Day, and welcome to the First Internet Bancorp Earnings Conference Call for the Q3 of 2021. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. 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 Bancorp's financial results for the Q3 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 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. Any obligation to update any forward looking statements made during the call. And 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 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 pleased with our results this quarter as we reported net income of $12,100,000 and diluted earnings per share of 1.21 both of which are up more than 40% from a year ago. Excluding $800,000 of pretax costs incurred as we redeemed 25,000,000 6% sub debt, we recorded adjusted net income of $12,700,000 or $1.27 per diluted shares. The 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 and managing our expenses. Our performance in the Q3 generated an adjusted return on average assets of 1.18%, marking a substantial advance from a year earlier. This is the 4th straight quarter we have generated ROAA in excess of 1%. We are confident in our ability to continue financing, our newest lending area, franchise finance, which I'll talk about a little more about in just a moment, got off to a great start with over $25,000,000 in originations in just 3 months' time. Importantly, commercial loan pipelines heading into the 4th 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 30, unfunded construction commitments across all business lines were $190,000,000 up 30% from the start of the year. Our commercial real estate construction team has several new opportunities in the pipeline, and we expect Horizon. The 2nd leading growth driver for us is small business lending, which remains strong. In 2021, we made a 300,000,000 Dollar 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, with strong risk adjusted returns. We began working with Apple Pie in the Q3. As I noted earlier, we funded just over $25,000,000 of loans during that time and expect to fund up to $100,000,000 of originations in total by the end of 2021. We anticipate funding up to $150,000,000 and 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 That's a small business is the small business lending platform we have built out over the past 2 years. Through the end of the SBA year Ended September 30, we have secured approvals for $172,000,000 in SBA 7 program loans. We also funded $30,000,000 of PPP loans earlier this year. To date, 85% of our PPP loans have been forgiven by the 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 $215,000,000 of SBA 7 loans, which is expected to generate Sales on revenue in the range of $15,000,000 for the year.
Keep in mind that secondary sales volume be impacted as the standard government guarantee on SBA 7 loans reverts to 75 compared to the 90% guarantee temporarily installed in response to the pandemic. We are also building out a water range and services to serve our small We recently announced a partnership with Finsley, 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-nineteen pandemic has accelerated the demand for digital banking services. Thanks to our branch 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 relationship and generate strong results for our shareholders in the upcoming quarters. Before I turn it over Ken, I'd like to call your attention to 2 important announcements. First, I am pleased to share that our Board of Directors has authorized the repurchase of up 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-nineteen pandemic on our 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 firstinternetbancorp.com. With that, I'd like to turn the call over to Ken to discuss our financial results for the quarter.
Thanks, David. As David mentioned, it was another strong quarter with net income of $12,100,000 $1.21 diluted earnings per share, which included about $800,000 of additional pre tax interest expense related to the redemption of $25,000,000 of subordinated debt. After taking into account these costs, adjusted net income came in at $12,700,000 and adjusted diluted earnings per share were 1 point Profitability continued to improve with an adjusted return on average assets increasing 12 basis points from the 2nd quarter to 1.18 percent and an adjusted return on average tangible common equity increasing 118 basis Points to 13.97 percent. Looking at Slide 5, total loans at the end of the 3rd quarter were $2,900,000,000 down modestly from the Q2 and down 2.5% from September 30, 2020. As David mentioned earlier, we were pleased with the growth on industrial and single tenant lease financing during the quarter and are excited about the early performance in our new franchise finance lending area.
The growth in these lines of business were largely offset by net payoffs in our healthcare finance and public finance portfolios as balances were down $38,500,000 $10,400,000 respectively. Additionally, small business lending balances This was down $20,400,000 due primarily to $25,000,000 of PPP loan forgiveness, but partially offset by new production. Consumer loan balances increased moderately compared to the 2nd quarter due primarily to higher balances in the residential mortgage portfolio. Moving on to deposits on Slide 6. Overall deposit balances were up modestly from The end of the second quarter and we again saw improvement in the composition of our deposit base.
During the quarter, non maturity deposits increased by In this area continues to pay off. CDs and broker deposits decreased $39,900,000 or 2.8 percent on a combined basis. CDs and broker deposit balances continue to decline as higher cost CD maturities We're either funded with on balance sheet liquidity or replaced with much more attractively priced money market accounts, checking accounts and lower rate CDs. This lowered our cost of interest bearing deposits 9 basis points during the quarter and we expect to experience continued reduction in deposit cost in the Q4 and into next year. Compared to the 1st 9 months of 2020, we've realized $22,000,000 of deposit interest expense savings to date and expect to realize around $26,000,000 for the full year based on the current deposit pricing environment.
Turning to Slide 7 and 8, compared to the 2nd quarter, both reported net interest income and fully taxable equivalent net interest income $700,000 or 3.2 percent to $20,900,000 $22,300,000 respectively. Excluding the costs associated with the redemption of subordinated debt, net interest income increased $100,000 to $21,700,000 and fully taxable equivalent net interest income increased to $23,100,000 The average balance of interest earning assets set by lower average balances of loans and other earning assets. The yield on interest earning assets declined to 3.16% due to the changes in the earning asset composition as well as lower loan fees. Net interest margin decreased 11 basis points from 2.11 percent for the 2nd quarter to 2% for the 3rd quarter and fully taxable equivalent net interest margin decreased 12 basis points from 2.25 percent for the 2nd quarter to 2.13% for the 3rd quarter. Fully taxable equivalent net interest margin adjusted for the cost of the subordinated debt was 2.21%, down 4 basis points from the prior quarter.
As you can see on Slide 8, the 4 basis point decline was driven primarily by lower average loan balances and fees, which had a negative impact of 14 basis points. This was partially offset by continued decreases in deposit costs, which provided a benefit of 8 basis points. The securities portfolio also added a benefit of 3 basis points. Elevated cash balances also continued to negatively impact net interest margin. Currently, Cash balances have already decreased by about $100,000,000 compared to the end of the Q3 as we put cash to work by funding loans and retiring high cost CD maturities.
Although not included in the net interest margin roll forward as cash balances have been elevated for some time, $100,000,000 of excess cash balances held at the Federal Reserve had a 6 basis point punitive effect on net interest margin. Looking ahead to the Q4 and into 2022, we expect our yield on interest earning assets to revert closer to what they were in the 2nd quarter and then increase from there as we grow the commercial loan portfolio. Compared to the end of the second quarter, we have seen loan pipelines increase 65% primarily driven by growth in SBA franchise finance and construction opportunities. Additionally, we continue $787,000,000 of CDs are scheduled to mature with a weighted average cost of 122 basis points. Currently, the replacement cost of these deposits is in the range of 36 basis points.
Looking ahead to 2020 2, with our expectations for loan growth and continued downward deposit repricing, we anticipate annual net interest Income growth to be between $9,000,000 $11,000,000 Turning to noninterest income on Slide 9. Non interest income for the quarter was $7,800,000 up from an adjusted $6,400,000 in the 2nd quarter. The increase was driven primarily by higher revenues from mortgage banking activities, but was partially offset by slightly lower gain on sale of loans. We sold $22,000,000 of SBA 7 guaranteed loans during the quarter, which was consistent with the Q2. However, we experienced lower As I mentioned earlier, loan pipelines, especially in our SBA business are strong heading into the end of the year.
Therefore, we expect SBA gain on sale revenue to be up in the 4th quarter, probably in the range of $5,000,000 Turning to non interest expenses, as shown on Slide 10, the decrease on a linked quarter basis was driven primarily by Fine in consulting and professional fees and loan expenses. The decrease in consulting and professional fees was mainly due to the timing of normal third party loan review work Performed on our loan portfolio. The decrease in loan expenses was due to the reimbursement of costs incurred in prior periods related to non performing loans. Now let's turn to asset quality on Slide 11. Credit quality improved during the quarter as non performing loans declined by $1,200,000 mainly due to the payoff of a single tenant lease financing relationship, which had previously been classified as non accrual.
Non performing loans now represent 27 basis points of total loans, down from 31 basis points last quarter and down from 32 basis points in the Q3 of 2020. Net charge offs were less than $100,000 during the quarter and net charge offs to average loans was 1 basis point. We are proud of the fact that we continue to exhibit high asset quality that is among the industry's best. The provision for loan losses in the 3rd quarter was a benefit of $29,000 compared to provision of $21,000 in the prior quarter. The decrease was due primarily to the $22,000,000 decrease in loan balances as qualitative Factors in the allowance model remain consistent with the 2nd quarter and net charge offs were low.
Overall, the ratio of allowance for loan losses Total loans remained unchanged from the prior quarter at 95 basis points and 96 basis points excluding PPP loans, which Totaled $15,000,000 at quarter end. With respect to capital as shown on Slide 12, Our overall capital levels improved and remain healthy at both the company and the bank. With the strong earnings performance This quarter, our tangible common equity to tangible assets ratio increased to 8.61%, up 18 basis points from the 2nd quarter. Additionally, tangible book value per share increased to $37.12 up from $35.92 in the 2nd quarter and over 16% higher than 1 year ago. As David mentioned earlier on the call, our Board of Directors has authorized a new stock program with an aggregate purchase price of up to $30,000,000 that will run through the end of 2022.
We also completed a $60,000,000 offering of 3.75 percent fixed to floating rate subordinated notes due in 2,031 during the quarter. While a portion of the proceeds were used to redeem the $25,000,000 of subordinated debt callable at the end of the quarter, With that, I will turn it back to the operator so we can take your questions.
We will now begin the question and answer session. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from John Rodis with Janney. Please go ahead.
Hey, good afternoon, guys. How are you doing?
Doing good, John. How are you?
Good. So I guess I got a few questions. I guess first off, let me just start on the buyback. Great to see that announcements. The stock is up some this morning, but obviously stock is still trading below tangible book.
For modeling purposes, How should we model it? How aggressive, I guess, do you guys plan to be with this buyback?
I think, obviously, we're in a blackout Right now, I think as we it was nice to see the price pop up today. But yes, to your point, John, we're still below tangible book. And we have it in place through the end of next year. So I think, obviously, we need to weigh strategic opportunities we have in front of with the buyback. But I think we can do both.
So I think it's really a timing issue. I think ideally, we feel like Through the end of 2022, we should be able to do a I think a pretty good portion if not all of the buyback, but just timing may impact that just due to other strategic opportunities we have in front of us that we're evaluating.
Okay, Ken. So it sounds like it will be more of a I guess just to rephrase more of a drawn out process. It's not something you'd look to Do the whole $30,000,000 in the next quarter or 2?
Correct. Yes. Ken said, we've got other opportunities we're taking a look at, John, and We think there's a position to do both. And if for some reason we get something over the finish line that the market does Mike, then we'll come in with guns blazing on the buyback and take advantage of it. So But we have definitely enough capital.
And with the increase in earnings over next year, we think we're in a position we could feasibly do both Very easily.
Okay. And Ken, switching gears on expenses, they were down linked quarter, but it looked like there was some noise. I guess you said Some OREO sale gain and then looks like you had the reimbursement of some expenses. So how should we think about operating expenses going forward?
Yes, they were I mean, obviously, we're pleased with how they came in, but there were some moving parts in there that were benefit of timing and Just other offsets to expenses. I think if we go back and Look at we're probably close to call it a $15,000,000 to $15,500,000 run rate as we get in for the 4th Quarter, that's probably a good estimate in that line. And then kind of looking forward, we've continued to build out Our SBA platform in terms of headcount, some of that was delayed over the course of the year due to the timing of originations, but we've continued to add there and Obviously, you have folks around the bank. So you bake a full year's run rate of headcount Into next year's expenses and we're probably closer to 15.5% to 16% looking forward next year.
Okay. Thanks, Ken. And maybe just one more question. Ken, the your, I guess, sort of near term drivers, the increase in spread income of $9,000,000 to $11,000,000 Just curious, does that Off of this year, is that with or without the $800,000 of sub debt expense and spread income?
That would be without. Okay.
Okay. So the reported number?
Yes.
Okay. Makes sense. Thanks, guys.
Thanks, John.
The next question will come from Michael Perito with KBW. Please go ahead.
Hey, good afternoon, guys.
Hey, Mike.
I wanted to start on the Apple Pie partnership. David, I was wondering if you
could maybe just give us
a little bit more color on kind of how those loans are sourced and then what the nature
of the
partnership is. Are they Originating loans and you guys are holding them on balance sheet? Are you guys involved in the underwriting? Is there something more beyond that within the partnership, just love a little bit more color there if you don't mind.
Sure, Michael. The partnership is actually Almost identical to what we were doing with provide healthcare lenderLendevor over the last 3 or 4 years. Apple Pie has Been around about 8 to 10 years, I think, and existence has originated over $1,000,000,000 worth of franchise loans. And They have long term relationships with franchisees all over the country continue to increase. They like The banking world as a whole were a little soft, during the COVID crisis because the franchise or it's kind of pulled in the range to Help existing franchisees instead of expanding.
So they are on a nice growth curve themselves here in the second half of the year, which is great timing for us. We have created a credit box like we did with Provide and they source those loans that fit that credit box. And I can I'll tell you from our underwriters and internal folks, they're static with what we've seen to date. I think out of all the loans we process, we even we only had About maybe 1 or 2, as far as some of the information in the file. So it comes to us.
We fund that Stays on our books. We're doing full servicing. They do the origination, but we take it from there. So it's Been a great program. We're really excited about the kickoff and it looks like it's going to be very strong for 2022.
Is there any opportunity with these customers pick up funding or anything else like along those lines that over time or is it really just purely a lending relationship partnership?
No, they're taking a look at the funding side and I misspoke there Michael. They are doing the servicing. We purchased the loan, but we have talked to him about getting the deposit opportunity with these folks as well. And one of the nice things about it, they've been in the industry long enough. A lot of these individuals are not brand new franchisees.
There's a guy coming back for store number 3, store number 4, they're multi franchisees. So It's good, strong credits, good, strong businesses, kind of the opposite of our STL program. Historically, we've financed the facility, Not the operator. So it's been an interesting time for us to look at the credits. But yes, there is definitely This program where it is not just a real estate, we're hopefully working on a program to get the deposit relationship as well.
And is this kind of An indicator of the type of things that you guys are looking at that are in the pipeline? Are they mostly partnerships that would fall into this type of arrangement or is there more diversity in some of the incremental things that you guys are alluding to that that could come in the near term?
A lot of diversity. The other partnership we announced here during the Q3 with Fensley, that's just a technology which actually complement our small business products. We have other folks where it's a lending opportunity. We have 2 or 3 Fintech firms out here where it's a deposit opportunity. So, we're looking at all facets and we obviously have other Fintech companies that Have technologies that just make our existing systems work better.
So we've got to put, I think I said Probably 1 or 2 calls back. We've got about 10 different services that we're actively looking at and talking to and should have Hopefully, several more announcements here in the Q4 and early next year.
And what are the rates kind of on these Apple Pie loans roughly?
Apple Pie net sales is a little over 5% and the term is a little lower than the Healthcare loans were averaging, I think about a 7 year term on it versus 10. So Got it. A nice bump up in yield as well as a shorter term.
Got it. Helpful. And I want to clarify on The top line guide, Ken, the $9,000,000 to $11,000,000 of growth in 2022, I mean, just Are we basing that off kind of like an annualized year to date run rate or something like in the high $90,000,000 range? Is that the right Way to think about it or is there a different would you clarify that at all?
No, that's exactly it, Mike. On an FTE basis, you're spot on.
Okay. And then just lastly, I was wondering if you guys could just spend a minute on the dynamics within the SBA in the quarter. It sounds like was pipeline pushed out? Was it really just the margin contract More than you expected, but now the pipeline is larger than you expected for the Q4. Just curious about the dynamics there with the revenue pickup in the Q4.
And then Part B of that, just wondering if you can provide a little bit more color behind the scenes about the pipeline for next year, the revenue target. Is that the current team, is that continuing to add more salespeople? Just would love a little bit more insights there, if you guys don't mind.
Yes. Quick one for you. At the end of the Q3, during the month of September, the SBA had used Colson is their transfer agent, I think from the beginning of time. They switched over to a new firm called GuideHouse that created a lot of slowdown And complications with the CARES payments that were being made by the government as well as getting sales to the secondary market. So part of the push here, 4th quarter and the bump up is stuff that we just couldn't get through the pipeline.
Obviously, September 30th is our physical year end, which Just massive volume for them to begin with. It was also the end of the 95% insurance rider. So SBA was flooded, picked a pretty poor time to change the transfer agent in hindsight. But so a little bit of the 4th quarter bump up Carryover going into 2022. We just had a meeting with the SBA team and plotting out with finance Their budget, we hope they add another BDO or 2, but we've got a good solid team.
We're definitely adding some more back office staff to support that volume growth, but they're pretty comfortable. It was a 48 hours ago that 215 is a realistic number and a good opportunity for us. So obviously, SBA has been up. PPP is getting out of the way and kind of getting cleaned up for everybody. So it's making it a little more competitive.
But we We think we've got a great team, great program and look forward to really growing significantly again next year.
Awesome. Thank you guys for the color and taking my questions. Appreciate
it. Appreciate it, Mike. Thanks, Mike.
The next question will come from Brett Rabatin with Hovde Group. Please go ahead. Hey,
good afternoon.
Hey, Brett. How are you? Hey, Brett.
Good. I wanted to first When we think about the loan portfolio growth in the 4th quarter, looking at some of the individual segments that have had payoffs, I guess I'm curious, do you expect that some of the line items like healthcare maybe continue to have Some atrophy due to rate competition. And as we think about Q4 2022, I mean, it looks like you could be a double digit core grower as the PPP winds down here. What are your thoughts on Net origination versus the payoffs that you might be looking at?
Yes, I think we feel pretty good about pipelines going To the end of the Q4 here, I do obviously healthcare finances, it's an asset Class we like and we'd love to find a new team to work with in that area and grow that portfolio. But there may be some continued decline in the short run there. But obviously, the apple pie growth Forecasted for the year, which is right on track is that remains right on track, remains pretty robust. Yes. But we're also seeing in areas in single tenant, for example, pay downs, Prepayment activity has slowed a bit there.
And with kind of the bump up in the longer rates on the curve, our pricing It's more competitive than it was earlier in the year when the tenure was at a bottom. So I think kind of across the board in a handful of And what we retain on the SBA as well. I mean, our origination our SBA pipeline is strong and We're still probably selling some of that volume at the 90% guarantee. So we're not retaining as much as we would kind of in a normalized environment. But I think kind of across the board as we look at loan growth for the 2nd excuse me, for the Q4, I think we feel good about in several different areas about just overall net growth.
Brett, the only area that's Going to be a little soft force here in the Q4. And our teams feel like they've been running in place all year. We've got a couple of very large C and I opportunities or C and I loans that are on the books today that there's potential sale of the companies here in the Q4. So that could Some impact on C and I, but as Ken said, everything else looks really stable and growing and we're pretty pumped up. Obviously, the By adding $100,000,000 there, we'll more than compensate, particularly with the yield on it, any loss that we have from healthcare.
So we're pretty Excited about 4th quarter numbers.
Okay. And then the other thing I was curious about was just thinking about the deposits. You've obviously managed the CD cost down nicely. Most of the industry has just had so much liquidity kind of come at them From a deposit perspective, but you guys deposits have been fairly stable. Can you talk maybe about The management of the deposit base and then I think people are starting to think about rates and don't know if it's late 2022 or 2023 Possibility, but as we think about the eventuality of higher rates, how you're thinking about managing The deposit costs when we go to the other side of pulling on rates.
Yes. I mean, obviously, we're like many other Thanks and many other banks in the industry that have suffered from excess liquidity on the balance sheet. We alluded I alluded to it in my comments on the margin. But we also had the position of CD maturities Coming off and really, I mean, we've had the growth and we've seen the growth in money markets and checking accounts, especially in the small business as we've thrown a lot of time and effort and marketing behind growing those balances. But in terms of deposit growth overall, we had the luxury of having those dollars come in the door that really replaced the maturities on the CD side.
And I think as we kind of look forward into 2022 as well, we continue to see that happen. Eventually, your CDs can't there's eventually gets to a point where the maturities kind of the pace of maturities will go down. But just looking into 2022, we just see continued again, I'll call it just continued shift in the composition of deposits from CDs to money markets checking, etcetera. And I think when we think about pricing and what may happen in different rate environments, Last time the rate environment was we were in an up rate environment, betas on CDs were at 100%, whereas in the other non maturity products, They were lower than that. In the money market space too, they were probably closer to 50% to 60% than the 100 And on CDs, so I think going into an up rate environment, when that occurs, I think we feel much, much better about the Opposition to the deposit base.
And like I said, we're not done. We continue to foresee this continual shift well into 'twenty two and beyond.
One of the things we're doing, Brett, obviously, somewhere in 'twenty two, they're probably going to have to do something on rates. You made the comment that Everybody is flushed with cash. So hopefully, as the rates start to climb, it won't be the feeding frenzy we had the last time in 'eighteen, where The Fed moved 25 institutions. We're moving 35 to get the money, as Ken said. But one of the other things we're doing right now, we can mock up some commercial CD Opportunities with insurance companies, etcetera, in that 3, 4, 5 year range that are under 100 basis points.
So we're We adjusted pricing a little bit to pick up some stuff, a little longer in term, obviously, a little more costly, but still in the big scheme of things, very to seek money for that next 3 to 5 year window. Okay.
And then maybe just one last one, if I could, Just around capital, you could obviously do the entire $30,000,000 and it wouldn't really you still Not having any issues with capital. I'm curious some of these other investments that you're thinking about or partnerships, Are they going to require equity capital to be deployed with these firms or how should we be thinking about some of these additional Partnerships that you're considering?
Acquisition opportunities, obviously, that's going to involve some dollars. I will tell you, The FinTech companies that we're working with and opportunities, we are making, hopefully, in some cases, capital investments in that company by A percentage, a lot of them are in a Series B, Series C round, etcetera, and there's an opportunity to participate. Not only are we Signing on as customers and providing products or services to each other, but we're also taking an equity stake In the company, if possible. So a little bit, it's not massive dollars. We're not playing Silicon Valley Bank here, but It's a good opportunity for us to kind of get on the ground floor with some really, really strong opportunities, at least from my background and 4 years in technology, there's some neat things happening out here that I think could be in the long term very beneficial to us.
But as Ken said, we're Continue to look at opportunities for acquisition. That obviously would hit the capital pretty heavily, but On the cash being pretty heavily about capital. But we generated the I guess we're in a great position right now. We're closing in on 9% TCE. That's probably the highest we've been since the very earliest days of the bank.
So we've got a lot of Stability and a lot of opportunity here.
Okay, great. Appreciate all the color.
Thank you.
Thanks, Brett.
The next question will come from George Sutton with Craig Hallum. Please go ahead.
Thank you. I wanted to address, David, if we could, the commercial pipeline in a little more detail. How much of that is Market dynamic because I haven't heard much of increased commercial demand out there. So So I'm wondering market versus your execution and just the strength of your go to market that's really creating these opportunities?
We're kind of in an enviable position, George. I think with the last expansion we had of the FedEx Here in Indianapolis, we're now actually larger than the home base in Memphis, Tennessee. And there are warehouses popping There's this little firm called Amazon that's trying to suck up every square inch of space in and around Indianapolis for distribution. So, it's just that we're in the right place, right It's right time with a great team and, it's some folks that we've worked with over the years that are just having a tremendous opportunity right now. I think there's Close to 7000000, 8000000 square feet of warehouse space going up in the next 12 to 14 months here in the Indianapolis marketplace.
We have ventured a little bit outside of the Indianapolis marketplace on commercial real estate with some of these firms. Obviously, Amazon is not throwing all the takes into one basket here in Indianapolis. So it's been a nice opportunity for us to take Some long term connections and taking advantage of the market.
Got you. That's helpful perspective. Actually, ironically, I was in Indianapolis last week and I saw that Amazon Annapolis last week and I saw that Amazon operation that you're talking about, it is quite impressive. So or I'm sorry, FedEx So, operation? Yes.
So, relative to the Series B deals B and C deals that you mentioned you were contemplating, is this incremental To the investments you've made through private equity funds, you're referring to additional opportunities,
just to be clear. Yes. Some of them were still working with the private equity funds and some were going direct into the company themselves. In fact, we're We're not going to go crazy with it, but there are Just a lot of really good companies coming up out here right now and opportunity to get in on the ground floor. We're going to take advantage of that.
Okay. And then finally, just so I fully appreciate the buyback that you are looking at, that is really Result of the valuation opportunity that you see, that is in no way shape or form related to any diminishment of M and A
You hit the nail on the head, George. That's exactly right. I've always been grow first, buy back second. So we're still looking at the acquisition market extremely heavily.
Perfect. Thanks guys.
Appreciate it. Thank you. Thanks George.
Our next question will come from Nathan Race with Piper Sandler. Please go ahead.
Yes. Hi, guys. Good Going back to the acquisition discussion, obviously with the stock still trading below tangible book, it's difficult to use your currency, I'd imagine. So I guess within that context, how should we be thinking about potential earn back periods on tangible Solution and so forth, as you guys consider complete acquisitions and so forth and not just partnerships per se?
So once we're looking at the current time, Nate, our cash deals, it is not an equity situation. So The really only dilution would be if there's any goodwill in the deal, but it's coming out of cash. We're Obviously trading it. I guess we're closer to I don't know where we're exactly where we're at today, but yesterday we're 90% of plus. That's still not good currency to buy anything with.
So we're looking at cash opportunities.
And would the earn back period on those potential deals be south of 3 years or how are you guys going to think about just the tangible Book value dilution associated with acquisitions near term?
Yes. We're using the 3 year as kind of the Play a month or 2 shorter, a month or 2 longer, doesn't really excite us. But, yes, we're focusing on a 3 year return.
Okay, great. And then maybe changing gears and thinking about balance sheet size and securities book. There's been some quarterly fluctuations Between the average and end of period balances in the securities portfolio over the last couple of quarters, how should we be thinking about the size of the securities book as you guys have a pretty strong loan pipeline, Particularly with Apple Pie coming on board, does the securities book kind of hold steady here over the next few quarters, Ken? Or does it kind of shrink to also support the expanding Outlook on NIM?
Yes. I think that probably the way to look at that is And there is support on that. Obviously, we want to take our cash and fund loans first. And as we've said on this Numerous times, I think we feel really, really great about the pipelines we have in front of us. Of course, sometimes you can't always control timing.
But I would say that on average, you'd probably expect the securities balance to drift Over from where it's at today, we did, if you remember earlier in the year in June, we did take a lot of our cash Balances were well north of $500,000,000 and we put a lot of cash into the securities portfolio then with the expectation that We wouldn't need to put much in there and just let cash balances fund loan growth. So I wouldn't expect I don't expect cash Our securities balances to go up from here and would expect them to drift down over the next 12 months. But as I said, depending on loan timing, we may put some money away into the securities portfolio. And sometimes We buy mortgage backed for CRA purposes, but that's really probably all the activity you would see in that area over the next 6 months minimum.
Yes. One of the things that's happening in the marketplace too, Nate, as Ken said in his comments today, we picked up 3 points This past quarter on the securities portfolio, a lot of it, it is mortgage backed product that we've had on the books some of it for quite some time. And obviously, it's refi slowdown and repayments on those things slowdown. That's going to help, 1, boost the yield on The securities portfolio will also slow down the payback. So it won't run off quite As fast as it has been and particularly if there's real solid indication that the Fed's going to bump up rates a little bit.
Refi's, I think, are down over That's like 62% on a year over year basis. So that has impact on our mortgage side, which kind of hurts us. But On the other side, it helps us because it really slows down some of the paybacks on those securities and the premiums that we had to write down. So double edged sword, But it should be pretty stable for the balance of the year and into 2022.
Okay. That's helpful. I appreciate all the color. Thank you, guys.
Thank you.
This concludes our question and answer session. I would like to turn the conference back over to David Becker Please go ahead, sir.
Thank you, Chuck. And I'd like to thank all of you for joining us today. We had a tremendous quarter. We're happy to share it with you. We hope you have a great day and continued success.
Thank you very much.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.