First Internet Bancorp

Good day and welcome to the first Internet Bancorp earnings conference call for the third quarter of 2021. All participants will be in a 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. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Larry Clark from Financial Profiles Incorporated. Please go ahead, Mr. Clark.

Thank you, Chuck. Good day, everyone, and thank you for joining us to discuss First Internet Bank Corp's financial results for the third 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 Lovick. 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. However, 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 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 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 gap to non-gap measures. At this time, I'd like to turn the call over to David.

Thank you, Larry. Good afternoon, everyone, and thanks for joining us today. We are pleased with our results this quarter as we reported net income of $12.1 million and diluted earnings per share of $1.21, both of which are up more than 40% from a year ago. Excluding $800,000 of pre-tax costs incurred as we redeemed $25 million of 6% sub-debt, we recorded adjusted net income of $12.7 million, or $1.27 for diluted shares. The Board of Directors and Management are intent on increasing shareholder value, and I would like to highlight several ongoing initiatives in that pursuit. We have improved profitability by expanding our net interest margin, diversifying our fee revenue, in managing our expenses. Our performance in the third quarter generated an adjusted return on average assets of 1.18%, marking a substantial advance from a year earlier. This is the fourth straight quarter we have generated ROAA in excess of 1%. We are confident in our ability to continue growing revenue and earnings for the remainder of the year and into 2022. In the third quarter, we were very pleased with the balance growth in C&I and single-tenant lease financing. Our newest lending area, franchise finance, which I'll talk a little more about in just a moment, got off to a great start with over $25 million in originations in just three months' time. Importantly, commercial loan pipelines heading into the fourth quarter are strong, up 65% through our team's diligent work sourcing new opportunities. We expect construction activity and small business lending to be key areas of growth for us in the months and quarters ahead. As of September 30th, unfunded construction commitments across all business lines were $190 million, up 30% from the start of the year. Our commercial real estate construction team has several new opportunities in the pipeline, and we expect our unfunded commitments to increase by an additional $100 million during the fourth quarter. These projects typically fund over a 12 to 24-month horizon. The second leading growth driver for us is small business lending, which remains strong. In 2021, we made a $300 million commitment to the small business owners. As part of that pledge, we recently announced that we have teamed up with Apple Pie Capital, a leading provider of growth financing to franchisees in various industry segments across the country. Together, we are funding loans to proven businesses, fueling economic growth and job growth while deploying our capital into an attractive asset class with strong risk-adjusted returns. We began working with Apple Pie in the third quarter. As I noted earlier, we funded just over $25 million of loans during that time and expect to fund up to $100 million of originations in total by the end of 2021. We anticipate funding up to $150 million in additional loans next year. We have had a very positive experience with Apple Pie to date, and I would also note that we are actively exploring balance sheet relationships with several other fintech companies. Of course, the cornerstone of our commitment to small business is the small business lending platform we've built out over the past two years. Through the end of the SBA year, ended September 30th, we have secured approvals for 172 million SBA 7 program loans. We also funded 30 million of PPP loans earlier this year. To date, 85% of our PPP loans have been forgiven by the SBA. I'm very proud of the way our team responded to the operational challenges brought on by a series of PPP rule changes, 7 program updates, and the SBA's move to a new transfer agent, which added complications to the collection of relief payments as well as the sale of loans. Looking ahead to 2022, we anticipate originating $215 million of SBA 7 loans, which is expected to generate sales on revenue in the range of $15 million for the year. Keep in mind that secondary sales volume will be impacted as the standard government guarantee on SBA 7A loans reverts to 75% compared to the 90% guarantee temporarily installed in response to the pandemic. We are also building out of water rings and services to serve our small business customers. We recently announced a partnership with Sinsley, a FinTech provider of modern banking solutions, to provide an innovative payments hub that will enhance the digital experience for our small business owners and empower them to manage their business and cash flows more effectively. Over the last year and a half, the COVID-19 pandemic has accelerated the demand for digital banking services. Thanks to our branchless banking model, we did not have to lose time transitioning away from the branch operations. We were able instead to leverage our customer-focused product and our expertise in the digital service delivery to attract new customers and enhance the customer experience. We continue to invest in our digital capabilities and expect to announce additional relationships within the next few weeks. To conclude, we are committed to continuous improvement to serve our growing base of customers nationwide, and we believe this dedication puts us in a great position to expand our relationships and generate strong results for our shareholders in the upcoming quarter. Before I turn it over to Ken, I'd like to call your attention to two important announcements. First, I am pleased to share that our Board of Directors has authorized the repurchase of up to 30 million of our common stock. This authorization is open through the end of 2022. Additionally, we released our first ESG report earlier this week. The report chronicles our existing commitments and future priorities around mindful governance and responsible corporate citizenry, including the company's response to the financial effects of the COVID-19 pandemic on our customers and communities. By advancing our ESG initiative, we hold ourselves accountable for effectively managing risk while also facilitating financial inclusion. I'm proud of our team's efforts and successes I encourage you to read the report, which is, of course, available exclusively in digital format at FirstInternetBankCourt.com. With that, I'm just going to turn the call over to Ken to discuss our financial results for the quarter.