First Internet Bancorp — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023 unless otherwise noted. First Internet Bancorp is a digital-first bank holding company whose lending includes commercial, small-business, public-finance, consumer and other portfolios.
Financial performance and position
| Metric | Q1 2024 | Comparison |
|---|---|---|
| Total revenue (net interest income plus noninterest income) | $29.1 million | $25.0 million in Q1 2023 |
| Net interest income | $20.7 million | $19.6 million in Q1 2023 |
| Net interest margin / FTE margin | 1.66% / 1.75% | 1.76% / 1.89% in Q1 2023 |
| Net income (loss) | $5.2 million; diluted EPS $0.59 | ($3.0) million; diluted loss per share $0.33 in Q1 2023 |
| Provision for loan credit losses | $2.6 million | $9.4 million in Q1 2023 |
| Noninterest income / expense | $8.3 million / $21.0 million | $5.4 million / $21.0 million in Q1 2023 |
| Operating cash flow | $2.8 million provided | $5.9 million provided in Q1 2023 |
- Assets were $5.34 billion; loans were $3.91 billion, up 1.8% from year-end. Deposits were $4.27 billion, up 5.1%. Shareholders’ equity was $366.7 million.
- Cash and cash equivalents totaled $481.3 million. The company reported $963.7 million of cash and available-for-sale securities, plus $22.6 million of loans held for sale, as generally available for cash needs. It reported $1.3 billion of additional borrowing capacity.
- Federal Home Loan Bank advances were $574.9 million; subordinated debt was $104.9 million net carrying value, representing $107.0 million principal. The 2029 Notes’ fixed-rate period ends June 30, 2024, after which their rate floats.
- Net interest margin fell year over year as funding costs rose faster than asset yields: interest-bearing deposit cost was 4.25%, versus 3.24% a year earlier. The company reported a 6.87% equity-to-assets ratio and 6.79% tangible common equity-to-tangible assets ratio.
Changes versus comparable periods
- Net income improved by $8.2 million year over year, reflecting a $7.0 million lower credit-loss provision, higher noninterest income and increased net interest income. Q1 2023 included a $6.9 million partial charge-off on a C&I participation loan and mortgage-exit costs; management reported Q1 2023 adjusted net income of $4.8 million.
- Interest income rose 31.0% year over year, but interest expense rose 46.1%, mainly because certificate and brokered deposit costs and balances increased. Despite higher net interest income, reported NIM and FTE NIM declined.
- Noninterest income increased 53.3%, driven chiefly by SBA loan-sale gains and servicing revenue. The company had exited residential mortgage operations in Q1 2023 and reported no mortgage loans originated for sale or sold in Q1 2024.
- Commercial loans grew 2.5% from year-end, led by construction, small-business and franchise finance. Consumer loans declined 0.4%. Small-business lending and franchise finance grew, while public finance and healthcare finance balances declined.
- Nonperforming loans rose to $13.1 million from $10.0 million at year-end; nonperforming assets reached $13.4 million. The loan allowance increased to $40.9 million, or 1.05% of loans, from $38.8 million, or 1.01%.
Outlook, risks and notable items
- No specific earnings, revenue or margin guidance is provided. Management says it expects to continue quarterly dividends, subject to Board discretion and regulatory, contractual, capital and business considerations. It describes liquidity and capital as sufficient for requirements over the next 12 months and longer.
- Management says it is scaling SBA lending to support future earnings and profitability; it reported closing $98.3 million of SBA 7(a) loans in the quarter. It may explore strategic alternatives and additional asset, deposit or revenue channels, which could require capital.
- Credit risks include rising nonperforming loans, especially in small-business lending and residential mortgage, and exposure to construction, commercial real estate and other specialized lending. Loan commitments totaled $726.5 million. Management reported no loan modifications to borrowers experiencing financial difficulty during the quarter.
- Interest-rate and securities valuation exposure is material: 469 of 530 investment securities were in unrealized loss positions at quarter-end, and available-for-sale securities had $41.4 million of gross unrealized losses. Management attributes these losses primarily to rates and says it does not expect to sell the securities before recovery; that assessment depends on liquidity and market conditions.
- Adjusted uninsured deposits were 20% of deposits, up from 19% at year-end; $1.3 billion of certificates and brokered deposits were scheduled to mature within one year. The filing also identifies interest-rate sensitivity, deposit competition, credit quality, regulatory changes and technology or cybersecurity disruptions as risks. Its static-balance-sheet rate models estimate lower Year 1 NII under +100-basis-point shocks; management cautions actual results may differ.
- The filing reports no material change in previously disclosed risk factors, no material legal proceedings and effective disclosure controls. The 2029 Notes may be repaid without penalty on an interest payment date on or after June 30, 2024.
Important facts for investors to verify
- Whether margin stabilization and earnings improvement persist as deposit costs reprice and the 2029 Notes move to a floating rate.
- Whether nonperforming loans, small-business credit trends, charge-offs and allowance coverage continue to worsen or stabilize.
- Deposit retention, the cost and renewal of maturing certificates and brokered deposits, and the company’s adjusted uninsured-deposit exposure.
- Liquidity availability under stressed conditions, including access to reported borrowing lines and the holding company’s standalone cash of $7.0 million.
- How portfolio growth and concentration—particularly construction and single-tenant lease financing—affect credit risk, capital and returns.