First Internet Bancorp Reports Fourth Quarter and Full Year 2023 Results

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, 2023.

Fourth Quarter 2023 Financial Highlights

• Net income of $4.1 million and diluted earnings per share of $0.48, increases of 21.5% and 23.1%, respectively, from the third quarter of 2023

• Net interest income of $19.8 million and fully-taxable equivalent net interest income of $21.0 million, increases of 14.0% and 12.9%, respectively, from the third quarter of 2023

• Net interest margin of 1.58% and fully-taxable equivalent net interest margin of 1.68%, both increasing 19 basis points from the third quarter of 2023

• Loan growth of $105.2 million, a 2.8% increase from the third quarter of 2023

• Nonperforming loans to total loans of 0.26%; net charge-offs to average loans of 0.12%

• Tangible common equity to tangible assets of 6.94%; CET1 ratio of 9.60%

• Repurchased 40,000 shares at an average price of $18.78; for the full year, repurchased 502,525 common shares at an average price of $18.40 per share

• Tangible book value per share of $41.43, a 4.7% increase from the third quarter of 2023

David Becker, Chairman and Chief Executive Officer, commented: "The fourth quarter's results showcase our efforts over the past 18 months to reposition our balance sheet. With asset yields continuing to reprice higher, coupled with solid loan growth, we delivered welcome net interest margin expansion and net interest income growth. We produced positive operating leverage and a significant improvement in our operating efficiency. In all, we believe this quarter's results represent an important inflection point for our company.

"We continued to optimize our loan portfolio mix in the fourth quarter, with solid production in construction and franchise finance lending. Additionally, we remain one of the ten most active SBA 7(a) lenders in the country. Our SBA lending team finished the year with impressive origination volumes and generated another record quarter of gain on sale revenue.

"With or without anticipated rate cuts, we are well-positioned to continue to improve our earnings and profitability in 2024. Now less than one month away from the 25th anniversary of our public launch, we are in an enviable position to start our second quarter century: with a strong balance sheet and capital levels, outstanding asset quality, and a team that is focused on the continued execution of our strategies."

Net Interest Income and Net Interest Margin

Net interest income for the fourth quarter of 2023 was $19.8 million, compared to $17.4 million for the third quarter of 2023, and $21.7 million for the fourth quarter of 2022. On a fully-taxable equivalent basis, net interest income for the fourth quarter of 2023 was $21.0 million, compared to $18.6 million for the third quarter of 2023, and $23.1 million for the fourth quarter of 2022.

Total interest income for the fourth quarter of 2023 was $66.3 million, an increase of 5.2% compared to the third quarter of 2023, and an increase of 45.1% compared to the fourth quarter of 2022. On a fully-taxable equivalent basis, total interest income for the fourth quarter of 2023 was $67.5 million, an increase of 5.0% compared to the third quarter of 2023, and an increase of 43.5% compared to the fourth quarter of 2022. The yield on average interest-earning assets for the fourth quarter of 2023 increased to 5.28% from 5.02% for the third quarter of 2023 due to a 26 basis point ("bp") increase in the yield earned on loans, a 40 bp increase in the yield earned on securities and a 27 bp increase in the yield earned on other earning assets. Compared to the linked quarter, average loan balances increased $98.9 million, or 2.7%, and the average balance of securities increased $61.2 million, or 9.8%, while the average balance of other earning assets decreased $152.6 million, or 23.4%.

Interest income earned on commercial loans was higher due to increased average balances and the positive impact of higher rates in the variable rate small business, construction and commercial and industrial lending portfolios, as well as growth in the higher-yielding franchise finance portfolio. This was partially offset by lower average balances in the public finance, healthcare finance and single tenant lease financing portfolios. The continued shift in the loan mix is the result of a strategic initiative to focus on variable rate and higher-yielding products, in part to help improve the interest rate risk profile of our balance sheet.

In the consumer loan portfolio, interest income was up due to higher yields on new originations and growth in the average balances of trailers, recreational vehicles and other consumer loans portfolios.

The yield on funded portfolio loan originations was 8.85% in the fourth quarter of 2023, relatively stable with the third quarter of 2023, and an increase of 278 bps compared to the fourth quarter of 2022. For the full year of 2023, new loan origination yields increased 302 bps compared to 2022. Because of the fixed-rate nature of certain larger portfolios, there is a lagging impact of the higher origination yields on the portfolio.

Interest income earned on securities in the fourth quarter of 2023 increased $1.2 million, or 22.9%, compared to the third quarter of 2023 due to an increase in the yield earned on the portfolio and the increase in average balances. The yield on the securities portfolio increased 40 bps to 3.72%, driven primarily by variable rate securities repricing higher and higher yields on new purchases. Interest earned on other earning asset balances decreased $1.7 million, or 19.4%, in the fourth quarter of 2023 compared to the linked quarter, due primarily to lower average cash balances.

Total interest expense for the fourth quarter of 2023 was $46.5 million, an increase of $0.8 million, or 1.8%, compared to the linked quarter, due to modest increases in both deposit rates and average interest-bearing deposit balances throughout the quarter. Interest expense related to interest-bearing deposits increased $0.7 million, or 1.8%, driven primarily by higher costs on CDs, BaaS-brokered deposits and money market accounts. The cost of interest-bearing deposits was 4.14% for the fourth quarter of 2023, compared to 4.09% for the third quarter of 2023. The increase of 5 bps in deposit costs during the fourth quarter was the slowest experienced by the Company in the past six quarters.

Average CD balances increased $59.2 million, or 3.8%, from the third quarter of 2023 while the cost of funds increased 18 bps. The increase in the cost of CDs is also the lowest in the past six quarters, reflecting the narrowing repricing gap between new production and maturities. The average balance of BaaS – brokered deposits increased $30.2 million, or 94.7%, due to higher payments volume while the cost of funds increased 5 bps.

These increases were partially offset by lower average brokered deposit balances, which decreased $51.7 million, or 7.7%, from the third quarter of 2023, as the Company continued to reduce the balance of higher cost funding throughout the quarter. Additionally, the average balance of interest-bearing demand deposits decreased $5.1 million, or 1.3%, while the cost of funds decreased 47 bps.

Net interest margin ("NIM") was 1.58% for the fourth quarter of 2023, up from 1.39% for the third quarter of 2023 and down from 2.09% for the fourth quarter of 2022. Fully-taxable equivalent NIM ("FTE NIM") was 1.68% for the fourth quarter of 2023, up from 1.49% for the third quarter of 2023 and down from 2.22% for the fourth quarter of 2022. The increases in NIM and FTE NIM compared to the linked quarter were driven primarily by higher yields on loans, securities and other earning assets, as well as higher average loan and securities balances, partially offset by higher interest-bearing deposit costs and lower cash balances.

Noninterest Income

Noninterest income for the fourth quarter of 2023 was $7.4 million, consistent with the third quarter of 2023, and up $1.6 million, or 27.4%, from the fourth quarter of 2022. Gain on sale of loans totaled $6.0 million for the fourth quarter of 2023, up $0.5 million, or 8.2%, from the linked quarter. Gain on sale revenue in the quarter, which consisted entirely of sales of U.S. Small Business Administration ("SBA") 7(a) guaranteed loans, increased due to a higher volume of loan sales and a slight improvement in net premiums. Net loan servicing revenue decreased $0.5 million, or 57.7%, during the quarter as growth in the servicing portfolio was more than offset by a lower fair value adjustment to the loan servicing asset.

Noninterest Expense

Noninterest expense totaled $20.1 million for the fourth quarter of 2023, compared to $19.8 million for the third quarter of 2023, and $18.5 million for the fourth quarter of 2022, representing increases of 1.5% and 8.3%, respectively. The increase of $0.3 million compared to the linked quarter was due primarily to higher premises and equipment, consulting and professional fees and deposit insurance premium, partially offset by lower salaries and employee benefits and data processing.

The increase in premises and equipment was due primarily to a lower property tax accrual in the prior quarter. Consulting and professional fees increased due mainly to third-party loan review and stress testing activities. Deposit insurance premium increased due to higher assessments driven by year-over-year asset growth and loan composition. Salaries and employee benefits declined due primarily to lower incentive compensation and lower benefits costs. Data processing declined due to lower variable deposit activity-based expenses and transaction processing fees.

Income Taxes

The Company recognized an income tax benefit of $0.6 million for the fourth quarter of 2023, compared to an income tax benefit of $0.3 million for the third quarter of 2023, and an income tax expense of $0.5 million and an effective tax rate of 7.3% for the fourth quarter of 2022. The income tax benefit for the fourth quarter of 2023 reflects the benefit of tax-exempt income relative to the amount of stated pre-tax income as well as adjustments to certain state income tax rates.

Loans and Credit Quality

Total loans as of December 31, 2023 were $3.8 billion, an increase of $105.2 million, or 2.8%, compared to September 30, 2023, and an increase of $340.8 million, or 9.7%, compared to December 31, 2022. Total commercial loan balances were $3.0 billion as of December 31, 2023, an increase of $97.7 million, or 3.4%, compared to September 30, 2023, and an increase of $286.6 million, or 10.5%, compared to December 31, 2022. Compared to the linked quarter, the increase in commercial loan balances was driven primarily by strategic growth in higher yielding franchise finance, small business lending, commercial and industrial and construction balances. These items were partially offset by decreases in the fixed-rate public finance and healthcare finance portfolios.

Total consumer loan balances were $796.9 million as of December 31, 2023, an increase of $10.4 million, or 1.3%, compared to September 30, 2023, and an increase of $63.7 million, or 8.7%, compared to December 31, 2022. The increase compared to the linked quarter was due primarily to higher balances in the trailers, recreational vehicles and residential mortgage portfolios.

Total delinquencies 30 days or more past due were 0.31% of total loans as of December 31, 2023, compared to 0.22% at September 30, 2023 and 0.17% as of December 31, 2022. The increase in delinquencies during the fourth quarter of 2023 was due primarily to an increase in delinquencies in the small business lending and franchise finance portfolios. Nonperforming loans were 0.26% of total loans as of December 31, 2023, compared to 0.16% as of September 30, 2023, and 0.22% as of December 31, 2022. Nonperforming loans totaled $10.0 million at December 31, 2023, up from $5.9 million at September 30, 2023. The increase in nonperforming loans was due primarily to the addition of small business lending and franchise finance loans for which specific reserves were established, as well as certain residential mortgage loans that were more than 90 days delinquent.

The allowance for credit losses ("ACL") as a percentage of total loans was 1.01% as of December 31, 2023, compared to 0.98% as of September 30, 2023, and 0.91% as of December 31, 2022. The increase in the ACL reflects the addition of specific reserves mentioned above, as well as the overall growth in the loan portfolio, partially offset by the positive impact of economic data on forecasted loss rates and qualitative factors on certain portfolios.

Net charge-offs of $1.2 million were recognized during the fourth quarter of 2023, resulting in net charge-offs to average loans of 0.12%, compared to $1.5 million, or 0.16%, for the third quarter of 2023 and $0.2 million, or 0.03%, for the fourth quarter of 2022. Net charge-offs in the fourth quarter of 2023 were driven primarily by small business lending, as well as one healthcare finance loan that was charged-off during the quarter.

The provision for credit losses in the fourth quarter of 2023 was $3.6 million, compared to $1.9 million for the third quarter of 2023 and $2.1 million for the fourth quarter of 2022. The provision for the fourth quarter of 2023 was driven primarily by net charge-offs, specific reserves and growth in certain loan portfolios and unfunded commitments, partially offset by the positive impact of economic forecasts on certain portfolios.

Capital

As of December 31, 2023, total shareholders' equity was $362.8 million, an increase of $15.1 million, or 4.3%, compared to September 30, 2023, and a decrease of $2.2 million, or 0.6%, compared to December 31, 2022. The increase in shareholders' equity during the fourth quarter of 2023 compared to the linked quarter was 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 $41.97 as of December 31, 2023, up from $40.11 as of September 30, 2023 and $40.26 as of December 31, 2022. Tangible book value per share was $41.43, up from $39.57 as of September 30, 2023 and $39.74 as of December 31, 2022.

In connection with its previously announced stock repurchase program, the Company repurchased 40,000 shares of its common stock during the fourth quarter of 2023 at an average price of $18.78 per share. The Company has repurchased $41.5 million of stock under its authorized programs since November of 2021.

The following table presents the Company's and the Bank's regulatory and other capital ratios as of December 31, 2023.

Conference Call and Webcast

The Company will host a conference call and webcast at 2:00 p.m. Eastern Time on Thursday, January 25, 2024 to discuss its quarterly financial results. The call can be accessed via telephone at (888) 259-6580; access code: 23964485. A recorded replay can be accessed through February 24, 2024 by dialing (877) 674-7070; access code: 964485.

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 financial holding company with assets of $5.2 billion as of December 31, 2023. The Company's subsidiary, First Internet Bank, opened for business in 1999 as an industry pioneer in the branchless delivery of banking services. First Internet Bank provides consumer and small business deposit, SBA financing, franchise finance, consumer loans, and specialty finance services nationally as well as commercial real estate loans, construction loans, commercial and industrial loans, and treasury management services on a regional basis. First Internet Bancorp's common stock trades on the Nasdaq Global Select Market under the symbol "INBK". Additional information about the Company is available at www.firstinternetbancorp.com and additional information about First Internet Bank, including its products and services, is available at www.firstib.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements with respect to the financial condition, results of operations, trends in lending policies and loan programs, plans and prospective business partnerships, objectives, future performance and business of the Company. Forward-looking statements are generally identifiable by the use of words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "growth," "help," :improve," "may," "ongoing," "opportunities," "pending," "plan," "position," "preliminary," "remain," "should," "thereafter," "well-positioned," "will," 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. Such statements are subject to certain risks and uncertainties including: 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 is the collateral for our loans. 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 and industrial, construction, SBA, and franchise finance loan portfolios; competition with national, regional and community financial institutions; the loss of any key members of senior management; the anticipated impacts of inflation and rising interest rates on the general economy; 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, adjusted total revenue, adjusted noninterest income, adjusted noninterest expense, adjusted income before income taxes, adjusted income tax (benefit) provision, adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average shareholders' equity and adjusted return on average tangible common equity 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."