First Internet Bancorp (NASDAQ:INBK) has demonstrated its ability to adapt and thrive in the dynamic banking industry, delivering impressive financial results and positioning itself for continued success. With a focus on strategic diversification, technological advancements, and prudent risk management, the company has navigated the challenges of the past year and emerged as a stronger, more resilient institution.

Financials

In the latest quarter, First Internet Bancorp reported net income of $5.8 million, up 11.5% from the previous quarter. This translates to diluted earnings per share of $0.67, a 11.7% increase quarter-over-quarter. Excluding $600,000 in non-recurring expenses, the company's adjusted net income was $6.2 million, and adjusted diluted earnings per share was $0.72, marking the third consecutive quarter of earnings growth exceeding 20%.

The company's annual net income for the most recent fiscal year stood at $8.4 million, while its annual revenue reached $84.4 million. However, the company's annual operating cash flow was negative $2.9 million, and its annual free cash flow was negative $8.2 million, highlighting the need for continued focus on optimizing its cash flow management.

Business Performance

One of the key drivers of First Internet Bancorp's performance has been its successful Small Business Administration (SBA) lending business. The company's SBA team continued to deliver exceptional results, with SBA originations up 15% and loan volume up 58% compared to the first half of the previous year. This strong performance has helped the company become the sixth-largest SBA 7(a) lender in the country year-to-date for the SBA's 2024 fiscal year.

The company's focus on diversifying its revenue streams has also paid dividends, with noninterest income comprising nearly one-third of total revenues for the first half of the year, compared to just under one-quarter in the same period last year. This diversification has been driven by the continued growth of the company's fintech partnerships, which have seen a 300% increase in revenue for the first half of 2024 compared to the same period in the prior year.

Loan Portfolio and Deposits

In terms of the company's loan portfolio, First Internet Bancorp reported solid overall loan growth of $51 million, or over 5% on an annualized basis, during the quarter. This growth was led by the company's commercial lending teams, with balances increasing by $47 million, or over 6% on an annualized basis. The company's construction team had another strong quarter, originating over $115 million in new commitments, although quarter-end balances were impacted by early paydowns.

On the deposit side, the company experienced continued growth, with average deposit balances increasing by over $185 million, or 4.7%, during the quarter. However, period-end deposits were essentially flat as the company used a portion of the liquidity provided by this growth to pay down $139 million of higher-cost brokered deposit balances. The company's focus on optimizing its deposit mix has been a key driver of its improved net interest margin, which increased by 1 basis point to 1.67% during the quarter.

Asset Quality

The company's asset quality remains healthy, with nonperforming loans to total loans at 33 basis points and nonperforming assets to total assets at 24 basis points at quarter-end. Net charge-offs remained relatively low at 14 basis points, primarily from the franchise finance and small business lending portfolios.

Outlook

Looking ahead, First Internet Bancorp remains optimistic about its prospects for the remainder of 2024. The company has reiterated its guidance for annual earnings per share to be in the range of $3 per share, with expectations for annual net interest income to be up 20% and fully taxable equivalent margin to be in the range of 1.90% to 2% by the fourth quarter.

Liquidity

The company's strong capital position, with a tangible common equity ratio of 6.88% and a common equity Tier 1 capital ratio of 9.47%, provides a solid foundation for continued growth and strategic initiatives. Additionally, the company's liquidity position remains robust, with cash and unused borrowing capacity of $1.7 billion, representing 150% of total uninsured deposits and 197% of adjusted uninsured deposits.

Conclusion

In conclusion, First Internet Bancorp has demonstrated its ability to navigate the evolving banking landscape with resilience and innovation. The company's focus on diversifying its revenue streams, optimizing its balance sheet, and delivering consistent financial performance has positioned it for continued success. As the industry navigates the challenges and opportunities ahead, First Internet Bancorp's commitment to serving its customers, driving shareholder value, and adapting to the changing market dynamics will be key to its long-term success.