INBK Q2 2014

Hi all,

Some of us interested in BOFI have also been following INBK. INBK is another branchless bank, is founder led, with founder still have a substantial ownership (about 10%). INBK has been growing its staff, bringing in bankers (the founder comes from an IT background), and has been showing very strong loan and deposit growth. In its early days, INBK’s loan portfolio looked kind of strange, with loans for things like RVs and horse trailers. INBK now does more “normal” looking loans.

INBK is nowhere near a BOFI, but its making very good progress towards becoming a strong “branchless” bank. I 'm invested in both BOFI and INBK.

Below are my notes from INBK’s Q2 2014. The notes are organised by loan growth, deposit growth, interest/non-interest income, asset quality, efficiency ratios, and valuation (based on earrings and book value). INBK’s Q2 14 earnings were $0.22 versus $0.13 in Q1 14, pretty strong increase in earnings driven by strong increase in interest income. INBK is still reeling from the decline in non-interest mortgage financing income. It appears that INBK’s investments into staff are yielding some results with strong growth in loan portfolio, diversification in loan portfolio, and increase in earnings.

Anirban
------------- INBK Quarter ending June 30th 2014 (Q2 2014) -------

Earnings release here: http://www.firstinternetbancorp.com/file.aspx?IID=4112285&am…

  1. Deposit Growth
  • Total deposits increased 33% to $744.17 million at June 30, 2014 compared with $561.16 million at June 30, 2013. The Company’s cost of funds declined to 1.18% for the period ending June 30, 2014 from 1.35% for the period ending June 30, 2013.

  • The Company’s loan-to-deposit ratio was 84% at the end of the second quarter, up from 65% at June 30, 2013.

  1. Loan Portfolio
  • Loans receivable increased 74% to $626.54 million at June 30, 2014 compared with $360.80 million at June 30, 2013.

  • Total commercial loans were $273.59 million at June 30, 2014 compared with $127.81 million at June 30, 2013, reflecting growth in both Commercial Real Estate and Commercial and Industrial lending.

  • Commercial Real Estate loans totaled $201.59 million at the end of the second quarter in 2014, up 85% compared with $108.68 million at June 30, 2013. The Company’s credit tenant lease financing receivables, a component of the commercial real estate portfolio, were up to $143.55 million as of June 30, 2014, a 159% increase over the same period in the prior year.

  • Commercial and Industrial loans rose to $72.00 million at quarter end 2014 compared with $19.13 million at June 30, 2013.

  • Commercial loans comprised 44% of the loan portfolio excluding mortgages held for sale at June 30, 2014 compared with 35% at June 30, 2013.

  • Residential real estate loans excluding mortgages held for sale retained by the company were $250.26 million at June 30, 2014, representing 40% of the loan portfolio, compared with $118.77 million, or 33% of the portfolio, at the end of the prior year period.

  1. Non-interest income
  • Noninterest income for the quarter was $1.62 million compared with $3.72 million in the prior year period. The Company experienced a $2.23 million year-over-year decline in income from mortgage banking activities. The Company made adjustments to reduce expenses in the second quarter in the mortgage operations to reflect the lower volumes. The Company continued to invest in this revenue channel, launching a construction lending program in Central Indiana in the second quarter.
  1. Net Interest Income & Net interest margin (NIM)
  • For the quarter ended June 30, 2014, net interest income was $5.37 million, up 27% from $4.24 million for the quarter ended June 30, 2013. The increase reflected greater revenue from commercial and residential mortgage loans.

  • Interest expense was up 16% over the quarter ended June 30, 2013 on a 33% increase in deposits.

  • The Company’s cost of funds declined to 1.18% for the period ending June 30, 2014 compared to 1.35% in the period ending June 30, 2013.

  • The Company’s net interest margin was 2.61% in the second quarter 2014 compared to 2.78% in the second quarter 2013, the result of lower yields on new loan originations and elevated cash balances while the Company rebalanced its securities portfolio.

  1. Asset Quality
  • Asset quality remained strong. Charge offs during the quarter totaled $255,000. Nonperforming assets as a percentage of total assets decreased to 0.69% at June 30, 2014 from 1.39% at June 30, 2013. Nonperforming loans to total loans receivable was 0.19% at June 30, 2014 compared with 0.81% at June 30, 2013. At June 30, 2014, the allowance for loan loss was $5.14 million compared with $5.53 million at June 30, 2013. The allowance for loan loss to total nonperforming loans was 436.70% and the allowance for loan loss to total loans receivable was 0.82% at June 30, 2014.
  1. Efficiency Measure

Net Interest income (‘000):
06/14: 5,373
03/14: 4,866
06/13: 4,236

Non-interest income (‘000):
06/14: 1,622
03/14: 1,511 (dropped because of decline in mortgage banking activities)
06/13: 3,719

Non-interest expenses (‘000):
06/14: 5,560
03/14: 5,438
06/13: 5,525

Cash efficiency ratios

06/14: 0.79
03/14: 0.85
06/13: 0.69

Decline in non-interest income has hurt them!

  1. Earnings and Book Value

Earnings per share:

06/14: 0.22 (shares out: 4.45M) —> Significant increase in earnings with respect to 03/14 quarter; driven by strong increases in interest income.

03/14: 0.13 (shares out: 4.45M)
12/13: 0.19 (shares out: 4.45M) → Note the dilution following the bank’s secondary offering.

09/13: 0.25 (shares out: 2.86M)
06/13: 0.59 (shares out: 2.82M)

TTM: $0.79

P/E: 23.95

I look at the total shareholder’s equity line which is $94.53M (This is the assets minus liability line on the financials.) Then, I look at the diluted share count, which is 4,504,302. With the share price at $18.92 (as of 27 July 2014), I get market cap of $85.22M. I calculate P/B as (Market Cap divided by Shareholder’s Equity) and get 0.9.

P/B: 0.9

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