First Internet Bancorp

Hello, all, and a warm welcome to the first Internet Bank Corp conference call for the first quarter of 2022. If you'd like to ask a question at the end of the presentation, you may do so by pressing star followed by one on your telephone keypad. 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, Lydia. Good day, everyone, and thank you for joining us to discuss First Internet Bancorp's financial results for the first quarter of 2022. 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's 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 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 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 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. Good afternoon, everyone, and thanks for joining us today. We are off to a strong start in 2022, but before I get into the details of our results from this past quarter, I would like to provide an update on our strategic initiatives that we expect will have a meaningful impact on our future results. We are still waiting on certain regulatory approvals required to complete the acquisition of First Century that we announced on November 2nd. We hope that closing can occur next month. We are in discussions with First Century to extend our outside date to close the transactions. Over the past quarter, we began delivering on our objective to provide banking as a service to FinTech companies. We expect those relationships to translate into a combination of low-cost deposits and non-interest income for us. In the first quarter, we entered into a relationship that has thus far generated $50 million of new deposits at a fixed cost of only 20 basis points, which is well below our average cost of funds. The FinTech channel has special appeal to us primarily because as a branchless bank launched pre-2000, we see ourselves as an early fintech, and we support the spirit of innovation and disruption. Moreover, banks who offer banking as a service partnerships with fintechs are growing quicker and more efficiently than the overall industry. We believe there are strong secular tailwinds to this demand, providing us with a long runway as a provider in this sector. We have been... Selective and intentional in our FinTech partner rollout, we are planning to announce a second partnership here in the second quarter, and we have a pipeline of opportunities under review. Now I will turn to our operating results for the first quarter. We reported net income of $11.2 million, up 7% from a year earlier, and diluted earnings per share of $1.14, up nearly 9%. we recorded adjusted net income of $12 million, or $1.22 per diluted share, when excluding non-reoccurring consulting fees and acquisition-related expenses. These solid results helped us to generate an adjusted return on average assets of 1.16%, and an adjusted return on average tangible common equity at 12.98%. Loan balances were relatively flat from the prior quarter, as robust growth in key lending areas such as franchise finance and construction were offset by payoffs in healthcare, demands, owner-occupied commercial real estate, and public finance. Our partnership with Apple Pie Capital, a fintech-oriented specialty lender that focuses on lending to the franchise industry, continued to drive meaningful growth in the first quarter. In our third quarter of working together, we funded $28 million in loans, now hold over $100 million in this portfolio. We still anticipate originations for the year to be in the range of $150 million and could exceed that amount if the growth-oriented brands Apple Pie works with achieve their targets. As we have discussed in the past, construction lending is another area of focus. Our team continues to successfully source new opportunities during the quarter within the commercial and residential housing market. At the close of the first quarter, unfunded commitments in our construction line of business totaled $183 million, which was down slightly from the start of the year, but we were pleased with the dry activity and expect outstanding balances to continue growing throughout the rest of the year. Pipe lines across other commercial lines of business, including our national SBA operations, are also very strong. Given that SBA originations are historically lighter, In the first part of the year, we are extremely pleased with where the pipeline stands today. Our consumer lines of business also started the year on a very positive note. In addition to growth in portfolio residential mortgage balances, we were especially pleased with growth in recreational vehicles, trailers, and other consumer lines. As new originations exceeded $25 million for the quarter, despite continued inventory shortages and elevated inflation. Total consumer loan balances rose 4% on a late quarter basis. In addition to our existing loan pipeline, we are actively involved in multiple discussions that can provide additional asset generation capabilities to supplement our existing lines of business. The opportunities involve strategic partnerships that cover a range of asset classes, from specialty commercial lending to consumer lending to residential mortgages. We are very excited about the growth and potential each could provide. Our credit quality, meanwhile, remains excellent and among the industry's leaders. During the quarter, our ratio of non-performing loans to total loans declined to 0.25%, and our ratio of non-performing assets to total assets declined to 0.17%. Highlighting the quarter was the recovery on a single tenant lease financing relationship that previously had been charged off with the remaining balance transferred to other real estate owned. In total, we received net proceeds of $1.2 million in excess of the carrying value of the other real estate owned balance, which, excluding tax refunds, advanced loan activity resulted in net recoveries to average loans of 16 basis points. In 2022, we will continue to leverage our customer-focused products, expertise in digital service delivery, to deepen banking relationships with existing and new customers. We will further invest in our digital capabilities, prioritize recruiting and talent development, and build additional collaborative partnerships with fintech companies. And of course, we plan to integrate First Century and expand our emphasis on banking as a service capability to further position us as a premier technology-forward digital financial services provider. In summary, We are in great financial shape to continue producing strong results for our shareholders while improving our capabilities to serve our growing base of customers. Before I turn it over to Ken, I would like to thank the entire First Internet team for their tireless work throughout the quarter ensuring a smooth integration process while never losing focus on our hallmark customer service. Our team's unwavering commitment fuels our confidence in the strength of our franchise and ability to seize potential growth opportunities ahead. I'm proud of what we've accomplished to date through the compassion and innovation ideas from our team members. On behalf of each of them, I'd like to share a sincere thanks to our shareholders for their continued support. With that, I'd like to turn the call over to Ken to discuss our financial results for the quarter.