Q2 2026 First Internet Bancorp Earnings Call

July 30, 2026

Operator: Thank you for standing by. My name is Trevor, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Internet Bancorp earnings conference call for Q2 2026. All lines have been placed on mute to prevent any background noise. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. Please note that this event is being recorded. It is now my pleasure to turn the call over to Julia Ferreira from ICR. You may begin your conference.

Speaker #1: lines have been placed on mute to prevent any background noise. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press *1 to raise your hand.

Speaker #1: To withdraw your question, press *1 again. Please note that this event is being recorded. It is now my pleasure to turn the call over to Julia Ferreira from ICR.

Speaker #1: You may begin your conference.

Speaker #2: Thank you, operator. Hello, everyone, and thank you for joining us to discuss First Internet Bancorp's second quarter 2026 financial results. The company issued its earnings press release earlier this afternoon, and it is available on the company's website at www.firstinternetbancorp.com.

Julia Ferreira: Thank you, operator. Hello, everyone, and thank you for joining us to discuss First Internet Bancorp's Q2 2026 financial results. The company issued its earnings press release earlier this afternoon, and 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, and Ken will discuss the financial results, and then we'll open the call up 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 Bancorp that involves risks and uncertainties.

Julia Ferrara: Thank you, operator. Hello, everyone, and thank you for joining us to discuss First Internet Bancorp's Q2 2026 financial results. The company issued its earnings press release earlier this afternoon, and it is available on the company's website at www.firstinternetbancorp.com.

Speaker #2: 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.

Julia Ferrara: 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, and Ken will discuss the financial results, and then we'll open the call up for your questions.

Speaker #2: Joining us from the management team today are Chairman and CEO, David Becker, President and COO, Nicole Lorch, and Executive Vice President and CFO, Kenneth Lovik.

Speaker #2: David and Nicole will provide an overview, and Ken will discuss the financial results, and then we'll open the call up for your questions. Before we begin, I'd like to remind you that this conference call contains forward-looking statements.

Julia Ferrara: 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 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.

Speaker #2: With respect to the future performance and financial condition of First Internet Bancorp that involves risk and uncertainties, various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements.

Julia Ferreira: 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 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.

Speaker #2: 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 during the call.

Julia Ferrara: The company disclaims any obligation to update any forward-looking statements 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.

Speaker #2: 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.

Speaker #2: At this time, I'd like to turn the call over to David.

Speaker #3: Thank you, Julia. Good afternoon, and thank you for joining us. We're excited to report solid second-quarter results, with total revenue growing 23% year over year, pre-provision net revenue up 28%, and earnings per share of $0.27.

David Becker: Thank you, Julia. Good afternoon, thank you for joining us. We're excited to report solid Q2 results with total revenue growing 23% year-over-year, pre-provision net revenue up 28%, EPS of $0.27, up significantly from the prior year period. More importantly, this quarter marks a meaningful inflection point in our credit trajectory. For the past several quarters, credit has been the primary overhang on our results and on our stock. This quarter, that story began to turn. Over the past 18 months, we took a hard look at the credit outcomes we experienced and made meaningful changes to our underwriting, servicing, portfolio management, and resolution processes. Our disciplined actions are now translating into clear, measurable improvement, we believe the credit trends we are seeing today mark a clear turning point in this cycle.

Speaker #3: Up significantly from the prior year period. More importantly, this quarter marks a meaningful inflection point in our credit trajectory. For the past several quarters, credit has been the primary overhang on our results and on our stock.

Speaker #3: This quarter, that story began to turn. Over the past 18 months, we took a hard look at the credit outcomes we experienced and made meaningful changes to our underwriting, servicing, portfolio management, and resolution processes.

David Becker: This quarter, that story began to turn. Over the past 18 months, we took a hard look at the credit outcomes we experienced and made meaningful changes to our underwriting, servicing, portfolio management, and resolution processes. Our disciplined actions are now translating into clear, measurable improvement, we believe the credit trends we are seeing today mark a clear turning point in this cycle.

Speaker #3: Our disciplined actions are now translating into clear measurable improvement, and we believe the credit trends we are seeing today mark a clear turning point in this cycle.

Speaker #3: Let me walk through why we feel confident in that conclusion. First, provision for credit losses while still elevated on a historical basis declined significantly from the prior quarter.

David Becker: Let me walk through why we feel confident in that conclusion. First, provision for credit losses, while still elevated on a historical basis, declined significantly from the prior quarter. Net charge-offs in our SBA portfolio were down almost 50% from Q1, reflecting the enhanced underwriting, servicing, and early warning capabilities we've built over the past year. Second, non-performing loans declined from Q1, total non-accrual loans declined for the Q2 consecutive quarter, down 19% from year-end. Furthermore, non-performing loans, excluding government-guaranteed balances, declined to 1.07% of total loans, down from 1.22% in the prior quarter. Third, perhaps most encouraging of all, delinquencies fell significantly during the quarter. We experienced a sharp drop in early-stage delinquencies, total small business lending delinquencies declined to $1.5 million from $13.3 million in the prior quarter. The reduction in provision expense demonstrates that our credit performance is improving today.

Speaker #3: Net charge-offs in our SBA portfolio were down almost 50% from the first quarter, reflecting the enhanced underwriting, servicing, and early warning capabilities we built over the past year.

Speaker #3: Second, non-performing loans declined from the first quarter, and total non-accrual loans declined for the second consecutive quarter down 19% from year-end. Furthermore, non-performing loans excluding government guaranteed balances declined to 1.07% of total loans, down from 1.22% in the prior quarter.

David Becker: Furthermore, non-performing loans, excluding government-guaranteed balances, declined to 1.07% of total loans, down from 1.22% in the prior quarter. Third, perhaps most encouraging of all, delinquencies fell significantly during the quarter. We experienced a sharp drop in early-stage delinquencies, total small business lending delinquencies declined to $1.5 million from $13.3 million in the prior quarter. The reduction in provision expense demonstrates that our credit performance is improving today.

Speaker #3: And third, perhaps most encouraging of all, delinquency fell significantly during the quarter. We experienced a sharp drop in early-stage delinquencies, and total small business lending delinquencies declined to $1.5 million from $13.3 million in the prior quarter.

Speaker #3: The reduction in provision expense demonstrates that our credit performance is improving today. The decline in non-performing loan formation and delinquency gives us conviction that credit costs will continue to moderate as we move through the second half of the year.

David Becker: The decline in non-performing loan formation and delinquency gives us conviction that credit costs will continue to moderate as we move through the H2 of the year. At the same time, we continue to optimize the loan portfolio. Continued runoff in existing portfolios such as healthcare finance and residential mortgage, combined with elevated payoffs in franchise finance, is creating capacity that we are redeploying into construction, Investor Commercial Real Estate, single-tenant lease financing, small business lending, and emerging verticals such as wealth advisory lending and embedded finance, where we see better risk-adjusted returns and more efficient use of our balance sheet. A good example is the evolution of our relationship with Jaris, an embedded finance technology partner that helps payment processors and ISOs modernize their platforms through capabilities such as digital onboarding, instant payouts, and business financing solutions.

Speaker #3: At the same time, we continue to optimize the loan portfolio. Continued runoff in existing portfolio, such as healthcare finance and residential mortgage, combined with elevated payoffs in franchise finance, is creating capacity that we are redeploying into construction, investor commercial real estate, single-tenant lease financing, small business lending, and emerging verticals such as wealth advisory lending and embedded finance.

Speaker #3: Where we see better risk-adjusted returns and more efficient use of our balance sheet. A good example is the evolution of our relationship with Jaris, an embedded finance technology partner that helps payment processors and ISOs modernize their platforms through capabilities such as digital onboarding, instant payouts, and business financing solutions.

David Becker: A good example is the evolution of our relationship with Jaris, an embedded finance technology partner that helps payment processors and ISOs modernize their platforms through capabilities such as digital onboarding, instant payouts, and business financing solutions. Historically, we funded loans originated on Jaris' platform and retained a small portion of that production, selling the majority to a fund managed by Jaris.

David Becker: Historically, we funded loans originated on Jaris' platform and retained a small portion of that production, selling the majority to a fund managed by Jaris. Beginning in June, we took that relationship a meaningful step further and are now retaining all originations going forward. The short-duration, high-yielding assets should be accretive to net interest income, and the expanded arrangement reflects the trust and depth of collaboration we have built with Jaris over time. Looking ahead, we are navigating the current macro and geopolitical environment with prudent strategy and appropriate discipline. Our credit trends and earnings are moving in the right direction while we continue to deepen high-value fintech partnerships and invest in the technology and talent that differentiate our platform. We believe this combination of improving credit, disciplined capital deployment, and expanding non-interest income positions us well to maximize growth and profitability in future periods.

Speaker #3: Historically, we funded loans originated on Jaris's platform and retained a small portion of that production. So in the majority to fund managed by Jaris.

Speaker #3: Beginning in June, we took that relationship of meaningful step further and are now retaining all originations going forward. These short duration, high-yielding assets should be accretive to net interest income and the expanded arrangement reflects the trust and depth of collaboration we have built with Jaris over time.

David Becker: Beginning in June, we took that relationship a meaningful step further and are now retaining all originations going forward. The short-duration, high-yielding assets should be accretive to net interest income, and the expanded arrangement reflects the trust and depth of collaboration we have built with Jaris over time. Looking ahead, we are navigating the current macro and geopolitical environment with prudent strategy and appropriate discipline.

Speaker #3: Looking ahead, we are navigating the current macro and geopolitical environment with prudent strategy and appropriate discipline. Our credit trends and earnings are moving in the right direction, while we continue to deepen high-value fintech partnerships and invest in the technology and talent that differentiate our platform.

David Becker: Our credit trends and earnings are moving in the right direction while we continue to deepen high-value fintech partnerships and invest in the technology and talent that differentiate our platform. We believe this combination of improving credit, disciplined capital deployment, and expanding non-interest income positions us well to maximize growth and profitability in future periods.

Speaker #3: We believe this combination of improving credit, disciplined capital deployment, and expanding non-interest income positions us well to maximize growth and profitability in the future periods.

Speaker #3: While the financial results speak for themselves, what gives us confidence in the future is the operational progress occurring throughout the company. I will now turn the call over to Nicole for additional perspective on the changes we've made and why we believe they position First Internet for continued improvement in the quarters ahead.

David Becker: While the financial results speak for themselves, what gives us confidence in the future is the operational progress occurring throughout the company. I will now turn the call over to Nicole for additional perspective on the changes we've made and why we believe they position First Internet for continued improvement in the quarters ahead.

Speaker #2: Thank you, David. One of the most encouraging takeaways from this quarter is that the improvement we're seeing across the business is the result of sustained organizational effort over the last several quarters.

Nicole Lorch: Thank you, David. One of the most encouraging takeaways from this quarter is that the improvement we're seeing across the business is the result of a sustained organizational effort over the last several quarters. We challenged long-standing processes, invested in new capabilities, and asked teams across the company to work differently. The numerical improvement in credit is evident in our results, and the strength of the underlying processes producing those results lays the groundwork for improved performance in the future. Over the past 18 months, we've strengthened underwriting standards, enhanced portfolio monitoring, expanded special assets capabilities, and invested in predictive analytics and early-warning tools that allow us to identify borrower stress sooner and engage customers earlier. We also created greater separation and specialization between portfolio management and problem loan resolution, allowing both teams to operate more effectively. In small business lending, net charge-offs declined significantly from Q1.

Speaker #2: We challenged longstanding processes, invested in new capabilities, and asked teams across the company to work differently. The numerical improvement in credit is evident in our results, and the strength of the underlying processes producing those results lays the groundwork for improved performance in the future.

Speaker #2: Over the past 18 months, we've strengthened underwriting standards, enhanced portfolio monitoring, expanded special assets capabilities, and invested in predictive analytics and early warning tools that allow us to identify borrower stress sooner.

Nicole Lorch: Over the past 18 months, we've strengthened underwriting standards, enhanced portfolio monitoring, expanded special assets capabilities, and invested in predictive analytics and early-warning tools that allow us to identify borrower stress sooner and engage customers earlier. We also created greater separation and specialization between portfolio management and problem loan resolution, allowing both teams to operate more effectively. In small business lending, net charge-offs declined significantly from Q1.

Speaker #2: And engage customers earlier. We also created greater separation and specialization between portfolio management and problem loan resolution, allowing both teams to operate more effectively.

Speaker #2: In small business lending, net charge-offs declined significantly from the first quarter, delinquency trends improved meaningfully, and new delinquency formations slowed during the quarter. That reinforces our view that the portfolios we're originating today are performing in line with expectations, and that our actions are producing durable improvements in credit quality.

Nicole Lorch: Delinquency trends improved meaningfully, and new delinquency formations slowed during the quarter. That reinforces our view that the portfolios we're originating today are performing in line with expectations and that our actions are producing durable improvements in credit quality. In franchise finance, our focus remains on disciplined execution and timely resolution of legacy problem credits. During the quarter, our special assets team took action on several relationships that drove elevated charge-off activity. However, the pace of loans moving to non-accrual status slowed dramatically, and early-stage delinquencies have declined over 85% since year-end. I want to thank our credit administration and portfolio management teams for their tireless execution. While work remains, the evidence suggests the remaining issues are manageable and increasingly concentrated. We've also become more deliberate about how and where we deploy capital.

Speaker #2: In franchise finance, our focus remains on resolution of legacy problem credits. During the quarter, our special assets team took action on several relationships that drove elevated charge-off activity.

Speaker #2: However, the pace of loans moving to non-accrual status slowed dramatically, and early-stage delinquencies have declined over 85% since year-end. I want to thank our credit administration and portfolio management teams for their tireless execution.

Nicole Lorch: However, the pace of loans moving to non-accrual status slowed dramatically, and early-stage delinquencies have declined over 85% since year-end. I want to thank our credit administration and portfolio management teams for their tireless execution. While work remains, the evidence suggests the remaining issues are manageable and increasingly concentrated. We've also become more deliberate about how and where we deploy capital.

Speaker #2: While work remains, the evidence suggests the remaining issues are manageable and increasingly concentrated. We've also become more deliberate about how and where we deploy capital.

Speaker #2: Over the last year, we evaluated major business lines through the lens of risk-adjusted returns, capital efficiency, and long-term growth potential. That process led us to lean more heavily into businesses where we believe we possess durable competitive advantages, including banking as a service, embedded finance partnerships, and select commercial lending verticals.

Nicole Lorch: Over the last year, we evaluated major business lines through the lens of risk-adjusted returns, capital efficiency, and long-term growth potential. That process led us to lean more heavily into businesses where we believe we possess durable competitive advantages, including banking-as-a-service, embedded finance partnerships, and select commercial lending verticals. The expanded Jaris relationship is a good example of that approach in practice. We continue to see opportunities to deepen relationships with partners that value our compliance expertise, technical capabilities, and ability to operate at scale. In many cases, those opportunities allow us to generate attractive returns while using capital more efficiently than traditional balance sheet growth alone. Another area where we continue to invest is technology and automation. As pioneers in branchless banking, technology has been central to our business model from the beginning. Our technology strategy is grounded in business outcomes, not chasing what is novel or interesting.

Speaker #2: The expanded Jaris relationship is a good example of that approach in practice. We continue to see opportunities to deepen relationships with partners that value our compliance expertise, technical capabilities, and ability to operate at scale.

Speaker #2: In many cases, those opportunities allow us to generate attractive returns while using capital more efficiently than traditional balance sheet growth alone. is technology and automation.

Nicole Lorch: In many cases, those opportunities allow us to generate attractive returns while using capital more efficiently than traditional balance sheet growth alone. Another area where we continue to invest is technology and automation. As pioneers in branchless banking, technology has been central to our business model from the beginning. Our technology strategy is grounded in business outcomes, not chasing what is novel or interesting.

Speaker #2: As pioneers in branchless banking, technology has been central to our business model from the beginning. But our technology strategy is grounded in business outcomes.

Speaker #2: Not in chasing what is novel or interesting. Every investment is evaluated based on its ability to improve the customer experience, strengthen risk management, enhance efficiency, and generate an appropriate return on capital.

Nicole Lorch: Every investment is evaluated based on its ability to improve the customer experience, strengthen risk management, enhance efficiency, and generate an appropriate return on capital. Looking ahead, what excites me most is not any single business line or individual metric. It is that we are seeing progress across multiple dimensions of the company simultaneously. Credit trends are improving. Our funding profile continues to strengthen. Fintech and fee-based revenue streams are growing, and our teams are executing with discipline. There is no finish line when it comes to building a better bank, the operational foundation we have built over the last several years positions us well for continued improvement in profitability and long-term shareholder value creation. Now I'll turn it over to Ken for additional insight into our Q2 performance and 2026 outlook.

Speaker #2: Looking ahead, what excites me most is not any single business line or individual metric. It is that we are seeing progress across multiple dimensions of the company simultaneously, credit trends are improving, our funding profile continues to strengthen, fintech and fee-based revenue streams are growing, and our teams are executing with discipline.

Nicole Lorch: Fintech and fee-based revenue streams are growing, and our teams are executing with discipline. There is no finish line when it comes to building a better bank, the operational foundation we have built over the last several years positions us well for continued improvement in profitability and long-term shareholder value creation. Now I'll turn it over to Ken for additional insight into our Q2 performance and 2026 outlook.

Speaker #2: There is no finish line when it comes to building a better bank, but the operational foundation we have built over the last several years positions us well for continued improvement and profitability and long-term shareholder value creation.

Speaker #2: And now, I'll turn it over to Ken for additional insight into our second quarter performance and 2026 outlook.

Speaker #3: Thanks, Nicole. As David mentioned, we delivered solid second quarter results with net income of $2.4 million, or $0.27 per diluted share, both up significantly from the prior year period.

Ken J. Lovik: Thanks, Nicole. As David mentioned, we delivered solid Q2 results with net income of $2.4 million, or $0.27 per diluted share, both up significantly from the prior year period. Before discussing operating trends, I want to provide additional color on credit. Provision for credit losses was $13.4 million in Q2, down from $16.3 million in Q1. Net charge-offs totaled $16.9 million, up modestly from the prior quarter, with important positive trends beneath the headline number. Net charge-offs in small business lending totaled $4.8 million, down significantly from $9.1 million in Q1. Franchise finance net charge-offs totaled $11.6 million, $6.7 million of which were covered under specific reserves previously applied to these loans. As Nicole noted, the pace of Franchise finance loans moving to non-accrual status slowed dramatically.

Ken Lovik: Thanks, Nicole. As David mentioned, we delivered solid Q2 results with net income of $2.4 million, or $0.27 per diluted share, both up significantly from the prior year period. Before discussing operating trends, I want to provide additional color on credit. Provision for credit losses was $13.4 million in Q2, down from $16.3 million in Q1. Net charge-offs totaled $16.9 million, up modestly from the prior quarter, with important positive trends beneath the headline number.

Speaker #3: Before discussing operating trends, I want to provide additional color on credit. Provision for credit losses was 13.4 million dollars in the second quarter, down from 16.3 million dollars in the first quarter.

Speaker #3: Net charge-offs totaled $16.9 million, up modestly from the prior quarter, but with important positive trends beneath the headline number. Net charge-offs in small business lending totaled $4.8 million, down significantly from $9.1 million in the first quarter.

Ken Lovik: Net charge-offs in small business lending totaled $4.8 million, down significantly from $9.1 million in Q1. Franchise finance net charge-offs totaled $11.6 million, $6.7 million of which were covered under specific reserves previously applied to these loans. As Nicole noted, the pace of Franchise finance loans moving to non-accrual status slowed dramatically. Non-performing loans were $60.1 million, or 1.58% of total loans, down from $61.6 million, or 1.63%, in the linked quarter, the first sequential decline we have reported in several quarters.

Speaker #3: Franchise finance net charge-offs totaled $11.6 million, $6.7 million of which were covered under specific reserves previously applied to these loans, and, as Nicole noted, the pace of franchise finance loans moving to non-accrual status slowed dramatically.

Speaker #3: Non-performing loans were $60.1 million, or 1.58 percent of total loans, down from $61.6 million, or 1.63 percent in the linked quarter, the first sequential decline we have reported in several quarters.

Ken J. Lovik: Non-performing loans were $60.1 million, or 1.58% of total loans, down from $61.6 million, or 1.63%, in the linked quarter, the first sequential decline we have reported in several quarters. Total non-accrual loans declined for the second consecutive quarter, which was partially offset by an increase in Franchise finance loans 90 days past due as certain loans work through the resolution process. We expect our efforts to ultimately result in the full collection of principal and interest related to these loans. The most encouraging data point was delinquencies, which declined to 78 basis points of total performing loans as of 30 June, down from 106 basis points at the end of Q1 and 101 basis points at year-end. In dollars, total delinquencies declined 26% from Q1 to $29.1 million and early-stage delinquencies declined significantly.

Speaker #3: Total non-accrual loans declined for the second consecutive quarter, which was partially offset by an increase in franchise finance loans 90 days past due, as certain loans worked through the resolution process.

Ken Lovik: Total non-accrual loans declined for the second consecutive quarter, which was partially offset by an increase in Franchise finance loans 90 days past due as certain loans work through the resolution process. We expect our efforts to ultimately result in the full collection of principal and interest related to these loans. The most encouraging data point was delinquencies, which declined to 78 basis points of total performing loans as of 30 June, down from 106 basis points at the end of Q1 and 101 basis points at year-end. In dollars, total delinquencies declined 26% from Q1 to $29.1 million and early-stage delinquencies declined significantly.

Speaker #3: We expect our efforts to ultimately result in the full collection of principal and interest related to these loans. The most encouraging data point was delinquencies, which declined to 78 basis points of total performing loans as of June 30th, down from 106 basis points at the end of the first quarter and 101 basis points at year-end.

Speaker #3: In dollars, total delinquencies declined 26 percent from the first quarter to 29.1 million dollars and early-stage delinquencies declined significantly. Taken together, lower provision for credit losses, the continued decline in non-accrual loans, and the significant drop in delinquencies support our expectation for continued improvement in credit costs throughout the remainder of 2026.

Ken J. Lovik: Taken together, lower provision for credit losses, the continued decline in non-accrual loans, the significant drop in delinquencies support our expectation for continued improvement in credit costs throughout the remainder of 2026. Turning to operating trends, total revenue was $41.1 million, a 23% increase over the prior period. When combined with well-managed expenses, pre-provision net revenue totaled $15 million, up 28% year over year, driving continued positive operating leverage. Linked quarter revenue was down primarily due to lower gain on sale revenue from seasonally lighter SBA origination volumes and our more disciplined underwriting approach. As we think about what to expect in the Q3 and Q4, I would note that secondary market premiums remain strong. Production levels picked up in the back half of the quarter, and we expect origination volumes to increase in the H2 of the year.

Ken Lovik: Taken together, lower provision for credit losses, the continued decline in non-accrual loans, the significant drop in delinquencies support our expectation for continued improvement in credit costs throughout the remainder of 2026. Turning to operating trends, total revenue was $41.1 million, a 23% increase over the prior period. When combined with well-managed expenses, pre-provision net revenue totaled $15 million, up 28% year over year, driving continued positive operating leverage.

Speaker #3: Turning to operating trends, total revenue was 41.1 million dollars a 23 percent increase over the prior period. When combined with well-managed expenses, pre-provision net revenue totaled 15 million dollars, up 28 percent year over year, driving continued positive operating leverage.

Speaker #3: Linked quarter revenue was down primarily due to lower gain on sale revenue from seasonally lighter SBA origination volumes and our more disciplined underwriting approach.

Ken Lovik: Linked quarter revenue was down primarily due to lower gain on sale revenue from seasonally lighter SBA origination volumes and our more disciplined underwriting approach. As we think about what to expect in the Q3 and Q4, I would note that secondary market premiums remain strong. Production levels picked up in the back half of the quarter, and we expect origination volumes to increase in the H2 of the year.

Speaker #3: As we think about what to expect in the third and fourth quarters, I would note that secondary market premiums remain strong, production levels picked up in the back half of the quarter, and we expect origination volumes to increase in the second half of the year.

Speaker #3: The decline in gain on sale revenue was partially offset by sustained growth in fee revenue from our fintech partnerships. Payments volume and fee revenue continued to build on a trailing 12-month basis, up 256 percent in 222 percent respectively.

Ken J. Lovik: The decline in gain on sale revenue was partially offset by sustained growth in fee revenue from our Fintech partnerships. Payments volume and fee revenue continued to build on a trailing 12-month basis, up 256% and 222% respectively. Net interest income was $32.4 million, or $33.6 million on a fully taxable equivalent basis, up 16% and 15% year over year respectively. Net interest margin improved to 2.39%, or 2.47% on a fully taxable equivalent basis, both up more than 40 basis points from a year ago. Margin expansion was driven primarily by continued improvement on the funding side of the balance sheet as the cost of interest-bearing deposits declined to 3.38% from 3.92% a year ago, benefiting from CD repricing and growth in lower-cost Fintech deposits. On the other hand, earning asset yields were essentially stable.

Ken Lovik: The decline in gain on sale revenue was partially offset by sustained growth in fee revenue from our Fintech partnerships. Payments volume and fee revenue continued to build on a trailing 12-month basis, up 256% and 222% respectively. Net interest income was $32.4 million, or $33.6 million on a fully taxable equivalent basis, up 16% and 15% year over year respectively. Net interest margin improved to 2.39%, or 2.47% on a fully taxable equivalent basis, both up more than 40 basis points from a year ago.

Speaker #3: Net interest income was 32.4 million dollars or 33.6 million dollars on a fully taxable equivalent basis, up 16 percent in 15 percent year over year respectively.

Speaker #3: Net interest margin improved to 2.39 percent or 2.47 percent on a fully taxable equivalent basis, both up more than 40 basis points from a year ago.

Speaker #3: Margin expansion was driven primarily by continued improvement on the funding side of the balance sheet, as the cost of interest-bearing deposits declined to 3.38 percent from 3.92 percent a year ago, benefiting from CD repricing and growth in lower-cost fintech deposits.

Ken Lovik: Margin expansion was driven primarily by continued improvement on the funding side of the balance sheet as the cost of interest-bearing deposits declined to 3.38% from 3.92% a year ago, benefiting from CD repricing and growth in lower-cost Fintech deposits. On the other hand, earning asset yields were essentially stable. While period-end loan balances were up from the prior quarter, average balances were down about 1%.

Speaker #3: On the other hand, earning asset yields were essentially stable. While period-end loan balances were up from the prior quarter, average balances were down about 1%.

Ken J. Lovik: While period-end loan balances were up from the prior quarter, average balances were down about 1%. Growth in construction and ICRE, single-tenant lease financing, trailers, and emerging verticals such as wealth advisory lending and embedded finance was more than offset by early paydowns and lighter small business lending originations earlier in the quarter. As a result, we carried higher cash balances, which tempered the pace of margin expansion on a sequential basis. Looking forward, pipelines are strong across several commercial lending areas and small business lending production is expected to increase significantly in the H2 of the year. In addition, the increased retention of embedded finance loans is expected to further enhance net interest income and margin. Deposit repricing remains a meaningful tailwind.

Speaker #3: Growth in construction and investor commercial real estate, single-tenant lease financing, trailers, and emerging verticals such as wealth advisory lending and embedded finance was more than offset by early paydowns and lighter small business lending originations earlier in the quarter.

Ken Lovik: Growth in construction and ICRE, single-tenant lease financing, trailers, and emerging verticals such as wealth advisory lending and embedded finance was more than offset by early paydowns and lighter small business lending originations earlier in the quarter. As a result, we carried higher cash balances, which tempered the pace of margin expansion on a sequential basis. Looking forward, pipelines are strong across several commercial lending areas and small business lending production is expected to increase significantly in the H2 of the year.

Speaker #3: As a result, we carried higher cash balances, which tempered the pace of margin expansion on a sequential basis. Looking forward, pipelines are strong across several commercial lending areas, and small business lending production is expected to increase significantly in the second half of the year.

Speaker #3: In addition, the increased retention of embedded finance loans is expected to further enhance net interest income and margin. Deposit repricing remains a meaningful tailwind.

Ken Lovik: In addition, the increased retention of embedded finance loans is expected to further enhance net interest income and margin. Deposit repricing remains a meaningful tailwind. CD and broker deposit balances declined more than $200 million from the prior quarter as we continued replacing higher cost funding with lower cost Fintech deposits. The weighted average cost of CDs maturing during the Q2 was approximately 4.11%, while the average cost of on-balance sheet Fintech deposits was 3.19%, and the cost of new and renewing CDs was 3.63%.

Speaker #3: CD and broker deposit balances declined more than $200 million from the prior quarter as we continued replacing higher-cost funding with lower-cost fintech deposits.

Ken J. Lovik: CD and broker deposit balances declined more than $200 million from the prior quarter as we continued replacing higher cost funding with lower cost Fintech deposits. The weighted average cost of CDs maturing during the Q2 was approximately 4.11%, while the average cost of on-balance sheet Fintech deposits was 3.19%, and the cost of new and renewing CDs was 3.63%. The Q3 is a particularly large maturity quarter, with more than $445 million of CDs coming due at a weighted average cost of 4.04%, and $700 million in total maturing in the H2 of the year at a weighted average cost of 3.94%. With Fintech deposit and CD replacement costs at significantly lower levels, we expect this dynamic to continue supporting net interest income and margin.

Speaker #3: The weighted average cost of CDs maturing during the second quarter was approximately 4.11%, while the average cost of on-balance sheet fintech deposits was 3.19%, and the cost of new and renewing CDs was 3.63%.

Speaker #3: The third quarter is a particularly large maturity quarter with more than 445 million dollars of CDs coming due at a weighted average cost of 4.04 percent.

Ken Lovik: The Q3 is a particularly large maturity quarter, with more than $445 million of CDs coming due at a weighted average cost of 4.04%, and $700 million in total maturing in the H2 of the year at a weighted average cost of 3.94%. With Fintech deposit and CD replacement costs at significantly lower levels, we expect this dynamic to continue supporting net interest income and margin.

Speaker #3: And 700 million dollars in total maturing in the second half of the year at a weighted average cost of 3.94 percent. With fintech deposit and CD replacement costs at significantly lower levels, we expect this dynamic to continue supporting net interest income and margin.

Speaker #3: To summarize our outlook on net interest income and net interest margin, lending pipelines are strong heading into the back end of the year. We continue to optimize the loan portfolio with the composition now about 42 percent variable rate, providing the ability to maintain and increase yields on interest-earning assets.

Ken J. Lovik: To summarize our outlook on net interest income and net interest margin, lending pipelines are strong heading into the back end of the year. We continue to optimize the loan portfolio, with the composition now about 42% variable rate, providing the ability to maintain and increase yields on interest-earning assets. When combined with the ongoing ability to drive deposit costs lower, we expect to see sustained expansion of net interest income and margin throughout the remainder of the year. Regarding our outlook for the remainder of 2026, we remain comfortable with our full-year EPS forecast of $2.35 to $2.45. With a smaller balance sheet and continued opportunities to grow fee income, the mix between net interest income and non-interest income has shifted somewhat, along with a revised outlook on operating expenses.

Ken Lovik: To summarize our outlook on net interest income and net interest margin, lending pipelines are strong heading into the back end of the year. We continue to optimize the loan portfolio, with the composition now about 42% variable rate, providing the ability to maintain and increase yields on interest-earning assets.

Speaker #3: When combined with the ongoing ability to drive deposit costs lower, we expect to see sustained expansion of net interest income and margin throughout the remainder of the year.

Ken Lovik: When combined with the ongoing ability to drive deposit costs lower, we expect to see sustained expansion of net interest income and margin throughout the remainder of the year. Regarding our outlook for the remainder of 2026, we remain comfortable with our full-year EPS forecast of $2.35 to $2.45. With a smaller balance sheet and continued opportunities to grow fee income, the mix between net interest income and non-interest income has shifted somewhat, along with a revised outlook on operating expenses.

Speaker #3: Regarding our outlook for the remainder of 2026, we remain comfortable with our full-year EPS forecast of $2.35 to $2.45. However, with a smaller balance sheet and continued opportunities to grow fee income, the mix between net interest income and non-interest income has shifted somewhat, along with a revised outlook on operating expenses.

Speaker #3: We now expect full year loan growth of approximately 4 percent to 6 percent, reflecting elevated early payoffs, lighter first-half small business production, and, as secondary market premiums remain attractive, lower retention of guaranteed SBA balances with stronger pipelines expected to support growth in the second half of the year.

Ken J. Lovik: We now expect full-year loan growth of approximately 4% to 6%, reflecting elevated early payoffs, lighter H1 small business production, and as secondary market premiums remain attractive, lower retention of guaranteed SBA balances with stronger pipelines expected to support growth in the H2 of the year. Our fully taxable equivalent net interest margin outlook remains in the range of 2.75% to 2.80% by Q4 based on the dynamics I mentioned earlier and excludes any interest rate cuts or increases. With a smaller balance sheet, we now expect full year, fully taxable equivalent net interest income of $141 million to $142 million. This revision is partially offset by strength and gain on sale premiums and continued fintech fee income growth, enabling us to raise our non-interest income outlook to $40.5 million to $41 million.

Ken Lovik: We now expect full-year loan growth of approximately 4% to 6%, reflecting elevated early payoffs, lighter H1 small business production, and as secondary market premiums remain attractive, lower retention of guaranteed SBA balances with stronger pipelines expected to support growth in the H2 of the year. Our fully taxable equivalent net interest margin outlook remains in the range of 2.75% to 2.80% by Q4 based on the dynamics I mentioned earlier and excludes any interest rate cuts or increases.

Speaker #3: Our fully taxable equivalent net interest margin outlook remains in the range of 2.75 percent to 2.80 percent by the fourth quarter, based on the dynamics I mentioned earlier, and excludes any interest rate cuts or increases.

Speaker #3: With a smaller balance sheet, we now expect full year fully taxable equivalent net interest income of 141 million dollars to 142 million dollars. This revision is partially offset by strength in gain on sale premiums and continued fintech fee income growth, enabling us to raise our non-interest income outlook to 40.5 million dollars to 41 million dollars.

Ken Lovik: With a smaller balance sheet, we now expect full year, fully taxable equivalent net interest income of $141 million to $142 million. This revision is partially offset by strength and gain on sale premiums and continued fintech fee income growth, enabling us to raise our non-interest income outlook to $40.5 million to $41 million.

Speaker #3: Additionally, we are lowering our non-interest expense outlook to $106 million to $107 million, reflecting lower compensation costs, while maintaining investment in technology and AI to support revenue and risk management initiatives.

Ken J. Lovik: We are lowering our non-interest expense outlook to $106 million to $107 million, reflecting lower compensation costs while maintaining investment in technology and AI to support revenue and risk management initiatives. We expect provision for credit losses of $47 million to $48 million for the full year. Based on the improving trends in non-accrual loans and delinquencies, we expect provision expense to improve sequentially from Q2 to Q3 and again from Q3 to Q4. With that, I'll turn it back to the operator for questions.

Ken Lovik: We are lowering our non-interest expense outlook to $106 million to $107 million, reflecting lower compensation costs while maintaining investment in technology and AI to support revenue and risk management initiatives. We expect provision for credit losses of $47 million to $48 million for the full year. Based on the improving trends in non-accrual loans and delinquencies, we expect provision expense to improve sequentially from Q2 to Q3 and again from Q3 to Q4. With that, I'll turn it back to the operator for questions.

Speaker #3: Finally, we expect provision for credit losses of $47 million to $48 million for the full year. Based on the improving trends in nonaccrual loans and delinquencies, we expect provision expense to improve sequentially from the second quarter to the third quarter, and again from the third quarter to the fourth quarter.

Speaker #3: With that, I'll turn it back to the operator for questions.

Operator: Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from the line of Brett Rabatin with StoneX. Brett, your line is open.

Speaker #1: Thank you. We will now begin the question and answer session. Please limit follow-up. If you would like to ask a question, please press star 1 to raise your hand.

Speaker #1: To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #1: If you are muted locally, please remember to unmute your device. Your first question comes from the line of Brett Rabbiton, with Stonex. Brett, your line is open.

Speaker #2: Hey, good afternoon, everyone. Thanks for the questions. First, I wanted to talk about hey, guys. First, I wanted to talk about the dynamic on the NII guide and the back half of the year, particularly kind of given where you're expecting the margin to be by the end of the year.

Brett Rabatin: Hey, good afternoon, everyone. Thanks for the questions.

Brett Rabatin: Hey, good afternoon, everyone. Thanks for the questions. First, I wanted to talk about-

Ken J. Lovik: Hi, Brett.

Ken Lovik: Hi, Brett.

Brett Rabatin: Hey, guys. First, I wanted to talk about the dynamic on the NII guide in the H2 of the year, particularly given where you're expecting the margin to be by the end of the year. If I'm just doing some rough math right, it basically implies that your funding costs decline about 15 basis points and your earning asset yields are up about 25 to 30 basis points. Is that a fair way to think about it? Then maybe can you talk about how much Jaris and these other things might contribute to higher earning asset yields?

Speaker #2: And if I'm just doing kind of some rough math, right, it basically implies kind of that you're funding costs decline about 15 basis points and your earning asset yields are up about 25 to 30 basis points.

Speaker #2: Is that a fair way to think about it? And then maybe, can you talk about how much JARAS and these other things might contribute to higher earning asset yields?

Speaker #3: Yeah, I think you're in the ballpark, Brett. I mean, if you think about the deposit repricing opportunity, right, as we mentioned in the prepared comments, we have a lot of CDs that are coming due here in the third quarter.

Ken J. Lovik: Yeah, I think you're in the ballpark, Brett. If you think about the deposit repricing opportunity, right, as we mentioned in the prepared comments, we have a lot of CDs that are coming due here in the Q3. To be honest with you, right now in the CD market, we are not very competitively priced. What historically was a renewal rate in, call it anywhere from 60% to 70%, is now down in the 40% range. We're just seeing a larger amount of these higher cost CDs rolling off and simply being replaced, generally by fintech deposits that are somewhere in, call it the 315 to 320 range or small business checking. Those are much cheaper. I think we continue to expect continued deposit leverage throughout the rest of the year.

Ken Lovik: Yeah, I think you're in the ballpark, Brett. If you think about the deposit repricing opportunity, right, as we mentioned in the prepared comments, we have a lot of CDs that are coming due here in the Q3.

Speaker #3: And to be honest with you, right now in the CD market, we are not very competitively priced. What historically was a renewal rate in, call it, anywhere from 60% to 70% is now down in the 40% range.

Ken Lovik: To be honest with you, right now in the CD market, we are not very competitively priced. What historically was a renewal rate in, call it anywhere from 60% to 70%, is now down in the 40% range. We're just seeing a larger amount of these higher cost CDs rolling off and simply being replaced, generally by fintech deposits that are somewhere in, call it the 315 to 320 range or small business checking. Those are much cheaper. I think we continue to expect continued deposit leverage throughout the rest of the year.

Speaker #3: So we're just seeing a larger amount of these higher-cost CDs rolling off. And simply being replaced, generally, by fintech deposits that are somewhere in, call it, the 315 to 320 range.

Speaker #3: Or small business checking, those are much cheaper. But I think we continue to expect continued deposit leverage throughout the rest of the year. I think you're going to see more of it in the third quarter than the fourth quarter.

Ken J. Lovik: I think you're going to see more of it in Q3 than Q4. That's our expectation there. To be honest with you, in Q2, our deposit kind of cost outlook, we were right on top of that. Kind of where we came up short a little bit in Q2 was on the lending side, and we talked about average loan balances being down and some of the dynamics that drove that with lighter SBA originations in the front end of the year, or excuse me, in the front end of the quarter. Offset by strong growth, continued growth in construction and investor commercial real estate and single-tenant lease financing. As we look forward into Q3 and Q4, our pipelines in construction and ICRE are very strong.

Ken Lovik: I think you're going to see more of it in Q3 than Q4. That's our expectation there. To be honest with you, in Q2, our deposit kind of cost outlook, we were right on top of that. Kind of where we came up short a little bit in Q2 was on the lending side, and we talked about average loan balances being down and some of the dynamics that drove that with lighter SBA originations in the front end of the year, or excuse me, in the front end of the quarter. Offset by strong growth, continued growth in construction and investor commercial real estate and single-tenant lease financing.

Speaker #3: But that's our expectation there. And quite to be honest with you, in the second quarter, our deposit kind of cost outlook we were kind of right on top of that, kind of where we got came up short a little bit in the second quarter was on the lending side.

Speaker #3: And we talked about average loan balances being down in some of the dynamics that drove that with lighter SBA originations in the front end of the year.

Speaker #3: Or excuse me, in the front end of the quarter. But offset by strong growth, continued growth in construction and investor commercial real estate and single-tenant lease financing.

Speaker #3: So, as we look forward into the third quarter and the fourth quarter, our pipelines in construction and ICRE are very strong. We expect a lot of draw activity in the third and fourth quarters.

Ken Lovik: As we look forward into Q3 and Q4, our pipelines in construction and ICRE are very strong. We expect a lot of draw activity in Q3 and Q4. We have a lot of investor CRE projects that we expect to fund. Those are all priced at a SOFR plus 3 range. The single-tenant pipeline is very strong. If you think about where long rates have gone here over the last, call it month and a half or so, we're pricing single-tenant loans at kind of the highest yields that we have in quite some time.

Ken J. Lovik: We expect a lot of draw activity in Q3 and Q4. We have a lot of investor CRE projects that we expect to fund. Those are all priced at a SOFR plus 3 range. The single-tenant pipeline is very strong. If you think about where long rates have gone here over the last, call it month and a half or so, we're pricing single-tenant loans at kind of the highest yields that we have in quite some time. Those are priced at a 225 to 240 spread over the 5-year treasury. Those are coming on the books now. Anything that's pricing today is coming on at a 640 to 660 type yield. On the Jaris side too, we're kind of really excited about that partnership because historically, we'd retained, call it 10% to 12% of their origination volumes.

Speaker #3: We have a lot of investor CRE projects that we expect to fund. Those are all kind of priced at SOFR plus three range.

Speaker #3: The single-tenant pipeline is very strong. And if you think about where long rates have gone here over the last, call it, month, month and a half or so, we're pricing single-tenant loans at kind of the highest yields that we have in quite some time.

Speaker #3: Those are priced at a 225 to 240 spread over the five-year treasury. So those are coming on the books now. Anything that's pricing today is coming on at a 640 to 660 type yield.

Ken Lovik: Those are priced at a 225 to 240 spread over the 5-year treasury. Those are coming on the books now. Anything that's pricing today is coming on at a 640 to 660 type yield. On the Jaris side too, we're kind of really excited about that partnership because historically, we'd retained, call it 10% to 12% of their origination volumes.

Speaker #3: And then on the JARAS side, too, we're kind of really excited about that partnership because we historically, we'd retained call it, 10 to 12 percent of their origination volumes.

Speaker #3: And if you think about it in terms of what we retained from, say, January through May, that was probably $4.5 to $5 million.

Ken J. Lovik: If you think about it in terms of what we retained from, say, January through May, that was probably four and a half to $5 million. Not very large balances. We were providing senior credit to their fund. That was probably a SOFR plus 3 or 4 type yield. Going forward, early part of this month, we did acquire some loans from Jaris as they wound down their funds. We kind of got a pool of those, call it about $15 million or so earlier in July. Our expectation is, combined with that with retained production, we'll probably have balances we'll acquire kind of call it in the $45 to $50 million range. Those do have very nice top-level gross yields. They're usually a 7-month type turn on those. It's very structured, very similar to factoring.

Ken Lovik: If you think about it in terms of what we retained from, say, January through May, that was probably four and a half to $5 million. Not very large balances. We were providing senior credit to their fund. That was probably a SOFR plus 3 or 4 type yield. Going forward, early part of this month, we did acquire some loans from Jaris as they wound down their funds.

Speaker #3: So, not very large balances. We were funding their—we were providing senior credit to their fund that was probably a SOFR plus three or four type yield.

Speaker #3: But going forward, we did early part of this month, we did acquire some loans from JARAS as they wound down their funds. We kind of got a bulk of a pool of those, call it, about 15 million or so earlier in July.

Ken Lovik: We kind of got a pool of those, call it about $15 million or so earlier in July. Our expectation is, combined with that with retained production, we'll probably have balances we'll acquire kind of call it in the $45 to $50 million range. Those do have very nice top-level gross yields. They're usually a 7-month type turn on those. It's very structured, very similar to factoring.

Speaker #3: And our expectation is we'll probably, with combined with that, with retained production we'll probably have balances we'll acquire kind of, call it, in the 45 to 50 million dollar range.

Speaker #3: And those do have very nice, kind of top-level gross yields. They're usually a seven-month type turn on those. It's very structured, very similar to factoring.

Speaker #3: So, the faster they pay, the higher yield there is. But the gross yield on those is very high. So, yeah, I mean, I think we expect—and then as we continue to see the lower-yielding portfolios, some of the exited portfolios—healthcare finance, mortgage—that are 4 percent or lower, continue to roll off.

Ken J. Lovik: The faster they pay, the higher yield there is, the gross yield on those is very high. I think we expect, and then as we continue to see the lower yielding portfolios, some of the exited portfolios, healthcare finance, mortgage that are 4% or lower continue to roll off. It's just the replacement dynamic combined with originations in some of our higher yield categories with SBA originations picking up significantly as well. The pathway to a higher yield on the overall loan portfolio is very visible when you put the pieces together.

Ken Lovik: The faster they pay, the higher yield there is, the gross yield on those is very high. I think we expect, and then as we continue to see the lower yielding portfolios, some of the exited portfolios, healthcare finance, mortgage that are 4% or lower continue to roll off. It's just the replacement dynamic combined with originations in some of our higher yield categories with SBA originations picking up significantly as well. The pathway to a higher yield on the overall loan portfolio is very visible when you put the pieces together.

Speaker #3: It's just the replacement dynamic combined with originations in some of our higher yield categories with SBA originations picking up significantly as well. I mean, the pathway to a higher yield on the overall loan portfolio is very visible when you put the pieces together.

Speaker #2: That's all really helpful color. Ken, appreciate that. And then just on the credit side, obviously, the SBA portfolio is having lower net charge-offs, delinquencies are down.

Brett Rabatin: That's all really helpful color, Ken. Appreciate that. Just on the credit side, obviously the SBA portfolio is having lower net charge-offs. Delinquencies are down 20-plus basis points linked quarter. Dealing with the franchise finance portfolio, I just wanted to hear, do you think you have your hands around all the issues that could be in those portfolios? Have you seen anything new come up here in the past quarter with some things that were originated in the 2021 to 2023 vintages? Do you feel like you have your hands around all those potential problems?

Speaker #2: 20-plus basis points linked quarter. You're dealing with the franchise finance portfolio. I just wanted to hear—do you think you have your hands around all the issues that could be in those portfolios, or have you seen anything new come up here in the past quarter with some things that were originated in the '21 to '23 vintages? Or do you feel like you have your hands around all those potential problems?

Speaker #1: As it relates to SBA, Brett, we really do feel like the changes we implemented in underwriting, as well as the changes that we have made to portfolio management throughout the end of 2025 and into this year, are really starting to show up.

Nicole Lorch: As it relates to SBA, Brett, we really do feel like the changes we implemented in underwriting as well as the changes that we have made to portfolio management that throughout the end of 2025 and into this year are really starting to show up. The vintages of 2021 to 2023, we believe we have worked through the worst of that. It's always possible, of course, with a small business for something to pop up, but at this point, we believe problems tend to show up in about the first 18 months, 18 to 24 months with small business, especially when we're looking at business acquisitions. What we are seeing, however, is much better performance from the 2025 vintage. Of course, the 2026 year-to-date vintage.

Speaker #1: The vintages of '21 to '23, we believe we have worked through the worst of that. It's always possible. Of course, with a small business, for something to pop up.

Nicole Lorch: The vintages of 2021 to 2023, we believe we have worked through the worst of that. It's always possible, of course, with a small business for something to pop up, but at this point, we believe problems tend to show up in about the first 18 months, 18 to 24 months with small business, especially when we're looking at business acquisitions. What we are seeing, however, is much better performance from the 2025 vintage. Of course, the 2026 year-to-date vintage.

Speaker #1: But at this point, we believe problems tend to show up in about the first 18 months—18 to 24 months—with small businesses, especially when we're looking at business acquisition.

Speaker #1: What we are seeing, however, is much better performance from the 2025 vintage and, of course, the 2026 year-to-date vintage. So we're feeling very confident that the changes we have made to underwriting guidelines, expectations of borrower strength, and then the changes that we've made as well within portfolio management are going to yield us much better results in the future.

Nicole Lorch: We're feeling very confident that the changes we have made to underwriting guidelines, expectations of borrower strength, and the changes that we've made as well within portfolio management are going to yield us much better results in the future.

Speaker #3: Yeah. And I think kind of speaking on the franchise side of things, I think as we continue to work down, we talked about how we charged off a fair number of non-performing, non-accrual loans this quarter.

Ken J. Lovik: I think kind of speaking on the franchise side of things, I think as we continue to work down, we talked about how we charged off a fair number of non-performing, non-accrual loans this quarter. We referenced that the inflows to the non-accrual bucket was significantly reduced. Net non-accrual franchise finance loans declined quite a bit. We talked about the declines in SBA delinquencies. Even in early stage franchise delinquencies from the beginning of the year, that number is down over 75%. Similar to SBA, the non-performing loan formation has slowed dramatically. I think there's probably still some loans that we're keeping our eye on there. The pool of loans, where maybe a borrower is a habitual 30-day late payer or something like that, the pool of loans in franchise has certainly declined significantly, certainly from the beginning of the year.

Ken Lovik: I think kind of speaking on the franchise side of things, I think as we continue to work down, we talked about how we charged off a fair number of non-performing, non-accrual loans this quarter. We referenced that the inflows to the non-accrual bucket was significantly reduced. Net non-accrual franchise finance loans declined quite a bit. We talked about the declines in SBA delinquencies.

Speaker #3: We referenced that the inflows to the non-accrual bucket were significantly reduced. So net non-accrual franchise finance loans declined quite a bit. We talked about the declines in SBA delinquencies, but even in early-stage franchise delinquencies, from the beginning of the year, that number is down over 75%.

Ken Lovik: Even in early stage franchise delinquencies from the beginning of the year, that number is down over 75%. Similar to SBA, the non-performing loan formation has slowed dramatically. I think there's probably still some loans that we're keeping our eye on there. The pool of loans, where maybe a borrower is a habitual 30-day late payer or something like that, the pool of loans in franchise has certainly declined significantly, certainly from the beginning of the year.

Speaker #3: So similar to SBA, the non-performing loan formation has slowed dramatically. I mean, I think there's probably still some loans that we're keeping our eye on there, but the pool of loans we're maybe a borrower is a habitual 30-day late payer or something like that.

Speaker #3: The pool of loans in franchise has certainly declined significantly, certainly from the beginning of the year.

Speaker #1: In fact, just this afternoon, we received a check on a loan that we had marked as doubtful. We had charged it down to, I think, $600,000 was all we had left on the books.

Nicole Lorch: In fact, just this afternoon, we received a check on a loan that we had marked as doubtful. We had charged it down to, I think, $600,000, was all we had left on the books. Got a check for $600,000. I think that also speaks well to our ability to measure the recoverability of these loans. That also gives us confidence going forward.

Speaker #1: Got a check for $600,000. So I think that also speaks well to our ability to measure the recoverability of these loans. So that also gives us confidence going forward.

Speaker #2: Okay, really helpful. Thanks for all the color.

Brett Rabatin: Okay. Really helpful. Thanks for all the color.

Speaker #3: Our next question comes from the line of Emily Lee with KBW. Emily, your line is open.

Operator: Our next question comes from the line of Emily Lee with KBW. Emily, your line is open.

Speaker #1: Hi, Emily.

Nicole Lorch: Hi, Emily.

Emily Lee: Hi, everyone. This is Emily stepping in for Tim Switzer. Thanks for taking my question. Yeah. End of period and average loan balances were impacted by early payoffs this quarter. I guess, what are your expectations for payoffs going forward?

Speaker #4: Stepping in for Tim Switzer. Thanks for taking my question. Yes. So yeah, end-of-period and average loan balances were impacted by early payoffs this quarter.

Speaker #4: I guess, what are your expectations for payoffs going forward?

Speaker #3: You know what? We think based upon what we've seen this year, we know that there are probably going to continue to have those pop up here and there.

Ken J. Lovik: You know what? We think based upon what we've seen this year, we know that there are probably going to continue to have those pop up here and there. What we do like is when a borrower gives us notice. Like for example, we got notice earlier this week that a construction loan or an ICRE loan that's going to mature in 2027, that they're going to pay it down probably at the end of August. It's nice when we get advance notice on that because we can certainly factor that into our models. Quite frankly, it's enough lead time to get out there and replace the balance elsewhere. I think we do expect there's probably going to be some. It's kind of hard to predict. We have seen elevated payoffs in the franchise finance portfolio on performing loans there.

Ken Lovik: You know what? We think based upon what we've seen this year, we know that there are probably going to continue to have those pop up here and there. What we do like is when a borrower gives us notice. Like for example, we got notice earlier this week that a construction loan or an ICRE loan that's going to mature in 2027, that they're going to pay it down probably at the end of August.

Speaker #3: What we do like is when a borrower gives us notice like, for example, we got notice earlier this week that a loan construction loan that or an ICRD loan that's going to mature in 2027 that they're going to pay it down probably at the end of August.

Speaker #3: So it's nice when we get advance notice on that because we can certainly factor that into our models. And quite frankly, it's enough lead time to get out there and replace the balance elsewhere.

Ken Lovik: It's nice when we get advance notice on that because we can certainly factor that into our models. Quite frankly, it's enough lead time to get out there and replace the balance elsewhere. I think we do expect there's probably going to be some. It's kind of hard to predict. We have seen elevated payoffs in the franchise finance portfolio on performing loans there.

Speaker #3: But I think we do expect there's probably going to be some. It's kind of hard to predict. We have seen elevated payoffs in the franchise finance portfolio on performing loans there.

Speaker #3: But we've kind of begun to model that in because we've seen it for the past couple of quarters. But I think it'll continue to happen, and we've included that in our modeling.

Ken J. Lovik: We've kind of began to model that in because we've seen that for the past couple of quarters. I think it'll continue to happen, but I think we're trying to do our best to capture it in our modeling.

Ken Lovik: We've kind of began to model that in because we've seen that for the past couple of quarters. I think it'll continue to happen, but I think we're trying to do our best to capture it in our modeling.

Speaker #4: Understood. That's helpful. And then this quarter, you increased the number of fintech partners. Just wondering if you could talk about expectations for growth from the VAST platform going forward, and how the partner pipeline is looking now.

Emily Lee: Understood. That's helpful. This quarter, you increased the number of fintech partners. Just wondering if you could talk about expectations for growth from the BaaS platform going forward and how the partner pipeline is looking now. Do you still look to kind of continue opportunistically adding more partners as you see fit, or what are your plans there?

Speaker #4: Do you still look to kind of continue opportunistically adding more partners as you see fit, or what are your plans there?

Speaker #1: Sure. We have added three partners year to date, and I think there are—so we are now at 15 partners and 21 programs. We have two more programs that we expect to bring online.

Nicole Lorch: Sure. We have added three partners year to date, and I think there are like we are now at 15 partners, 21 programs. We have two more programs that we expect to bring online before the end of 2026. Our pipeline of potential programs is healthy behind that. I don't expect us to grow into the triple digits by any means in the next year. We're very careful about how we curate our partnerships, and we have some terrific partners. In fact, four of the 15 have expanded their relationship with us in the last year. I think that speaks to the kind of relationships that we're forming and the capacity that we have to grow right alongside them. We believe that, in terms of fintech partnership revenue, we're going to see growth from interest income on the lending program that we're doing.

Speaker #1: Before the end of 2026. And our pipeline of potential programs is healthy behind that. I don't expect us to grow into the triple digits by any means in the next year.

Speaker #1: We're very careful about how we curate our partnerships, and we have some terrific partners. In fact, four of the fifteen have expanded their relationship with us in the last year.

Nicole Lorch: In fact, four of the 15 have expanded their relationship with us in the last year. I think that speaks to the kind of relationships that we're forming and the capacity that we have to grow right alongside them. We believe that, in terms of fintech partnership revenue, we're going to see growth from interest income on the lending program that we're doing. We also will see a moderate increase from our fees that we collect, whether it's on transactions or on oversight fees. Our revenue has grown and our transactions have grown. I think our revenue is up 220% year over year. We do see a lot of runway there.

Speaker #1: I think that speaks to the kind of relationships that we're forming and the capacity that we have to grow right alongside them. So, we believe that in terms of fintech partnership revenue, we're going to see growth from interest income on the lending program that we're doing.

Speaker #1: We also then will see a moderate increase from our fees that we collect, whether it's on transactions or on oversight fees. But our revenue has grown and our transactions have grown.

Nicole Lorch: We also will see a moderate increase from our fees that we collect, whether it's on transactions or on oversight fees. Our revenue has grown and our transactions have grown. I think our revenue is up 220% year over year. We do see a lot of runway there.

Speaker #1: I think our revenue is up 220 percent year-over-year, so we do see a lot of runway there.

Speaker #4: Great to hear. Thanks for taking my question.

Emily Lee: Great to hear. Thanks for taking my questions.

Speaker #3: Thanks. Our next question comes from the line of Nathan Race with Piper Sandler. Nathan, your line is open.

Ken J. Lovik: Thanks.

Ken Lovik: Thanks.

Operator: Our next question comes from the line of Nathan Race with Piper Sandler. Nathan, your line is open.

Speaker #5: Hi, everyone. Good afternoon. Thanks for taking the questions.

Nathan Race: Hi, everyone. Good afternoon. Thanks for taking the questions.

Speaker #6: Hey, Nate. How are you doing?

Ken J. Lovik: Hey, Nate. How you doing?

David Becker: Hey, Nate. How you doing?

Speaker #5: I'm good. Thanks, Dave. David, just in terms of thinking about the reserve trajectory going forward, I know it's difficult to predict in terms of what charge-offs are going to be underlying the provisioning assumptions for the back half of this year.

Nathan Race: Good. Thanks, Dave. David. Just in terms of thinking about the reserve trajectory going forward, I know it's difficult to predict in terms of what charge-offs are going to be underlying the provisioning assumptions for the back half of this year, was just curious if you could just shed some more light on in terms of how specific reserves are trending, particularly against the SBA and franchise finance portfolios, and kind of what that suggests in terms of kind of loss content expectations over the next couple of quarters.

Speaker #5: But I was just curious if you could just shed some more light on in terms of how specific reserves are trending particularly against the SBA and franchise finance portfolios and kind of what that suggests in terms of kind of loss content expectations over the next couple of quarters.

Speaker #3: Yeah, I mean, I think we saw a lot of that, as we mentioned in our comments, right? We charged off about $11.5 million of non-performing franchise loans.

Ken J. Lovik: Yeah. I think as we mentioned in our comments, we charged off about $11.5 million of non-performing franchise loans. That reduced our specific reserves by $6.7 million that came off. When we think about what the provision outlook looks like, for the provision, sometimes it's kind of agnostic whether it's a charge-off or a specific reserve. I think, again, we kind of continue to feel confident that with the enhancements that Nicole mentioned relative to SBA portfolio management, special assets, and where we see the potential number of franchise loans That could be a problem down the road. I think we just see continued decline there. If you think about it in terms of a net charge-off number, I think our expectation is that for net charge-offs to come down significantly from where they were in the Q1 and Q2.

David Becker: Yeah. I think as we mentioned in our comments, we charged off about $11.5 million of non-performing franchise loans. That reduced our specific reserves by $6.7 million that came off. When we think about what the provision outlook looks like, for the provision, sometimes it's kind of agnostic whether it's a charge-off or a specific reserve.

Speaker #3: That reduced our specific reserves by $6.7 million. That came off. When we think about what the provision outlook looks like, we do, for the provision, sometimes it's kind of agnostic whether it's a charge-off or a specific reserve.

Speaker #3: But I think we, again, we kind of continue to feel confident that with the enhancements that Nicole mentioned relative to SBA portfolio management, special assets, and where we see the number or potential number of franchise loans that could be a problem down the road, I think we just see continued decline there.

David Becker: I think, again, we kind of continue to feel confident that with the enhancements that Nicole mentioned relative to SBA portfolio management, special assets, and where we see the potential number of franchise loans That could be a problem down the road. I think we just see continued decline there. If you think about it in terms of a net charge-off number, I think our expectation is that for net charge-offs to come down significantly from where they were in the Q1 and Q2.

Speaker #3: And if you think about it in terms of a net charge-off number, I think our expectation is that for net charge-offs to come down significantly from where they were in the first and second quarter, probably be a little bit—could be higher in the third quarter.

Ken J. Lovik: Probably could be higher in Q3, could be less in Q4. It's like you said in your question, it's hard to predict the timing. I think we believe the trajectory is certainly going down in H2 of the year.

David Becker: Probably could be higher in Q3, could be less in Q4. It's like you said in your question, it's hard to predict the timing. I think we believe the trajectory is certainly going down in H2 of the year.

Speaker #3: Could be less in the fourth. Like you said in your question, it's hard to predict the timing. But I think we believe that trajectory is certainly going down in the back half of the year.

Speaker #1: And I think, too, to your question, Nate, with our enhanced portfolio management efforts and really being an ally to our borrowers, we are able to provide them more solutions when they get in touch with us earlier.

Nicole Lorch: I think, too, to your question, Nate, with our enhanced portfolio management efforts and really being an ally to our borrowers, we're able to provide them more solutions when they get in touch with us earlier. Sometimes, I've just seen over the last 18 months, a night and day difference in the way we're better communicating, and that gives us more visibility into what the likelihood of loss would be. The communication between portfolio management and finance is very strong, and that helps to prevent surprises.

Speaker #1: So sometimes I've just seen, over the last 18 months, a night-and-day difference in the way we're better communicating, and that gives us more visibility into what the likelihood of loss would be.

Speaker #1: So the communication between portfolio management and finance is very, very strong, and that helps to prevent surprises.

David Becker: The comment that Nicole made earlier about the $600,000 payment we got in today on a loan that we'd reserved against. We also have a significant franchisor that's got 3 units, a little over $6 million. We've already reserved a 30% reserve against that loan, and we think it's going to pay off in total. We'll get a recovery of that 30% here this quarter, plus the full $6 million will fall out of the delinquency side and off the balance sheet in total. That's kind of a wild card there, but the whole thing we've done with the special assets group has enabled us where, as Nicole said, we've reached out and touched literally everybody in the SBA pool, everybody in the franchise pool, checking in with them, how things are going.

Speaker #6: The comment that Nicole made earlier about the $600,000 payment we got in today on a loan that we had reserved against, we also have a significant franchise or that's got three units a little over $6 million we've already reserved a 30% reserve against that loan.

Speaker #6: And we think it's going to pay off in total. So, we'll get a recovery of that 30% here this quarter, plus these full $6 million will fall out of the delinquency side and off the balance sheet in total.

David Becker: We'll get a recovery of that 30% here this quarter, plus the full $6 million will fall out of the delinquency side and off the balance sheet in total. That's kind of a wild card there, but the whole thing we've done with the special assets group has enabled us where, as Nicole said, we've reached out and touched literally everybody in the SBA pool, everybody in the franchise pool, checking in with them, how things are going.

Speaker #6: So that's kind of a wild card there, but the whole thing we've done with the Special Assets Group has enabled us—as Nicole said—we've reached out and touched literally everybody in the SBA pool.

Speaker #6: Everybody in the franchise pool checking in with them, how things are going. With all the uncertainty in the economic factors out here right now, we're on a very strong offensive pull.

David Becker: With all the uncertainty and the economic factors out here right now, we're on a very strong offensive pull to try and reach everybody. If things do start to go south, they'll call us. They won't run from us. As she just pointed out, there's a lot of things we can do for them when we catch them early. When they're on their way to the bankruptcy court, it makes it tough for all of us. We're pretty positive that we've got the right people in the right seats doing the right things right now. It's a fun time.

Speaker #6: To try and reach everybody, so if things do start to go south, they'll call us. They won't run from us. As she just pointed out, there are a lot of things we can do for them when we catch them early.

Speaker #6: When they're on their way to the bankruptcy court, it makes it tough for all of us. So we're pretty positive that we've got the right people in the right seats, doing the right things right now.

Speaker #6: So it's fun time.

Nathan Race: Yep. Indeed. That's really helpful. Going back to the margin discussion. Ken, I appreciate all the color around what you have maturing on the CD front in the back half of this year. Is the expectation that those CDs will largely be replaced by some of the lower cost deposit gathering programs you have going on with some of your partners? What's kind of the incremental kind of replacement cost on some of those CDs, to the extent it's not backfilled some of those other relationship deposits?

Speaker #5: Yes, indeed. That's really helpful. Just going back to the margin discussion, Ken, I appreciate all the color around what you have maturing on the CD front in the back half of this year.

Speaker #5: The expectation that those CDs will largely be replaced by some of the lower-cost deposit gathering programs you have going on with some of your partners or I mean, what's kind of the incremental kind of replacement costs on some of those CDs to the extent it's not backfilled with some of those other relationship deposits?

Speaker #3: Yeah, I mean, I guess maybe the easiest way to think about it is just simply replacing, in the third quarter, CDs that are costing us 4.04% on a weighted average basis.

Ken J. Lovik: I guess maybe the easiest way to think about it is simply replacing in Q3, CDs that are costing us 404 on a weighted average basis, being replaced with Fintech at 320, 315 to 320. That's probably the easiest way to think about it. As I mentioned, why I think we'll probably get some more deposit cost savings in the back half of the year, certainly in Q3, is the renewal rate on CDs. Our renewal rate, if we're renewing CDs today, that rate is kind of around a 360. You're still looking at a 40-basis point pickup even if we just renewed everything or had new volume. That renewal rate is going down, which when you're backfilling more of it with Fintech deposit growth, you're just going to capture more cost savings.

Ken Lovik: I guess maybe the easiest way to think about it is simply replacing in Q3, CDs that are costing us 404 on a weighted average basis, being replaced with Fintech at 320, 315 to 320. That's probably the easiest way to think about it. As I mentioned, why I think we'll probably get some more deposit cost savings in the back half of the year, certainly in Q3, is the renewal rate on CDs.

Speaker #3: Being replaced with fintech at 320, 315 to 320. That's probably the easiest way to think about it. And as I mentioned, why I think we'll probably get some more deposit cost savings in the back half of the year, or certainly in the third quarter, is just the renewal rate.

Speaker #3: On CDs—I mean, our renewal rate, if we're renewing CDs today, that rate is kind of around a 3.60%. So you're still looking at a 40 basis point pickup, even if we just renewed everything or had new volume.

Ken Lovik: Our renewal rate, if we're renewing CDs today, that rate is kind of around a 360. You're still looking at a 40-basis point pickup even if we just renewed everything or had new volume. That renewal rate is going down, which when you're backfilling more of it with Fintech deposit growth, you're just going to capture more cost savings.

Speaker #3: But that renewal rate is going down, which, when you're backfilling more of it with fintech deposit growth, you're just going to capture more cost savings.

Speaker #6: We're not feeling the pressure that a lot of our peers are on them because of the deposit market getting hot again and having to pay up for CDs and/or deposits with two and a half billion dollars off balance sheet in cash.

David Becker: We're not feeling the pressure that a lot of our peers are on them because of the deposit market getting hot again and having to pay up for CDs and/or deposits with $2.5 billion off balance sheet in cash. As Ken said, if half of those CDs disappear, we'll pull $200 million in at 318 versus the 420. We're in a pretty enviable position right now with what's going on in the marketplace with the excess cash.

Speaker #6: As Ken said, if half of those CDs disappear, we'll pull $200 million in at 3.18% versus a 4.20%. So we're in a pretty enviable position right now with what's going on in the marketplace with the cash.

Speaker #5: Yep. Good stuff. And then, if we were to get a rate hike later this year, can you just update us in terms of what that kind of NII or margin sensitivity would be?

Nathan Race: Yep. Good stuff. If we were to get a rate hike later this year, could you update us in terms of what that kind of NII or margin sensitivity would be?

Speaker #3: Sure. Yeah. And keep in mind that this is a static balance sheet. So it's not really factoring in growth. Obviously, everything we've done over the last few years, we've moved ourselves much closer to a neutral position.

Ken J. Lovik: Sure. Yeah, keep in mind that this is a static balance sheet, it's not really factoring in growth. Obviously, everything we've done over the last few years, we've moved ourself much closer to a neutral position, we still are a little bit liability sensitive. If we had a rate hike, again, static balance sheet, it's probably about, on an annual basis, about $2.4 million reduction to NII. If it went the other way, if we had a rate cut, a 25 basis point rate reduction, we would probably pick up about $2.2 million in additional NII.

Ken Lovik: Sure. Yeah, keep in mind that this is a static balance sheet, it's not really factoring in growth. Obviously, everything we've done over the last few years, we've moved ourself much closer to a neutral position, we still are a little bit liability sensitive. If we had a rate hike, again, static balance sheet, it's probably about, on an annual basis, about $2.4 million reduction to NII. If it went the other way, if we had a rate cut, a 25 basis point rate reduction, we would probably pick up about $2.2 million in additional NII.

Speaker #3: But we still are a little bit liability sensitive. So if we had a rate hike against static balance sheet, it's probably about on an annual basis about 2.4 million dollar reduction to NII.

Speaker #3: If it went the other way—if we had a rate cut, a 25 basis point rate reduction—we would probably pick up about $2.2 million.

Speaker #3: In additional NII.

Speaker #5: Okay. Great. And then just lastly, Ken, what's the tax rate assumptions underpinning the EPS guide for this year?

Nathan Race: Okay, great. Just lastly, Ken, what's the tax rate assumptions underpinning the EPS guide for this year?

Speaker #3: Yeah. I mean, it's a little bit varying. I'd say between the range. I mean, it's not a huge range, but I'd say it's probably on the low end of the range call it a 6 to 6 and a quarter on the higher end of the range call it 8 to 8 and a half.

Ken J. Lovik: Yeah. It's a little bit varying, I'd say, between the range. It's not a huge range, I'd say it's probably on the low end of the range, call it a 6% to 6.25%. On the higher end of the range, call it 8% to 8.5%. This is full year. I think with our expectations of much stronger performance in Q3 and Q4, you could probably kind of math into, if I'm giving you the tax rate for the year, you can probably back into what it could be for the quarters.

Ken Lovik: Yeah. It's a little bit varying, I'd say, between the range. It's not a huge range, I'd say it's probably on the low end of the range, call it a 6% to 6.25%. On the higher end of the range, call it 8% to 8.5%. This is full year. I think with our expectations of much stronger performance in Q3 and Q4, you could probably kind of math into, if I'm giving you the tax rate for the year, you can probably back into what it could be for the quarters.

Speaker #3: I mean, and this is for the full year. So, I think with our expectations of much stronger performance in the third quarter and the fourth quarter, you could probably kind of do the math—if I'm giving you the tax rate for the year, you can probably back into what it could be for the quarters.

Speaker #5: Yeah, I think that's something—the 15% range, sounds like 15, 20 percent. Does that sound right?

Nathan Race: Yeah. I think that's something in the 15% range. Sounds like 15% to 20%. Does that sound right?

Ken J. Lovik: Yeah. Probably more 12% to 15-ish.

Ken Lovik: Yeah. Probably more 12% to 15-ish.

Speaker #3: Yeah. Probably more 12 to 15-ish.

Speaker #5: Okay, all right. Sounds good. I appreciate all the color. Thanks, everyone.

Nathan Race: Okay. All right. Sounds good. I appreciate all the color. Thanks, everyone.

Speaker #2: Okay.

Ken J. Lovik: Okay. Great. Thanks, Nate.

Ken Lovik: Okay. Great. Thanks, Nate.

Speaker #3: Great. Thanks, Nate.

Speaker #1: Our next question comes from the line of George, Sutton. With Craig Hallam. George. Your line is open.

Operator: Our next question comes from the line of George Sutton with Craig-Hallum. George, your line is open.

Speaker #6: Thank you. You mentioned wealth advisory and embedded finance as new focus areas. So I wondered if you could give us a little more detail on what the wealth advisory practice is lending to.

George Sutton: Thank you. You mentioned wealth advisory and embedded finance as sort of new focus areas. I wonder if you could give us a little more picture on what the wealth advisory practice is lending to. On the embedded finance side, I'm curious if that broader than just Jaris, or are you specifically focused on Jaris there?

Speaker #6: And on the embedded finance side, I'm curious, is that broader than just Jaris, or are you specifically focused on Jaris there?

Ken J. Lovik: I'll handle the wealth advisory piece. The wealth advisory lending is to RIAs. Generally, for the purpose of, say, ownership transition, succession issues. What you see in the RIA, the registered investment advisor world today is you see a lot of advisors are getting near retirement, and there's a lot of ownership transition, a senior partner selling to a junior partner. That's really what that is. It's financing acquisition or succession transition, ownership transition in the advisor space.

Ken Lovik: I'll handle the wealth advisory piece. The wealth advisory lending is to RIAs. Generally, for the purpose of, say, ownership transition, succession issues. What you see in the RIA, the registered investment advisor world today is you see a lot of advisors are getting near retirement, and there's a lot of ownership transition, a senior partner selling to a junior partner. That's really what that is. It's financing acquisition or succession transition, ownership transition in the advisor space.

Speaker #3: I'll handle the wealth advisory piece. The wealth advisory lending is to RIAs generally for the purpose of, say, ownership transition, succession issues. You may have what you see in the RIA, the registered investment advisor world today, is your you see a lot of a lot of advisors are getting near retirement, and there's a lot of ownership transition, a senior partner selling to a junior partner.

Speaker #3: So that's really what that is. It's financing acquisition, or succession transition, ownership transition in the advisor space.

Speaker #6: The average owner of an RIA today, George, is 66 years old. And so, there's a lot of folks kind of saying enough's enough. And a little bit of volatility might be creating some of the issues, but we've been doing it for probably 18 to 24 months now. But the volume has really seemed to pick up over the last four to five months.

David Becker: The average owner of an RIA today, George, is 66 years old, there's a lot of folks kind of saying, "Enough's enough." A little bit of volatility might be creating some of the issues, but we've been doing it for probably 18 to 24 months now, but the volume has really seemed to pick up over the last four to five months. I'll take on the embedded finance. Yeah. Jaris is by far the biggest opportunity for us in the short term. We have two others in the queue. One is wrapping up on their due diligence and final testing and should be going live, one of the ones that Nicole was talking about coming on between now and year-end. The big change for us in the H2 of this year before the new guys come on board is Jaris.

Speaker #6: I'll take on the embedded financing. Yeah, Jaris is by far the biggest opportunity for us in the short term. We have two others in the queue.

David Becker: I'll take on the embedded finance. Yeah. Jaris is by far the biggest opportunity for us in the short term. We have two others in the queue. One is wrapping up on their due diligence and final testing and should be going live, one of the ones that Nicole was talking about coming on between now and year-end. The big change for us in the H2 of this year before the new guys come on board is Jaris.

Speaker #6: One is wrapping up on their due diligence and final testing and should be going live—one of the ones that Nicole was talking about coming on between now and year-end.

Speaker #6: But the big change for us in the second half of this year, before the new guys come on board, is Jaris. We had historically been buying about 10% of their production.

David Becker: We had historically been buying about 10% of their production and the rest was going to the fund. We actually bought out that fund, and it's going to jump. We did about $5 million with them in the H1 of the year, and we're probably going to do $10 to 15 million in the H2 of the year. As Ken said, that tremendously helps on the top end on the yield on it. The short term, as he said, factoring, it can be 35% to 40%, depending upon the term and how quick they repay. Net yield to us at the bottom line, full reserves, processing, servicing, payment of fees, et cetera, it's still yielding in that 12% to 15% range for us. That's double down anything else we have on the books today. It's a great asset for us and the other folks.

Speaker #6: And the rest was going to the fund. We actually bought out that fund, and it's going to jump. We did about $5 million with them in the first half of the year, and we're probably going to do $10 to $15 million in the second half of the year.

Speaker #6: As Ken said, that tremendously helps them at the top end on the yield on it. Short term, as he said, factoring, it can be 35% to 40%, depending upon the term and how quick they repay.

David Becker: The short term, as he said, factoring, it can be 35% to 40%, depending upon the term and how quick they repay. Net yield to us at the bottom line, full reserves, processing, servicing, payment of fees, et cetera, it's still yielding in that 12% to 15% range for us. That's double down anything else we have on the books today. It's a great asset for us and the other folks. The pricing will be similar for those that we're turning on here in the H2 of the year.

Speaker #6: Net yield to us at the bottom line, full reserves, processing, servicing, payment of fees, etc.—it's still yielding in that 12 to 15 percent range for us.

Speaker #6: So that's double down. Anything else we have on the books today? So it's a great asset for us. And the other folks, the pricing will be similar for those that we're turning on here in the second half of the year.

David Becker: The pricing will be similar for those that we're turning on here in the H2 of the year.

Speaker #4: And you had historic, fast growth. I'm just curious, how much of that would be ramp-specific versus other factors?

George Sutton: You had historic fast growth. I'm just curious, how much of that would be Ramp specific versus others?

David Becker: We're spread out. Probably the biggest impact for Ramp is on the deposit side of things. On the fee side of it, we're there with them, but we actually have some others that the pure processing earnings are stronger. Ramp, we do their bill pay product, which has grown significantly. We started it with them square zero a little over two years ago. On 30 June and 1 July, we literally cleared $1 billion plus per day in bill payments. They're $0.01 a transaction. The real growth that we've gotten out of Ramp in the last few months, obviously the numbers are going up, but they're $0.01 an item is on the deposit side. That's been very strong for us. The others, we've adjusted fees almost across the board with all of our clients. Everybody's kind of in a nice growth spurt.

Speaker #6: We're spread out.

Speaker #3: Probably the biggest impact from ramp is on the deposit side of things, on the fee side of it. We're there with them, but we actually have some others that did the pure processing earnings are stronger.

Speaker #3: Ramp—we do their bill pay product, which has grown significantly. We started it with them at square zero a little over two years ago. On June 30th and July 1st, we literally cleared $1 billion-plus per day in bill payments.

David Becker: On 30 June and 1 July, we literally cleared $1 billion plus per day in bill payments. They're $0.01 a transaction. The real growth that we've gotten out of Ramp in the last few months, obviously the numbers are going up, but they're $0.01 an item is on the deposit side. That's been very strong for us. The others, we've adjusted fees almost across the board with all of our clients. Everybody's kind of in a nice growth spurt.

Speaker #3: But they're pennies a transaction. So the real growth that we've gotten out of ramp here in the last few months, obviously, the numbers are going up, but they're pennies an item is on the deposit side and that's been very, very strong for us.

Speaker #3: The others, we've adjusted fees. Almost across the board with all of our clients, everybody's kind of in a nice growth spurt. As Nicole pointed out, we're not going after every Tom, Dick, and Harry that's out there.

David Becker: As Nicole pointed out, we're not going after every Tom, Dick, and Harry that's out there. We're pretty judicious on who we work with and who we talk to. We've got a pretty good reputation in the business of being ahead of the regulators and not having compliance issues. We're viewed as a little bit painful to deal with, but at the end of the day, that's a win for us and the fintechs. We've gotten good volume across the line. A few years back, we went from $1 million in revenue to $2 to 4 million. We had forecasted $8 million. I think it's going to knock past $10 million this year pretty easily. It's all going up into the right pretty quickly.

Speaker #3: We're pretty judicious about who we work with and who we talk to. We've got a pretty good reputation in the business for being ahead of the regulators.

Speaker #3: And not having compliance issues, and we're viewed as a little bit painful to deal with. But at the end of the day, that's a win for us and the fintech.

Speaker #3: So we've got good volume across the line. A few years back, we went from $1 million in revenue to $2 million, then to $4 million. We had forecasted $8 million.

David Becker: A few years back, we went from $1 million in revenue to $2 to 4 million. We had forecasted $8 million. I think it's going to knock past $10 million this year pretty easily. It's all going up into the right pretty quickly.

Speaker #3: I think it's going to not pass 10 this year pretty easily. So it's all going up and to the right pretty quickly.

George Sutton: One quick one for Nicole, if I could, on SBA. Historically, you've kind of talked about your market ranking and goals for pretty material growth. Is that not necessarily the focus now?

Speaker #4: One quick one for Nicole, if I could, on SBA. Historically, you've kind of talked about your market ranking and goals for pretty material growth.

Speaker #4: Is that not necessarily the focus now?

Speaker #2: Well, thanks for the question, George. Obviously, we want to put people in small business and help them achieve their dreams when we can and when it makes sense.

Nicole Lorch: Well, thanks for the question, George. Obviously, we want to put people in small business and help them achieve their dreams when we can and when it makes sense. We needed to retool our credit underwriting guidelines. We needed to build better portfolio management processes so we didn't continue to add to the portfolio and then not have a way to keep up with our borrowers. With those two things addressed, I think that we do have a good opportunity to ramp volume back up. We're going to do that judiciously, not focus on quantity, but really focus on quality. It's painful to us when a business has to close its doors. We want to make sure that we're putting the right borrowers in the right business, and so that we can be a good partner to them.

Speaker #2: We needed to retool our credit underwriting guidelines. We needed to build better portfolio management processes so we didn't continue to add to the portfolio without having a way to keep up with our borrowers.

Speaker #2: So, with those two things addressed, I think that we do have a good opportunity to ramp volume back up. But we're going to do that judiciously—not focus on quantity, but really focus on quality. It's painful to us when a business has to close its doors, and so we want to make sure that we're putting the right borrowers in the right business, so that we can be a good partner to them.

Nicole Lorch: With those two things addressed, I think that we do have a good opportunity to ramp volume back up. We're going to do that judiciously, not focus on quantity, but really focus on quality. It's painful to us when a business has to close its doors. We want to make sure that we're putting the right borrowers in the right business, and so that we can be a good partner to them.

Speaker #2: So, I do think we have a good opportunity now that we have our processes in place, and we have credit underwriting guidelines that we know work.

Nicole Lorch: I do think we have a good opportunity now that we have our processes in place and we have credit underwriting guidelines that we know work. We're feeling much better about our ability to scale volume again. I think we'll see some improvement in volume in H2 of this year. Our lending teams are growing slightly, and we have some good people with new contacts that they've made. Our referral sources, we're growing more loans that have some real estate behind them, so those command a better premium. I think we did a lot of retooling that is going to help us in future periods.

Speaker #2: We're feeling much better about our ability to scale volume again. I think we'll see some improvement in volume in the second half of this year.

Speaker #2: Our lending teams are growing slightly, and we have some good people with new contacts that they've made. Our referral sources are growing more loans that have some real estate behind them.

Speaker #2: So those command a better premium. I think we did a lot of retooling that is going to help us in future periods.

David Becker: The SBA industry as a whole, George, is down about 18% year to date on growth year over year compared to last year. The industry as a whole is a little bit slower than it had been. We're still in the top 10 originators in the seven, eight world, and we'll probably stay there through the course of the year. As Nicole said, the pipelines are strong and volume H2 will be a little better than it was in H1.

Speaker #6: The SBA industry as a whole, George, is down about 18% year to date on growth year over year compared to last year. So the industry as a whole was a little bit slower than it had been.

Speaker #6: We're still in the top 10 originators in the 7(a) world, and we'll probably stay there through the course of the year. As Nicole said, the pipelines are strong and volume in the second half will be a little better than it was in the first half.

Speaker #4: Perfect. Okay. Thanks, guys.

George Sutton: Perfect. Okay. Thanks, guys.

Speaker #6: Appreciate it. Thank you.

David Becker: Appreciate it. Thank you.

Speaker #1: There are no further questions at this time. I will now turn the call back to David Becker for closing remarks.

Operator: There are no further questions at this time. I will now turn the call back to David Becker for closing remarks.

Speaker #6: Thanks, Trevor. And thanks, everybody, for joining us today and for your interest in First Internet Bancorp. This was a quarter we've been working towards for some time, and we're proud of the progress our teams have made on credit, as well as the increasingly capital-efficient, fee-generating direction of our business.

David Becker: Thanks, Trevor, and thanks everybody for joining us today and for your interest in First Internet Bancorp. This was a quarter we've been working towards for some time, and we're proud of the progress our teams have made on credit, as well as increasingly capital efficient, fee-generating direction of our business. We remain mindful of all the macroeconomic uncertainty in the world and things going on around us, but we are executing from a position of genuine momentum, and we believe the hardest part of our credit cycle is truly behind us. We appreciate your support. Feel free to reach out to any of us if you have further questions. Thank you and have a good evening.

Speaker #6: We remain mindful of all the macroeconomic uncertainty in the world and the things going on around us, but we are executing from a position of genuine momentum, and we believe the hardest part of our credit cycle is truly behind us.

Speaker #6: We appreciate your support. Feel free to reach out to any of us if you have further questions. Thank you, and have a good evening.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

Q2 2026 First Internet Bancorp Earnings Call

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