FISHERS, Ind.–(BUSINESS WIRE)–First Internet Bancorp (the “Company”) (Nasdaq: INBK), the parent company of First Internet Bank (the “Bank”), announced today financial and operational results for the third quarter of 2021. Net income for the third quarter of 2021 was $12.1 million, or $1.21 diluted earnings per share. This compares to net income of $13.1 million, or $1.31 diluted earnings per share, for the second quarter of 2021, and net income of $8.4 million, or $0.86 diluted earnings per share, for the third quarter of 2020.
“We produced strong operating results for the third quarter of 2021, driven by solid revenue generation and disciplined expense management,” said David Becker, Chairman and Chief Executive Officer. “Our strategies designed to build sustainable fee revenue continued to pay off as we generated a return on average assets in excess of 1.0% for the fourth straight quarter. Looking forward, pipelines in our SBA, construction, single tenant lease financing and our newly formed franchise finance lines of business are strong, giving us confidence in our ability to continue growing revenue and earnings for the remainder of the year and into 2022.
“Our new franchise finance business line is the third installment in a $300 million commitment we have made to small business owners in 2021,” Mr. Becker added. “We have teamed with ApplePie Capital, a company that sources and originates franchisee lending opportunities on a nationwide basis. Together, we are funding loans to proven businesses, fueling economic and job growth and building our loan portfolio. We expect to fund $100 million of franchise loans by year-end. Earlier this year, we originated $30 million in a second round of PPP, and we have secured an additional $172 million in SBA 7(a) approvals over the course of SBA’s most recently ended fiscal year. Looking ahead to 2022, we expect to expand our small business pledge by 20%. We anticipate funding up to $150 million in franchise finance and $215 million in SBA 7(a) loans. Furthermore, to provide our small business owners the upgraded digital experience that will empower them to manage their cash flows effectively, we have announced a partnership with Finzly to provide an innovative payments hub and expect to announce additional relationships within the next few weeks.”
Mr. Becker concluded, “Of course, the First Internet team’s hard work and unwavering commitment to client service are the keys to our ongoing success and the reasons we are confident in the strength of our organization and our abilities to seize upon new opportunities ahead.”
Net Interest Income and Net Interest Margin
Net interest income for the third quarter of 2021 was $20.9 million, compared to $21.6 million for the second quarter of 2021, and $16.2 million for the third quarter of 2020. On a fully-taxable equivalent basis, net interest income for the third quarter of 2021 was $22.3 million, compared to $23.0 million for the second quarter of 2021, and $17.7 million for the third quarter of 2020.
On September 30, 2021, the Company redeemed all $25.0 million aggregate principal amount of 6.0% fixed-to-floating rate subordinated notes due in 2026. Excluding $0.8 million of costs related to this redemption, net interest income was $21.7 million and fully-taxable equivalent net interest income was $23.1 million.
Total interest income for the third quarter of 2021 was $33.0 million, a decrease of 1.0% compared to the second quarter of 2021, and an increase of 0.9% compared to the third quarter of 2020. On a fully-taxable equivalent basis, total interest income for the third quarter of 2021 was $34.4 million, a decrease of 1.1% compared to the second quarter of 2021, and an increase of 0.6% compared to the third quarter of 2020. The modest decrease in total interest income compared to the second quarter of 2021 was driven primarily by a 10 basis point (“bp”) decrease in the yield on interest-earning assets, which was partially offset by a 1.2% increase in the average balance of these assets. The yield on interest-earning assets for the third quarter of 2021 decreased to 3.16% from 3.26% in the linked quarter due primarily to changes in the earning asset mix as well as lower loan fees. Average loan balances, including loans held for sale, decreased $60.0 million, or 2.0%, while the average balances of securities and other earning assets increased $108.0 million, or 10.0%, compared to the linked quarter.
Total interest expense for the third quarter of 2021 was $12.1 million, an increase of 2.9% compared to the second quarter of 2021, and a decrease of 26.7% compared to the third quarter of 2020. The increase in total interest expense compared to the linked quarter was due primarily to the costs related to the redemption of the subordinated notes discussed above. Average interest-bearing deposit balances increased $28.6 million, or 0.9%, while the cost of these deposits declined 9 bps to 0.90%.
The composition of deposits continued to improve as the average balance of money market accounts, savings accounts and interest-bearing demand deposits increased $94.1 million, or 5.6%, on a combined basis while the average balance of certificates and brokered deposits declined $65.5 million, or 4.5%, compared to the linked quarter. Furthermore, the cost of certificates and brokered deposits decreased by 14 bps compared to the linked quarter. During the third quarter of 2021, new certificates of deposit were originated at a weighted average cost of 43 bps while maturing certificates of deposit had a weighted average cost of 143 bps; a difference of 100 bps.
Net interest margin (“NIM”) was 2.00% for the third quarter of 2021, down from 2.11% for the second quarter of 2021 and up from 1.53% for the third quarter of 2020. Fully-taxable equivalent NIM (“FTE NIM”) was 2.13% for the third quarter of 2021, down from 2.25% for the second quarter of 2021 and up from 1.67% for the third quarter of 2020. Excluding the $0.8 million of costs related to the redemption of the subordinated notes, adjusted NIM was 2.08% and adjusted FTE NIM was 2.21%. The decreases in adjusted NIM and adjusted FTE NIM compared to the linked quarter were driven primarily by the lower average loan balances and loan fees, partially offset by lower interest-bearing deposit costs and higher securities income.
Noninterest Income
Noninterest income for the third quarter of 2021 was $7.8 million, compared to $9.0 million for the second quarter of 2021 and $12.5 million for the third quarter of 2020. The decrease compared to the linked quarter was driven primarily by the positive impact of a $2.5 million gain on sale of premises and equipment that occurred in the second quarter. Excluding the impact of that gain, adjusted noninterest income increased by $1.4 million, or 21.3%, compared to the linked quarter, driven primarily by higher revenue from mortgage banking activities and other income, partially offset by modestly lower gain on sale of loans. Mortgage banking revenue totaled $3.9 million for the third quarter of 2021, an increase of $1.2 million, or 44.0%, from the linked quarter, due primarily to increases in interest rate locks, sold loan volume and margins. Other income increased $0.5 million due to a distribution from the Company’s investment in a Small Business Investment Company fund. Gain on sale of loans totaled $2.7 million for the quarter, decreasing from $3.0 million in the second quarter of 2021, due mainly to a decline in secondary market premiums on U.S. Small Business Administration (“SBA”) 7(a) guaranteed loan sales during the quarter.
Noninterest Expense
Noninterest expense for the third quarter of 2021 was $14.5 million, compared to $15.1 million for the second quarter of 2021 and $16.4 million for the third quarter of 2020. The decrease of $0.6 million, or 4.1%, compared to the linked quarter was driven primarily by lower consulting and professional fees, other expense and loan expenses. The decrease in consulting and professional fees and loan expenses was due mainly to third party loan review and stress testing performed in the linked quarter. The decrease in other expense was due to seasonal expenses incurred in the second quarter as well as a gain on the sale of a residential other real estate owned property. The decrease in loan expenses was due to reimbursement of expenses incurred in prior quarters related to nonperforming loans.
Income Taxes
The Company reported income tax expense of $2.2 million for the third quarter of 2021 and an effective tax rate of 15.5%, compared to income tax expense of $2.4 million and an effective tax rate of 15.4% for the second quarter of 2021 and $1.4 million and an effective tax rate of 14.2% for the third quarter of 2020.
Loans and Credit Quality
Total loans as of September 30, 2021 were $2.9 billion, a decrease of $21.5 million, or 0.7%, compared to June 30, 2021, and a decrease of $76.8 million, or 2.5%, compared to September 30, 2020. Total commercial loan balances were $2.4 billion as of September 30, 2021, a decrease of $29.1 million, or 1.2%, compared to June 30, 2021, and a decrease of $37.0 million, or 1.5%, compared to September 30, 2020. Compared to the linked quarter, the decline in commercial loan balances was driven largely by net payoffs in healthcare finance, public finance and SBA Paycheck Protection Program (“PPP”) loans, which were partially offset by increases in franchise finance, commercial and industrial and single tenant lease financing balances.
Total consumer loan balances were $475.1 million as of September 30, 2021, an increase of $8.7 million, or 1.9%, compared to June 30, 2021, and a decrease of $32.6 million, or 6.4%, compared to September 30, 2020. The increase in consumer loan balances from June 30, 2021 was due primarily to higher balances in the residential mortgage portfolio.
Total delinquencies 30 days or more past due were 0.06% of total loans as of September 30, 2021, down from 0.07% as of June 30, 2021 and 0.22% as of September 30, 2020. Overall credit quality remained strong as nonperforming loans to total loans was 0.27% as of September 30, 2021, compared to 0.31% as of June 30, 2021 and 0.32% as of September 30, 2020. During the third quarter of 2021, nonperforming loans declined $1.2 million, or 13.1%, compared to the linked quarter due primarily to the payoff of a single tenant lease financing relationship which had previously been classified as nonaccrual.
The allowance for loan losses as a percentage of total loans was 0.95% as of September 30, 2021, or 0.96% when excluding PPP loans, consistent with 0.95% and 0.96%, respectively, as of June 30, 2021 and up from 0.89% and 0.91%, respectively, as of September 30, 2020.
Net charge-offs of less than $0.1 million were recognized during the third quarter of 2021, resulting in net charge-offs to average loans of 0.01%, compared to 0.35% for the second quarter of 2021 and 0.01% for the third quarter of 2020. Net charge-offs were elevated in the second quarter of 2021 due to the elimination of specific reserves related to a single tenant lease financing relationship. The provision for loan losses in the third quarter of 2021 was a benefit of $29,000, compared to a provision of $21,000 for the second quarter of 2021 and $2.5 million for the third quarter of 2020. The decrease in provision for loan losses for the third quarter of 2021 was due primarily to the $21.5 million decrease in loan balances mentioned above.
Capital
As of September 30, 2021, total shareholders’ equity was $370.4 million, an increase of $11.8 million, or 3.3%, compared to June 30, 2021, and an increase of $52.3 million, or 16.5%, compared to September 30, 2020. The increase compared to the linked quarter was due primarily to net income earned during the quarter. Book value per common share increased to $37.59 as of September…