First Internet Bancorp Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 24, 2025

Key Takeaways

  • Positive Sentiment: Interest income rose 11.5% quarter-over-quarter, while net interest margin improved 14 bps to 1.96% (2.04% on a fully taxable equivalent basis).
  • Negative Sentiment: Credit issues in the franchise finance and SBA portfolios drove a $4.5 million specific reserve in franchise and led to just $0.02 in diluted EPS for Q2.
  • Positive Sentiment: Overall credit quality is in line with industry norms at 1% nonperforming loans to total loans, with delinquencies improving 15 bps to 62 bps and active servicing measures yielding better early workout outcomes.
  • Positive Sentiment: In SBA lending, nonaccruals fell 48%, past-due balances and deferrals are down over 60%, and adjustments to sales processes have enabled a rebound in gain on sale transactions in July.
  • Neutral Sentiment: Management forecasts Q3/Q4 net interest margin of 2.2%–2.25% and 2.3%–2.35%, Q3/Q4 NII of $33.5 million/$35.5 million, provisions of $10–11 million per quarter, and 2026 EPS of $5.2–6.3 with 5%–7% loan growth.
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Earnings Conference Call
First Internet Bancorp Q2 2025
00:00 / 00:00

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Operator

Good day, everyone, and welcome to the First Internet Bancorp Earnings Conference Call for the Second Quarter of twenty twenty five. At this time, please note that all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. Also note that today's event is being recorded. I would now like to turn the conference over to Ben Brodkovic from Financial Profiles Inc. Please go ahead.

Ben Brodkowitz
SVP at Financial Profiles, Inc

Thank you, operator. Hello, everyone, and thank you for joining us to discuss First Internet Bancorp's second quarter financial results. The company issued its earnings press release yesterday afternoon, and it is available on the company's website at www.firstinternetbancorp.com. 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.

Ben Brodkowitz
SVP at Financial Profiles, Inc

Joining us today from the management team are Chairman and CEO, David Becker President and COO, Nicole Lorch and Executive Vice President and CFO, Ken Levick. David and Nicole will provide an update on credit in certain lines of business, and Ken will discuss some of the financial details for the quarter as well as an outlook for the remainder of the year and for 2026. Then we'll open the call to answer your questions. Before we begin, I would 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 involves 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.

Ben Brodkowitz
SVP at Financial Profiles, Inc

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, for 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 will turn the call over to David.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

Thanks, Ben. Good afternoon, and thank you for joining us on the call today. In the second quarter, interest income was up, interest expense was down, net interest margin on a tax effective basis rose above 2%. These are all positive outcomes that we had expected. And yet, due mostly to credit issues and to a lesser extent, changes in noninterest income, we are reporting $02 of diluted earnings per share for the quarter.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

We're not happy about that, and we know you are not happy about that as well. To address your concerns head on, we're going to run this call a little differently than we have in the past. Rather than walk you through every element of our income statement in detail, we're going to start with an update on credit, then we'll walk you through our forecast for the second half of this year and all of 2026. Then we'll take your questions. There is a lot, a lot of detail in the deck that we don't plan to speak to today unless you have specific questions on it.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

So let's go to credit. For the third consecutive quarter, we are talking about elevated provision expense and non performing loans, once again in our franchise finance and small business lending portfolio. With other lending verticals that have a sterling track record like single tenant public finance, our overall credit quality is sound and is in line with industry norms. The Federal Reserve reported nonperforming loans to total loans for all banks at 1% at the 2024 and again at the end of the first quarter of twenty twenty five, and that's exactly where we are. Across our loan portfolios, our delinquencies, which serve as an early warning indicator, declined to 62 basis points, a 15 basis point improvement in the last ninety days.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

I'll give you additional color on the franchise finance portfolio, then I'll hand it over to Nicole to talk about what we see in SBA. In the second quarter, we moved $12,600,000 of franchise finance loans to nonperforming status with related specific reserves of about $4,500,000 At the end of the quarter, 5% of the franchise portfolio was on nonaccrual and and about onethree of those balances are covered by specific reserves. So clearly, we still have some wood to chop, but we believe this portfolio, which consists of loans purchased from and serviced by Apple Pie Capital, is headed in the right direction. There are six thirty three total loans in this portfolio. And as of June 30, none of them were on deferral and only nine of them were past due.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

Additionally, the pace of new delinquencies has slowed. And with a now more active servicing role that we talked about last quarter, early intervention creates more opportunity for us to pursue solutions that minimize losses. We have had recent success in workout strategies with borrowers leading to improved recovery rates. We believe the steps we have taken and continue to take have resulted in a significant progress towards derisking the portfolio. With a very small pool of delinquent borrowers and a slowing pace of new delinquencies, we see promising signs for improvement in future periods.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

The vast majority of the portfolio is performing well with an average yield over 7% that has contributed towards our continued growth in net interest income and net interest margin. Now I'll turn it over to Nicole to talk about small business lending.

Nicole Lorch
Nicole Lorch
President & COO at First Internet Bancorp

Thank you, David. Let's unpack what we're seeing in SBA. Since we entered the SBA lending business in earnest in 2020, we have originated $1,800,000,000 in small business loans. We have helped thousands of entrepreneurs achieve their dream of business ownership. Considering everything these business owners have had to react to in the last five years, from supply chain disruptions to inflation, tight labor markets, rising rates, uncertainty around government actions and taxes, we continue to feel positive about how our borrowers are navigating the current environment.

Nicole Lorch
Nicole Lorch
President & COO at First Internet Bancorp

It has been well covered by members of the media and members of Congress that the Small Business Administration has seen challenges across its portfolio. Because we are a nationwide generalist lender, our experience is likely to mirror that of Small Business Administration's portfolio as a whole. In early twenty twenty three, we implemented the first adjustments to our approval criteria and to our processes in response to what we see in our portfolio, the SBA portfolio as a whole and the economic outlook. We've added bench strength to our SBA teams, including our leadership team, servicing credit and closing. Closing is where guarantees are often lost, and we haven't lost one yet.

Nicole Lorch
Nicole Lorch
President & COO at First Internet Bancorp

And now we are seeing improvement in our portfolio consistent with our expectations. Loans on nonaccrual are down. Past dues dropped by 48 since the linked quarter. And the number of loans on deferral at the end of the second quarter was half the number at the end of the fourth quarter of twenty twenty four, and the dollar value is down by more than 60%. The improvement we are seeing in our portfolio is consistent with macro SBA program data.

Nicole Lorch
Nicole Lorch
President & COO at First Internet Bancorp

Over the past two years, there was a sharp rise in repurchase activity on the part of the SBA as well as lenders. Generally speaking, repurchases are due to a troubled or delinquent credit. The repurchase levels, which are published monthly, peaked in March 2025 and are decelerating. For reference, June 2025 was back down to a level of April 2024. We see this as evidence that this cycle is winding down.

Nicole Lorch
Nicole Lorch
President & COO at First Internet Bancorp

The elevated level of prepayments has slightly tempered demand for SBA loans in the secondary market, So we are seeing softer premiums as we get back into the secondary market. Being one of the most active lenders in the SBA industry, we believe we have a responsibility to lead by example. As we noted for you last quarter, we implemented changes to our loan sale process to align with SBA's standard operating procedure. This is one way we can preserve shareholder value by protecting the guarantee on these loans. As a result, we held our originated loans for a longer period of time before selling them into the secondary market.

Nicole Lorch
Nicole Lorch
President & COO at First Internet Bancorp

You'll see this shows up a few ways in our financial results. First, our SBA loans held for sale are up $92,000,000 over the prior quarter. Holding these loans played a part in margin expansion. Second, we reported noninterest income of $5,600,000 for the quarter, which is right in line with the 5,000,000 to $6,000,000 that Ken forecast in our last call. Included in noninterest income was $1,600,000 on gain on sale of SBA loans, which was down about $7,000,000 from the linked quarter while we held the majority of our originations.

Nicole Lorch
Nicole Lorch
President & COO at First Internet Bancorp

This was a one quarter impact for us to revise our processes, and we're back in the market now. In fact, we have already sold $52,000,000 in guaranteed balances for a total of $3,700,000 in gain on sale month to date in July, with more sales to follow this quarter. Based on the loans we have in our held for sale bucket plus a strong pipeline behind that, we are forecasting gain on sale will propel meaningfully improved non interest income in the second half of this year. All told, we find the improvement in our SBA results encouraging. I want to thank our entire SBA team for their tireless commitment to our borrowers, to each other and to First Internet Bank.

Nicole Lorch
Nicole Lorch
President & COO at First Internet Bancorp

And now I'll turn it over to Ken for more on our twenty twenty five-twenty twenty six outlook.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

Thank you, Nicole.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

Let me start by discussing some of the drivers of net interest income and net interest expense during the quarter. Net interest income for the second quarter was $28,000,000 or $29,100,000 on a fully taxable equivalent basis, up 11.511% respectively from the first quarter. Net interest margin improved to 1.96% or 2.04% on a fully taxable equivalent basis, up fourteen and thirteen basis points respectively. The yield on average interest earning assets rose to 5.65% from 5.57% driven by an eight basis point increase in loan yields as rates on new originations exceeded 7.5% during the quarter. The cost of interest bearing liabilities declined to 3.96% from 4.02%, driven by a nine basis point decrease in interest bearing deposit costs as we continue to benefit from CD repricing and as we grew lower cost fintech deposits.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

With lower CD pricing across the curve, we expect further declines in deposit costs throughout 2025 as higher cost CDs mature and are replaced by lower cost FinTech deposits or new CDs. When combined with the higher loan origination yields, this should support ongoing growth in net interest income and margin, even assuming no Fed rate cuts. At quarter end, 1,800,000,000.0 or 33% of our deposits were indexed in some form to the Fed funds rate, offering additional cost reduction potential if rates decline. Now turning to future periods, I would like to provide some commentary on our outlook for the 2025 and into 2026. Note that these estimates assume a flat rate environment.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

Given the economic uncertainty, we are not going to attempt to predict the timing and magnitude of Fed rate cuts. We remain excited about our strategies in place to drive and net interest margin growth as loan yields continue to increase and deposit costs decline. For the third and fourth quarters each, we expect to grow our loan portfolio at an unannualized rate in the range of 2% each quarter. The impact of funding loans at higher origination rates in conjunction with lower deposit costs is expected to result in our fully taxable equivalent net interest margin rising to somewhere in the range of 2.2% to 2.25% in the third quarter and 2.3% to 2.35% in the fourth quarter. In dollar terms, we expect fully taxable equivalent net interest income to increase as well and be in the range of approximately $33,500,000 in the third quarter and $35,500,000 in the fourth quarter.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

With regard to noninterest income and expense, looking at the balance sheet, we have well over $100,000,000 of guaranteed SBA balances that we expect to sell in the third quarter, and origination pipelines remain strong to support fourth quarter volume. As such, we expect to see noninterest income pick back up around to around 13,300,000 in both the third and fourth quarters, driven by an increase in our gain on sale of loans. Furthermore, we expect expenses to land in the range of $27,000,000 in both the third and fourth quarters. With respect to the provision for loan losses, we expect some tempering in the overall provision. However, it will remain elevated compared to historic levels.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

We anticipate the provision to be within the range of 10,000,000 to $11,000,000 for both the third and fourth quarters. Moving to our expectations for 2026. Just as we are excited about the prospects for the second half of twenty twenty five, we are equally excited about the outlook for 2026. We anticipate continued growth in our income generating loan verticals as well as our small business lending platform on a relatively stable expense base, which is expected to drive positive operating leverage for the full year of 2026. From an asset perspective, we expect to grow the loan portfolio somewhere in the range of 5% to 7% over the course of the year.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

While we do expect deposit costs to stabilize under a flat rate scenario in 2026, loan originations will continue to price upwards. We anticipate fully taxable equivalent net interest income in the range of $158,000,000 to $163,000,000 for the full year, which reflects a fully taxable net interest margin in the range of 2.5% to 2.6%. Moving to non interest income and expense, as we continue to bolster our SBA origination platform and expect originations to grow, we have modeled non interest income in the range of 51,000,000 to $54,000,000 for the full year. On the expense side, we estimate expenses to be in the range of $108,000,000 to $112,000,000 representing annual growth of around 8.5% to 12.5. With respect to the provision for loan losses, we are going to take a conservative position and estimate the full year provision to be in the range of 37,000,000 to $40,000,000 In terms of how this guidance translates to earnings per share, if you take an optimistic approach, that is the higher end on revenue and the lower end on cost, you should arrive at around $6.3 per share.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

If you take a more conservative approach to the forecast, the low end of the range equates to about 5.2 in earnings per share with a midpoint in the area of $5.8 per share. With that, I'll turn it back to the operator so we can take your questions.

Operator

Thank you, sir. Sir. And your first question will be from Brett Rabatin at Hovde Group. Please go ahead, Brett.

Brett Rabatin
Director - Research at Hovde Group

Hey, good afternoon, guys.

Nicole Lorch
Nicole Lorch
President & COO at First Internet Bancorp

Hi, Brett.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

Hi, Brett.

Brett Rabatin
Director - Research at Hovde Group

Wanted to start on the provision guidance for the back half of this year and next year. I mean, if just kind of think about the numbers, that's essentially a 90 to 100 basis point level through the end of next year. Can you just talk about that level and what you might be anticipating related to credit stress from here and where you think you guys are relative to working through the SBA and the franchise finance portfolios?

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

Quite honestly, Brett, we hope like we don't need that number, but we're tired of sitting here and telling you guys every quarter that we missed. So we pushed it up to what it's been for the last couple of quarters. As we stated in all the numbers we shared with you, the portfolios are headed in the right direction. It looks like the cycle is turning to our favor, but we don't want to short sight it again next year and or the second half of this year for that matter and wind up short. So we boosted it up.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

We hope that's a nice carryforward for us that will actually improve the bottom line because we don't need it. But we don't want to be in a position to underestimate and wind up short as we have in the last couple of two, three quarters.

Brett Rabatin
Director - Research at Hovde Group

Okay. That's helpful. And then on SBA, know, Ken, we had a conversation during the quarter about consumer spending was down. And obviously, higher interest rates have impacted some of the SBA industry loans. But wanted to get a better sense of what you were seeing in SBA.

Brett Rabatin
Director - Research at Hovde Group

And then I didn't quite understand Nicole's comment about the chain or what detail on Nicole's comment regarding, changes to industry standards, which I I assume is the revised things that have happened since the new administration.

Nicole Lorch
Nicole Lorch
President & COO at First Internet Bancorp

Sure. I can clarify that for you, Brett. Yes, there have been changes to the SOP that were announced recently, and I think they were effective as of June 1. What we're really seeing is a reversal to the prior Trump administration in terms of some of the rules. And so that has changed the industry a bit.

Nicole Lorch
Nicole Lorch
President & COO at First Internet Bancorp

There were concerns that, that might soften demand for SBA loans either on the part of borrowers or in the secondary market, but that really hasn't shown up to us at all. We're seeing strong pipelines continue.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

But what those changes did do to us, Brett, in the second quarter is slow down our sales in the secondary market. So as Nicole stated, we were down $7,000,000 in what we had anticipated for the quarter, which was $0.70 worth of earnings for the quarter. So had those changes not taken place, we wouldn't have a lot of the inks that we have today. But it is what it is. And as she said, we're back up and running over $3,000,000 in gain on sale already in the month of July.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

So this quarter, we'll come back to normal, a little ahead of where we've been in the past.

Nicole Lorch
Nicole Lorch
President & COO at First Internet Bancorp

It's pretty common, Brett, for those SBA loans to be sold hot off the closing table into the secondary market. What we're doing is making sure we have the the trailing documentation, like titles and licensures and deeds all sewn up before we put those loans out for secondary market sales.

Brett Rabatin
Director - Research at Hovde Group

Okay. And if I could sneak in one last one around credit, just on the franchise finance portfolio. I know you've tightened up underwriting. Can can you remind me, generally speaking, what the underwriting terms were for the franchise finance book?

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

What do you mean by underwriting terms in this case, Brett?

Brett Rabatin
Director - Research at Hovde Group

Well, just, you know, any metrics that you can you can give me related to, you know, loan to values, debt service coverage ratios, you know, how you generally look at the different franchises and how you underwrite cash flow or or real estate or Yeah. The know, how you

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

No. Thank you. Okay. I got got you. Thanks for the clarity.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

I mean, these are it is cash flow lending. Right? So you're you're either, you're writing to the underwriting cash flows of the business. And I think our minimum on that is probably a 125 debt service coverage, but probably targeting higher than that. So that's kind of the target.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

There is oftentimes very little real estate involved with these deals, but you are getting personal guarantees on everything and you are getting additional pieces of collateral. You might have business equipment and things of that nature. So that's kind of the overview at a high level.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

And due to the changes going in the marketplace, Brett, we stopped originating or purchasing loans at the beginning of the year. We haven't purchased anything since January. Just too much uncertainty in the marketplace and concerns about consumer sentiment, tariffs, etcetera, etcetera. So the portfolio has actually dropped outstandings by a little over 10% since the first of the year.

Brett Rabatin
Director - Research at Hovde Group

Okay. Great. Appreciate all the color guys.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

Thank you.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

Thanks, Brett.

Operator

Next question will be from Nathan Race at Piper Sandler. Please go ahead, Nathan.

Nathan Race
Nathan Race
MD & Senior Research Analyst at Piper Sandler Companies

Hi, everyone. Good afternoon. Thanks for taking the questions. Nathan. Hey, appreciate all the commentary around the provision outlook.

Nathan Race
Nathan Race
MD & Senior Research Analyst at Piper Sandler Companies

You know, just curious, you know, what's kind of underpinning that outlook in terms of how you're thinking about the charge off trajectory going forward. I imagine it's not gonna be, you know, as high as we've seen the last handful quarters, but just curious kind of the underlying charge off assumptions and kind of what that equates to in terms of the reserve trajectory from here.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

Yes. I think sometimes the charge off number itself can be a little bit choppy because sometimes what we find is whether you think what goes through provision, right? You either have a charge off or you have a specific reserve. So sometimes that you could put a specific reserve and then charge off a lot like this quarter in particular, right? We had seven dollars plus million of the net charge offs had already been reserved for.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

So I think probably maybe the better way to look at it is really just what is what is the provision? What is the income statement impact? Because sometimes it's a little bit hard to predict where it's gonna be a direct charge off or a specific reserve. But, yeah, I mean, we do we do expect the the the ACL coverage to grow over time. I mean, granted this quarter, it was down a bit, but it was because of the charge offs that I just alluded to that we had full reserves on.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

But I do we do expect that the ACL coverage ratio will grow over time as we kind of continue to expect at least throughout the end of this year is to kind of continue to work through some of the problem credits we've identified.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

One of the issues out there, Nate, for example, the franchise finance loans at the end of the year, we had 40 loans that had received some kind of deferment on them. Today, that number is zero. We haven't had any for several months. So we're getting comfortable that everything's kind of crawled out from under the rug at this point, but we're still just being overly cautious not knowing what might pop. We're in the same situation.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

Deferrals are way down in the SBA world. So that's kind of leading indicator that something is wrong with this loan, obviously, when they're asking to defer payment. And that has not only has delinquency gone down, deferments are virtually zero. We have nothing in either bucket that's over ninety days delinquent that we haven't already put the nonperforming. And as Ken said, about 40% of that has some form of specific reserve against them.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

So we think we're cleaning it up quickly and the future looks a lot brighter than the past has. But we want to be, quite honestly, just conservative. We'd rather surprise you with lower numbers than continue to hit high numbers.

Nathan Race
Nathan Race
MD & Senior Research Analyst at Piper Sandler Companies

Yes. Understandably. Of the $33,000,000 $34,000,000 in charge offs over the last few quarters, do guys you have a breakdown of how much of that was SBA versus franchise?

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

I don't have the total the number off the top of my head. If I were going to speculate here, but I think it's probably a little bit heavier weighted on the SBA side just because I think in terms of some of the problem development, some of the I guess, maybe some of the problem loans developed earlier there than they have in franchise. So it's probably just maybe a timing, you know, matter on that one. But I would I would guess it's a little bit heavier weighted on on on on SBA than it is on franchise.

Nathan Race
Nathan Race
MD & Senior Research Analyst at Piper Sandler Companies

Okay. Got it. And then obviously, you guys had nice deposit growth in the quarter. Deposits expected to slow in the back half of this year just given maybe some excess cash on the balance sheet come out of the quarter? You kind of think about the trajectory of deposits over the next couple of quarters?

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

I think actually, Nate, we're having a lot of success with a couple of our fintech partners on the deposit side. And I think throughout the course of the rest of 2025, we expect pretty solid deposit growth there. So I mean, I think what that will allow us to do is probably take our CD rates down a little further and kind of manage that. Because if you think about this, Nate, for the rest of 2025, we have over $800,000,000 of CDs maturing at a weighted average cost above $460,000,000 So there's a lot of latitude to even if the fintech deposit growth is above our expectations, we can certainly manage overall balance sheet growth by managing CD pricing.

Nathan Race
Nathan Race
MD & Senior Research Analyst at Piper Sandler Companies

Mhmm. And and what rate are those CDs rolling into these days from $4.60 roll off?

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

The the $4.60 if we were doing it today, it's probably in the mid four twenties.

Nathan Race
Nathan Race
MD & Senior Research Analyst at Piper Sandler Companies

Okay. Got you. Just lastly for me, it seems like you guys are still expecting pretty decent loan growth. I think you mentioned around 8% annualized for the next couple of quarters. So just curious, maybe thoughts of perhaps slowing growth and maybe getting back in the market buying back stock just given the valuation today?

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

Yes. No, I mean, the loan growth is I mean, we're excited about the loan growth opportunities because it's a lot of it is continue we're seeing increased production in the SBA, granted we're only retaining a 25 of that on average. But as we talked about on the gain on retaining loans longer before we sell into the secondary market, if you look at the balance sheet, you will see that loans held for sale was in excess of $100,000,000 Well, with our model and our process now for selling, we expect that average balance to be around $100,000,000 a quarter. So that's the added benefit of holding those for longer is we're clipping nice interest income at a higher rate. We have had a lot of success in the construction side in originations, and a lot of that growth are just unfunded commitments that draw.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

So I think the rest of a lot of the rest of the areas of the portfolio are fairly managed growth. As a reminder, there are certainly a couple of portfolios, residential mortgage and health care that are in decline. But certainly, we are going to try are managing the balance sheet responsibly. And what I think probably it's I guess when I look at the capital ratios though as well, I prefer as much as I'd love to be buying stock back at this price, I think we also need to be responsible and build capital ratios. So as we can come back in and get earnings compounding at a higher rate than overall balance sheet growth, then we can start to rebuild capital ratios and then probably start to take a look at share repurchase.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

And back to the loan growth, it's not really impacting the capital ratios per se because we have one of the lowest deposit loan to deposit ratios in the history of the bank. So we're able to pick up the higher yield on the loans without bumping up the balance sheet and putting any real additional pressure on the equity side of things. So right now, we're in a good position. As Ken said, when we're putting stuff on the books in the 7%, 8%, as long as we can do that at great quality, we'll stick with it. We did find out we're doing a little research here where we're chatting with you.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

The split on the losses over the last six months, franchise was actually 54%, SBA was 46%.

Nathan Race
Nathan Race
MD & Senior Research Analyst at Piper Sandler Companies

Okay. Very helpful. I appreciate all that. And then, Ken, just one last one, sorry. What's the tax rate assumptions you're assuming with all the specific guidance you laid out, which is very helpful, by the way? So thank you.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

Yes. For 2026, I assume 15%, seeing that we got starting to get back to a stronger earnings trajectory. For the remainder of this year, probably somewhere, call it, in the 10% to 12% range. Probably a little I might be a little bit high on that, but that's what I'm putting into the model.

Nathan Race
Nathan Race
MD & Senior Research Analyst at Piper Sandler Companies

Okay. Thanks again, everyone. Really appreciate it.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

Appreciate it.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

Thanks, Nate.

Operator

Next question will be from George Sutton at Craig Hallum Capital Group. Please go ahead, George.

George Sutton
Senior Research Analyst at Craig-Hallum Capital Group LLC

Thank you. My first question is around sort of a willingness to lend. Where are you really willing to lend right now? And in that context, when we talk about the SBA side, Dave, you've talked about kind of $600,000,000 goals in the past. I assume those are sort of off the table as you're thinking about it today.

George Sutton
Senior Research Analyst at Craig-Hallum Capital Group LLC

But just wanted to clarify, where are you willing to lend?

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

Actually, George, we're going to hit the $600,000,000 goal, probably beat it. We bet this year and all indications, pipelines and activity, we could get up to $650,000,000 to 700,000,000 next year. We're okay lending in the SBA area. As Nicole said, over the last eighteen, twenty four months, we started changing some of our underwriting parameters. We got out of certain industries and verticals in the SBA space.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

What we're bringing on the books today is good quality, good solid loans. It's really the 'twenty one, 'twenty two vintages kind of back in the COVID stage that's the ones that are hurting us today. And a lot of ours are existing business acquisition. So they've survived. The people buying today, the companies have survived all that craziness.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

Inflation is down. Interest rates really haven't helped them yet, but there is kind of a light at the end of the tunnel. So we have changed we're very comfortable with the underwriting standards that we're doing now and continuing on the SBA side. And I think the play, as Nicole said, we're obviously very focused on staying within all the parameters and all the guidelines from the SBA. And knock on wood, I'd say this and I'll jinx this, but in the $1,000,000,000 plus in loans that we've done and the charge offs we've had recently, we've never had a denial on the insurance nor a cure request.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

So it's been clean paper, good paper. It's going solid. The commercial side of our business is strong. The consumer side has stayed strong. That's the only thing we've really kind of curtailed per se is the franchise.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

We are sticking to higher rate standard, which is kind of we priced ourselves out of a couple of markets. We have peers that are going a little further down the food chain on rate, but we stayed on like on the consumer side. We're still at super prime. It's seven seventy plus credit scores, 78% yield, same way on the commercial. It's silver plus five year silver plus 300.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

So we're actively out in the market. We have good pipelines every place. Is the franchise is the only thing we truly shut off.

George Sutton
Senior Research Analyst at Craig-Hallum Capital Group LLC

Got you. Thank you. So other than Ken's very brief discussion on successful deposit growth with some of your fintech relationships. I wondered if you could just sort of update us on the ramp and the JARUS' of the world in terms of how how those programs are going, what your plans are to grow that part of the business.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

It's going strong. Ramped in the month of June, we processed $10,000,000,000 worth of payments for them in the month of June. Our deposit base on their small business savings product is approaching $500,000,000 Our FinTechs as a whole were north of $1,000,000,000 in total deposits. That's all below Fed funds and it's also below cost of our Federal Home Loan Bank borrowing. So increased, we've been able to pay down a lot of that.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

JARUS is moving ahead, doing well. They've got a couple of really big opportunities. We haven't blown up the forecast on them, but I think this past month, we added about 1,000,000 point dollars to our portfolio. So we're 3,000,000 to $4,000,000 and we're about $10,000,000 in a loan pool with them. So it's getting bigger month by month, and we see a path with a couple of the people they're talking to that could take the roof off towards the end of the year, early part of 'twenty five.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

But we have settled down tremendously on the fintech space. We have counseled four of our clients off, and we have about five or six in the pipeline. We've got 10 active, I think four in testing at the current time and certification. So it's been worth all the pain and agony. We grew revenue by 38% quarter over quarter.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

And we had forecasted, I think, initially about $4,000,000 net there. And without anybody doing anything crazy, we're probably we'll get closer in the 5,000,000 to $6,000,000 range for this year. If a couple of them take off, we could get considerably higher than that. So it's been a good move and we're seeing good results for all the work that we've done.

George Sutton
Senior Research Analyst at Craig-Hallum Capital Group LLC

Last question. And I'm following up on a prior question that was related to the buyback that was answered by our CFO with the answer of capital issues. I'll I'll ask the CEO the same question in a different way. So you've got a $44 book value and a $23 stock price. At what point does that equation just simply overwhelm the capital thoughts that Ken expressed?

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

I'll go back to the statement I think I made last quarter. If we stay with a two handle on the front, we're not going to buy back. But God forbid, we fall into the teens, that overweighs the capital constraints on my basis. So it it's foolish to be at that level for a whole lot of reasons, and we hit the teens, we'll be buying. If we stay above 20, we probably won't, but teens will be in a buyback position for sure.

George Sutton
Senior Research Analyst at Craig-Hallum Capital Group LLC

Okay. Thanks, guys.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

Thanks, George.

Operator

Next question will be from Emily Lee at KBW. Please go ahead, Emily.

Emily Lee
Equity Research Associate at Keefe, Bruyette & Woods (KBW)

Hi, everyone. This is Emily Lee stepping in for Tim Slitzer. Thanks for taking my question.

Nicole Lorch
Nicole Lorch
President & COO at First Internet Bancorp

Hi.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

Hi, Emily.

Emily Lee
Equity Research Associate at Keefe, Bruyette & Woods (KBW)

So most of my questions have been answered, but just to dig into the expense outlook for $27,000,000 of quarterly expenses in Q3 and Q4 the rest of this year. I was just wondering what line items you think can kind of drive you above or below that expectation.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

Yes. I think probably the line item for us that always has the most variability is the compensation. And what drives the most variability in that are really SBA commissions and construction commissions. So for and I think we had some commentary in the release and in the deck on kind of what we did in the second quarter based on year to date performance was just some adjustment to senior management incentive compensation. But look, I think we have the outlook for SBA originations, as David talked about, continues to the pipeline is strong throughout the remainder of the year and our construction business continues to do well.

Kenneth Lovik
Kenneth Lovik
EVP & CFO at First Internet Bancorp

So kind of I mean, we're kind of forecasting that those kind of pieces that are have the most variability are going to be on the higher end of the range.

Emily Lee
Equity Research Associate at Keefe, Bruyette & Woods (KBW)

That's great. Thank you. And if I could ask one more. You mentioned in your opening remarks that SBA dollar volume value has dropped this quarter. Can you give a little more color on the dynamics around that?

Nicole Lorch
Nicole Lorch
President & COO at First Internet Bancorp

Sure. I'll take that one. So SBA premiums tend to fluctuate based on demand for the product. And what we're seeing right now is the investors who are buying those SBA loans are expecting a certain amount of time that they're going to hold that risk free investment in their portfolio. But when a loan runs into trouble, if it goes to delinquent or if it defaults in total, the lender or the SBA will rebuy that back from the investor.

Nicole Lorch
Nicole Lorch
President & COO at First Internet Bancorp

And what has happened is those loans are being bought back at an increasing or had been buying back at an increasing rate. So investors were not seeing the whole period that they expected on those returns. So consequently, softened a little bit and premiums came down. Historically, we would get north of 8% premiums on those loans. Right now, The last round that we bid out, we were seeing somewhere net about 7% high mid-seven So we're just seeing a little bit of softness there.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

Honestly, Emily, if the gross bid is the full bid is under 8% in this last round, we had four loans that were under 8% gross, and we just decided to hold them on the books. We have enough flexibility in the balance sheet and in the back end full scale on the sales side. So we're just keeping them on our books.

Nicole Lorch
Nicole Lorch
President & COO at First Internet Bancorp

Those loans are typically coming on at prime plus 2.5%. So over time, we're going get a better return holding those loans than we would get in a 7% premium by selling them.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

Correct.

Emily Lee
Equity Research Associate at Keefe, Bruyette & Woods (KBW)

Understood. Thanks so much for taking my questions.

Nicole Lorch
Nicole Lorch
President & COO at First Internet Bancorp

You got it.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

Appreciate it. Thank you.

Operator

And at this time, Mr. Becker, we have no other questions. Please proceed.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

Thank you, Sylvia. Well, yes, we certainly appreciate you joining us for today's call. As you said, we've had continued to deliver strong improvement in net interest income. The macro environment remains a little uncertain. Customer activity is a little destabilizing right now.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

But our lending teams continue to perform very well as we just discussed, especially small business lending in the commercial side. We're also excited about the growth potential from the FinTech that George just asked me about, and we will further diversify and strengthen our revenue base. With improvements in the loan mix and anticipated reductions in deposit costs, we're confident in our ability to deliver stronger earnings in the coming quarters. As stated, we might have patted just a wee bit on some of the reserves, but we feel it's smart for both of us. So as fellow shareholders, we remain committed to enhancing profitability and long term value.

David Becker
David Becker
Chairman & CEO at First Internet Bancorp

And we thank you for your continued support, and have a great afternoon.

Operator

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.

Executives
    • David Becker
      David Becker
      Chairman & CEO
    • Nicole Lorch
      Nicole Lorch
      President & COO
    • Kenneth Lovik
      Kenneth Lovik
      EVP & CFO
Analysts
    • Ben Brodkowitz
      SVP at Financial Profiles, Inc
    • Brett Rabatin
      Director - Research at Hovde Group
    • Nathan Race
      MD & Senior Research Analyst at Piper Sandler Companies
    • George Sutton
      Senior Research Analyst at Craig-Hallum Capital Group LLC
    • Emily Lee
      Equity Research Associate at Keefe, Bruyette & Woods (KBW)
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