First Internet Bancorp

Good day, everyone, and welcome to the first Internet Bancorp earnings conference call for the first quarter of 2021. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. And please note that today's event is being recorded. I would now like to turn the conference over to Larry Clark from Financial Profiles, Inc. Please go ahead, Mr. Clark.

Thank you, Carrie. Good day, everyone, and thank you for joining us to discuss First Internet Bancorp's financial results for the first quarter of 2021. The company issued its earnings press release yesterday afternoon, and it's available on the company's website at www.firstinternetbancorp.com. 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. Joining us today from the management team are Chairman, President, and CEO David Becker, and Executive Vice President and CFO Ken Levick. David will provide a company update, and Ken will discuss the financial results. Then we'll open the call up to your questions. 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 condition of First Internet Bank Corp. 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 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 the reconciliation of the GAAP to non-GAAP measures. At this time, I'd like to turn the call over to David.

Thank you, Larry, and good afternoon, everyone. Thanks for joining us today. We are very pleased with the first quarter financial performance. We produced strong earnings, solid momentum to start 2021. driven by net interest margin expansion, continued healthy production in our direct-to-consumer mortgage business, and strong credit performance. Growth in net interest income combined with our strategies to build sustainable fee revenue paid off as we generated an average return on assets of 1.02% for the second straight quarter and strengthened our capital base, increasing our tangible common equity to tangible assets ratio by 43 basis points to just over 8%. We deliver these solid results while the pandemic continues to impact certain sectors of the economy. Families and businesses are gradually returning to the routine, and in many cases, to a new normal way of life. Our unique workplace culture promotes innovation, collaboration, and customer focus, collectively guiding us forward. Our technology-enabled workforce was uniquely positioned to adapt to the changes of the past year while maintaining operations at the highest level, serving our customers and supporting one another. Despite the historically low interest rate environment, we generated a significantly improved net interest margin. This was the key highlight of the quarter. We did this through a combination of higher-than-average loan yields and low average deposit costs. The higher yields would do in part to our ongoing pricing discipline. The benefits of having diversified loan origination channels is that we do not have to chase rates down while we are at the bottom of the interest rate cycle. We do continue to look for growth opportunities to capitalize on. However, any new opportunities we explore must provide a strong risk-adjusted return that enhances profitability and earnings. As you know, we have been proactively managing our deposit costs lower as we allow higher cost CDs and broker deposit balances to decline. We're placing them with much more attractively priced money market accounts and lower rate CDs. Revenue for the first quarter totaled $28.9 million, up 36% from the first quarter of 2020, as we continue to benefit from a more diversified revenue stream, an important strategic goal for us. Our SBA team is a big part of this. The team is fully engaged, and we are well on our way to building a leading national platform. Not only are we assisting clients with the new PPP loans as part of the most recent phase of that program, but we also continue to meet the demand for traditional SBA 7A loans. These loans are the bread and butter of our SBA program. While 7A volumes were lighter in January and February, we maintained our competitive position as the overall SBA market was slower to start the year. However, SBA 7A activity began to pick up in March, and the pipeline is building daily. Despite the lighter volume in the quarter, we are still targeting SBA originations in the range of $200 million plus for 2021, and they are expected to produce a gain on sale revenue between $14 to $15 million for the full year. We have the infrastructure in place to continue to ramp up this important part of our business and look forward to a strong year providing financing for the entrepreneurs and small businesses that drive job creation across the country. Our direct-to-consumer mortgage business continues to produce solid results as well. We are capitalizing on the ongoing demand fueled by low interest rates and a strong nationwide housing market. We are winning new business with our unwavering commitment to exceptional service and the enhanced customer experience that our technology-driven online mortgage application process provides. Our credit quality remains among the best in the industry. We have a strong credit culture, disciplined approach to underwriting, and a focus on specialty lending lines that target lower risk asset classes. Unlike many banks that have reported so far, we continue to build the allowance for loan losses during the quarter, even as net charge-offs remain low. We expect to maintain and perhaps even continue to build our allowance coverage ratio and do not foresee releasing any reserves in the near term. We did experience an uptick in non-performing loans during the quarter due primarily to one C&I relationship. We recorded a specific reserve of $600,000 against this relationship and believe we are well collateralized on the remaining exposure. Even with the increase in non-performing loan levels to total loans and non-performing assets to total assets remain relatively low, at a 0.46 and a 0.34 respectively. Additionally, remaining loans on deferral programs are relatively low at this point, representing just 20 basis points of total loans at the end of the quarter. As we look forward to the remainder of 2021 and beyond, we will continue to focus on some key areas of value creation. One, continue to scale our SBA business to take advantage of the operational infrastructure we put in place. Two, look for new, innovative, technology-driven partners to enhance our existing lines of business or to capitalize on opportunities to further diversify revenue in a capital-efficient manner. Three, continue to improve the efficiency of our business while enhancing the customer experience for both existing and prospective clients. We have been successful at doing this in the past via collaborative partnerships with FinTech companies that have helped us in our direct-to-consumer mortgage business, as well as in our consumer and small business deposit gathering and account opening efforts. Four, I would like to take a moment to recognize that today, April 22nd, is the 51st anniversary of Earth Day. At First Internet Bank, we are working to develop an ESG strategy that incorporates our existing commitment to the environment and the communities and stakeholders we serve, as well as advances the diversity, equity, and inclusion initiatives within the organization. Supporting our community is a high priority at First Internet, and during the first quarter, we made a $250,000 contribution to a local foundation that supports not-for-profits and community-based initiatives in the marketplace. In summary, we are pleased with the first quarter performance, which was driven by the consistently excellent work of the entire First Internet team. and we're excited about the year ahead of us. We are in great financial shape and well positioned to serve our customers as the country emerges from the pandemic and businesses work to fully reopen. As always, I want to thank all of our employees for their efforts in once again delivering on our goals. A high level of commitment throughout the organization remains the key to our ongoing success. We are confident in the strength of our franchise and the potential for ongoing growth in the year ahead. With that, I'd like to turn the call over to Ken to discuss our financial results for the quarter.