First Internet Bancorp Reports Fourth Quarter and Full Year 2021 Results

First Internet Bancorp (the “Company”) (Nasdaq: INBK), the parent company of First Internet Bank (the “Bank”), announced today financial and operational results for the fourth quarter and full year ended December 31, 2021. Net income for the fourth quarter of 2021 was $12.5 million, or $1.25 diluted earnings per share. This compares to net income of $12.1 million, or $1.21 diluted earnings per share, for the third quarter of 2021, and net income of $11.1 million, or $1.12 diluted earnings per share, for the fourth quarter of 2020.

For the full year ended December 31, 2021, net income was a record $48.1 million and diluted earnings per share were a record $4.82, compared to net income of $29.5 million and diluted earnings per share of $2.99 for the year ended December 31, 2020.

“We generated record annual net income for 2021, closing out our 22^nd year on a high note and paving the path for a bright future ahead,” said David Becker, Chairman and Chief Executive Officer. “Over the course of the year, we built momentum on several fronts. Our expanding national SBA platform steadily gained traction and contributed to our year-over-year revenue growth, while our recently formed franchise finance business funded over $80 million in loans in conjunction with our partner ApplePie Capital. Solid pipelines in SBA, franchise finance, construction and other key business lines position us well for the year ahead.

“With respect to our strategies designed to build sustainable fee revenue, our transformational acquisition of First Century Bancorp, announced in November, will add several attractive and scalable business lines, providing us multiple growth opportunities, a further diversified revenue profile and access to a stable, low-cost deposit base,” Mr. Becker added. “This is a compelling, strategic acquisition that we believe will bolster the combined company’s long-term earnings power.

“Looking forward, we plan to further build out our national small business platform, integrate First Century Bancorp and expand our banking-as-a-service capabilities, as evidenced by our recently announced partnership with Synctera. We will also continue to look for Fintech partners that will help to further position us as a premier technology-forward digital financial services provider.”

Mr. Becker concluded, “I want to thank the entire First Internet team for their exceptional work this year. We foster a workplace culture that promotes innovation and collaboration, and we all aspire to have a more meaningful and lasting positive impact on our customers and the communities we call home. We were named one of the “Best Banks to Work For” by American Banker for the ninth consecutive year, a recognition that amplifies our success attracting, developing and retaining a talented, diverse and dedicated workforce.”

Net Interest Income and Net Interest Margin

Net interest income for the fourth quarter of 2021 was $23.5 million, compared to $20.9 million for the third quarter of 2021, and $18.9 million for the fourth quarter of 2020. On a fully-taxable equivalent basis, net interest income for the fourth quarter of 2021 was $24.9 million, compared to $22.3 million for the third quarter of 2021, and $20.3 million for the fourth quarter of 2020.

Total interest income for the fourth quarter of 2021 was $34.2 million, an increase of 3.5% compared to the third quarter of 2021, and an increase of 1.6% compared to the fourth quarter of 2020. On a fully-taxable equivalent basis, total interest income for the fourth quarter of 2021 was $35.5 million, an increase of 3.3% compared to the third quarter of 2021, and an increase of 1.4% compared to the fourth quarter of 2020. The increase in total interest income compared to the third quarter of 2021 was driven primarily by an 18 bp increase in the yield on average interest-earning assets, partially offset by a 2.2% decrease in the average balance of those assets. The yield on interest-earning assets for the fourth quarter of 2021 increased to 3.34% from 3.16% in the linked quarter due primarily to an increase in loan fee income as well as higher yields on new loan production. Average loan balances decreased $9.3 million, or 0.3%, while the average balance of securities and other earning assets decreased $35.8 million and $47.4 million, respectively.

Total interest expense for the fourth quarter of 2021 was $10.7 million, a decrease of 11.8% compared to the third quarter of 2021, and a decrease of 27.7% compared to the fourth quarter of 2020. The decrease in total interest expense compared to the linked quarter was due primarily to a 51 bp decline in the cost of other borrowed funds and a 6 bp decline in the cost of interest-bearing deposits. The decrease in the cost of other borrowed funds reflects the recognition of $0.8 million of pre-tax costs associated with the redemption of subordinated notes in the third quarter of 2021.

During the fourth quarter of 2021, the cost of non-maturity deposits remained stable compared to the linked quarter while the average balance of these deposits decreased $31.7 million, or 1.8%. Furthermore, the cost of certificates and brokered deposits decreased by 12 bps and average balances decreased by $73.5 million, or 5.3%. During the fourth quarter of 2021, new certificates of deposit were originated at a weighted average cost of 40 bps while maturing certificates of deposit had a weighted average cost of 146 bps, a difference of 106 bps.

Net interest margin (“NIM”) improved to 2.30% for the fourth quarter of 2021, up from 2.00% for the third quarter of 2021 and 1.78% in the fourth quarter of 2020. Fully-taxable equivalent NIM (“FTE NIM”) increased by 30 bps to 2.43% for the fourth quarter of 2021, up from 2.13% for the third quarter of 2021 and 1.91% in the fourth quarter of 2020. The increases in NIM and FTE NIM compared to the linked quarter were driven primarily by a combination of higher average loan yields and lower interest-bearing deposit costs, as well as the effect of lower securities and cash balances.

Noninterest Income

Noninterest income for the fourth quarter of 2021 was $7.7 million, compared to $7.8 million for the third quarter of 2021 and $12.7 million for the fourth quarter of 2020. The slight decrease compared to the linked quarter was driven primarily by lower revenues from mortgage banking activities, partially offset by an increase in gain on sale of loans. Gain on sale of loans totaled $4.1 million for the quarter, increasing $1.4 million compared to the third quarter of 2021, driven by a $0.9 million gain on the sale of $20.1 million of single tenant lease financing loans as well as a higher amount of U.S. Small Business Administration (“SBA”) 7(a) guaranteed loan sales in the quarter. Mortgage banking revenue totaled $2.8 million for the fourth quarter of 2021, down $1.1 million from the linked quarter due to a decrease in interest rate locks, sold loan volume and margins.

Noninterest Expense

Noninterest expense for the fourth quarter of 2021 was $17.0 million, compared to $14.5 million for both the third quarter of 2021 and the fourth quarter of 2020. The increase of $2.5 million, or 17.3%, compared to the linked quarter was due primarily to higher salaries and employee benefits, consulting and professional fees and premises and equipment. The higher salaries and employee benefits expense was due mainly to higher incentive compensation in the Company’s small business lending division, higher medical claims expense and increased headcount. The increase in consulting and professional fees was primarily due to $0.2 million of acquisition-related expenses as well as the timing of third party external loan reviews. The increase in premises and equipment was driven primarily by a $0.5 million termination fee related to an information technology contract.

Income Taxes

The Company reported an income tax expense of $2.0 million for the fourth quarter of 2021 and an effective tax rate of 13.8%, compared to an income tax expense of $2.2 million and an effective tax rate of 15.5% for the third quarter of 2021 and an income tax expense of $3.1 million and an effective tax rate of 21.6% for the fourth quarter of 2020.

Loans and Credit Quality

Total loans as of December 31, 2021 were $2.9 billion, a decrease of $48.5 million, or 1.7%, compared to September 30, 2021, and a decrease of $171.6 million, or 5.6%, compared to December 31, 2020. Total commercial loan balances were $2.4 billion as of December 31, 2021, a decrease of $41.6 million, or 1.7%, compared to September 30, 2021 and a decrease of $151.8 million, or 6.0%, compared to December 31, 2020. Compared to the linked quarter, the decline in commercial loan balances was driven primarily by net payoffs in single tenant lease financing, healthcare finance, owner-occupied commercial real estate, commercial and industrial and public finance loans as well as the sale of single tenant lease financing loans discussed above. These items were partially offset by growth in franchise finance, construction and small business lending.

Total consumer loan balances were $469.9 million as of December 31, 2021, a decrease of $5.2 million, or 1.1%, compared to September 30, 2021 and a decrease of $12.4 million, or 2.6%, compared to December 31, 2020. The decrease compared to the linked quarter was due to prepayment activity in the residential mortgage, trailers and other consumer loan portfolios.

Total delinquencies 30 days or more past due decreased to 0.04% of total loans as of December 31, 2021, down from 0.06% as of September 30, 2021 and down from 0.17% as of December 31, 2020. Overall credit quality improved as nonperforming loans to total loans was 0.26% as of December 31, 2021, compared to 0.27% at September 30, 2021 and 0.33% as of December 31, 2020.

The allowance for loan losses as a percentage of total loans was 0.96% as of December 31, 2021, or 0.97% when excluding PPP loans, compared to 0.95% and 0.96%, respectively, as of September 30, 2021 and 0.96% and 0.98%, respectively, as of December 31, 2020.

Net recoveries of $0.1 million were recognized during the fourth quarter of 2021, resulting in net recoveries to average loans of 0.01%, compared to net charge-offs to average loans of 0.01% for the third quarter of 2021 and 0.04% for the fourth quarter of 2020. The provision for loan losses in the fourth quarter of 2021 was a benefit of $0.2 million, compared to a benefit of $29,000 for the third quarter of 2021 and a provision of $2.9 million for the fourth quarter of 2020. The benefit recognized in the fourth quarter of 2021 primarily reflects the decrease in loan balances, partially offset by adjustments to qualitative factors that increased the overall allowance as a percentage of loans.

Capital

As of December 31, 2021, total shareholders’ equity was $380.3 million, an increase of $9.9 million, or 2.7%, compared to September 30, 2021, due primarily to the net income earned during the quarter and a decrease in accumulated other comprehensive loss, partially offset by stock repurchase activity during the quarter. Book value per common share increased to $38.99 as of December 30, 2021, up from $37.59 as of September 30, 2021 and $33.77 as of December 31, 2020. Tangible book value per share increased to $38.51, up from $37.12 and $33.29, each as of the same reference dates.

In connection with its recently announced stock repurchase program, the Company repurchased 100,000 shares of its common stock during the fourth quarter of 2021 at an average price of $44.36 per share.

The following table presents the Company’s and the Bank’s regulatory and other capital ratios as of December 31, 2021.

Conference Call and Webcast

The Company will host a conference call and webcast at 12:00 p.m. Eastern Time on Thursday, January 20, 2022 to discuss its quarterly and full year financial results. The call can be accessed via telephone at (888) 348-3664. A recorded replay can be accessed through February 21, 2022 by dialing (877) 344-7529; passcode: 6205278.

Additionally, interested parties can listen to a live webcast of the call on Company's website at www.firstinternetbancorp.com. An archived version of the webcast will be available in the same location shortly after the live call has ended.

About First Internet Bancorp

First Internet Bancorp is a bank holding company with assets of $4.2 billion as of December 31, 2021. The Company’s subsidiary, First Internet Bank, opened for business in 1999 as an industry pioneer in the branchless delivery of banking services. The Bank provides consumer and small business deposit, SBA financing, residential mortgage loans, consumer loans, and specialty finance services nationally as well as commercial real estate loans, construction loans, commercial and industrial loans, and treasury management services on a regional basis. First Internet Bancorp’s common stock trades on the Nasdaq Global Select Market under the symbol “INBK” and is a component of the Russell 2000® Index. Additional information about the Company is available at www.firstinternetbancorp.com and additional information about the Bank, including its products and services, is available at www.firstib.com.

Forward-Looking Statements

This press release may contain forward-looking statements, including statements with respect to the pending acquisition of First Century Bancorp and its effects on the future performance of the Company and the Bank, the expected timing of completion of the transaction and other statements concerning the financial condition, results of operations, trends in lending policies and loan programs, plans and prospective business partnerships, objectives, future performance and business of the Company. Forward-looking statements are generally identifiable by the use of words such as “anticipate,” “believe,” “confidence in,” “continue,” “could,” “designed,” “effort,” “estimate,” “expect,” “help,” “intend,” “looking forward,” “may,” “opportunities,” “optimistic,” “pending,” “plan,” “position,” “preliminary,” “remain,” “should,” “will,” “working on,” “would” or other similar expressions. Forward-looking statements are not a guarantee of future performance or results, are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the information in the forward-looking statements. Such statements are subject to certain risks and uncertainties including: the effects of the COVID-19 global pandemic and other adverse public health developments on the economy, our business and operations and the business and operations of our vendors and customers: general economic conditions, whether national or regional, and conditions in the lending markets in which we participate that may have an adverse effect on the demand for our loans and other products; our credit quality and related levels of nonperforming assets and loan losses, and the value and salability of the real estate that we own or that is the collateral for our loans. Other factors that may cause such differences include: failures or breaches of or interruptions in the communications and information systems on which we rely to conduct our business; failure of our plans to grow our commercial real estate, commercial and industrial, public finance, SBA, healthcare finance and franchise finance loan portfolios; competition with national, regional and community financial institutions; the loss of any key members of senior management; execution of pending and future acquisition, reorganization or disposition transactions, including without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growth and/or expense savings and other anticipated benefits from such transactions; the failure of any of the closing conditions in the definitive merger agreement with First Century Bancorp to be satisfied on a timely basis or at all; fluctuations in interest rates; risks relating to the regulation of financial institutions; and other factors identified in reports we file with the U.S. Securities and Exchange Commission. All statements in this press release, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.

Non-GAAP Financial Measures

This press release contains financial information determined by methods other than in accordance with U.S. generally accepted accounting principles (“GAAP”). Non-GAAP financial measures, specifically tangible common equity, tangible assets, tangible book value per common share, tangible common equity to tangible assets, average tangible common equity, return on average tangible common equity, total interest income – FTE, net interest income – FTE, adjusted net interest income, adjusted net interest income – FTE, net interest margin – FTE, adjusted net interest margin, adjusted net interest margin – FTE, allowance for loan losses to loans, excluding PPP loans, adjusted total revenue, adjusted noninterest income, adjusted noninterest expense, adjusted income before income taxes, adjusted income tax provision, adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average shareholders’ equity, adjusted return on average tangible common equity and adjusted effective income tax rate are used by the Company’s management to measure the strength of its capital and analyze profitability, including its ability to generate earnings on tangible capital invested by its shareholders. Although management believes these non-GAAP measures are useful to investors by providing a greater understanding of its business, they should not be considered a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the table at the end of this release under the caption “Reconciliation of Non-GAAP Financial Measures.”