First Internet Bancorp Q2 FY2025 earnings call

Credit Update - Franchise finance: $12.6M of loans moved to nonperforming in Q2 with $4.5M in specific reserves; 5% nonaccrual, 1/3 covered by reserves. Delinquencies declined to 62 basis points. - SBA: Nonaccrual loans down, past dues dropped 48% QoQ, deferrals halved. Held-for-sale SBA loans up $92M. ### Net Interest Income - Interest income up, interest expense down; net interest margin on a tax effective basis rose above 2%. ### SBA Lending - Originated $1.8B since 2020; changes in underwriting, held-for-sale loans up, noninterest income from gain on sale expected to pick up. ### Outlook - Forecasts for net interest income, noninterest income, expenses, provision for loan losses for 2025 H2 and 2026.

In the second quarter, for the franchise finance portfolio, $12.6 million of loans were moved to nonperforming status with related specific reserves of about $4.5 million. At quarter end, 5% of the franchise portfolio was on nonaccrual and about 1/3 of those balances were covered by specific reserves. The SBA lending segment: Since entering the SBA lending business in earnest in 2020, $1.8 billion in small business loans have been originated. Nonaccrual loans are down, past dues dropped 48% from 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 2024. Held-for-sale SBA loans were up $92 million over the prior quarter, and noninterest income for the quarter was $5.6 million, with gain on sale of SBA loans contributing $1.6 million.

2025 H2 - Net interest margin expected to rise to 2.20%-2.35% in Q3-Q4; net interest income expected $33.5M-$35.5M Q3, $35.5M Q4. - Noninterest income expected to pick up, with gain on sale of loans driving it; expenses $27M Q3-Q4. - Provision for loan losses $10M-$11M Q3-Q4. ### 2026 - Loan portfolio expected to grow 5%-7%; net interest income $158M-$163M; noninterest income $51M-$54M; expenses $108M-$112M; provision for loan losses $37M-$40M.

• Credit risks in franchise finance and SBA vintages from COVID period. - Fluctuations in SBA loan premiums due to repurchase activity and investor demand. - Uncertainty in Fed rate cuts affecting deposit costs and loan yields.

Q: Brett Rabatin asked about provision guidance and SBA changes.

A: David Becker said they boosted provision to be conservative as they didn't want to underestimate again; Nicole Lorch clarified SOP changes in SBA and that the cycle is winding down.

Q: Nathan Race inquired about charge-off trajectory and deposit growth.

A: Kenneth Lovik said charge-off prediction can be choppy but ACL coverage expected to grow; Kenneth Lovik also talked about deposit growth with fintech partners.

Q: George Sutton asked about lending willingness and fintech.

A: David Becker said they'll hit SBA goals, fintechs like Ramp and jaris are doing well with deposit growth.

Q: Emily Lee asked about SBA dollar value dynamics and expenses.

A: Nicole Lorch explained SBA premium softness due to repurchase activity; Kenneth Lovik talked about expense variability with compensation related to SBA and construction commissions.