UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K

|(Mark One)
|----------
|þ         
|          
| ̈         



Commission File Number 001-35750



|First
    Internet Bancorp                            
|------------------------------------------------------
|(Exact Name of Registrant as Specified in its Charter)



|Indiana                                  |  | 20-348991          
|---------------------------------------- |  | -------------------
|(State or other jurisdiction of          |  | (I.R.S. Employer   
|incorporation or organization)           |  | Identification No.)
|                                         |  |                    
|8888 Keystone Crossing, Suite 1700       |  |                    
|Indianapolis, Indiana                    |  | 46240              
|(Address of principal executive offices) |  | (Zip Code)         



|(317) 532-7900                                      
|----------------------------------------------------
|(Registrant’s telephone number, including area code)



Securities registered pursuant
to Section 12(b) of the Act:                 Common
Stock, without par value



Securities registered pursuant
to Section 12(g) of the Act:                 None



Indicate by check mark whether the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.	                                                                                                                                             	Yes  ̈ No þ



Indicate by check mark whether the
registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.                	                                                                                                       Yes  ̈
No þ



Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. 	                         Yes  ̈ No þ



Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant
was required to submit and post such files).         Yes  ̈ No  ̈



Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.                                           þ



Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined
in Rule 12b-2 of the Exchange Act).



|Large Accelerated Filer  ̈                                             | Accelerated Filer  ̈        
|--------------------------------------------------------------------- | ---------------------------
|                                                                      |                            
|Non-accelerated Filer  ̈ (Do not check if a smaller reporting company) | Smaller Reporting Company þ



Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ̈
No þ



The aggregate market value of common stock
held by non-affiliates of the registrant as of June 29, 2012, the last business day of the registrant’s most recently completed
second fiscal quarter, was approximately $26.3 million, based on the closing sale price for the registrant’s common stock
on that date. For purposes of determining this number, all officers and directors of the registrant are considered to be affiliates
of the registrant. This number is provided only for the purpose of this report and does not represent an admission by either the
registrant or any such person as to the status of such person.



As of March 25, 2013, the registrant
had 1,876,782 shares of common stock issued and outstanding.



Documents Incorporated By Reference



Portions of our Proxy Statement for the annual meeting of shareholders
to be held on May 20, 2013 are incorporated by reference in Part III.











Forward-Looking Statements



This annual report on Form 10-K contains
forward-looking statements. In some cases, you can identify forward-looking statements by the following words: “anticipate,”
“believe,” “continue,” “could,” “estimate,” “expect,” “intend,”
“may,” “ongoing,” “plan,” “potential,” “predict,” “project,”
“should,” “will,” “would” or the negative of these terms or other comparable terminology, although
not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or
results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved.
Forward-looking statements are based on information available at the time the statements are made and involve known and unknown
risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially
different from the information expressed or implied by the forward-looking statements in this report. These factors include:



| | • | Changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, that
could lead to restrictions on activities of banks generally or First Internet Bank of Indiana (the “Bank”) in particular,
more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, regulation or prohibition
of certain income producing activities or changes in the secondary market for loans and other products;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Failures of or interruptions in the communications and information systems on which we rely to conduct our business could reduce
our revenues, increase our costs or lead to disruptions in our business;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | General economic conditions, whether national or regional, and conditions in the lending markets in which we participate that
may hinder our ability to increase lending activities or have an adverse effect on the demand for our loans and other products,
our credit quality and related levels of nonperforming assets and loan losses, and the value and salability of the real estate
that we own or that is the collateral for our loans;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Competitive factors, including competition with national, regional and community financial institutions, that may lead to pricing
pressures that reduce the yields the Bank earns on loans and increase rates the Bank pays on deposits, the loss of our most valued
customers, defection of key employees or groups of employees or other losses;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Our plans to grow our commercial real estate and commercial and industrial loan portfolios which may carry greater risks of
non-payment or other unfavorable consequences;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The loss of any key members of senior management; or
| | - | ----------------------------------------------------



| | • | Other risk factors included under “Risk Factors” in this annual report on Form 10-K.
| | - | ------------------------------------------------------------------------------------



Furthermore, forward-looking statements
are subject to risks and uncertainties related to our ability to, among other things: generate loan and deposit balances at projected
spreads; sustain fee generation including gains on sales of loans; maintain asset quality and control risk; limit the amount of
net loan charge-offs; adapt to changing customer deposit, investment and borrowing behaviors; control expenses; dispose of properties
or other assets obtained through foreclosures at expected prices and within a reasonable period of time; attract and retain key
personnel; and monitor and manage our financial reporting, operating and disclosure control environments.



You should carefully review the disclosures
and risk factors described in this and other documents we file form time to time with the U.S. Securities and Exchange Commission
(“SEC”), including this annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form
8-K, each as amended from time to time. We cannot assure you that the forward-looking statements in this report will prove to be
accurate and therefore you are encouraged not to place undue reliance on forward-looking statements. You should read this report
completely. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even
though our situation may change in the future.





(i)







PART
I



| | ITEM 1. | BUSINESS
| | ------- | --------



General



First Internet Bancorp is a bank holding
company that conducts its business activities through its subsidiary, First Internet Bank of Indiana, an Indiana chartered bank
(the “Bank”). The Bank was the first state-chartered, FDIC-insured Internet bank. The Bank offers a full complement
of products and services on a nationwide basis. We do so primarily over the Internet and have no branch offices.



We commenced banking operations in 1999
and grew organically in our early years by adding new customers, products and capabilities. In 2007, we acquired Indianapolis-based
Landmark Financial Corporation. The acquisition merged Landmark Savings Bank, FSB, into the Bank. The Landmark acquisition added
a small number of deposit customers, primarily from Central Indiana, to the Bank; more importantly, it added a turnkey retail mortgage
lending operation that we could expand through our Internet platform. More recently, we have added commercial real estate (“CRE”)
and commercial and industrial (“C&I”) lending services to meet the needs of high-quality, underserved commercial
borrowers.



Despite the downturn in banking that began
in 2008, we have experienced substantial growth while maintaining a strong capital position, low non-performing assets, and a stable
core deposit base. From December 31, 2010, total assets have increased by 26.3% from $503.9 million to $636.4 million
at December 31, 2012. During the same period, total deposits grew from $422.7 million to $530.7 million, an increase
of 25.6%.



Business Strategies



Our main objective is to grow in size while
enhancing our profitability. We expect to grow organically on a national basis in our consumer (retail) activities and on a regional
basis in our commercial (wholesale) activities. To achieve this objective, we are pursuing the following strategies:



Grow Nationwide Internet Activities.We offer our retail products and services throughout the United States through our web-based operations. Our retail banking
offering appeals to consumers who require online access to their accounts but do not need a branch network for making deposits
or conducting transactions in person. We believe that we are well positioned to continue to take advantage of the consumer-driven
shift from branch banking to direct banking. We believe Internet banking is now the preferred banking channel by consumers. According
to a 2011 American Bankers Association survey, the number of bank customers who prefer to do their banking online increased from
21% to 62% between 2007 and 2011, while those who prefer branch banking has declined from 39% to 20% over the same period.



Our online banking platform is outsourced
and is scalable without requiring additional fixed-cost investments to support growth.



Increase Non-Interest Income.In
2012, we closed 2,623 residential mortgage loans. This was a 109% increase over 2011. Over 97% of these loans were sold into the
secondary market, thereby contributing to non-interest income and not increasing the Bank’s assets.



Increase Loan Volume and Diversify Loan
Portfolio. While maintaining a conservative approach to lending, we expect to continue to pursue growth in our CRE and C&I
loan portfolios. We entered into these markets by hiring teams of experienced bankers with lending expertise in specific industries
and giving them authority to make certain pricing and credit decisions, avoiding the bureaucratic structure of larger banks. During
2012, these portfolios grew from $45.6 million to $99.2 million, or 117.5%, and represented 28.0% of the total loan portfolio
at December 31, 2012.



Maintain Sound Asset Quality. We
strive to maintain the sound asset quality that has been representative of our recent operations. As we continue to diversify and
increase our lending activities, we may face higher rates of nonpayment and other increased risks. We intend to continue to employ
the strict underwriting guidelines and comprehensive loan review process that have contributed to our low incidence of nonperforming
assets and minimal charge-offs in relation to our size.



1







Continue Focus on Technology and Efficiency.
We have invested significantly in the infrastructure required to operate a real-time, Internet-only business model and believe
that our existing data processing infrastructure can accommodate additional growth while minimizing operational costs through economies
of scale. Our core banking platform is licensed software operated and maintained by Bank employees. Expanded banking operations
could require additional software license or hardware costs in order to support the growth; however, these expenses are not expected
to be significant. We plan to maintain our stringent cost control practices and policies.



Expand Market Share Through Disciplined
Acquisition Strategy. We may expand on an opportunistic basis, primarily as a means of securing additional asset generation,
for example, by acquiring a bank with an established SBA loan program.



Lending Activities



Residential Mortgage Lending.We
offer first-lien residential mortgage loans in 49 states and second-lien (home equity) loans as well as home equity lines of credit
in 44 states. We offer loans for homebuyers (purchase money) as well as existing homeowners who wish to refinance their current
loans. The low interest rate environment has made refinancing an attractive opportunity for homeowners in the past two years. Approximately
81%, 81% and 87% of the loans we originated in 2010, 2011 and, 2012, respectively, were refinances. While we expect the low interest
rate environment to continue, we have begun introducing programs to increase the proportion of purchase money loans, as this will
provide a reliable stream of business in a rising rate environment.



We attract creditworthy loan applicants
through disciplined online lead generation efforts and through repeat business from past customers. We track our acquisition costs
vigilantly and discontinue any lead sources that are not contributing to a positive margin. We use customer relationship management
tools to track prospects and identify the most likely sales opportunities on which to focus our efforts. For 2012, the weighted
average credit score of our mortgage customer was 775 at time of origination.



We currently sell the vast majority of our
conforming conventional (fixed rate) loans to the secondary market and thereby avoid the potential interest rate risk of these
loans. We retain variable rate non-conforming (jumbo) loans in our portfolio. As rates rise, we will have the opportunity to retain
conforming conventional loans on an opportunistic basis.



We also actively promote home equity loans
and lines of credit through our Internet channel, leveraging our robust yet easy-to-use customer-facing toolset. We continue to
expand our efforts to complement our first lien product.



Consumer Lending. While we offer
consumer loans and credit cards through our website to a nationwide consumer base, the majority of our consumer loans have been
acquired through indirect dealer networks, primarily horse trailers and recreational vehicles (RVs). We expanded our recreational
product dealer network in 2011 and implemented a new loan origination system in Q1 2012 to improve the customer experience and
document tracking.



Commercial Real Estate (CRE) Lending.
We began offering CRE loans in Indiana and other parts of the Midwest in 2010. We have a team of five full-time employees, most
with large regional bank experience. We expect that the majority of our CRE loans will be in office, retail, industrial, and multifamily
loans in the Midwest, with credit tenant lease financing on a nationwide basis. While many banks in Central Indiana must address
legacy problem CRE loans in their portfolios, we are in a position to meet pent-up demand from qualified borrowers. In 2011, the
first full year of CRE loan operations, we attracted $49.8 million in CRE loan commitments. In early 2012, we made an opportunistic
purchase of a small commercial real estate loan pool consisting of eight (8) seasoned term loans with an aggregate principal balance
of $8.9 million.  The loans in this pool were secured by first mortgages on single tenant commercial properties, each
under long term lease arrangements to major national or regional companies.  This acquisition aligned with our newly formulated
strategy to enter into the national credit tenant lease financing market.  Purchasing seasoned loans that fully amortized
within the remaining lease terms also helped us with diversification of the loan portfolio as we began focusing on real estate
markets over a wider geographical area with longer term leasing profiles and more predictable project cash flows.



2







We believe our CRE portfolio will continue
its growth in two ways: (1) regionally, in more traditional short-term financing arrangements supporting local developers
and conventional property types (office, retail, multi-family, industrial, residential development & construction) as well
as (2) nationally, where we will concentrate on longer term financing of  properties occupied by single tenants committed
to long-term leases with borrowers providing significant cash equity in relation to the debt structured. We entered the national
credit tenant lease financing market in January 2012 with the purchase of a pool of eight loans as described above. We have not
made any additional purchases of CRE loans, and such purchases are not part of our growth strategy.



Commercial and Industrial (C&I) Lending.
Historically, we only originated C&I loans occasionally as a result of referrals we received from customers and third parties.
We began focusing on C&I loan originations in the Central Indiana area in late 2011. We currently have a team of seven full-time
employees, most with large regional bank experience and strong local relationships. The recent increase in our C&I lending
activity is intended to further diversify our lending portfolio and increase opportunities for new business. In addition to commercial
loan originations, C&I lending activity can result in new deposits, including fee income from treasury management products,
and opportunities to cross-sell other products such as residential mortgage loans and consumer home equity and installment loans.
New C&I customers (and their advisors) also serve as referral sources for additional new business opportunities. We recently
began piloting expanded online account access and treasury management service capabilities in order to attract deposits from C&I
borrowers (which diversifies our deposit mix and reduces our cost of funds) and to enhance our non-interest income.



Loan Portfolio Analysis
(dollars in thousands)



|                                                   |  | December
    31, |        
|-------------------------------------------------- |  | ---------------- | -------
|                                                   |  | 2012             |        
|Real estate loans:                                 |  |                  |        
|Residential                                        |  | $                | 128,815
|Commercial                                         |  |                  | 84,918 
|Total real estate loans                            |  |                  | 213,733
|Commercial loans                                   |  |                  | 14,271 
|Consumer loans                                     |  |                  | 126,486
|                                                   |  |                  | 354,490
|Less:                                              |  |                  |        
|Net deferred loan fees,
    premiums and discounts |  |                  | 3,671  
|Allowance
    for losses                           |  |                  | (5,833 
|Total loans                                        |  | $                | 352,328



Loan Maturities



The following table shows the contractual
maturity distribution intervals of the outstanding loans in our portfolio as of December 31, 2012.



(dollars in thousands)



|                               |  | Real Estate |         |  |            |   |        |            |  |   |          | 
|------------------------------ |  | ----------- | ------- |  | ---------- | - | ------ | ---------- |  | - | -------- | 
|At December 31, 2012           |  | Residential |         |  | Commercial |   |        | Commercial |  |   | Consumer | 
|Amounts due in:                |  |             |         |  |            |   |        |            |  |   |          | 
|One year or less               |  | $           | 4,368   |  |            | $ | 11,052 |            |  | $ | 5,537    | 
|More than one to two years     |  |             | 8,891   |  |            |   | 8,754  |            |  |   | 3,153    | 
|More than two to three years   |  |             | 2,127   |  |            |   | 1,495  |            |  |   | 637      | 
|More than three to five years  |  |             | 995     |  |            |   | 31,203 |            |  |   | 4,620    | 
|More than five to ten years    |  |             | 1,055   |  |            |   | 26,814 |            |  |   | –        | 
|More than ten to fifteen years |  |             | 3,490   |  |            |   | 4,852  |            |  |   | 324      | 
|More than fifteen years        |  |             | 107,889 |  |            |   | 748    |            |  |   | –        | 
|Total                          |  | $           | 128,815 |  |            | $ | 84,918 |            |  | $ | 14,271   | 



3







Fixed vs. Adjustable Rate Loans



The following table shows the distribution
of the outstanding loans in our portfolio between those with variable or floating interest rates and those with fixed or predetermined
interest rates as of December 31, 2012.





|                        |  | Due after December 31, 2012 |        
|----------------------- |  | --------------------------- | -------
|(dollars in thousands)  |  | Fixed                       |        
|Real estate loans:      |  |                             |        
|Residential             |  | $                           | 11,049 
|Commercial              |  |                             | 40,248 
|Total real estate loans |  |                             | 51,297 
|Commercial loans        |  |                             | 5,430  
|Consumer loans          |  |                             | 125,081
|Total loans             |  | $                           | 181,808



Loan Activity
(dollars in thousands)



|                                    |  | Year ended December 31, |        
|----------------------------------- |  | ----------------------- | -------
|                                    |  | 2012                    |        
|Total loans at beginning of period: |  | $                       | 331,805
|                                    |  |                         |        
|Loans originated:                   |  |                         |        
|Real estate loans:                  |  |                         |        
|Residential                         |  |                         | 4,775  
|Commercial                          |  |                         | 35,861 
|Commercial loans                    |  |                         | 7,467  
|Consumer loans                      |  |                         | 24,572 
|Total loans originated              |  |                         | 72,675 
|                                    |  |                         |        
|Loans purchased:                    |  |                         |        
|Real estate loans:                  |  |                         |        
|Residential                         |  |                         | –      
|Commercial                          |  |                         | 8,877  
|Commercial loans                    |  |                         | –      
|Consumer loans                      |  |                         | –      
|Total loans purchased               |  |                         | 8,877  
|                                    |  |                         |        
|Add (Deduct):                       |  |                         |        
|Principal repayments                |  |                         | (52,055
|Net other                           |  |                         | (6,812 
|                                    |  |                         |        
|Net loan activity                   |  |                         | 22,685 
|Total loans at end of period        |  | $                       | 354,490



4







Non-Performing Assets



Loans are reviewed at least quarterly and
any loan whose collectability is doubtful is placed on non-accrual status. Loans are placed on non-accrual status when either principal
or interest is 90 days or more past due, unless, in the judgment of management, the loan is well collateralized and in the process
of collection. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on the assessment
of the ultimate collectability of the loan. Restructured loans include troubled debt restructurings that involved forgiving a portion
of interest or principal or making loans at a rate materially less than the market rate to borrowers whose financial condition
had deteriorated. Foreclosed and repossessed assets include assets acquired in the settlement of loans. The following table sets
forth the amounts and categories of non-performing assets in our portfolio as of the dates indicated.



|(dollars in thousands)                                       |  | December 31, |       
|------------------------------------------------------------ |  | ------------ | ------
|                                                             |  | 2012         |       
|Non-accrual loans(1)                                         |  |              |       
|Real estate loans:                                           |  |              |       
|Residential                                                  |  | $            | 1,389 
|Commercial                                                   |  |              | 2,362 
|Total real estate loans                                      |  |              | 3,751 
|Commercial loans                                             |  |              | –     
|Consumer loans                                               |  |              | 155   
|Total non-accrual loans                                      |  |              | 3,906 
|                                                             |  |              |       
|Accruing loans past due 90 days or more:                     |  |              |       
|Real estate loans:                                           |  |              |       
|Residential                                                  |  |              | 450   
|Commercial                                                   |  |              | –     
|Total real estate loans                                      |  |              | 450   
|Commercial loans                                             |  |              | –     
|Consumer loans                                               |  |              | 21    
|Total accruing loans past due 90 days or more                |  |              | 471   
|                                                             |  |              |       
|Total non-accrual and 90 days or more past due loans         |  |              | 4,377 
|                                                             |  |              |       
|Real estate owned:                                           |  |              |       
|Residential                                                  |  |              | 265   
|Commercial                                                   |  |              | 3,401 
|Other                                                        |  |              | –     
|Total real estate owned                                      |  |              | 3,666 
|                                                             |  |              |       
|Other non-performing assets                                  |  |              | 2,253 
|                                                             |  |              |       
|Total non-performing assets                                  |  |              | 10,296
|Troubled debt restructurings not included in non-accruals    |  |              | 1,412 
|Troubled debt restructurings and total non-performing assets |  | $            | 11,708








(1) Includes non-performing troubled debt restructurings.





5







|(dollars in thousands)                                                       |  | December 31, |      
|---------------------------------------------------------------------------- |  | ------------ | -----
|                                                                             |  | 2012         |      
|Troubled debt restructurings:                                                |  |              |      
|Real estate loans:                                                           |  |              |      
|Residential – Accruing                                                       |  | $            | 1,092
|Residential – Non-accruing                                                   |  |              | 29   
|Commercial – Non-accruing                                                    |  |              | 510  
|Total real estate loans                                                      |  |              | 1,631
|Commercial loans                                                             |  |              | –    
|Consumer loans – Accruing                                                    |  |              | 319  
|Consumer loans – Non-accruing                                                |  |              | 20   
|Total troubled debt restructurings                                           |  | $            | 1,970
|                                                                             |  |              |      
|Total non-performing loans to total loans                                    |  |              | 1.23 
|Total non-performing assets to total assets                                  |  |              | 1.62 
|Total non-performing assets and troubled debt restructurings to total assets |  |              | 1.84 



Classified Assets
(dollars in thousands)



|                        |  | December 31, |      
|----------------------- |  | ------------ | -----
|                        |  | 2012         |      
|Special mention assets  |  | $            | 2,032
|Substandard assets      |  |              | 2,467
|Doubtful assets         |  |              | –    
|Loss assets             |  |              | –    
|Total classified assets |  | $            | 4,499



Delinquencies
(dollars in thousands)



|                        |  | December 31,        |      
|----------------------- |  | ------------------- | -----
|                        |  | 2012                |      
|                        |  | 30-59 Days Past Due |      
|Real estate loans:      |  |                     |      
|Residential             |  | $                   | 130  
|Commercial              |  |                     | –    
|Total real estate loans |  |                     | 130  
|Commercial loans        |  |                     | –    
|Consumer loans          |  |                     | 1,025
|Total                   |  | $                   | 1,155



Allocation of Allowance for Loan Losses



The determination of the allowance for loan losses and the related
provision is one of our critical accounting policies that is subject to significant estimates, as previously discussed. The current
level of the allowance for loan losses is a result of management’s assessment of the risks within the portfolio based on
the information obtained through the credit evaluation process. We utilize a risk-rating system on non-homogenous CRE and C&I
loans that includes regular credit reviews to identify and quantify the risk in the commercial portfolio. Our management conducts
quarterly reviews of the entire loan portfolio and evaluates the need to establish allowances on the basis of these reviews.



Management actively monitors asset quality and, when appropriate,
charges off loans against the allowance for loan losses. Although management believes it uses the best information available to
make determinations with respect to the allowance for loan losses, future adjustments may be necessary if economic conditions differ
substantially from the economic conditions in the assumptions used to determine the size of the allowance for loan losses.



6







The following table reflects allowance for loan losses and its
allocations for the periods indicated.



(dollars in thousands)





|                                    |  | December
    31, |      
|----------------------------------- |  | ---------------- | -----
|                                    |  | 2012             |      
|                                    |  | Amount           |      
|Real estate loans:                  |  |                  |      
|Residential                         |  | $                | 1,149
|Commercial                          |  |                  | 3,107
|Commercial loans                    |  |                  | 371  
|Consumer loans                      |  |                  | 1,206
|Total
    allowance for loan losses |  | $                | 5,833





Loan Loss Experience



The following table reflects activity in allowance for loan
losses for the periods indicated and selected related statistics.



|(dollars in thousands)                                                |  | Fiscal Year ended  December 31, |       
|--------------------------------------------------------------------- |  | ------------------------------- | ------
|                                                                      |  | 2012                            |       
|Allowance at beginning of period:                                     |  | $                               | 5,656 
|Provision for loan losses                                             |  |                                 | 2,852 
|Charge offs:                                                          |  |                                 |       
|Real estate loans:                                                    |  |                                 |       
|Residential                                                           |  |                                 | (509  
|Commercial                                                            |  |                                 | (1,464
|Commercial loans                                                      |  |                                 | –     
|Consumer loans                                                        |  |                                 | (1,438
|Total charge-offs                                                     |  |                                 | (3,411
|                                                                      |  |                                 |       
|Recoveries:                                                           |  |                                 |       
|Real estate loans:                                                    |  |                                 |       
|Residential                                                           |  |                                 | 148   
|Commercial                                                            |  |                                 | –     
|Commercial loans                                                      |  |                                 | 75    
|Consumer loans                                                        |  |                                 | 513   
|Total recoveries                                                      |  |                                 | 736   
|                                                                      |  |                                 |       
|Net charge-offs                                                       |  |                                 | (2,675
|                                                                      |  |                                 |       
|Allowance at end of period                                            |  | $                               | 5,833 
|                                                                      |  |                                 |       
|Allowance to non-performing loans                                     |  |                                 | 133.26
|Allowance to total loans outstanding at end of period                 |  |                                 | 1.65  
|Net annualized charge-offs to average loans outstanding during period |  |                                 | (0.69 



Underwriting Procedures and Standards



Loan Approval Procedures and Authority.
Our lending activities follow written, non-discriminatory policies with loan approval limits approved by the Board of Directors.
Loan officers have underwriting and approval authorization of varying amounts based on their years of experience in the lending
field. Additionally, based on the amount of the loan, multiple signatures and or approvals are required. Our chief credit officer
has approval limits on individual loans up to $5 million and pool purchases up to $30 million. The maximum we could lend to any
one borrower at December 31, 2012 was approximately $8.1 million.



7







Our goal is to have a well-diversified and
balanced loan portfolio focusing on consumer, CRE and C&I loans. In order to manage our loan portfolio
risk, we establish concentration limits by borrower, product type, maturity, loan structure, industry and geography.To
supplement our internal loan review resources, we have engaged an independent third-party loan review group, which together represent
our internal loan review function. Our internal auditor reports to the Audit Committee of the Board of Directors. Responsibility
for loan underwriting, compliance and document monitoring reside with the compliance function and loan operations function.



Residential Real EstateLoans.
Residential real estate loans generally include loans for the purchase or refinance of residential real estate properties consisting
of 1-4 units and home equity loans and lines of credit.  We currently sell substantially all of the long-term fixed rate
residential real estate loans that we originate to secondary market investors. We also release the servicing of these loans upon
sale. Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent
mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults, making certain insurance and
tax payments on behalf of the borrowers and generally administering the loans. We typically retain in our portfolio all adjustable
rate residential real estate loans that exceed the government maximum loan amount (which is currently $417,000) and also loans
with balloon payment features.  Balloon periods are up to a maximum of 15 years.



Residential real estate loans are typically
underwritten to conform to industry standards including criteria for maximum debt-to-income and loan-to-value ratios as well as
minimum credit scores. Our underwriting focuses on appraised value of the collateral as well as the applicant’s ability to
repay the loan from his or her employment and from other sources.  We verify an applicant’s credit information
using third-party records and tax returns through the IRS.



Additionally, our residential mortgage underwriters
use a third party product to assess the risk of the loan transaction for both the collateral and applicant. The product helps us
identify suspicious mortgage loans and analyzes the property and neighborhood characteristics for each transaction.  From
the date of application to the date of closing all of an applicant’s credit activity is monitored.  All appraisals are
reviewed by our collateral underwriter, who is an Indiana state certified appraiser.  The collateral underwriter has several
third party products that help assess the quality of the appraisal, the comparables chosen, and the value determination. Loans
secured by first liens on residential real estate held in the portfolio typically do not exceed 80% of the value of the collateral,
are adjustable rate and have amortization periods of thirty years or less.



We do not offer, and have not offered, “subprime
loans” (loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies,
previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores
or high debt-burden ratios).



Consumer Loans. Consumer loans are
primarily comprised of loans and credit cards. The majority of our consumer loans are horse trailer and recreational vehicle loans,
underwritten by our staff for buyers whose applications were sent to us through a dealer network.  Minimum underwriting
criteria have been established that consider credit score, debt-to-income ratio, employment history, the advance percentage and
collateral coverage.  Typically, consumer loans are set up on monthly payments with amortization periods based on the
type and age of the collateral.



Commercial Real Estate Loans.
Traditional CRE loans are comprised of loans to small business entities to purchase or expand structures in which the business
operations are housed, loans to owners of real estate who lease space to non-related commercial entities, loans for construction
and land development, and loans to owners of multi-family residential structures, such as apartment buildings.  CRE loans
are underwritten primarily based on historical and projected cash flows of the borrower and secondarily on the appraised value
of the underlying real estate pledged as collateral on the debt. Credit tenant leases are to a major national or regional firm,
typically to open a new store front or other core business operation. Credit tenant leases follow the same guidelines with additional
focus on the global creditworthiness of the national or regional firm. For the various types of commercial real estate loans,
minimum criteria have been established within our loan policy regarding debt service coverage while maximum limits on loan-to-value
and amortization periods have been defined.  Maximum loan-to-value ratios range from 65% to 80% depending upon the type
of real estate collateral, while the desired minimum debt coverage ratio is 1.20x. Amortization periods for commercial real estate
loans are generally limited to twenty years. Our CRE loans represented 23.95% of our total loan portfolio at December 31,
2012.



8







A CRE loan borrower’s financial information
is monitored on an ongoing basis by requiring periodic financial statement updates, payment history reviews and periodic face-to-face
meetings with the borrower. We require commercial borrowers to provide annually updated financial statements and federal tax returns.
These requirements also apply to the individual principals of our commercial borrowers. We also require borrowers of credit tenant
lease loans to provide an annual report of income and expenses for the property, including a tenant list and copies of leases,
as applicable.



Commercial
and Industrial Loans. C&I loans focus on the entire business relationship and consist of loans for business expansion as
well as working capital loans used to purchase inventory and fund accounts receivable that are secured by business assets other
than real estate.  These loans are generally written for three years or less. Also, new equipment financing is provided
to businesses with these loans generally limited to 90% of the value of the collateral and amortization periods limited to seven
years. C&I loans are often accompanied by a personal guaranty of the principal owners of a business. As with CRE loans, the
underlying cash flow on a historic and projected basis of the business is the primary consideration in the underwriting process,
with a desired minimum debt coverage ratio of 1.20x. We also assess the management’s operational effectiveness, level of
equity invested in the business and customer relationships. We also consider relevant economic and industry factors, as well as
competitor and supplier information relating to the applicant’s business.  The financial condition of commercial
borrowers is monitored at least annually with the type of financial information required determined by the size of the relationship.  We
address the needs of businesses with higher risk profiles through the use of government-assisted lending programs through the Small
Business Administration. We determine the loan structure after evaluating what is appropriate for the specific situation and establish
monitoring mechanisms for going forward.



Deposit Activities and Other Sources of Funds



We obtain deposits through the ACH network
(direct deposit as well as customer-directed transfers of funds from outside financial institutions), remote and mobile deposit
capture, mailed checks, wire transfers, and a deposit-taking ATM network. We do not currently solicit brokered deposits, although
we had approximately $23.7 million and $18.3 million in brokered time deposits at December 31, 2011 and 2012, respectively.



The Bank does not own or operate any ATMs.
Through network participation, the Bank’s customers are able to use nearly any ATM worldwide to withdraw cash. The Bank currently
rebates up to $6.00 per customer per month for surcharges our customers incur when using an ATM owned by another institution. Management
believes this program is more cost effective for the Bank, and more convenient for customers, than it would be to build and maintain
a proprietary nationwide ATM network for our customers.



By providing a robust online toolset, quality
customer service and a tremendous value for services offered, we have been able to develop relationships with our retail customers
and build brand loyalty. The average retail checking or savings account has been open with us for more than eight years. As a result,
we are not dependent upon costly account acquisition campaigns to attract new customers on a continual basis.



9







Deposits
(dollars in thousands)



|                              |  | Fiscal Year ended December 31, |        
|----------------------------- |  | ------------------------------ | -------
|                              |  | 2012                           |        
|Regular savings accounts      |  | $                              | 11,583 
|Non-interest bearing          |  |                                | 13,187 
|Interest-bearing              |  |                                | 73,660 
|Money market accounts         |  |                                | 202,388
|Certificates of deposit       |  |                                | 211,542
|Brokered deposits             |  |                                | 18,490 
|Premiums on brokered deposits |  |                                | (159   
|Total                         |  | $                              | 530,691



Time Deposits at December 31, 2012
(dollars in thousands)



|Interest Rate: |  |   |        
|-------------- |  | - | -------
|<1.00%         |  | $ | 48,829 
|1.00% – 1.99%  |  |   | 57,771 
|2.00% – 2.99%  |  |   | 80,815 
|3.00% – 3.99%  |  |   | 35,567 
|4.00% – 4.99%  |  |   | 4,512  
|5.00% – 5.99%  |  |   | 2,538  
|Total          |  | $ | 230,032



Time Deposit Maturities at December 31, 2012
(dollars in thousands)



|               |  | Period to Maturity |        |  |                      |   |        | Percentage of Total   | 
|-------------- |  | ------------------ | ------ |  | -------------------- | - | ------ | --------------------- | 
|               |  | Less than 1
 year  |        |  | > 1 year  to 2 years |   |        | > 2 years  to 3 years | 
|Interest Rate: |  |                    |        |  |                      |   |        |                       | 
|<1.00%         |  | $                  | 42,085 |  |                      | $ | 5,247  |                       | 
|1.00% – 1.99%  |  |                    | 27,115 |  |                      |   | 7,815  |                       | 
|2.00% – 2.99%  |  |                    | 4,980  |  |                      |   | 4,077  |                       | 
|3.00% – 3.99%  |  |                    | 897    |  |                      |   | 19,069 |                       | 
|4.00% – 4.99%  |  |                    | 3,776  |  |                      |   | 1      |                       | 
|5.00% – 5.99%  |  |                    | –      |  |                      |   | –      |                       | 
|Total          |  | $                  | 78,853 |  |                      | $ | 36,209 |                       | 



Time Deposit Maturities of $100,000 or Greater at December
31, 2012
(dollars in thousands)



|                         |  | Certificates  of Deposit |        
|------------------------ |  | ------------------------ | -------
|Maturity Period:         |  |                          |        
|3 months or less         |  | $                        | 17,268 
|Over 3 through 6 months  |  |                          | 10,417 
|Over 6 through 12 months |  |                          | 22,572 
|Over 12 months           |  |                          | 83,313 
|Total                    |  | $                        | 133,570



10







Federal Home Loan Advances



Although deposits are the primary source
of funds for our lending and investment activities and for general business purposes, we may obtain advances from the Federal Home
Loan Bank of Indianapolis (“FHLB”) as an alternative to retail deposit funds. The following table is a summary of FHLB
borrowings for the periods indicated.



|(dollars in thousands)                             |  | Fiscal Year ended  December 31, |       
|-------------------------------------------------- |  | ------------------------------- | ------
|                                                   |  | 2012                            |       
|Balance outstanding at end of period               |  | $                               | 40,686
|Average amount outstanding during period           |  |                                 | 40,625
|Maximum outstanding at any month end during period |  |                                 | 40,686
|                                                   |  |                                 |       
|Weighted average interest rate at end of period    |  |                                 | 3.22  
|Weighted average interest rate during period       |  |                                 | 3.35  



Market Areas



Our only office is located in Indianapolis,
Indiana. The low cost of living in Indianapolis (a 2009 Forbes study showed Indianapolis to be the most affordable place
to live among the largest 40 MSAs in the United States) gives us access to highly skilled employees and office space at a competitive
cost.



The market area for our retail banking activities,
primarily residential mortgage and consumer lending and deposit gathering, is nationwide. The physical location of our office is
of no consequence to our retail customers.



We serve CRE borrowers in surrounding states
in the Midwest, while our more recent expansion into C&I banking focuses on Central Indiana. Both CRE and C&I relationships
are highly dependent on strong lender/borrower relationships.



Competition



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



For retail banking activities, we compete
with other banks that use the Internet as a primary service channel, including Ally Bank, ING Direct, EverBank and Bank of Internet.
However, we also compete with other banks, savings banks, credit unions, investment banks, insurance companies, securities brokerages
and other financial institutions, as nearly all have some form of Internet delivery for their services. For residential mortgage
lending, competitors that use the Internet as a primary service channel include Quicken Loans and Lending Tree. However, we also
compete with the major banks in residential mortgage lending, including Bank of America, Chase and Wells Fargo.



For our commercial lending activities, we
compete with larger financial institutions operating in the Midwest and Central Indiana regions, including Key Bank, PNC Bank,
Chase, BMO Harris, First Merchants Bank and First Financial Bank. All of these competitors have significantly greater financial
resources and higher lending limits and may also offer specialized products and services we do not. For our commercial clients,
we offer a highly personalized relationship and fast, local decision making.



In the United States, banking has experienced
widespread consolidation over the last decade leading to the emergence of several large nationwide banking institutions. These
competitors have significantly greater financial resources and offer many branch locations as well as a variety of services we
do not. We have attempted to offset some of the advantages of the larger competitors by leveraging technology to deliver product
solutions and better compete in targeted segments. We have positioned ourselves as an alternative to banking conglomerates for
consumers who do not wish to subsidize the cost of large branch networks through high fees and unfavorable rates.



11







We anticipate that consolidation will continue
in the financial services industry and perhaps accelerate as a result of ongoing financial stress, intensified competition for
the same customer segments and significantly increased regulatory burdens and rules that are expected to increase expenses and
put pressure on revenues.



Regulation and Supervision



General



We and the Bank are extensively regulated
under federal and state law. We are a registered bank holding company under the Bank Holding Company Act of 1956 (the “BHCA”)
and, as such, are subject to regulation, supervision and examination by the Board of Governors of the Federal Reserve System (the
“Federal Reserve”). We are required to file reports with the Federal Reserve on a quarterly basis.



The Bank is an Indiana-chartered bank formed
pursuant to the Indiana Financial Institutions Act (the “IFIA”). As such, the Bank is regularly examined by and subject
to regulations promulgated by the Indiana Department of Financial Institutions (the “DFI”) and the Federal Deposit
Insurance Corporation (the “FDIC”) as its primary federal bank regulator. The Bank is not a member of the Federal Reserve
System.



The regulatory environment affecting us
has been and continues to be altered by the enactment of new statutes and the adoption of new regulations as well as by revisions
to, and evolving interpretations of, existing regulations. State and federal banking agencies have significant discretion in the
conduct of their supervisory and enforcement activities and their examination policies. Any change in such practices and policies
could have a material impact on our operations and shareholders.



The following discussion is intended to
be a summary of the material statutes, regulations and regulatory directives that are currently applicable to us. It does not purport
to be comprehensive or complete and it is expressly subject to and modified by reference to the text of the applicable statutes,
regulations and directives.



The Dodd-Frank Act



The Dodd-Frank Wall Street Reform and Consumer
Protection Act (the “Dodd-Frank Act”) comprehensively reformed the regulation of financial institutions, products and
services. Certain provisions of the Dodd-Frank Act noted in this section are also discussed in other sections. Furthermore, many
of the provisions of the Dodd-Frank Act require further study or rulemaking by federal agencies, a process which will take months
and years to implement fully.



Among other things, the Dodd-Frank Act
provides for new capital standards that eliminate the treatment of trust preferred securities as Tier 1 capital. The Company has
never issued any trust preferred securities. The Dodd-Frank Act permanently raised deposit insurance levels to $250,000, retroactive
to January 1, 2008, and provided unlimited deposit insurance coverage for non-interest bearing transaction accounts through
December 31, 2012. Pursuant to modifications under the Dodd-Frank Act, deposit insurance assessments are now being calculated
based on an insured depository institution’s assets rather than its insured deposits and the minimum reserve ratio of the
FDIC’s Deposit Insurance Fund (the “DIF”) has been raised to 1.35%. The payment of interest on business demand
deposit accounts is permitted by the Dodd-Frank Act. The Dodd-Frank Act authorized the Federal Reserve to regulate interchange
fees for debit card transactions and established new minimum mortgage underwriting standards for residential mortgages. Further,
the Dodd-Frank Act barred certain banking organizations from engaging in proprietary trading and from sponsoring and investing
in hedge funds and private equity funds, except as permitted under certain limited circumstances. The Dodd-Frank Act empowered
the newly established Financial Stability Oversight Council to designate certain activities as posing a risk to the U.S. financial
system and to recommend new or heightened standards and safeguards for financial organizations engaging in such activities.



The Dodd-Frank Act also established the
Consumer Financial Protection Bureau (the “CFPB”) as an independent bureau of the Federal Reserve. The CFPB has the
exclusive authority to prescribe rules governing the provision of consumer financial products and services, which in the case of
the Bank will be enforced by the FDIC. Further, the Dodd-Frank Act established the Office of Financial Research, which has the
power to require reports from other financial services companies.



12







Holding Company Regulation



We are subject to supervision and examination
as a bank holding company by the Federal Reserve under the BHCA. 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. Federal Reserve approval is also required in connection with bank holding companies’ acquisitions
of more than 5% of the voting shares of any class of a depository institution or its holding company and, among other things, in
connection with the bank holding company’s engaging in new activities.



Under the BHCA, our activities are limited
to businesses so closely related to banking, managing or controlling banks as to be a proper incident thereto. The BHCA also requires
a bank holding company to obtain approval from the Federal Reserve before (1) acquiring or holding more than a 5% voting interest
in any bank or bank holding company, (2) acquiring all or substantially all of the assets of another bank or bank holding
company or (3) 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 certain
insurance and securities-related activities that are not permitted for a bank holding company.



Source of Strength. Under the Dodd-Frank
Act, we are required to serve as a source of financial strength for the Bank in the event of the financial distress of the Bank.
This provision codifies the longstanding policy of the Federal Reserve. Although the Dodd-Frank Act requires the federal banking
agencies to issue regulations to implement the source of strength provisions, no regulations have been promulgated at this time.
In addition, any capital loans by a bank holding company to any of its depository subsidiaries are subordinate to the payment of
deposits and to certain other indebtedness. 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.



Regulation of Banks, Generally



Business Activities.The
Bank derives its lending and investment powers from the IFIA, the Federal Deposit Insurance Act (the “FDIA”) and related
regulations.



Loans-to-One Borrower Limitations.
Generally, the Bank’s total loans or extensions of credit to a single borrower outstanding at one time, and not fully secured,
cannot exceed 15% of the Bank’s unimpaired capital and surplus. If the loans or extensions of credit are fully secured by
readily marketable collateral, the Bank may lend up to an additional 10% of its unimpaired capital and surplus.



Capital Requirements—Generally.
FDIC regulations require insured non-member banks generally to meet three minimum capital standards:



| | • | a ratio of tangible capital to adjusted total assets (tangible capital ratio) of not less than 1.5%;
| | - | ----------------------------------------------------------------------------------------------------



“Tangible capital” for this purpose is
defined to include common stockholders’ equity (including retained earnings), noncumulative perpetual preferred stock and
related earnings and minority interests in consolidated subsidiaries, less intangibles and investments in certain “non-includable”
subsidiaries.



13







| | • | a ratio of “core capital” to adjusted total assets (“Tier 1 Capital Ratio” or “leverage ratio”)
of not less than 4%; and
| | - | ------------------------------------------------------------------------------------------------------------------------



“Core capital” (also called “Tier
1 Capital”) is defined similarly to tangible capital, but also includes certain qualifying supervisory goodwill and certain
purchased credit card relationships.



| | • | a ratio of total capital (core and supplementary) to total risk-weighted assets (“Total Risk-Based Capital Ratio”)
of not less than 8%, provided that the amount of supplementary capital used to satisfy this requirement may not exceed the amount
of core capital.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



“Supplementary capital” (also called
“Tier 2 Capital”) for this purpose is defined to include cumulative and certain other preferred stock, mandatory convertible
debt securities, subordinated debt and the allowance for loan and lease losses (up to a maximum of 1.25% of risk-weighted assets).
In addition, up to 45% of unrealized gains on available-for-sale equity securities with a readily determinable fair value may be
included in Tier 2 Capital.



In determining the amount of risk-weighted
assets for purposes of the risk-based capital requirements, the Bank’s balance sheet assets and the credit conversion values
of certain off-balance sheet items are multiplied by specified risk-weights, generally ranging from 0% for cash and obligations
issued by the U.S. Government or its agencies to 100% for consumer and commercial loans, as specified by the FDIC regulations
based on the degree of risk deemed to be inherent in the particular type of asset.



The FDIC has adopted regulations to implement
its capital adequacy requirements through the system of prompt corrective action established by Section 38 of the FDIA. Under
the prompt corrective action regulations, a bank is “well capitalized” if it has: (1) a Total Risk-Based Capital
Ratio of 10.0% or greater; (2) a Tier 1 (Core) risk-based capital ratio of 6.0% or greater; (3) a leverage ratio of 5.0%
or greater; and (4) is not subject to any written agreement, order, capital directive or prompt corrective action directive
to meet and maintain a specific capital level for any capital measure. A bank is “adequately capitalized” if it has:
(1) a Total Risk-Based Capital Ratio of 8.0% or greater; (2) a Tier 1 (Core) risk-based capital ratio of 4.0% or greater;
and (3) a leverage ratio of 4.0% or greater (3.0% under certain circumstances) and does not meet the definition of a “well
capitalized” savings association.



Regulators also must take into consideration:
(1) concentrations of credit risk, (2) interest rate risk and (3) risks from non-traditional activities, as well
as an institution’s ability to manage those risks, when determining the adequacy of an institution’s capital. This
evaluation will be made as a part of the institution’s regular safety and soundness examination.



Generally, a bank, upon receiving notice
that it is not adequately capitalized (i.e., that it is “undercapitalized”), becomes subject to the prompt corrective
action provisions of Section 38 of the FDIA that, for example, (1) restrict payment of capital distributions and management
fees, (2) require that the FDIC monitor the condition of the bank and its efforts to restore its capital, (3) require
submission of a capital restoration plan, (4) restrict the growth of the bank’s assets and (5) require prior regulatory
approval of certain expansion proposals. A bank that is required to submit a capital restoration plan must concurrently submit
a performance guarantee by each company that controls the bank. A bank that is “critically undercapitalized” (i.e.,
has a ratio of tangible equity to total assets that is equal to or less than 2.0%) will be subject to further restrictions, and
generally will be placed in conservatorship or receivership within 90 days.



We are also subject to capital adequacy
regulations of the Federal Reserve. These capital requirements are substantially similar to those applicable to the Bank. For bank
holding companies, the minimum Tier 1 risk-based capital ratio is 4% and the minimum Total Risk-Based Capital Ratio is 8%. In addition
to the risk-based capital requirements, the Federal Reserve requires top rated bank holding companies to maintain a minimum leverage
capital ratio of Tier 1 capital (defined by reference to the risk-based capital guidelines) to its average total consolidated assets
of at least 3.0%. For most other bank holding companies, the minimum leverage ratio is 4.0%. Bank holding companies with supervisory,
financial, operational or managerial weaknesses, as well as bank holding companies that are anticipating or experiencing significant
growth, are expected to maintain capital ratios well above the minimum levels. The following summarizes our applicable capital
ratios as of December 31, 2012:



14







|(dollars in thousands)                   |  | Actual |        |  |       |  |      | Minimum Capital Requirement |  |   | Minimum to be Well Capitalized Under Prompt Corrective Actions | 
|---------------------------------------- |  | ------ | ------ |  | ----- |  | ---- | --------------------------- |  | - | -------------------------------------------------------------- | 
|                                         |  | Amount |        |  | Ratio |  |      | Amount                      |  |   | Ratio                                                          | 
|As of December 31, 2012:                 |  |        |        |  |       |  |      |                             |  |   |                                                                | 
|Total capital (to risk-weighted assets)  |  |        |        |  |       |  |      |                             |  |   |                                                                | 
|Consolidated                             |  | $      | 60,701 |  |       |  | 11.0 | %                           |  | $ | 44,286                                                         | 
|Bank                                     |  |        | 59,893 |  |       |  | 10.8 | %                           |  |   | 44,263                                                         | 
|Tier 1 capital (to risk-weighted assets) |  |        |        |  |       |  |      |                             |  |   |                                                                | 
|Consolidated                             |  |        | 54,844 |  |       |  | 9.9  | %                           |  |   | 22,143                                                         | 
|Bank                                     |  |        | 54,036 |  |       |  | 9.8  | %                           |  |   | 22,132                                                         | 
|Tier 1 capital (to average assets)       |  |        |        |  |       |  |      |                             |  |   |                                                                | 
|Consolidated                             |  |        | 54,844 |  |       |  | 8.9  | %                           |  |   | 24,667                                                         | 
|Bank                                     |  |        | 54,036 |  |       |  | 8.8  | %                           |  |   | 24,653                                                         | 



In June 2012, the federal banking agencies
issued notices of proposed rulemaking that would replace the current risk-based and leveraged capital requirement consistent with
agreements reached by the Basel Committee on Banking Supervision (the “Basel Committee”) in response to the recent
financial crisis (collectively, “Basel III”). The proposed revisions would include implementation of a new common equity
tier 1 minimum capital requirement, a higher minimum tier 1 capital requirement, and, for banking organizations subject to the
advanced approaches capital rules, a supplementary leverage ratio that incorporates a broader set of exposures in the denominator
measure. Additionally, consistent with Basel III, the agencies proposed to limit a banking organization’s capital distributions
and certain discretionary bonus payments if the banking organization does not hold a specified amount of common equity tier 1 capital
as well as more conservative standards for including an instrument in regulatory capital. The revisions were also intended to implement
section 171 of the Dodd-Frank Act, which requires the agencies to establish minimum risk-based and leverage capital requirements.
The revised capital requirements were to become effective on January 1, 2013; however in December 2012, the agencies announced
that the effective date of the proposed revisions would be delayed for an unknown period of time. Accordingly, the Company is not
yet in a position to determine the effect of Basel III on its capital requirements.



TARP/CPP. Under the Troubled Asset
Relief Program established by the Emergency Economic Stabilization Act of 2008, the U.S. Treasury Department established the Capital
Purchase Program (“TARP/CPP”) by which the Treasury Department purchased senior preferred shares of participating holding
companies or financial institutions. We determined that we did not need the capital infusion offered under the TARP/CPP, and so
we never issued any preferred shares or other securities to the Treasury Department.



Community Reinvestment Act. Under
the Community Reinvestment Act (the “CRA”), as implemented by FDIC regulations, the Bank has a continuing and affirmative
obligation, consistent with safe and sound banking practices, to help meet the credit needs of its entire community, including
low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions
nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited
to its particular community, consistent with the CRA. The CRA requires the FDIC, in connection with its examinations of the Bank,
to assess the Bank’s record of meeting the credit needs of its entire community and to take that record into account in evaluating
certain applications for regulatory approvals that we may file with the FDIC.



The CRA regulations establish an assessment
system that bases an association’s rating on its actual performance in meeting community needs. In particular, the assessment
system focuses on three tests:



| | • | a lending test, to evaluate our record of making loans in our local communities, defined as our CRA assessment areas;
| | - | ---------------------------------------------------------------------------------------------------------------------



| | • | an investment test, to evaluate our record of investing in community development projects, affordable housing and programs
benefiting low or moderate income individuals and businesses in our CRA assessment areas or a broader area that includes our assessment
areas; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15







| | • | a service test, to evaluate our delivery of services through our retail banking channels and the extent and innovation
of our community development services.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



Due to its Internet focus, the Bank does
not have the kind of easily defined local community market that most other banks have. As a result, the Bank operates under a CRA
Strategic Plan, which was approved by the FDIC and sets forth certain guidelines the Bank must meet in order to achieve a “Satisfactory”
rating. The current Strategic Plan expires December 31, 2014; the Bank may elect to submit a new plan for approval prior to
that date. The Bank received a “Satisfactory” CRA rating 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 undertaking
certain activities, including engaging in certain activities and acquisitions of other financial institutions.



Transactions with Affiliates. The
authority of the Bank, like other FDIC-insured banks, to engage in transactions with its “affiliates” is limited by
Sections 23A and 23B of the Federal Reserve Act and the Federal Reserve’s Regulation W. An “affiliate” for this
purpose is defined generally as any company that owns or controls the Bank or is under common ownership or control with the Bank,
but excludes a company controlled by a bank. In general, transactions between the Bank and its affiliates must be on terms that
are consistent with safe and sound banking practices and at least as favorable to the Bank as comparable transactions between the
Bank and non-affiliates. In addition, covered transactions with affiliates are restricted individually to 10% and in the aggregate
to 20% of the Bank’s capital. Collateral ranging from 100% to 130% of the loan amount depending on the quality of the collateral
must be provided for an affiliate to secure a loan or other extension of credit from the Bank. The Company is an “affiliate”
of the Bank for purposes of Regulation W and Sections 23A and 23B of the Federal Reserve Act. The Bank is in compliance with these
provisions.



Loans to Insiders. The Bank’s
authority to extend credit to its directors, executive officers and principal stockholders, 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. Among other things, these provisions require that extensions of credit to insiders: (1) be made
on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those
prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment
or present other unfavorable features; and (2) not exceed certain limitations on the amount of credit extended to such persons,
individually and in the aggregate, which limits are based, in part, on the amount of the Bank’s capital. In addition, extensions
of credit in excess of certain limits must be approved in advance by the Bank’s board of directors. Further, provisions of
the Dodd-Frank Act require that after July 21, 2011, any sale or purchase of an asset by the Bank with an insider must be
on market terms and if the transaction represents more than 10% of the Bank’s capital stock and surplus it must be approved
in advance by a majority of the disinterested directors of the Bank. The Bank is in compliance with these provisions.



Enforcement. The DFI and the FDIC
share primary regulatory enforcement responsibility over the Bank and its institution-affiliated parties (“IAPs”),
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. 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.



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. In general, the guidelines require appropriate systems and practices to identify and manage the risks and exposures
specified in the guidelines. We believe we are in compliance with the safety and soundness guidelines.



Dividends. The ability of the Bank
to pay dividends is limited by state and federal laws and regulations that require 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. The amount of dividends the Bank
may pay may also be limited by the principles of prudent bank management.



16







Capital Distributions. The FDIC
may disapprove of a notice or application to make a capital distribution if:



| | • | the Bank would be undercapitalized following the distribution;
| | - | --------------------------------------------------------------



| | • | the proposed capital distribution raises safety and soundness concerns; or
| | - | --------------------------------------------------------------------------



| | • | the capital distribution would violate a prohibition contained in any statute, regulation or agreement applicable to the Bank.
| | - | ------------------------------------------------------------------------------------------------------------------------------



Insurance of Deposit Accounts.
The Bank is a member of the 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—the designated reserve ratio (the “DRR”)—of at least 1.35%. The FDIC utilizes a risk-based assessment
system that imposes insurance premiums based upon a risk matrix that takes into account a bank’s capital level and supervisory
rating. On February 27, 2009, the FDIC introduced three possible adjustments to an institution’s initial base assessment
rate: (1) a decrease of up to five basis points for long-term unsecured debt, including senior unsecured debt (other than
debt guaranteed under the Temporary Liquidity Guarantee Program) and subordinated debt and, for small institutions, a portion of
Tier 1 capital; (2) an increase not to exceed 50 percent of an institution’s assessment rate before the increase for
secured liabilities in excess of 25 percent of domestic deposits; and (3) for non-Risk Category I institutions, an increase
not to exceed 10 basis points for brokered deposits in excess of 10 percent of domestic deposits.



On November 9, 2010, the FDIC proposed
to change its assessment base from total domestic deposits to average total assets minus average tangible equity, which is defined
as Tier 1 capital, as required in the Dodd-Frank Act. The new assessment formula became effective on April 1, 2011, and was
used to calculate the June 30, 2011 assessment. The FDIC plans to raise the same expected revenue under the new base as under
the current assessment base. Since the new base is larger than the current base, the proposal would lower the assessment rate schedule
to maintain revenue neutrality. Assessment rates would be reduced to a range of 2.5 to 9 basis points on the broader assessment
base for banks in the lowest risk category (well capitalized and CAMELS I or II) and up to 30 to 45 basis points for banks in the
highest risk category.



FDIC insurance expense, including assessments
relating to FICO bonds, totaled $455,000, $727,000 and $939,000 for 2012, 2011 and 2010, respectively.



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.



Liquidity. The Bank is required
to maintain a sufficient amount of liquid assets to ensure its safe and sound operation. To fund its operations, the Bank historically
has relied upon core deposits, fed funds lines with correspondent banks, FHLB of Indianapolis borrowings and brokered deposits.
The Bank does not currently solicit brokered deposits. The Bank believes it has sufficient liquidity to meet its funding obligations.



Federal Home Loan Bank System.
The Bank is a member of the FHLB of Indianapolis, which is one of the regional Federal Home Loan Banks comprising the Federal Home
Loan Bank System. Each Federal Home Loan Bank serves as a central credit facility primarily for its member institutions. The Bank,
as a member of the FHLB of Indianapolis, is required to acquire and hold shares of capital stock in the FHLB of Indianapolis. While
the required percentage of stock ownership is subject to change by the FHLB of Indianapolis, the Bank is in compliance with this
requirement with an investment in FHLB of Indianapolis stock at December 31, 2012 of $2.9 million. Any advances from the FHLB
of Indianapolis 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. The Bank receives dividends on its FHLB of Indianapolis
stock.



17







Federal Reserve System. 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 (primarily NOW and regular checking accounts). The Federal Reserve’s regulations
currently require reserves equal to 3% on transaction account balances over $10.7 million and up to $58.8 million, plus 10% on
the excess over $58.8 million. These requirements are subject to adjustment annually by the Federal Reserve. The Bank is in compliance
with the foregoing reserve requirements. The balances maintained to meet the reserve requirements imposed by the Federal Reserve
may be used to satisfy liquidity requirements imposed by the FDIC.



Anti-Money Laundering and the Bank
Secrecy Act. Under the Bank Secrecy Act (the “BSA”), a financial institution is required to have systems in place
to detect and report transactions of a certain size and nature. Financial institutions are generally required to report to the
U.S. 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. 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. 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, together with the implementing regulations of various federal regulatory agencies, 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.



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. Generally, however, they contain
one or more of the following elements: (1) restrictions on trade with or investment in a sanctioned country, including prohibitions
against direct or indirect imports from and exports to a sanctioned country and prohibitions on “U.S. persons”
engaging in financial transactions relating to making investments in, or providing investment-related advice or assistance to,
a sanctioned country; and (2) blocking of assets in which the government or specially designated nationals of the sanctioned
country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession
or control of U.S. persons). 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.



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 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, which has the responsibility
for making rules and regulations under the federal consumer protection laws relating to 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. The FDIC will enforce CFPB rules with respect to the Bank.



18







Interchange Fees. Pursuant to the
Dodd-Frank Act, the Federal Reserve has issued a final rule governing the interchange fees charged on debit card transactions.
The rule caps the interchange income that an issuing bank can receive from a debit card holder’s transactions. The rule became
effective October 1, 2011. Although the rule does not directly apply to institutions with less than $10 billion in assets,
market forces may result in point-of-sale networks paying the same reduced interchange rate to banks of all sizes. If that were
to occur, the Bank would receive less income on its debit card customers’ transactions.



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.



Customer Information Security.
The federal banking agencies have adopted final guidelines for establishing standards for safeguarding nonpublic personal information
about customers. These guidelines implement provisions of the GLBA. 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. This guidance, among other things, requires notice to be
sent to customers whose “sensitive information” has been compromised if unauthorized use of this information is “reasonably
possible.”



Identity Theft Red Flags. The federal
banking agencies jointly issued final rules and guidelines in 2007 implementing Section 114 of the FACT Act and final rules
implementing Section 315 of the FACT Act. The rules implementing Section 114 require each financial institution or creditor
to develop and implement a written Identity Theft Prevention Program to detect, prevent and mitigate identity theft in connection
with the opening of certain accounts or certain existing accounts. 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. The rules implementing Section 114 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, that became effective in 2008, under Section 315 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.



Privacy. The GLBA requires financial
institutions to implement policies and procedures regarding the disclosure of nonpublic personal information about consumers to
nonaffiliated third parties. In general, the statute requires financial institutions to explain to consumers their policies and
procedures regarding the disclosure of such nonpublic personal information and, except as otherwise required or permitted by law,
financial institutions are prohibited from disclosing such information except as provided in their policies and procedures. The
Bank is required to provide notice to its customers on an annual basis disclosing their policies and procedures on the sharing
of nonpublic personal information. In December 2009, the federal banking agencies promulgated regulations that incorporate a two-page
model form that financial institutions may use to satisfy their privacy disclosure obligations under the GLBA. These regulations
became effective in January 2011.



19







Employees



At December 31, 2012, we had 97 employees,
all of whom are full-time employees. None of our employees are currently represented by a union or covered by a collective bargaining
agreement. Management believes that its employee relations are satisfactory.



Corporate Information



We were 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. Our principal executive offices are located at 8888 Keystone Crossing, Suite 1700,
Indianapolis, Indiana 46240, and our telephone number is (317) 532-7900.



Available Information



Our Internet address is www.firstinternetbancorp.com.
We plan to post important information for investors on our website in the “Investor Relations” section. We expect to
use this website as a means of disclosing material, non public information and for complying with our disclosure obligations under
Regulation FD. Accordingly, investors should monitor the Investor Relations section of 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; and
| | - | -----------------------------------------------------------------------------------



| | · | 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.



Executive Officers of the Registrant



Our executive officers
are as follows:



|Name                |  | Age |  | Position                                                            
|------------------- |  | --- |  | --------------------------------------------------------------------
|David B. Becker     |  | 59  |  | Chief Executive Officer, President, Director and Chairman           
|Nicole S. Lorch     |  | 38  |  | Senior Vice President, Retail Banking                               
|C. Charles Perfetti |  | 68  |  | Senior Vice President                                               
|Edward A. Roebuck   |  | 48  |  | Senior Vice President and Chief Credit Officer                      
|Laurinda A. Swank   |  | 41  |  | Senior Vice President-Accounting and Chief Accounting Officer       
|Kay E. Whitaker     |  | 53  |  | Senior Vice President-Finance, Chief Financial Officer and Secretary



20







David B. Becker has served as our
Chairman of the Board since 2006 and as our President since 2007.



Mr. Becker is the founder of the Bank
and has served as an officer and director of the Bank since 1999.



Mr. Becker’s experiences as an entrepreneur
in numerous businesses and in acting as our principal executive officer for over five years qualify him for service on our Board
of Directors.



Nicole S. Lorchhas served as Senior
Vice President, Retail Banking since May 2011. Ms. Lorch joined the Company as Director of Marketing in 1999 and served as Vice
President, Marketing & Technology from May 2003 to May 2011. She previously served as Director of Marketing at Virtual Financial
Services, an online banking services provider, from 1996 to 1999.



C. Charles Perfetti was appointed
Senior Vice President in January 2012. Mr. Perfetti joined First Internet Bancorp in 2007 upon our acquisition of Landmark Financial
Corporation, where he had served as President from 1989 to 2007. He previously conducted independent real estate and government
consulting and served as the Chief Investment Manager of the State of Indiana from 1979 to 1986.



Edward A. Roebuckhas served as Senior
Vice President, Chief Credit Officer since August 2012. Mr. Roebuck previously served as Senior Asset Manager at PNC Bank
from January 2009 to June 2012 and as Chief Credit Officer and Senior Underwriter at National City Bank from 1986 to December 2008.



Laurinda A. Swankwas appointed to
serve as Senior Vice President-Accounting and Chief Accounting Officer in January 2013. Ms. Swank previously served as Senior Vice
President, Chief Financial Officer and Secretary from May 2002 to January 2013 and as Vice President and Controller from 1999 to
2002. Prior to that, she served as Controller at Automotive Finance Corporation, a floor plan financing source for auto dealers
nationwide, from 1996 to 1999 as well as a Senior Auditor at Ernst & Young, a public accounting firm, from 1993 to 1996.



Kay E. Whitaker was appointed to
serve as Senior Vice President-Finance, Chief Financial Officer and Secretary in January 2013. Ms. Whitaker previously served as
Chief Financial Officer at the Central Indiana Community Foundation from July 2007 to December 2012, where she managed all accounting,
finance, human resources, facilities, technology and data functions. She also served as an independent consultant for PricewaterhouseCoopers
from 2005 to 2007, as Chief Operating Officer of Energy Ventures, an energy services and utility corporation, from 1997 to 2004,
as Chief Financial Officer of Golden Care, Inc., a respiratory therapy and supply company, from 1995 to 1997 and as a Senior Manager
in the financial services: mortgage and commercial banking division of PricewaterhouseCoopers from 1982 to 1995.



Executive officers
are elected annually by our board of directors and serve a one-year period or until their successors are elected.



None of the above-identified
executive officers is related to each other or to any of our directors.



| | Item 1A. | Risk Factors
| | -------- | ------------



Risk factors which could cause actual
results to differ from our expectations and which could negatively impact our financial condition and results of operations are
discussed below and elsewhere in this report. Additional risks and uncertainties not presently known to us or that are currently
not believed to be significant to our business may also affect our actual results and could harm our business, financial condition
and results of operations. If any of the risks or uncertainties described below or any additional risks and uncertainties actually
occur, our business, results of operations and financial condition could be materially and adversely affected.



21







RISKS RELATED TO OUR BUSINESS



We are subject to extensive governmental regulation, which
may result in significant restrictions on our activities, operations, financing and ownership.



We and the Bank are subject to extensive
governmental regulation that is intended primarily to protect depositors and the DFI, rather than our shareholders. As a bank holding
company, we are regulated primarily by the Federal Reserve. As an Indiana-chartered bank, the Bank is subject to regulation, examination
and supervision by the DFI as chartering authority, and the FDIC as the primary federal regulator and deposit insurer. These regulators
have the ability, should the situation require, to place significant regulatory and operational restrictions upon us and the Bank.
The Bank’s activities are also regulated under consumer protection laws applicable to our lending, deposit and other activities.



Further, we may be required to invest significant
management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements,
including the Dodd-Frank Act and new regulatory capital requirements intended to implement Basel III. Failure to comply with the
new requirements may negatively affect our results of operations and financial condition. While we cannot predict what effect any
presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could
be materially adverse to our investors.



Federal and state laws and regulations
govern numerous other matters including permissible types, amounts and terms of extensions of credit and investments; permissible
nonbanking activities; the level of reserves against deposits; and restrictions on dividend payments. The DFI and FDIC possess
the power to issue cease and desist orders to prevent or remedy unsafe or unsound practices or violations of law by banks subject
to their regulation, and the Federal Reserve possesses similar powers with respect to bank holding companies. These and other restrictions
limit the manner in which we, and the Bank, may conduct business and obtain financing.



A failure of, or interruption in, the communications and
information systems on which we rely to conduct our business could adversely affect our revenues and profitability.



We rely heavily upon communications and information
systems to conduct our business. Although we have built a level of redundancy into our information technology infrastructure and
update our business continuity plan annually, any failure or interruption of our information systems or the third-party information
systems on which we rely as a result of inadequate or failed processes or systems, human errors or external events could cause
underwriting or other delays and could result in fewer applications being received, slower processing of applications and reduced
efficiency in servicing. In addition, our communication and information systems may present security risks and could be susceptible
to hacking or other unauthorized access. The occurrence of any of these events could have a material adverse effect on our business.



Our plans to grow our commercial loan portfolios may not
succeed.



We may not succeed in our plans to grow
our CRE and C&I loan portfolios. Even if our plans can be implemented successfully, this may not result in the realization
of the expected benefits. These loans generally involve higher credit risks than residential real estate and consumer loans and
are dependent on our lenders maintaining close relationships with the borrowers. Payments on these loans are often dependent upon
the successful operation and management of the underlying business or assets, repayment of such loans may be influenced to a great
extent by conditions in the market or the economy. Our failure to achieve or manage this growth could have an adverse effect on
our business, future prospects, financial condition or results of operations.



22







An inadequate allowance for loan losses would reduce our
earnings and adversely affect our financial condition and results of operations.



Our success depends to a significant extent
upon the quality of our assets, particularly loans. In originating loans, there is a substantial likelihood that credit losses
will be experienced. The risk of loss will vary with, among other things, general economic conditions, the type of loan being made,
the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the quality of the collateral.
Although we and our regulators regularly review our loan portfolio and evaluate the adequacy of our allowance and believe that
the allowance is adequate to absorb such probable losses, there can be no assurance that we will not experience losses in excess
of the allowance and be required to increase our provision.



As of December 31, 2012, our allowance
for loan losses was $5.8 million, which represented approximately 1.65% of total loans. We had $4.4 million in non-performing
loans as of December 31, 2012. The allowance may not prove sufficient to cover future loan losses. Although management uses
the best information available to make determinations with respect to the allowance for loan losses, future adjustments may be
necessary if economic conditions differ substantially from the assumptions used or adverse developments arise with respect to our
non-performing or performing loans. Accordingly, the allowance for loan losses may not be adequate to cover loan losses or significant
increases to the allowance may be required in the future if economic conditions should worsen. Any increase in our provision could
have a material adverse effect on our financial condition and results of operations.



The market value of some of our investments could decline
and adversely affect our financial position.



As of December 31, 2012, we held $3.3 million
fair value of investments in private label mortgage-backed and pooled trust securities which had an unrealized loss of $2.4 million.
Although we use economic models to determine whether an other-than-temporary impairment has occurred, such models have limitations.
Although we do not anticipate any decline in the value of these investments, if they experience an other-than-temporary impairment,
we would be required to record a write-down or loss and a charge to our earnings.



Our products and services are delivered on a technological
platform that is subject to rapid change and transformation.



The Bank conducts its consumer lending and
deposit-gathering activities through the Internet. The financial services industry is undergoing rapid technological change, and
we face constant evolution of customer demand for technology-driven financial and banking products and services. Many of our competitors
have substantially greater resources to invest in technological improvement and product development, marketing and implementation.
Any failure to successfully keep pace with and fund technological innovation in the markets in which we compete could have a material
adverse impact on our business and results of operations.



We may need additional capital resources in the future
and these capital resources may not be available when needed or at all, without which our financial condition, results of operations
and prospects could be materially impaired.



If we continue to experience significant
growth, we may need to raise additional capital. Our ability to raise capital, if needed, will depend upon our financial performance
and condition and on conditions in the capital markets, as well as economic conditions generally. Accordingly, such financing may
not be available to us on acceptable terms or at all. If we cannot raise additional capital when needed, it would have a material
adverse effect on our financial condition, results of operations and prospects.



23







The competitive nature of the banking and financial services
industry could negatively affect our ability to increase our market share and retain long-term profitability.



Competition in the banking and financial
services industry is strong. We compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions,
finance companies, mutual funds, insurance companies and brokerage and investment banking firms operating locally and elsewhere.
Some of our competitors have greater name recognition and market presence than we do and offer certain services that we do not
or cannot provide. In addition, larger competitors may be able to price loans and deposits more aggressively than we do, which
could affect our ability to increase our market share and remain profitable on a long-term basis. Our success will depend on the
ability of the Bank to compete successfully on a long-term basis within the financial services industry.



Reputational risk and social factors may negatively affect
us.



Our ability to attract and retain depositors
and customers is highly dependent upon consumer and other external perceptions of our business practices and financial condition.
Adverse perceptions could damage our reputation to a level that could lead to difficulties in generating and maintaining deposit
accounts, accessing credit markets and increased regulatory scrutiny of our business. Borrower payment behaviors also affect us.
To the extent that borrowers determine to stop paying their loans where the financed properties’ market values are less than
the amount of their loans, or for other reasons, our costs and losses may increase. Adverse developments or perceptions regarding
the business practices or financial condition of our competitors, or our industry as a whole, may also indirectly adversely affect
our reputation.



In addition, adverse reputational developments
with respect to third parties with whom we have important relationships may adversely affect our reputation. All of the above factors
may result in greater regulatory and/or legislative scrutiny, which may lead to laws or regulations that may change or constrain
the manner in which we engage with our customers and the products we offer and may also increase our litigation risk. If these
risks were to materialize they could negatively affect our business, financial condition and results of operations.



We are dependent upon the services of our management team.



Our future success and profitability is
substantially dependent upon our management and the abilities of our senior executives. We believe that our future results will
also depend in part upon our ability to attract and retain highly skilled and qualified management. Competition for senior personnel
is intense, and we may not be successful in attracting and retaining such personnel. Changes in key personnel and their responsibilities
may be disruptive to our businesses and could have a material adverse effect on our businesses, financial condition and results
of operations. In particular, the loss of our chief executive officer could have a material adverse effect on our operations.



Fluctuations in interest rates could reduce our profitability
and affect the value of our assets.



Like other financial institutions, we are
subject to interest rate risk. Our primary source of income is net interest income, which is the difference between interest earned
on loans and leases and investments and interest paid on deposits and borrowings. We expect that we will periodically experience
imbalances in the interest rate sensitivities of our assets and liabilities and the relationships of various interest rates to
each other. Over any defined period of time, our interest-earning assets may be more sensitive to changes in market interest rates
than our interest-bearing liabilities, or vice-versa. In addition, the individual market interest rates underlying our loan and
lease and deposit products may not change to the same degree over a given time period. In any event, if market interest rates should
move contrary to our position, earnings may be negatively affected. In addition, loan and lease volume and quality and deposit
volume and mix can be affected by market interest rates as can the businesses of our clients. Changes in levels of market interest
rates could have a material adverse effect on our net interest spread, asset quality, origination volume and overall profitability.



24







Market interest rates are beyond our control,
and they fluctuate in response to economic conditions and the policies of various governmental and regulatory agencies, in particular,
the Federal Reserve. Changes in monetary policy, including changes in interest rates, may negatively affect our ability to originate
loans and leases, the value of assets and our ability to realize gains from the sale of our assets, all of which ultimately could
affect our earnings.



We are a holding company dependent on capital distributions
from the Bank.



We are a separate and distinct legal entity
from the Bank and depend on dividends, distributions and other payments from the Bank to fund all payments on our obligations.
The ability of the Bank to pay dividends to us is limited by state and federal law and depends generally on the Bank’s ability
to generate net income. If we are unable to comply with applicable provisions of these statutes and regulations, the Bank may not
be able to pay dividends to us, and we would not be able to pay dividends on our outstanding common stock.



RISKS RELATED TO OUR COMMON STOCK



There is a limited trading market for our common stock
and you may not be able to resell your shares.



Our common stock began trading on the NASDAQ
Capital Market on February 22, 2013; however, trading remains relatively limited. Although we expect that a more liquid market
for our common stock will develop, we cannot guarantee that you would be able to resell shares of common stock at an attractive
price or at all.



Federal banking laws limit the acquisition and ownership
of our common stock.



Because we are a bank holding company,
any purchaser of 5% or more of our common stock may be required to file a notice with or obtain the approval of the Federal Reserve
under the Change in Bank Control Act of 1978, as amended, or the BHCA. Specifically, under regulations adopted by the Federal Reserve,
(1) any other bank holding company may be required to obtain the approval of the Federal Reserve before acquiring 5% or more of
our common stock and (2) any person other than a bank holding company may be required to file a notice with and not be disapproved
by the Federal Reserve to acquire 10% or more of our common stock.



Anti-takeover provisions could negatively impact
our shareholders.



Provisions of Indiana law and provisions
of our Articles of Incorporation could make it more difficult for a third party to acquire control of us or have the effect of
discouraging a third party from attempting to acquire control of us. We are subject to certain anti-takeover provisions under the
Indiana Business Corporation Law. Additionally, our Articles of Incorporation authorize our Board of Directors to issue one or
more classes or series of preferred stock without shareholder approval and such preferred stock could be issued as a defensive
measure in response to a takeover proposal. These provisions could make it more difficult for a third party to acquire us even
if an acquisition might be in the best interest of our shareholders.



Our shares of common stock are not an insured deposit
and as such are subject to loss of entire investment.



The shares of our common stock are not
a bank deposit and will not be insured or guaranteed by the FDIC or any other government agency. Your investment will be subject
to investment risk, and you must be capable of affording the loss of your entire investment.



If we were to issue preferred stock, the rights of holders
of our common stock and the value of such common stock could be adversely affected.



Our Board of Directors is authorized to
issue classes or series of preferred stock, without any action on the part of the stockholders. The Board of Directors also has
the power, without stockholder approval, to set the terms of any such classes or series of preferred stock, including voting rights,
dividend rights and preferences over the common stock with respect to dividends or upon the liquidation, dissolution or winding-up
of our business and other terms. If we issue preferred stock in the future that has a preference over the common stock with respect
to the payment of dividends or upon liquidation, dissolution or winding-up, or if we issue preferred stock with voting rights that
dilute the voting power of the common stock, the rights of holders of the common stock or the value of the common stock would be
adversely affected.



25







We are subject to evolving and expensive corporate governance
regulations and requirements. Our failure to adhere to these requirements or the failure or circumvention of our controls and procedures
could seriously harm our business.



Although we are subject to extensive regulation
as a financial institution, until recently we have historically not been required to follow the corporate governance and financial
reporting practices and policies required of a company whose stock is registered under the Exchange Act and traded on a national
securities exchange. With the listing of our common stock on the NASDAQ Capital Market we are subject to these requirements. Compliance
with these requirements means we will incur significant legal, accounting and other expenses that we did not incur in the past
and are not reflected in our historical financial statements. Compliance will also require a significant diversion of management
time and attention, particularly with regard to disclosure controls and procedures and internal control over financial reporting,
and will require changes in corporate governance practices. Although we have reviewed, and will continue to review, our disclosure
controls and procedures in order to determine whether they are effective, our controls and procedures may not be able to prevent
errors or frauds in the future. Faulty judgments, simple errors or mistakes, or the failure of our personnel to adhere to established
controls and procedures, may make it difficult for us to ensure that the objectives of the control system will be met. A failure
of our controls and procedures to detect other than inconsequential errors or fraud could seriously harm our business and results
of operations.



| | Item 1B. | Unresolved Staff Comments
| | -------- | -------------------------



Not applicable.



| | Item 2. | Properties
| | ------- | ----------



On February 21, 2012 we relocated our principal
office within the same office park in Indianapolis, Indiana to accommodate our growth. As part of the move, we extended the terms
of our existing lease with the landlord increasing our space from 14,766 square feet to approximately 23,891 square feet of office
space under a lease that has a remaining term of approximately 97 months.



On March 6, 2013, the Company acquired an
office building with approximately 52,000 square feet of office space and related real estate located at 11201 USA Parkway,
Fishers, Indiana from an unaffiliated third party for an aggregate consideration of approximately $4.0 million. The Company acquired
the Fishers property for the current and future operations of the Bank. The Bank intends to use this property primarily for administrative
operations.



The Company
borrowed $4.0 million from the Bank for the purchase of the Fishers property. The scheduled maturity date of the loan is March
6, 2014. The loan bears interest during the term at a variable rate equal to the then applicable
prime rate (as determined by the Bank with reference to the "Prime Rate" published in The Wall Street Journal)
plus 1.00% per annum. The loan agreement contains customary affirmative covenants and events
of default. The loan agreement provides that the loan is to be secured by a first priority mortgage and lien on the acquired property
and requires that the Company maintain collateral securing the loan that has a value of not less than $5.2 million during the term
of the loan.



On March 6, 2013, the Company entered into
a lease with the Bank for the Bank's use of approximately 15,250 square feet of office space at the Fishers property. The lease
has an initial term of five years and provides for monthly rent in the amount of $18.50 per square foot. We expect that the Bank
will increase its use of the property over time. We believe that the leased principal office space and the Fishers property will
be adequate to meet the Bank’s current and near-term needs.



On March 5, 2013 the Bank entered into a
sublease for 5,670 square feet of furnished office space in Tempe, Arizona and intends to use the space primarily to house administrative
operations. The term of the lease is 37 months.



26







| | Item 3. | Legal Proceedings
| | ------- | -----------------



We are not party to
any material legal proceedings. From time to time, the Bank is a party to legal actions arising from its normal business activities.



| | Item 4. | Mine Safety Disclosures
| | ------- | -----------------------



None.



27







PART II



| | Item 5. | Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
| | ------- | ------------------------------------------------------------------------------------------------------------



Market Information



Effective February 22,
2013, our common stock begain trading on the NASDAQ Capital Market under the symbol “INBK.” Previously, our common
stock (and prior to the formation of the Company, shares of the common stock of the Bank) were quoted on the over-the-counter market
under the symbol “FIBP.” The following table sets forth the range of high and low bid quotations for each quarter within
the two most recent fiscal years and the subsequent interim period. These quotations as reported on the over-the-counter market
reflect inter-dealer prices without retail mark-up, mark-down, or commissions and may not necessarily represent actual transactions.



|                               |  | High  |       |  | Low   |  |       | Declared  | 
|------------------------------ |  | ----- | ----- |  | ----- |  | ----- | --------- | 
|Period                         |  | (US$) |       |  | (US$) |  |       | Dividends | 
|Year Ended December 31, 2011:  |  |       |       |  |       |  |       |           | 
|First Quarter                  |  |       | 11.40 |  |       |  | 10.25 |           | 
|Second Quarter                 |  |       | 12.00 |  |       |  | 10.10 |           | 
|Third Quarter                  |  |       | 11.74 |  |       |  | 9.25  |           | 
|Fourth Quarter                 |  |       | 11.50 |  |       |  | 9.70  |           | 
|Year Ending December 31, 2012: |  |       |       |  |       |  |       |           | 
|First Quarter                  |  |       | 15.90 |  |       |  | 10.25 |           | 
|Second Quarter                 |  |       | 16.00 |  |       |  | 13.45 |           | 
|Third Quarter                  |  |       | 17.05 |  |       |  | 14.63 |           | 
|Fourth Quarter                 |  |       | 22.98 |  |       |  | 16.00 |           | 



As of March 25,
2013, we had 1,876,782shares of common stock issued and outstanding, and there were 188 holders
of record of our common stock.



Dividends



On November 20,
2012, we announced a special cash dividend of $0.25 per share of common stock, which was paid on December 28, 2012 to the
holders of record as of December 10, 2012.



On March 18, 2013,
the Board of Directors declared a cash dividend for the first quarter of 2013 of $0.06 per share payable on April 15, 2013 to shareholders
of record on April 1, 2013. We expect to continue to pay cash dividends on a quarterly basis; however, the declaration and amount
of any future cash dividends will be subject to the sole discretion of our Board of Directors and will depend upon many factors,
including our financial condition, earnings, capital requirements of our operating subsidiaries, legal requirements, regulatory
constraints and other factors deemed relevant by our Board of Directors.



Recent Sales of Unregistered Securities



During the fourth quarter
of 2012, we issued 1,439 deferred stock rights to our non-employee directors under our Directors’ Deferred Stock Plan
and 5,192 shares of common stock under our 2012 Senior Management Bonus Plan. None of the foregoing transactions involved
any underwriters, underwriting discounts or commissions, or any public offering, and we believe the transactions were exempt from
the registration requirements of the Securities Act of 1933, as amended, in reliance on Section 4(a)(2) thereof, and the rules
and regulations promulgated thereunder, or Rule 701 thereunder, as transactions by an issuer not involving a public offering or
transactions pursuant to compensatory benefit plans and agreements relating to compensation as provided under such Rule 701.



28







Item 6.    Selected Financial Data



Five Year Selected Financial and Other Data
(dollars in thousands)



|                                                                        |  | Fiscal Year ended  December 31, |        
|----------------------------------------------------------------------- |  | ------------------------------- | -------
|                                                                        |  | 2012                            |        
|Financial Condition:                                                    |  |                                 |        
|Total assets                                                            |  | $                               | 636,367
|Cash and cash equivalents                                               |  |                                 | 32,513 
|Investment securities available for sale                                |  |                                 | 156,693
|Loans held for sale                                                     |  |                                 | 63,234 
|Loans receivable, net                                                   |  |                                 | 352,328
|Deposits                                                                |  |                                 | 530,691
|Federal Home Loan Bank advances                                         |  |                                 | 40,686 
|Total shareholders’ equity                                              |  |                                 | 61,350 
|                                                                        |  |                                 |        
|Operating:                                                              |  |                                 |        
|Interest and dividends                                                  |  |                                 | 24,117 
|Interest expense                                                        |  |                                 | 8,532  
|Net interest income                                                     |  |                                 | 15,585 
|Provision for loan losses                                               |  |                                 | 2,852  
|Non-interest income                                                     |  |                                 | 11,744 
|Non-interest expenses                                                   |  |                                 | 16,677 
|Income (loss) before income taxes                                       |  |                                 | 7,800  
|Income taxes                                                            |  |                                 | 2,194  
|Net income (loss)                                                       |  | $                               | 5,606  
|                                                                        |  |                                 |        
|Performance Ratios:                                                     |  |                                 |        
|Return on average assets                                                |  |                                 | 0.91   
|Return on average equity                                                |  |                                 | 9.51   
|Interest rate spread
(1)                                                |  |                                 | 2.49   
|Net interest margin (2)                                                 |  |                                 | 2.63   
|Noninterest expense to average assets                                   |  |                                 | 2.71   
|Efficiency ratio (3)                                                    |  |                                 | 61.02  
|Average interest-earning assets to average interest-bearing liabilities |  |                                 | 110.19 
|Average equity to average assets                                        |  |                                 | 9.59   
|                                                                        |  |                                 |        
|Capital Ratios:                                                         |  |                                 |        
|Total capital to risk weighted assets                                   |  |                                 | 11.0   
|Tier 1 capital to risk weighted assets                                  |  |                                 | 9.9    
|Tier 1 capital to average assets                                        |  |                                 | 8.9    
|                                                                        |  |                                 |        



29







|                                                                                            |  | Fiscal Year ended  December 31, |          
|------------------------------------------------------------------------------------------- |  | ------------------------------- | ---------
|                                                                                            |  | 2012                            |          
|Asset Quality Ratios:                                                                       |  |                                 |          
|Allowance for loan losses as a percentage of total loans                                    |  |                                 | 1.65     
|Allowance for loan losses as a percentage of non-performing loans                           |  |                                 | 133.26   
|Net (charge-offs) recoveries to average outstanding loans during the period                 |  |                                 | (0.69    
|Non-performing loans as a percentage of total loans                                         |  |                                 | 1.23     
|Non-performing loans as percentage of total assets                                          |  |                                 | 0.69     
|Total non-performing assets and troubled debt restructuring as a percentage of total assets |  |                                 | 1.84     
|                                                                                            |  |                                 |          
|Shares and Per Share Data:                                                                  |  |                                 |          
|Average common shares outstanding:                                                          |  |                                 |          
|Basic                                                                                       |  |                                 | 1,912,910
|Diluted                                                                                     |  |                                 | 1,912,910
|Per share:                                                                                  |  |                                 |          
|Basic earnings available to common shareholders                                             |  |                                 | 2.93     
|Diluted earnings available to common shareholders                                           |  |                                 | 2.93     
|Dividends – common stock                                                                    |  |                                 | 0.25     
|Dividend payout ratio
(4)                                                                   |  |                                 | 8.53     
|                                                                                            |  |                                 |          
|Other:                                                                                      |  |                                 |          
|Number of offices                                                                           |  |                                 | 1        










| | (1) | Represents the difference between the weighted average
yield on average interest-earning assets and the weighted average cost of interestbearing liabilities.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Represents net interest income as a percentage of average
interest-earning assets.
| | --- | ----------------------------------------------------------------------------------

| | (3) | Represents noninterest expense divided by the sum of
net interest income and noninterest income.
| | --- | ------------------------------------------------------------------------------------------------

| | (4) | Dividends per share divided by diluted earnings per share.
| | --- | ----------------------------------------------------------





30







| | Item 7. | Management’s Discussion and Analysis of Financial
Condition and Results of Operations
| | ------- | -------------------------------------------------------------------------------------



Management’s Discussion and Analysis of Financial Condition
and Results of Operations



The following discussion and analysis
of our financial condition and results of operations should be read in conjunction with our consolidated and condensed financial
statements and related notes appearing elsewhere in this report. This discussion and analysis includes certain forward-looking
statements that involve risks, uncertainties and assumptions. You should review the “Risk Factors” section of this
report for a discussion of important factors that could cause actual results to differ materially from the results described in
or implied by such forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements” at the beginning
of this report.



Overview



The primary drivers of our performance since
January 1, 2011, have been:



| | • | our ability to capitalize on the demand for residential mortgage refinancing due to the ongoing low-rate environment and our
scalable, efficient process;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | our deployment of excess cash into higher-yielding assets; and
| | - | --------------------------------------------------------------



| | • | our ability to maintain high credit quality despite the ongoing difficulties affecting many other banks.
| | - | --------------------------------------------------------------------------------------------------------



During 2011 and 2012, we reported collective
net income of $8.8 million. During the same period, total assets increased by $132.5 million, or 26.3%. We increased
net loans in this period by $52.8 million, or 17.6%, from December 31, 2010. Net interest income totaled $29.9 million
in 2011 and 2012. During the same period, our net interest spread on an annualized basis has been relatively steady at 2.57% and
2.49% for 2011 and 2012, respectively. Securities available for sale increased by $19.8 million, or 14.4%. Our regulatory
capital ratios have remained well above all required minimums. Non-performing loans as a percentage of total loans declined from
3.17% in 2010 to 2.64% and 1.23% in 2011 and 2012, respectively.



Due to our sustained record of performance,
our Board of Directors declared a special cash dividend of $0.25 per share payable December 28, 2012, to holders of our common
stock on December 10, 2012.



Results of Operations



Fiscal Year Ended December 31, 2012 vs. Fiscal Year Ended
December 31, 2011



Interest income
from loans for 2012 increased by $551,000, or 2.9%, compared to 2011 primarily due to an increase of $43.5 million in average
loans outstanding.



Interest expense
from deposits for 2012 decreased by $1.1 million, or 13.2%, compared to 2011 primarily due to the low rate environment.Despite
an increase of $62.9 million in the average balance of interest bearing deposits, the average cost of funds decreased by 0.46%.



Provision for loan losses increased by $412,000,
or 16.9%, from 2011 to 2012 as a result of management’s ongoing evaluation of the adequacy of the allowance for loan losses
which includes an analysis of the overall size and composition of the portfolio as well as a review of all loans for which full
collectability may not be reasonably assured which considers, among other matters, the estimated net realizable value of the underlying
collateral, economic conditions, loan loss experience and other factors that are particularly susceptible to changes that could
result in a material change to the borrower’s ability to pay the loan upon maturity. Provision expense improvements in 2012
occurred due to reduced delinquencies and charge-off activity which offset the impact of the growth within loans on the balance
sheet.



Gain on loans sold during 2012 increased
by $7.0 million, or 188.5%, compared to 2011, primarily due to increased loan origination for refinancing within the residential
mortgage department. The ongoing low rate environment has made refinancing existing mortgages an attractive option for consumers.



31







Other-than-temporary impairment (“OTTI”)
charges in our securities portfolio decreased by $374,000, or 59.7%, compared to 2011. Management’s evaluation of the securities
portfolio in 2012 indicated OTTI losses on three securities. The amortized cost remaining on securities with OTTI losses totaled
$2.0 million as of December 31, 2012.



Loss on asset disposals decreased by $959,000,
or 91.2%, in 2012, primarily as the result of the write off in the fourth quarter of 2011 of $368,000 representing the full value
of our investment in an Indiana financial institution which disclosed that it may be unable to continue as a going concern. The
Bank also wrote down a commercial property held as Other Real Estate Owned (“OREO”) by $288,000 in the fourth quarter
of 2011. In addition, the Bank recognized a $189,000 gain on liquidation of a commercial property in OREO in the third quarter
of 2012.



Salaries and employee benefits increased
$3.2 million, or 60.6%, reflecting the addition of 23 full time employees during 2012 compared to 2011. We added staff within the
residential mortgage and C&I departments to address increased origination volumes. In addition, the Bank recognized an additional
$1.1 million of expense in 2012 related to performance bonuses.



Marketing, advertising and promotion expenses
increased by $426,000, or 45.5%, as the result of the increased usage of third party lead sources to attract potential borrowers
to our mortgage website. We acquire mortgage leads from third party sources to drive loan applications.



Consulting and professional fees increased
by $645,000, or 83.0%, to accommodate increased legal fees of approximately $497,000 during 2012 incurred through the normal course
of operations such as credit collection efforts and public company filing activities.



Loan expenses increased by $571,000, or
108.6%, due primarily to $285,000 of expenses related to a non performing commercial real estate credit which was moved to OREO
in October 2012. In addition, expenses related to loan underwriting activities increased $261,000 as a result of the increase in
the level of mortgage originations.



Premises and equipment expenses increased
by $294,000, or 19.9%, due primarily to $191,000 of expenses related to a non performing commercial real estate credit which was
moved to OREO in October 2012.



Deposit insurance premiums decreased by
$272,000, or 37.4%, due to a 0.015% decrease in the Bank’s FDIC assessment rates.



Average Balance Sheets, Net Interest Earnings



For the periods presented, the following
table provides the total dollar amount of interest income from average interest-earning assets and the resulting yields, and the
interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. The
table does not reflect any effect of income taxes. Balances are based on the average of daily balances. Non-accrual loans are included
in average loan balances.



32







Average Balance Sheets
(dollars in thousands)



|                                                                            |  | Year ended December 31, |        
|--------------------------------------------------------------------------- |  | ----------------------- | -------
|                                                                            |  | 2012                    |        
|                                                                            |  | Average
    Balance     |        
|Assets:                                                                     |  |                         |        
|Interest-earning assets:                                                    |  |                         |        
|Loans                                                                       |  | $                       | 390,058
|Investment securities                                                       |  |                         | 172,887
|FHLB stock                                                                  |  |                         | 2,943  
|Other
    interest-earning assets                                           |  |                         | 27,363 
|Total
    interest-earning assets                                           |  |                         | 593,251
|                                                                            |  |                         |        
|Noninterest-earning
    assets                                              |  |                         | 21,289 
|Total
    assets                                                            |  | $                       | 614,540
|                                                                            |  |                         |        
|Liabilities and equity:                                                     |  |                         |        
|Interest-bearing liabilities                                                |  |                         |        
|Regular savings accounts                                                    |  | $                       | 9,999  
|Interest-bearing demand
    deposits                                        |  |                         | 62,154 
|Money market accounts                                                       |  |                         | 187,029
|Certificates
    and brokered deposits                                      |  |                         | 238,575
|Total interest-bearing deposits                                             |  |                         | 497,757
|                                                                            |  |                         |        
|FHLB advances                                                               |  |                         | 40,625 
|Other
    borrowings                                                        |  |                         | –      
|Total
    interest-bearing liabilities                                      |  |                         | 538,382
|                                                                            |  |                         |        
|Noninterest-bearing liabilities                                             |  |                         | 13,939 
|Other
    non-interest bearing liabilities                                  |  |                         | 3,285  
|Total liabilities                                                           |  |                         | 555,606
|                                                                            |  |                         |        
|Stockholders’
    equity                                                    |  |                         | 58,934 
|Total
    liabilities and equity                                            |  | $                       | 614,540
|                                                                            |  |                         |        
|Net
    interest income                                                     |  |                         |        
|                                                                            |  |                         |        
|Interest rate spread                                                        |  |                         |        
|Net interest margin                                                         |  |                         |        
|Average interest-earning assets to average
    interest-bearing liabilities |  |                         |        



33







Rate/Volume Analysis

(dollars in thousands)



The following table sets forth certain information
regarding changes in our interest income and interest expense for the periods indicated. For each category of earning assets and
interest bearing liabilities, information is provided on changes attributable to (i) changes in volume (change in average volume
multiplied by old rate) and (ii) changes in rates (change in rate multiplied by old average volume). Changes in rate/volume
(change in rate multiplied by the change in volume) have been allocated to the changes due to volume and rate in proportion to
the absolute value of the changes due to volume and rate prior to the allocation.



|                                               |  | Rate/Volume
    Analysis of Net Interest Income Fiscal Years ended December 31, |      
|---------------------------------------------- |  | ------------------------------------------------------------------------------- | -----
|                                               |  | 2012
    vs. 2011 Due to Changes in                                             |      
|                                               |  | Volume                                                                          |      
|Interest income                                |  |                                                                                 |      
|Loans receivable                               |  | $                                                                               | 2,233
|Investment securities                          |  |                                                                                 | 776  
|FHLB stock                                     |  |                                                                                 | (4   
|Other
    interest-earning assets              |  |                                                                                 | 5    
|Total                                          |  |                                                                                 | 3,010
|                                               |  |                                                                                 |      
|Interest expense                               |  |                                                                                 |      
|Deposits                                       |  |                                                                                 | 852  
|FHLB advances                                  |  |                                                                                 | 71   
|Total                                          |  |                                                                                 | 923  
|                                               |  |                                                                                 |      
|Increase
    (decrease) in net interest income |  | $                                                                               | 2,087



Liquidity and Capital Resources



The Company’s primary source of funds
is dividends from the Bank, the declaration of which is subject to regulatory limits. Historically, the Company has not had significant
demands for the use of its cash. However, we declared a special dividend of $0.25 per share of common stock in the fourth quarter
of 2012. At December 31, 2012, the Company, on an unconsolidated basis, had $782,000 in cash generally available for its cash needs.



On March 18, 2013, the Board of Directors
declared a cash dividend for the first quarter of 2013 of $0.06 per share payable April 15, 2013 to shareholders on April 1, 2013.
We expect to continue to pay dividends on a quarterly basis; however, the declaration and amount of future dividends will be determined
by the Board of Directors on the basis of our financial condition, earnings, regulatory constraints and other factors.



At December 31, 2012, we had $189.2 million
in cash and investment securities available for sale and $63.2 million in loans held for sale that were generally available for
our cash needs. At December 31, 2012, we had the ability to borrow an additional $23.1 million in FHLB advances and correspondent
bank fed funds line of credit draws.



At December 31, 2012, approved outstanding
loan commitments, including unused lines of credit, amounted to $33.6 million. Certificates of deposit scheduled to mature in one
year or less at December 31, 2012, totaled $78.9 million; however, due to our competitive rates, we believe that a majority of
maturing deposits will remain with the Bank.



Bank-owned life insurance increased 41.4%
from the end of 2011 as a result of a $3.0 million purchase completed in the first quarter of 2012.



OREO which is included in other assets increased
by 142.6% during 2012, primarily as the result of the transition of a single commercial real estate loan into OREO during the fourth
quarter of 2012 representing $2.6 million. The balance of OREO as of December 31, 2012 was $3.7 million.



34







Other assets, excluding OREO, decreased
by 10.0% since the end of 2011 reflecting a decrease in deferred tax assets due to continued positive earnings and increases in
unrealized gains and losses on securities available for sale impacting mark-to-market adjustments within deferred taxes.



Total deposits increased 9.0% from the end
of 2011. Due to recent economic conditions, consumers have maintained higher cash balances in bank deposit accounts such as money
market savings and short term time deposits.



Total shareholders’ equity increased
$5.9 million during 2012, as a result of net income of $5.6 million and an increase of $598,000 in accumulated other comprehensive
income due to increased unrealized gains on available-for-sale securities.



At December 31, 2012, the Company and
the Bank exceeded all applicable regulatory capital minimum requirements, and the Bank was considered “well-capitalized”
under applicable regulations. We believe our capital resources are sufficient to meet our current and expected needs, including
any cash dividends we may pay; however, if we continue to experience significant growth, we may require additional capital resources.
Although we have limited experience in raising additional capital, we believe the listing of our common stock on the NASDAQ Capital
Market will improve our ability to access capital markets when necessary by enhancing the marketability of our common stock.



Investing Activities



Investment Securities Portfolio



In managing our investment securities portfolio
we focus on providing an adequate level of liquidity and establishing an interest rate-sensitive position, while earning an adequate
level of investment income without taking undue risk. Investment securities that we intend to hold until maturity are classified
as held-to-maturity securities, and all other investment securities are classified as available-for-sale. Currently, all of our
investment securities are classified as available-for-sale. The carrying values of available-for-sale investment securities are
adjusted for unrealized gains or losses as a valuation allowance and any gain or loss is reported on an after-tax basis as a component
of other comprehensive income.Purchases during 2012 focused primarily
on mortgage-backed securities issued by U.S. government sponsored enterprises.



The following table summarizes the book
value and approximate fair value and distribution of our investment securities as of the dates indicated.



|(dollars in thousands)                                                       |  | December 31,       |        
|---------------------------------------------------------------------------- |  | ------------------ | -------
|                                                                             |  | 2012               |        
|                                                                             |  | Amortized
    Cost |        
|Securities available for
    sale:                                           |  |                    |        
|U.S. government-sponsored
    enterprises                                    |  | $                  | 18,666 
|U.S. government treasuries                                                   |  |                    | –      
|Municipals                                                                   |  |                    | 39,999 
|Mortgage- and asset-backed
    securities – government-sponsored enterprises |  |                    | 75,782 
|Mortgage-
    and asset-backed securities – private labeled                  |  |                    | 2,696  
|Other
    securities                                                         |  |                    | 16,753 
|Total
    securities available for sale                                      |  | $                  | 153,896



35







Our trust preferred securities consist
of the two securities identified in the following table, which contains information regarding these securities as of December 31,
2012 (amounts in thousands):



|Deal name                                                    |  |   | I-PreTSL I    |    |  |   | ALESCO IV     |   
|------------------------------------------------------------ |  | - | ------------- | -- |  | - | ------------- | --
|Class                                                        |  |   | B-2 Notes     |    |  |   | B-2 Notes     |   
|Book value                                                   |  | $ | 2,000         |    |  | $ | 1,036         |   
|Fair value                                                   |  | $ | 812           |    |  | $ | 28            |   
|Unrealized loss                                              |  | $ | (1,188        | )  |  | $ | (1,008        | ) 
|Other-than-temporary impairment recorded in earnings         |  | $ | -             |    |  | $ | 964           |   
|                                                             |  |   |               |    |  |   |               |   
|Lowest credit rating assigned                                |  |   | CCC-          |    |  |   | C             |   
|Number of performing institutions                            |  |   | 14            |    |  |   | 31            |   
|Number of issuers in default                                 |  |   | 0             |    |  |   | 1             |   
|Number of issuers in deferral                                |  |   | 2             |    |  |   | 7             |   
|                                                             |  |   |               |    |  |   |               |   
|Original collateral                                          |  | $ | 351,000       |    |  | $ | 400,000       |   
|Actual defaults & deferrals as a % of original collateral    |  |   | 4.27          | %  |  |   | 12.13         | % 
|Remaining collateral                                         |  | $ | 188,500       |    |  | $ | 258,397       |   
|Actual defaults & deferrals as a % of remaining collateral   |  |   | 7.96          | %  |  |   | 18.77         | % 
|Expected defaults & deferrals as a % of remaining collateral |  |   | 21.17         | %  |  |   | 14.00         | % 
|Performing collateral                                        |  | $ | 173,500       |    |  | $ | 209,897       |   
|                                                             |  |   |               |    |  |   |               |   
|Current balance of class                                     |  | $ | 33,200        |    |  | $ | 55,550        |   
|Subordination                                                |  | $ | 16,000        |    |  | $ | 0             |   
|Excess subordination                                         |  | $ | 27,200        |    |  | $ | (111,276      | ) 
|Excess subordination as a % of performing collateral         |  |   | 15.7          | %  |  |   | -53.0         | % 
|                                                             |  |   |               |    |  |   |               |   
|Cash Flow Analysis Assumptions:                              |  |   |               |    |  |   |               |   
|Discount margin (1)                                          |  |   | 7.00          | %  |  |   | 14.25         | % 
|Cumulative Default % Range                                   |  |   | 4.9%  -  100% |    |  |   | 2.2%  -  100% |   
|(Weighted Average)                                           |  |   | (29.1         | )% |  |   | (16.5         | )%
|Loss Given Default % Range                                   |  |   | 85%  -  85%   |    |  |   | 90%  -  100%  |   
|(Weighted Average)                                           |  |   | (85           | )% |  |   | (90.1         | )%
|Cumulative Prepayment % Range                                |  |   |               |    |  |   | 0%  -  100%   |   
|(Weighted Average)                                           |  |   | n/a           |    |  |   | (15.6         | )%








(1)
The discount rate for floating rate bonds is a compound interest formula based on the LIBOR forward curve for each payment date



These two securities
are Collateralized Debt Obligations (“CDOs”) that are backed by pools of debt securitiesissued by financial
institutions. The collateral of the ALESCO CDO consists of trust-preferred securities (“TruPS”) and subordinated debt
securities issued by banks and bank holding companies. The collateral of the PreTSL CDO consists of TruPS and subordinated debt
securities of insurance companies. Performing collateral is the amount of remaining collateral less the balances of collateral
in deferral or default. Subordination is the amount of performing collateral in excess of the current balance of a specified class
of notes and all classes senior to the specified class.  Excess subordination is the amount that the performing collateral
balance exceeds the outstanding bonds in the current class, plus all senior classes. It is a static measure of credit enhancement,
but does not incorporate all of the structural elements of the security deal. This amount can also be impacted by future defaults
and deferrals, deferring balances that cure or redemptions of securities by issuers. A negative excess subordination indicates
that the current performing collateral of the security would be insufficient to pay the current principal balance of the class
notes after all of the senior classes notes were paid.



However, the performing collateral balance
excludes the collateral of issuers currently deferring their interest payments. Because these issuers are expected to resume payment
in the future (within five years of the first deferred interest period), a negative excess subordination does not necessarily mean
a class note holder in the CDO will not receive a greater than projected or even full payment of cash flow at maturity.



At December 31, 2012 and 2011 the Company
was receiving “payment in kind” (“PIK”), in lieu of cash interest on the ALESCO trust preferred securities
investment. The Company’s use of “PIK” does not indicate that additional securities have been issued in satisfaction
of any outstanding obligation; rather, it indicates that a coverage test of a class or tranche directly senior to the class in
question has failed and interest received on the PIK note is being capitalized, which means the principal balance is being increased.
Once the coverage test is met, the capitalized interest will be paid in cash and current cash interest payments will resume.



36







The Company’s CDOs both allow, under
the terms of the issue, for issuers to defer interestfor up to five consecutive years. After five years,
if not cured, the securities are considered to be in default and the trustee may demand payment in full of principal and accrued
interest. Issuers of the securities in the collateral pool are also considered to be in default in the event of the failure of
the issuer or a subsidiary. The structuring of these CDOs provides for a waterfall approach to absorbing losses whereby lower classes
or tranches are initially impacted and more senior tranches are only impacted after lower tranches can no longer absorb losses.
Likewise, the waterfall approach also applies to principal and interest payments received, as senior tranches have priority over
lower tranches in the receipt of payments. Both deferred and defaulted issuers are considered non-performing, and the trustee
calculates, on a quarterly or semi-annual basis, certain coverage tests prior to the payment of cash interest to owners of the
various tranches of the securities. The coverage tests are compared to an over-collateralization target that states the balance
of performing collateral as a percentage of the tranche balance plus the balance of all senior tranches. The tests must show that
performing collateral is sufficient to meet requirements for the senior tranches, both in terms of cash flow and collateral value,
before cash interest can be paid to subordinate tranches. As a result of the cash flow waterfall provisions within the structure
of these securities, when a senior tranche fails its coverage test, all of the cash flows that would have been paid to lower tranches
are paid to the senior tranche and recorded as a reduction of the senior tranches’ principal. This principal reduction in
the senior tranche continues until the coverage test of the senior tranche is passed or the principal of the tranche is paid in
full. For so long as the cash flows are being diverted to the senior tranches, the amount of interest due and payable to the subordinate
tranches is capitalized and recorded as an increase in the principal value of the tranche. The Company’s CDO investments
are in the mezzanine tranches or classes which are subordinate to one of more senior tranches of their respective issues. The Company
is receiving PIK for the ALESCO CDO due to failure of the required senior tranche coverage tests described. This security is currently
projected to remain in full or partial PIK status for a period of three years.



The impact of payment of PIK to subordinate
tranches is to strengthen the position of the senior tranches by reducing the senior tranches’ principal balances relative
to available collateral and cash flow.  The impact to the subordinate tranches is to increase principal balances, decrease
cash flow, and increase credit risk to the tranches receiving the PIK. The risk to holders of a security of a tranche in PIK status
is that the total cash flow will not be sufficient to repay all principal and capitalized interest related to the investment.



During the third quarter of 2009, after
analysis of the expected future cash flows and the timing of resumed interest payments, the Company determined that placing the
ALESCO CDO on non-accrual status was the most prudent course of action. The Company stopped all accrual of interest and never capitalized
any PIK interest payments to the principal balance of the security.  The Company intends to keep this security on non-accrual
status until the scheduled interest payments resume on a regular basis and any previously recorded PIK has been paid. The PIK status
of this security, among other factors, indicates potential OTTI and accordingly, the Company utilized an independent third party
for the valuation of the CDOs as of December 31, 2012. Based on this valuation and the Company’s review of the assumptions
and methodologies used, the Company believes the amortized costs recorded for its CDO investments accurately reflects the position
of these securities at December 31, 2012.



Within the valuation performed, the default
and recovery probabilities for each piece of collateral were formed based on the evaluation of the collateral credit and a review
of historical industry default data and current/near-term operating conditions. For collateral that has already defaulted, the
Company assumed no recovery. For collateral that was in deferral, the Company assumed a recovery of 10% of par for banks, thrifts
or other depository institutions, and 15% of par for insurance companies. Although the Company conservatively assumed that the
majority of the deferring collateral continues to defer and eventually defaults, also recognizes there is a possibility that some
deferring collateral may become current at some point in the future.



TruPS CDOs are typically subject to five-year
(in rare instances ten-year) no call provisions.  At the expiration of these lockout periods, they are typically freely callable
at par.  As most of TruPS within CDOs were issued before 2008, most securities are now freely callable at par.  Although
less common, some issuances are callable before the end of a lock out period at a premium (levels varying from issuer to issuer
and typically depending on how close to the end of the no call period).  Additionally, there exists a provision in most trust
preferred indentures that allow for the securities to become callable at par (even during the lockout period) if there is an adverse
capital treatment event.



37







Prepayment assumptions are predicated on
the terms and pricing of TruPS relative to prevailing current market conditions, as well as regulatory and legislative developments
that may affect issuers’ decision to prepay. There were no significant changes made within the prepayment assumptions during
2012. Most TruPS have a five-year call option – meaning that, on the fifth anniversary of issuance, the issuer has the right
to redeem the security at par. Additionally, most trust preferred security indentures include language that permits an issuer to
call the security if an adverse capital treatment event occurs. These provisions allow issuers to redeem their TruPS at virtually
any time if a legislative or regulatory development changes the TruPS’ status as a component of Tier 1 capital. The passage
of the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010, constituted such an event for certain bank holding
companies. Specifically, bank holding companies with consolidated assets of $15 billion or more can no longer treat as Tier 1 Capital
any hybrid capital instruments (such as TruPS) issued on or after May 19, 2010. Furthermore, the ability of these institutions
to continue to treat as Tier 1 Capital any hybrid capital instruments, including TruPS, issued before May 19, 2010, will be phased
out incrementally over a period of three years, beginning January 1, 2013. Notwithstanding the foregoing, we believe that the terms
and pricing of TruPS issued by banks and insurance companies were so aggressive that it is unlikely that financing on such attractive
terms will become available in the foreseeable future. Additionally, the favorable capital treatment of these securities (i.e.
status as Tier 1 capital) makes them a particularly attractive debt instrument. Simply put, refinancing does not make sense from
either an economic or regulatory capital standpoint. Therefore, we assume that the bulk of the TruPS collateral does not prepay
over the life of the CDO. However, in light of legislative developments, we have instituted a 40% prepayment assumption rate for
those banks with assets greater than $15 billion for two years corresponding to the start of the phase-out period for Tier 1 capital
treatment – and, subsequently, an annual prepayment rate assumption of 2%. The 40% prepayment rate was the result of a detailed
analysis of the terms of those TruPS issued by banks with assets in excess of $15 Billion. Specifically, we looked to the contractual
interest rate of these instruments (i.e. fixed rate or spread over LIBOR) and compared them to current debt market rates of the
issuing institutions. The bulk of the TruPS within the CDOs were issued at rates inside of current market debt yield (thus making
refinancing prohibitively expensive). For issuers that have made a public announcement of intent to redeem their outstanding TruPS,
we assume an immediate prepayment. Additionally, we assume immediate prepayment for TruPS issued by banks with greater than $15
billion in assets and a fixed coupon of 7% or greater. The bulk of the issuances with coupons greater than 7% were issued at rates
wider than current market debt yield (thus making refinancing certain). Similarly, for those TruPS issued by banks with assets
between $2 billion and $15 billion and coupons greater than 7%, we assume a constant annual prepayment rate of 5%. This rate
is meant to reflect the possibility that some mid-size banks with limited access to the capital markets may choose to refinance
the relatively high cost debt despite the remaining positive capital treatment of their TruPS.



At present there is no prepayment rate
being applied to insurance collateral.  This is due to the de minimus rate of prepayment observed for insurance collateral. 
As stated above, the impact of a prepayment would be positive for insurance only CDOs.  Additionally, unlike large banks which
experienced a “taking away” of preferential capital treatment, insurance companies were never subject to such an adverse
event and thus have no new incentive to prepay. There would be no increase in credit loss when adding a 1% prepayment assumption. 
However, there would be an increase in fair value of approximately one point.



For CDOs with only bank collateral, such
as the ALESCO CDO, generally senior tranches experience increased value and no credit loss effect with increased prepayment assumptions,
while mezzanine tranches typically experience increased credit loss when collateral prepayment assumptions are increased. 
Typically redemptions are completed by issuers with stronger credit and/or higher coupon paper (as higher coupon paper has a higher
probability of redemption due to refinancing options).  Issuers with stronger credit are more likely to continue making interest
payments (less likely to default) and higher coupon paper accounts for higher interest proceeds available to pay tranches in the
CDO.  The mezzanine tranches benefit from these heightened interest proceeds over time and prepayments compromise the likelihood
of those payments.



For CDOswith
only insurance collateral, such as the PreTSL CDO, given the significant amounts of subordination and excellent asset coverage
(due to the absence of material credit events), prepayments would have a positive effect on fair value for nearly all tranches
and is unlikely to cause impairment.There would be no increase in credit loss when adding a 1% prepayment assumption. 
However, there would be an increase in fair value of approximately one and a half points.



38







Investment Maturities



The total amount of securities in an unrealized
loss position for greater than 12 months is comprised of municipal, mortgage-backed and other securities. Our management periodically
evaluates each security available-for-sale in an unrealized loss position to determine if the impairment is temporary or other
than temporary. The unrealized losses are due solely to interest rate changes and we have the ability and intent to hold all investment
securities with identified impairments resulting from interest rate changes to the earlier of the forecasted recovery or the maturity
of the underlying investment security. As of December 31, 2012, we did not have any investment securities that constituted 10%
or more of the stockholders’ equity of any third party issuer.



The following table summarizes the maturity
schedule of our investment securities at their amortized cost and their weighted average yields at December 31, 2012.



(dollars in thousands)



|                                                                            |  | 1 year or Less     |       |  | More than 1 year 
    to 5 years |  |      | More than 5 years 
    to 10 years |  |   | More than 10 years         |  |  | Total              |     
|--------------------------------------------------------------------------- |  | ------------------ | ----- |  | -------------------------------- |  | ---- | ---------------------------------- |  | - | -------------------------- |  |  | ------------------ | ----
|                                                                            |  | Amortized
    Cost |       |  | Weighted
    Average Yield       |  |      | Amortized
    Cost                 |  |   | Weighted
    Average Yield |  |  | Amortized
    Cost |     
|Securities available for
    sale:                                          |  |                    |       |  |                                  |  |      |                                    |  |   |                            |  |  |                    |     
|U.S. government-sponsored
    enterprises                                   |  | $                  | –     |  |                                  |  | 0.00 | %                                  |  | $ | 1,102                      |  |  |                    | 3.69
|Municipals                                                                  |  |                    | 1,305 |  |                                  |  | 2.35 | %                                  |  |   | 3,168                      |  |  |                    | 3.42
|Mortgage- and asset-backed
    securities– government-sponsored enterprises |  |                    | –     |  |                                  |  | 0.00 | %                                  |  |   | 229                        |  |  |                    | 6.00
|Mortgage-
    and asset-backed securities – private labeled                 |  |                    | –     |  |                                  |  | 0.00 | %                                  |  |   | 193                        |  |  |                    | 5.25
|Other
    securities                                                        |  |                    | 1,500 |  |                                  |  | 2.17 | %                                  |  |   | 12,217                     |  |  |                    | 3.74
|Total
    securities available for sale                                     |  | $                  | 2,805 |  |                                  |  |      |                                    |  | $ | 16,909                     |  |  |                    |     



Critical Accounting Policies and Estimates



Allowance for Loan Losses. We believe
the allowance for loan losses is the critical accounting policy that requires the most significant judgments and assumptions used
in the preparation of our consolidated financial statements. An estimate of potential losses inherent in the loan portfolio are
determined and an allowance for those losses is established by considering factors including historical loss rates, expected cash
flows and estimated collateral values. The allowance for loan losses represents management’s best estimate of losses inherent
in the existing loan portfolio. The allowance for loan losses is increased by the provision for loan losses charged to expense
and reduced by loans charged off, net of recoveries. Management evaluates the allowance for loan losses quarterly. If the underlying
assumptions later prove to be inaccurate based on subsequent loss evaluations, the allowance for loan losses is adjusted.



Management estimates the appropriate level
of allowance for loan losses by separately evaluating impaired and non-impaired loans. A specific allowance is assigned to an impaired
loan when expected cash flows or collateral do not justify the carrying amount of the loan. The methodology used to assign an allowance
to a non-impaired loan is more subjective. Generally, the allowance assigned to non-impaired loans is determined by applying historical
loss rates to existing loans with similar risk characteristics, adjusted for qualitative factors including changes in economic
conditions, changes in underwriting standards, and changes in the level of credit risk associated with specific industries and
markets. Because the economic and business climate in any given industry or market, and its impact on any given borrower, can change
rapidly, the risk profile of the loan portfolio is periodically assessed and adjusted when appropriate. Notwithstanding these procedures,
there still exists the possibility that the assessment could prove to be significantly incorrect and that an immediate adjustment
to the allowance for loan losses would be required.



39







Investment in Debt and Equity Securities.
We classify investments in debt and equity securities as either held-to-maturity or available-for-sale in accordance with Accounting
Standards Codification, or ASC, Topic 320,“Accounting for Certain Investments in Debt and Equity Securities.”
Securities classified as held-to-maturity would be recorded at cost or amortized cost. Available-for-sale securities are carried
at fair value. Fair value calculations are based on quoted market prices when such prices are available. If quoted market prices
are not available, estimates of fair value are computed using a variety of pricing sources, including Reuters/EJV, Interactive
Data and Standard & Poors. Due to the subjective nature of the valuation process, it is possible that the actual fair values
of these investments could differ from the estimated amounts, thereby affecting our financial position, results of operations and
cash flows. If the estimated value of investments is less than the cost or amortized cost, management evaluates whether an event
or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment. If such
an event or change has occurred and management determines that the impairment is other-than-temporary, a further determination
is made as to the portion of impairment that is related to credit loss. The impairment of the investment that is related to the
credit loss is expensed in the period in which the event or change occurred. The remainder of the impairment is recorded in other
comprehensive income.



Other Real Estate Owned. OREO acquired
through loan foreclosure is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. The
adjustment at the time of foreclosure is recorded through the allowance for loan losses. Due to the subjective nature of establishing
the fair value when the asset is acquired, the actual fair value of the OREO or foreclosed asset could differ from the original
estimate. If it is determined that fair value declines subsequent to foreclosure, a valuation adjustment is recorded through non-interest
expense. Operating costs associated with the assets after acquisition are also recorded as non-interest expense. Gains and losses
on the disposition of OREO and foreclosed assets are netted and posted through non-interest income.



Impairment of Goodwill. As a result
of the acquisition of Landmark Financial Corporation, goodwill, an intangible asset with an indefinite life, is reflected on the
balance sheet. Goodwill is evaluated for impairment annually, unless there are factors present that indicate a potential impairment,
in which case, the goodwill impairment test is performed more frequently than annually.



Deferred Income Tax Assets/Liabilities.
Our net deferred income tax asset arises from differences in the dates that items of income and expense enter into our reported
income and taxable income. Deferred tax assets and liabilities are established for these items as they arise. From an accounting
standpoint, deferred tax assets are reviewed to determine if they are realizable based on the historical level of taxable income,
estimates of future taxable income and the reversals of deferred tax liabilities. In most cases, the realization of the deferred
tax asset is based on future profitability. If we were to experience net operating losses for tax purposes in a future period,
the realization of deferred tax assets would be evaluated for a potential valuation reserve.



Additionally, management reviews our uncertain
tax positions annually under ASC Subtopic 740-10, “Accounting for Uncertainty in Income Taxes.” An uncertain
tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained
in a tax examination, with a tax examination being presumed to occur. The amount actually recognized is the largest amount of tax
benefit that is greater than 50% likely to be recognized on examination. For tax positions not meeting the “more likely than
not” test, no tax benefit is recorded. A significant amount of judgment is applied to determine both whether the tax position
meets the “more likely than not” test as well as to determine the largest amount of tax benefit that is greater than
50% likely to be recognized. Differences between the position taken by management and that of taxing authorities could result in
a reduction of a tax benefit or increase to tax liability, which could adversely affect future income tax expense.



40







Recent Accounting Pronouncements



In December 2011, the Financial Accounting
Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2011-11. The objective of this
ASU is to provide enhanced disclosures that will enable users of financial statements to evaluate the effect or potential effect
of netting arrangements on an entity’s financial position. This includes the effect or potential effect of rights of setoff
associated with an entity’s recognized assets and recognized liabilities within the scope of this ASU. The amendments require
enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (1)
offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement
or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section 815-10-45.
An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods
within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative
periods presented. We will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the
ASU will have a material effect on its financial position or results of operations.



On July 27, 2012, the FASB released ASU
2012-02. The amendments in this Update will allow an entity to first assess qualitative factors to determine whether it is necessary
to perform a quantitative impairment test. Under these amendments, an entity would not be required to calculate the fair value
of an indefinite-lived intangible asset unless the entity determines, based on qualitative assessment, that it is not more likely
than not, the indefinite-lived intangible asset is impaired. The amendments include a number of events and circumstances for an
entity to consider in conducting the qualitative assessment. The amendments are effective for annual and interim impairment tests
performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment
tests performed as of a date before July 27, 2012, if a public entity's financial statements for the most recent annual or interim
period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The Company has adopted
the methodologies prescribed by this ASU by the date required, and the ASU did not have a material effect on its financial position
or results of operations.



On August 27, 2012, the FASB released ASU
2012-03. This Update amends various SEC paragraphs pursuant to SAB 114, SEC Release No. 33-9250, and ASU 2010-22, which amend or
rescind portions of certain SAB Topics. These amendments are presented in two sections – Amendments to the FASB Accounting
Standards Codification® and Amendments to the XBRL Taxonomy. The Company has adopted the methodologies prescribed by this ASU,
and the ASU did not have a material effect on its financial position or results of operations.



On October 1, 2012, the FASB released ASU
2012-04. The amendments in this Update make technical corrections, clarifications, and limited-scope improvements to various topics
throughout the codification. These amendments are presented in two sections—Technical Corrections and Improvements and Conforming
Amendments Related to Fair Value Measurements. The amendments in this Update that will not have transition guidance will be effective
upon issuance for both public entities and nonpublic entities. For public entities, the amendments that are subject to the transition
guidance will be effective for fiscal periods beginning after December 15, 2012. The Company has adopted the methodologies prescribed
by this ASU for the period ended December 31, 2012, and the ASU did not have a material effect on its financial position or results
of operations.



In February 2013, the FASB issued ASU 2013-02
to improve the transparency of reporting reclassifications out of accumulated other comprehensive income. Other comprehensive income
includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later
reclassified out of accumulated other comprehensive income into net income. The amendments in the Update do not change the current
requirements for reporting net income or other comprehensive income in financial statements. All of the information required within
this Update is already required to be disclosed elsewhere in the financial statements under United States Generally Accepted Accounting
Principles (“GAAP”). The new amendments will require an organization to:



| | · | Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of
net income of significant amounts reclassified out of accumulated other comprehensive income–but only if the item reclassified
is required under GAAP to be reclassified to net income in its entirety in the same reporting period.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



41







| | · | Cross-reference to other disclosures currently required under GAAP for other reclassification items (that are not required
under GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when
a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet
account instead of directly to income or expense.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The amendments are effective for reporting
periods beginning after December 15, 2012. The Company will adopt the methodologies prescribed by this ASU by the date required,
and the ASU is not expected to have a material effect on its financial position or results of operations.



In January 2013, the FASB issued ASU 2013-01,
which clarifies the scope of transactions that are subject to the disclosures about offsetting. The Update clarifies that ordinary
trade receivables and receivables are not in the scope of ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting
Assets and Liabilities. Specifically, Update 2011-11 applies only to derivatives, repurchase agreements and reverse purchase agreements,
and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained
in FASB Accounting Standards Codification® or subject to a master netting arrangement or similar agreement. Issued in December
2011, Update 2011-11 was the result of a joint project with the International Accounting Standards Board. Its objective was to
improve transparency and comparability between GAAP and International Financial Reporting Standards by requiring enhanced disclosures
about financial instruments and derivative instruments that are either (1) offset on the statement of financial position or (2)
subject to an enforceable master netting arrangement or similar agreement. The FASB undertook this clarification project in response
to concerns expressed by U.S. stakeholders about the standard’s broad definition of financial instruments. After the standard
was finalized, companies realized that many contracts have standard commercial provisions that would equate to a master netting
arrangement, significantly increasing the cost of compliance at minimal value to financial statement users.



Off-Balance Sheet Arrangements



We do not have any off-balance sheet arrangements.



| | Item 7A. | Quantitative and Qualitative Disclosures about Market
Risk
| | -------- | ----------------------------------------------------------



Not applicable.



| | Item 8. | Financial Statements and Supplementary Data
| | ------- | -------------------------------------------



The financial statements and
notes thereto required pursuant to this Item begin on page F-1 of this report.



| | Item 9. | Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
| | ------- | ------------------------------------------------------------------------------------



None.



| | Item 9A. | Controls and Procedures
| | -------- | -----------------------



Evaluation of Disclosure Controls
and Procedures



We maintain disclosure controls and procedures
that are designed to ensure that information we are required to disclose in reports that we file or submit under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time
period specified in SEC rules and forms. These controls and procedures are also designed to ensure that such information is accumulated
and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow
timely decisions regarding required disclosure. In designing and evaluating disclosure controls and procedures, we have recognized
that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving
the desired control objectives. Management is required to apply judgment in evaluating its controls and procedures.



We performed an evaluation under the supervision
and with the participation of our management, including our principal executive and principal financial officers, to assess the
effectiveness of the design and operation of our disclosure controls and procedures under the Exchange Act. Based on that evaluation,
our management, including our principal executive and principal financial officers, concluded that our disclosure controls and
procedures were effective as of December 31, 2012.



42







Management's Report on Internal Control
Over Financial Reporting



This annual report does not include a report
of management's assessment regarding internal control over financial reporting or an attestation report of the company's registered
public accounting firm due to a transition period established by the rules of the Securities and Exchange Commission for newly
public companies.



Changes in Internal Control Over
Financial Reporting



There has been no change in our internal
control over financial reporting during the quarter ended December 31, 2012, that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.



| | Item 9B. | Other Information.
| | -------- | ------------------



On March 28, 2013, we entered into
a new employment agreement with David Becker. This information is being reported in compliance with item 5.02(e) of the Current
Report on Form 8-K. The new agreement replaces the employment agreement that had been last amended January 1, 2007.



The new agreement provides for an annual
base salary and an annual bonus, if any, as determined form time to time by the Compensation Committee of the Board of Directors.
The annual bonus is to be determined with reference to the achievement of annual performance objectives established by the Compensation
Committee for Mr. Becker and other senior officers. The new agreement also provides that Mr. Becker may be awarded additional
compensation, benefits or consideration as the Compensation Committee may determine. The initial term of the new agreement expires
on December 31, 2013, and will be automatically extended for successive one year terms unless we or Mr. Becker provide
notice otherwise at least ninety (90) days before the expiration of the then existing term.



The new agreement provides that if Mr. Becker's
employment is terminated by us for cause, or by him without good reason, he will be paid the amounts then due for his services
through the date of termination. If the executive's employment is terminated without cause or he resigns for good reason he will
be paid, in twelve equal monthly payments beginning the month following termination, an amount equal to two times his then-annual
base salary plus two times the amount of the annual bonus he was paid for the calendar year preceding the termination. If Mr. Becker's
employment is terminated due to his death or disability he or his estate, as the case may be, will be paid within thirty days,
an amount equal to 120% of the annual bonus he was paid for the calendar year preceding the termination. If his employment terminates
or is not renewed or if he resigns for any reason with twelve months following a change in control of us, he will be paid, in twelve
equal monthly payments beginning the month following the end of his employment, an amount equal to three times his then-current
base salary plus two times the amount of the annual bonus he was paid for the calendar year preceding the termination; provided,
however, the total payments will be limited to the maximum amount that could be paid to him without imposing excise tax under Section 4999
of the Internal Revenue Code. If the executive's employment is terminated for any reason outlined in this paragraph then, to the
fullest extent permitted by law, all restrictions on any outstanding incentive awards, including equity awards will lapse and become
100% vested.



In addition to other customary terms, the
new agreement requires Mr. Becker to maintain confidentiality of trade secrets and other confidential information and entitles
him to indemnification, subject to certain customary exceptions, by us against claims against him arising in connection with the
performance of his duties. In addition, the new agreement provides that Mr. Becker will not work for or own any enterprise
in competition with us in the United States for two years from the date of termination or expiration of his employment. Mr. Becker
also agrees not to solicit any of our employees to work in a competing enterprise or interfere with any of our business relationships
for the same period.



The new employment agreement is being filed
as an exhibit to this report and is incorporated herein by reference.



43







PART III



Certain information required
by Part III is incorporated by reference from our definitive Proxy Statement for the Annual Meeting of Shareholders to be held
on May 20, 2013 (the “Proxy Statement”), which we intend to file with the SEC pursuant to Regulation 14A within
120 days after December 31, 2012. Except for those portions specifically incorporated in this report by reference to our Proxy
Statement, no other portions of the Proxy Statement are deemed to be filed as part of this report.



| | Item 10. | Directors, Executive Officers and Corporate Governance
| | -------- | ------------------------------------------------------



Directors



Incorporated into this item by reference
is the information set forth under the caption “Proposal No. 1 – Election of Directors” in the Proxy Statement.



Executive Officers



Information regarding our executive officers
is set forth in Item 1 of Part I of this annual report under the caption “Executive Officers of the Registrant.”



Code of Business Conduct and Ethics



We have adopted a code of business conduct
and ethics that applies to all of our directors and officers and other employees, including our principal executive officer, principal
financial officer and principal accounting officer. This code is publicly available through the Investor Relations section of our
website at www.firstinternetbancorp.com. To the extent permissible under applicable law, the rules of the SEC or NASDAQ listing
standards, we intend to post on our website any amendment to the code of business conduct and ethics, or any grant of a waiver
from a provision of the code of business conduct and ethics, that requires disclosure under applicable law, the rules of the SEC
or NASDAQ listing standards.



Audit Committee



Incorporated into this item by reference
is the information relating to our audit committee set forth under the caption “Corporate Governance” in the Proxy
Statement.



Section 16(a) Beneficial Ownership Reporting Compliance



Incorporated into this item by reference
is the information relating to reports filed under Section 16(a) of the Exchange Act set forth under the caption “Corporate
Governance” in the Proxy Statement.



Corporate Governance



Incorporated into this item by reference
is the information relating to the procedures by which shareholders may recommend nominees to the board of directors set forth
under the caption “Corporate Governance” in the Proxy Statement.



| | Item 11. | Executive Compensation
| | -------- | ----------------------



Incorporated into this item by reference
is the information in the Proxy Statement regarding the compensation of our named executive officers appearing under the heading
“Executive Compensation,” the information regarding compensation committee interlocks and insider participation under
the heading “Corporate Governance” and the information regarding compensation of non-employee directors under the heading
“Executive Compensation.”



| | Item 12. | Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
| | -------- | ----------------------------------------------------------------------------------------------



Incorporated into this item by reference
is the information in the Proxy Statement appearing under the headings “Security Ownership of Certain Beneficial Owners”
and “Equity Compensation Plan Information.”



44







| | Item 13. | Certain Relationships and Related Transactions, and
Director Independence
| | -------- | -------------------------------------------------------------------------



Incorporated into this item by reference
is the information in the Proxy Statement regarding director independence under the heading “Proposal No. 1 – Election
of Directors” and the information regarding related person transactions under the heading “Corporate Governance.”



| | Item 14. | Principal Accountant Fees and Services
| | -------- | --------------------------------------



Incorporated into this item by reference
is the information in the Proxy Statement under the heading “Proposal No. 5 – Ratification of Appointment of Independent
Registered Public Accounting Firm.”



45







PART IV



| | Item 15. | Exhibits and Financial Statement Schedules
| | -------- | ------------------------------------------



| | (a) | Documents Filed as Part of this annual report on Form 10-K:
| | --- | -----------------------------------------------------------



| | 1. | See our financial statements beginning on page F-1.
| | -- | ---------------------------------------------------



| | (b) | Exhibits:
| | --- | ---------



Unless otherwise indicated,
all documents incorporated into this annual report on Form 10-K by reference to a document filed with the SEC pursuant to the Exchange
Act are located under SEC file number 1-35750.



|Exhibit No. |  | Description                                                                                                                                                                                                               
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         |  | Articles of Incorporation of First Internet Bancorp (incorporated by reference to Exhibit 3.1 to registration statement on Form 10 filed November 30, 2012)                                                               
|3.2         |  | Amended and Restated Bylaws of First Internet Bancorp as amended March 18, 2013                                                                                                                                           
|10.1        |  | First Internet Bancorp 2006 Stock Option Plan (incorporated by reference to Exhibit 10.1 to registration statement on Form 10 filed November 30, 2012)*                                                                   
|10.2        |  | Form of Award Document under 2006 Plan (incorporated by reference to Exhibit 10.2 to registration statement on Form 10 filed November 30, 2012)*                                                                          
|10.3        |  | First Internet Bancorp Directors’ Deferred Stock Plan (incorporated by reference to Exhibit 10.3 to registration statement on Form 10 filed November 30, 2012)*                                                           
|10.4        |  | Amended and Restated Employment Agreement among First Internet Bank of Indiana, First Internet Bancorp and David B. Becker dated March 28, 2013*                                                                          
|10.5        |  | Employment Agreement between First Internet Bank of Indiana and Laurinda A. Swank dated August 8, 1999 (incorporated by reference to Exhibit 10.5 to registration statement on Form 10 filed November 30, 2012)*          
|10.6        |  | Change in Control Agreement between First Internet Bank of Indiana and Kay E. Whitaker dated January 14, 2013*                                                                                                            
|10.7        |  | 2012 Senior Management Bonus Plan (incorporated by reference to Exhibit 10.6 to registration statement on Form 10 filed November 30, 2012)*                                                                               
|10.8        |  | 2013 Senior Management Bonus Plan*                                                                                                                                                                                        
|10.9        |  | Form of Supplemental Executive Retirement Agreement between First Internet Bank of Indiana and certain employees (incorporated by reference to Exhibit 10.7 to registration statement on Form 10 filed November 30, 2012)*
|10.10       |  | Contract for Purchase of Property between First Internet Bancorp and LHRET Ascension SV, LLC dated January 30, 2013                                                                                                       
|10.11       |  | Offer and Contract for Purchase of Real Estate between First Internet Bancorp and St. Vincent Hospital and Health Care Center, Inc., accepted February 5, 2013                                                            
|10.12       |  | Loan Agreement dated as of March 6, 2013, by and between First Internet Bancorp and First Internet Bank of Indiana (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed March 11, 2013)         
|10.13       |  | Lease dated as of March 6, 2013, by and between First Internet Bancorp and First Internet Bank of Indiana (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed March 11, 2013)                  
|21.1        |  | List of Subsidiaries (incorporated by reference to Exhibit 21.1 to registration statement on Form 10 filed November 30, 2012)                                                                                             
|31.1        |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer                                                                                                                                                         
|31.2        |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer                                                                                                                                                         
|32.1        |  | Section 1350 Certifications                                                                                                                                                                                               










| | * | Management contract, compensatory plan or arrangement
required to be filed as an exhibit.
| | - | -----------------------------------------------------------------------------------------



46







SIGNATURES



Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 28, 2013.



| |    | FIRST INTERNET BANCORP                                                  
| | -- | ------------------------------------------------------------------------
| |    |                                                                         
| | By | /s/ David B. Becker                                                     
| |    | David B. Becker,
        Chief Executive Officer, President and Chairman



Pursuant to the requirements
of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant
and in the capacities indicated on March 28, 2013.



|                                                                                                                        |  |                                                                                                                                   
|----------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|/s/ David B. Becker                                                                                                     |  | /s/ Kay E. Whitaker                                                                                                               
|David B. Becker,
        Chief Executive Officer, President,Chairman and Director
        (Principal Executive Officer) |  | Kay E. Whitaker,
        Senior Vice President-Finance,Chief Financial Officer and Secretary
        (Principal Financial Officer)
|                                                                                                                        |  |                                                                                                                                   
|                                                                                                                        |  | /s/ Laurinda A. Swank                                                                                                             
|                                                                                                                        |  | Laurinda A. SwankChief Accounting Officer(Principal Accounting Officer)                                                           
|                                                                                                                        |  |                                                                                                                                   
|/s/ John K. Keach Jr.                                                                                                   |  | /s/ David R. Lovejoy                                                                                                              
|John K. Keach Jr., Director                                                                                             |  | David R. Lovejoy, Director                                                                                                        
|                                                                                                                        |  |                                                                                                                                   
|/s/ Ann S. Murtlow                                                                                                      |  | /s/ Ralph R. Whitney                                                                                                              
|Ann S. Murtlow, Director                                                                                                |  | Ralph R. Whitney, Director                                                                                                        
|                                                                                                                        |  |                                                                                                                                   
|/s/ Jerry Williams                                                                                                      |  | /s/ Jean L. Wojtowicz                                                                                                             
|Jerry Williams, Director                                                                                                |  | Jean L. Wojtowicz, Director                                                                                                       



47







First Internet Bancorp

December 31, 2012 and 2011



Contents



|Report of Independent Registered Public Accounting Firm | F-2
|------------------------------------------------------- | ---
|                                                        |    
|Consolidated Financial Statements                       |    
|                                                        |    
|Balance Sheets                                          | F-3
|                                                        |    
|Statements of Income                                    | F-4
|                                                        |    
|Statements of Comprehensive Income                      | F-5
|                                                        |    
|Statements of Shareholders’ Equity                      | F-6
|                                                        |    
|Statements of Cash Flows                                | F-7
|                                                        |    
|Notes to Financial Statements                           | F-8



F-1







Report of Independent Registered Public
Accounting Firm



Audit Committee, Board of Directors and Shareholders

First Internet Bancorp

Indianapolis, Indiana



We have audited the accompanying consolidated balance sheets
of First Internet Bancorp as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income,
shareholders’ equity and cash flows for the years then ended. The Company's management is responsible for these financial
statements. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. Our audits also included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management
and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of First Internet Bancorp as of December 31, 2012 and
2011, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally
accepted in the United States of America.



/s/ BKD, LLP



Indianapolis, Indiana

March 28, 2013



F-2









First Internet Bancorp

Consolidated Balance Sheets
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



|                                                                                                                        |  | 2012 |         |  | 2011 |  
|----------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- |  | ---- | -
|                                                                                                                        |  |      |         |  |      |  
|Assets                                                                                                                  |  |      |         |  |      |  
|                                                                                                                        |  |      |         |  |      |  
|Cash and due from banks                                                                                                 |  | $    | 2,881   |  |      | $
|Interest-bearing demand deposits                                                                                        |  |      | 29,632  |  |      |  
|Total cash and cash equivalents                                                                                         |  |      | 32,513  |  |      |  
|Securities available for sale - at fair value (amortized cost of $153,896 in 2012 and $147,386 in 2011                  |  |      | 156,693 |  |      |  
|Loans held for sale                                                                                                     |  |      | 63,234  |  |      |  
|Loans receivable - net of allowance for loan losses of $5,833 and $5,656 at December 31, 2012 and 2011                  |  |      | 352,328 |  |      |  
|Accrued interest receivable                                                                                             |  |      | 2,196   |  |      |  
|Federal Home Loan Bank of Indianapolis stock                                                                            |  |      | 2,943   |  |      |  
|Bank-owned life insurance - at cash surrender value                                                                     |  |      | 11,539  |  |      |  
|Goodwill                                                                                                                |  |      | 4,687   |  |      |  
|Prepaid expenses and other assets                                                                                       |  |      | 10,234  |  |      |  
|                                                                                                                        |  |      |         |  |      |  
|Total assets                                                                                                            |  | $    | 636,367 |  |      | $
|                                                                                                                        |  |      |         |  |      |  
|Liabilities and Shareholders’
Equity                                                                                    |  |      |         |  |      |  
|Liabilities                                                                                                             |  |      |         |  |      |  
|Deposits                                                                                                                |  | $    | 530,691 |  |      | $
|Advances from Federal Home Loan Bank                                                                                    |  |      | 40,686  |  |      |  
|Accrued payroll and related expenses                                                                                    |  |      | 948     |  |      |  
|Accrued interest payable                                                                                                |  |      | 120     |  |      |  
|Accrued expenses and other liabilities                                                                                  |  |      | 2,572   |  |      |  
|Total liabilities                                                                                                       |  |      | 575,017 |  |      |  
|                                                                                                                        |  |      |         |  |      |  
|Commitments and Contingencies                                                                                           |  |      |         |  |      |  
|                                                                                                                        |  |      |         |  |      |  
|Shareholders’ Equity                                                                                                    |  |      |         |  |      |  
|Preferred stock, no par value; 4,913,779 shares authorized; issued and outstanding - none                               |  |      |         |  |      |  
|Voting common stock, no par value; 45,000,000 shares authorized; 1,876,782 and 1,871,590  shares issued and outstanding |  |      | 41,508  |  |      |  
|Nonvoting common stock, no par value; 86,221 shares authorized; issued and outstanding - none                           |  |      | —       |  |      |  
|Retained earnings                                                                                                       |  |      | 18,024  |  |      |  
|Accumulated other comprehensive income (net of income taxes of $979 in 2012 and $664 in 2011)                           |  |      | 1,818   |  |      |  
|Total shareholders’ equity                                                                                              |  |      | 61,350  |  |      |  
|                                                                                                                        |  |      |         |  |      |  
|Total liabilities and shareholders’ equity                                                                              |  | $    | 636,367 |  |      | $



See
Notes to Consolidated Financial Statements



F-3







First Internet Bancorp

Consolidated Statements of Income
Years Ended December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



|                                                                 |  | 2012 |           |   | 2011 |  
|---------------------------------------------------------------- |  | ---- | --------- | - | ---- | -
|Interest Income                                                  |  |      |           |   |      |  
|Securities – taxable                                             |  | $    | 3,064     |   |      | $
|Securities – non-taxable                                         |  |      | 1,681     |   |      |  
|Loans                                                            |  |      | 19,303    |   |      |  
|Federal funds sold and other short-term investments              |  |      | 69        |   |      |  
|Total interest income                                            |  |      | 24,117    |   |      |  
|Interest Expense                                                 |  |      |           |   |      |  
|Deposits                                                         |  |      | 7,172     |   |      |  
|Other borrowed funds                                             |  |      | 1,360     |   |      |  
|Total interest expense                                           |  |      | 8,532     |   |      |  
|Net Interest Income                                              |  |      | 15,585    |   |      |  
|Provision for Loan Losses                                        |  |      | 2,852     |   |      |  
|Net Interest Income After Provision for Loan Losses              |  |      | 12,733    |   |      |  
|Noninterest Income                                               |  |      |           |   |      |  
|Service charges and fees                                         |  |      | 942       |   |      |  
|Gain on loans sold                                               |  |      | 10,647    |   |      |  
|Other-than-temporary impairment                                  |  |      |           |   |      |  
|Total loss related to other than temporarily impaired securities |  |      | (1,452    | ) |      |  
|Portion of loss recognized in other comprehensive income (loss)  |  |      | 1,200     |   |      |  
|Other-than-temporary impairment loss recognized in net income    |  |      | (252      | ) |      |  
|Gain on sale of securities                                       |  |      | 48        |   |      |  
|Loss on asset disposals                                          |  |      | (93       | ) |      |  
|Other                                                            |  |      | 452       |   |      |  
|Total noninterest income                                         |  |      | 11,744    |   |      |  
|Noninterest Expense                                              |  |      |           |   |      |  
|Salaries and employee benefits                                   |  |      | 8,529     |   |      |  
|Marketing, advertising and promotion                             |  |      | 1,362     |   |      |  
|Consulting and professional fees                                 |  |      | 1,422     |   |      |  
|Data processing                                                  |  |      | 897       |   |      |  
|Loan expenses                                                    |  |      | 1,097     |   |      |  
|Premises and equipment                                           |  |      | 1,775     |   |      |  
|Deposit insurance premium                                        |  |      | 455       |   |      |  
|Other                                                            |  |      | 1,140     |   |      |  
|Total noninterest expense                                        |  |      | 16,677    |   |      |  
|Income Before Income Taxes                                       |  |      | 7,800     |   |      |  
|Income Tax Provision                                             |  |      | 2,194     |   |      |  
|Net Income                                                       |  | $    | 5,606     |   |      | $
|Income Per Share of Common Stock                                 |  |      |           |   |      |  
|Basic                                                            |  | $    | 2.93      |   |      | $
|Diluted                                                          |  |      | 2.93      |   |      |  
|Weighted-Average Number of Common Shares Outstanding             |  |      |           |   |      |  
|Basic                                                            |  |      | 1,912,910 |   |      |  
|Diluted                                                          |  |      | 1,912,910 |   |      |  



See
Notes to Consolidated Financial Statements



F-4







First Internet Bancorp

Consolidated Statements of Comprehensive
Income
Years Ended December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



|                                                                                                                                          |  | Years Ended December 31, |       
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------
|                                                                                                                                          |  | 2012                     |       
|                                                                                                                                          |  |                          |       
|Net income                                                                                                                                |  | $                        | 5,606 
|Other comprehensive income                                                                                                                |  |                          |       
|Net unrealized holding gains on securities available for sale                                                                             |  |                          | 2,161 
|Reclassification adjustment for gains realized                                                                                            |  |                          | (48   
|Net unrealized holding losses on securities available for sale for which an other-than-temporary impairment has been recognized in income |  |                          | (1,452
|Reclassification adjustment for other-than-temporary impairment loss recognized in income                                                 |  |                          | 252   
|Other comprehensive income before tax                                                                                                     |  |                          | 913   
|Income tax provision                                                                                                                      |  |                          | 315   
|Other comprehensive income - net of tax                                                                                                   |  |                          | 598   
|Comprehensive income                                                                                                                      |  | $                        | 6,204 



See
Notes to Consolidated Financial Statements



F-5







First Internet Bancorp

Consolidated Statements of Shareholders’
Equity
Years Ended December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



|                                            |  |            |        |  | Accumulated   |   |        |          |  |   |               |  
|------------------------------------------- |  | ---------- | ------ |  | ------------- | - | ------ | -------- |  | - | ------------- | -
|                                            |  | Voting and |        |  | Other         |   |        |          |  |   |               |  
|                                            |  | Nonvoting  |        |  | Comprehensive |   |        |          |  |   | Total         |  
|                                            |  | Common     |        |  | Income        |   |        | Retained |  |   | Shareholders’ |  
|                                            |  | Stock      |        |  | (Loss)        |   |        | Earnings |  |   | Equity        |  
|Balance, January 1, 2011                    |  | $          | 41,246 |  |               | $ | (2,060 | )        |  | $ | 9,711         |  
|Net income                                  |  |            |        |  |               |   |        |          |  |   | 3,186         |  
|Comprehensive income                        |  |            |        |  |               |   | 3,280  |          |  |   |               |  
|Issuance of directors deferred stock rights |  |            | 60     |  |               |   |        |          |  |   |               |  
|Balance, December 31, 2011                  |  |            | 41,306 |  |               |   | 1,220  |          |  |   | 12,897        |  
|Net income                                  |  |            |        |  |               |   |        |          |  |   | 5,606         |  
|Comprehensive income                        |  |            |        |  |               |   | 598    |          |  |   |               |  
|Cash dividends paid  ($0.25 per share)      |  |            |        |  |               |   |        |          |  |   | (479          | )
|Issuance of share-based compensation        |  |            | 107    |  |               |   |        |          |  |   |               |  
|Issuance of directors deferred stock rights |  |            | 95     |  |               |   |        |          |  |   |               |  
|Balance, December 31, 2012                  |  | $          | 41,508 |  |               | $ | 1,818  |          |  | $ | 18,024        |  



See Notes to Consolidated
Financial Statements





F-6







First Internet Bancorp

Consolidated Statements of Cash Flows
Years Ended December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



|                                                                          |  | 2012 |          |   | 2011 |  
|------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | -
|Operating Activities                                                      |  |      |          |   |      |  
|Net income                                                                |  | $    | 5,606    |   |      | $
|Adjustments to reconcile net income to net cash from operating activities |  |      |          |   |      |  
|Depreciation                                                              |  |      | 308      |   |      |  
|Amortization and accretion on securities                                  |  |      | 2,441    |   |      |  
|Amortization on FHLB prepayment penalties                                 |  |      | 113      |   |      |  
|Loss from disposal of fixed assets                                        |  |      | 1        |   |      |  
|Loss (Gain) from real estate owned                                        |  |      | (99      | ) |      |  
|Loss from impairment of other asset                                       |  |      | —        |   |      |  
|Increase in cash surrender value of bank-owned life insurance             |  |      | (378     | ) |      |  
|Provision for loan losses                                                 |  |      | 2,852    |   |      |  
|Deferred income taxes                                                     |  |      | (191     | ) |      |  
|Director fees and officer compensation                                    |  |      | 202      |   |      |  
|Loss on other-than-temporary impairment of security                       |  |      | 252      |   |      |  
|Gain from sale of available-for-sale securities                           |  |      | (48      | ) |      |  
|Loans originated for sale                                                 |  |      | (738,225 | ) |      |  
|Proceeds from sale of loans                                               |  |      | 730,729  |   |      |  
|Gain on loans sold                                                        |  |      | (10,647  | ) |      |  
|Changes in assets and liabilities                                         |  |      |          |   |      |  
|Accrued interest receivable                                               |  |      | (67      | ) |      |  
|Prepaid expenses and other assets                                         |  |      | 607      |   |      |  
|Accrued expenses and other liabilities                                    |  |      | 861      |   |      |  
|Net cash used in operating activities                                     |  |      | (5,683   | ) |      |  
|Investing Activities                                                      |  |      |          |   |      |  
|Net decrease (increase) in loans                                          |  |      | (19,274  | ) |      |  
|Loans purchased                                                           |  |      | (9,737   | ) |      |  
|BOLI purchased                                                            |  |      | (3,000   | ) |      |  
|Proceeds from liquidation of real estate owned                            |  |      | 1,345    |   |      |  
|Maturities of securities available for sale                               |  |      | 45,625   |   |      |  
|Proceeds from sale of securities available for sale                       |  |      | 4,223    |   |      |  
|Proceeds from redemption of FHLB stock                                    |  |      | —        |   |      |  
|Purchase of securities available for sale                                 |  |      | (59,002  | ) |      |  
|Capital expenditures                                                      |  |      | (309     | ) |      |  
|Net cash used in investing activities                                     |  |      | (40,129  | ) |      |  
|Financing Activities                                                      |  |      |          |   |      |  
|Net increase in deposits                                                  |  |      | 44,026   |   |      |  
|Cash dividends paid                                                       |  |      | (479     | ) |      |  
|Repayment of FHLB advances                                                |  |      | —        |   |      |  
|Proceeds from FHLB advances                                               |  |      | —        |   |      |  
|Net cash provided by financing activities                                 |  |      | 43,547   |   |      |  
|Net Increase (Decrease) in Cash and Cash Equivalents                      |  |      | (2,265   | ) |      |  
|Cash and Cash Equivalents, Beginning of Year                              |  |      | 34,778   |   |      |  
|Cash and Cash Equivalents, End of Year                                    |  | $    | 32,513   |   |      | $
|Supplemental Disclosures of Cash Flows Information                        |  |      |          |   |      |  
|Cash paid during the year for interest                                    |  | $    | 8,532    |   |      | $
|Cash paid during the year for taxes                                       |  |      | 2,253    |   |      |  
|Loans transferred to real estate owned                                    |  |      | 3,401    |   |      |  



See
Notes to Consolidated Financial Statements



F-7







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



| | Note 1: | Summary of Significant Accounting Policies
| | ------- | ------------------------------------------



The accounting policies of First Internet Bancorp
(Company) conform to accounting principles generally accepted in the United States of America. A summary of the Company’s
significant accounting policies follows:



Description of Business



The Company was incorporated on September 15, 2005,
and was approved to consummate a plan of exchange on March 21, 2006, whereas the Company became a single-bank holding company with
100% ownership in First Internet Bank of Indiana (Bank).



The Bank was incorporated on October 28, 1998, and
was approved to accept FDIC-insured deposits on December 28, 1998. The Bank commenced operations to the public on February 22,
1999. The Bank provides commercial and retail banking, with operations conducted on the World Wide Web (Internet) at
www.firstib.com and through its corporate office located in Indianapolis, Indiana. The majority of the Bank’s
income is derived from retail lending activities and investments in securities. The Bank is subject to competition from other
financial institutions. The Bank is regulated by certain state and federal agencies and undergoes periodic examinations by those
regulatory authorities.



JKH Realty Services, LLC was established August 20,
2012 as a single member LLC wholly owned by the Bank to manage other real estate owned properties as needed.



Principles of Consolidation



The consolidated financial statements include the
accounts of the Company and its subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.



Use of Estimates



The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from
those estimates. Estimates most susceptible to change in the near term include the allowance for loan losses and the fair value
of securities available for sale.



F-8







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



Securities



The Company classifies its securities in one of three
categories and accounts for the investments as follows:



| | Ÿ | Securities that the Company has the positive intent and ability to hold to maturity are classified as “securities held
to maturity” and reported at amortized cost.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Ÿ | Securities that are acquired and held principally for the purpose of selling them in the near term with the objective of generating
economic profits on short-term differences in market characteristics are classified as “securities held for trading”
and reported at fair value, with unrealized gains and losses included in earnings.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Ÿ | Securities not classified as either held to maturity or trading securities are classified as “securities available for
sale” and reported at fair value, with unrealized gains and losses, after applicable taxes, excluded from earnings and reported
in a separate component of shareholders’ equity. Declines in the value of debt securities and marketable equity securities
that are considered to be other than temporary are recorded as an other-than-temporary impairment of securities available for sale
with the unrealized losses recorded in the consolidated statements of operations.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Interest and dividend income, adjusted by amortization
of premium or discount, is included in earnings using the effective interest rate method. Purchases and sales of securities are
recorded in the consolidated balance sheets on the trade date. Gains and losses from security sales or disposals are recognized
as of the trade date in the consolidated statements of operations for the period in which securities are sold or otherwise disposed
of. Gains and losses on sales of securities are determined on the specific-identification method.



Loans Held for Sale



Loans originated and intended for sale in the secondary
market are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a
valuation allowance by charges to noninterest income. Gains and losses on loan sales are recorded in noninterest income, and direct
loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of loan.



Revenue Recognition



Interest income on loans is based on the principal
balance outstanding and is recognized as earned on the interest method, except for interest on loans on nonaccrual status, which
is recorded as a reduction of loan principal when received.



Premiums and discounts are amortized using the effective
interest rate method.



Loan fees, net of certain direct origination costs,
primarily salaries and wages, are deferred and amortized to interest income as a yield adjustment over the life of the loan.



F-9







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



Loans



Loans that management has the intent and ability to
hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balance adjusted for unearned
income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.



For loans recorded at cost, interest income is accrued
based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and
discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.



Allowance for Loan Losses Methodology



Company policy is designed to ensure that an adequate
allowance for loan losses (“ALLL”) will be maintained. Primary responsibility for ensuring that the Company has processes
in place to consistently assess the adequacy of the ALLL rests with the Board. The Board has charged the Chief Financial Officer
(“CFO”) with responsibility for establishing the methodology to be used and to assess the adequacy of the ALLL quarterly.
Quarterly, the Board will review recommendations from the CFO to adjust the allowance as appropriate.



The methodology employed by the CFO for each portfolio
segment will, at a minimum, contain the following:



| | 1. | Loans will be segmented by type of loan.
| | -- | ----------------------------------------



| | 2. | The required ALLL for types of performing homogeneous loans which do not have a specific reserve will be determined by applying
a factor based on historical losses averaged over the past 12 months. In those instances, where the Company’s historical
experience is not available, the CFO will develop factors based on industry experience and best practices.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | All criticized, classified and impaired loans will be tested for impairment by applying one of three methodologies:
| | -- | -------------------------------------------------------------------------------------------------------------------



| | a. | Present value of future cash flows;
| | -- | -----------------------------------



| | b. | Fair value of collateral less cost to sell; or
| | -- | ----------------------------------------------



| | c. | The loan’s observable market price
| | -- | ----------------------------------



| | 4. | All troubled debt restructurings (“TDR”) are considered impaired loans.
| | -- | -----------------------------------------------------------------------



| | 5. | Loans tested for impairment will be removed from other pools to prevent layering (double-counting).
| | -- | ---------------------------------------------------------------------------------------------------



| | 6. | The required ALLL for each group of loans will be added together to determine the total required ALLL for the Company. The
required ALLL will be compared to the current ALLL to determine the provision required to increase the ALLL or credit to decrease
the ALLL.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-10







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



The historical loss experience is determined by portfolio
segment and is based on the actual loss history experienced by the Company over the prior 12 months. Management believes the historical
loss experience methodology is appropriate in the current economic environment, as it captures loss rates that are comparable to
the current period being analyzed.



We also factor in the following qualitative considerations:



| | 1. | Changes in policies and procedures;
| | -- | -----------------------------------



| | 2. | Changes in national, regional and local economic and business conditions;
| | -- | -------------------------------------------------------------------------



| | 3. | Changes in the composition and size of the portfolio and in the terms of loans;
| | -- | -------------------------------------------------------------------------------



| | 4. | Changes in the experience, ability and depth of lending management and other relevant staff;
| | -- | --------------------------------------------------------------------------------------------



| | 5. | Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely
classified or graded loans;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. | Changes in the quality of the Company’s loan review system;
| | -- | -----------------------------------------------------------



| | 7. | Changes in the value of underlying collateral for collateral-dependent loans;
| | -- | -----------------------------------------------------------------------------



| | 8. | The existence and effect of any concentration of credit and changes in the level of such concentrations; and
| | -- | ------------------------------------------------------------------------------------------------------------



| | 9. | The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit
losses in the existing portfolio.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



Provision for Loan Losses



A provision for estimated losses on loans is charged
to operations based upon management’s evaluation of the potential losses. Such an evaluation, which includes a review of
all loans for which full collectibility may not be reasonably assured considers, among other matters, the estimated net realizable
value of the underlying collateral, as applicable, economic conditions, loan loss experience and other factors that are particularly
susceptible to changes that could result in a material adjustment in the near term. While management endeavors to use the best
information available in making its evaluations, future allowance adjustments may be necessary if economic conditions change substantially
from the assumptions used in making the evaluations.



ASC Topic 310, Receivables, requires that impaired
loans be measured based on the present value of expected future cash flows discounted at the loans effective interest rates or
the fair value of the underlying collateral and allows existing methods for recognizing interest income.



F-11







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)





Nonaccrual Loans



Any loan which becomes 90 days delinquent or has the
full collection of principal and interest in doubt will be considered for nonaccrual status. At the time a loan is placed on nonaccrual,
all accrued but unpaid interest will be reversed from interest income. Placing the loan on nonaccrual does not relieve the borrower
of the obligation to repay interest. A loan placed on nonaccrual may be restored to accrual status when all delinquent principal
and interest has been brought current, and the Company expects full payment of the remaining contractual principal and interest.



Impaired Loans



A loan is designated as impaired when, based on current
information or events, it is probable that the Company will be unable to collect all amounts due (principal and interest) according
to the contractual terms of the loan agreement. Payments with insignificant delays not exceeding 90 days outstanding are not considered
impaired. Certain nonaccrual and substantially all delinquent loans may be considered to be impaired. Generally, loans are placed
on nonaccrual status at 90 days past due and accrued interest is reversed against earnings, unless the loan is well-secured and
in the process of collection. The accrual of interest on impaired and nonaccrual loans is discontinued when, in management’s
opinion, the borrower may be unable to meet payments as they become due.



Troubled Debt Restructurings (TDR)



The loan portfolio includes certain loans that have
been modified in a TDR, where economic concessions have been granted to borrowers who have experienced financial difficulties.
These concessions typically result from loss mitigation efforts and could include reductions in the interest rate, payment extensions,
forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructuring
and typically are returned to performing status after considering the borrower’s sustained repayment performance for a reasonable
period, generally not less than six months.



When loans are modified in a TDR, any possible impairment
similar to other impaired loans is evaluated based on the present value of expected future cash flows, discounted at the contractual
interest rate of the original loan agreement, or use the current fair value of the collateral, less selling costs for collateral
dependent loans. If it is determined that the value of the modified loan is less than the recorded balance of the loan, impairment
is recognized through a specific allowance or charge-off to the allowance. In periods subsequent to modification, all TDRs, including
those that have payment defaults, are evaluated for possible impairment, and impairment is recognized through the allowance.



F-12







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



Policy for Charging Off Loans



A loan should be charged off at any point in time
when it no longer can be considered a bankable asset, meaning collectable within the parameters of policy. A secured loan generally
should be charged off to the estimated fair value of the collateral no later than when it is 120 days past due as to principal
or interest. An unsecured loan generally should be charged off no later than when it is 180 days past due as to principal or interest.
All charge-offs are approved by the Credit Review Committee.



Federal Home Loan Bank (FHLB) Stock



Federal law requires a member institution of the FHLB
system to hold common stock of its district FHLB according to a predetermined formula. This investment is stated at cost, which
represents redemption value, and may be pledged as collateral for FHLB advances.



Real Estate Owned



Real estate owned represents real estate acquired
through foreclosure or deed in lieu of foreclosure and is recorded at its fair value less estimated costs to sell. When property
is acquired, it is recorded at its fair value at the date of acquisition, with any resulting write-down charged against the allowance
for loan losses. Any subsequent deterioration of the property is charged directly to operating expense. Costs relating to the development
and improvement of real estate owned are capitalized, whereas costs relating to holding and maintaining the property are charged
to expense as incurred. The Company has $3,666 and $1,512 of real estate owned as of December 31, 2012 and 2011, respectively.



Equipment



Equipment is stated at cost, less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful lives, which range from three to five years.



F-13







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



Income Taxes



Deferred income tax assets and liabilities reflect
the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and the basis of
such assets and liabilities as measured by tax laws and regulations. Deferred income tax expense or benefit is based upon the change
in deferred tax assets and liabilities from period to period, subject to an ongoing assessment of realization of deferred tax assets.
Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than
not that some portion or all of a deferred tax asset will not be realized.



The Company files income tax returns in the U.S. federal
and Indiana jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local examinations
by tax authorities for years before 2008.



ASC Topic 740-10, Accounting for Uncertainty in
Income Taxes, prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure and transition. The Company did not identify any uncertain tax positions
that it believes should be recognized in the consolidated financial statements.



Earnings Per Share



Earnings per share of common stock are based on the
weighted-average number of basic shares and dilutive shares outstanding during the year.



The following is a reconciliation of the weighted-average
common shares for the basic and diluted earnings per share computations for the years ended December 31, 2012 and 2011:



|                                                                                                                                                                                     |  | 2012 |           |  | 2011 | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | --------- |  | ---- | 
|Basic earnings per share                                                                                                                                                             |  |      |           |  |      | 
|Weighted-average common shares                                                                                                                                                       |  |      | 1,912,910 |  |      | 
|                                                                                                                                                                                     |  |      |           |  |      | 
|Diluted earnings per share                                                                                                                                                           |  |      |           |  |      | 
|Weighted-average common shares                                                                                                                                                       |  |      | 1,912,910 |  |      | 
|Dilutive effect of stock compensation                                                                                                                                                |  |      | —         |  |      | 
|Dilutive effect of stock options                                                                                                                                                     |  |      | —         |  |      | 
|                                                                                                                                                                                     |  |      |           |  |      | 
|Weighted-average common and incremental shares                                                                                                                                       |  |      | 1,912,910 |  |      | 
|                                                                                                                                                                                     |  |      |           |  |      | 
|Number of stock options excluded from the calculation of earnings per share as the options' exercise prices were greater than the average market price of the Company's common stock |  |      | —         |  |      | 



F-14







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



Dividend Restrictions



Banking regulations require maintaining certain capital
levels and may limit the dividends paid by the Bank to the Company or by the Company to shareholders. As of December 31, 2012 and
2011 approximately $14,737 and $6,693 was available to be paid as dividends to the Company by the Bank.



Stock Compensation



At December 31, 2012, the Company has a stock-based
employee compensation plan using the fair value recognition provisions of ASC Topic 718, Stock Based Compensation. The plan
is described more fully in Note 9.



Comprehensive Income



Comprehensive income consists of net income and other
comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for
sale, which are also recognized as separate components of equity. Accumulated other comprehensive income (loss) at December 31,
2012 and 2011 is solely related to unrealized gains and losses on investment securities.



Reclassification adjustments have been determined
for all components of other comprehensive income or loss reported in the consolidated statements of changes in shareholders’
equity.



Statements of Cash Flows



Cash and cash equivalents are defined to include cash
on-hand, noninterest and interest-bearing amounts due from other banks and federal funds sold. Generally, federal funds are sold
for one-day periods. The Company reports net cash flows for customer loan transactions and deposit transactions.



Bank-Owned Life Insurance



Bank-owned life insurance policies are carried at
their cash surrender value. The Company recognizes tax-free income from the periodic increases in the cash surrender value of these
policies and from death benefits.



Goodwill



Goodwill is tested at least annually for impairment.
If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written
down to its implied fair value. Subsequent increases in goodwill value are not recognized in the consolidated financial statements.



F-15







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



Current Economic Conditions



The current protracted economic uncertainty continues
to present financial institutions with circumstances and challenges which in some cases have resulted in large declines in the
fair values of investments and other assets, constraints on liquidity and significant credit quality problems. Due to national,
state and local economic conditions, values for commercial and development real estate have declined significantly, and the market
for these properties is slowly recovering. The accompanying consolidated financial statements have been prepared using values and
information currently available to the Company. Given the volatility of current economic conditions, the values of assets and liabilities
recorded in the consolidated financial statements could change rapidly, resulting in material future adjustments in asset values,
the allowance for loan losses and capital that could negatively impact the Company’s ability to meet regulatory capital requirements
and maintain sufficient liquidity. Furthermore, the Company’s regulators could require material adjustments to asset values
or the allowance for loan losses for regulatory capital purposes that could affect the Company’s measurement of regulatory
capital and compliance with the capital adequacy guidelines under the regulatory framework for prompt corrective action.



Reclassifications



Certain reclassifications have been made to the 2011
financial statements to conform to the 2012 financial statement presentation. These reclassifications had no effect on net income.



| | Note 2: | Cash and Cash Equivalents
| | ------- | -------------------------



Pursuant to legislation enacted in 2010, the FDIC
fully insured all noninterest-bearing transaction accounts beginning December 31, 2010, through December 31, 2012, at all
FDIC-insured institutions.  This legislation expired on December 31, 2012.  Beginning January 1, 2013, noninterest-bearing
transaction accounts are subject to the $250,000 limit on FDIC insurance per covered institution.



At December 31, 2012, the Company’s interest-bearing
cash accounts did not exceed federally insured limits. Additionally, approximately $1 and $29,629 of cash is held by the FHLB of
Indianapolis and Federal Reserve Bank of Chicago, respectively, which is not federally insured.



The Company is required to maintain reserve funds
in cash and/or on deposit with the Federal Reserve Bank. The reserve required at December 31, 2012 was $94.



F-16







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



| | Note 3: | Securities
| | ------- | ----------



Securities at December 31, 2012 and 2011 are
as follows:



|                                                                               |  | 2012        |        
|------------------------------------------------------------------------------ |  | ----------- | -------
|                                                                               |  | Amortized   |        
|                                                                               |  | Cost        |        
|                                                                               |  | (Unaudited) |        
|Securities available for sale                                                  |  |             |        
|U.S. government-sponsored enterprises                                          |  | $           | 18,666 
|Municipals                                                                     |  |             | 39,999 
|Mortgage-backed and asset-backed securities – government-sponsored enterprises |  |             | 75,782 
|Mortgage-backed and asset-backed securities – private labeled                  |  |             | 2,696  
|Other securities                                                               |  |             | 16,753 
|Total available for sale                                                       |  | $           | 153,896



|                                                                               |  | 2011      |        
|------------------------------------------------------------------------------ |  | --------- | -------
|                                                                               |  | Amortized |        
|                                                                               |  | Cost      |        
|Securities available for sale                                                  |  |           |        
|U.S. government-sponsored enterprises                                          |  | $         | 24,685 
|Municipals                                                                     |  |           | 40,849 
|Mortgage-backed and asset-backed securities – government-sponsored enterprises |  |           | 67,354 
|Mortgage-backed and asset-backed securities – private labeled                  |  |           | 5,850  
|Other securities                                                               |  |           | 8,648  
|Total available for sale                                                       |  | $         | 147,386



F-17







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



The carrying value of securities at December 31,
2012 is shown below by their contractual maturity date. Actual maturities will differ because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.



|                                                                               |  | Available for Sale |        
|------------------------------------------------------------------------------ |  | ------------------ | -------
|                                                                               |  | Amortized          |        
|                                                                               |  | Cost               |        
|Within one year                                                                |  | $                  | 2,805  
|One to five years                                                              |  |                    | 16,487 
|Five to ten years                                                              |  |                    | 12,908 
|After ten years                                                                |  |                    | 43,218 
|                                                                               |  |                    | 75,418 
|Mortgage-backed and asset-backed securities – government-sponsored enterprises |  |                    | 75,782 
|Mortgage-backed and asset-backed securities – private labeled                  |  |                    | 2,696  
|Totals                                                                         |  | $                  | 153,896



Gross gains of $56 and $98, and gross losses of
$8 and $14 resulting from sales of available-for-sale securities were realized for 2012 and 2011, respectively.



Certain investments in debt securities are reported
in the consolidated financial statements at an amount less than their historical cost. Total fair value of these investments at
December 31, 2012 and 2011 was $41,986 and $20,239, which is approximately 27% and 14%, respectively, of the Company’s
available-for-sale investment portfolio. These declines primarily resulted from fluctuations in market interest rates after purchase.



F-18







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



Except as discussed below, management believes the
declines in fair value for these securities are temporary.



Should the impairment of any of these securities become
other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period
the other-than-temporary impairment is identified.



The following tables show the Company’s investments’
gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been
in a continuous unrealized loss position at December 31, 2012 and 2011:



|                                                                               |  | 2012                |       
|------------------------------------------------------------------------------ |  | ------------------- | ------
|                                                                               |  | Less Than 12 Months |       
|                                                                               |  | Fair                |       
|                                                                               |  | Value               |       
|Securities available for sale:                                                 |  |                     |       
|U.S. government-sponsored enterprises                                          |  | $                   | —     
|Municipals                                                                     |  |                     | 470   
|Mortgage-backed and asset-backed securities - government-sponsored enterprises |  |                     | 28,505
|Mortgage-backed and asset-backed securities – private labeled                  |  |                     | —     
|Other securities                                                               |  |                     | 5,947 
|                                                                               |  | $                   | 34,922



|                                                                               |  | 2011                |       
|------------------------------------------------------------------------------ |  | ------------------- | ------
|                                                                               |  | Less Than 12 Months |       
|                                                                               |  | Fair                |       
|                                                                               |  | Value               |       
|Securities available for sale:                                                 |  |                     |       
|Municipals                                                                     |  | $                   | 221   
|Mortgage-backed and asset-backed securities - government-sponsored enterprises |  |                     | 8,229 
|Mortgage-backed and asset-backed securities – private labeled                  |  |                     | —     
|Other securities                                                               |  |                     | 3,761 
|                                                                               |  | $                   | 12,211



F-19







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



Municipals



The unrealized losses on the Company’s investments
in municipal securities were caused by interest rate changes. The contractual terms of those investments do not permit the issuer
to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend
to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery
of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other than temporarily
impaired at December 31, 2012.



Mortgage-Backed Securities



The unrealized losses on the Company’s investment
in mortgage-backed securities were caused by interest rate changes. The Company expects to recover the amortized cost basis over
the term of the securities. Because the decline in market value is attributable to changes in interest rates and not credit quality,
and because the Company does not intend to sell the investments and it is not more likely than not the Company will be required
to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those
investments to be other than temporarily impaired at December 31, 2012.



Other Securities



The Company’s unrealized loss on investments
in other securities is primarily made up of two investments. The first investment is a $2,000 par investment in I-PreTSL I B-2
pooled trust security. The unrealized loss was primarily caused by a sector downgrade by several industry analysts. The Company
currently expects to recover the entire amortized cost basis of the investment. The determination of no credit loss was calculated
by comparing expected discounted cash flows based on performance indicators of the underlying assets in the security to the carrying
value of the investment. Because the Company does not intend to sell the investment and it is not more likely than not the Company
will be required to sell the investment before recovery of its amortized cost basis, which may be maturity, it does not consider
the remainder of the investment to be other than temporarily impaired at December 31, 2012. The second investment is discussed
in the next section.



F-20







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



Other-Than-Temporary Impairment



The Company routinely conducts periodic reviews to
identify and evaluate investment securities to determine whether an other-than-temporary impairment has occurred. Economic models
are used to determine whether an other-than-temporary impairment has occurred on these securities.



An other-than-temporary impairment has been recognized
on a $2,000 par investment in ALESCO IV Series B2 pooled trust security. The unrealized loss was primarily caused by (a) a decrease
in performance and (b) a sector downgrade by several industry analysts. The Company currently expects ALESCO IV to settle the security
at a price less than the contractual amount of the investment (that is, the Company expects to recover less than the entire amortized
cost basis of the security). The Company has recognized a loss equal to the credit loss, establishing a new, lower amortized cost
basis. The credit loss was calculated by comparing expected discounted cash flows based on performance indicators of the underlying
assets in the security to the carrying value of the investment. Because the Company does not intend to sell the investment and
it is not more likely than not the Company will be required to sell the investment before recovery of its new, lower amortized
cost basis, which may be maturity, it does not consider the remainder of the investment in ALESCO IV to be other than temporarily
impaired at December 31, 2012.



For identified mortgage-backed securities in the investment
portfolio, an extensive, quarterly review is conducted to determine if an other-than-temporary impairment has occurred. Various
inputs to the economic models are used to determine if an unrealized loss is other than temporary. The most significant inputs
are voluntary prepay rates, default rates, liquidation rates and loss severity.



To determine if the unrealized loss for mortgage-backed
securities is other than temporary, the Company projects total estimated defaults of the underlying assets (mortgages) and multiplies
that calculated amount by an estimate of realizable value upon sale in the marketplace (severity) in order to determine the projected
collateral loss. The Company also evaluates the current credit enhancement underlying the bond to determine the impact on cash
flows. If the Company determines that a given mortgage-backed security position will be subject to a write-down or loss, the Company
records the expected credit loss as a charge to earnings.



The credit losses recognized in earnings during the
years ended December 31, 2012 and 2011 were as follows:



|                                                              |  | 2012 |     |  | 2011 |  
|------------------------------------------------------------- |  | ---- | --- |  | ---- | -
|                                                              |  |      |     |  |      |  
|ALESCO IV Series B2                                           |  | $    | 112 |  |      | $
|I-PreTSL I B-2                                                |  |      | –   |  |      |  
|Mortgage-backed and asset-backed securities – private labeled |  |      | 140 |  |      |  
|                                                              |  | $    | 252 |  |      | $



F-21







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



Credit Losses Recognized on Investments



Certain debt securities have experienced fair value
deterioration due to credit losses, as well as due to other market factors, but are not otherwise other than temporarily impaired.



The following table provides information about debt
securities for which only a credit loss was recognized in income and other losses are recorded in other comprehensive loss.



|                                                                                    |  | Accumulated Credit Losses |      
|----------------------------------------------------------------------------------- |  | ------------------------- | -----
|Credit losses on debt securities held                                               |  |                           |      
|January 1, 2011                                                                     |  | $                         | 1,209
|Additions related to increases in previously recognized other-than-temporary losses |  |                           | 626  
|                                                                                    |  |                           |      
|December 31, 2011                                                                   |  |                           | 1,835
|Realized losses related to other-than-temporary impairments                         |  |                           | (350 
|Additions related to other-than-temporary losses not previously recognized          |  |                           | 68   
|Additions related to increases in previously recognized other-than-temporary losses |  |                           | 184  
|                                                                                    |  |                           |      
|December 31, 2012                                                                   |  | $                         | 1,737



| | Note 4: | Loans Receivable
| | ------- | ----------------



Categories of loans at December 31, include:



|                                                                              |  | 2012 |         |   | 2011 |  
|----------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | -
|Real estate loans                                                             |  |      |         |   |      |  
|Residential                                                                   |  | $    | 128,815 |   |      | $
|Commercial                                                                    |  |      | 84,918  |   |      |  
|Total real estate loans                                                       |  |      | 213,733 |   |      |  
|Commercial loans                                                              |  |      | 14,271  |   |      |  
|Consumer loans                                                                |  |      | 126,486 |   |      |  
|Total loans                                                                   |  |      | 354,490 |   |      |  
|Deferred loan origination costs and premiums and discounts on purchased loans |  |      | 3,671   |   |      |  
|Allowance for loan losses                                                     |  |      | (5,833  | ) |      |  
|Total net loans                                                               |  | $    | 352,328 |   |      | $



F-22







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



The risk characteristics of each loan portfolio segment
are as follows:



Commercial Real Estate: These loans are viewed
primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves
higher loan principal amounts, and the repayment of these loans is generally dependent on the successful operation of the property
securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely
affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial
real estate portfolio are diverse in terms of property type and geographic location. Management monitors and evaluates commercial
real estate loans based on property financial performance, collateral value and other risk grade criteria. As a general rule, the
Company avoids financing special use projects or properties outside of its designated marketing areas unless other underwriting
factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate loans
versus nonowner occupied loans.



Commercial: Commercial loans are primarily
based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash
flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value. Most commercial
loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate
a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts
receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower
to collect amounts due from its customers.



Residential and Consumer: With respect to residential
loans that are secured by 1-4 family residences and are generally owner occupied, the Company generally establishes a maximum loan-to-value
ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate
interest in 1-4 family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles.
Some consumer loans are unsecured, such as small installment loans and certain lines of credit. Repayment of these loans is primarily
dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment
levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that
the loans are of smaller individual amounts and spread over a large number of borrowers.



F-23







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



The following tables present the balance in the allowance
for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2012
and 2011:



|                                                       |  | 2012                    |        
|------------------------------------------------------ |  | ----------------------- | -------
|                                                       |  | Residential Real Estate |        
|Allowance for loan losses:                             |  |                         |        
|Balance, beginning of year                             |  | $                       | 1,099  
|Provision charged to expense                           |  |                         | 411    
|Losses charged off                                     |  |                         | (509   
|Recoveries                                             |  |                         | 148    
|                                                       |  |                         |        
|Balance, end of year                                   |  |                         | 1,149  
|Ending balance:  individually evaluated for impairment |  |                         | 206    
|                                                       |  |                         |        
|Ending balance:  collectively evaluated for impairment |  | $                       | 943    
|                                                       |  |                         |        
|Loans:                                                 |  |                         |        
|Ending balance                                         |  | $                       | 128,815
|Ending balance:  individually evaluated for impairment |  |                         | 2,482  
|                                                       |  |                         |        
|Ending balance:  collectively evaluated for impairment |  | $                       | 126,333



|                                                       |  | 2011                    |        
|------------------------------------------------------ |  | ----------------------- | -------
|                                                       |  | Residential Real Estate |        
|Allowance for loan losses:                             |  |                         |        
|Balance, beginning of year                             |  | $                       | 2,135  
|Provision charged to expense                           |  |                         | (366   
|Losses charged off                                     |  |                         | (811   
|Recoveries                                             |  |                         | 141    
|                                                       |  |                         |        
|Balance, end of year                                   |  |                         | 1,099  
|Ending balance:  individually evaluated for impairment |  |                         | 93     
|                                                       |  |                         |        
|Ending balance:  collectively evaluated for impairment |  | $                       | 1,006  
|                                                       |  |                         |        
|Loans:                                                 |  |                         |        
|Ending balance                                         |  | $                       | 143,452
|Ending balance:  individually evaluated for impairment |  |                         | 1,693  
|                                                       |  |                         |        
|Ending balance:  collectively evaluated for impairment |  | $                       | 141,759



F-24







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



The Company utilizes a risk grading matrix to assign
a risk grade to each of its commercial loans. Loans are graded on a scale of 1 to 8. A description of the general characteristics
of the 8 risk grades is as follows:



| | · | Grades 1 & 2 - These grades are assigned to loans with very high credit quality borrowers of investment or near investment
grade or where the loan is primarily secured by cash or conservatively margined high quality marketable securities. These borrowers
are generally publicly traded, have significant capital strength, possess investment grade public debt ratings, demonstrate low
leverage, exhibit stable earnings and growth and have ready access to various financing alternatives.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Grades 3 & 4 - Loans assigned these grades include loans to borrowers possessing solid credit quality with acceptable risk.
Borrowers in these grades are differentiated from higher grades on the basis of size (capital and/or revenue), leverage, asset
quality, stability of the industry or specific market area and quality/coverage of collateral. These borrowers generally have a
history of consistent earnings and reasonable leverage.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Grade 5 - This grade includes “pass grade” loans to borrowers which require special monitoring because of deteriorating
financial results, declining credit ratings, decreasing cash flow, increasing leverage, marginal collateral coverage or industry
stress that has resulted or may result in a changing overall risk profile.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Grade 6 - This grade is for “Special Mention” loans in accordance with regulatory guidelines. This grade is intended
to include loans to borrowers whose credit quality has clearly deteriorated and where risk of further decline is possible unless
active measures are taken to correct the situation. Weaknesses are considered potential at this state and are not yet fully defined.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Grade 7 - This grade includes “Substandard” loans in accordance with regulatory guidelines. Loans categorized in
this grade possess a well-defined credit weakness, and the likelihood of repayment from the primary source is uncertain. Significant
financial deterioration has occurred, and very close attention is warranted to ensure the full repayment without loss. Collateral
coverage may be marginal, and the accrual of interest has been suspended.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Grade 8 - This grade includes “Doubtful” loans in accordance with regulatory guidelines. Such loans have been placed
on nonaccrual status and may be heavily dependent upon collateral possessing a value that is difficult to determine or based upon
some near-term event which lacks clear certainty. These loans have all of the weaknesses of those classified as Substandard; however,
based on existing conditions, these weaknesses make full collection of the principal balance highly improbable.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-25







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



The following tables present the credit risk profile
of the Company’s loan portfolio based on rating category and payment activity as of December 31, 2012 and 2011:



|                  |  | 2012                    |       
|----------------- |  | ----------------------- | ------
|                  |  | Commercial  Real Estate |       
|Rating:           |  |                         |       
|1-5 Pass          |  | $                       | 80,830
|6 Special Mention |  |                         | 1,621 
|7 Substandard     |  |                         | 2,467 
|8 Doubtful        |  |                         | —     
|Total             |  | $                       | 84,918



|                           |  | 2012                     |        
|-------------------------- |  | ------------------------ | -------
|                           |  | Residential  Real Estate |        
|Performing                 |  | $                        | 127,426
|Nonperforming (nonaccrual) |  |                          | 1,389  
|Total                      |  | $                        | 128,815



|                  |  | 2011                    |       
|----------------- |  | ----------------------- | ------
|                  |  | Commercial  Real Estate |       
|Rating:           |  |                         |       
|1-5 Pass          |  | $                       | 34,172
|6 Special Mention |  |                         | 1,700 
|7 Substandard     |  |                         | 7,635 
|8 Doubtful        |  |                         | —     
|Total             |  | $                       | 43,507



|                           |  | 2011                     |        
|-------------------------- |  | ------------------------ | -------
|                           |  | Residential  Real Estate |        
|Performing                 |  | $                        | 142,576
|Nonperforming (nonaccrual) |  |                          | 876    
|Total                      |  | $                        | 143,452



F-26







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



The following tables present the Company’s loan
portfolio aging analysis as of December 31, 2012 and 2011:



|                  |  | 2012                    |      
|----------------- |  | ----------------------- | -----
|                  |  | 30-59
    Days Past Due |      
|                  |  | (Unaudited)             |      
|Real estate loans |  |                         |      
|Residential       |  | $                       | 130  
|Commercial        |  |                         | —    
|Commercial        |  |                         | —    
|Consumer          |  |                         | 1,025
|Total             |  | $                       | 1,155



|                  |  | 2011                    |      
|----------------- |  | ----------------------- | -----
|                  |  | 30-59
    Days Past Due |      
|Real estate loans |  |                         |      
|Residential       |  | $                       | 1,376
|Commercial        |  |                         | —    
|Commercial        |  |                         | —    
|Consumer          |  |                         | 1,709
|Total             |  | $                       | 3,085



A loan is considered impaired, in accordance with
the impairment accounting guidance (ASC 310-10-35-16) when, based on current information and events, it is probable the Company
will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans
include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been
granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the
loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.



F-27











First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



The following tables present the Company’s impaired
loans as of December 31, 2012 and 2011:



|                                             |  | 2012             |      
|-------------------------------------------- |  | ---------------- | -----
|                                             |  | Recorded Balance |      
|Loans without a specific valuation allowance |  |                  |      
|Residential real estate loans                |  | $                | 2,047
|Commercial real estate loans                 |  |                  | —    
|Commercial loans                             |  |                  | —    
|Consumer loans                               |  |                  | 380  
|Total                                        |  |                  | 2,427
|Loans with a specific valuation allowance    |  |                  |      
|Residential real estate loans                |  |                  | 435  
|Commercial real estate loans                 |  |                  | 2,467
|Commercial loans                             |  |                  | —    
|Consumer loans                               |  |                  | 94   
|Total                                        |  |                  | 2,996
|Total impaired loans                         |  |                  |      
|Residential real estate loans                |  |                  | 2,482
|Commercial real estate loans                 |  |                  | 2,467
|Commercial loans                             |  |                  | —    
|Consumer loans                               |  |                  | 474  
|Total                                        |  | $                | 5,423



F-28







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



|                                             |  | 2011             |      
|-------------------------------------------- |  | ---------------- | -----
|                                             |  | Recorded Balance |      
|Loans without a specific valuation allowance |  |                  |      
|Residential real estate loans                |  | $                | 1,328
|Commercial real estate loans                 |  |                  | —    
|Commercial loans                             |  |                  | —    
|Consumer loans                               |  |                  | 388  
|Total                                        |  |                  | 1,716
|Loans with a specific valuation allowance    |  |                  |      
|Residential real estate loans                |  |                  | 365  
|Commercial real estate loans                 |  |                  | 7,634
|Commercial loans                             |  |                  | —    
|Consumer loans                               |  |                  | 111  
|Total                                        |  |                  | 8,110
|Total impaired loans                         |  |                  |      
|Residential real estate loans                |  |                  | 1,693
|Commercial real estate loans                 |  |                  | 7,634
|Commercial loans                             |  |                  | —    
|Consumer loans                               |  |                  | 499  
|Total                                        |  | $                | 9,826



In the course of working with troubled borrowers,
the Company may choose to restructure the contractual terms of certain loans in an effort to work out an alternative payment schedule
with the borrower in order to optimize the collectability of the loan. Any loan modified is reviewed by the Company to identify
if a troubled debt restructuring has occurred, which is when the Company grants a concession to the borrower that it would not
otherwise consider based on economic or legal reasons related to a borrower’s financial difficulties. Terms may be modified
to fit the ability of the borrower to repay in line with its current financial status or the loan may be restructured to secure
additional collateral and/or guarantees to support the debt, or a combination of the two.



F-29







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



Loans classified as a troubled debt restructuring
during the years ended December 31, 2012 and 2011 are shown in the tables below. These modifications consisted primarily of interest
rate and maturity date concessions.



|                   |  | 2012          |  
|------------------ |  | ------------- | -
|                   |  | Modifications |  
|                   |  | Number        |  
|Real estate loans: |  |               |  
|Commercial         |  |               | —
|Residential        |  |               | 1
|Commercial loans   |  |               | —
|Consumer loans     |  |               | 8
|                   |  |               |  
|Total              |  |               | 9



|                   |  | 2011          |   
|------------------ |  | ------------- | --
|                   |  | Modifications |   
|                   |  | Number        |   
|Real estate loans: |  |               |   
|Commercial         |  |               | — 
|Residential        |  |               | 3 
|Commercial loans   |  |               | — 
|Consumer loans     |  |               | 11
|                   |  |               |   
|Total              |  |               | 14



F-30







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



Troubled debt restructured loans which had payment
defaults during the years ended December 31, 2012 and 2011 are shown in the tables below. Default occurs when a loan is 90 days
or more past due or transferred to nonaccrual within 12 months of restructuring.



|                            |  | 2012               |  
|--------------------------- |  | ------------------ | -
|                            |  | Number of Defaults |  
|Real estate loans:          |  |                    |  
|Commercial                  |  |                    | —
|Residential                 |  |                    | 1
|Commercial loans and leases |  |                    | —
|Consumer loans              |  |                    | 1
|                            |  |                    |  
|Total                       |  |                    | 2



|                            |  | 2011               |  
|--------------------------- |  | ------------------ | -
|                            |  | Number of Defaults |  
|Real estate loans:          |  |                    |  
|Commercial                  |  |                    | —
|Residential                 |  |                    | 2
|Commercial loans and leases |  |                    | —
|Consumer loans              |  |                    | 6
|                            |  |                    |  
|Total                       |  |                    | 8



F-31







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



The following tables summarize loan modifications
that occurred during the years ended December 31, 2012 and 2011:



|                   |  | 2012              |  
|------------------ |  | ----------------- | -
|                   |  | Payment Extension |  
|                   |  | Number            |  
|                   |  |                   |  
|Real estate loans: |  |                   |  
|Commercial         |  |                   | –
|Residential        |  |                   | 1
|Commercial loans   |  |                   | –
|Consumer loans     |  |                   | 3
|                   |  |                   |  
|Total              |  |                   | 4



|                   |  | 2011              |  
|------------------ |  | ----------------- | -
|                   |  | Payment Extension |  
|                   |  | Number            |  
|                   |  |                   |  
|Real estate loans: |  |                   |  
|Commercial         |  |                   | –
|Residential        |  |                   | 3
|Commercial loans   |  |                   | –
|Consumer loans     |  |                   | 4
|                   |  |                   |  
|Total              |  |                   | 7



Principal reductions were made based on orders from
a bankruptcy court. Payment extensions and rate reductions have proven to be successful in optimizing the overall collectability
of the loan by increasing the period of time that the borrower is able to make required payments to the Company.



| | Note 5: | Equipment
| | ------- | ---------



Equipment included in other assets at December 31,
2012 and 2011 consists of the following:



|                              |  | 2012 |        |   | 2011 |  
|----------------------------- |  | ---- | ------ | - | ---- | -
|Furniture and equipment       |  | $    | 3,521  |   |      | $
|Less accumulated depreciation |  |      | (2,728 | ) |      |  
|                              |  | $    | 793    |   |      | $



F-32







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



| | Note 6: | Goodwill
| | ------- | --------



The change in the carrying amount of goodwill for
the two years ended December 31, 2012 was:



|Balance as of January 1, 2011       |  | $ | 4,687 | 
|----------------------------------- |  | - | ----- | 
|Changes in goodwill during the year |  |   | —     | 
|Balance as of December 31, 2011     |  |   | 4,687 | 
|Changes in goodwill during the year |  |   | —     | 
|Balance as of December 31, 2012     |  | $ | 4,687 | 



| | Note 7: | Deposits
| | ------- | --------



Deposits at December 31, 2012 and 2011 are as
follows:



|                                            |  | 2012 |         |   | 2011 |  
|------------------------------------------- |  | ---- | ------- | - | ---- | -
|Regular savings accounts                    |  | $    | 11,583  |   |      | $
|Noninterest-bearing demand deposit accounts |  |      | 13,187  |   |      |  
|Interest-bearing demand deposit accounts    |  |      | 73,660  |   |      |  
|Money market accounts                       |  |      | 202,388 |   |      |  
|Total transaction accounts                  |  |      | 300,818 |   |      |  
|                                            |  |      |         |   |      |  
|Certificates of deposits                    |  |      | 211,542 |   |      |  
|Brokered deposits                           |  |      | 18,490  |   |      |  
|Premiums on brokered deposits               |  |      | (159    | ) |      |  
|                                            |  |      |         |   |      |  
|Total deposits                              |  | $    | 530,691 |   |      | $



Certificates of deposit in the amount of $100 or more
totaled approximately $133,570 and $124,929 at December 31, 2012 and 2011, respectively.



A summary of certificate accounts by scheduled maturities
at December 31, 2012 is as follows:



|2013       |  | $ | 78,853  | 
|---------- |  | - | ------- | 
|2014       |  |   | 36,209  | 
|2015       |  |   | 40,194  | 
|2016       |  |   | 60,222  | 
|2017       |  |   | 12,016  | 
|Thereafter |  |   | 2,538   | 
|           |  | $ | 230,032 | 



F-33







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



| | Note 8: | FHLB Advances
| | ------- | -------------



The Company has outstanding FHLB advances of $40,686
and $40,573 as of December 31, 2012 and 2011, respectively. Advances, at interest rates from 0.49 to 4.57 percent at December
31, 2012, are subject to restrictions or penalties in the event of prepayment. The advances are collateralized by mortgage loans
pledged and held by the Company and investment securities pledged by the Company and held in safekeeping with the FHLB. Mortgage
loans pledged were approximately $0 and $5,806 as of December 31, 2012 and 2011, respectively, and the fair value of investment
securities pledged was approximately $49,523 and $53,117 as of December 31, 2012 and 2011, respectively. The FHLB advances
are scheduled to mature according to the following schedule:



|                                                     |  | Amount |       
|---------------------------------------------------- |  | ------ | ------
|2013                                                 |  | $      | 19,000
|2014                                                 |  |        | 5,000 
|2015                                                 |  |        | 11,000
|2016                                                 |  |        | 3,000 
|Thereafter                                           |  |        | 3,000 
|                                                     |  |        | 41,000
|Deferred prepayment penalties on advance restructure |  |        | (314  
|                                                     |  | $      | 40,686



Amounts advanced totaling $10,000 are subject to an
option for the FHLB to convert the entire advance to a periodic adjustable rate one year after the date of the advance. If the
FHLB exercises its option to convert the advance to an adjustable rate, the advance will be pre-payable at the Company’s
option, at par without a penalty fee.



| | Note 9: | Benefit Plans
| | ------- | -------------



401(k) Plan



The Company
has a 401(k) plan established for substantially all full-time employees, as defined. Employee contributions are limited to the
maximum established by the Internal Revenue Service on an annual basis. The Company has elected to match contributions equal to
100% of the first 1% of employee deferrals and then 50% on deferrals over 1% up to a maximum of 6% of an individual’s total
eligible salary, as defined by the plan. Employer-matching contributions begin vesting after one year at a rate of 50% per year
of employment and are fully vested after the completion of two years of service. Contributions each year during the years ended
December 31, 2012 and 2011, totaled approximately $214 and $137, respectively.



F-34







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



Employment Agreements



The Company has entered into employment agreements
with certain officers that provide for the continuation of salary and certain benefits for a specified period of time under certain
conditions. Under the terms of the agreements, these payments could occur in the event of a change in control of the Company, as
defined, along with other specific conditions.



Stock Options



The Company has a qualified stock option plan for
Directors and key employees of the Company (Stock Option Plan) and has reserved 400,000 shares of common stock that may be issued
pursuant to the Stock Option Plan. The option exercise price per share is the fair value of a share on the date of grant, and the
stock options become exercisable in a series of three equal and successive annual installments, with the first one-third vesting
at the end of one year measured from the grant date of the option. Each option grant expires within ten years of the grant date.
The options are nontransferable and are forfeited upon termination of employment.



The following is an analysis of activity in the Stock
Option Plan for the period ended December 31, 2012 and the stock options outstanding at the end of the year:



|                               |  | 2012   |        
|------------------------------ |  | ------ | -------
|                               |  |        |        
|                               |  |        |        
|                               |  |        |        
|                               |  | Shares |        
|Outstanding, beginning of year |  |        | 90,000 
|Expired                        |  |        | (90,000
|Outstanding, end of year       |  |        | —      
|Exercisable, end of year       |  |        | —      



F-35







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



Directors Deferred Stock Plan



The Company has adopted a stock compensation
plan for members of the Board of Directors (Directors Deferred Stock Plan). The Company has reserved 120,000 shares of common
stock that may be issued pursuant to the Directors Deferred Stock Plan. During 2011, this amount was increased from 60,000
shares. The plan provides directors the option to elect to receive up to 100% of their annual retainer in either common stock
or deferred stock rights. Monthly meeting fees are paid in cash. The deferred stock right is payable to the director on the
basis of one common share for each deferred stock right. Director compensation totaled $144 and $108 in 2012 and 2011,
respectively, of which $95 and $60 in 2012 and 2011, respectively, were paid in either common stock or deferred stock rights.
The common stock and deferred stock rights are granted on January 1 at fair value and vest from January 1st until
December 31st. The Company recognizes compensation expense ratably over the vesting period based upon the fair
value of the stock on the grant date.



The following is an analysis of deferred stock rights
and common stock related to the Directors Deferred Stock Plan for the year ended December 31, 2012:



|                               |  | Deferred |        |  | Common | 
|------------------------------ |  | -------- | ------ |  | ------ | 
|                               |  | Rights   |        |  | Shares | 
|                               |  |          |        |  |        | 
|Outstanding, beginning of year |  |          | 37,629 |  |        | 
|Granted                        |  |          | 9,247  |  |        | 
|Exercised                      |  |          | —      |  |        | 
|                               |  |          |        |  |        | 
|Outstanding, end of year       |  |          | 46,876 |  |        | 





| | Note 10: | Income Taxes
| | -------- | ------------



The provision (credit) for income taxes consists of
the following:



|         |  | 2012 |       |   | 2011 |  
|-------- |  | ---- | ----- | - | ---- | -
|Current  |  | $    | 2,385 |   |      | $
|Deferred |  |      | (191  | ) |      |  
|         |  |      |       |   |      |  
|Total    |  | $    | 2,194 |   |      | $



F-36







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



Income tax provision (credit) is reconciled to the
34% statutory rate applied to pre-tax income as follows:



|                                            |  | 2012 |       |   | 2011 |  
|------------------------------------------- |  | ---- | ----- | - | ---- | -
|Statutory rate times pre-tax income         |  | $    | 2,652 |   |      | $
|Add (subtract) the tax effect of:           |  |      |       |   |      |  
|Income from tax-exempt securities           |  |      | (533  | ) |      |  
|State income tax, net of federal tax effect |  |      | 36    |   |      |  
|Bank-owned life insurance                   |  |      | (129  | ) |      |  
|Other differences                           |  |      | 168   |   |      |  
|                                            |  |      |       |   |      |  
|Total income taxes                          |  | $    | 2,194 |   |      | $



The net deferred tax asset at December 31 consists
of the following:



|                                                 |  | 2012 |       |   | 2011 |  
|------------------------------------------------ |  | ---- | ----- | - | ---- | -
|Deferred tax assets (liabilities)                |  |      |       |   |      |  
|Allowance for loan losses                        |  | $    | 2,042 |   |      | $
|Unrealized gain on available for sale securities |  |      | (979  | ) |      |  
|Other than temporarily impaired securities       |  |      | 415   |   |      |  
|Mark to market adjustments                       |  |      | 371   |   |      |  
|Depreciation                                     |  |      | (267  | ) |      |  
|Deferred compensation                            |  |      | 460   |   |      |  
|Deferred loan origination fees                   |  |      | (109  | ) |      |  
|Prepaid assets                                   |  |      | (92   | ) |      |  
|Other                                            |  |      | 237   |   |      |  
|                                                 |  |      |       |   |      |  
|Total deferred tax assets, net                   |  | $    | 2,078 |   |      | $



F-37







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



| | Note 11: | Related Party Transactions
| | -------- | --------------------------



At December 31, 2012 and 2011, certain directors,
executive officers and/or companies in which these individuals had a 10% or more beneficial ownership were indebted to the Company
as follows:



|                  |  | 2012 |    |   | 2011 |  
|----------------- |  | ---- | -- | - | ---- | -
|                  |  |      |    |   |      |  
|Beginning balance |  | $    | 50 |   |      | $
|New loans         |  |      | 3  |   |      |  
|Repayments        |  |      | (2 | ) |      |  
|                  |  |      |    |   |      |  
|Ending balance    |  | $    | 51 |   |      | $



In management’s opinion, such loans and other
extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms (including
interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management’s
opinion, these loans did not involve more than normal risk of collectibility or present other unfavorable features.



Deposits from related parties held by the Company
at December 31, 2012 and 2011 totaled $14,646 and $10,353, respectively.



The Company’s card processing services are provided
by OneBridge, which is controlled by a shareholder of the Company. Total expenses incurred related to card processing provided
by OneBridge during the years ended December 31, 2012 and 2011, were approximately $109 and $128, respectively.



| | Note 12: | Regulatory Capital Requirements
| | -------- | -------------------------------



The Company is subject to regulatory capital
requirements administered by federal banking regulatory agencies. Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve
quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors. Furthermore, the Company’s regulators
could require adjustments to regulatory capital not reflected in these consolidated financial statements.



F-38







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



Quantitative measures that have been established by
regulation to ensure capital adequacy require the Company to maintain minimum capital amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital
(as defined) to average assets (as defined).



To be categorized as well capitalized, the Company
must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. As of
December 31, 2012, the most recent notification from the FDIC categorized the Company as well capitalized under the regulatory
framework for prompt corrective action. There are no conditions or events since that notification that management believes have
changed the Company’s categories.



|                                             |  |        |        |  |       |  |      |             |  |   |                        |  |  | Minimum
    to be |    
|-------------------------------------------- |  | ------ | ------ |  | ----- |  | ---- | ----------- |  | - | ---------------------- |  |  | ----------------- | ---
|                                             |  |        |        |  |       |  |      | Minimum     |  |   | Well Capitalized       | 
|                                             |  |        |        |  |       |  |      | Capital     |  |   | Under Prompt           | 
|                                             |  | Actual |        |  |       |  |      | Requirement |  |   | Corrective
    Actions | 
|                                             |  | Amount |        |  | Ratio |  |      | Amount      |  |   | Ratio                  |  |  | Amount            |    
|As of December 31, 2012:                     |  |        |        |  |       |  |      |             |  |   |                        |  |  |                   |    
|Total capital
    (to risk-weighted assets)  |  |        |        |  |       |  |      |             |  |   |                        |  |  |                   |    
|Consolidated                                 |  | $      | 60,701 |  |       |  | 11.0 | %           |  | $ | 44,286                 |  |  |                   | 8.0
|Bank                                         |  |        | 59,893 |  |       |  | 10.8 | %           |  |   | 44,263                 |  |  |                   | 8.0
|Tier 1 capital
    (to risk-weighted assets) |  |        |        |  |       |  |      |             |  |   |                        |  |  |                   |    
|Consolidated                                 |  |        | 54,844 |  |       |  | 9.9  | %           |  |   | 22,143                 |  |  |                   | 4.0
|Bank                                         |  |        | 54,036 |  |       |  | 9.8  | %           |  |   | 22,132                 |  |  |                   | 4.0
|Tier 1 capital
    (to average assets)       |  |        |        |  |       |  |      |             |  |   |                        |  |  |                   |    
|Consolidated                                 |  |        | 54,844 |  |       |  | 8.9  | %           |  |   | 24,667                 |  |  |                   | 4.0
|Bank                                         |  |        | 54,036 |  |       |  | 8.8  | %           |  |   | 24,653                 |  |  |                   | 4.0
|As of December 31, 2011:                     |  |        |        |  |       |  |      |             |  |   |                        |  |  |                   |    
|Total capital
    (to risk-weighted assets)  |  |        |        |  |       |  |      |             |  |   |                        |  |  |                   |    
|Consolidated                                 |  | $      | 55,088 |  |       |  | 12.4 | %           |  | $ | 35,530                 |  |  |                   | 8.0
|Bank                                         |  |        | 53,793 |  |       |  | 12.2 | %           |  |   | 35,425                 |  |  |                   | 8.0
|Tier 1 capital
    (to risk-weighted assets) |  |        |        |  |       |  |      |             |  |   |                        |  |  |                   |    
|Consolidated                                 |  |        | 49,516 |  |       |  | 11.2 | %           |  |   | 17,765                 |  |  |                   | 4.0
|Bank                                         |  |        | 48,237 |  |       |  | 10.9 | %           |  |   | 17,712                 |  |  |                   | 4.0
|Tier 1 capital
    (to average assets)       |  |        |        |  |       |  |      |             |  |   |                        |  |  |                   |    
|Consolidated                                 |  |        | 49,516 |  |       |  | 8.7  | %           |  |   | 22,660                 |  |  |                   | 4.0
|Bank                                         |  |        | 48,237 |  |       |  | 8.5  | %           |  |   | 22,603                 |  |  |                   | 4.0



| | Note 13: | Commitments and Credit Risk
| | -------- | ---------------------------



In the normal course of business, the Company makes
various commitments to extend credit which are not reflected in the accompanying consolidated financial statements. At December 31,
2012 and 2011, the Company had outstanding loan commitments totaling approximately $33,598 and $23,840, respectively.



F-39







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



As of December 31, 2011, the Company leased its office
facility under an operating lease expiring July 2018. As of December 31, 2012, the Company leases its office facility under an
amended operating lease expiring January 2021. The lease is subject to additional rentals based on building operating costs and
property taxes in excess of specified amounts. Future minimum cash lease payments are as follows:



|           |  | Amount |      
|---------- |  | ------ | -----
|2013       |  | $      | 473  
|2014       |  |        | 492  
|2015       |  |        | 501  
|2016       |  |        | 509  
|2017       |  |        | 518  
|Thereafter |  |        | 1,648
|           |  | $      | 4,141



| | Note 14: | Fair Value of Financial Instruments
| | -------- | -----------------------------------



ASC Topic 820, Fair Value Measurements,
defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy which requires an entity
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes
three levels of inputs that may be used to measure fair value:



Level 1	Quoted prices
in active markets for identical assets or liabilities



Level 2	Observable
inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of
the assets or liabilities



Level 3	Unobservable
inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities



Following is a description of the valuation methodologies
and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated balance
sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.



F-40







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



Securities



Where quoted market prices are available in an active
market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid mutual
funds. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities
with similar characteristics or discounted cash flows.



Level 2 securities include U.S. government-sponsored
enterprises, mortgage and asset-backed securities and obligations of state, municipals and certain corporate securities. Matrix
pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively
on quoted prices for specific investment securities but rather relying on the investment securities’ relationship to other
benchmark quoted investment securities.



In certain cases where Level 1 or Level 2
inputs are not available, securities are classified within Level 3 of the hierarchy and include certain other securities.
Fair values are calculated using discounted cash flows. Discounted cash flows are calculated based off of the anticipated future
cash flows updated to incorporate loss severities and volatility. Rating agency and industry research reports as well as default
and deferral activity are reviewed and incorporated into the calculation.



The following tables present the fair value measurements
of securities available for sale recognized in the accompanying consolidated balance sheets measured at fair value on a recurring
basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2012 and 2011:



|                                                                               |  |       |         |  | 2012                          |  
|------------------------------------------------------------------------------ |  | ----- | ------- |  | ----------------------------- | -
|                                                                               |  |       |         |  | Fair Value Measurements Using |  
|                                                                               |  |       |         |  | Quoted Prices                 |  
|                                                                               |  |       |         |  | in Active                     |  
|                                                                               |  |       |         |  | Markets for                   |  
|                                                                               |  |       |         |  | Identical                     |  
|                                                                               |  | Fair  |         |  | Assets                        |  
|                                                                               |  | Value |         |  | (Level 1)                     |  
|U.S. government-sponsored enterprises                                          |  | $     | 19,618  |  |                               | $
|Municipals                                                                     |  |       | 42,540  |  |                               |  
|Mortgage-backed and asset-backed securities - government-sponsored enterprises |  |       | 77,489  |  |                               |  
|Mortgage-backed and asset-backed securities - private labeled                  |  |       | 2,453   |  |                               |  
|Other securities                                                               |  |       | 14,593  |  |                               |  
|                                                                               |  | $     | 156,693 |  |                               | $



F-41













First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)





|                                                                               |  |       |         |  | 2011                          |  
|------------------------------------------------------------------------------ |  | ----- | ------- |  | ----------------------------- | -
|                                                                               |  |       |         |  | Fair Value Measurements Using |  
|                                                                               |  |       |         |  | Quoted Prices                 |  
|                                                                               |  |       |         |  | in Active                     |  
|                                                                               |  |       |         |  | Markets for                   |  
|                                                                               |  |       |         |  | Identical                     |  
|                                                                               |  | Fair  |         |  | Assets                        |  
|                                                                               |  | Value |         |  | (Level 1)                     |  
|U.S. government-sponsored enterprises                                          |  | $     | 25,502  |  |                               | $
|Municipals                                                                     |  |       | 42,761  |  |                               |  
|Mortgage-backed and asset-backed securities - government-sponsored enterprises |  |       | 69,790  |  |                               |  
|Mortgage-backed and asset-backed securities - private labeled                  |  |       | 5,445   |  |                               |  
|Other securities                                                               |  |       | 5,772   |  |                               |  
|                                                                               |  |       |         |  |                               |  
|                                                                               |  | $     | 149,270 |  |                               | $



The following is a reconciliation of the beginning
and ending balances of recurring fair value measurements recognized in the accompanying consolidated balance sheets using significant
unobservable (Level 3) inputs:



|                                               |  | Securities Available for Sale |     
|---------------------------------------------- |  | ----------------------------- | ----
|                                               |  |                               |     
|Balance, January 1, 2011                       |  | $                             | 454 
|Total realized and unrealized gains and losses |  |                               |     
|Included in net income                         |  |                               | (132
|Included in other comprehensive loss           |  |                               | 148 
|                                               |  |                               |     
|Balance, December 31, 2011                     |  |                               | 470 
|Total realized and unrealized gains and losses |  |                               |     
|Included in net income                         |  |                               | (112
|Included in other comprehensive loss           |  |                               | 482 
|                                               |  |                               |     
|Balance, December 31, 2012                     |  | $                             | 840 



F-42







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)





Following is a description of the valuation methodologies
and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance
sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.



Impaired Loans (Collateral Dependent)



Loans for which it is probable that the Company will
not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining
the amount of impairment include estimating fair value using the fair value of the collateral for collateral dependent loans.



If the impaired loan is identified as collateral dependent,
then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent
appraisal of the collateral and applying a discount factor to the value.



Impaired loans that are collateral dependent are classified
within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.



The following tables present the fair value measurements
of impaired loans recognized in the accompanying consolidated balance sheets measured at fair value on a nonrecurring basis and
the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2012 and 2011:



|               |  |       |       |  | 2012                          |  
|-------------- |  | ----- | ----- |  | ----------------------------- | -
|               |  |       |       |  | Fair Value Measurements Using |  
|               |  |       |       |  | Quoted Prices                 |  
|               |  |       |       |  | in Active                     |  
|               |  |       |       |  | Markets for                   |  
|               |  |       |       |  | Identical                     |  
|               |  | Fair  |       |  | Assets                        |  
|               |  | Value |       |  | (Level 1)                     |  
|               |  |       |       |  |                               |  
|Impaired loans |  | $     | 1,481 |  |                               | $



|               |  |       |       |  | 2011                          |  
|-------------- |  | ----- | ----- |  | ----------------------------- | -
|               |  |       |       |  | Fair Value Measurements Using |  
|               |  |       |       |  | Quoted Prices                 |  
|               |  |       |       |  | in Active                     |  
|               |  |       |       |  | Markets for                   |  
|               |  |       |       |  | Identical                     |  
|               |  | Fair  |       |  | Assets                        |  
|               |  | Value |       |  | (Level 1)                     |  
|               |  |       |       |  |                               |  
|Impaired loans |  | $     | 7,309 |  |                               | $



F-43







First Internet Bancorp



Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)





Unobservable (Level 3) Inputs



The following tables present quantitative information
about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements other than goodwill.



|                                    |  | Fair Value at     |       |  |                     |                              |                     |                        |                  | 
|----------------------------------- |  | ----------------- | ----- |  | ------------------- | ---------------------------- | ------------------- | ---------------------- | ---------------- | 
|                                    |  | December 31, 2012 |       |  | Valuation Technique |                              | Unobservable Inputs |                        | Weighted Average | 
|                                    |  |                   |       |  |                     |                              |                     |                        |                  | 
|Collateral dependent impaired loans |  | $                 | 1,481 |  |                     | Market comparable properties |                     | Marketability discount |                  | 





|                                    |  | Fair Value at      |       |  |                     |                              |                     |                        |                  | 
|----------------------------------- |  | ------------------ | ----- |  | ------------------- | ---------------------------- | ------------------- | ---------------------- | ---------------- | 
|                                    |  | December 31,
 2011 |       |  | Valuation Technique |                              | Unobservable Inputs |                        | Weighted Average | 
|                                    |  |                    |       |  |                     |                              |                     |                        |                  | 
|Collateral dependent impaired loans |  | $                  | 7,309 |  |                     | Market comparable properties |                     | Marketability discount |                  | 



The following methods were used to estimate the fair
value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair
value:



Cash and Cash Equivalents



For these instruments, the carrying amount is a reasonable
estimate of fair value.



Loans Held For Sale



The fair value of these financial instruments approximates
carrying value.



Loans Receivable



The fair value of loans receivable is estimated by
discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings
and remaining maturities.



Accrued Interest Receivable



The fair value of these financial instruments approximates
carrying value.



Federal Home Loan Bank Stock



The carrying amount approximates fair value.





F-44









First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)





Deposits



The fair value of noninterest-bearing demand deposits
and savings and NOW accounts is the amount payable as of the reporting date. The fair value of fixed maturity certificates of deposit
is estimated using rates currently offered for deposits of similar remaining maturities.



FHLB Advances



The fair value of fixed rate advances is estimated
using rates currently offered for similar remaining maturities.



Accrued Interest Payable



The fair value of these financial instruments approximates
carrying value.



F-45







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)





Commitments



The fair value of commitments to extend credit are
based on fees currently charged to enter into similar agreements with similar maturities and interest rates. The Company determined
that the fair value of commitments was zero based on the contractual value of outstanding commitments at December 31, 2012
and 2011.



The following schedule includes the carrying value
and estimated fair value of all financial assets and liabilities at December 31, 2012 and 2011:



|                            |  | 2012                          |        
|--------------------------- |  | ----------------------------- | -------
|                            |  | Fair Value Measurements Using |        
|                            |  |                               |        
|                            |  |                               |        
|                            |  |                               |        
|                            |  |                               |        
|                            |  | Carrying                      |        
|                            |  | Amount                        |        
|Cash and cash equivalents   |  | $                             | 32,513 
|Loans held for sale         |  |                               | 63,234 
|Loans receivable - net      |  |                               | 352,328
|Accrued interest receivable |  |                               | 2,196  
|FHLB stock                  |  |                               | 2,943  
|                            |  |                               |        
|Deposits                    |  |                               | 530,691
|FHLB advances               |  |                               | 40,686 
|Accrued interest payable    |  |                               | 120    



|                            |  | 2011                          |        
|--------------------------- |  | ----------------------------- | -------
|                            |  | Fair Value Measurements Using |        
|                            |  |                               |        
|                            |  |                               |        
|                            |  |                               |        
|                            |  |                               |        
|                            |  | Carrying                      |        
|                            |  | Amount                        |        
|Cash and cash equivalents   |  | $                             | 34,778 
|Loans held for sale         |  |                               | 45,091 
|Loans receivable - net      |  |                               | 329,570
|Accrued interest receivable |  |                               | 2,129  
|FHLB stock                  |  |                               | 2,943  
|                            |  |                               |        
|Deposits                    |  |                               | 486,665
|FHLB advances               |  |                               | 40,573 
|Accrued interest payable    |  |                               | 120    





F-46







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)





| | Note 15: | Condensed Financial Information (Parent Company Only)
| | -------- | -----------------------------------------------------





Presented
below is condensed financial information as to financial position, results of operations and cash flows of the Company:



Condensed Balance Sheets



|                                           |  | December 31, |       
|------------------------------------------ |  | ------------ | ------
|                                           |  | 2012         |       
|                                           |  |              |       
|Assets                                     |  |              |       
|Cash and cash equivalents                  |  | $            | 782   
|Investment in common stock of subsidiaries |  |              | 60,542
|Other assets                               |  |              | 283   
|                                           |  |              |       
|Total assets                               |  | $            | 61,607
|                                           |  |              |       
|Liabilities and Equity                     |  |              |       
|Other liabilities                          |  | $            | 257   
|                                           |  |              |       
|Shareholders’ equity                       |  |              | 61,350
|                                           |  |              |       
|Total liabilities and equity               |  | $            | 61,607



Condensed Statements of Income



|                                                                              |  | Years Ended December 31, |      
|----------------------------------------------------------------------------- |  | ------------------------ | -----
|                                                                              |  | 2012                     |      
|Income                                                                        |  |                          |      
|Dividends from subsidiaries                                                   |  | $                        | 250  
|Total income                                                                  |  |                          | 250  
|                                                                              |  |                          |      
|Expenses                                                                      |  |                          |      
|Loss on asset disposal                                                        |  |                          | —    
|Other expenses                                                                |  |                          | 484  
|Total expenses                                                                |  |                          | 484  
|                                                                              |  |                          |      
|Loss Before Income Tax and Equity in Undistributed Net Income of Subsidiaries |  |                          | (234 
|                                                                              |  |                          |      
|Income Tax Benefit                                                            |  |                          | (41  
|                                                                              |  |                          |      
|Loss Before Equity in Undistributed Net Income of Subsidiaries                |  |                          | (193 
|                                                                              |  |                          |      
|Equity in Undistributed Net Income of Subsidiaries                            |  |                          | 5,799
|                                                                              |  |                          |      
|Net Income                                                                    |  | $                        | 5,606



F-47







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



Condensed Statements of Comprehensive
Income



|                                                                                                                                          |  | Years Ended December 31, |       
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------
|                                                                                                                                          |  | 2012                     |       
|                                                                                                                                          |  |                          |       
|Net income                                                                                                                                |  | $                        | 5,606 
|                                                                                                                                          |  |                          |       
|Other comprehensive income                                                                                                                |  |                          |       
|Net unrealized holding gains on securities available for sale                                                                             |  |                          | 2,161 
|Reclassification adjustment for gains realized                                                                                            |  |                          | (48   
|Net unrealized holding losses on securities available for sale for which an other-than-temporary impairment has been recognized in income |  |                          | (1,452
|Reclassification adjustment for other-than-temporary impairment loss recognized in income                                                 |  |                          | 252   
|Other comprehensive income before tax                                                                                                     |  |                          | 913   
|Income tax provision                                                                                                                      |  |                          | 315   
|                                                                                                                                          |  |                          |       
|Other comprehensive income - net of tax                                                                                                   |  |                          | 598   
|                                                                                                                                          |  |                          |       
|Comprehensive income                                                                                                                      |  | $                        | 6,204 



Condensed Statements of Cash Flows



|                                                     |  | Years Ended December 31, |       
|---------------------------------------------------- |  | ------------------------ | ------
|                                                     |  | 2012                     |       
|                                                     |  |                          |       
|Operating Activities                                 |  |                          |       
|Net income                                           |  | $                        | 5,606 
|Items not providing cash                             |  |                          | (4,604
|Net cash provided by (used in) operating activities  |  |                          | 1,002 
|                                                     |  |                          |       
|Financing Activities                                 |  |                          |       
|Proceeds from stock issuance                         |  |                          | 107   
|Cash dividends                                       |  |                          | (479  
|Net cash used in financing activities                |  |                          | (372  
|                                                     |  |                          |       
|Net Increase (Decrease) in Cash and Cash Equivalents |  |                          | 630   
|                                                     |  |                          |       
|Cash and Cash Equivalents at Beginning of Year       |  |                          | 152   
|                                                     |  |                          |       
|Cash and Cash Equivalents at End of
    Year         |  | $                        | 782   





F-48









First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)





| | Note 16: | Recent Accounting Pronouncements
| | -------- | --------------------------------





In December 2011, the FASB issued ASU 2011-11. The
objective of this Update is to provide enhanced disclosures that will enable users of financial statements to evaluate the effect
or potential effect of netting arrangements on an entity’s financial position. This includes the effect or potential effect
of rights of setoff associated with an entity’s recognized assets and recognized liabilities within the scope of this Update.
The amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments
that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master
netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or
Section 815-10-45. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1,
2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively
for all comparative periods presented. The Company will adopt the methodologies prescribed by this ASU by the date required, and
does not anticipate that the ASU will have a material effect on its financial position or results of operations.



On
July 27, 2012, the FASB released ASU 2012-02. The amendments in this Update will allow an entity to first assess qualitative factors
to determine whether it is necessary to perform a quantitative impairment test. Under these amendments, an entity would not be
required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines, based on qualitative
assessment, that it is not more likely than not, the indefinite-lived intangible asset is impaired. The amendments include a number
of events and circumstances for an entity to consider in conducting the qualitative assessment. The amendments are effective for
annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted,
including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity's financial statements
for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available
for issuance. The Company has adopted the methodologies prescribed by this ASU by the date required, and the ASU did not have a
material effect on its financial position or results of operations.



On August 27, 2012, the FASB released ASU 2012-03.
This Update amends various SEC paragraphs pursuant to SAB 114, SEC Release No. 33-9250, and ASU 2010-22, which amend or rescind
portions of certain SAB Topics. These amendments are presented in two sections – Amendments to the FASB Accounting Standards
Codification® and Amendments to the XBRL Taxonomy. The Company has adopted the methodologies prescribed by this ASU, and the
ASU did not have a material effect on its financial position or results of operations.



F-49







First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



On
October 1, 2012, the FASB released ASU 2012-04. The amendments in this Update make technical corrections, clarifications, and limited-scope
improvements to various topics throughout the Codification. These amendments are presented in two sections—Technical Corrections
and Improvements and Conforming Amendments Related to Fair Value Measurements. The amendments in this Update that will not have
transition guidance will be effective upon issuance for both public entities and nonpublic entities. For public entities, the amendments
that are subject to the transition guidance will be effective for fiscal periods beginning after December 15, 2012. The Company
has adopted the methodologies prescribed by this ASU for the period ended December 31, 2012, and the ASU did not have a material
effect on its financial position or results of operations.

In February 2013, the FASB issued ASU 2013-02 to improve
the transparency of reporting reclassifications out of accumulated other comprehensive income. Other comprehensive income includes
gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified
out of accumulated other comprehensive income into net income. The amendments in the Update do not change the current requirements
for reporting net income or other comprehensive income in financial statements. All of the information required within this Update
is already required to be disclosed elsewhere in the financial statements under United States Generally Accepted Accounting Principles
(GAAP).



The new amendments will require an organization to:



| | · | Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of
net income of significant amounts reclassified out of accumulated other comprehensive income–but only if the item reclassified
is required under GAAP to be reclassified to net income in its entirety in the same reporting period
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Cross-reference to other disclosures currently required under GAAP for other reclassification items (that are not required
under GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when
a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet
account instead of directly to income or expense.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The amendments are effective for reporting periods
beginning after December 15, 2012. The Company will adopt the methodologies prescribed by this ASU by the date required, and the
ASU is not expected to have a material effect on its financial position or results of operations.



F-50









First Internet Bancorp

Notes to Consolidated Financial Statements
December 31, 2012 and 2011(Dollar Amounts in Thousands except per share data)



In January 2013, the
FASB issued ASU 2013-01, which clarifies the scope of transactions that are subject to the disclosures about offsetting. The Update
clarifies that ordinary trade receivables and receivables are not in the scope of ASU 2011-11, Balance Sheet (Topic 210): Disclosures
about Offsetting Assets and Liabilities. Specifically, Update 2011-11 applies only to derivatives, repurchase agreements and reverse
purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific
criteria contained in FASB Accounting Standards Codification® or subject to a master netting arrangement or similar agreement.
Issued in December 2011, Update 2011-11 was the result of a joint project with the International Accounting Standards Board. Its
objective was to improve transparency and comparability between GAAP and International Financial Reporting Standards by requiring
enhanced disclosures about financial instruments and derivative instruments that are either (1) offset on the statement of financial
position or (2) subject to an enforceable master netting arrangement or similar agreement. The Board undertook this clarification
project in response to concerns expressed by U.S. stakeholders about the standard’s broad definition of financial instruments.
After the standard was finalized, companies realized that many contracts have standard commercial provisions that would equate
to a master netting arrangement, significantly increasing the cost of compliance at minimal value to financial statement users.



| | Note 17: | Subsequent Events
| | -------- | -----------------





The Company acquired
an office building and related real estate located in Fishers, Indiana from an unaffiliated third party for an aggregate consideration
of approximately $4,000.



The Company’s
Board of Directors declared a cash dividend of $0.06 per share payable April 15, 2013, to holders of the Company’s common
stock on April 1, 2013.



F-51







EXHIBIT INDEX



|Exhibit No. |  | Description |                                                                                                                                                                                                                           | Method of Filing
|----------- |  | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------
|3.1         |  |             | Articles of Incorporation of First Internet Bancorp                                                                                                                                                                       |                 
|3.2         |  |             | Amended and Restated Bylaws of First Internet Bancorp as amended March 18,
    2013                                                                                                                                       |                 
|10.1        |  |             | First Internet Bancorp 2006 Stock Option Plan                                                                                                                                                                             |                 
|10.2        |  |             | Form of Award Document under 2006 Plan                                                                                                                                                                                    |                 
|10.3        |  |             | First Internet Bancorp Directors’ Deferred Stock Plan                                                                                                                                                                     |                 
|10.4        |  |             | Amended and Restated Employment Agreement among First Internet Bank of Indiana,
    First Internet Bancorp and David B. Becker dated March 28, 2013                                                                       |                 
|10.5        |  |             | Employment Agreement between First Internet Bank of Indiana and Laurinda A.
    Swank dated August 8, 1999                                                                                                                |                 
|10.6        |  |             | Change in Control Agreement between First Internet Bank of Indiana and Kay
    E. Whitaker dated January 14, 2013                                                                                                         |                 
|10.7        |  |             | 2012 Senior Management Bonus Plan                                                                                                                                                                                         |                 
|10.8        |  |             | 2013 Senior Management Bonus Plan                                                                                                                                                                                         |                 
|10.9        |  |             | Form of Supplemental Executive Retirement Agreement between First Internet
    Bank of Indiana and certain employees                                                                                                      |                 
|10.10       |  |             | Contract for Purchase of Property between First Internet Bancorp and LHRET
    Ascension SV, LLC dated January 30, 2013                                                                                                   |                 
|10.11       |  |             | Offer and Contract for Purchase of Real Estate between First Internet Bancorp
    and St. Vincent Hospital and Health Care Center, Inc., accepted February 5, 2013                                                        |                 
|10.12       |  |             | Loan Agreement dated as of March 6, 2013, by and between First Internet Bancorp
    and First Internet Bank of Indiana (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed March 11,
    2013) |                 
|10.13       |  |             | Lease dated as of March 6, 2013, by and between First Internet Bancorp and
    First Internet Bank of Indiana (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed March 11, 2013)              |                 
|21.1        |  |             | List of Subsidiaries                                                                                                                                                                                                      |                 
|31.1        |  |             | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer                                                                                                                                                         |                 
|31.2        |  |             | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer                                                                                                                                                         |                 
|32.1        |  |             | Section 1350 Certifications                                                                                                                                                                                               |