First Internet Bancorp Reports Second Quarter 2024 Results

Business Wire 24-Jul-2024 4:34 PM

First Internet Bancorp (the "Company") (NASDAQ:INBK), the parent company of First Internet Bank (the "Bank"), announced today financial and operational results for the second quarter ended June 30, 2024.

Second Quarter 2024 Financial Highlights

• Net income of $5.8 million and adjusted net income¹ of $6.2 million, increases of 11.5% and 20.2%, respectively, from the first quarter of 2024
• Diluted earnings per share of $0.67 and adjusted diluted earnings per share¹ of $0.72, increases of 13.6% and 22.0%, respectively, from the first quarter of 2024
• Net interest income of $21.3 million and fully-taxable equivalent net interest income¹ of $22.5 million, increases of 2.9% and 2.6%, respectively, from the first quarter of 2024
• Net interest margin of 1.67% and fully-taxable equivalent net interest margin¹ of 1.76%, both increases of 1 basis point from the first quarter of 2024
• Noninterest income of $11.0 million, a 32.2% increase from the first quarter of 2024
• Relative to the first quarter of 2024, total revenue growth of 11.3% outpaced noninterest expense growth and adjusted noninterest expense¹ growth of 6.2% and 3.5%, respectively, resulting in positive operating leverage
• Loan growth of $51.3 million, a 1.3% increase from the first quarter of 2024
• Nonperforming loans to total loans of 0.33%; net charge-offs to average loans of 0.14%; allowance for credit losses to total loans of 1.10%
• Tangible book value per share¹ of $42.37, a 1.3% increase from the first quarter of 2024, and a 6.3% increase from the second quarter of 2023

"Our strong upward earnings trajectory continued in the second quarter of 2024, driven by an increasingly diversified revenue base," said David Becker, Chairman and Chief Executive Officer. "The optimization of our loan portfolio, solid loan growth, increasing asset yields, and stabilization of funding costs have led to improved net interest income."

"At the same time, the continued growth of our SBA business, alongside other strategic initiatives, has helped drive improvement in noninterest income, which represented nearly one-third of total revenues during the first half of 2024, up from just under one-quarter of revenues for the comparable period a year ago."

Mr. Becker concluded, "Entering the second half of the year, we remain confident in our ability to deliver continued improvement in operating fundamentals, while maintaining our rigorous approach to managing risk. I want to thank the entire First Internet team for their contribution towards our strong results and continued success."

¹ This information represents a non-GAAP financial measure. For a discussion of non-GAAP financial measures, see the section below entitled "Non-GAAP Financial Measures."

Net Interest Income and Net Interest Margin

Net interest income for the second quarter of 2024 was $21.3 million, compared to $20.7 million for the first quarter of 2024, and $18.1 million for the second quarter of 2023. On a fully-taxable equivalent basis, net interest income for the second quarter of 2024 was $22.5 million, compared to $21.9 million for the first quarter of 2024, and $19.5 million for the second quarter of 2023.

Total interest income for the second quarter of 2024 was $71.0 million, an increase of 4.1% compared to the first quarter of 2024, and an increase of 22.1% compared to the second quarter of 2023. On a fully-taxable equivalent basis, total interest income for the second quarter of 2024 was $72.1 million, an increase of 4.0% compared to the first quarter of 2024, and an increase of 21.3% compared to the second quarter of 2023. The yield on average interest-earning assets for the second quarter of 2024 increased to 5.54% from 5.45% for the first quarter of 2024, due to a 10 basis point ("bp") increase in the yield earned on loans and a 21 bp increase in the yield earned on securities, partially offset by an 11 bp decrease in the yield earned on other earning assets. Compared to the linked quarter, average loan balances, including loans held-for-sale, increased $44.1 million, or 1.1%, while the average balance of securities increased $41.0 million, or 5.8%, and the average balance of other earning assets increased $34.9 million, or 8.0%.

Interest income earned on commercial loans was higher due primarily to increased average balances within the construction, small business lending and franchise finance portfolios. This was partially offset by lower average balances in the investor commercial real estate, public finance and healthcare finance portfolios. The continued shift in the loan mix reflects the Company's focus on variable rate and higher-yielding products, in part, to help improve the interest rate risk profile of the balance sheet.

In the consumer loan portfolio, interest income was up due to the combination of slightly higher average balances and higher yields in the trailers, recreational vehicles and other consumer loan portfolios.

The yield on funded portfolio loan originations was 8.88% in the second quarter of 2024, an increase of 4 bps compared to the first quarter of 2024, and an increase of 46 bps compared to the second quarter of 2023.

Interest income earned on securities during the second quarter of 2024 increased $0.8 million, or 11.8%, compared to the first quarter of 2024 as the yield on the portfolio increased 21 bps to 4.02%, driven primarily by higher yields on new purchases. Interest income earned on other earning asset balances increased $0.4 million, or 5.8%, in the second quarter of 2024 compared to the linked quarter, due primarily to higher average cash balances, partially offset by lower yields.

Total interest expense for the second quarter of 2024 was $49.6 million, an increase of $2.2 million, or 4.6%, compared to the linked quarter as short-term rates remained stable throughout the quarter while average interest-bearing deposit balances increased $186.0 million, or 4.7%. Interest expense related to interest-bearing deposits increased $2.4 million, or 5.6%, driven primarily by certificates of deposits ("CDs"), interest-bearing demand deposits, money market accounts and BaaS-brokered deposits. The cost of interest-bearing deposits was 4.29% for the second quarter of 2024, compared to 4.25% for the first quarter of 2024.

Average CD balances increased $148.9 million, or 9.1%, compared to the linked quarter, driven by strong consumer demand, while the cost of funds increased 8 bps. The increase in the total cost of CDs was the lowest in the past two years, reflecting the narrowing gap between rates on new production/renewals and maturities. Assuming pricing remains in line with the second quarter, rates on new CD production are 6 – 8 bps lower than the rates on CDs maturing in the second half of 2024.

The average balance of interest-bearing demand deposits increased $59.0 million, or 14.2%, due to growth in fintech partnership deposits, while the cost of funds increased 15 bps. The average balance of money market accounts increased $25.0 million, or 2.1%, while the cost of funds increased 5 bps due to growth in larger-balance accounts. The average balance of BaaS – brokered deposits increased $34.3 million, or 40.2%, due to higher payments volumes, while the cost of funds decreased 2 bps.

These increases were partially offset by lower average brokered deposit balances, which decreased $81.7 million, or 13.5%, as excess liquidity was used to pay down $139.0 million of higher-cost brokered deposits.

Net interest margin ("NIM") was 1.67% for the second quarter of 2024, up from 1.66% for the first quarter of 2024 and up from 1.53% for the second quarter of 2023. Fully-taxable equivalent NIM ("FTE NIM") was 1.76% for the second quarter of 2024, up from 1.75% for the first quarter of 2024 and up from 1.64% for the second quarter of 2023. The pace of increase in NIM and FTE NIM was down compared to the last two quarters due primarily to lower growth in average loan balances as the Company experienced both early payoffs and later-than-anticipated funding of larger-balance loans.

Noninterest Income

Noninterest income for the second quarter of 2024 was $11.0 million, compared to $8.3 million for the first quarter of 2024, and $5.9 million for the second quarter of 2023. Gain on sale of loans totaled $8.3 million in the second quarter of 2024, increasing $1.8 million, or 26.9%, compared to the linked quarter. Gain on sale revenue consisted almost entirely of sales of U.S. Small Business Administration ("SBA") 7(a) guaranteed loans during the second quarter of 2024. Loan sale volume was up 18.9% and net premiums increased 6 bps compared to the linked quarter. Other income increased $1.2 million during the quarter due primarily to distributions from fund investments. These increases were partially offset by a decline of $0.2 million in net loan servicing revenue driven by the fair value adjustment to the loan servicing asset.

Noninterest Expense

Noninterest expense totaled $22.3 million for the second quarter of 2024, compared to $21.0 million for the first quarter of 2024, and $18.7 million for the second quarter of 2023, representing increases of 6.2% and 19.6%, respectively. Excluding non-recurring costs of almost $0.6 million related to IT termination fees and anniversary expenses, adjusted noninterest expense totaled $21.8 million for the second quarter of 2024, an increase of $0.7 million, or 3.5%, compared to the linked quarter. The increase was due mainly to higher salaries and employee benefits, consulting and professional fees and loan expenses, partially offset by lower marketing expenses.

The increase in recurring salaries and employee benefits was $0.5 million and was due primarily to higher small business incentive compensation and staff additions in small business lending and risk management. Consulting and professional fees increased $0.2 million due to the timing of outsourced audit services. Loan expenses increased $0.2 million due mainly to collection costs and third-party servicer fees. The decrease in marketing expenses of $0.1 million was due to lower advertising and media spend.

Income Taxes

The Company recorded income tax expense of $0.2 million and an effective tax rate of 3.6% for the second quarter of 2024, compared to income tax expense of $0.4 million and an effective tax rate of 7.6% for the first quarter of 2024, and an income tax benefit of $0.2 million for the second quarter of 2023.

Loans and Credit Quality

Total loans as of June 30, 2024 were $4.0 billion, an increase of $51.3 million, or 1.3%, compared to March 31, 2024, and an increase of $314.3 million, or 8.6%, compared to June 30, 2023. Total commercial loan balances were $3.1 billion as of June 30, 2024, an increase of $46.9 million, or 1.5%, compared to March 31, 2024, and an increase of $297.0 million, or 10.5%, compared to June 30, 2023. Compared to the linked quarter, the increase in commercial loan balances was driven primarily by growth in investor commercial real estate, small business lending and franchise finance balances. These items were partially offset by decreases in the commercial and industrial, single tenant lease financing, public finance and healthcare finance portfolios. Quarter-end balances in the commercial and industrial and construction portfolios were impacted by early payoffs of higher-yielding variable rate loans. The increase in investor commercial real estate balances included loans with strong variable rate pricing that closed later in the quarter and, therefore, had very little impact on interest income for the quarter.

Total consumer loan balances were $800.5 million as of June 30, 2024, an increase of $7.0 million, or 0.9%, compared to March 31, 2024, and an increase of $27.8 million, or 3.6%, compared to June 30, 2023. The increase compared to the linked quarter was due primarily to higher balances in the trailers, recreational vehicles and other consumer loan portfolios, partially offset by a decrease in the residential mortgage portfolio.

Total delinquencies 30 days or more past due were 0.56% of total loans as of June 30, 2024, compared to 0.53% at March 31, 2024, and 0.09% as of June 30, 2023. The slight increase compared to the linked quarter was due primarily to an increase in delinquencies in residential mortgage loans.

Nonperforming loans were 0.33% of total loans as of June 30, 2024, unchanged from March 31, 2024, and compared to 0.17% as of June 30, 2023. Nonperforming loans totaled $13.0 million at June 30, 2024, down slightly from $13.1 million at March 31, 2024, and up from $6.2 million as of June 30, 2023. Additionally, the composition of nonperforming loans at the end of the second quarter of 2024 was relatively consistent with the linked quarter.

The allowance for credit losses ("ACL") as a percentage of total loans was 1.10% as of June 30, 2024, compared to 1.05% as of March 31, 2024, and 0.99% as of June 30, 2023. The increase in the ACL reflects growth and higher coverage ratios in certain loan portfolios as well as additional reserves related to small business lending, partially offset by the positive impact of economic data on forecasted loss rates and qualitative factors on other portfolios.

Net charge-offs of $1.4 million were recognized during the second quarter of 2024, resulting in net charge-offs to average loans of 0.14%, compared to $0.5 million, or 0.05%, for the first quarter of 2024, and $1.6 million, or 0.17%, for the second quarter of 2023. Net charge-offs in the second quarter of 2024 were driven primarily by franchise finance, including one loan that had been previously reserved for, and small business lending.

The provision for credit losses in the second quarter of 2024 was $4.0 million, compared to $2.4 million for the first quarter of 2024, and $1.7 million for the second quarter of 2023. The provision for the second quarter of 2024 was driven primarily by growth and changes in the loan composition, net charge-offs and an increase in reserves related to small business lending, partially offset by the positive impact of economic forecasts and adjustments to qualitative factors on other portfolios.

Capital

As of June 30, 2024, total shareholders' equity was $372.0 million, an increase of $5.2 million, or 1.4%, compared to March 31, 2024, and an increase of $17.6 million, or 5.0%, compared to June 30, 2023. The increase in total shareholders' equity during the second quarter of 2024 compared to the linked quarter was due primarily to the net income earned during the quarter. Book value per common share increased to $42.91 as of June 30, 2024, up from $42.37 as of March 31, 2024, and $40.38 as of June 30, 2023. Tangible book value per share was $42.37 as of June 30, 2024, up from $41.83 as of March 31, 2024, and $39.85 as of June 30, 2023.

The following table presents the Company's and the Bank's regulatory and other capital ratios as of June 30, 2024.

Conference Call and Webcast

The Company will host a conference call and webcast at 2:00 p.m. Eastern Time on Thursday, July 25, 2024 to discuss its quarterly financial results. The call can be accessed via telephone at (888) 259-6580; access code: 10885532. A recorded replay can be accessed through August 25, 2024 by dialing (877) 674-7070; access code: 885532.

Additionally, interested parties can listen to a live webcast of the call on the Company's website at www.firstinternetbancorp.com. An archived version of the webcast will be available in the same location shortly after the live call has ended.

About First Internet Bancorp

First Internet Bancorp is a bank holding company with assets of $5.3 billion as of June 30, 2024. The Company's subsidiary, First Internet Bank, opened for business in 1999 as an industry pioneer in the branchless delivery of banking services. First Internet Bank provides consumer and small business deposit, SBA financing, franchise finance, consumer loans, and specialty finance services nationally as well as commercial real estate loans, construction loans, commercial and industrial loans, and treasury management services on a regional basis. First Internet Bancorp's common stock trades on the Nasdaq Global Select Market under the symbol "INBK" and is a component of the Russell 2000® Index. Additional information about the Company is available at www.firstinternetbancorp.com and additional information about First Internet Bank, including its products and services, is available at www.firstib.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements with respect to the financial condition, results of operations, trends in lending policies and loan programs, plans and prospective business partnerships, objectives, future performance and business of the Company. Forward-looking statements are generally identifiable by the use of words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "growth," "improve," "may," "ongoing," "opportunities," "pending," "plan," "position," "preliminary," "remain," "should," "thereafter," "well-positioned," "will," or other similar expressions. Forward-looking statements are not a guarantee of future performance or results, are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the information in the forward-looking statements. Such statements are subject to certain risks and uncertainties including: our business and operations and the business and operations of our vendors and customers: general economic conditions, whether national or regional, and conditions in the lending markets in which we participate that may 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 is the collateral for our loans. Other factors that may cause such differences include: failures or breaches of or interruptions in the communications and information systems on which we rely to conduct our business; failure of our plans to grow our commercial and industrial, construction, and SBA loan portfolios; competition with national, regional and community financial institutions; the loss of any key members of senior management; the anticipated impacts of inflation and rising interest rates on the general economy; risks relating to the regulation of financial institutions; and other factors identified in reports we file with the U.S. Securities and Exchange Commission. All statements in this press release, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.

Non-GAAP Financial Measures

This press release contains financial information determined by methods other than in accordance with U.S. generally accepted accounting principles ("GAAP"). Non-GAAP financial measures, specifically tangible common equity, tangible assets, tangible book value per common share, tangible common equity to tangible assets, average tangible common equity, return on average tangible common equity, total interest income – FTE, net interest income – FTE, net interest margin – FTE, adjusted total revenue, adjusted noninterest income, adjusted noninterest expense, adjusted income before income taxes, adjusted income tax provision (benefit), adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average shareholders' equity and adjusted return on average tangible common equity are used by the Company's management to measure the strength of its capital and analyze profitability, including its ability to generate earnings on tangible capital invested by its shareholders. Although management believes these non-GAAP measures are useful to investors by providing a greater understanding of its business, they should not be considered a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the table at the end of this release under the caption "Reconciliation of Non-GAAP Financial Measures."