First Internet Bancorp Reports Third Quarter 2021 Results

·23 min read

Highlights for the third quarter include:

  • Net income of $12.1 million, an increase of 43.7% over the third quarter of 2020

  • Diluted earnings per share of $1.21, an increase of 40.7% over the third quarter of 2020

  • Adjusted net income of $12.7 million, or $1.27 per diluted share, when excluding $0.8 million of pre-tax costs associated with the redemption of subordinated notes

  • Total revenue of $28.7 million and adjusted total revenue of $29.5 million, an increase of 2.8% over the third quarter of 2020

  • New board authorization to repurchase up to $30.0 million of common stock through the end of 2022

FISHERS, Ind., October 20, 2021--(BUSINESS WIRE)--First Internet Bancorp (the "Company") (Nasdaq: INBK), the parent company of First Internet Bank (the "Bank"), announced today financial and operational results for the third quarter of 2021. Net income for the third quarter of 2021 was $12.1 million, or $1.21 diluted earnings per share. This compares to net income of $13.1 million, or $1.31 diluted earnings per share, for the second quarter of 2021, and net income of $8.4 million, or $0.86 diluted earnings per share, for the third quarter of 2020.

"We produced strong operating results for the third quarter of 2021, driven by solid revenue generation and disciplined expense management," said David Becker, Chairman and Chief Executive Officer. "Our strategies designed to build sustainable fee revenue continued to pay off as we generated a return on average assets in excess of 1.0% for the fourth straight quarter. Looking forward, pipelines in our SBA, construction, single tenant lease financing and our newly formed franchise finance lines of business are strong, giving us confidence in our ability to continue growing revenue and earnings for the remainder of the year and into 2022.

"Our new franchise finance business line is the third installment in a $300 million commitment we have made to small business owners in 2021," Mr. Becker added. "We have teamed with ApplePie Capital, a company that sources and originates franchisee lending opportunities on a nationwide basis. Together, we are funding loans to proven businesses, fueling economic and job growth and building our loan portfolio. We expect to fund $100 million of franchise loans by year-end. Earlier this year, we originated $30 million in a second round of PPP, and we have secured an additional $172 million in SBA 7(a) approvals over the course of SBA’s most recently ended fiscal year. Looking ahead to 2022, we expect to expand our small business pledge by 20%. We anticipate funding up to $150 million in franchise finance and $215 million in SBA 7(a) loans. Furthermore, to provide our small business owners the upgraded digital experience that will empower them to manage their cash flows effectively, we have announced a partnership with Finzly to provide an innovative payments hub and expect to announce additional relationships within the next few weeks."

Mr. Becker concluded, "Of course, the First Internet team’s hard work and unwavering commitment to client service are the keys to our ongoing success and the reasons we are confident in the strength of our organization and our abilities to seize upon new opportunities ahead."

Net Interest Income and Net Interest Margin

Net interest income for the third quarter of 2021 was $20.9 million, compared to $21.6 million for the second quarter of 2021, and $16.2 million for the third quarter of 2020. On a fully-taxable equivalent basis, net interest income for the third quarter of 2021 was $22.3 million, compared to $23.0 million for the second quarter of 2021, and $17.7 million for the third quarter of 2020.

On September 30, 2021, the Company redeemed all $25.0 million aggregate principal amount of 6.0% fixed-to-floating rate subordinated notes due in 2026. Excluding $0.8 million of costs related to this redemption, net interest income was $21.7 million and fully-taxable equivalent net interest income was $23.1 million.

Total interest income for the third quarter of 2021 was $33.0 million, a decrease of 1.0% compared to the second quarter of 2021, and an increase of 0.9% compared to the third quarter of 2020. On a fully-taxable equivalent basis, total interest income for the third quarter of 2021 was $34.4 million, a decrease of 1.1% compared to the second quarter of 2021, and an increase of 0.6% compared to the third quarter of 2020. The modest decrease in total interest income compared to the second quarter of 2021 was driven primarily by a 10 basis point ("bp") decrease in the yield on interest-earning assets, which was partially offset by a 1.2% increase in the average balance of these assets. The yield on interest-earning assets for the third quarter of 2021 decreased to 3.16% from 3.26% in the linked quarter due primarily to changes in the earning asset mix as well as lower loan fees. Average loan balances, including loans held for sale, decreased $60.0 million, or 2.0%, while the average balances of securities and other earning assets increased $108.0 million, or 10.0%, compared to the linked quarter.

Total interest expense for the third quarter of 2021 was $12.1 million, an increase of 2.9% compared to the second quarter of 2021, and a decrease of 26.7% compared to the third quarter of 2020. The increase in total interest expense compared to the linked quarter was due primarily to the costs related to the redemption of the subordinated notes discussed above. Average interest-bearing deposit balances increased $28.6 million, or 0.9%, while the cost of these deposits declined 9 bps to 0.90%.

The composition of deposits continued to improve as the average balance of money market accounts, savings accounts and interest-bearing demand deposits increased $94.1 million, or 5.6%, on a combined basis while the average balance of certificates and brokered deposits declined $65.5 million, or 4.5%, compared to the linked quarter. Furthermore, the cost of certificates and brokered deposits decreased by 14 bps compared to the linked quarter. During the third quarter of 2021, new certificates of deposit were originated at a weighted average cost of 43 bps while maturing certificates of deposit had a weighted average cost of 143 bps; a difference of 100 bps.

Net interest margin ("NIM") was 2.00% for the third quarter of 2021, down from 2.11% for the second quarter of 2021 and up from 1.53% for the third quarter of 2020. Fully-taxable equivalent NIM ("FTE NIM") was 2.13% for the third quarter of 2021, down from 2.25% for the second quarter of 2021 and up from 1.67% for the third quarter of 2020. Excluding the $0.8 million of costs related to the redemption of the subordinated notes, adjusted NIM was 2.08% and adjusted FTE NIM was 2.21%. The decreases in adjusted NIM and adjusted FTE NIM compared to the linked quarter were driven primarily by the lower average loan balances and loan fees, partially offset by lower interest-bearing deposit costs and higher securities income.

Noninterest Income

Noninterest income for the third quarter of 2021 was $7.8 million, compared to $9.0 million for the second quarter of 2021 and $12.5 million for the third quarter of 2020. The decrease compared to the linked quarter was driven primarily by the positive impact of a $2.5 million gain on sale of premises and equipment that occurred in the second quarter. Excluding the impact of that gain, adjusted noninterest income increased by $1.4 million, or 21.3%, compared to the linked quarter, driven primarily by higher revenue from mortgage banking activities and other income, partially offset by modestly lower gain on sale of loans. Mortgage banking revenue totaled $3.9 million for the third quarter of 2021, an increase of $1.2 million, or 44.0%, from the linked quarter, due primarily to increases in interest rate locks, sold loan volume and margins. Other income increased $0.5 million due to a distribution from the Company’s investment in a Small Business Investment Company fund. Gain on sale of loans totaled $2.7 million for the quarter, decreasing from $3.0 million in the second quarter of 2021, due mainly to a decline in secondary market premiums on U.S. Small Business Administration ("SBA") 7(a) guaranteed loan sales during the quarter.

Noninterest Expense

Noninterest expense for the third quarter of 2021 was $14.5 million, compared to $15.1 million for the second quarter of 2021 and $16.4 million for the third quarter of 2020. The decrease of $0.6 million, or 4.1%, compared to the linked quarter was driven primarily by lower consulting and professional fees, other expense and loan expenses. The decrease in consulting and professional fees and loan expenses was due mainly to third party loan review and stress testing performed in the linked quarter. The decrease in other expense was due to seasonal expenses incurred in the second quarter as well as a gain on the sale of a residential other real estate owned property. The decrease in loan expenses was due to reimbursement of expenses incurred in prior quarters related to nonperforming loans.

Income Taxes

The Company reported income tax expense of $2.2 million for the third quarter of 2021 and an effective tax rate of 15.5%, compared to income tax expense of $2.4 million and an effective tax rate of 15.4% for the second quarter of 2021 and $1.4 million and an effective tax rate of 14.2% for the third quarter of 2020.

Loans and Credit Quality

Total loans as of September 30, 2021 were $2.9 billion, a decrease of $21.5 million, or 0.7%, compared to June 30, 2021, and a decrease of $76.8 million, or 2.5%, compared to September 30, 2020. Total commercial loan balances were $2.4 billion as of September 30, 2021, a decrease of $29.1 million, or 1.2%, compared to June 30, 2021, and a decrease of $37.0 million, or 1.5%, compared to September 30, 2020. Compared to the linked quarter, the decline in commercial loan balances was driven largely by net payoffs in healthcare finance, public finance and SBA Paycheck Protection Program ("PPP") loans, which were partially offset by increases in franchise finance, commercial and industrial and single tenant lease financing balances.

Total consumer loan balances were $475.1 million as of September 30, 2021, an increase of $8.7 million, or 1.9%, compared to June 30, 2021, and a decrease of $32.6 million, or 6.4%, compared to September 30, 2020. The increase in consumer loan balances from June 30, 2021 was due primarily to higher balances in the residential mortgage portfolio.

Total delinquencies 30 days or more past due were 0.06% of total loans as of September 30, 2021, down from 0.07% as of June 30, 2021 and 0.22% as of September 30, 2020. Overall credit quality remained strong as nonperforming loans to total loans was 0.27% as of September 30, 2021, compared to 0.31% as of June 30, 2021 and 0.32% as of September 30, 2020. During the third quarter of 2021, nonperforming loans declined $1.2 million, or 13.1%, compared to the linked quarter due primarily to the payoff of a single tenant lease financing relationship which had previously been classified as nonaccrual.

The allowance for loan losses as a percentage of total loans was 0.95% as of September 30, 2021, or 0.96% when excluding PPP loans, consistent with 0.95% and 0.96%, respectively, as of June 30, 2021 and up from 0.89% and 0.91%, respectively, as of September 30, 2020.

Net charge-offs of less than $0.1 million were recognized during the third quarter of 2021, resulting in net charge-offs to average loans of 0.01%, compared to 0.35% for the second quarter of 2021 and 0.01% for the third quarter of 2020. Net charge-offs were elevated in the second quarter of 2021 due to the elimination of specific reserves related to a single tenant lease financing relationship. The provision for loan losses in the third quarter of 2021 was a benefit of $29,000, compared to a provision of $21,000 for the second quarter of 2021 and $2.5 million for the third quarter of 2020. The decrease in provision for loan losses for the third quarter of 2021 was due primarily to the $21.5 million decrease in loan balances mentioned above.

Capital

As of September 30, 2021, total shareholders’ equity was $370.4 million, an increase of $11.8 million, or 3.3%, compared to June 30, 2021, and an increase of $52.3 million, or 16.5%, compared to September 30, 2020. The increase compared to the linked quarter was due primarily to net income earned during the quarter. Book value per common share increased to $37.59 as of September 30, 2021, up from $36.39 as of June 30, 2021 and $32.46 as of September 30, 2020. Tangible book value per share increased to $37.12, up from $35.92 and $31.98, each as of the same reference dates.

During the third quarter of 2021, the Company completed a $60.0 million offering of 3.75% fixed-to-floating rate subordinated notes due in 2031. A portion of the proceeds were used to redeem the $25.0 million principal amount of 6.0% subordinated notes due in 2026 discussed above. The net increase in subordinated notes resulted in increases in the Company’s Tier 2 regulatory capital and total risk-based capital ratio.

The following table presents the Company’s and the Bank’s regulatory and other capital ratios as of September 30, 2021.

As of September 30, 2021

Company

Bank

Total shareholders' equity to assets

8.71%

9.68%

Tangible common equity to tangible assets 1

8.61%

9.58%

Tier 1 leverage ratio 2

8.86%

9.83%

Common equity tier 1 capital ratio 2

12.61%

13.99%

Tier 1 capital ratio 2

12.61%

13.99%

Total risk-based capital ratio 2

17.03%

14.92%

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."

2 Regulatory capital ratios are preliminary pending filing of the Company's and the Bank's regulatory reports.

Stock Repurchase Authorization

On October 18, 2021, the Company’s Board of Directors authorized a new stock repurchase program (the "Program") with an aggregate purchase price of up to $30.0 million. The Program is scheduled to expire on December 31, 2022. The Program permits the Company to acquire shares of its common stock from time to time in the open market or in privately negotiated transactions at prices management considers to be attractive and in the best interest of the Company and its shareholders. The Program does not obligate the Company to repurchase shares of its common stock, and there is no assurance that it will do so.

Any repurchases are subject to compliance with applicable laws and regulations. Repurchases will be conducted in consideration of general market and economic conditions as well as the financial and regulatory condition of the Company and the Bank. The Program may be modified, suspended or discontinued at any time.

Conference Call and Webcast

The Company will host a conference call and webcast at 12:00 p.m. Eastern Time on Thursday, October 21, 2021 to discuss its quarterly financial results. The call can be accessed via telephone at (888) 348-3664. A recorded replay can be accessed through November 21, 2021 by dialing (877) 344-7529; passcode: 10160916.

Additionally, interested parties can listen to a live webcast of the call on 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 $4.3 billion as of September 30, 2021. The Company’s subsidiary, First Internet Bank, opened for business in 1999 as an industry pioneer in the branchless delivery of banking services. The Bank provides consumer and small business deposit, SBA financing, residential mortgage loans, 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 the Bank, including its products and services, is available at www.firstib.com.

Forward-Looking Statements

This press release may contain forward-looking statements, including statements with respect to the Company’s stock repurchase program and timing and methods of executing the same, 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," "confidence in," "continue," "could," "designed," "effort," "estimate," "expect," "intend," "looking forward," "may," "optimistic," "pending," "plan," "position," "preliminary," "remain," "should," "will," "working on," "would" 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: the effects of the COVID-19 global pandemic and other adverse public health developments on the economy, 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 we own or 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 real estate, commercial and industrial, public finance, SBA, healthcare finance and franchise finance loan portfolios; competition with national, regional and community financial institutions; the loss of any key members of senior management; execution of future acquisition, reorganization or disposition transactions, including without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growth and/or expense savings and other anticipated benefits from such transactions; fluctuations in interest rates; general economic conditions; 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, adjusted net interest income, adjusted net interest income – FTE, net interest margin – FTE, adjusted net interest margin, adjusted net interest margin – FTE, allowance for loan losses to loans, excluding PPP loans, adjusted revenue, adjusted noninterest income, adjusted income before income taxes, adjusted income tax provision, adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average shareholders’ equity, adjusted return on average tangible common equity and adjusted effective income tax rate 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."

First Internet Bancorp

Summary Financial Information (unaudited)

Dollar amounts in thousands, except per share data

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

September 30,

September 30,

2021

2021

2020

2021

2020

Net income

$

12,090

$

13,096

$

8,411

$

35,636

$

18,362

Per share and share information

Earnings per share - basic

$

1.22

$

1.32

$

0.86

$

3.59

$

1.87

Earnings per share - diluted

1.21

1.31

0.86

3.57

1.87

Dividends declared per share

0.06

0.06

0.06

0.18

0.18

Book value per common share

37.59

36.39

32.46

37.59

32.46

Tangible book value per common share 1

37.12

35.92

31.98

37.12

31.98

Common shares outstanding

9,854,153

9,854,153

9,800,569

9,854,153

9,800,569

Average common shares outstanding:

Basic

9,936,237

9,932,761

9,773,175

9,922,877

9,825,683

Diluted

9,988,102

9,981,422

9,773,224

9,974,071

9,827,182

Performance ratios

Return on average assets

1.12

%

1.25

%

0.78

%

1.13

%

0.58

%

Return on average shareholders' equity

13.10

%

14.88

%

10.67

%

13.54

%

7.90

%

Return on average tangible common equity 1

13.27

%

15.09

%

10.83

%

13.73

%

8.02

%

Net interest margin

2.00

%

2.11

%

1.53

%

2.05

%

1.47

%

Net interest margin - FTE 1,2

2.13

%

2.25

%

1.67

%

2.19

%

1.61

%

Capital ratios 3

Total shareholders' equity to assets

8.71

%

8.53

%

7.34

%

8.71

%

7.34

%

Tangible common equity to tangible assets 1

8.61

%

8.43

%

7.24

%

8.61

%

7.24

%

Tier 1 leverage ratio

8.86

%

8.70

%

7.72

%

8.86

%

7.72

%

Common equity tier 1 capital ratio

12.61

%

12.23

%

11.13

%

12.61

%

11.13

%

Tier 1 capital ratio

12.61

%

12.23

%

11.13

%

12.61

%

11.13

%

Total risk-based capital ratio

17.03

%

15.51

%

14.38

%

17.03

%

14.38

%

Asset quality

Nonperforming loans

$

7,851

$

9,038

$

9,774

$

7,851

$

9,774

Nonperforming assets

9,039

10,338

9,782

9,039

9,782

Nonperforming loans to loans

0.27

%

0.31

%

0.32

%

0.27

%

0.32

%

Nonperforming assets to total assets

0.21

%

0.25

%

0.23

%

0.21

%

0.23

%

Allowance for loan losses to:

Loans

0.95

%

0.95

%

0.89

%

0.95

%

0.89

%

Loans, excluding PPP loans 1

0.96

%

0.96

%

0.91

%

0.96

%

0.91

%

Nonperforming loans

356.6

%

310.5

%

275.4

%

356.6

%

275.4

%

Net charge-offs to average loans

0.01

%

0.35

%

0.01

%

0.12

%

0.06

%

Average balance sheet information

Loans

$

2,933,654

$

2,994,356

$

2,996,641

$

2,991,556

$

2,957,116

Total securities

713,342

574,684

633,552

612,755

640,659

Other earning assets

479,051

509,735

552,058

478,399

520,875

Total interest-earning assets

4,148,726

4,100,749

4,216,634

4,107,971

4,161,245

Total assets

4,265,189

4,206,966

4,307,819

4,215,479

4,246,201

Noninterest-bearing deposits

104,161

98,207

75,901

97,760

70,060

Interest-bearing deposits

3,137,728

3,109,165

3,279,621

3,121,039

3,213,372

Total deposits

3,241,889

3,207,372

3,355,522

3,218,799

3,283,432

Shareholders' equity

366,187

352,894

313,611

351,794

310,506

1 Refer to "Non-GAAP Financial Measures" section above and "Reconciliation of Non-GAAP Financial Measures" below

2 On a fully-taxable equivalent ("FTE") basis assuming a 21% tax rate

3 Regulatory capital ratios are preliminary pending filing of the Company's regulatory reports

First Internet Bancorp

Condensed Consolidated Balance Sheets (unaudited)

Dollar amounts in thousands

September 30,

June 30,

September 30,

2021

2021

2020

Assets

Cash and due from banks

$

4,932

$

4,347

$

5,804

Interest-bearing deposits

402,583

324,450

482,649

Securities available-for-sale, at fair value

634,007

663,519

528,311

Securities held-to-maturity, at amortized cost

62,129

65,659

68,254

Loans held-for-sale

43,970

27,587

76,208

Loans

2,936,148

2,957,608

3,012,914

Allowance for loan losses

(28,000

)

(28,066

)

(26,917

)

Net loans

2,908,148

2,929,542

2,985,997

Accrued interest receivable

14,866

16,345

17,768

Federal Home Loan Bank of Indianapolis stock

25,650

25,650

25,650

Cash surrender value of bank-owned life insurance

38,660

38,421

37,714

Premises and equipment, net

52,700

44,249

31,262

Goodwill

4,687

4,687

4,687

Servicing asset

4,412

4,120

2,818

Other real estate owned

1,188

1,300

-

Accrued income and other assets

54,360

54,766

66,502

Total assets

$

4,252,292

$

4,204,642

$

4,333,624

Liabilities

Noninterest-bearing deposits

$

110,117

$

113,996

$

86,088

Interest-bearing deposits

3,114,478

3,092,151

3,286,303

Total deposits

3,224,595

3,206,147

3,372,391

Advances from Federal Home Loan Bank

514,920

514,919

514,914

Subordinated debt

104,156

69,871

69,758

Accrued interest payable

1,568

1,132

1,249

Accrued expenses and other liabilities

36,611

53,932

57,210

Total liabilities

3,881,850

3,846,001

4,015,522

Shareholders' equity

Voting common stock

223,059

222,486

220,951

Retained earnings

160,551

149,066

116,241

Accumulated other comprehensive loss

(13,168

)

(12,911

)

(19,090

)

Total shareholders' equity

370,442

358,641

318,102

Total liabilities and shareholders' equity

$

4,252,292

$

4,204,642

$

4,333,624

First Internet Bancorp

Condensed Consolidated Statements of Income (unaudited)

Dollar amounts in thousands, except per share data

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

September 30,

September 30,

2021

2021

2020

2021

2020

Interest income

Loans

$

30,126

$

30,835

$

29,560

$

91,846

$

89,698

Securities - taxable

2,297

1,921

2,240

5,997

9,135

Securities - non-taxable

241

259

381

781

1,410

Other earning assets

370

362

569

1,067

2,973

Total interest income

33,034

33,377

32,750

99,691

103,216

Interest expense

Deposits

7,090

7,705

12,428

23,423

45,399

Other borrowed funds

5,025

4,065

4,090

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