Letter to Bancorp Shareholders

December 11, 2009

Dear Shareholder,

As 2009 comes to a close, I am pleased to report that this economy, which is widely considered to be at its weakest since the Great Depression, has left us bruised but not beaten.

As of September 30, 2009, First Internet Bancorp had reported a year to date loss of $59,475.  This is the first time since 2000 that we are reporting a year to date loss after three quarters.  Most financial institutions with significant consumer loan exposure have been adversely affected by this difficult environment. Your institution has been affected as well.

We have continued to increase our loan loss reserves and taken loan charge offs where appropriate. During 2009, we have increased our loan loss reserves over 60 percent, and the total now exceeds $6 million.  We have applied additional resources toward monitoring our loan portfolio, increasing our communications with major borrowers, obtaining new appraisals on real estate loans, and, when prudent, taking appropriate actions to reduce the Bank’s risk of loss.  We are also reviewing our investment securities portfolio and evaluating the goodwill recorded on the balance sheet from our acquisition of Landmark Financial Corporation for possible adjustments.

Another significant factor in our YTD financial results has been FDIC premiums. Our FDIC insurance premium increased $366,429 over the prior year. In addition, all FDIC-insured institutions were charged a special assessment in June. Our portion totaled $251,250.  We anticipate that we will make a payment of $3,500,000 at year end to the FDIC to prepay future premiums covering the next three years to help shore up the insurance fund.  This will be recorded as a prepaid expense and create a significant non-interest earning asset on our balance sheet.

A silver lining in our 2009 YTD results is that fee income from our secondary market mortgage operations, which came from our 2007 Landmark Financial Corporation acquisition, is up 205% year over year.  A second positive development for those of you who have followed First Internet Bank and First Internet Bancorp over the years: Our net interest margin is over 2.9% for the first time in the history of the bank while our non-interest expenses remains well below the industry average.

As the founder of First Internet Bank, I take tremendous pride in our asset generation efforts related to the expanded and modified consumer lending programs that reflect the new banking environment and utilize the technology advantage of our Internet model.  These advances and other improvements in the day to day fundamentals of the bank have enabled us to nearly break-even on earnings, despite elevated loan losses and increased insurance premiums. Provided certain factors outside our control do not worsen, our preliminary forecasts show a return to profitability in 2010.

Our capital ratios are strong, and, as of September 30, 2009, the book value of a share of First Internet Bancorp was $25.38, considerably higher than the market value of $5.30 on December 4, 2009.  We believe that the current valuation of First Internet Bancorp (OTCBB: FIBP) is significantly understated.  Be assured, the management team and Board will continue to make increasing shareholder value a priority.

On behalf of all of us at First Internet Bancorp and First Internet Bank, we appreciate your continued support.

Sincerely,

David B. Becker
Chairman and CEO