First Internet Bancorp's Q2 2025: Unraveling the Contradictions in SBA Lending Strategy and Market Demand

SBA lending strategy and demand, SBA loan sales and timing, SBA premium trends, SBA lending and demand, provision and loan growth expectations are the key contradictions discussed in First Internet Bancorp's latest 2025Q2 earnings call.



Net Interest Margin and Income:
- First Internet Bancorp reported a net interest margin on a tax-effective basis above 2%, with net interest income and margin positively affected by credit issues and changes in noninterest income.
- The improvement was driven by increased interest income and reduced interest expense, although these were partially offset by higher provision expenses and challenges in the franchise finance and SBA lending portfolios.

Credit and Lending Portfolio Trends:
- The company experienced elevated provision expenses and nonperforming loans in the franchise finance and small business lending portfolios, affecting financial results.
- These issues were attributed to ongoing challenges in the franchise finance sector, despite progress in reducing delinquencies and improving recovery rates. SBA lending also faced difficulties, but conditions appeared to be stabilizing with improved performance metrics.

SBA Lending and Strategic Adjustments:
- First Internet Bancorp has originated over $1.8 billion in SBA loans since 2020, with recent improvements in delinquency and deferral rates.
- Adjustments in approval criteria and processes, along with added bench strength to SBA teams, contributed to the stabilization of the portfolio, though changes in SBA operating procedures temporarily impacted loan sale processes and premiums.

Deposit Growth and Deposit Cost Management:
- The bank's deposit base grew significantly,with over $1.8 billion indexed to Fed funds rate.
- This growth was supported by increased fintech deposits and lower-cost alternatives, allowing the bank to manage CD repricing effectively and expect further declines in deposit costs throughout 2025.