First Internet Bancorp (INBK) 2025 Q4 法說會逐字稿

Thank you for standing by. My name is [Fulvia]. I will be your conference operator today.

At this time, I would like to welcome everyone to the First Internet Bancorp's earnings conference call for the fourth-quarter and full-year 2025.

(Operator Instructions) Please note that this event is being recorded. It is now my pleasure to turn the call over to Julia Ferrara from ICR. You may begin your conference.

Thank you, operator. Hello, everyone. Thank you for joining us to discuss First Internet Bancorp's fourth-quarter and full-year 2025 financial results.

The company issued its earnings press release earlier this afternoon. 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.

Joining us from the management team today are Chairman and CEO, David Becker; President and COO, Nicole Lorch; and Executive Vice President and CFO, Ken Lovik. David and Nicole will provide an overview. Ken will discuss the financial results. And then, we'll open up the call for your questions.

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 conditions 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.

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.

This time, I'd like to turn the call over to David.

Thank you, Julia. Good afternoon and thank you for joining us on the call today.

We are pleased to close 2025 with strong fourth-quarter results that demonstrate the power of our differentiated digital banking model. Our core business fundamentals remain robust, with a quarterly revenue of 21% over the prior year period. Our digital-first approach and disciplined expense management enabled us to navigate challenging credit issues related to two of our loan portfolios, while capitalizing on opportunities across our diverse business line.

Before I provide an update on credit, which I know is top of mind for the investment community, I would like to briefly touch on our 2025 key accomplishments:

We delivered strong results for the year, including 30 % net interest income growth year over year, consistent expansion of net interest margin throughout 2025, and actively managed expenses to drive improved operational efficiency.

We successfully completed the strategic sale of approximately $850 million in single-tenant lease financing loans to Blackstone, which strengthened our capital position, enhanced our rate risk profile, and accelerated our progress towards achieving a 1% return on average assets. This transaction reduced our exposure to lower-yielding fixed rate assets and provided significant balance sheet flexibility.

Our Banking-as-a-Service initiatives achieved remarkable growth, generating over [1.3 billion] in new deposits for 2025, more than tripling the amount from the prior year. We also processed over $165 billion in payments volume, an increase of over 225% from 2024; and maintained strong deposit relationships that enhanced our funding flexibility. These partnerships have evolved to become true strategic revenue drivers to re-occurring transaction fees, program management fees, and interest income.

In our SBA business, despite industry challenges, including a government shutdown, we maintained our position as a top 10 SBA 7(a) lender, with nearly $580 million in funded origination during 2025. Our enhanced underwriting standards and improved servicing capabilities strengthened our competitive position, while we navigated temporary process improvements required by evolving SBA guidelines.

Additionally, we expanded and strengthened our SBA leadership team to drive long-term business growth. We promoted David Bybee to Senior Vice President, Government Guaranteed Lending, to oversee all aspects of our SBA operations. We also added talent and depth to our credit underwriting and portfolio management teams.

We maintained solid capital discipline, while returning [$2.7 million] to shareholders through dividends and share repurchases, demonstrating our commitment to balanced capital allocation. During the quarter, we executed our shared buyback program by purchasing 27,998 shares at an average price of $18.64 per share, capitalizing on temporary market dislocation.

Starting (inaudible) credit, I want to address the credit challenges and the proactive measures we have taken to remedy the two problem loan areas, primarily our small business lending and franchise finance portfolio. As such, I want to emphasize several critical points:

First, I want to reiterate our credit issues are isolated to two specific portfolios, SBA and franchise finance. The remainder of our lending verticals maintain solid credit quality, with our overall level of non-performing loans in line with peer institutions.

Second, our enhanced risk management processes and proven underwriting standards are yielding positive results. In addition, we've implemented advanced analytics that provide deep portfolio intelligence and enable proactive borrow engagement.

Third, at the further evaluation of the problem loans, we're getting to a higher provision for 2026 than we initially estimated. This is designed to clean up our remaining problem portfolios and position us for improved performance, going forward. We expect credit to improve gradually in the second half of the year, as the problem loans come to resolutions and are replaced with higher-quality loans or if we have solid capital and liquidity positions to weather any credit related challenges.

Our regulatory capital ratios remain well above minimum requirements, with a total capital ratio of 12.44 % and a common equity Tier 1 ratio of 8.93 %, as well as substantial liquidity coverage. Most importantly, we believe credit will stabilize as we progress through 2026, as problem loans are resolved and enhanced underwriting standards take effect with new ones.

Despite the isolated credit issues related to two portfolios, our core revenue engine remains robust with multiple growth drivers. We have strong loan and deposit pipelines across our commercial lending verticals and vast partnerships. That interest margin continues, as we benefit from higher loan yields and declining deposit costs.

Our technology investments, including AI-powered origination, underwriting support, and customer (inaudible) support, are having greater efficiency, while maintaining conservative credit management practices.

Looking ahead, our digital-first model positions us advantageously for continued growth. Our interest rate-neutral balance sheet structure, disciplined loan pricing, and diversified revenue streams provide multiple growth factors over the long term.

We expect continued net interest margin expansion, robust fintech partnership growth, credit stabilization, and the benefits of our strategic balance sheet optimization to drive improved profitability. We remain competent in our ability to deliver strong financial performance, while building long-term shareholder value through disciplined execution of our strategic priorities.

I'll now turn it over to Nicole for operational highlights, including SBA, BaaS, and credit.

Thank you, David.

Despite the longest federal government shutdown in history, we've successfully netted $8.6 million in secondary market sales for SBA loans through November and December, demonstrating the resilience of our operations and market position.

Looking ahead to 2026, we are strategically realigning our SBA production with our enhanced and more stringent underwriting guidelines. This deliberate shift prioritizes credit quality over volume, positioning us for sustainable long-term performance. As a result, we anticipate production of approximately [$500 million] for the year, a more measured approach that reflects our commitment to prudent risk management.

Given our focus on attracting higher-credit quality borrowers, we expect to offer more competitive rates, which will naturally lead us to retain a larger portion of our production on balance sheet in 2026. As a result, we estimate gain on sale revenue in the range of $19 million to $20 million compared to $29.4 million in 2025. While this represents a decrease in fee income, it will generate a positive impact on net interest income and prove accretive to our net interest margin.

Our BaaS platform continues to demonstrate growth and diversification. As a sponsor bank, we support deposit program; payment processing, including card, ACH, and real-time payments; and lending programs across our fintech partner network.

Importantly, none of our partners depend on card interchange as their sole or primary revenue source, which provides stability and allows us to scale our partnership model, as our balance sheet grows.

Demand for our sponsorship and program oversight capabilities remains robust. We are fielding interest from potential partners with use cases for real-time payments, which we support through both the RTP network and FedNow, where we served as a pilot institution.

First Internet Bank is committed to standing at the forefront of payment innovation but we also excel at good-old ACH. I'm pleased to note that First Internet Bank was a co-winner of the award for Payments' Innovation of the Year from American Banker for our work with Increase to deliver high-fidelity ACH, a tech solution that brings greater reliability to ACH transactions.

Our payment processing volumes continue to reach impressive scale. We facilitated $65 billion in payments for our fintech partners in the fourth quarter, which was up over 40% from volumes processed in the third quarter. As of December 31, 2025, we maintained almost $2 billion in deposits, with a significant portion strategically positioned off balance sheet, where we earn attractive spreads reported as non-interest income.

Turning to credit performance, as David mentioned, our overall loan book remains strong and continues to perform in line with industry trends. Regarding our franchise and SBA portfolios, we took decisive action throughout 2025 to address credit issues, including tightening and refining underwriting standards, implementing streamlined processes for earlier problem loan detection, and improving collection processes.

Our franchise finance portfolio continues to show noticeable progress due to several strategic factors. We ceased purchasing loans in this space, allowing the portfolio to naturally decrease in size. The remaining borrowers tend to be stronger, multi-unit operators, with greater operational experience and financial resources.

Our collection efforts are further supported by ApplePie Capital serving as an intermediary and providing valuable brand support.

For our SBA loan, credit remains challenging but with an encouraging outlook in the second half of 2026. Our SBA lending has been primarily in the area of business acquisition, which has elevated levels of transition risk, as new owners take over.

Our internal analysis -- which is supported by external data and analytics, as well -- suggests there may be more pain to come, as we work through loans originated in late 2024 and early 2025 under previous guidelines.

I would like to give a special mention to our special asset team that worked diligently on the franchise finance and SBA portfolios throughout 2025. They have done an outstanding job staying on top of our work-outs, offering alternatives when possible. They have had some pleasant surprises for us on a handful of loans, where recoveries in the fourth quarter and into January came in higher than expected.

We have significantly strengthened our organizational capabilities throughout 2025 to enhance our operational depth and customer reach. Beyond personnel, we have refined our credit guidelines to better identify transaction risk. We've strengthened our processes to improve both credit quality and the borrower experience. Most notably, we are implementing an AI-driven solution to standardize our document collection process, reduce origination times, and create a more seamless experience for our clients.

Our investments in portfolio predictive analytics represent a transformational advancement in our risk management capabilities. This technology enabled us to identify potential issues earlier in the credit life cycle and take proactive measures to protect our portfolio quality. This comprehensive approach to credit management, operational excellence, and strategic partnership development positions us exceptionally well for continued success and sustainable long-term growth.

I will now turn it over to Ken for additional insight into our fourth-quarter performance and 2026 outlook.

Thanks, Nicole.

We delivered solid fourth-quarter results, with net income of $5.3 million or $0.60 per diluted share. Our results for the quarter included a pre-tax loss of $400,000 on the sale of an additional $14.3 million of single-tenant lease financing loans to fulfill our commitment related to the large sale in the third quarter. Excluding the impact of the loan sale, adjusted net income was $5.6 million and adjusted earnings per share was $0.64.

Adjusted total revenue for the quarter was $42.1 million, a 21% increase over 2024. When combined with well-managed expenses, adjusted pre-provision net revenue totaled $17.9 million, up 66% year over year. These results reflect strong operational execution and sustained business momentum across our core segments.

Net interest income for the fourth quarter was $30.3 million or $31.5 million on a fully taxable equivalent basis, up about 29% and 27% year over year, respectively. Net interest margin improved to 2.22% or 2.30% on a fully taxable equivalent basis, both up 18 basis points from the prior quarter and 55 basis points year over year.

The yield on average interest-earning assets for the quarter rose to 5.71% from 5.52% in the prior year period, driven primarily by a 46 basis points increase in loan yields, as higher rates on new originations more than offset the impact of three Federal Reserve rate cuts during 2025.

We also saw a meaningful decline in funding costs during the same period, with the cost of interest-bearing deposits falling to 3.68% from 4.3% in the prior year period. The rising yields on interest-earning assets, in conjunction with declining cost of interest-bearing deposits, demonstrate delivery on our years-long effort to reposition the balance sheet and optimize our mix of earning assets.

Adjusted non-interest income for the quarter totaled $11.8 million, down from the prior quarter due to the large volume of SBA loan sales in the third quarter and up from $11.2 million in the prior year period.

As Nicole mentioned in her comments, gain on sale revenue from SBA loan sales remained solid during the quarter and was supplemented by higher net loan servicing revenue, as we began servicing the portfolio we sold to Blackstone. Additionally, fee revenue from our fintech partnerships increased during the quarter, continuing a trend of quarterly growth throughout the year.

Non-interest expense for the quarter totaled $24.2 million compared to $24 million in the prior year period. The slight increase over the prior year period was due primarily to continued investment in tech and AI to enhance both front- and back-office operations and costs related to working out problem loans, offset by lower incentive compensation.

Turning to credit, in the fourth quarter, we recognized a provision for credit losses of $12 million, which consisted primarily of $16 million of net charge-offs, partially offset by a net decrease in specific reserves, as $3.5 million of loans charged off during the quarter had existing reserves.

Non-performing loans increased to $58.5 million in the fourth quarter. The ratio of non-performing loans to total loans was 1.56%, compared to 1.48% in the linked quarter. However, the increase in non-performers consisted almost entirely of SBA-guaranteed balances and fully collateralized SBA-unguaranteed balances. Excluding guaranteed balances, the ratio of non-performing loans to total loans was 1.20%.

At quarter end, the allowance for credit losses represents 1.49% of total loans. Excluding the public finance portfolio, the ACL to total loans increased to 1.67%. Additionally, the small business lending ACL to unguaranteed balances was 7.34%.

Total loans, as of December 31, 2025, were $3.7 billion, an increase of $143 million or 4% compared to the linked quarter and a decrease of $424 million or 10% compared to December 31, 2024. The increase over the linked quarter reflects strong origination and funding activity in single-tenant lease financing, construction, and small business, partially offset by lower public finance and franchise finance balances. The decline from the prior year period was driven by the large single-tenant lease financing loan sale, offset by strong growth in construction; commercial and industrial; and small business lending.

Total deposits, as of December 31, 2025, were $4.8 billion, representing decreases of $76 million or 2% and $93 million or 2% compared to September 30, 2025, and December 31, 2024, respectively. As David mentioned earlier, we experienced tremendous growth in fintech deposits throughout 2025, allowing higher-cost CDs and broker deposits to mature. Furthermore, the ability to move fintech deposits off balance sheet enhanced our ability to manage the size of the balance sheet, following the large loan sale in the third quarter of 2025.

Now, turning to our full-year 2026 outlook, we expect continued loan growth in the range of 15% to 17%, driven by strong pipelines across our commercial lending verticals; as well as a lower base, coming off the balance sheet repositioning trade in the third quarter.

Net interest margin expansion should continue, reaching 2.75% to 2.80% by 2026, as we benefit from ongoing deposit repricing and optimized asset mix. We anticipate fully taxable equivalent net interest income of $155 million to $160 million for the full year.

Non-interest income is projected at $33 million to $35 million, reflecting lower SBA originations, as well as lower gain on sale revenue, as we retain a greater amount of guaranteed balances; but partially offset by continued BaaS growth and increased loan servicing revenue.

Operating expenses are projected at $111 million to $112 million, representing controlled growth that includes continued investment in tech and AI to support our revenue risk management initiatives, while maintaining operational efficiency.

With regard to the provision for credit losses, as David mentioned earlier, we are guiding to a higher provision to capture net charge-offs and additional reserves related to problem loans; and estimate $50 million to $53 million for the full year, which should moderate as we progress through 2026 and problem loans are resolved.

We expect provision for the first half of the year to remain elevated, with first-quarter provision expected in the range of $17 million to $19 million and second-quarter provision in the range of $14 million to $16 million. We expect the provision to improve in the second half of the year.This guidance translates to earnings per share of $2.35 to $2.45, with a midpoint of approximately $2.40 per share.

2025 was a year of disciplined execution and strategic investments in people, process, and technology, setting us up for much stronger financial performance in 2026, particularly in the second half of the year.

As shareholders ourselves, we remain laser-focused on building long-term shareholder value.

With that, I'll turn it back to the operator for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session.

(Operator Instructions)

Brett Rabatin, Hovde Group.

I might need a little bit of help walking through some of the variables. The two key ones might be just on SBA.

How much of that will you have on the balance sheet, do you think; maybe an average or how you see that progressing throughout the year and at what yield that would positively impact that [6.39] loan yield in the fourth quarter?

And then, secondly, on the funding side -- I know you've got about $2.4 billion of CDs that cost [4.19] in the fourth quarter. I know we've talked in the past about what's repricing. I might need an update on repricing opportunities on the first half of the year, particularly on the CD side.

Thanks.

Sorry, Brett. We didn't catch the very first part of your comments.

Okay. Sorry. (multiple speakers) --

Sounds like you're about NII and net interest margin.

Yes. Correct. Sorry. Might have a bad connection here. But, yeah, I'm just trying to, Ken, get a better understanding of the NII guidance.

Just wanted to understand, on the SBA side, how much of that goes on the balance sheet; and at what yield, throughout the year. And then, just trying to make sure I understand the repricing opportunities on the funding side of the equation.

Yeah. Well, I'll start with the funding side of the equation first because a lot of that is, to be honest with you, somewhat mechanical.

We do expect to see continued decrease in deposit costs throughout the year. Now, we'll probably see, on a quarterly basis, a larger impact in the first quarter. Because we will reap the benefits of two rate cuts in the fourth quarter that will have played their way through and will have full run rate on Fed funds types -- Fed funds index deposits, other money markets that go down with a decent beta on rates. Obviously, we bring down our CD rates, as well.

Just as a reminder: We're not forecasting any rate cuts in our forecast for next year. But we do expect to see deposit costs go down, again, like I said, more in the -- the biggest quarterly basis will be in the first quarter.

Just as an indication of that -- and I'll give you some ideas on some CD repricing but our fintech deposits, as far as, like, repricing -- for example, on December 31, the spot rate on our [on-balance-sheet] fintech deposits was 3.52%. Today, the spot rate is 3.35%. So there's a nice drop there.

In terms of just looking at deposit -- CD maturities, we got about $850 million of CDs maturing over the next six months, with a weighted average cost of 4.15%. The current weighted average cost of CDs coming in the door today is 3.65%. So that's a pick-up of 50 basis points there.

Even if we push that out to deposit, CDs that mature over the next twelve months, that's almost $1.4 billion. The weighted average cost on that is 4.11%. Again, almost a 50 basis points pick-up on those.

Just by virtue of CDs rolling off the balance sheet and either being replaced by fintech or being renewed or new CD production, there's a nice pick-up there on the CD costs.

On the lending side, it's continuing to do what we have been doing here for the past year. New loan production, new loan rates. The new origination rates in the fourth quarter were about 6.85%, getting close to 7%, which is above the portfolio yield, as a whole.

So when we think about what we where we expect to see growth over the coming year, we do expect to see our combination of construction and investor commercial real estate continue to grow. We expect growth in C&I lending, as well. We've had success in some of these -- we'll call them -- emerging verticals that we've started to get into with wealth advisory lending. Equipment finance is doing well. These are all yields in the [high-6s] to [low-7s] on that.

And then, again, with SBA, with our intention to retain a greater percentage of our guaranteed originations, we expect that we'll be holding an additional almost $94 million of those on the balance sheet -- priced it; call it, prime plus one and a half.

So, yeah, all of the lending verticals that were rigid, all the new yields coming on the balance sheet, are just obviously higher than what the current yield is in the portfolio today. It's really just a continuation of what we've been doing over the last 12 to 18 months.

Okay. I wanted to -- there's a lot of questions embedded in the credit stuff but wanted to see if you had an updated number for criticized loans. I think, I believe there were a $139 million last quarter. Just wanted to see what those did, particularly in the SBA bucket and the franchise finance bucket?

And then, it sounds like the issue is you're expecting some more business acquisition-oriented SBA credits to maybe migrate. Just wanted to see if there was any commonality, time in business, or anything else that you seem to be hitting on that is impacting that piece of the portfolio?

Yeah. The total criticized loans probably increased about, call it, $16 million or so. That was up, call it, 10%, 11%. Yeah. I would say it's probably a mix, predominantly, of SBA in there. There's probably some in franchise.

Obviously, keep in mind that these are loans that -- these aren't necessarily substandard loans. These are loans just may have been downgraded from a [6] to a [7] that are still performing. We're actively monitoring loans in that bucket and working with borrowers on that.

We did see some in the franchise -- excuse me, well, in both, in franchise and in SBA roll off, as we charged off some loans, as well. But, yeah, we saw a little bit of an uptick. Most of it, though, was the in special mention category, not substandard.

Youd asked a question if we are seeing some commonality into issues. About the only thing we've got, Brett, is on the SBA portfolio, in that 12 to 18-month window is where -- if they're gonna run into a problem, they run into it. It's getting through that first year of business; year-end close-out closeout and stuff that -- so we got very aggressive during the fourth quarter, calling people -- I think we reached out -- Nicole can (multiple speakers) --

400 borrowers.

We've talked over 400 borrowers that are currently okay; and just did a touch-base to see, hey, how's the year end shaping up for you? Anything we can do? Trying to get a little bit ahead of the game.

But as we've said time and time again, there is no given vertical, no given business type, that's getting into trouble. But if there's any commonality to them, they seem to hit in that 12- to 18-month window. It's when they hit the wall or start to go south.

So we're trying to get ahead of that and stay on a proactive basis with them before they get to that window. In some cases, it's just a matter of a shortfall of some cash. They get pretty frustrated. They want to get out -- so we can help them make a payroll or something to keep things afloat.

We're very much on a positive play with them at the current time.

Okay. I appreciate the color. Thanks, guys.

Thank you.

Nathan Race, Piper Sandler.

I was curious if there are any interest reversals that impacted the margin in the fourth quarter, just, given the credit cost outlook for this year, which is really helpful. Thank you for that.

Just curious if that contemplates any additional interest reversals, just as you continue to work through VSBA credit quality factors.

Yeah. We do model in interest reversals into our assumptions on net interest income as part of our forecast. With some of the -- the migrate -- some of the net charge-offs, we probably had, I don't know, maybe 4 to 400,000 of, probably, interest reversals there, which is -- I call that 3 basis points to 5 basis points or so; probably consistent with what we've seen in prior quarters.

Okay. That explains the NII margin shortfall, relative to the guidance from last quarter.

Yeah. That's a little bit of it. Some of it too, if we're probably following the large single-tenant transaction, we're able to move deposits off the balance sheet. But, sometimes, the fintech deposits can be a little bit volatile. So we probably carried higher cash balances, average cash balances, throughout the quarter. That certainly probably impacted the margin a few basis points, as well.

Understood. That's helpful. And then, Ken or Nicole or Dick, I'm trying to understand what's the embedded net charge-off expectations, relative to the provision guide, for this year of [$50 million] to [$53 million].

(multiple speakers) --

I understand the provision guidance but I'm also trying to understand how much more you need to provide, relative to charge-offs, just given that you're expecting grow loans 15% to 17% this year?

Yeah. No. Yeah. There's, I would say, of that, probably half or so are going to be assumptions on charge-offs and specific reserves; probably half charge-offs and some additional specific reserves above that.

We do -- as we -- Nicole talked about in her comments, right; and David -- we have a number of different methodologies we use to try to target what we think potential losses may be, from a forecasting perspective.

I think our bias on this quarter and looking forward into '26 was to -- let's go with the higher estimate of the different methodologies we look at. But, yeah, I think that's to the point that we talk about, in terms of the provision; like, we expect to hit the bulk of that -- will be reflected in the first and the second quarter.

Our expectations are, as we sit here today, is that, as we get into the third and the fourth quarter, the provisions will move more in line with what the -- perhaps, even a little bit lower near the end of the year but in line with, like, where the estimates are today.

To add a little color to what Ken was talking about with that, Nate, the different models that we've run -- we have data from Lumos on our SBA portfolio, as well as Redwood data. That gives us some predictive analytics around what our portfolio might do. We've also done a lot of vintage analysis, internally.

Because we continue to refine our credit guidelines, as we have been growing our portfolios, we made significant changes to our guidelines in the second half of this year. So I would imagine that -- we're through the 2021, 2022, and even the 2023 vintages, I think, in terms of feeling the most pain. We are currently working through 2024 loans. Likely, we will even have elevated levels of charge-offs compared to what we might like to see on the 2025 vintage that were underwritten under the previous guidelines.

But then, going forward -- and that's the 12 to 18 months that David referenced -- we think we're going to be in a much better place, once we get through the earlier vintages and we're able to work with credits that are underwritten to current guidelines.

Okay. Understood. That's really helpful. I apologize for trying to oversimplify it but just in terms of net charge-off expectations for this year and where you see the reserve ending up, relative to the loan growth, target; just any thoughts, in terms of a range there?

Well, in terms of, like -- we expect -- obviously, in -- we expect the allowance to continue to grow throughout the year. Again, some of it's gonna be driven by specific reserves; some of it's gonna be driven by loan growth. But we got -- right now, we could -- the provision or, excuse me, the ACL could be up by the fourth quarter; be up anywhere from, say, I don't know, call it, somewhere between $20 million and $30 million.

I know that's a wide range but, sometimes, you don't know exactly whether something's going be a charge-off or you're gonna take a specific reserve on a credit. But that would be the range of growth I'd forecast us to experience by year end in the ACL balance.

Okay. Understood. Apologies for the analyst question there but I appreciate that.

And then, maybe just lastly, on the tax rate within your expectations for [$2.35] to [$2.45] in EPS this year?

Yeah. I think, because of the way that we've talked about the provision and if you work through it -- and, probably, one thing that we didn't talk about in the second quarter as we shift to holding more SBA loans in the second quarter, that, really, will go into effect, in earnest, in the second quarter, where we'll probably see a decline in gain on sale revenue there.

The first two quarters of the year is where earnings are really depressed. So if you think about those two quarters, we have into our models now a tax rate of somewhere, call it, 7% to 8.5% in the first and second quarter.

And then, as earnings improve throughout the year, we have that ramping up to, like, a 10% to 12% in the third and fourth quarter.

Okay. That's really helpful. I'll step back. Thank you for all the color.

All right. Thank you.

George Sutton, Craig Hallum

Just want to walk back to last quarter -- and we had talked about really pulling some of the challenges forward, in terms of loan issues. You did the pro audit. You had implemented the Lumos technology.

I'm not really clear what so I would have anticipated a much cleaner look coming out of this quarter. What changed in this quarter? What were the dynamics that you saw that might have been different than you expected?

I can take a qualitative look at that for you, George.

In terms of SBA, I think we've been looking at what was right in front of us and the problems that we knew of at the time. As we have been spending more time with the Lumos data and spending more time with our vintage analysis, we've gotten a clearer picture not just of what's right in front of us but, also, what's out on the horizon.

I think of it like a bathtub. We knew how much water was in the tub and there's a drain. But we also had water flowing in because we continue to originate loans. And so we've had a better capability to measure both the drain, as well as the inflows. So that gives us a better picture of what we're dealing with.

I think we want to create a really realistic view of things for you. So I think we're doing a better job of looking at what is to come, rather than just what's right in front of us.

Understand. On the BaaS side, you saw a pretty material increase in payments, quarter over quarter. Where are we seeing that in the income statement dynamics?

That's gonna be in other non-interest income.

Okay. Other non-interest income fell, quarter over quarter? I just wasn't clear.

Yeah.

Yeah. Well, that's -- if you have our new slide deck, we revised (multiple speakers) --

(inaudible) -- did not. It grew 30%. Sorry. Okay. Quarter over quarter. That's where we're seeing that impact?

And then, the fintech other income is the dollars bringing in for deposits that you've pushed off to third parties. Is that correct?

Yeah. Some of that's in there. I think if you -- in our revised slide deck, we tried to break out the fintech a little bit more clearly because fintech hits a couple of different line items. There's program. There's transaction fees. Those are going to be another non-interest in the other line item on the GAAP finance on income statement.

There is the gain on sale we have on the embedded finance loans we originate for Jaris. So that's in the gain on sale line item. And then, there is a little about -- but it's growing the fee income we make on the deposits we push off the balance sheet.

So if you look at page 16 of our new slide deck, which has -- we've kind of simplified or sliced the non-interest income a different way, you'll see a bar in there for fintech. You'll see almost (multiple speakers) --

$900,000.

Okay. You got that. We're going provide this to give the analysts more color on where the fee income -- what the fee income is coming from our fintech efforts.

Great. Last question for David, on just M&A, in general, as we're starting to see more bank M&A. You're an interesting duck out there and that you're an online platform trading at a pretty significant discount to tangible book. What is your thought process, if approached?

Well, being honest, I can say we have been approached 3 times or 4 times here over the last half of last year. We entertain all inquiries. We speak and talk. We've had a couple international organizations wanting to put hold here in the United States that are interested in us. We found some folks that have some fintech issues in their world and BSA/AML that need to get cleaned up and operational.

They love what we're doing. So we're chatting with a lot of people, George. It's probably the most activity. We've seen more activity in the last months than we have the last five years, put together.

So we'll entertain and talk to anybody. We've not got anything remotely close at this point. But we're talking on both sides, looking at opportunities from our side and some specialty lending programs and services, as well as institutions, looking at us.

All right. I appreciate the clarity of the response. Thanks, guys.

Thank you, George.

Emily Lee, KBW.

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

Hi.

Going back to just the fintech and BaaS pipeline, I was wondering what the impact earnings been, so far, and how much of deposit growth is driven by the current customers versus new onboarding on the fintech platform.

On the deposit side, the vast majority is driven by fintechs that we've been working with now for a few years, right? [Ramp], that's the biggest piece. That's the biggest source of deposits for us. We have two programs for them of business savings and a bill pay product, which is really more of a payments engine.

And then, we have deposits with our platform partner, Increase, with their program.

We've been doing these deposit-providing, deposit services, for both of these for a couple years now, right? But we have seen -- during 2025, we did see what I would call explosive growth in them, right?

When they rolled out, they rolled out as pilots and there was some modest growth there. But we've seen quite a bit of growth over the past 12 months, predominantly in the Ramp program and, to a lesser extent, in Increase.

And then, really, with all of our fintech partners, we do have varying degrees, varying amounts, of deposits; some ranging from $80 million, $90 million down to $2 million or $3 million. But the bulk of it are from Ramp and from Increase.

Emily, we've been deliberately selective in bringing aboard new programs over the last couple of years. We've had terrific growth from our existing programs. So we've been able to grow the program; and even add new programs with existing partners, which has been a great way to extend existing relationships.

It hasn't necessarily been necessary for us to grow out and attract new relationships. That said, we're getting calls all the time. We have a great pipeline of new opportunities.

But we are looking for programs that we think offer something special. We're really excited to bring [Pool] money, live, in the next couple of days. They've been growing their waitlist. It offers a chance to offer a group deposit account. And so we're excited to work with Pool. We think that they will be a good program for us to work alongside.

So we will continue to add new opportunities. But it hasn't been something that we've necessarily had to be adding dozens of new programs because our existing partners have been so successful.

Yeah. To come back to the -- (multiple speakers) -- I'm sorry. I was going just answer your revenue question.

We have -- if you look at the chart that we have in the deck, on fintech revenue, you'll see that, on a quarterly basis throughout the year, it's gone up quite a bit. But when you add in interest income that we make from lending efforts with our partnership with Jaris, we had about $6.7 million of gross revenue from that that was up more than double over last year.

So the fintech effort is producing results, in terms of increased revenue, year over year, both between the non-interest income and the interest income line items.

Great. All done here. Thanks for taking my question.

Of course. Thank you.

Nathan Race, Piper Sandler

Yeah. Thanks for taking the follow-up.

Just going back to the balance sheet growth expectations, particularly appreciate the 5% to 17% loan growth guidance. Is the expectation that deposit growth is largely going follow and fund that? Just trying to think about some of the dynamics to fund that pretty strong loan growth outlook.

Yeah. Well, some -- a combination, right? We're modeling -- right now, we'll call it somewhere between 8% to 10% loan, excuse me, deposit growth there. Obviously, we're -- I wouldn't say we ended the year with a huge amount of excess cash but there were cash balances that were higher than we'd like to be carrying.

So some of it is just deploying cash on the balance sheet. And then, some of it is just, I'll call it, like, securities cash flows. Funding debt, as well.

Between the three of those, it's just going from different parts of the asset side into the loan side.

Part of the (inaudible), Nate, our loan-to-deposit ratio is probably at an all-time low for us in our history. So it's -- Ken said we've got a lot of flexibility to move some stuff around there.

What's off balance sheet is primarily the BaaS fintech deposits, at a cost to us of about 150 basis points. If we're putting it back out the door, particularly, we pick up some of the SBA loans, about 20% of our new originations that are prime plus one and a half.

We're going fund that at max with those vast deposits. If we run out of cash on the balance sheet, we'll just pull that back in.

So we've got a great spread in there, probably one of the best we've had in the history of the bank. From a deposit cost, as well as loan origination opportunities, we're at all-time low on the deposits and all-time high on loan origination.

We got an awful, awful lot of flexibility built in over the next 12 months.

I would be remiss if I didn't remind everyone that we have an award-winning small business checking account. We won the Best in Biz Award this last quarter.

We're improving our win rate, as we're going out and talking to SBA borrowers about the opportunity to grow the full relationship with First Internet Bank.

So I want to thank our team for the effort that they've put in there to work collaboratively. We continue to add features to that product, including Zelle, for business so they can make business payment -- business-to-business or, even, business-to-consumer payments.

So it's been exciting to watch that program grow.

Yeah. I noticed that. Congratulations on that. Well deserved.

And then, Ken, just any thoughts on the starting point for the margin in the first quarter? I appreciate the guide getting up to [2.75] to [2.80] by the end of this year but just any thoughts on the first quarter?

Yeah. The way that I think about the margin throughout the year is it's probably, call it, 10 basis points to 15 basis points of expansion per quarter, with probably a little bit more in the first quarter, pursuant to my comments about getting a full quarter's run rate of two Fed rate cuts in there.

Mhmm. Okay. Got you. Just, as I'm going through that, it appears that you guys would be unprofitable, based on the guidance in the first quarter. Is that accurate?

No. No.

Okay. I'll have to follow-up, offline, with you, Kenneth, if that's alright. Thanks.

Yeah. That's fine.

No. Nate, in the first quarter, we still expect to have a fair, decent, level of non-interest income because we do have -- we still have a pretty healthy balance of loans held for sale on the balance sheet.

So we still have a lot of SBA loans to sell before we start retaining more balances. That's probably going be more of , like, I think I said earlier, of a second-quarter impact.

I think the non-interest income line item for the first quarter should be in line where we've been, historically, in the first quarter in the past.

Barring a government shutdown.

(multiple speakers) to bring up. Yeah. That's right. I forgot about that.

Yeah. Good point there

Yeah. I'll leave it there. Thank you.

Thanks, Nate.

Thank you.

There are no further questions at this time.

I will now turn the call over to David Becker for closing remarks.

Thank you much, guys. We appreciate all your time this evening and the great questions.

I hope you -- if you have any feedback, we obviously changed up the deck significantly; did a refresh on that; and trying to give you a little more detail and insight, as to where we're going and what we're doing.

Please reach out to Ken, Nicole, or myself -- or all of us. We're happy to go through that with you.

We do appreciate the adjustment on the timeframe that made it a much easier pull-together for us, with all the year-end issues coming around. We'll continue this, going forward.

Hopefully, we will see some of you next week at either Bank Director's Conference and some of our investors at the Janney Conference, which follows on.

Thank you very much for your time. We're kicking off, I think, a great 2026.

We appreciate it. Thank you.

Ladies and gentlemen, this concludes today's conference call.

Thank you for your participation. You may now disconnect.