First Internet Bancorp (INBK) Q3 Earnings and Revenues Surpass Estimates

First earnings on the Internet

I would now like to turn the conference over to Larry Clark from Financial Profiles. Please go ahead, Mr.

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Thank you, Sean. Good day, everyone and thank you for joining us to discuss First Internet Bancorp's financial results for the second quarter of The company issued its earnings press release yesterday afternoon and it's available on the company's website at mobile app for binary options. In addition, the company has included a slide presentation that you can refer to during the call.

You can also access these slides on the website. David will provide first earnings on the Internet company update and Ken will discuss the financial results. Then we'll open the call up to your questions.

INBK earnings call for the period ending June 30, 2020.

Before we begin, I'd like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial conditions of First Internet Bancorp that involve risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the company's SEC filings which are available on the company's website.

The company disclaims any obligation to update any forward-looking statements made during the call. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute the most comparably -- directly comparable GAAP measures.

The press release available on the website contains the financial and other quantitative information to be discussed today, as well as a reconciliation of the GAAP to non-GAAP measures. At this time, I'd like to turn the call over to David.

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David B. Good afternoon everyone and thank you for joining us today. We are very pleased with our results in the second quarter, especially given the ongoing challenges as we navigate through the COVID pandemic. Our thoughts are with the families and businesses who have been most impacted, as well as the healthcare professionals and first responders. Our top priority continues to be the health of our team and clients.

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And I would like to thank the entire First Internet team for their resilience and hard work during these challenging times. Furthermore, our asset quality remains solid with NPAs to total assets of only 24 basis first earnings on the Internet. From an operating perspective, our cost of interest bearing deposits continue to decline, decreasing 30 basis points from the first quarter to 1. While, we did experience a decline in net interest margin during the quarter, due primarily to the impact of the Federal Reserve rate cuts in March, on earning asset yields, we expect asset yields to stabilize and when combined with continued deposit repricing opportunity we'd have over the next 12 months.

We should have the ability to significantly grow net interest margin and net interest income for the balance of and into Our direct-to-consumer mortgage business had another strong quarter, as we were well-positioned to capitalize on the ongoing refinancing and sales activity across the country, driven by historically low mortgage rates. We expect residential mortgage originations to remain strong in the continued low risk rate environment. We did not sell any portfolio loans during the quarter as market conditions were not as favorable as we would have liked.

I'd like to give you a brief update on the status of our SBA business.

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As we have discussed in the past, we see great potential in this space with attractive opportunities on both sides of our balance sheet. And we have made tremendous progress in building out payments truly at a nationwide platform.

In fact, during the second quarter, we took advantage of market disruption among some of the competitors in the SBA space and have added sales and operations personnel to our already strong and talented team of professionals in this division.

We are about six months ahead of our original hiring plan and are very excited about the near-term outlook for this business over the remainder of and into It's hard to believe that 18 months ago we were barely a player in the SBA world and today we are a rising force that has been able to attract top talent as we build a leading national small business lending platform.

This generates fee revenue and increases profitability with minimal balance sheet growth. Let me now take a few minutes to update everyone on the status of our loan deferral programs.

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Generally, we have seen a significant decline in deferrals across most of our portfolios and all the borrowers coming off deferral programs have resumed making loan payments without any delinquency. As you can see from the loan deferral information we've provided on Slide 13 in the presentation, the level of deferrals in the healthcare finance portfolio is down significantly from April and May. These are generally granted to lenders operating in first earnings on the Internet where they were late in reopening or have not yet reopened.

Additionally, the majority of healthcare finance loans still on deferral plans are expected to roll off in the next 30 days.

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As a reminder, all of our single-tenant borrowers made their April payments. So the deferrals did not start until May. Therefore, the vast majority of these borrowers are expected to resume making payments in August.

A large portion of the loans on deferral are related to restaurant properties and, of those, approximately two-thirds of the dollar balance consists of full service restaurants and the remaining are quick serve. Additionally, we have not experienced any delinquencies for the performing single-tenant loans that are not under a deferral program.

Overall credit quality remained strong and we are cautiously optimistic about our future outlook. There is still a tremendous amount of uncertainty regarding the economy due to the pandemic. We are monitoring our loan portfolio very closely and responding to the needs of our clients as they bridge the gap to a recovery.

In doing so, we are deepening our connections with existing clients, which we believe will lead to stronger and broader relationships over the long term.

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Heading into the second half of and intowe have many reasons to feel optimistic about our performance going forward. While we had to deal with the uncertainty of the pandemic along with everyone else in the banking industry, our digital business model minimized operational disruptions and we continue to serve our clients without missing a beat.

As others in the industry are now questioning the need for all of their physical locations and are struggling with the process to reopen branches, we can remain focused on our core lines of business and building the pathway toward greater earnings and profitability.

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I would like to thank the entire First Internet team for their resilience and hard work during these challenging times. As you've heard me say many times, our people are our greatest asset and the key to our long term success. Their dedication and efforts have been very much appreciated. With that, I'd like to turn the call over to Ken to discuss our financial results for the quarter. Kenneth J.

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Despite the continued challenges created by the pandemic, we were relatively happy with the performance for the quarter. As David mentioned, our asset quality metrics remain strong and we are particularly pleased by the positive trends with respect to our loans on deferral. This growth was partially offset by lower commercial and industrial loan balances as borrowers paid down balances on lines of credit or paid off term loans.

INBK earnings call for the period ending September 30, 2020.

We did not sell any portfolio loans during the second quarter first earnings on the Internet to less than optimal market conditions resulting from the pandemic. While the loan sale market was open during the quarter, pricing was a bit lower than what we are used to seeing and we did not feel the need to force a sale as loan production was down and we knew overall portfolio growth would be modest. We do expect to resume selling portfolio loans in the second half of as these sales are a make money on the Internet without investing on stock exchanges component of our balance sheet management strategy.

Moving on to deposits on Slide 5. Like the rest of the industry, we were not immune from the flight to safety as consumers, small businesses and commercial clients looked to conserve cash in the face of an uncertain environment.

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Compared to the first quarter, the cost of funds related to interest-bearing deposits decreased by 30 basis points with the cost of money market deposits declining 43 basis points as we continued to reduce our pricing throughout the second quarter. At the beginning of the quarter, our rate on all money market products was 1.

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Furthermore, we have lowered all money market rates another 10 basis points so far in July. The cost of CDs and broker deposits decreased by 18 basis points as rates paid on new CD production remained well below the rates on maturing CDs.

The continued shift in the deposit mix from CDs to money market accounts also favorably impacted deposit costs. During the second quarter, new CDs and broker deposits were originated at a weighted average cost of 1. Turning to net interest income and net interest margin on Slide 6. Net interest income on both a GAAP and fully taxable equivalent basis declined compared to the linked quarter as a decline in earning asset yields driven by lower short-term rates following the Federal Reserve rate cuts in March more than offset funding cost reductions.

Looking at the quarterly net interest margin progression on the next slide, Slide 7, the fully taxable equivalent net interest margin declined 15 basis points from the first quarter. Loan yields negatively impacted the fully taxable equivalent net interest margin by 24 basis points and lower yields on securities and cash balances, each, had a negative impact of 7 basis points.

However, those pressures were partially offset by lower deposit costs, which had a positive impact of 23 basis points.