INBK reports another record quarter!

Quarterly earnings per share of $0.51, up 2.0% from second quarter 2015 and up 82.1% from third quarter 2014
INDIANAPOLIS–(BUSINESS WIRE)-- First Internet Bancorp (the “Company”) (NASDAQ:INBK), the parent company of First Internet Bank (the “Bank”) (www.firstib.com), announced today financial and operational results for the third quarter 2015. Third quarter net income was a record $2.32 million and diluted earnings per share were $0.51. This compares with second quarter net income of $2.27 million and diluted earnings per share of $0.50 and third quarter 2014 net income of $1.28 million and diluted earnings per share of $0.28.
David Becker, Chairman, President and Chief Executive Officer, commented, “To produce six consecutive quarters of earnings growth requires a commitment throughout the organization to execute our growth strategy. Our diverse platform of loan origination capabilities and revenue sources has allowed us to produce this consistent earnings growth and mitigate risk. Nationwide platforms, such as single tenant lease financing and consumer lending, provide geographic diversity in asset classes with historically strong credit performance. Our mortgage unit, a direct-to-consumer model, also originates loans in all 50 states, with the vast majority consisting of conforming loans sold into the secondary market. ‘High touch’ lending areas involving greater complexity, such as commercial and industrial as well as commercial real estate, are conducted locally with our lenders in close contact with the customers they serve.
“As a result, we have been able to generate significant organic growth as we prudently manage risk and asset quality. Net interest income continues to grow as we attract more customers to the Bank. What’s more, nearly half of the commercial loan balances we added during the quarter funded in September. We expect these loans to have an even greater impact on interest income in future periods.”
Highlights for the third quarter 2015 included:
Diluted earnings per share of $0.51, increasing $0.01, or 2.0%, compared to the linked quarter and $0.23, or 82.1%, compared to the third quarter 2014
Solid quarterly performance
Return on average assets of 0.82%
Return on average shareholders’ equity of 9.14%
Return on average tangible common equity of 9.58%
Total loan growth of $62.3 million, or 7.7%, compared to June 30, 2015 and $180.6 million, or 26.0%, compared to September 30, 2014
Continued growth in net interest income, increasing $0.3 million, or 3.5%, compared to the linked quarter and $2.2 million, or 38.2%, compared to the third quarter 2014
Net interest margin (“NIM”) of 2.84% compared to 2.87% for the linked quarter and 2.68% for the third quarter 2014
Solid capital levels supporting continued loan growth
Tangible common equity to tangible assets of 8.46%
Common equity tier 1 capital ratio of 10.60%
Tier 1 capital ratio of 10.60%
Total risk-based capital ratio of 11.75%
Strong asset quality
Nonperforming loans to total loans receivable totaled 0.02% as of September 30, 2015
Net recoveries to average loans receivable of 0.07% were recognized during the third quarter
Net Interest Income and Net Interest Margin
Net interest income for the third quarter was $7.8 million compared to $7.6 million for the second quarter and $5.7 million for the third quarter 2014. Total interest income for the third quarter was $10.5 million, increasing $0.4 million, or 4.0%, compared to the second quarter and $2.6 million, or 32.6%, compared to the third quarter 2014. The increase in total interest income compared to the linked quarter was driven by a $48.6 million, or 6.2%, increase in average loans receivable and a $9.8 million, or 5.4%, increase in average investment balances, partially offset by a decline in average loans held-for-sale balances of $8.9 million, or 23.2%. A decline of 13 bps in the yield earned on the loan portfolio from 4.44% in the second quarter to 4.31% in the third quarter was due primarily to lower prepayment fees related to commercial real estate loans as well as accelerated premium and deferred fee amortization in the residential mortgage and consumer loan portfolios. The yield earned on the investment portfolio during the third quarter rose 9 bps to 2.30% from 2.21% for the linked quarter.
Total interest expense for the third quarter was $2.7 million, increasing $0.1 million, or 5.4%, compared to the second quarter and $0.4 million, or 18.6%, compared to the third quarter 2014. Average interest-bearing deposit balances increased $32.2 million, or 3.9%, compared to the linked quarter with the related cost of funds increasing 1 bp from 1.04% in the second quarter to 1.05% in the third quarter. During the third quarter, $15.0 million of short-term Federal Home Loan Bank advances were converted to long-term funding as the Company took advantage of attractive long-term fixed interest rates, which negatively impacted interest expense during the quarter but are expected to provide a longer term benefit in a rising interest rate environment. The cost of funds related to Federal Home Loan Bank advances increased 1 bp from 1.02% in the second quarter to 1.03% in the third quarter.
Net interest margin was 2.84% for the third quarter compared to 2.87% for the second quarter and 2.68% for the third quarter 2014.
Noninterest Income
Noninterest income for the third quarter was $2.4 million compared to $2.5 million for the second quarter and $1.9 million for the third quarter 2014. The decrease of $0.1 million, or 4.1%, compared to the linked quarter was driven by a decline of $0.1 million, or 5.4%, in mortgage banking revenue resulting primarily from lower origination volumes, partially offset by higher gain on sale margins.
Noninterest Expense
Noninterest expense for the third quarter was $6.2 million compared to $6.3 million for the second quarter and $5.8 million for the third quarter 2014. The decrease of $0.1 million, or 1.9%, compared to the linked quarter was due to lower salaries and employee benefits and loan expenses, partially offset by higher marketing expenses and other expenses. The decline of $0.3 million in salaries and employee benefits compared to the linked quarter was due to costs associated with staffing-related changes recognized in the second quarter and the expense savings related to these changes.
Income Taxes
Income tax expense was $1.2 million for the third quarter, resulting in an effective tax rate of 34.6%, compared to $1.2 million and an effective tax rate of 33.7% for the linked quarter and $0.7 million and an effective tax rate of 34.0% for the third quarter 2014.
Loans and Credit Quality
Total loans as of September 30, 2015 were $876.6 million, increasing $62.3 million, or 7.7%, compared to June 30, 2015 and $180.6 million, or 26.0%, compared to September 30, 2014. Total commercial loan balances were $508.7 million as of September 30, 2015, increasing $59.8 million, or 13.3%, compared to June 30, 2015 and $200.7 million, or 65.2%, compared to September 30, 2014. Continued strong production in single tenant lease financing balances contributed significantly to the growth as balances increased $49.3 million, or 17.6%, compared to the second quarter and $163.4 million, or 98.6%, compared to the third quarter 2014. Construction loan originations were also strong during the third quarter as balances increased $10.0 million, or 49.8%, compared to the second quarter and $12.3 million, or 68.4%, compared to the third quarter 2014. Commercial and industrial and owner-occupied commercial real estate production remained solid as balances increased $3.2 million on a combined basis, or 2.5%, compared to June 30, 2015 and $28.1 million, or 27.1%, compared to September 30, 2014. Also contributing to growth during the third quarter was continued production in consumer lending as balances for trailers and recreational vehicles increased $3.1 million on a combined basis, or 3.1%, compared to June 30, 2015 and $6.9 million, or 7.1%, compared to September 30, 2014.
Credit quality continued to remain strong as nonperforming loans to total loans receivable were 0.02% as of September 30, 2015, consistent with the prior quarter and down 4 bps from 0.06% as of September 30, 2014. Additionally, nonperforming assets to total assets declined to 0.41% as of September 30, 2015 from 0.43% as of June 30, 2015 and 0.55% as of September 30, 2014. The allowance for loan losses was $7.7 million as of September 30, 2015 compared to $7.1 million as of June 30, 2015 and $5.5 million as of September 30, 2014. The allowance as a percentage of total nonperforming loans was 3,723.8% as of September 30, 2015 compared to 3,762.2% as of June 30, 2015 and 1,366.0% as of September 30, 2014. The allowance as a percentage of total loans receivable increased to 0.88% as of September 30, 2015 compared to 0.87% as of June 30, 2015 and 0.79% as of September 30, 2014.
Net recoveries of $0.1 million were recognized during the third quarter, resulting in net recoveries to average loans of 0.07% compared to 0.20% for the second quarter and 0.27% for the third quarter 2014.
Capital
During the third quarter, total shareholders’ equity increased $3.0 million, due primarily to net income earned during the quarter and the change in the unrealized gain/loss related to the investment portfolio, partially offset by declared dividends. As of September 30, 2015, the Company’s common equity tier 1, tier 1 and total risk-based capital ratios declined to 10.60%, 10.60% and 11.75% from 11.12%, 11.12% and 12.28% as of June 30, 2015, respectively, due to an increase in risk-weighted assets resulting primarily from commercial loan growth for the quarter. Tangible common equity to tangible assets declined 20 bps during the third quarter to 8.46% due primarily to strong balance sheet growth. Tangible book value per share increased to $21.90 as of September 30, 2015 from $21.23 as of June 30, 2015.
Subsequent to September 30, 2015, the Company issued $10.0 million in subordinated notes (the “Notes”) with an institutional accredited investor through a private placement offering. The Notes were issued on October 15, 2015 and bear a fixed rate of interest of 6.4375% per year, payable quarterly, and mature on October 1, 2025. The Notes include a right of prepayment, without penalty, on any interest payment date on or after the fifth anniversary of the closing date. The Notes have been structured to qualify as Tier 2 capital under regulatory guidelines. The Company intends to use the proceeds from the placement for general corporate purposes, including the contribution of capital to the Bank to support continued organic growth.

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