First Internet Bancorp(INBK) - 2024 Q2 - Quarterly Results

First Internet Bancorp Q2 2024 Financial Results Second Quarter 2024 Financial Highlights First Internet Bancorp reported strong upward earnings trajectory in Q2 2024, with net income rising 11.5% to $5.8 million and diluted EPS increasing 13.6% to $0.67 compared to Q1 2024 Q2 2024 Key Financial Metrics (vs. Q1 2024) | Metric | Q2 2024 | Change from Q1 2024 | | :--- | :--- | :--- | | Net Income | $5.8 million | +11.5% | | Adjusted Net Income | $6.2 million | +20.2% | | Diluted EPS | $0.67 | +13.6% | | Adjusted Diluted EPS | $0.72 | +22.0% | | Net Interest Income | $21.3 million | +2.9% | | Net Interest Margin | 1.67% | +1 bp | | Noninterest Income | $11.0 million | +32.2% | | Loan Growth | $51.3 million | +1.3% | | Tangible Book Value per Share | $42.37 | +1.3% | - Chairman and CEO David Becker attributed the strong earnings to an increasingly diversified revenue base, optimization of the loan portfolio, solid loan growth, increasing asset yields, and stabilization of funding costs[3] - Noninterest income represented nearly one-third of total revenues in the first half of 2024, a significant increase from just under one-quarter in the same period last year, primarily driven by the SBA business[3] - Credit quality remained stable with nonperforming loans at 0.33% of total loans and an allowance for credit losses of 1.10% of total loans[4] Net Interest Income and Net Interest Margin Net interest income (NII) rose to $21.3 million in Q2 2024, a 2.9% increase from Q1 2024, while Net Interest Margin (NIM) expanded by 1 basis point to 1.67% Net Interest Income and Margin Performance | Metric | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Net Interest Income | $21.3 million | $20.7 million | $18.1 million | | FTE Net Interest Income | $22.5 million | $21.9 million | $19.5 million | | Net Interest Margin (NIM) | 1.67% | 1.66% | 1.53% | | FTE NIM | 1.76% | 1.75% | 1.64% | - Total interest income increased 4.1% QoQ to $71.0 million, driven by a 10 bp increase in loan yields and a 21 bp increase in securities yields[6] - Total interest expense rose 4.6% QoQ to $49.6 million, primarily due to a $186.0 million increase in average interest-bearing deposit balances, with the cost of these deposits rising 4 bps to 4.29%[10] - The company is strategically shifting its loan mix towards variable rate and higher-yielding products like construction, small business lending, and franchise finance to improve its interest rate risk profile[7] Noninterest Income Noninterest income surged to $11.0 million in Q2 2024, a 32.2% increase from Q1 2024 and an 87.2% increase year-over-year, primarily driven by a 26.9% QoQ increase in gain on sale of loans Noninterest Income Breakdown | Category | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Total Noninterest Income | $11.0 million | $8.3 million | $5.9 million | | Gain on sale of loans | $8.3 million | $6.5 million | $4.9 million | - The increase in gain on sale of loans was driven by a 18.9% rise in loan sale volume and a 6 basis point increase in net premiums compared to the linked quarter[15] - Other income increased by $1.2 million during the quarter, mainly due to distributions from fund investments[15] Noninterest Expense Noninterest expense for Q2 2024 was $22.3 million, a 6.2% increase from the prior quarter, with adjusted expenses rising 3.5% QoQ after excluding non-recurring IT termination fees Noninterest Expense Overview | Metric | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Total Noninterest Expense | $22.3 million | $21.0 million | $18.7 million | | Adjusted Noninterest Expense | $21.8 million | $21.0 million | N/A | - Non-recurring costs in Q2 2024 included almost $0.6 million for IT termination fees and anniversary expenses[16] - The main drivers of the increase in recurring expenses were higher salaries and benefits ($0.5 million), consulting fees ($0.2 million), and loan expenses ($0.2 million)[16][17] Loans and Credit Quality Total loans grew by 1.3% QoQ to $4.0 billion, driven by growth in commercial loans, while credit quality remained stable with nonperforming loans at 0.33% and ACL increasing to 1.10% Key Credit Quality Metrics | Metric | June 30, 2024 | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | :--- | | Total Loans | $4.0 billion | $3.9 billion | $3.6 billion | | Nonperforming Loans to Total Loans | 0.33% | 0.33% | 0.17% | | Allowance for Credit Losses (ACL) to Total Loans | 1.10% | 1.05% | 0.99% | | Net Charge-offs to Average Loans (Quarterly) | 0.14% | 0.05% | 0.17% | - Commercial loan balances increased by $46.9 million (1.5%) QoQ, led by growth in investor commercial real estate, small business lending, and franchise finance[19] - The provision for credit losses was $4.0 million for the quarter, up from $2.4 million in Q1 2024, driven by loan growth, net charge-offs, and increased reserves for small business lending[25][26] Capital Total shareholders' equity increased by 1.4% QoQ to $372.0 million, with tangible book value per share growing to $42.37, and regulatory capital ratios remaining well-capitalized - Tangible book value per share increased to $42.37 as of June 30, 2024, up from $41.83 at March 31, 2024, and $39.85 at June 30, 2023[27] Regulatory Capital Ratios (Company) - As of June 30, 2024 | Ratio | Value | | :--- | :--- | | Tier 1 leverage ratio | 7.24% | | Common equity tier 1 capital ratio | 9.47% | | Tier 1 capital ratio | 9.47% | | Total risk-based capital ratio | 13.13% | Financial Statements and Supplementary Data Summary Financial Information The summary financial information provides a comparative overview of key performance indicators for Q2 2024, highlighting significant year-over-year growth in net income to $5.8 million and improved performance ratios Performance Ratios | Ratio | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Return on average assets | 0.44% | 0.40% | 0.32% | | Return on average shareholders' equity | 6.28% | 5.64% | 4.35% | | Net interest margin | 1.67% | 1.66% | 1.53% | Asset Quality | Metric | June 30, 2024 | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | :--- | | Nonperforming loans to loans | 0.33% | 0.33% | 0.17% | | Allowance for credit losses to loans | 1.10% | 1.05% | 0.99% | Condensed Consolidated Balance Sheets The condensed consolidated balance sheet as of June 30, 2024, shows total assets of $5.34 billion, stable QoQ, with net loans increasing to $3.92 billion and total shareholders' equity growing to $372.0 million Key Balance Sheet Items (in thousands) | Item | June 30, 2024 | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | :--- | | Total Assets | $5,343,302 | $5,340,667 | $4,947,049 | | Net Loans | $3,917,741 | $3,868,913 | $3,610,774 | | Total Deposits | $4,273,922 | $4,273,768 | $3,854,308 | | Total Liabilities | $4,971,349 | $4,973,928 | $4,592,717 | | Total Shareholders' Equity | $371,953 | $366,739 | $354,332 | Condensed Consolidated Statements of Income The income statement for Q2 2024 shows net interest income of $21.3 million and total noninterest income of $11.0 million, resulting in net income of $5.8 million, or $0.67 per diluted share Income Statement Highlights (Q2 2024) | Item | Amount (in thousands) | | :--- | :--- | | Net Interest Income | $21,327 | | Provision for Credit Losses | $4,031 | | Total Noninterest Income | $11,033 | | Total Noninterest Expense | $22,336 | | Income Before Income Taxes | $5,993 | | Net Income | $5,775 | Loan and Deposit Composition As of June 30, 2024, the $4.0 billion loan portfolio was 79.0% commercial, with the $4.3 billion deposit base led by certificates of deposits (42.8%) and money market accounts (28.6%) - Total commercial loans stood at $3.1 billion (79.0% of total), while total consumer loans were $800.5 million (20.2% of total)[42] - The largest components of the deposit base are Certificates of Deposits ($1.8 billion or 42.8%) and Money Market accounts ($1.2 billion or 28.6%)[42] Reconciliation of Non-GAAP Financial Measures This section provides detailed reconciliations of GAAP to non-GAAP financial measures, with adjusted net income for Q2 2024 at $6.2 million and adjusted diluted EPS at $0.72 GAAP to Non-GAAP Reconciliation (Q2 2024) | Metric | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | Net Income | $5.8 million | $0.5 million | $6.2 million | | Diluted EPS | $0.67 | $0.05 | $0.72 | - Key non-GAAP adjustments for Q2 2024 included $452 thousand in IT termination fees and $120 thousand in anniversary expenses[44]