First Internet Bancorp

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 Lovick. David and Nicole will provide an overview and 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 condition of First Internet Bank Corp. 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. At 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 quarterly revenue up 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 lines. 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 manage 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 through reoccurring transaction fees, program management fees, and interest income. In our SBA business, despite industry challenges, including a government shutdown, we maintain our position as a top 10 SBA 7 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 Beide 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 balance capital allocation. During the quarter, we executed our share buyback program by purchasing 27,998 shares at an average price of $18.64 per share. capitalizing on temporary market dislocation. Turning to 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 and non-performing loans in line with peer institutions. Second, our enhanced risk management processes and prudent underwriting standards are yielding positive results. In addition, we've implemented advanced analytics that provide deep portfolio intelligence and enable proactive borrower engagement. Third, after further evaluation of the problem loans, we are 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. Fourth, 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 one 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 loans. 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 support, providing 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 confident 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, BAT, and credit.

Thank you, David. Despite the longest federal government shutdown in history, we 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 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 BAS platform continues to demonstrate exceptional growth and diversification. As a sponsor bank, we support deposit programs, 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 scales. 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 31st, 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, and the remaining borrowers tend to be stronger, multi-unit operators with greater operational experience and financial resources. Our collection efforts are further supported by Apple's high capital serving as an intermediary and providing valuable brand support. For our SBA loans, 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 assets team, that work diligently on the franchise finance and FBA portfolios throughout 2025. They have done an outstanding job staying on top of our workouts, offering alternatives when possible, and 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, and we have 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 represents a transformational advancement in our risk management capabilities. This technology enables us to identify potential issues earlier in the credit lifecycle 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.