First Internet Bancorp Q4 FY2024 earnings call

• Net Interest Income: Fifth consecutive quarter of growth, with Q4 2024 net interest income up 8%, and net interest margin improved by 5 basis points. The yield on the loan portfolio increased 3 basis points from Q3, while deposit costs declined 17 basis points.
• Loan Growth: Strong loan growth of 13% annualized in Q4 2024, driven by SBA, construction, investor commercial real estate, and other lending lines.
• SBA Performance: 2024 SBA loan originations up 45%, contributing to non-interest income growth. Q4 gain on sale revenue dipped due to timing of loan closings and secondary market post-closing activities.
• Deposit Growth: Fintech partnership deposits grew, with non-maturity deposits up $122 million in Q4. CD balances were relatively stable, with new CD production at lower rates than maturing CDs.
• Asset Quality: Net charge-offs of $9.4 million in Q4 2024, with non-performing loans at 68 basis points. Specific reserves on 30% of non-performing loan balance, and overall credit quality still sound compared to peers.

SBA Lending: In 2024, SBA loan originations totaled almost $540 million, up 45% from 2023. For Q4 2024, loan originations were strong, though gain on sale revenue dipped slightly due to timing of loan closings and secondary market sales. Construction and Investor Commercial Real Estate: Originated over $70 million of new commitments in Q4, with aggregate balances increasing $81 million, and unfunded commitments in the construction line at $480 million. Single-Tenant Lease Financing: Originated almost $40 million of new loans in Q4, resulting in $18 million of loan growth from the prior quarter. Public Finance: Balances were up $23 million from the third quarter. Consumer: Total consumer balances were down, with declines in residential mortgage and home equity offsetting growth in the specialty consumer line due to seasonality. In terms of revenue contribution, SBA non-interest income comprised 1/3 of total adjusted revenue in 2024, up from 26% in 2023.

• Net Interest Income: Expected to increase mid-30% in 2025, driven by loan growth and continued deposit cost declines. Net interest margin expected to be in the range of 2.20%-2.30% by Q4 2025.
• Non-Interest Income: Core non-interest income expected up 9%-12% in 2025, supported by SBA origination growth.
• Provision for Credit Losses: Modeled at 15%-20% higher than 2024, due to conservative forecasting and potential continued charge-offs in the SBA portfolio.
• Loan and Deposit Growth: Expected loan growth of 10%-12% and deposit growth of 5%-7% in 2025.

• Loan Sale Pricing: Potential softening in secondary market pricing could impact gain on sale revenue if holding loans becomes more economic than selling.
• Interest Rate Changes: Federal Reserve rate cuts or hikes could affect net interest income and margin, with further rate cuts potentially exceeding current projections.
• SBA Portfolio Risks: Continued charge-offs and provisioning needs due to borrower-specific issues in the SBA portfolio, with no common industry or geography concentration.

Q: Brett Rabatin on asset quality cleanup and SBA charge-offs A: Ken Lovik mentioned increased provisioning due to conservative approach and higher run rate of charge-offs in SBA. David Becker stated SBA portfolio has no fundamental issues, with some loans affected by hurricane-related delays, and the team is well-positioned for 2025.

Q: Tim Switzer on credit performance in SBA and fintech deposits A: Ken Lovik said no specific industries or borrower types showing pressure in SBA, with issues being borrower-specific. David Becker discussed fintech deposit growth driven by existing customers, with cautious onboarding due to regulatory issues but seeing growth potential.

Q: Nathan Race on SBA charge-offs and trajectory A: Ken Lovik explained charge-offs were due to borrowers not reaching optimistic outlooks, with specific reserves on some loans. David Becker stated SBA charge-offs expected to level off in 30-40 basis points range, similar to industry norms.

Q: John Rodis on tax rate and fee income base A: Ken Lovik mentioned quarterly tax rates ranging from 9% to 17% and fee income growth base excluding Q4 gains.