First Internet Bancorp Reports Third Quarter 2024 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 third quarter ended September 30, 2024.

Third Quarter 2024 Financial Highlights

• Net income of $7.0 million, an increase of 21.0% from the second quarter of 2024
• Diluted earnings per share of $0.80, an increase of 19.4% from the second quarter of 2024
• Net interest income of $21.8 million and fully-taxable equivalent net interest income¹ of $22.9 million, increases of 2.1% and 1.8%, respectively, from the second quarter of 2024
• Net interest margin of 1.62% and fully-taxable equivalent net interest margin¹ of 1.70%, compared to 1.67% and 1.76%, respectively, for the second quarter of 2024
• Noninterest income of $12.0 million, a 9.0% increase from the second quarter of 2024
• Loan growth of $74.7 million, a 1.9% increase from the second quarter of 2024; Deposit growth of $523.8 million, a 12.3% increase from the second quarter of 2024; Loans to deposits ratio of 84.1%
• Nonperforming loans to total loans of 0.56%; net charge-offs to average loans of 0.15%; allowance for credit losses to total loans of 1.13%
• Tangible common equity to tangible assets ratio¹ of 6.54%, and 7.49% ex-AOCI and adjusted for normalized cash balances¹; CET1 ratio of 9.37%
• Tangible book value per share¹ of $43.89, a 3.6% increase from the second quarter of 2024, and a 10.9% increase from the third quarter of 2023

"Our third quarter results demonstrated strong performance virtually across the board," said David Becker, Chairman and Chief Executive Officer. "Growth in net interest income, driven by higher earning asset yields and stable funding costs, along with record gain-on-sale revenue from the continued expansion of our national SBA platform, propelled an increase in operating revenues for the fifth consecutive quarter, resulting in significant positive operating leverage.

"Additionally, robust deposit growth and the ongoing strategic shift in loan mix have increased balance sheet flexibility, enhanced our interest rate risk profile, and improved our liquidity position to its strongest level in recent history, as indicated by our loans-to-deposits ratio.

"Looking ahead, we are well-positioned to deliver increased earnings and profitability by continuing to execute our core strategies of revenue diversification and balance sheet optimization. Our balance sheet and capital position are solid, and measures of asset quality remain sound. I want to thank our employees for their dedication and hard work in driving increased value for our stakeholders."

Net Interest Income and Net Interest Margin

Net interest income for the third quarter of 2024 was $21.8 million, compared to $21.3 million for the second quarter of 2024, and $17.4 million for the third quarter of 2023. On a fully-taxable equivalent basis, net interest income for the third quarter of 2024 was $22.9 million, compared to $22.5 million for the second quarter of 2024, and $18.6 million for the third quarter of 2023.

Total interest income for the third quarter of 2024 was $75.0 million, an increase of 5.7% compared to the second quarter of 2024, and an increase of 19.0% compared to the third quarter of 2023. On a fully- taxable equivalent basis, total interest income for the third quarter of 2024 was $76.1 million, an increase of 5.5% compared to the second quarter of 2024, and an increase of 18.4% compared to the third quarter of 2023. The yield on average interest-earning assets for the third quarter of 2024 increased to 5.58% from 5.54% for the second quarter of 2024, due to a 7 basis point ("bp") increase in the yield earned on loans, partially offset by a 7 bp decrease in the yield earned on other earning assets and a 1 bp decrease in the yield earned on securities. Compared to the linked quarter, average loan balances, including loans held-for-sale, increased $92.6 million, or 2.4%, while the average balance of securities increased $47.9 million, or 6.4%, and the average balance of other earning assets increased $57.3 million, or 12.2%.

Interest income earned on commercial loans was higher due primarily to increased average balances within the investor commercial real estate, construction and small business lending portfolios. This was partially offset by lower average balances in the commercial and industrial and public finance portfolios, both of which were impacted by early payoffs which resulted in lower interest income compared to the prior quarter. The continued shift in the loan mix reflects the Company's focus on higher-yielding variable rate products, in part, to help improve the interest rate risk profile of the balance sheet.

In the consumer loan portfolio, interest income was up due to the combination of higher average balances and continued strong new origination yields in the trailers, RV and other consumer loan portfolios.

The yield on funded portfolio loan originations was 8.85% in the third quarter of 2024, a decrease of 3 bps compared to the second quarter of 2024, and a decrease of 7 bps compared to the third quarter of 2023.

Interest income earned on securities during the third quarter of 2024 increased $0.5 million, or 7.4%, compared to the second quarter of 2024, driven primarily by new purchases and relatively stable yields on the portfolio. Interest income earned on other earning asset balances increased $0.8 million, or 12.2%, in the third quarter of 2024 compared to the linked quarter, due primarily to higher average cash balances.

Total interest expense for the third quarter of 2024 was $53.2 million, an increase of $3.6 million, or 7.2%, compared to the linked quarter as short-term rates remained stable throughout most of the quarter while average interest-bearing deposits balances increased $211.1 million, or 5.1%. Interest expense related to interest-bearing deposits increased $2.9 million, or 6.6%, driven primarily by higher balances of certificates of deposits ("CDs"), interest-bearing demand deposits, fintech – brokered deposits and brokered deposits. The cost of interest-bearing deposits was relatively stable during the quarter at 4.30%, compared to 4.29% for the second quarter of 2024.

Average CD balances increased $137.7 million, or 7.7%, compared to the linked quarter, driven by strong consumer demand, while the cost of funds decreased 3 bps. CD pricing reached its inflection point during the third quarter of 2024 as the weighted average cost of new CDs was 4.77%, or 28 bps lower than the cost of maturing CDs. As interest rates across the yield curve began falling ahead of the expected cut in the Fed Funds rate in September, the Company lowered CD rates significantly during the second half of the quarter. As a result, the weighted average cost of CD production during the month of September was 4.48%, or almost 30 bps lower than the average cost of new CDs for the quarter, and is 53 bps lower than the rates on CDs maturing in the fourth quarter of 2024.

The average balance of interest-bearing demand deposits increased $37.3 million, or 7.9%, due to growth in fintech partnership deposits, and the cost of funds increased 6 bps. The average balance of fintech – brokered deposits increased $33.3 million, or 27.9%, due to higher payments volumes, while the cost of funds remained flat. The average balance of brokered deposits increased $21.3 million, or 4.1%, compared to the linked quarter, and the cost of funds increased 19 bps.

Interest expense was also impacted by the cost of other borrowed funds. The average balance of FHLB advances declined during the third quarter of 2024; however, the cost of funds increased as lower-cost advances matured. Additionally, one of the Company's subordinated debt issuances converted from fixed to floating rate early in the third quarter of 2024. As a result, the cost of other borrowed funds increased 56 bps.

Net interest margin ("NIM") was 1.62% for the third quarter of 2024, down from 1.67% for the second quarter of 2024 and up from 1.39% for the third quarter of 2023. Fully-taxable equivalent NIM ("FTE NIM") was 1.70% for the third quarter of 2024, down from 1.76% for the second quarter of 2024 and up from 1.49% for the third quarter of 2023. NIM and FTE NIM performance for the third quarter was affected by carrying higher cash balances, which are estimated to have had a negative impact of 6 bps. Furthermore, the early loan payoff activity discussed above also had a negative impact of 6 bps.

Noninterest Income

Noninterest income for the third quarter of 2024 was $12.0 million, compared to $11.0 million for the second quarter of 2024, and $7.4 million for the third quarter of 2023. Gain on sale of loans totaled $9.9 million in the third quarter of 2024, increasing $1.6 million, or 19.8%, compared to the linked quarter. Gain on sale revenue consisted almost entirely of sales of U.S. Small Business Administration ("SBA") 7(a) guaranteed loans during the third quarter of 2024. Loan sale volume was up 22.1% while net premiums decreased 65 bps compared to the linked quarter. Other income decreased $0.7 million during the quarter due primarily to lower distributions from fund investments. Net loan servicing revenue increased by $0.1 million due to the growth in the servicing portfolio, partially offset by the fair value adjustment to the loan servicing asset.

Noninterest Expense

Noninterest expense totaled $22.8 million for the third quarter of 2024, compared to $22.3 million for the second quarter of 2024, and $19.8 million for the third quarter of 2023, representing increases of 2.1% and 15.4%, respectively. Excluding non-recurring costs of almost $0.6 million recognized in the second quarter of 2024, noninterest expense increased $1.0 million, or 4.7%, in the third quarter of 2024 from the linked quarter. The increase was driven mainly by higher salaries and employee benefits due to higher small business lending incentive compensation as well as staff additions in small business lending and risk management.

Income Taxes

The Company recorded income tax expense of $0.6 million and an effective tax rate of 8.1% for the third quarter of 2024, compared to income tax expense of $0.2 million and an effective tax rate of 3.6% for the second quarter of 2024, and an income tax benefit of $0.4 million for the third quarter of 2023.

Loans and Credit Quality

Total loans as of September 30, 2024, were $4.0 billion, an increase of $74.7 million, or 1.9%, compared to June 30, 2024, and an increase of $300.8 million, or 8.1%, compared to September 30, 2023. Total commercial loan balances were $3.2 billion as of September 30, 2024, an increase of $75.5 million, or 2.4%, compared to June 30, 2024, and an increase of $295.2 million, or 10.2%, compared to September 30, 2023. Compared to the linked quarter, the increase in commercial loan balances was driven primarily by growth in investor commercial real estate, small business lending and construction balances. These items were partially offset by decreases in the public finance, healthcare finance and commercial and industrial portfolios. Quarter-end balances in the commercial and industrial and public finance portfolios were impacted by early payoffs. The increase in investor commercial real estate balances included loans with strong variable rate pricing that converted from construction loans upon project completion.

Total consumer loan balances were $803.4 million as of September 30, 2024, an increase of $2.9 million, or 0.4%, compared to June 30, 2024, and an increase of $16.9 million, or 2.1%, compared to September 30, 2023. The increase compared to the linked quarter was due primarily to a higher balance in the trailers portfolio, partially offset by declines in the residential mortgage and home equity portfolios.

Total delinquencies 30 days or more past due were 0.75% of total loans as of September 30, 2024, compared to 0.56% at June 30, 2024, and 0.22% as of September 30, 2023. The increase compared to the linked quarter was due primarily to an increase in delinquencies in franchise finance and small business lending loans. Nonperforming loans were 0.56% of total loans as of September 30, 2024, up from 0.33% as of June 30, 2024, and 0.16% as of September 30, 2023. Nonperforming loans totaled $22.5 million as of September 30, 2024, up from $13.0 million as of June 30, 2024, and up from $5.9 million as of September 30, 2023. The increase in nonperforming loans at the end of the third quarter of 2024 was due primarily to franchise finance and small business lending loans that were placed on nonaccrual during the quarter. At quarter end, there were $10.1 million of specific reserves held against the balance of nonperforming loans.

The allowance for credit losses ("ACL") as a percentage of total loans was 1.13% as of September 30, 2024, compared to 1.10% as of June 30, 2024, and 0.98% as of September 30, 2023. The increase in the ACL reflects growth and higher coverage ratios in certain loan portfolios, as well as additional reserves related to small business lending and franchise finance, partially offset by the positive impact of economic data on forecasted loss rates and qualitative factors on other portfolios.

Net charge-offs of $1.5 million were recognized during the third quarter of 2024, resulting in net charge-offs to average loans of 0.15%, compared to $1.4 million, or 0.14%, for the second quarter of 2024, and $1.5 million, or 0.16%, for the third quarter of 2023. Net charge-offs in the third quarter of 2024 were driven primarily by small business lending.

The provision for credit losses in the third quarter of 2024 was $3.4 million, compared to $4.0 million for the second quarter of 2024 and $1.9 million for the third quarter of 2023. The provision for the third quarter of 2024 was driven primarily by growth and changes in the loan composition, net charge-offs and an increase in reserves related to franchise finance and small business lending, partially offset by the positive impact of economic forecasts and adjustments to qualitative factors on other portfolios.

Capital

As of September 30, 2024, total shareholders' equity was $385.1 million, an increase of $13.2 million, or 3.5%, compared to June 30, 2024, and an increase of $37.4 million, or 10.8%, compared to September 30, 2023. The increase in total shareholders' equity during the third quarter 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 $44.43 as of September 30, 2024, up from $42.91 as of June 30, 2024, and $40.11 as of September 30, 2023. Tangible book value per share was $43.89 as of September 30, 2024, up from $42.37 as of June 30, 2024, and $39.57 as of September 30, 2023.

The following table presents the Company's and the Bank's regulatory and other capital ratios as of September 30, 2024.

Conference Call and Webcast

The Company will host a conference call and webcast at 2:00 p.m. Eastern Time on Thursday, October 24, 2024, to discuss its quarterly financial results. The call can be accessed via telephone at (888) 259-6580; access code: 59135394. A recorded replay can be accessed through November 24, 2024, by dialing (877) 674-7070; access code: 135394#.

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 bank holding company with assets of $5.8 billion as of September 30, 2024. 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" and is a component of the Russell 2000® Index. 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," "enhance," "estimate," "expanding," "expect," "going forward," "growth," "improve," "increase," "may," "ongoing," "opportunities," "pending," "plan," "position," "preliminary," "remain," "should," "stable," "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, and SBA 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 provision (benefit), 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."