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First Internet Bancorp: Here Comes Record Revenue And Triple-Digit Net Income Growth
- Revenue grew 38.1% while net interest income grew 28.4% in Q4. Revenue finally made a new high.
- Net income grew 120% year over year. EPS diluted grew 68.4%. Wall Street is projecting another quarter of triple-digit net income and EPS growth to follow in 1Q15 as well.
- Mortgage banking income in Q4 more than doubled (grew 101.3%) from a year ago. Total noninterest income grew 79.2%.
- Efficiency ratio, return on average assets and return on average equity continue to improve at brisk pace.
- New 5% institutional ownership. But the stock is trading at only 0.72x book value and 0.75x tangible book value (as of 1/23/2015).
First Internet Bancorp: Turnaround Banking Story Taking Shape
- Mortgage banking business gaining ground in Q3, 23.2% QoQ growth in origination volume compared to 1.01% growth nationwide per MBA.
- 25.5% total assets growth and 59% net loans growth YoY, while Tier 1 leverage ratio increased.
- A confluence of tailwinds down the road, including higher net interest margin, mortgage banking business growth, and more.
- This turnaround banking story is now taking shape, which bodes well for a great 2015 and beyond.
- The stock is trading at only 0.79x book value and 0.84x tangible book value (as of 12/9/2014).
First Internet Bancorp: Focus On Longer-Term Growth
- Fourth quarter could be impacted by seasonality of purchase mortgage origination nationwide, partially offset by potential strength in refinancing activity.
- Weak treasury yield and fast-growing residential mortgage loans might also pressure earning yield on new loans near term.
- But these factors combined have only minimal impact and will not derail robust growth in the second half.
- 2015 and 2016 are set out to be phenomenal years of growth and value creation.
First Internet Bancorp: Record Revenue And Net Income Are In Sight
- There are already early but clear signs of INBK gaining operating leverage.
- Management has a long-term asset growth target of 25-30% and a near-term target of normalizing efficiency ratio (into low 60s or high 50s) by year-end and into early 2015.
- Management’s philosophy and practice of “under-promise, over-deliver” means they are more than likely to hit both targets this year.
- This means record revenue and net income coming in Q4. Besides, triple-digit EPS and net income growth and net interest income growth in the 30s are coming.
- ROAE might come back up to 7-8% level in Q4 based on 25-30% asset growth, operating leverage, and other reasonable inputs.
First Internet Bancorp: On Track To Return To Growth And The Stock Is A No-Brainer
- Q2 result featured a 63% sequential growth in net income. Book value increased to $21.25, while tangible book value increased to $20.19 per share.
- Net loans grew by $100 million, or 74% year-over-year and 19% quarter-over-quarter.
- The company will return to double-digit growth in both revenue and net income in 3Q14. In 4Q14, we might see 71% net income growth.
- Stock is trading at 0.82x book value and 0.86x tangible book value. It is a no-brainer and one of the rare bargains in the entire market.
- Insiders are buying shares again! This and return of growth in the second half of the year should serve as near-term catalysts for the stock in the next few months.
First Internet Bancorp: At Least 70% Upside By The End Of 2015
- INBK is riding the secular online banking wave to rapidly grow deposit base as well as consumer and residential real estate loans.
- INBK is rapidly growing commercial loans at the right time of business cycle. This will enable it to reap superior returns in the next few years.
- INBK is well positioned for the rising-rate environment, with a huge base of variable rate loans, underutilized deposit base, and management track record in handling rising rate.
- 3Q14 will be the inflection point when revenue and net income growth returns. It will be followed by gangbuster growth in 4Q14 and FY15.
- INBK has at least 70% upside by the end of 2015. It is trading at below book value while growing at 10 times the rate of peers.
The Long-Term Bull Case For First Internet Bancorp
- INBK's only subsidiary First Internet Bank of Indiana (FIB) has a proven record of operating excellence in its fifteen years of history.
- FIB has entered a new stage of exponential growth in its core lending business. Only the growth is being masked by the transient mortgage banking weakness.
- Underlying the new stage of growth is an expansion initiative that has unleashed a triple-digit growth in C&I loans and total net loans growth of 41%.
- In a couple of quarters the phenomenal net interest income growth will present itself more clearly, once the mortgage banking weakness is less a drag.
- Near-term and longer-term price targets for the stock is $31 and $51, respectively. Investors might have begun to realize INBK's real underlying growth.
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