What changed in this filing

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Item 1. Business

2024-03-13 compared with 2023-03-14 · 58 added, 54 removed, 333 unchanged (25% of the section changed)

6 unchanged sentences

The Bank has three wholly-owned subsidiaries:

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;

First Internet Public Finance Corp., an Indiana corporation that 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 that manages other real estate owned properties as needed;

and SPF15, Inc., an Indiana corporation that owns real estate used primarily for the Bank’s principal office.

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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 and industrial (“C&I”) banking, 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.

Our 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.

Our 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.

We primarily offer construction and investor commercial real estate loans within Central Indiana or on a regional basis and single tenant lease financing on a nationwide basis.

We offer construction, investor commercial real estate loans and single tenant lease financing on a nationwide basis.

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

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Subsequent to Provide being acquired, the acquiring institution has retained most, if not all, of Provide’s loan origination activity and our healthcare finance loan balances have declined.

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 franchise finance business was established in July 2021 in conjunction with our business relationship with ApplePie Capital, a 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.

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

We are one of the fastest-growing lenders in the Small Business Administration (“SBA”) 7(a) program, closing more than $155.4 million in SBA 7(a) loans during 2022 and ranking in the top 30 SBA 7(a) lenders for the SBA’s 2022 fiscal year.

We are one of the fastest-growing lenders in the Small Business Administration (“SBA”) 7(a) program, closing more than $416.1 million in SBA 7(a) loans during the 2023 calendar year, and ranked as the 9 th largest SBA 7(a) lender for the SBA’s 2023 fiscal year.

We also offer a top-ranked small business checking account product to our country’s entrepreneurs.

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

We also offer payment, deposit, card and lending products and services through fintech partnerships, which we intend to grow in future periods.

We also offer payment, deposit, card and lending products and services through partnerships with financial technology companies and platforms (“fintechs”).

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.

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.

As of December 31, 2022, the Company had consolidated assets of $4.5 billion, consolidated deposits of $3.4 billion and stockholders’ equity of $365.0 million.

As of December 31, 2023, the Company had consolidated assets of $5.2 billion, consolidated deposits of $4.1 billion and shareholders’ equity of $362.8 million.

Human Capital

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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 may be a digital bank, but we strongly believe in the power of personal connection and collaboration, resulting in a relationship rich culture that enables us to live to our very best potential.

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

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 strive to maintain an inclusive and diverse 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.

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In 2022, we provided a status update to our ESG Report, highlighting key initiatives and efforts.

One such effort in 2022 was the introduction of mandatory Diversity, Equity & Inclusion (“DEI”) training for executive leadership and all employees.

Our initiatives and efforts continued throughout 2023, as we continue to mandate Diversity, Equity & Inclusion (“DEI”) training for executive leadership and all employees.

The phased training program — including topics such as unconscious bias, sexual harassment, regulatory issues and the benefits of a more diverse workplace — is delivered both in-person and online.

Ongoing quarterly sessions and annual refresher courses will help reinforce the program’s methods and maintain active awareness.

A copy of our ESG Report can be found on our website at www.firstinternetbancorp.com .

See “Available Information” section below for more information.

To further foster inclusion as a norm, our organization promotes and supports the development of employee-led business resource groups, which currently include First Ladies and LIFT (a young professionals group).

Ongoing quarterly sessions and annual refresher courses help reinforce the program’s methods and maintain active awareness.

Meaningful training, an equitable hiring process, expanded hiring pools, and a long-term commitment to fostering a diverse workforce have all resulted in largely exceptional results over the past five years.

In particular, when reviewing the Bank’s employee population, representation of diverse individuals by race and ethnicity increased from 9% in 2019 to 17% in 2023.

During that same 5 year time period, we increased our percentage of racially and ethnically diverse new hires by more than 22%.

Similarly, we have created positive trends in gender diversity, increasing our percentage of women new hires by 6% to 57% of our total new hires and increasing our percentage of women promotions by 20% to 58% of all promotions.

To further foster inclusion as a norm, our organization promotes and supports the development of employee-led business resource groups, which currently include First Ladies, LIFT (a professional development group), and BELONG (a group engaged in celebrating and learning about our unique experiences, heritages, etc.).

These groups magnify traditionally underrepresented voices.

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The internal training program focuses on topics such as privacy, fair banking, skills-training and many industry specific topics and regulations.

And the leadership training program features courses and curriculum designed to grow and support up-and-coming leaders, with support from internal sponsors and an external, professional coach.

The leadership training program features curriculum designed to help leaders understand management duties essential to their role.

Community service is a foundational tenet.

We commit time, talent and financial support to community initiatives that inspire passion among our team members and support the communities within which we live and work.

We allow paid volunteer time and sponsor community initiatives such as The Indy Pride Rainbow 5k, the Marian University-Indianapolis Diversity in Leadership Program and Habitat for Humanity.

We allow paid volunteer time and sponsor community initiatives such as Junior Achievement Biztown and Habitat for Humanity.

Team members serve on non-profit and other Boards/committees, with organizations such as Indianapolis Neighborhood Housing Partnership (INHP), Indy Chamber, and the Indiana Department of Workforce Development, to assist in meeting the community’s most pressing needs.

The result is a sense of pride and increased engagement within the Bank that serves as a catalyst for the greater good.

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For our construction, investor CRE, and C&I lending activities, we compete with super-regional, regional and community banks operating in the Midwest and Southwest regions of the United States.

For our single tenant lease financing activities, we compete nationally with regional banks, community banks and credit unions, as well as life insurance companies

and commercial mortgage-backed securities lenders.

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

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

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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.

In addition, the Federal Reserve has the authority to issue orders to bank holding companies to cease and desist from unsafe or

unsound banking practices and from violations of conditions imposed by, or violations of agreements with, the Federal Reserve.

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.

In addition, the Federal Reserve has the authority to issue orders to bank holding companies to cease and desist from unsafe or unsound banking practices and from violations of conditions imposed by, or violations of agreements with, the Federal Reserve.

The Federal Reserve is also empowered 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.

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

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

As of December 31, 2022, the Bank was was well capitalized, as defined by FDIC regulations.

As of December 31, 2023, the Bank was well capitalized, as defined by FDIC regulations.

Prompt Corrective Action.

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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.

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.

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Activities, Acquisitions, and Changes in Control.

The BHCA 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.

The BHCA 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.

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.

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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 performance under the Community Reinvestment Act of 1977, as amended (the “CRA”).

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.

The federal banking regulators are also required to consider 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.

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Under this guidance, banking organizations must review their compensation programs to ensure that they:

(i) provide employees with incentives that appropriately balance risk and reward and that do not encourage imprudent risk, (ii) are compatible with effective controls and risk management, and (iii) are supported by strong corporate governance, including active and effective oversight by the banking organization's board of directors.

(i) provide employees with incentives that appropriately balance

risk and reward and that do not encourage imprudent risk, (ii) are compatible with effective controls and risk management, and (iii) are supported by strong corporate governance, including active and effective oversight by the banking organization's board of directors.

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.

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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 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.

The Bank is awaiting FDIC approval for its proposed CRA Strategic Plan to cover the time period of January 1, 2024 through December 31, 2027.

The Bank’s previous CRA Strategic Plan covered the time period of January 1, 2021 through December 31, 2023.

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

Failure of an institution to receive at least a “Satisfactory” rating could inhibit such institution or its holding company from engaging in certain activities or pursuing acquisitions of other financial institutions.

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.

Transactions with Affiliates .

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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.

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.

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

Standards for Safety and Soundness .

Pursuant to the FDIA, the federal banking agencies have adopted a set of guidelines prescribing safety and soundness standards.

These guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset

growth, asset quality, earnings standards, compensation, fees and benefits.

These guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings standards, compensation, fees and benefits.

In general, the guidelines require appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines.

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

Additionally, as of December 31, 2023, the Bank had access to $1.2 billion in unused borrowing capacity at the Federal Reserve and FHLB.

Federal Home Loan Bank System .

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The Bank, as a member of the FHLB, is required to acquire and hold shares of FHLB capital stock.

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, 2022 of $28.4 million.

While the required percentage of stock ownership is subject to change by the FHLB, the Bank is following this requirement with an investment in FHLB stock at December 31, 2023 of $28.4 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.

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Treasury any cash transactions involving more than $10,000.

In addition, financial institutions are required to file suspicious activity reports for transactions that involve more than $5,000 and which the financial institution knows, suspects or has reason to suspect involves illegal funds, is designed to evade the requirements of the BSA or has no lawful purpose.

In addition, financial

institutions are required to file suspicious activity reports for transactions that involve more than $5,000 and which the financial institution knows, suspects or has reason to suspect involves illegal funds, is designed to evade the requirements of the BSA or has no lawful purpose.

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”), which amended the BSA, is designed to deny terrorists and others the ability to obtain anonymous access to the U.S.

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

The AMLA is intended to comprehensively reform and modernize U.S.

The AMLA was intended to comprehensively reform and modernize U.S.

anti-money laundering laws.

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 U.S.

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

required 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.

and expanded 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 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.

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Residential Mortgage Restrictions.

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

The Dodd-Frank Act initiated a number of significant residential mortgage lending reforms.

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.

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.

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Customer Information Security .

The federal banking agencies have adopted final guidelines for establishing standards for safeguarding nonpublic personal information about customers.

The federal banking agencies have adopted final guidelines establishing standards for safeguarding nonpublic personal information about customers.

These guidelines implement provisions of the GLBA.

information (as defined under the GLBA), to protect against anticipated threats or hazards to the security or integrity of such information and to protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.

Specifically, the Information Security Guidelines established by the GLBA require each financial institution, under the supervision and ongoing oversight of its board of directors or an appropriate committee thereof, to develop, implement and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information (as defined under the GLBA), to protect against anticipated threats or hazards to the security or integrity of such information and to protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.

The federal banking regulators have issued guidance for banks on response programs for unauthorized access to customer information.

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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”), 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.

A second law called the California Privacy Rights Act (“CPRA”), which went 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, 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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The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption, and maintenance of the institution’s operations after a cyber-attack involving destructive malware.

A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack.

A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and

address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack.

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.

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 expect this trend of increased activity and changes at the state level to continue.

In 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents.

Recently, the SEC has enacted laws requiring public companies to disclose material cybersecurity risks and incidents along with cybersecurity protections and governance processes.

These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.

See Part I, Item 1C.

Cybersecurity of this Annual Report on Form 10-K for additional information.

In support of our digital banking platform, we rely heavily on electronic communications and information systems to conduct our operations and store sensitive data.

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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