8-K: First Internet Bancorp Reports Strong Fourth Quarter and Full Year 2023 Results, Driven by Net Interest Margin Expansion

First Internet Bancorp announced positive financial results for Q4 2023, highlighted by a 21.5% increase in net income and a 19 basis point improvement in net interest margin compared to the previous quarter.

Summary

• First Internet Bancorp reported a net income of $4.1 million for the fourth quarter of 2023, a 21.5% increase from the third quarter.
• Diluted earnings per share were $0.48, up 23.1% from the previous quarter.
• Net interest income reached $19.8 million, with a fully-taxable equivalent of $21.0 million, representing increases of 14.0% and 12.9% respectively, from the third quarter.
• The net interest margin was 1.58%, and the fully-taxable equivalent net interest margin was 1.68%, both increasing by 19 basis points from the third quarter.
• Loan growth was $105.2 million, a 2.8% increase from the third quarter.
• The company repurchased 40,000 shares at an average price of $18.78 during the quarter.
• Tangible book value per share increased to $41.43, a 4.7% rise from the third quarter.
• Total loans as of December 31, 2023, were $3.8 billion, a 2.8% increase from the previous quarter and a 9.7% increase year-over-year.
• Total deposits were $4.1 billion as of December 31, 2023, a slight decrease of 0.4% from the previous quarter but an 18.2% increase year-over-year.
• Nonperforming loans were 0.26% of total loans, up from 0.16% in the previous quarter.
• Net charge-offs to average loans were 0.12%, compared to 0.16% in the third quarter.
• The allowance for credit losses was 1.01% of total loans, up from 0.98% in the previous quarter.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to strong financial results, improved profitability metrics, and strategic balance sheet management. While there are some concerns about credit quality, the overall tone is optimistic and forward-looking.

Positives

• The company experienced significant growth in net income and earnings per share compared to the previous quarter.
• Net interest margin and fully-taxable equivalent net interest margin both saw notable improvements.
• Loan growth was solid, indicating strong business activity.
• The company's capital position remains strong with a tangible common equity to tangible assets ratio of 6.94% and a CET1 ratio of 9.60%.
• The pace of increase in deposit costs has slowed, which is a positive sign for profitability.
• The company achieved record SBA gain on sale revenue.
• Tangible book value per share increased significantly.
• The company is strategically optimizing its loan portfolio mix.
• The weighted average yield on new loans funded was 8.85%, indicating higher profitability on new originations.

Negatives

• Nonperforming loans increased to 0.26% of total loans, up from 0.16% in the previous quarter.
• Total delinquencies 30 days or more past due increased to 0.31% of total loans, compared to 0.22% in the previous quarter.
• Net charge-offs to average loans were 0.12%, compared to 0.03% for the same quarter last year.
• The provision for credit losses increased to $3.6 million, compared to $1.9 million in the previous quarter.

Risks

• The increase in nonperforming loans and delinquencies could indicate potential credit quality issues.
• The increase in the provision for credit losses suggests a higher risk of future loan defaults.
• The company is exposed to risks related to general economic conditions and interest rate fluctuations.
• Competition from other financial institutions could impact the company's growth and profitability.
• The company is subject to regulatory risks that could affect its operations.

Future Outlook

The company believes it is well-positioned to continue to improve earnings and profitability in 2024, with or without anticipated rate cuts, due to a strong balance sheet, capital levels, and asset quality.

Management Comments

• 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.
• We remain one of the ten most active SBA 7(a) lenders in the country.
• 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.

Industry Context

The results reflect a positive trend in the banking sector, where institutions are benefiting from higher interest rates and strategic balance sheet management. The company's focus on SBA lending and franchise finance aligns with current market opportunities.

Comparison to Industry Standards

• First Internet Bancorp's net interest margin of 1.58% is below the average for US banks, which is closer to 3.0% in late 2023, indicating room for improvement.
• The company's loan growth of 2.8% is moderate compared to some regional banks that have seen higher growth rates, but it is in line with a focus on higher-yielding products.
• The nonperforming loan ratio of 0.26% is relatively low compared to the industry average, which has been trending upwards in recent quarters, suggesting good credit quality.
• The company's tangible common equity to tangible assets ratio of 6.94% is within the range of many regional banks, but some larger banks may have higher ratios.
• Compared to other digital-first banks, First Internet Bancorp's focus on specific lending niches like SBA and franchise finance sets it apart from those with a broader consumer focus.
• The company's SBA lending activity places it among the top 10 lenders in the country, which is a strong position compared to most other banks.

Stakeholder Impact

• Shareholders will benefit from the increased profitability and share repurchases.
• Employees may benefit from the company's improved financial performance and strategic growth.
• Customers will continue to have access to the company's range of financial products and services.
• Suppliers and creditors will likely see the company as a stable and reliable partner.

Next Steps

• The company will host a conference call and webcast on January 25, 2024, to discuss the financial results.
• The company will continue to focus on optimizing its loan portfolio and improving profitability in 2024.

Key Dates

Keywords

net interest margin, loan growth, SBA lending, financial results, net income, earnings per share, capital ratios, asset quality, deposit costs, nonperforming loans