First Internet Bancorp(INBK) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net interest income of $25.1 million, up 6.6% from the previous quarter, and $26.3 million on a fully taxable equivalent basis, reflecting a strong performance [26][27] - Total operating revenue grew over 2% quarter-over-quarter and more than 22% year-over-year, driven by strong loan growth and declining deposit costs [8][9] - Net income for the quarter was $900,000, with diluted earnings per share of $0.11, significantly impacted by elevated provisions for loan losses [13][14] Business Line Data and Key Metrics Changes - Small business lending origination yields remained strong, with a weighted average rate on funded originations at 7.78%, up 50 basis points from the prior quarter [11][12] - The construction and commercial real estate team originated nearly $70 million in new commitments, contributing to an 8% annualized loan growth [17][19] - Noninterest income for the quarter was $10.4 million, down 35% from the previous quarter, primarily due to lower net servicing revenue [29][30] Market Data and Key Metrics Changes - Total deposits increased by $111 million or over 2% during the first quarter, driven by growth in FinTech partnership deposits [21][22] - Non-maturity deposits rose almost $335 million or 15%, reflecting the increase in FinTech partnership deposits [21][22] - Total FinTech partnership revenue was over $1.1 million in the first quarter, up 30% from the fourth quarter, indicating strong growth in this segment [22][94] Company Strategy and Development Direction - The company aims to continue diversifying revenue streams through embedded finance partnerships and expects to drive revenue growth and enhanced profitability [19][102] - The focus remains on controlling costs and managing credit quality, particularly in small business lending and franchise finance portfolios [9][16] - The company anticipates continued growth in net interest income and net interest margin throughout 2025, assuming no further rate actions from the Federal Reserve [10][34] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing improvement of loan origination yields and the ability to manage deposit costs effectively [10][34] - The economic environment remains uncertain, but there are signs of improvement in borrower interactions and delinquencies [56][74] - The company expects a temporary decline in gain on sale revenue due to changes in SBA loan processes but anticipates a return to normalized levels in the second half of the year [35][36] Other Important Information - The allowance for credit losses as a percentage of total loans was 1.11%, reflecting specific reserves taken on certain loan relationships [31] - The tangible common equity ratio was 6.55%, indicating solid capital levels despite a slight decline [33] - The company has a strong liquidity position with cash and unused borrowing capacity of $2.1 billion [25] Q&A Session Summary Question: Expected one-time impact on fees in Q2 - Management estimates a one-time impact on noninterest income for Q2 to be in the range of $5 million to $6 million, with a return to normal levels expected in the latter half of the year [43][45] Question: Average loan size in SBA and impact of reinstated fees - The average loan size is just over $1 million, meaning reinstated fees on smaller loans will not significantly impact the company [46][47] Question: Impact of a 25 basis point rate cut on net interest income - A 25 basis point rate cut would result in an annualized decrease of approximately $3.6 million in net interest income, with a gradual ramp-up effect over the year [48][49] Question: Updated thoughts on SBA loss assumptions - Management noted that while loss rates have been elevated, they expect a decline in charge-off activity moving forward, with current delinquencies showing improvement [56][59] Question: Share buyback plans - The company is considering share buybacks if the stock price remains below 50% of book value, indicating a potential opportunity to return capital to shareholders [62] Question: Update on fintech partnerships and pipeline - The company is experiencing strong growth in existing fintech partnerships and is cautiously optimistic about new opportunities, focusing on quality over quantity [91][94]