First Internet Bancorp — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; balance-sheet comparisons are to December 31, 2014. Dollar amounts are in millions unless otherwise noted. The company operates First Internet Bank of Indiana, a nationwide internet bank without traditional branch offices.
Financial performance
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Net interest income | $6.774 | $4.866 |
| Provision for loan losses | $0.442 | $0.147 |
| Noninterest income | $3.148 | $1.511 |
| Noninterest expense | $6.257 | $5.438 |
| Net income | $2.063 | $0.600 |
| Diluted earnings per share | $0.46 | $0.13 |
| Net interest margin | 2.84% | 2.51% |
| Return on average assets | 0.84% | 0.30% |
| Return on average shareholders’ equity | 8.55% | 2.64% |
- Net income increased 243.8%, with higher net interest and mortgage banking income partly offset by greater loan-loss provision and operating expenses.
- Mortgage banking income was $2.886 million, up from $0.900 million, reflecting higher origination volume and improved gain-on-sale margins. Total noninterest income rose 108.3% year over year.
- Operating cash flow was $9.948 million versus $13.574 million. Investing cash outflow was $60.942 million and financing cash inflow was $62.277 million; cash and equivalents ended at $39.572 million.
Financial position, funding and credit
- Total assets were $1.036 billion, up 6.7% from year-end. Loans receivable were $767.7 million, up 4.8%; deposits were $821.2 million, up 8.2%; shareholders’ equity was $99.4 million.
- Commercial loans grew 12.5% during the quarter to $395.0 million, led by single-tenant lease financing, which increased 18.0% to $227.2 million. Consumer loans declined 2.2% to $367.9 million.
- The allowance for loan losses rose to $6.378 million from $5.800 million; it equaled 0.83% of loans, versus 0.79% at year-end. Nonperforming loans were $0.246 million (0.03% of loans); nonperforming assets were $4.818 million (0.47% of assets), including $4.488 million of other real estate owned.
- Available-for-sale securities were $163.7 million, up 19.0% from year-end. Management attributed unrealized losses mainly to interest-rate changes and did not consider them other-than-temporary at quarter-end; no securities were classified as OTTI during Q1.
- Deposits were the primary funding source; certificates of deposit were $401.3 million, or 48.9% of deposits. Federal Home Loan Bank advances were $106.9 million and subordinated debt was $2.894 million. The subordinated debenture has an 8% fixed rate and matures in 2021.
- Consolidated regulatory capital ratios at March 31 were 11.99% common equity Tier 1, 11.99% Tier 1, 13.18% total risk-based capital, and 9.52% leverage. The filing reports ratios above applicable minimum requirements.
Changes, outlook and risks
- Compared with Q1 2014, net interest income increased 39.2%, driven mainly by a 45.1% increase in average loans, including loans held for sale, and improved net interest margin. Average interest-earning assets increased 23.0%.
- Noninterest expense rose 15.1% year over year, primarily from higher staffing and equity compensation, as well as legal and consulting costs related to expansion.
- Management reported $205.2 million of cash, time deposits and available-for-sale securities, plus $27.6 million of loans held for sale available generally for cash needs. The Bank had $167.7 million of additional stated borrowing capacity. Outstanding loan commitments, including unused lines, were $114.8 million; certificates of deposit maturing within one year totaled $238.8 million.
- The board declared a $0.06-per-share Q1 dividend and subsequently declared the same amount for Q2. Management expected quarterly dividends to continue, subject to board decisions, financial results and regulatory constraints. It stated capital was sufficient for current and expected needs but additional capital might be needed to support continued growth.
- Interest-rate sensitivity estimates showed next-12-month net interest income changing by -3.87% under a modeled 100-basis-point decline, +1.30% under a 100-basis-point increase, and +1.86% under a 200-basis-point increase. Management described its objective as a bias toward asset sensitivity; model results depend on assumptions.
- Key disclosed risks include reliance on communications and information systems, execution of commercial real estate and C&I growth plans, competition, key-person risk, interest-rate movements, economic conditions, and financial regulation. The filing reported no material change to previously disclosed risk factors and no material legal proceedings. No specific earnings guidance was provided.
Important facts for investors to verify
- Whether mortgage origination volumes and gain-on-sale margins that boosted Q1 earnings are sustainable.
- Whether rapid growth in commercial and single-tenant lease loans changes portfolio concentration or credit risk, and whether allowance levels remain adequate.
- Deposit composition, certificate maturities and retention, and continued access to FHLB and other borrowing capacity.
- Capital-ratio trends as growth continues and Basel III requirements phase in, including any effect on dividends or other capital distributions.
- The assumptions behind interest-rate sensitivity and the implications of unrealized securities losses if liquidity needs or market conditions change.
- The filing’s forward-looking statements are not guarantees; interim results are not necessarily indicative of full-year performance.