First Internet Bancorp

Good day, everyone, and welcome to the first Internet Bankor earnings conference call for the second 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. And please note 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, Sarah. Good day, everyone, and thank you for joining us to discuss First Internet Bancorp's financial results for the second quarter of 2021. The company issued its earnings press release yesterday afternoon, and it's available on the company's website. 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 and CEO David Becker. and Executive Vice President and CFO, Ken Levick. David will provide an overview and a company update, and Ken will discuss the financial results. Then we'll open up the call 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, and thanks for joining us today. We produced strong operating results for the second quarter of 2021, driven by net interest margin expansion and disciplined expense management. Reported net income was a record $13.1 million, and diluted earnings per share was a record $131. Included in our results for the quarter was a $2.5 million pre-tax gain on the sale of our corporate headquarters. Excluding this amount, adjusted net income was $11.1 million, which would still be our highest quarterly results ever, and adjusted earnings per share was $1.11 million, a penny shy of our quarterly record. The strong performance enabled us to generate an adjusted return on average assets of 1.06%, demonstrating continuous improvement from the beginning of the pandemic crisis. And we increased our tangible common equity to tangible assets ratio by 31 basis points to just over 8.4%. Compared to the second quarter of 2020, performance has increased significantly due to the strong growth in net interest income and net interest margin, as well as from the investments we have made in our fee revenue lines of business. Using the adjusted earnings results, both net income and earnings per share are up 182% and 178%, respectively, while adjusted total revenue is up 45%. Our national SBA platform gained momentum during the quarter, producing $3 million of gain-on-sale revenue, up significantly from the first quarter. Due to the disruption in the small business lending market earlier in the year and the time it took to rebuild pipelines, our level of forecasted originations for the year has bounced slightly from our prior forecast. Loan pipelines have recovered. We are actively engaged and meeting strong demand for the traditional SBA 7A loans as the economic recovery accelerates. Therefore, we still feel very confident in the growth of our SBA business with expected gain on sale revenue between $13 to $14 million for the full year. Looking at the lending activity for the second quarter, total loan balances were down just over $100 million as prepayment activity remained elevated in the healthcare finance and single-tenant leasing financing portfolios. Looking forward, though, loan pipelines across other commercial lines of business began to grow significantly during the second quarter. For example, the single-tenant lease financing pipeline is at its highest level in 15 months as relationship borrowers are increasingly coming to us to finance additional opportunities. In total, our commercial pipeline is up over 20% from the end of the first quarter. Another area of focus for us has been increasing our presence in construction lending. Funding balances are up over 50% from one year ago, and our team is actively sourcing new projects. Moreover, as of June 30th, unfunded commitments in our construction line of business total $159 million. an increase of 39% over the balance at the end of the first quarter. With regard to healthcare finance, balances were down over $50 million from the first quarter, driven by elevated prepayment activity and a very low level of new originations. New origination activity during 2021 has been light as a low interest rate environment and heightened competition drove pricing well below the floors we have in place. Additionally, in June, our partner in this line of business, Provide, formerly known as Lendeavor, announced that it was going to be acquired by Fifth Third Bank, who already had an ownership stake in the company. Going forward, we expect that Fifth Third will retain most, if not all, of Provide's new origination activity. However, we continue to explore new lines of business and partnerships. For example, during the second quarter, we finalized a partnership with a fintech-oriented specialty lender that focuses on high-quality loans to the franchise industry, and we will fill the gap created by the decline in health care finance balances. So this relationship, we expect to begin funding portfolio loans with attractive yields during the third quarter and have committed to fund up to $100 million of originations over the next 12 months. This relationship will also provide SBA 7a lending opportunities to supplement our own origination activities. On the lending front overall, we feel really good about how pipelines increased during the second quarter. Lehman is well-positioned to deploy the elevated levels of cash on the balance sheet and capitalize on loan growth opportunities in the second half of 2021. Our credit quality, meanwhile, remains among the best in the industry. During the quarter, non-performing loans declined 5.4 million, or 37%. and non-performing assets declined 4.1 million, or 28%, due primarily to positive developments on a single-tenant lease financing relationship and a commercial and industrial relationship, both of which were previously classified as non-accrual. At quarter end, the ratio of non-performing loans to total loans had declined to 31%, and the ratio of non-performing assets to total assets has declined to 25 basis points. Additionally, delinquencies dropped significantly during the quarter, representing only seven basis points of the total loan balances. We are especially proud of the fact that as of June 30th, we had no delinquencies in our originated consumer loan portfolio. Turning now to the consumer and small business banking, demand for digital banking services is at an all-time high. We have leveraged our customer-focused products, which include the nation's best checking account for small business, as awarded by Newsweek magazine, and expertise in digital service delivery. We have 22 years of experience in providing not just a robust customer-facing interface, but also the processes behind the scenes to support a seamless experience. During the first half of 2021, we have grown our small business checking relationships by more than 25%. And to continue to win and retain these relationships, we are close to being able to announce several collaborative partnerships with fintech companies. We look forward to sharing with you in a future call more details about our next generation customer experience that will also power internal efficiencies. In summary, we generated excellent results for our shareholders in the second quarter. We are in great financial position to serve our customers and help fuel the broader economy as the country emerges from the pandemic. Before I turn it over to Ken, I would like to thank the entire First Internet team for the diligent efforts in delivering record earnings this quarter. We continue to challenge ourselves to imagine more, and First Internet Bank has fostered a workplace culture that promotes innovation, collaboration, and customer focus, which is reflected in being named one of the top workplaces in Indiana for the eighth consecutive year. We are confident in the strength of our franchise and the momentum we have built heading into the back half of 2021. With that, I'd like to turn the call over to Ken to discuss our financial results for the quarter.