First Internet Bancorp(INBK) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net income of $7 million, up 21% from the previous quarter, and diluted earnings per share of$ 0.80, up over 19% [7][8] - Total operating revenue grew over 4% compared to the prior quarter and increased over 36% year-over-year [6][10] - Net interest income was $21.8 million, up 2.1% from the second quarter, and net interest margin was 1.62%, a decrease of 5 basis points from the previous quarter [18][20] Business Line Data and Key Metrics Changes - The small business lending team reported a 35% increase in year-to-date SBA loan originations and a nearly 60% increase in sold loan volume compared to 2023 [9][10] - Non-interest income for the quarter was$ 12 million, up 9% from the second quarter, with gain on sale of loans totaling $9.9 million, a 20% increase [22][23] - The overall credit quality remains sound, with nonperforming loans to total loans at 56 basis points and nonperforming assets to total assets at 39 basis points [10][24] Market Data and Key Metrics Changes - Total deposits increased by almost$ 524 million, or 12% from the prior quarter, driven by growth in CD production and fintech partnership deposits [14][15] - Deposits from fintech partners were up 35% from the second quarter, totaling $507 million at quarter end [15] - The weighted average cost of new CDs was 4.45%, which is over 30 basis points lower than the average cost of maturing CDs [17][18] Company Strategy and Development Direction - The company aims to continue diversifying revenue and improving the composition of its loan portfolio, focusing on small business lending and construction loans [9][14] - There is a strong emphasis on maintaining balance sheet flexibility and liquidity, with a loan-to-deposit ratio declining to 84% from 93% [18][20] - The management is optimistic about achieving higher earnings and improved profitability in the fourth quarter and into 2025 [14][27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued earnings momentum and the potential for net interest margin to rebound as liquidity is deployed [14][27] - The company anticipates a solid loan pipeline and expects loan balances to increase by 1.5% to 2% in the fourth quarter [26][49] - Management noted that the economic environment is stabilizing, with inflation slowing and interest rates expected to decline, which should benefit small business owners [34][36] Other Important Information - The tangible book value per share increased by 3.6% in the third quarter and is up almost 11% year-over-year [11] - The allowance for credit losses as a percentage of total loans was 1.13%, reflecting growth in the loan portfolio [24] - The company plans to invest in technology to enhance the digital experience and add product features for consumers and small businesses [27][51] Q&A Session Summary Question: Can you provide details on the franchise finance and small business loans that were past due? - Management indicated that there were a few delinquencies in franchise finance due to certain brand closures, and they are working with borrowers to restructure loans [29][30] Question: What are the expectations for SBA origination growth? - The company targets$ 600 million in SBA originations for next year, with a strong team in place to support this growth [40][41] Question: How should we think about the NIM trajectory for 2025? - Management expects significant net interest income growth next year, with potential margin expansion driven by the deployment of excess liquidity [44][46] Question: What are the preliminary thoughts on expense growth in 2025? - Expense growth is expected to be around 7% to 8%, with potential increases if SBA revenue ramps up significantly [54][55] Question: What is the outlook for the tax rate going forward? - The tax rate is expected to range from high 8% to 11% to 12% by the end of the year, depending on pre-tax earnings growth [56]