First Internet Bancorp — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023, compared primarily with 2022. This is an annual filing; it does not provide a clear standalone fourth-quarter income statement summary. First Internet Bancorp operates First Internet Bank of Indiana, a digital bank with no traditional branches, serving commercial, small-business, consumer and municipal customers.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Total assets | $5.17 billion | $4.54 billion |
| Total deposits | $4.07 billion | $3.44 billion |
| Total loans | $3.84 billion | $3.50 billion |
| Net interest income | $74.9 million | $97.1 million |
| Net interest margin | 1.56% | 2.41% |
| Provision for credit losses on loans | $15.5 million | $5.0 million |
| Noninterest income | $26.1 million | $21.3 million |
| Noninterest expense | $79.4 million | $73.3 million |
| Net income | $8.4 million | $35.5 million |
| Diluted earnings per share | $0.95 | $3.70 |
| Net cash provided by operating activities | $11.7 million | $82.7 million |
2023 net income was $8.4 million, or $0.95 per diluted share; management reported adjusted net income of $16.2 million and adjusted diluted EPS of $1.83 after excluding specified mortgage-exit items and a commercial loan charge-off. These are non-GAAP measures and should be considered alongside GAAP results. The company recorded a $3.5 million income tax benefit in 2023, versus $4.6 million of tax expense in 2022.
At year-end, shareholders’ equity was $362.8 million; tangible common equity to tangible assets was 6.94%, down from 7.94%. The company and Bank reported capital ratios above applicable requirements and well-capitalized levels. The company’s total risk-based capital ratio was 13.23%; the Bank’s was 12.73%.
Debt and liquidity: The balance sheet included $614.9 million of FHLB advances and $104.8 million of subordinated debt, net of discounts and issuance costs. Year-end cash and cash equivalents were $405.9 million. The company reported $0.9 billion of cash and available-for-sale securities, plus $22.1 million of loans held for sale, as generally available liquidity; the Bank had $1.2 billion of additional borrowing capacity at the Federal Reserve, FHLB and correspondent banks. Loan-to-deposit ratio declined to 94.4% from 101.7%. Uninsured deposits were 25% of deposits, or 19% after excluding certain municipal and contract-restricted balances.
Material changes versus 2022
- Net income fell $27.1 million (76%) to $8.4 million. Net interest income declined 22.9%, as a 206-basis-point rise in the cost of interest-bearing liabilities outpaced a 109-basis-point increase in earning-asset yields.
- Net interest margin compressed 85 basis points to 1.56%. Interest expense rose $104.7 million, while interest income increased $82.5 million.
- Loan balances grew 9.7%; deposits rose 18.2%. Commercial loan growth included franchise finance, small-business, construction and investor CRE lending. Public finance and healthcare finance balances declined.
- Noninterest income increased 22.9%, principally from higher SBA loan-sale gains and servicing revenue. SBA 7(a) loan sales increased to $281.1 million from $133.6 million.
- Credit costs increased: provision for loan losses rose to $15.5 million, net charge-offs were $11.4 million versus $1.1 million, and nonperforming loans increased to $10.0 million from $7.5 million.
- Year-end equity declined 0.6% despite asset growth, reflecting share repurchases and the CECL adoption adjustment, partly offset by earnings.
Outlook, risks and unusual items
- No quantified earnings, margin or balance-sheet guidance is provided. Management describes continued SBA growth and redeployment of cash flows toward variable-rate and higher-yielding lending as strategic priorities. The company expects quarterly cash dividends to continue, subject to board discretion, results, capital needs and regulatory and contractual limits.
- The company exited its consumer mortgage origination business in the first quarter of 2023 amid lower volumes and a negative outlook, recording $3.1 million of pretax exit costs. Mortgage banking revenue fell to $0.1 million from $5.5 million.
- A $6.9 million partial charge-off on a $9.8 million C&I participation loan materially affected credit costs; the remaining balance was collected during 2023. Management’s adjusted results exclude this charge-off as well as mortgage-exit items.
- First-time adoption of CECL on January 1, 2023 reduced retained earnings by $4.5 million, including adjustments for loans, unfunded commitments and held-to-maturity securities. The allowance for loan losses ended the year at $38.8 million, or 1.01% of loans.
- Key risks include funding-cost pressure and deposit competition, interest-rate sensitivity, commercial and CRE credit concentrations, economic and collateral-value deterioration, reliance on digital systems and third parties, cybersecurity, and regulatory oversight. The $37 million 2029 subordinated notes are scheduled to reset from a 6.0% fixed rate in June 2024 to a floating rate; the filing cites a 9.74% rate based on the benchmark as of January 31, 2024.
- Available-for-sale securities had $39.5 million of gross unrealized losses at year-end, primarily attributed to interest rates. Management stated it did not intend, and was unlikely to be required, to sell affected securities before recovery or maturity.
- Auditors issued an unqualified opinion on the financial statements and internal controls. The allowance for credit losses, particularly qualitative adjustments, was identified as a critical audit matter. The filing also reports an immaterial voluntary revision to the parent-only 2022 financial statements, with no effect on 2022 net income.
Important facts for investors to verify
- Whether deposit pricing stabilizes and restores net interest margin, particularly as certificates of deposit mature and subordinated debt reprices.
- Credit performance, charge-offs and reserve adequacy in small-business, franchise, C&I and CRE portfolios; assess the impact of CECL assumptions and the critical audit matter.
- Deposit mix, uninsured balances, brokered funding, borrowing capacity and the liquidity impact of $1.3 billion of certificates and brokered deposits scheduled to mature within one year.
- Progress and profitability of SBA lending and other growth businesses, including whether loan-sale gains and servicing income offset mortgage exit and funding pressures.
- Capital, dividends and repurchases: confirm regulatory headroom, Bank dividend capacity and remaining authorization under the $25 million repurchase program, scheduled to expire December 31, 2024.