Some of us invested 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 Q3 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 had a very good quarter IMO. Based on today’s closing share price, INBK is selling for 0.77 book value.
------------- INBK Q3 2014 -------
Earnings release here: http://www.firstinternetbancorp.com/Cache/1001191426.PDFY=&a…
- Deposit Growth
- Total deposits increased 24% to $740M at Sept 30, 2014 compared with $598M at Sept 30, 2013. Comparing with Q2 2014, the deposits increased marginally from $727M to $740M.
- Loan Portfolio
Total loans as of September 30, 2014 were $695.9 million, increasing $64.3 million, or 10.2%, compared to the second quarter and $256.3 million, or 58.3%, compared to September 30, 2013. That’s pretty handy loan portfolio growth.
The Company’s loan-to-deposit ratio climbed up to 94%, up from around the mid 80’s in Q2 2014.
Total commercial loans were $308M at Sept 30, 2014 compared to $180M at Sept 30, 2013. That’s a 70% growth in commercial lending activities. A majority of the commercial loans is in credit tenant lease financing. These accounted for $165M in Q3 2014, versus $144M in Q2 2014 and only $66M in Q3 2013.
Commercial and Industrial loans rose to $74M at end of Q3 2014 compared with $47M at Q3 2013.
Commercial loans comprised 44% of the loan portfolio at end of Q3 2014. The percentage of commercial loans has been hovering around the mid-40%’s for the past two quarters.
Residential mortgage + home equity loans accounted for $280M versus $238M in Q2 2014 and $142M in Q3 2013.
Trailers and recreational vehicle loans (which were sort of the bread and butter of the company in its initial days) now account for about 14% of the loan portfolio. These accounted for 24.5% of the loan portfolio just a year ago (Q3 2013).
Overall, INBK has steadily grown its loan portfolio and nicely diversified the portfolio b/w commercial and residential loans in the last year or two.
- Non-interest income
Noninterest income for the third quarter was $1.9 million compared to $1.6 million for the second quarter and $1.6 million for the third quarter 2013. The increase of $0.3 million, or 19.8%, compared to the linked quarter was driven by an increase of $0.4 million, or 33.3%, in mortgage banking revenue.
In Q2 2014, the company said the following with respect to decline in non-interest income:
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.
It appears mortgage operations are gaining traction and the operational improvements are making headways. The following from the earnings release is reassuring:
Over the last 12 months, the Company has increased its sales and marketing efforts related to purchase mortgage business and has added sales personnel since the second quarter following a restructuring of its mortgage operations earlier in the year. Furthermore, it recently launched an Indianapolis-based origination effort to complement its nationwide online origination platform. As a result, origination activity has increased throughout the year with third quarter originations increasing 23.2% compared to the second quarter.
- Net Interest Income & Net interest margin (NIM)
Net interest income for Q3 2014 was $5.7 million compared to $5.4 million for Q2 2014 and $4.4 million for Q3 2013. That’s about a 29.5% increase in net interest income.
The company noted that their sequential increase in net interest income was primarily driven by average loan balance growth, partially offset by a decline in yield earned on loan portfolio and also a decline in their investment portfolio. The bank is conservatively managing prospective interest rate increases and had the following to say with respect to increasing its liquidity profile:
The decline in investment balances was the result of continued efforts to increase the liquidity profile and reduce the interest rate risk and duration of the portfolio.
The company also noted the following:
In connection with the repositioning of the investment portfolio to provide increased liquidity, the Company deployed excess balance sheet capacity to acquire approximately $48.3 million of high quality adjustable rate residential mortgage assets during the quarter to complement its organic loan growth capabilities.
The Company’s net interest margin was 2.68% for Q3 2014 compared to 2.61% in Q2 2014 and 2.59% in Q3 2013.
- Asset Quality
Asset quality improved significantly.
• Nonperforming loans declined $0.8 million, or 66.0%, with nonperforming loans to total
loans declining to 0.06% from 0.19% for the prior quarter
• The allowance for loan losses to total nonperforming loans increased to 1,366.0% from
436.7% for the linked quarter
- Efficiency Measure
Net Interest income (‘000):
Non-interest income (‘000):
03/14: 1,511 (dropped because of decline in mortgage banking activities)
Non-interest expenses (‘000):
Cash efficiency ratios
09/14: 0.76 (Q3 14)
06/14: 0.79 (Q2 14)
03/14: 0.85 (Q1 14)
06/13: 0.69 (Q4 13)
I like how the efficiency ratio is steadily coming down from the highs of 85% in Q1 2014 to now around 75% in Q3 2014.
- Earnings and Book Value
Earnings per share:
09/14: 0.28 (shares out: 4.44M) → Looks like there have been some share buybacks (need to check this???)
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)
P/E: 20 (using $16.44 closing price as of Oct 23, 2014 close)
I look at the total shareholder’s equity line which is $94.77M (This is the assets minus liability line on the financials.) Then, I look at the diluted share count, which is 4,439,575. With the share price at $16.44, I get market cap of $72.99M. I calculate P/B as (Market Cap divided by Shareholder’s Equity) and get 0.77.