First Internet Bancorp’s Earnings Call: Optimism Amid Challenges

First Internet Bancorp ((INBK)) has held its Q2 earnings call. Read on for the main highlights of the call.

First Internet Bancorp’s recent earnings call painted a mixed picture of optimism and caution. The company reported improvements in interest income, SBA portfolio performance, and fintech deposit growth, which were tempered by challenges such as elevated provision expenses, nonperforming loans, and a decline in noninterest income. Despite these hurdles, the company remains optimistic about future growth while adopting a conservative approach to risk management.

Interest Income and Margin Improvement

The earnings call revealed a positive trend in interest income, which increased alongside a decrease in interest expenses. This led to a net interest margin surpassing 2%. The yield on average interest-earning assets rose to 5.65%, while the cost of interest-bearing liabilities declined to 3.96%. These figures indicate a strengthening financial position for First Internet Bancorp.

SBA Portfolio Improvement

The company reported significant progress in its SBA portfolio, with nonaccrual loans decreasing and past dues dropping by 48% since the previous quarter. The number of loans on deferral also halved since the end of 2024. This improvement aligns with broader trends in the macro SBA program data, showcasing effective portfolio management.

Positive Loan Growth Outlook

First Internet Bancorp projects a 2% unannualized growth in its loan portfolio for each quarter in the second half of 2025. This growth is supported by upward pricing in loan originations, which is expected to sustain the increase in net interest income and margin.

Strong Fintech Deposit Growth

The company’s fintech partnerships have yielded impressive deposit growth, with expectations for continued expansion throughout 2025. This growth underscores the success of First Internet Bancorp’s strategic collaborations in the fintech sector.

Elevated Provision Expense and Nonperforming Loans

Challenges persist with elevated provision expenses and nonperforming loans, particularly within the franchise finance and small business lending portfolios. Notably, $12.6 million of franchise finance loans were reclassified to nonperforming status, accompanied by specific reserves of approximately $4.5 million.

Decline in Noninterest Income

Noninterest income saw a decline, amounting to $5.6 million for the quarter, down by about $7 million from the previous quarter. This decrease was attributed to the strategy of holding SBA loans longer before selling them into the secondary market.

Challenges in Franchise Finance Portfolio

The franchise finance portfolio faced challenges, with 5% of the portfolio on nonaccrual and about one-third of those balances covered by specific reserves. Due to market uncertainties, the company has ceased originating or purchasing new franchise loans.

Forward-Looking Guidance

Looking ahead, First Internet Bancorp provided guidance for the remainder of 2025 and into 2026. The company anticipates a rise in net interest margin to between 2.20% and 2.35% by the end of 2025, driven by higher loan origination yields and declining deposit costs. Loan portfolio growth is expected to continue at 2% per quarter, with noninterest income projected to increase significantly. Operating expenses are estimated at $27 million per quarter, with elevated provisions for loan losses. For 2026, the company forecasts net interest income between $158 million and $163 million, a net interest margin of 2.5% to 2.6%, and earnings per share ranging from $5.20 to $6.30.

In conclusion, First Internet Bancorp’s earnings call highlighted a balanced outlook of growth and caution. While the company is making strides in interest income and fintech deposit growth, it remains vigilant in managing risks associated with nonperforming loans and provision expenses. The forward-looking guidance suggests a strategic focus on sustaining growth while navigating market uncertainties.