First Internet Bancorp Q2 FY2024 earnings call

• Loan Portfolio Transition: Continued to transition and optimize the loan portfolio, with net loan growth of $51 million. New funded loan origination yields were 8.88%. - Deposit Management: Had strong deposit growth and deployed liquidity to pay down higher cost broker deposits. - SBA Business: Continued to perform exceptionally well, with year-to-date SBA originations up 15% and loan volume up 58%, making the company the sixth largest SBA 7A lender year-to-date. - Credit Quality: Remained healthy, with nonperforming loans to total loans at 33 basis points and nonperforming assets to total assets at 24 basis points. - Tangible Value Per Share: Increased over 1% during the quarter and is up over 6% year-over-year, with tangible book value per share growing in excess of 50% since 2018. - Net Income and EPS: Reported net income of $5.8 million, up 11.5%, and diluted earnings per share of $0.67, up 11.7% from the first quarter.

Loan Portfolio: Solid overall loan growth, with commercial lending balances up $47 million from the first quarter, or over 6% on an annualized basis. SBA business had strong production and another record quarter of gain on sale, with year-to-date SBA originations up 15% and loan volume up 58%. Deposits: Average balance of deposits increased by over $185 million, or 4.7% during the second quarter, with growth in CDs and FinTech partnership deposits, and $139 million of higher cost brokered deposit balances paid down. Net Interest Income: Net interest income was $21.3 million, up 2.9% from the first quarter, and fully taxable equivalent net interest margin was up 1 basis point. Non-Interest Income: Non-interest income was $11 million, up $2.7 million, or 32% from the first quarter, with gain on sale of loans totaling $8.3 million, a quarterly record.

• Full year 2024 earnings per share expected to be in the range of $3 per share. - Net interest income expected to be up 20% for 2024, with fully taxable equivalent margin continuing to increase throughout the year and expected to be in the range of 1.90% to 2% in the fourth quarter. - Loan yields expected to continue to increase, with a projected increase of 10 to 15 basis points in the third quarter and another 15 to 20 basis points in the fourth quarter.

• Regulatory Scrutiny: High regulatory scrutiny in the fintech BaaS space, with due diligence stepping up. - Fed Rate Impact: Potential impact of Fed rate cuts on deposit costs and loan yields, with deposits and CDs having different beta to Fed rate changes. - Market Competition: Competition in certain loan segments like single tenant lease financing, public finance, and healthcare finance, with limited opportunities and pricing challenges.

Q: How are you guys thinking about the revenue trajectory in the back half of the year for the SBA business?

A: Forecast for third quarter to be a bit higher than second quarter, fourth quarter possibly a bit softer but still higher than second quarter, with origination volume continuing to grow and team adding high quality salespeople.

Q: How do you fund the balance sheet growth from here, and where are you being able to produce new CDs currently in terms of rate?

A: New production of CDs currently coming in at about 4.85%, and balance sheet growth could be from various sources including CDs and fintech partnership deposits, with CDs growing but growth possibly slowed, and fintech partnership deposits continuing to grow.