First Internet Bancorp Reports Second Quarter 2021 Results

Highlights for the second quarter include:

• Record net income of $13.1 million, an increase of 233.1% over the second quarter of 2020
• Record diluted earnings per share of $1.31, an increase of 227.5% over the second quarter of 2020  
• Adjusted net income of $11.1 million, or $1.11 per diluted share, when excluding a $2.5 million pre-tax gain on the sale of the Company’s corporate headquarters
• Total revenue of $30.6 million, an increase of 57.6% over the second quarter of 2020
• Adjusted revenue of $28.0 million, an increase of 44.6% over the second quarter of 2020
• Net interest margin and fully-taxable equivalent net interest margin each increased 7 basis points (“bps”) from the first quarter of 2021, driven by a 13 bp decrease in the cost of interest-bearing deposits

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 of 2021. Net income for the second quarter of 2021 was $13.1 million, or $1.31 diluted earnings per share. This compares to net income of $10.5 million, or $1.05 diluted earnings per share, for the first quarter of 2021, and net income of $3.9 million, or $0.40 diluted earnings per share, for the second quarter of 2020.

“We produced strong operating results for the second quarter of 2021 driven by net interest margin expansion and disciplined expense management,” said David Becker, Chairman and Chief Executive Officer. “We also maintained excellent credit quality, as nonperforming loans declined during the quarter and delinquencies were at historically low levels. Additionally, our growing national SBA platform steadily gained momentum and drove higher gain-on-sale revenue. Looking forward, pipelines in SBA, as well as in other key lines of business, grew significantly during the quarter, leaving us well-positioned to capitalize on loan growth opportunities in the second half of 2021.

Mr. Becker concluded, “We continue to challenge ourselves to imagine more. First Internet Bank has fostered a workplace culture that promotes innovation, collaboration and customer focus. This is reflected in our being named one of the 'Top Workplaces in Central Indiana' for the eighth consecutive year. I would like to thank the entire First Internet Bank team for helping to deliver record earnings performance for the quarter.”

Net Interest Income and Net Interest Margin

Net interest income for the second quarter of 2021 was $21.6 million, compared to $20.5 million for the first quarter of 2021 and $14.4 million for the second quarter of 2020. On a fully-taxable equivalent basis, net interest income for the second quarter of 2021 was $23.0 million, compared to $21.9 million for the first quarter of 2021 and $15.9 million for the second quarter of 2020.

Total interest income for the second quarter of 2021 was $33.4 million, an increase of 0.3% compared to the first quarter of 2021 and a decrease of 2.5% compared to the second quarter of 2020. On a fully-taxable equivalent basis, total interest income for the second quarter of 2021 was $34.8 million, an increase of 0.4% compared to the first quarter of 2021 and a decrease of 2.5% compared to the second quarter of 2020. The modest increase in total interest income compared to the first quarter of 2021 was driven primarily by a 0.7% increase in the average balance of interest-earning assets, which was partially offset by a 5 bp decrease in the yield on these assets. The yield on interest-earning assets for the second quarter of 2021 decreased to 3.26% from 3.31% in the prior quarter due primarily to changes in the earning asset mix. Average loan balances, including loans held for sale, decreased $62.8 million, or 2.0%, while the average balances of other earning assets and securities increased $63.7 million, or 14.3%, and $26.3 million, or 4.8%, respectively.

Total interest expense for the second quarter of 2021 was $11.8 million, a decrease of 7.7% compared to the first quarter of 2021 and a decrease of 40.5% compared to the second quarter of 2020. The decrease in total interest expense compared to the linked quarter was due primarily to a 13 bp decline in the cost of interest-bearing deposits as well as a slight decline of 0.2% in the average balance of these deposits. The decrease in deposit costs reflects the continued decline in the rates paid on interest-bearing deposits as well as a shift in the deposit mix due to a reduction in the average balance of certificates and brokered deposits.

During the second quarter of 2021, the cost of money market deposits remained stable compared to the linked quarter while the average balance of these deposits increased $46.8 million, or 3.4%. Furthermore, the cost of certificates and brokered deposits decreased by 21 bps and average balances decreased by $75.4 million, or 5.0%. During the second quarter of 2021, new certificates of deposit were originated at a weighted average cost of 44 bps while maturing certificates of deposit had a weighted average cost of 174 bps, a difference of 130 bps.

Net interest margin (“NIM”) improved to 2.11% for the second quarter of 2021, up from 2.04% for the first quarter of 2021 and 1.37% for the second quarter of 2020. Fully-taxable equivalent NIM (“FTE NIM”) increased to 2.25% for the second quarter of 2021, up from 2.18% for the first quarter of 2021 and 1.50% for the second quarter of 2020. The increases in NIM and FTE NIM compared to the linked quarter were driven primarily by lower interest-bearing deposit costs, partially offset by the change in the earning asset mix.

Noninterest Income

Noninterest income for the second quarter of 2021 was $9.0 million, compared to $8.4 million for the first quarter of 2021 and $5.0 million for the second quarter of 2020. The increase compared to the linked quarter was driven primarily by a gain on sale of premises and equipment and gain on sale of loans, partially offset by lower revenues from mortgage banking activities. During the second quarter of 2021, the Company completed the sale of its headquarters, resulting in a $2.5 million gain. Gain on sale of loans totaled $3.0 million for the quarter, increasing $1.3 million compared to the first quarter of 2021, due to an increase in the volume of U.S. Small Business Administration (“SBA”) 7(a) guaranteed loan sales and an increase in secondary market premiums during the quarter. Mortgage banking revenue totaled $2.7 million for the second quarter of 2021, down $3.1 million from the linked quarter, due primarily to decreases in interest rate locks, sold loan volume and margins.

Noninterest Expense

Noninterest expense for the second quarter of 2021 was $15.1 million, compared to $15.3 million for the first quarter of 2021 and $13.2 million for the second quarter of 2020. Noninterest expense decreased slightly on a linked-quarter basis, driven primarily by decreases of $0.3 million in salaries and employee benefits and $0.2 million in deposit insurance premium, which was partially offset by a $0.2 million increase in marketing, advertising and promotion expense. The decrease in salaries and employee benefits expense was due mainly to a decrease in medical claims expense in the second quarter of 2021. The decrease in deposit insurance premium was due to the decline in total assets year-over-year. The increase in marketing expenses was due to higher mortgage lead generation costs and sponsorship initiatives.

Income Taxes

The Company reported income tax expense of $2.4 million for the second quarter of 2021 and an effective tax rate of 15.4%, compared to income tax expense of $1.9 million and an effective tax rate of 15.1% for the first quarter of 2021 and an income tax benefit of $0.3 million for the second quarter of 2020.

Loans and Credit Quality

Total loans as of June 30, 2021 were $3.0 billion, a decrease of $101.1 million, or 3.3%, compared to March 31, 2021, and a decrease of $16.1 million, or 0.5%, compared to June 30, 2020. Total commercial loan balances were $2.4 billion as of June 30, 2021, a decrease of $85.1 million, or 3.4%, compared to March 31, 2021, and an increase of $48.3 million, or 2.0%, compared to June 30, 2020. Compared to the linked quarter, the decline in commercial loan balances was driven largely by net payoffs in healthcare finance, single tenant lease financing and public finance loans, which was partially offset by increases in commercial and industrial and investor commercial real estate loan balances.

Total consumer loan balances were $466.5 million as of June 30, 2021, a decrease of $11.9 million, or 2.5%, compared to March 31, 2021, and a decrease of $56.5 million, or 10.8%, compared to June 30, 2020. The decline in consumer loan balances from March 31, 2021 was due primarily to prepayment activity in the residential mortgage portfolio, partially offset by an increase in trailer balances.

Total delinquencies 30 days or more past due were 0.07% of total loans as of June 30, 2021, down from 0.23% as of March 31, 2021, and down from 0.25% as of June 30, 2020. Overall credit quality remained strong as nonperforming loans to total loans was 0.31% as of June 30, 2021, compared to 0.48% as of March 31, 2021, and 0.28% as of June 30, 2020. During the second quarter of 2021, nonperforming loans declined $5.4 million, or 36.8%, compared to the linked quarter due primarily to positive developments related to a single tenant lease financing relationship and a commercial and industrial relationship, both of which had been classified as nonaccrual. The single tenant lease financing relationship included two loans, one of which was paid off at net book value (unpaid principal balance less specific reserves) and the other was transferred to other real estate owned. The commercial and industrial relationship included four loans, two of which paid off during the quarter.

The allowance for loan losses as a percentage of total loans was 0.95% as of June 30, 2021, or 0.96% when excluding SBA Paycheck Protection Program (“PPP”) loans, compared to 1.00% and 1.02%, respectively, as of March 31, 2021, and 0.82% and 0.84%, respectively, as of June 30, 2020. The decline in the allowance for loan losses compared to the linked quarter was due primarily to the elimination of $2.9 million of specific reserves related to the loan relationships discussed above as well as the decrease in total loan balances, which included commercial loan portfolios with higher allowance coverage ratios. These items were partially offset by additional adjustments to the qualitative factors in the Company’s allowance model, resulting in a 6 bp increase to the allowance coverage ratio related to the general reserve on the Company’s commercial loan portfolio, which totaled 0.99% at quarter end.

Net charge-offs of $2.6 million were recognized during the second quarter of 2021, resulting in net charge-offs to average loans of 0.35%, compared to 0.02% for the first quarter of 2021 and 0.12% for the second quarter of 2020. The increase in net charge-offs is primarily due to the single tenant lease financing relationship discussed above as the loan payoff and the transfer to other real estate owned were recorded at net book value. The provision for loan losses in the second quarter of 2021 was $21,000, compared to $1.3 million for the first quarter of 2021 and $2.5 million for the second quarter of 2020. The decrease in provision for loan losses for the second quarter of 2021 was due primarily to the $101.1 million decrease in loan balances mentioned above.

Capital

As of June 30, 2021, total shareholders’ equity was $358.6 million, an increase of $14.1 million, or 4.1%, compared to March 31, 2021, and an increase of $50.9 million, or 16.6%, compared to June 30, 2020. The increase compared to the linked quarter was due primarily to net income earned during the quarter and a decrease in accumulated other comprehensive loss. Book value per common share increased to $36.39 as of June 30, 2021, up from $35.07 as of March 31, 2021, and $31.40 as of June 30, 2020. Tangible book value per share increased to $35.92, up from $34.60 and $30.92, each as of the same reference dates.

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

Conference Call and Webcast

The Company will host a conference call and webcast at 12:00 p.m. Eastern Time on Thursday, July 22, 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 August 22, 2021, by dialing (877) 344-7529; passcode: 10158195.

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 $4.2 billion as of June 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, consumer loan, residential mortgage, and specialty finance services nationally as well as commercial real estate loans, commercial and industrial loans, SBA financing and treasury management services in select geographies. 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 with respect to the financial condition, results of operations, trends in lending policies, plans, objectives, future performance or business of the Company. Forward-looking statements are generally identifiable by the use of words such as “anticipate,” “believe,” “continue,” “could,” “designed,” “estimate,” “expect,” “intend,” “may,” “optimistic,” “pending,” “plan,” “position,” “preliminary,” “remain,” “should,” “will,” “would” or other similar expressions. Such statements are not a guarantee of future performance or results, are based on information available at the time the statements are made and 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; 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 and healthcare finance loan portfolios; competition with national, regional and community financial institutions; the loss of any key members of senior management; 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, net interest margin – FTE, allowance for loan losses to loans, excluding PPP loans, adjusted revenue, 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 press release under the caption “Reconciliation of Non-GAAP Financial Measures.”