Digital Transformation And Fintech Trends Will Expand Opportunities

Key Takeaways

• Rapid loan origination growth and sustained low-cost fintech deposits position the company for margin expansion and outperformance versus peer expectations.
  
• Digital scalability and demographic trends drive long-term efficiency, profitability, and potential for strategic M&A or acquisition.
  
• Elevated credit and funding costs, operational concentration, regulatory pressures, and rising competition threaten profitability, brand growth, and long-term revenue sustainability.

Catalysts

Operates as the bank holding company for First Internet Bank of Indiana that provides various commercial, small business, consumer, and municipal banking products and services to individuals and commercial customers in the United States.

• While analyst consensus expects strong loan growth and higher origination yields to lift revenue and net interest income, the pace of loan origination-especially in SBA and specialized lending-could significantly surpass expectations, given robust pipelines and management's confidence in achieving and exceeding aggressive volume targets, which would drive much faster revenue expansion than peers anticipate.
  
• Analysts broadly agree that deposit cost reductions from fintech partnerships will aid net interest margins, but given the explosive growth in low-cost, sticky fintech deposits and the company's success in taking CD costs even lower, First Internet Bancorp may see a structural and sustained margin advantage that materially expands net margins well beyond current forecasts.
  
• As a fully digital bank, First Internet Bancorp's technology-led cost structure offers unparalleled scalability; continued investments in digital infrastructure will likely drive industry-leading efficiency ratios, supporting long-term operating leverage and a step-function increase in net profitability.
  
• The ongoing shift in consumer preferences, especially among Millennials and Gen Z who favor digital-native banks, positions First Internet Bancorp to achieve outsized growth in its deposit base and cross-selling income streams as these segments enter their prime borrowing and earning years, fueling rapid, sustainable revenue and earnings growth.
  
• Accelerating industry consolidation and open banking adoption place First Internet Bancorp as either a prime acquirer of smaller fintechs or an attractive acquisition target, providing significant potential for valuation re-rating and immediate positive impacts to book value and earnings per share.

First Internet Bancorp Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on First Internet Bancorp compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming First Internet Bancorp's revenue will grow by 29.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 14.6% today to 53.9% in 3 years time.
• The bullish analysts expect earnings to reach $124.8 million (and earnings per share of $14.2) by about September 2028, up from $15.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 2.8x on those 2028 earnings, down from 13.6x today. This future PE is lower than the current PE for the US Banks industry at 11.9x.
• Analysts expect the number of shares outstanding to grow by 0.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.26%, as per the Simply Wall St company report.

First Internet Bancorp Future Earnings Per Share Growth

Risks

• Persistent elevated provision expense and nonperforming loans in the franchise finance and SBA portfolios signal that credit quality issues remain unresolved, leading management to forecast a significantly higher provision for loan losses-90 to 100 basis points annually through 2026-which could continue to suppress net margins and earnings.
  
• The company's internet-only, nationwide lending model concentrates operational risk, leaving it vulnerable to regional loan portfolio underperformance or adverse economic cycles, which could increase credit losses and volatility in net income.
  
• Despite recent fintech deposit growth, heavy reliance on brokered and online deposits leaves First Internet Bancorp exposed to rising deposit betas and heightened competition for funding, which could structurally elevate the cost of funds and compress net interest margin in periods of industry-wide deposit rate pressure.
  
• Intensifying industry competition from larger banks and disruptive non-bank digital fintechs poses a long-term threat to the company's limited brand recognition and scale, potentially constraining customer acquisition and limiting sustainable revenue growth.
  
• Regulatory and compliance changes-including recent modifications to SBA program standards and anticipated future requirements related to cybersecurity and consumer protection-risk driving up operating expenses and legal risks, which could erode profitability and dampen long-term returns on equity.

Valuation

• The assumed bullish price target for First Internet Bancorp is $35.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of First Internet Bancorp's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $35.0, and the most bearish reporting a price target of just $25.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $231.4 million, earnings will come to $124.8 million, and it would be trading on a PE ratio of 2.8x, assuming you use a discount rate of 8.3%.
• Given the current share price of $24.13, the bullish analyst price target of $35.0 is 31.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.