First Internet Bancorp Reports Fourth Quarter and Full Year 2020 Results

Rhea-AI Summary

First Internet Bancorp (Nasdaq: INBK) reported record net income of $11.1 million, or $1.12 per share, for Q4 2020, up from $8.4 million in Q3 2020 and $7.1 million in Q4 2019. For the full year, net income reached $29.5 million, a 17% increase from $25.2 million in 2019. The results included a $2.1 million pre-tax write-down of commercial OREO. Total loans grew by 1.5% quarter-over-quarter to $3.1 billion, while credit quality remained stable with a nonperforming loan rate of 0.33%. Total shareholders' equity was $330.9 million, reflecting a 4% rise from Q3 2020.

Positive

• Record Q4 2020 net income of $11.1 million, up 32% from Q3 2020.
• Record full year net income of $29.5 million, a 17% increase year-over-year.
• Improved net interest margin to 1.78%, up from 1.53% in the prior quarter.
• Strong loan growth with total loans increasing 1.5% quarter-over-quarter.

Negative

• Adjusted net income of $31.1 million, considering a $2.1 million OREO write-down.
• Total interest income down 11.2% year-over-year.

First Internet Bancorp (the “Company”) (Nasdaq: INBK), the parent company of First Internet Bank (the “Bank”), announced today financial and operational results for the fourth quarter and full year ended December 31, 2020. Net income for the fourth quarter of 2020 was a record $11.1 million, or $1.12 diluted earnings per share. This compares to net income of $8.4 million, or $0.86 diluted earnings per share, for the third quarter of 2020, and net income of $7.1 million, or $0.72 diluted earnings per share, for the fourth quarter of 2019.

For the full year ended December 31, 2020, net income was a record $29.5 million and diluted earnings per share were a record $2.99, compared to net income of $25.2 million and diluted earnings per share of $2.51 for the year ended December 31, 2019. The full year 2020 results included a $2.1 million pre-tax write-down of commercial other real estate owned (“OREO”). Excluding this charge, adjusted net income for the year was $31.1 million, or $3.16 adjusted diluted earnings per share.

“We generated record net income for the fourth quarter and for all of 2020, closing out our 21^st year of operation with substantial momentum despite the challenges created by the pandemic,” said David Becker, Chairman, President and Chief Executive Officer. “Over the course of the year, we produced robust revenue growth, with our direct-to-consumer mortgage business delivering its best year in our history. Our bankers met the surge in demand brought on by low interest rates, winning business with a demonstrated commitment to consistent, excellent service. Our expanding national SBA platform also steadily gained momentum and drove higher gain-on-sale revenue, increasingly contributing to our success throughout the year. Our pipelines in these key business lines remain solid heading into 2021.

“We also maintained strong credit quality even as we took extraordinary steps in the form of loan deferrals to help our clients weather the initial shocks of the public health crisis early in the year,” Becker added. “Well before the year ended, nearly all of our borrowers who needed payment relief resumed making payments, and our continued low level of nonperforming loans reflects this. We deepened ties with our clients through this experience and remain optimistic in our customers’ collective ability to fully bounce back and succeed in the year ahead.

Mr. Becker concluded, “And of course, I want to thank the entire First Internet team for their exceptional work in an unforgettable year. Their unrelenting efforts allowed us to deliver our best-ever earnings results in a very difficult time for our country. Our employees are at the heart of our strong culture and workplace environment and are the reason First Internet was recognized by The Indianapolis Star for the seventh consecutive year as one of the ‘Top Workplaces in Central Indiana’.”

Net Interest Income and Net Interest Margin

Net interest income for the fourth quarter of 2020 was $18.9 million, compared to $16.2 million for the third quarter of 2020, and $15.4 million for the fourth quarter of 2019. On a fully-taxable equivalent basis, net interest income for the fourth quarter was $20.3 million, compared to $17.7 million for the third quarter, and $16.9 million for the fourth quarter of 2019.

Total interest income for the fourth quarter of 2020 was $33.6 million, an increase of 2.7%, compared to the third quarter of 2020, and a decrease of 11.2% compared to the fourth quarter of 2019. On a fully-taxable equivalent basis, total interest income for the fourth quarter of 2020 was $35.0 million, an increase of 2.5% compared to the third quarter of 2020, and a decrease of 11.2% compared to the fourth quarter of 2019. The increase in total interest income compared to the third quarter of 2020 was driven primarily by an 8 bp increase in the yield on average interest-earning assets as the average balance of those assets was relatively stable between quarters. The yield on interest-earning assets for the fourth quarter of 2020 increased to 3.17% from 3.09% in the prior quarter due primarily to a shift in the earning asset mix and an increase in loan fee income, mostly related to prepayments. Average loan balances increased $73.2 million, or 2.4%, while the average balance of securities and other earning assets decreased $51.1 million and $19.6 million, respectively.

Total interest expense for the fourth quarter of 2020 was $14.8 million, a decrease of 10.5%, compared to the third quarter of 2020, and a decrease of 34.3% compared to the fourth quarter of 2019. The decrease in total interest expense compared to the linked quarter was due primarily to a 22 bp decline in the cost of interest-bearing 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 the growth in money market accounts and reduction in certificates and brokered deposits.

During the fourth quarter of 2020, the cost of money market deposits decreased by 27 bps while the average balance of these deposits grew $74.3 million, or 5.7%. Furthermore, the cost of certificates and brokered deposits decreased by 9 bps and average balances decreased $110.9 million, or 6.2%. During the fourth quarter, new certificates of deposit were originated at a weighted average cost of 50 bps while maturing deposits had a weighted average cost of 205 bps; a difference of 155 bps.

Net interest margin (“NIM”) improved to 1.78% for the fourth quarter of 2020, up from 1.53% for the third quarter of 2020 and 1.51% in the fourth quarter of 2019. Fully-taxable equivalent NIM (“FTE NIM”) increased by 24 bps to 1.91% for the fourth quarter of 2020, up from 1.67% for both the third quarter of 2020 and the fourth quarter of 2019. The increases in NIM and FTE NIM compared to the linked quarter were driven primarily by a combination of lower interest-bearing deposit costs and higher average loan yields, which more than offset the impact of lower yields on securities and the continued effect of elevated cash balances.

Noninterest Income

Noninterest income for the fourth quarter of 2020 was $12.7 million, compared to $12.5 million for the third quarter of 2020 and $5.4 million for the fourth quarter of 2019. The modest increase compared to the linked quarter was driven primarily by an increase in gain on sale of loans, partially offset by lower revenues from mortgage banking activities. Gain on sale of loans totaled $3.7 million for the quarter, increasing $1.7 million compared to the third quarter of 2020 driven by a higher amount of U.S. Small Business Administration (“SBA”) 7(a) guaranteed loan sales in the quarter as well as a $0.2 million gain on the sale of $7.4 million of public finance loans. Mortgage banking revenue totaled $8.0 million for the fourth quarter of 2020, down $1.6 million from the record prior quarter due to a decrease in interest rate lock volume, which was partially offset by an increase in margins. On a historical basis, however, mortgage banking revenue remained strong as the low interest rate environment continued to drive purchase and refinance activity.

Noninterest Expense

Noninterest expense for the fourth quarter of 2020 was $14.5 million, compared to $16.4 million for the third quarter of 2020 and $12.6 million for the fourth quarter of 2019. The third quarter of 2020 included a $2.1 million write-down of two legacy commercial OREO properties. Excluding the impact of that write-down, noninterest expense increased slightly on a linked-quarter basis, driven primarily by a $0.2 million increase in loan expenses and a $0.2 million increase consulting and professional fees, but was partially offset by a $0.4 million decrease in salaries and employee benefits. The lower salaries and employee benefits expense was due mainly to the timing of incentive compensation in the Company’s small business lending division and lower incentive compensation in the mortgage banking division due to lower mortgage production quarter-over-quarter.

Income Taxes

The Company reported an income tax expense of $3.1 million for the fourth quarter of 2020 and an effective tax rate of 21.6%, compared to income tax expense of $1.4 million and an effective tax rate of 14.2% for the third quarter of 2020 and an income tax expense of $0.6 million and an effective tax rate of 7.8% for the fourth quarter of 2019. The increase in income taxes during the quarter was primarily due to the increase in pre-tax earnings driven by a higher proportion of taxable revenue and the timing of pre-tax earnings as performance significantly improved during the second half of 2020.

Loans and Credit Quality

Total loans as of December 31, 2020 were $3.1 billion, an increase of $46.3 million, or 1.5%, compared to September 30, 2020, and an increase of $95.7 million, or 3.2%, compared to December 31, 2019. Total commercial loan balances were $2.5 billion as of December 31, 2020, an increase of $73.1 million, or 3.0%, compared to September 30, 2020 and an increase of $229.1 million, or 10.0%, compared to December 31, 2019. Compared to the linked quarter, the growth in commercial loan balances was driven largely by production in healthcare finance and construction lending, which was partially offset by a decrease in single tenant lease financing balances.

Total consumer loan balances were $482.3 million as of December 31, 2020, a decrease of $25.4 million, or 5.0%, compared to September 30, 2020 and a decrease of $151.2 million, or 23.9%, compared to December 31, 2019. The decline in consumer loan balances from September 30, 2020 was due primarily to increased prepayment activity in the residential mortgage portfolio and seasonally lower production in the RV and trailer portfolios.

Total delinquencies 30 days or more past due decreased to 0.17% of total loans as of December 31, 2020, down from 0.22% as of September 30, 2020 and down from 0.24% as of December 31, 2019. Overall credit quality remained relatively stable as nonperforming loans to total loans was 0.33% as of December 31, 2020, compared to 0.32% at September 30, 2020 and 0.23% as of December 31, 2019.

The allowance for loan losses as a percentage of total loans was 0.96% as of December 31, 2020, or 0.98% when excluding SBA Paycheck Protection Program (“PPP”) loans, compared to 0.89% and 0.91%, respectively, as of September 30, 2020 and 0.74% as of December 31, 2019. During the quarter, the Company continued to make additional adjustments to qualitative factors in its allowance model to reflect the continued economic uncertainty resulting from the COVID-19 pandemic as well as increased the specific reserve by $1.1 million on an existing nonperforming single tenant lease financing relationship. As a result, both the amount of the allowance for loan losses and the allowance as a percentage of total loans increased compared to September 30, 2020.

Net charge-offs of $0.3 million were recognized during the fourth quarter of 2020, resulting in net charge-offs to average loans of 0.04%, compared to 0.01% for the third quarter and 0.04% for the fourth quarter of 2019. The provision for loan losses in the fourth quarter was $2.9 million, compared to $2.5 million for the third quarter and $0.5 million for the fourth quarter of 2019.

Capital

As of December 31, 2020, total shareholders’ equity was $330.9 million, an increase of $12.8 million, or 4.0%, compared to September 30, 2020, due primarily to the net income earned during the quarter and a decrease in accumulated other comprehensive loss. Book value per common share increased to $33.77 as of December 30, 2020, up from $32.46 as of September 30, 2020 and $31.30 as of December 31, 2019. Tangible book value per share increased to $33.29, up from $31.98 and $30.82, 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 December 31, 2020.

		As of December 31, 2020
		Company		Bank
Total shareholders' equity to assets		7.79%		8.64%
Tangible common equity to tangible assets 1		7.69%		8.54%
Tier 1 leverage ratio 2		7.95%		8.78%
Common equity tier 1 capital ratio 2		11.31%		12.49%
Tier 1 capital ratio 2		11.31%		12.49%
Total risk-based capital ratio 2		14.91%		13.47%
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.

Conference Call and Webcast

The Company will host a conference call and webcast at 12:00 p.m. Eastern Time on Thursday, January 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 February 21, 2021 by dialing (877) 344-7529; passcode: 10151053.

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 $4.2 billion as of December 31, 2020. 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,” “estimate,” “expect,” “intend,” “may,” “optimistic,” “pending,” “plan,” “position,” “preliminary,” “remain,” “should,” “will,” “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. The COVID-19 pandemic continues to impact general business and economic conditions as well as our customers, counterparties, employees, and third-party service providers. Continued uncertainty in market conditions could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit and further increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. The ultimate magnitude and duration of the pandemic is still unknown at this time, therefore, the extent of the impact on our business, financial position, results of operations, liquidity and prospects remains uncertain. 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 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 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												Twelve Months Ended
		December 31,				September 30,				December 31,				December 31,				December 31,
		2020				2020				2019				2020				2019
Net income		$	11,090			$	8,411			$	7,096			$	29,453			$	25,239
Per share and share information
Earnings per share - basic		$	1.12			$	0.86			$	0.72			$	2.99			$	2.51
Earnings per share - diluted			1.12				0.86				0.72				2.99				2.51
Dividends declared per share			0.06				0.06				0.06				0.24				0.24
Book value per common share			33.77				32.46				31.30				33.77				31.30
Tangible book value per common share 1			33.29				31.98				30.82				33.29				30.82
Common shares outstanding			9,800,569				9,800,569				9,741,800				9,800,569				9,741,800
Average common shares outstanding:
Basic			9,883,609				9,773,175				9,825,784				9,840,205				10,041,581
Diluted			9,914,022				9,773,224				9,843,829				9,842,425				10,044,483
Performance ratios
Return on average assets			1.02	%			0.78	%			0.69	%			0.69	%			0.65	%
Return on average shareholders' equity			13.64	%			10.67	%			9.46	%			9.39	%			8.52	%
Return on average tangible common equity 1			13.84	%			10.83	%			9.61	%			9.53	%			8.65	%
Net interest margin			1.78	%			1.53	%			1.51	%			1.55	%			1.65	%
Net interest margin - FTE 1,2			1.91	%			1.67	%			1.67	%			1.68	%			1.82	%
Capital ratios 3
Total shareholders' equity to assets			7.79	%			7.34	%			7.44	%			7.79	%			7.44	%
Tangible common equity to tangible assets 1			7.69	%			7.24	%			7.33	%			7.69	%			7.33	%
Tier 1 leverage ratio			7.95	%			7.72	%			7.64	%			7.95	%			7.64	%
Common equity tier 1 capital ratio			11.31	%			11.13	%			10.84	%			11.31	%			10.84	%
Tier 1 capital ratio			11.31	%			11.13	%			10.84	%			11.31	%			10.84	%
Total risk-based capital ratio			14.91	%			14.38	%			13.99	%			14.91	%			13.99	%
Asset quality
Nonperforming loans		$	10,183			$	9,774			$	6,732			$	10,183			$	6,732
Nonperforming assets			10,218				9,782				8,872				10,218				8,872
Nonperforming loans to loans			0.33	%			0.32	%			0.23	%			0.33	%			0.23	%
Nonperforming assets to total assets			0.24	%			0.23	%			0.22	%			0.24	%			0.22	%
Allowance for loan losses to:
Loans			0.96	%			0.89	%			0.74	%			0.96	%			0.74	%
Loans, excluding PPP loans 1			0.98	%			0.91	%			0.74	%			0.98	%			0.74	%
Nonperforming loans			289.5	%			275.4	%			324.4	%			289.5	%			324.4	%
Net charge-offs to average loans			0.04	%			0.01	%			0.04	%			0.06	%			0.07	%
Average balance sheet information
Loans		$	3,070,476			$	2,996,641			$	2,936,144			$	2,985,611			$	2,863,250
Total securities			582,425				633,552				597,049				626,022				560,317
Other earning assets			532,466				552,058				452,945				523,788				355,412
Total interest-earning assets			4,219,142				4,216,634				4,031,327				4,175,799				3,809,903
Total assets			4,316,207				4,307,819				4,108,216				4,263,798				3,890,708
Noninterest-bearing deposits			86,836				75,901				49,570				74,277				44,682
Interest-bearing deposits			3,258,269				3,279,621				3,110,501				3,224,657				2,938,622
Total deposits			3,345,105				3,355,522				3,160,071				3,298,934				2,983,304
Shareholders' equity			323,464				313,611				297,623				313,763				296,382

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, except for December 31, 2019)
Dollar amounts in thousands
		December 31,				September 30,				December 31,
		2020				2020				2019
Assets
Cash and due from banks		$	7,367			$	5,804			$	5,061
Interest-bearing deposits			412,439				482,649				322,300
Securities available-for-sale, at fair value			497,628				528,311				540,852
Securities held-to-maturity, at amortized cost			68,223				68,254				61,878
Loans held-for-sale			39,584				76,208				56,097
Loans			3,059,231				3,012,914				2,963,547
Allowance for loan losses			(29,484	)			(26,917	)			(21,840	)
Net loans			3,029,747				2,985,997				2,941,707
Accrued interest receivable			17,416				17,768				18,607
Federal Home Loan Bank of Indianapolis stock			25,650				25,650				25,650
Cash surrender value of bank-owned life insurance			37,952				37,714				37,002
Premises and equipment, net			37,590				31,262				14,630
Goodwill			4,687				4,687				4,687
Servicing asset			3,569				2,818				2,481
Other real estate owned			-				-				2,065
Accrued income and other assets			64,304				66,502				67,066
Total assets		$	4,246,156			$	4,333,624			$	4,100,083
Liabilities
Noninterest-bearing deposits		$	96,753			$	86,088			$	57,115
Interest-bearing deposits			3,174,132				3,286,303				3,096,848
Total deposits			3,270,885				3,372,391				3,153,963
Advances from Federal Home Loan Bank			514,916				514,914				514,910
Subordinated debt			79,603				69,758				69,528
Accrued interest payable			1,439				1,249				3,767
Accrued expenses and other liabilities			48,369				57,210				53,002
Total liabilities			3,915,212				4,015,522				3,795,170
Shareholders' equity
Voting common stock			221,408				220,951				219,423
Retained earnings			126,732				116,241				99,681
Accumulated other comprehensive loss			(17,196	)			(19,090	)			(14,191	)
Total shareholders' equity			330,944				318,102				304,913
Total liabilities and shareholders' equity		$	4,246,156			$	4,333,624			$	4,100,083

First Internet Bancorp
Condensed Consolidated Statements of Income (unaudited, except for the twelve months ended December 31, 2019)
Dollar amounts in thousands, except per share data
		Three Months Ended											Twelve Months Ended
		December 31,				September 30,				December 31,			December 31,				December 31,
		2020				2020				2019			2020				2019
Interest income
Loans		$	30,930			$	29,560			$	31,574		$	120,628			$	122,228
Securities - taxable			1,988				2,240				3,475			11,123				13,807
Securities - non-taxable			318				381				604			1,728				2,595
Other earning assets			407				569				2,224			3,380				8,784
Total interest income			33,643				32,750				37,877			136,859				147,414
Interest expense
Deposits			10,577				12,428				18,417			55,976				69,313
Other borrowed funds			4,201				4,090				4,086			16,342				15,134

FAQ

What were First Internet Bancorp's Q4 2020 earnings results?

First Internet Bancorp reported a record net income of $11.1 million, or $1.12 per share, for Q4 2020.

How did First Internet Bancorp perform in 2020?

For the full year 2020, First Internet Bancorp achieved a net income of $29.5 million, a 17% increase from the previous year.

What was First Internet Bancorp's net interest margin in Q4 2020?

The net interest margin improved to 1.78% for Q4 2020, up from 1.53% in Q3 2020.

What is the current state of loans at First Internet Bancorp?

As of December 31, 2020, total loans were $3.1 billion, representing a 1.5% increase from the previous quarter.

How did First Internet Bancorp's credit quality fare in Q4 2020?

Credit quality remained stable with nonperforming loans at 0.33% of total loans as of December 31, 2020.