customers as well as pursues commercial deposit opportunities in business segments where we have no credit relationships.

The markets in which we compete to make loans and attract deposits are highly competitive.

For retail banking activities, we compete with other digital banks but we also compete with traditional banks, savings banks, credit unions, investment banks, insurance companies, securities brokerages and other financial institutions, as nearly all have some form of digital delivery for their retail banking services.

For residential mortgage lending, we compete with other digital lenders but also compete with money center and superregional banks.

For our C&I lending activities, we compete with larger financial institutions operating in the Midwest and Southwest.

For our single tenant lease financing activities, we compete nationally with regional banks, local banks and credit unions, as well as life insurance companies and commercial mortgage-backed securities lenders.

For our public finance and healthcare finance activities, we compete nationally with superregional and regional banks.

These competitors may have significantly greater financial resources and higher lending limits than we do and may also offer specialized products and services that we do

For our small business lending activities, we compete on a national footprint with other participating SBA-approved lenders, including a large number of regional or community banks.

These competitors have resources and/or lending limits that differ greatly from one another.

We believe that we can differentiate ourselves from larger financial institutions by providing a full suite of services to emerging small businesses and entrepreneurs on a nationwide basis.

We have hired and continue to recruit experienced small business sales, credit and operations personnel to expand our capabilities in small business lending and U.S.

government guaranteed lending programs.

We continue to scale up this business with the goal of driving increased earnings and profitability in future periods.

We plan to expand our fintech partnerships.

With the rapid evolution of technology that enables consumers and small businesses to manage their finances digitally, fintechs are addressing a significantly growing marketplace.

Fintechs have created robust digital offerings, unburdened by legacy technology architecture, to address growing customer expectations.

Through partnerships with selected fintechs, we believe our ability to win and retain consumer and small business relationships will be significantly enhanced.

Furthermore, we believe partnering with select fintechs will allow us to further diversify our revenue sources, acquire lower-cost deposits and pursue additional asset generation capabilities.

Pending Merger Transaction

On November 1, 2021, we entered into a merger agreement to acquire all of the outstanding shares of common stock of First Century Bancorp.

(“First Century”), the parent company of First Century Bank, N.A.

(“First Century Bank”), for $80 million in cash.

First Century Bank is a technology-driven, financial solutions company with lines of business focused on payments, tax product lending, sponsored card programs and homeowners association services.

We expect to fund our payment obligations upon closing with available on-balance sheet cash.

The acquisition is subject to customary regulatory approvals and the completion of various closing conditions.

The acquisition has received approval from the Indiana Department of Financial Institutions and First Century shareholders, but it is awaiting approval from the Federal Deposit Insurance Corporation and the Federal Reserve.

As of December 31, 2021, First Century had total assets of $486.7 million, total deposits of $409.4 million, and total loans of $25.2 million.

Human Capital Resources

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Throughout our history, team members have been our most valuable assets, helping to create a strong workplace culture that recognizes the unique contributions and perspectives each individual brings to the organization.

At First Internet Bank, we encourage our employees to “Imagine More”.

We seek the game-changers, innovators and dreamers – those who are driven to find a better way of doing things for customers and each other.

At First Internet Bank, we encourage our employees to “Imagine More.” We seek the game-changers, innovators and dreamers – those who are driven to find a better way of doing things for customers and each other.

We encourage community involvement and opportunities that support team members, both inside and outside the office.

We may be a digital bank, but we strongly believe in the power of personal connection and collaboration.

We strive to foster an entrepreneurial spirit that creates an environment where all our colleagues thrive.

We encourage innovation, collaboration and diversity among team members, partners and in the communities we serve.

But as recent social events have demonstrated, we recognize the need to continually challenge ourselves to improve.

To that end, First Internet Bank has engaged an outside firm to further enhance our Diversity, Equity and Inclusion efforts with regards to product offerings, as well as the recruitment, retention and promotion of our team members.

An important part of our culture has always been to encourage outreach.

This year, team members again demonstrated their commitment to giving back to their communities, with volunteer efforts totaling thousands of hours serving on non-profit boards, distributing food to those in need and donating time to other charitable causes.

Supporting and developing our people is a foundational tenet.

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This focus on employees is evident in the number of “best workplace” awards we have been honored with over the years.

The COVID-19 pandemic presented unforeseen challenges.

We were proactive in responding by implementing our business continuity plan and new initiatives to maintain operations at the highest level, while serving our customers and supporting our employees.

Our response team introduced a number of initiatives, including new workplace safety guidelines, adjusting our banking center hours, reducing our onsite workforce and encouraging team members to work remotely if possible.

The COVID-19 pandemic has continued to present broad challenges.

We have been proactive in responding by adhering to our business continuity plan and new initiatives to maintain operations at the highest level, while serving our customers and supporting our employees.

Our response team has introduced a number of initiatives, including new workplace safety guidelines, adjusting our banking center hours, reducing our onsite workforce and encouraging team members to work remotely if possible.

Ongoing internal communications provided access to the latest COVID-19 information from the Centers for Disease Control, World Health Organization, as well as local, state and federal agencies.

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Fortunately, as a digital bank without branch locations to maintain, our business model has supported online, contactless transactions since our inception.

At First Internet Bank, we create new ideas.

We explore new paths.

Ultimately, we get better, individually and collectively.

We strive to maintain a diverse and inclusive work culture in which individual differences and experiences are valued and all employees have the opportunity to contribute and thrive.

We believe that leveraging our employees’ diverse perspectives and capabilities will enhance innovation, foster a collaborative work culture and enable us to better serve our customers and communities.

With this vision in mind, the Company’s diversity and inclusion strategy focuses on five organizational pillars:

People, Partners, Philanthropy, Products and Processes.

In 2021, we published our first Environmental, Social and Governance (“ESG”) Report to highlight, among other things, our focus on and efforts to advance Diversity and Inclusion goals.

The markets in which we compete to make loans, attract deposits and provide fee based financial services are highly competitive.

For retail banking activities, we compete with other digital banks and fintech companies, in addition to traditional banks, savings banks, credit unions, investment banks, insurance companies, securities brokerages and other financial institutions, as nearly all have some form of digital delivery for their retail banking services.

For residential mortgage lending, we compete with other digital lenders as well as money center and superregional banks, community banks and credit unions.

For our C&I lending activities, we compete with larger financial institutions operating in the Midwest and Southwest.

For our public finance, healthcare finance and franchise finance activities, we compete nationally with superregional and regional banks.

These competitors may have significantly greater financial resources and higher lending limits than we do and may also offer specialized products and services that we do not.

For our small business lending activities, we compete on a national footprint with other participating SBA-approved lenders, including a large number of regional or community banks.

These competitors have resources and/or lending limits that differ greatly from one another.

Regulation and Supervision

FDIC-insured institutions, like the Bank, as well as their holding companies and affiliates, are extensively regulated under federal and state law.

banking industry is highly regulated under federal and state law and this regulatory environment has a material effect on the operations and financial condition of the Company and its subsidiaries.

As a result, the Company’s growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the Indiana Department of Financial Institutions (the “DFI”), the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the FDIC and the Consumer Financial Protection Bureau (“CFPB”).

Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board (“FASB”), securities laws administered by the Securities and Exchange Commission (“SEC”) and state securities authorities, and anti-money laundering laws enforced by the U.S.

Department of the Treasury have an impact on the Company’s business.

The effect of these statutes, regulations, regulatory policies and accounting rules are significant to the Company’s operations and financial condition.

Federal and state banking laws impose a comprehensive system of supervision, regulation, and enforcement on the operations of FDIC-insured institutions, their holding companies, and affiliates that is intended primarily for the protection of the FDIC-insured deposits and depositors of banks, rather than shareholders.

These laws, and the regulations of the bank regulatory agencies issued under them, affect, among other things, the scope of the Company’s business;

Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board (“FASB”), securities laws administered by the SEC and state securities authorities, and anti-money laundering laws enforced by the U.S.

Department of the Treasury (“U.S.

Treasury”) also have an impact on the Company’s business.

This regulatory framework is intended for the protection of depositors, borrowers and other customers, as well as the FDIC deposit insurance funds and the U.S.

banking system, rather than the Company’s shareholders or creditors.

Banking statutes and regulations are subject to ongoing review and revision by federal and state legislatures and regulatory agencies.

Notably, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), enacted in 2010 in response to the global financial crisis, imposed a number of new and expanded regulatory requirements on the banking industry, which in some cases have been subsequently modified.

Future changes in laws, regulations or regulatory policies, including changes in the ways laws and regulations are interpreted or enforced, could affect us in significant and unpredictable ways that may have a material impact on our business.

Federal and state banking laws and regulations affect, among other things, the scope of the Company’s business;

the kinds and amounts of investments the Company and Bank may make;

the fees and charges that may be imposed for bank products and services;

required capital levels relative to assets;

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and the Company’s payment of dividends.

In reaction to the global financial crisis, and particularly following the passage of Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in 2010, the Company experienced heightened regulatory requirements and scrutiny.

Although the reforms primarily targeted systemically important financial service providers (at the time, those with assets of $50.0 billion and greater), certain provisions of the law triggered at $10.0 billion in assets and the influence of other provisions filtered down in varying degrees to community banks over time, causing the Company’s compliance and risk management processes, and the costs thereof, to increase.

Then, in May 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was enacted to provide meaningful relief for banks and their holding companies that were not considered systemically important (defined by amendment to be those with assets under $100.0 billion).

The Company believes that such reforms are favorable to its operations.

The cost of compliance with these legal and regulatory requirements has increased over time and could increase further in the future in response to changing laws and regulations or regulatory expectations, or as the Company grows and passes certain asset size thresholds at which additional requirements begin to apply.

The Dodd-Frank Act, for example, gives rise to a number of additional requirements as financial institutions pass $10 billion in assets.

The supervisory framework for U.S.

banking organizations subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination reports and ratings that are not publicly available and that can impact the conduct and growth of their business.

banking organizations subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination reports and ratings that are in most cases not publicly available and that can impact the conduct and growth of their business.

These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors.

Regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law, or are otherwise inconsistent with laws and regulations.

The following is a summary of the material elements of the supervisory and regulatory framework applicable to the Company and Bank, beginning with a discussion of the impact of the COVID-19 pandemic on the banking industry.

It does not describe all of the statutes, regulations, and regulatory policies that apply, nor does it restate all of the requirements of those that are described.

The descriptions are qualified in their entirety by reference to the particular statutory and regulatory provision.

Regulatory agencies may impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law, or are otherwise inconsistent with laws and regulations.

These regulatory agencies have broad enforcement power over regulated entities, including the ability to impose substantial fines and other adverse consequences for violations of law and regulations.

Following is a summary of the material elements of the supervisory and regulatory framework applicable to the Company and Bank, beginning with a discussion of the impact of the COVID-19 pandemic on the banking industry.

It does not describe all of the statutes, regulations, and regulatory policies that apply, and the descriptions in this summary are qualified in their entirety by reference to the particular statutory and regulatory provisions involved.

COVID-19 Pandemic

In March 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law.

The CARES Act was a $2.2 trillion economic stimulus bill intended to provide relief in responding to the COVID-19 pandemic.

The new law included a number of provisions impacting bank regulatory agencies and the institutions they regulate.

Federal bank regulatory agencies, along with their state counterparts, have issued a steady stream of guidance responding to the COVID-19 pandemic and have taken a number of unprecedented steps to help banks navigate the pandemic and mitigate its impact.

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and providing credit under the Community Reinvestment Act (the “CRA”) for certain pandemic-related loans, investments, and public services.

Because of the need for social distancing measures, the

agencies revamped the manner in which they conducted periodic examinations of their regulated institutions, including making greater use of off-site reviews.

Moreover, the Federal Reserve issued guidance encouraging banking institutions to utilize its discount window for loans and intraday credit extended by its Reserve Banks to help households and businesses impacted by the pandemic and announced numerous funding facilities.

The FDIC also has acted to mitigate the deposit insurance assessment effects of participating in the Paycheck Protection Program and the Federal Reserve’s PPP Liquidity Facility and Money Market Mutual Fund Liquidity Facility.

The FDIC also has acted to mitigate the deposit insurance assessment effects of participating in the Paycheck Protection Program and the Federal Reserve’s Paycheck Protection Plan (“PPP”) Liquidity Facility and Money Market Mutual Fund Liquidity Facility.

Reference is made to “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations – Impact of the COVID-19 Pandemic,” “- Non-TDR Loan Modifications due to COVID-19,” and “- U.S.

Management’s Discussion and Analysis of Financial Condition and Results of Operations – COVID-19 Pandemic,” “- Non-TDR Loan Modifications due to COVID-19,” and “- U.S.

Small Business Administration Paycheck Protection Program” for information on the CARES Act, the PPP and for discussions of the economic impact of the COVID-19 pandemic.

In addition, information as to selected topics, such as the impact on capital requirements, dividend payments, reserves, and CRA, is contained in the relevant sections of this Regulation and Supervision discussion.

In addition, information as to selected topics is contained in certain relevant sections of this Regulation and Supervision discussion.

Regulatory Capital

Regulatory capital represents the net assets of a banking organization available to absorb losses.

Because of the risks attendant to their business, FDIC-insured institutions are generally required to hold more capital than other businesses, which directly affects the Company’s earnings capabilities.

Banks and bank holding companies are generally required to hold more capital than other businesses that are not subject to regulation and supervision by the banking agencies, and this directly affects the Company’s earnings capabilities.

While capital has historically been one of the key measures of the financial health of both bank holding companies and banks, its role became fundamentally more important in the wake of the global financial crisis, as banking regulators recognized that the amount and quality of capital held by banks prior to the crisis was insufficient to absorb losses during periods of severe stress.

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In contrast to capital requirements historically, which were in the form of guidelines, Basel III was released in the form of binding regulations by each of the regulatory agencies.

The Basel III Rule increased the required quantity and quality of capital and required more detailed categories of risk weighting of riskier, more opaque assets.

For nearly every class of assets, the Basel III Rule requires a more complex, detailed, and calibrated assessment of risk in the calculation of risk weightings.

The Basel III Rule is applicable to all banking organizations that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as to most bank and savings and loan holding companies.

The Basel III Rule increased the

required quantity and quality of capital and required more detailed categories of risk weighting of riskier, more opaque assets.

For nearly every class of assets, the Basel III Rule requires a more complex, detailed, and calibrated assessment of risk in the calculation of risk weightings for all banking organizations that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as to most bank and savings and loan holding companies.

The Company and Bank are each subject to the Basel III Rule as described below.

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As of December 31, 2021, the Company had regulatory capital in excess of the Federal Reserve’s requirements and met the requirements to be well capitalized.

The Company is also in compliance with the capital conservation buffer.

The Company was also in compliance with the capital conservation buffer.

Prompt Corrective Action.

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(vii) requiring that senior executive officers or directors be dismissed;

(viii) prohibiting the institution from accepting deposits

from correspondent banks;

(viii) prohibiting the institution from accepting deposits from correspondent banks;

(ix) requiring the institution to divest certain subsidiaries;

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and (xi) ultimately, appointing a receiver for the institution.

Community Bank Leverage Ratio Framework.

In response to industry complaints concerning the regulatory burdens imposed on community banks by certain aspects of the Basel III Rule, the U.S.

Congress, as part of the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act, authorized an optional, simplified measure of capital adequacy, the “Community Bank Leverage Ratio” (“CBLR”) framework, for qualifying community banking organizations like the Company with less than $10 billion in total consolidated assets.

The federal banking agencies jointly adopted a rulemaking effective January 1, 2020, that implemented this alternative approach to measuring capital.

Qualifying institutions must have a leverage ratio greater than 9%, off balance sheet exposures of 25% or less of total consolidated assets, and trading assets and liabilities of 5% or less of total consolidated assets.

Banks that opt in to the rule are not required to calculate or report risk-based capital and are deemed to have met the well-capitalized ratio requirement.

In response to the COVID-19 pandemic, the banking agencies temporarily lowered the qualifying leverage ratio to 8% in the second quarter of 2020, which then rose to 8.5% for calendar year 2021 and 9% thereafter.

The Company has not opted in to the CBLR capital framework.

Holding Company Regulation

The Company is a registered bank holding company under the Bank Holding Company Act of 1956 (the “BHCA”) and, as such, is subject to regulation, supervision and examination by the Federal Reserve.

The Company is a registered bank holding company under the Bank Holding Company Act of 1956 (the “BHCA”) and, as such, is subject to regulation, supervision, examination and enforcement by the Federal Reserve.

Under the BHCA, the Company is required to file with the Federal Reserve periodic reports of its operations and such additional information regarding the Company and Bank as the Federal Reserve may require.

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The Federal Reserve is also empowered, among other things, to assess civil money penalties against companies or individuals who violate Federal Reserve orders or regulations, to order termination of nonbanking activities of bank holding companies and to order termination of ownership and control of a nonbanking subsidiary by a bank holding company.

Activities and Acquisitions.

Activities, Acquisitions, and Changes in Control.

Under the BHCA, our activities are limited to businesses so closely related to banking or managing or controlling banks as to be a proper incident thereto, as determined by the Federal Reserve.

The BHCA also requires a bank holding company to obtain approval from the Federal Reserve before (i) acquiring or holding more than a 5% voting interest in any bank or bank holding company, (ii) acquiring all or substantially all of the assets of another bank or bank holding company or (iii) merging or consolidating with another bank holding company.

We have not filed an election with the Federal Reserve to be treated as a “financial holding company,” a type of holding company that can engage in a wider range of nonbanking activities, such as certain insurance and securities-related activities, that are not permitted for a bank holding company.

Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator.

“Control” is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances between 10% and 24.99% ownership.

Bank mergers and acquisitions generally will require the approval of the regulatory authorities of each banking organization.

In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition, public benefits expected to be generated by the acquisition, post-acquisition capital levels, and CRA performance.

The federal banking regulators are also required to take into account the effectiveness of the Bank Secrecy Act/anti-money laundering activities of the applicant.

Federal regulatory policy relating to the

approval of proposed mergers and acquisitions is currently under review.

In July 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy that, among other initiatives, calls upon the federal banking agencies to review their current merger approval practices under the BHCA and the Bank Merger Act, and adopt a plan for the revitalization of such practices.

In February 2022, Acting FDIC Chairman Gruenberg announced that the agency’s priorities include a comprehensive review of the process of considering and evaluating bank mergers, something the FDIC indicated had not been done in 25 years.

Holding Company Dividends.

The Company’s ability to pay dividends to shareholders will be impacted both by general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies.

It may also be impacted by the ability of the Bank to pay dividends to the Company, discussed under “Bank Regulation—Dividends” below.

As an Indiana corporation, the Company is subject to the Indiana Business Corporation Law, as amended, which prohibits the Company from paying a dividend if, after giving effect to the dividend, the Company would not be able to pay its debts as they become due in the usual course of business, or if the Company’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.

The Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer or significantly reduce dividends to shareholders if:

(i) the company’s net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends;

(ii) the prospective rate of earnings retention is inconsistent with the Company’s capital needs and overall current and prospective financial condition;

or (iii) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

The Federal Reserve possesses enforcement powers to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes or regulations.

Among those powers is the ability to restrict the payment of dividends.

In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer.

See “Regulatory Capital” above.

Source of Strength .

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In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a depository subsidiary will be assumed by the bankruptcy trustee and entitled to a priority of payment.

Change in Control.

Employee Incentive Compensation.

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Monitoring methods and processes used by a banking organization should be commensurate with the size and complexity of the organization and its use of incentive compensation.

During 2016, as required by the Dodd-Frank Act, the federal bank regulatory agencies and the SEC proposed revised rules on incentive-based payment arrangements at specified regulated entities having at least $1 billion of total assets (including the Company and the Bank).

These proposed rules have not been finalized.

Regulation of Banks

The Dodd-Frank Act requires the federal banking agencies and the SEC to adopt joint rules or guidelines for banking organizations with assets exceeding $1 billion to prohibit incentive-based employment compensation arrangements that encourage institutions to take inappropriate risks by providing compensation that is excessive or could lead to material financial loss.

Such rules have been proposed but have not yet been adopted.

In October 2021, the SEC signaled a possible interest in this initiative by reopening the comment period on a proposed rule issued in 2015 regarding the recovery of erroneously awarded executive compensation (sometimes referred to as “clawback”) under certain circumstances.

Bank Regulation

The Bank is an Indiana-chartered bank formed pursuant to the Indiana Financial Institutions Act (the “IFIA”).

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Due to its online-driven model and nationwide banking platform, the Bank has opted to operate under a CRA Strategic Plan, which sets forth certain guidelines the Bank must meet.

The Strategic Plan submitted is expected to expire on December 31, 2023.

The Bank's current CRA Strategic Plan covers the time period of January 1, 2021 through December 31, 2023.

The Bank received a “Satisfactory” CRA rating in its most recent CRA examination.

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The joint statement also provided favorable CRA consideration for certain pandemic-related community development activities.

The federal banking agencies are currently working on a comprehensive review and revision of the rule implementing the CRA that is intended to strengthen and enhance the CRA.

FDIC Acting Chairman Gruenberg announced in February 2022 that revision of the CRA will be a top priority for the FDIC.

Transactions with Affiliates .

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We believe the Bank complied with these provisions during 2021.

Loans to Insiders .

Loans to and Other Transactions with Insiders .

The Bank’s authority to extend credit to its directors, executive officers and principal shareholders, as well as to entities controlled by such persons (“Related Interests”), is governed by Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve.

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The DFI and the FDIC share primary regulatory enforcement responsibility over the Bank and its institution-affiliated parties, including directors, officers and employees.

This enforcement authority includes, among other things, the ability to appoint a conservator or receiver for the Bank, to assess civil money penalties, to issue cease and desist orders, to seek judicial enforcement of administrative orders and to remove directors and officers from office and bar them from further participation in banking.

further participation in banking.

In general, these enforcement actions may be initiated in response to violations of laws, regulations and administrative orders, as well as in response to unsafe or unsound banking practices or conditions.

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We believe we are in compliance with the safety and soundness guidelines.

The ability of the Company to make capital distributions, including paying dividends and repurchasing shares, depends upon our receipt of dividends from the Bank.

The ability of the Bank to pay dividends is limited by state and federal laws and regulations, including the requirement for the Bank to obtain the prior approval of the DFI before paying a dividend that, together with other dividends it has paid during a calendar year, would exceed the sum of its net income for the year to date combined with its retained net income for the previous two years.

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Insurance of Deposit Accounts .

The Bank is a member of the DIF, which is administered by the FDIC.

The Bank is a member of the Deposit Insurance Fund (“DIF”), which is administered by the FDIC.

All deposit accounts at the Bank are insured by the FDIC up to a maximum of $250,000 per depositor.

The FDIA, as amended by the Federal Deposit Insurance Reform Act and the Dodd-Frank Act, requires the FDIC to set a ratio of deposit insurance reserves to estimated insured deposits.

In March 2016, the FDIC issued a final rule to increase the statutory minimum designated reserve ratio (the “DRR”) from 1.15% to 1.35% by September 30, 2020, the deadline imposed by the Dodd-Frank Act.

The FDIC’s rules reduced assessment rates on all FDIC-insured financial institutions but imposed a surcharge on banks with assets of $10 billion or more until the DRR reached 1.35% and provided assessment credits to banks with assets of less than $10 billion for the portion of their assessments that contribute to the increase of the DRR to 1.35%.

The DRR reached 1.36% as of September 30, 2018, exceeding the statutory required minimum DRR of 1.35%.

As a result, the FDIC provided assessment credits to banks, like the Bank, with total consolidated assets of less than $10 billion for the portion of their regular assessments that contributed to growth in the DRR between 1.15% and 1.35%.

The FDIC applied the small bank credits for quarterly assessment periods beginning July 1, 2019.

However, the DRR then fell to 1.30% in 2020 as a result of extraordinary insured deposit growth caused by an unprecedented inflow of more than $1 trillion in estimated insured deposits in the first half of 2020, primarily resulting from the COVID-19 pandemic.

Notwithstanding the decrease in the DRR to 1.30%, the FDIC determined not to cease the small bank credits and waived the requirement that the DRR be at least 1.35% for full remittance of the remaining assessment credits.

The FDIC refunded all small bank credits as of September 30, 2020.

The FDIC’s rules also changed the methodology used to determine risk-based assessment rates for established banks with less than $10 billion in assets to better ensure that banks taking on greater risks pay more for deposit insurance than banks that take on less risk.

FDIC insurance expense, including assessments relating to Financing Corporation (FICO) bonds, totaled $1.8 million for 2020, which included a $0.6 million small bank assessment credit.

Under the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

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To fund its operations, the Bank historically has relied upon deposits, Federal Home Loan Bank of Indianapolis (“FHLB”) borrowings, Fed Funds lines with correspondent banks and brokered deposits.

The FDIA and FDIC regulations limit the ability of banks to accept, renew, or roll over brokered deposits unless the institution is well capitalized.

The FDIC may grant a waiver to permit a less than well capitalized bank to hold brokered deposits, but limitations on the rates paid on such deposits will apply, and the bank may also be required to pay a higher deposit insurance assessment on such deposits.

The Bank believes it has sufficient liquidity to meet its funding obligations for at least the next twelve months.

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While the required percentage of stock ownership is subject to change by the FHLB, the Bank is in compliance with this requirement with an investment in FHLB stock at December 31, 2021 of $25.7 million.

Any advances from the FHLB must be secured by specified types of collateral, and long-term advances may be used for the purpose of providing funds to

make residential mortgage or commercial loans and to purchase investments.

Any advances from the FHLB must be secured by specified types of collateral, and long-term advances may be used for the purpose of providing funds to make residential mortgage or commercial loans and to purchase investments.

Long-term advances may also be used to help alleviate interest rate risk for asset and liability management purposes.

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Although the Bank is not a member of the Federal Reserve System, it is subject to provisions of the Federal Reserve Act and the Federal Reserve’s regulations under which depository institutions may be required to maintain reserves against their deposit accounts and certain other liabilities.

In 2008, the Federal Reserve Banks began paying interest on reserve balances.

Currently, reserves must be maintained against transaction accounts.

Reserve requirements are subject to annual adjustment by the Federal Reserve and, for 2020, the Federal Reserve had determined that reserves would be required in amounts equal to 3% on transaction account balances over $16.9 million and up to and including $127.5 million, plus 10% on the excess over $127.5 million.

However, in March 2020, the Federal Reserve announced that the banking system had ample reserves and, as reserve requirements no longer played a significant role in this regime, it reduced all reserve tranches to zero percent, thereby freeing banks from the reserve maintenance requirement.

In March 2020, the Federal Reserve announced that the banking system had ample reserves and, as reserve requirements no longer played a significant role in this regime, it reduced all reserve tranches to zero percent, thereby freeing banks from the reserve maintenance requirement.

This action permits the Bank to loan or invest funds that were previously unavailable.

The Federal Reserve has indicated that it expects to continue to operate in an ample reserves regime for the foreseeable future.

The Federal Reserve has indicated that it currently has no plans to reimpose reserve requirements but that it may impose such a requirement in the future if conditions warrant.

Anti-Money Laundering and the Bank Secrecy Act .

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financial system.

The USA PATRIOT Act has significant implications for financial institutions and businesses of other types involved in the transfer of money.

The USA PATRIOT Act has significant implications for

financial institutions and businesses of other types involved in the transfer of money.

The USA PATRIOT Act, in conjunction with the implementation of various federal regulatory agency regulations, has caused financial institutions, such as the Bank, to adopt and implement additional policies or amend existing policies and procedures with respect to, among other things, anti-money laundering compliance, suspicious activity, currency transaction reporting, customer identity verification and customer risk analysis.

Bank regulators regularly examine institutions for compliance with these obligations, and may impose “cease and desist” orders and civil money penalty sanctions on institutions determined to be in violation of these obligations.

In January 2021, the Anti-Money Laundering Act of 2020 (the “AMLA”), which amends the BSA, was enacted.

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Among other things, the AMLA codifies a risk-based approach to anti-money laundering compliance for financial institutions;

requires the development of standards by the Treasury for evaluating technology and internal processes for BSA compliance;

and expands enforcement- and investigation-related authority, including a significant expansion in the available sanctions for certain BSA violations.

Many of the statutory provisions in the AMLA will require additional rulemakings, reports and other measures, and the impact of the AMLA will depend on, among other things, rulemaking and implementation guidance.

requires the development of standards by the U.S.

Treasury for evaluating technology and internal processes for BSA compliance;

and expands enforcement- and investigation-related authority, including a significant expansion in the available sanctions for certain BSA violations and enhanced whistleblower provisions permitting monetary awards to persons who provide information that leads to successful enforcement of certain violations.

Many of the statutory provisions in the AMLA will require additional rulemaking, reports and other measures, and the impact of the AMLA will depend on, among other things, rulemaking and implementation guidance.

The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others.

These sanctions, which are administered by the Treasury Office of Foreign Assets Control (“OFAC”), take many different forms.

These sanctions, which are administered by the U.S.

Treasury Office of Foreign Assets Control (“OFAC”), take many different forms.

Generally, however, they contain one or more of the following elements:

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Blocked assets (for example, property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC.

Failure to comply with these sanctions can give rise to serious legal and reputational consequences.

Consumer Protection Laws .

The Bank is subject to a number of federal and state laws designed to protect consumers and prohibit unfair or deceptive business practices.

These laws include the Equal Credit Opportunity Act, Fair Housing Act, Home Ownership Protection Act, Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act of 2003 (the “FACT Act”), the Gramm-Leach-Bliley Act (the “GLBA”), the Truth in Lending Act, the CRA, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the National Flood Insurance Act and various state law counterparts.

These laws include the Equal Credit Opportunity Act, Fair Housing Act, Homeowners Protection Act, Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act of 2003 (the “FACT Act”), the Gramm-Leach-Bliley Act (the “GLBA”), the Truth in Lending Act, the CRA, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the National Flood Insurance Act, t he Service Members Civil Relief Act, t he Expedited Funds Availability Act, the Electronic Fund Transfer Act, the Truth in Savings Act, the Right to Financial Privacy Act, laws relating to unfair, deceptive and abusive acts and practices, and various state laws such as usury laws, or laws which are counterparts and/or extensions of the foregoing federal laws.

These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must interact with customers when taking deposits, making loans, collecting loans and providing other services.

Further, the Dodd-Frank Act established the CFPB as an independent agency within the Board of Governors of the Federal Reserve System.

Further, the Dodd-Frank Act established the CFPB as an independent agency within the Federal Reserve System.

The CFPB has the exclusive authority to administer, enforce, and otherwise implement federal consumer financial laws, which includes the power to make rules, issue orders, and issue guidance governing the provision of consumer financial products and services.

The CFPB also has a broad mandate to prohibit unfair or deceptive acts and practices and is specifically empowered to require certain disclosures to consumers and draft model disclosure forms.

Failure to comply with consumer protection laws

and regulations can subject financial institutions to enforcement actions, fines and other penalties.

Failure to comply with consumer protection laws and regulations can subject financial institutions to enforcement actions, fines and other penalties.

In recent years, state authorities have also increased their attention to the enforcement of consumer protection rules, and in some cases, states are permitted to adopt and enforce consumer protection laws and regulations that are stricter than those issued or enforced by the CFPB.

The CFPB has exclusive federal consumer law supervisory authority and primary enforcement authority over insured depository institutions with assets totaling over $10 billion.

Authority for institutions with $10 billion or less rests with the prudential regulator, and in the case of the Bank lies with the FDIC.

Mortgage Reform.

The Dodd-Frank Act prescribes certain standards that mortgage lenders must consider before making a residential mortgage loan, including verifying a borrower’s ability to repay such mortgage loan.

The Dodd-Frank Act also allows borrowers to assert violations of certain provisions of the Truth-in-Lending Act as a defense to foreclosure proceedings.

Under the Dodd-Frank Act, prepayment penalties are prohibited for certain mortgage transactions and creditors are prohibited from financing insurance policies in connection with a residential mortgage loan or home equity line of credit.

The Dodd-Frank Act requires mortgage lenders to make additional disclosures prior to the extension of credit, in each billing statement and for negative amortization loans and hybrid adjustable rate mortgages.

Additionally, the Dodd-Frank Act prohibits mortgage originators from receiving compensation based on the terms of residential mortgage loans and generally limits the ability of a mortgage originator to be compensated by others if compensation is received from a consumer.

Residential Mortgage Restrictions.

The Dodd-Frank Act initiated a number of significant residential mortgage lending reforms that have taken place in recent years.

These reforms include standards that mortgage lenders must consider before making a residential mortgage loan, including verifying a borrower’s ability to repay such mortgage loan.

Borrowers are also allowed to assert violations of certain provisions of the Truth-in-Lending Act as a defense to foreclosure proceedings.

Prepayment penalties are prohibited for certain mortgage transactions and creditors are prohibited from financing insurance policies in connection with a residential mortgage loan or home equity line of credit.

Mortgage lenders are required to make additional disclosures prior to the extension of credit, in each billing statement and for negative amortization loans and hybrid adjustable rate mortgages.

Additionally, mortgage originators are prohibited from receiving compensation based on the terms of residential mortgage loans and are subject to limitations on their ability to be compensated by others if compensation is received from a consumer.

Customer Information Security .

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In addition, the federal banking agencies issued guidelines to assist financial institutions and creditors in the formulation and maintenance of an Identity Theft Prevention Program that satisfies the requirements of the rules.

Rules implementing Section 114 also require credit and debit card issuers to assess the validity of notifications of changes of address under certain circumstances.

Rules implementing Section 114 of the FACT Act also require credit and debit card issuers to assess the validity of notifications of changes of address under certain circumstances.

Additionally, the federal banking agencies issued joint rules under Section 315 of the FACT Act that provide guidance regarding reasonable policies and procedures that a user of consumer reports must employ when a consumer reporting agency sends the user a notice of address discrepancy.

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The Bank is required to provide notice to its customers on an annual basis disclosing its policies and procedures on the sharing of nonpublic personal information.

From time to time, Congress and state legislatures consider additional legislation relating to privacy and other aspects of consumer information.

We cannot predict whether such legislation will be enacted, or what impact, if any, such legislation may have on our business, financial condition or results of operations.

From time to time, Congress and state legislatures consider additional legislation relating to privacy and other aspects of consumer information that could have an impact on our business, financial condition or results of operations.

A number of U.S.

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territories and all 50 states now have data breach laws that require timely notification to individuals, and at times regulators, the media or credit reporting agencies, if a company has experienced the unauthorized access or acquisition of personal information.

Other state laws include the California Consumer Privacy Act (“CCPA”), which was signed into law on June 28, 2018 and took effect on January 1, 2020.

Other state laws include the California Consumer Privacy Act (“CCPA”), which took effect on January 1, 2020.

The CCPA, among other things, contains new disclosure obligations for businesses that collect personal information about California residents and affords those individuals numerous rights relating to their personal information that may affect our ability to use personal information or share it with our business partners.

A second law called the California

Privacy Rights Act (“CPRA”) passed via a ballot referendum in November 2020.

The CPRA expands the scope of the CCPA, imposes new restrictions on behavioral advertising and establishes a new California Privacy Protection Agency which will enforce the law and issue regulations.

Other states have considered and/or enacted similar privacy laws.

A second law called the California Privacy Rights Act (“CPRA”), which goes into effect in 2023, expands the scope of the CCPA, imposes new restrictions on behavioral advertising, and establishes a new California Privacy Protection Agency which will enforce the law and issue regulations.

Similar laws were enacted in Virginia and Colorado in 2021 and go into effect in 2023, and other states have considered and are actively considering legislation along the same lines.

We will continue to monitor and assess the impact of these state laws, which may impose substantial penalties for violations, impose significant costs for investigation and compliance, allow private class-action litigation and carry significant potential liability for our business.

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If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties.

In November 2021, the federal banking agencies published a final rule establishing computer-security incident notification requirements that require a banking organization to notify its primary federal regulator of any “computer security incident” that rises to the level of a “notification incident” as soon as possible and no later than 36 hours after determining that such an incident has occurred.

The rule also requires a bank service provider to notify each affected banking organization customer as soon as possible when the service provider determines it has experienced a computer security incident that has caused, or is reasonably likely to cause, a material service disruption or degradation for four or more hours.

State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations.

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We regularly conduct cybersecurity risk assessments, regularly engage with the Board or appropriate committees on cybersecurity matters, routinely update our incident response plans based on emerging threats, periodically practice implementation of incident response plans across applicable departments, and train officers and employees to detect and report suspicious activity.

Although to date we have not experienced any material losses relating to cyber-attacks or other information security breaches, our systems and those of our customers and third-party service providers are under constant threat, and it is possible that we could experience a significant event in the future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet and digital banking and other technology-based products and services, by us and our consumers.

Climate-Related Risk Management and Regulation.

In recent years, the federal banking agencies and the SEC have increased their focus on climate-related risks impacting the operation of banks, the communities they serve and the financial system as a whole.

Proposals related to climate-related financial and other risks impacting banks are being considered at both the federal and state level.

It is too early to predict to what extent legislative and regulatory proposals will impact community banking organizations such as the Company and the Bank, but we will continue to monitor these developments and the steps that will need to be taken to address any new requirements.

Available Information

Our Internet address is www.firstinternetbancorp.com.

We post important information for investors on our website and use this website as a means for complying with our disclosure obligations under Regulation FD.

Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts.

Investors can easily find or navigate to pertinent information about us, free of charge, on our website, including:

• our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC;

• announcements of investor conferences and events at which our executives talk about our products and competitive strategies.

Archives of some of these events are also available;

• press releases on quarterly earnings, product announcements, legal developments and other material news that we may post from time to time;

• corporate governance information, including our Corporate Governance Principles, Code of Business Conduct and Ethics, information concerning our Board of Directors and its committees, including the charters of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee, and other governance-related policies;

• shareholder services information, including ways to contact our transfer agent;

• opportunities to sign up for email alerts and RSS feeds to have information provided in real time.

The information available on our website is not incorporated by reference in, or a part of, this or any other report we file with or furnish to the SEC.

The Company makes available its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), free of charge on its website at www.firstinternetbancorp.com as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC.

In addition, the SEC maintains an internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business