Cuộc họp công bố kết quả kinh doanh Quý 3/2026 của First Internet Bancorp (INBK): Doanh thu kỷ lục và triển vọng Quý 4

Điểm tin chính

• First Internet Bancorp đã báo cáo lợi nhuận ròng quý 3/2026 đạt 4,8 triệu USD, tương đương 0,54 USD trên mỗi cổ phiếu pha loãng. EPS điều chỉnh đạt 0,57 USD sau khi loại trừ 400.000 USD chi phí trợ cấp thôi việc không thường xuyên.
• Tổng doanh thu đạt mức kỷ lục 43,9 triệu USD, tăng 7% so với quý trước. Thu nhập ròng trước dự phòng điều chỉnh tăng 14% so với quý 2 lên 17,1 triệu USD.
• Thu nhập lãi thuần tăng 7% so với quý trước và 14% so với cùng kỳ năm ngoái, đạt mức kỷ lục 34,7 triệu USD. Biên lãi thuần tương đương chịu thuế hoàn toàn mở rộng 8 điểm cơ bản lên 2,55%.
• Xu hướng tín dụng cải thiện trên diện rộng, với chi phí dự phòng giảm xuống 11,6 triệu USD, số tiền xóa nợ ròng giảm hơn một nửa và tỷ lệ nợ quá hạn giảm xuống 48 điểm cơ bản từ mức 78 điểm cơ bản trong quý 2.
• Mối quan hệ tài trợ nhượng quyền thương mại lớn đã làm giảm lợi nhuận trước thuế khoảng 3,2 triệu USD, tương đương 0,29 USD trên mỗi cổ phiếu pha loãng, do khoản dự phòng cụ thể 2,6 triệu USD và việc hoàn nhập lãi vay liên quan.
• Ban lãnh đạo kỳ vọng EPS pha loãng quý 4/2026 sẽ đạt khoảng 1,02 USD đến 1,07 USD, nhờ biên lãi thuần tiếp tục mở rộng, thu nhập lãi thuần cao hơn và chi phí dự phòng thấp hơn.

Dữ liệu tài chính cốt lõi

Kinh doanh và Kết quả hoạt động

First Internet Bancorp tiếp tục dịch chuyển vốn khỏi các danh mục đầu tư có lợi suất thấp hơn hoặc đã thoái vốn. Các khoản giải ngân mới đạt lợi suất bình quân gia quyền là 7,51%, giúp nâng lợi suất tổng thể của danh mục cho vay lên 6,42%.

Tài trợ xây dựng và bất động sản thương mại đầu tư, tài trợ cho thuê một bên thuê, cho vay tư vấn tài sản và tài chính nhúng đã tăng trưởng trong quý. Tài trợ y tế, tài trợ nhượng quyền thương mại và thế chấp nhà ở tiếp tục thu hẹp. Ban lãnh đạo cho biết việc tái cơ cấu danh mục đầu tư này cho phép thu nhập lãi tăng trưởng mà không cần mở rộng bảng cân đối kế toán quá mức.

Tiền gửi fintech đã tăng hơn 1 tỷ USD lên 4,7 tỷ USD, bao gồm 2,9 tỷ USD ngoài bảng cân đối kế toán vào cuối quý. Tiền gửi fintech trung bình trên bảng cân đối kế toán đã tăng 40%, giúp thay thế chứng chỉ tiền gửi và tiền gửi môi giới có chi phí cao hơn.

Doanh thu phí fintech tăng 13% so với quý trước và hơn 190% trên cơ sở 12 tháng gần nhất. Công ty đã bổ sung hai đối tác trong quý và ghi nhận thêm hoạt động tích hợp đối tác mới trên các mảng thanh toán, tiền gửi và cho vay.

Phát hành cho vay SBA tăng 14% so với quý trước nhưng vẫn thấp hơn kỳ vọng của ban lãnh đạo. Công ty cho rằng sản lượng thấp hơn là do hoạt động của ngành yếu hơn và quy trình thẩm định nội bộ thắt chặt hơn. Ban lãnh đạo kỳ vọng quy mô phát hành cho vay SBA năm 2027 sẽ cải thiện so với năm 2026, mặc dù quy mô khoản vay trung bình từ đầu năm đến nay đã giảm từ mức hơn 2 triệu USD một chút xuống khoảng 1,8 triệu USD.

Công ty cũng đã hoàn thành dự án tự động hóa phát hành cho vay SBA nhiều giai đoạn. Ở mức sử dụng hiện tại, ban lãnh đạo ước tính dự án giải phóng khoảng 620 giờ công suất hàng năm của người cho vay và người xử lý hồ sơ. Việc nhập dữ liệu thủ công giảm hơn 80%, trong khi thời gian phê duyệt SBA trung vị đã cải thiện khoảng 10 ngày trong so sánh được đo lường.

Triển vọng từ ban lãnh đạo

Ban lãnh đạo đã đưa ra triển vọng quý 4/2026 như sau, với giả định lãi suất quỹ liên bang tăng 25 điểm cơ bản vào tháng 12:

Triển vọng này bao gồm việc tiếp tục tối ưu hóa danh mục đầu tư, chi phí tiền gửi ổn định, khoản phát hành vay SBA thấp hơn và doanh thu phí fintech tăng trưởng hơn nữa. Ban lãnh đạo kỳ vọng dư nợ cho vay trung bình trong quý 4 sẽ tăng ở mức từ thấp đến trung bình một chữ số, mặc dù dư nợ cuối kỳ có thể gần như đi ngang do các khoản hoàn trả khoản vay xây dựng theo kế hoạch.

Đối với năm 2027, quan điểm sơ bộ của ban lãnh đạo là tăng trưởng cho vay lên đến khoảng 10%, với thu nhập lãi thuần dự kiến sẽ tăng trưởng với tốc độ nhanh hơn đáng kể. Tăng trưởng chi phí dự kiến sẽ thấp hơn nhiều so với mức 10%, phản ánh việc tuyển dụng mới hạn chế và đòn bẩy hoạt động tiếp tục đến từ tự động hóa.

Rủi ro và các lĩnh vực cần theo dõi

Một bên vay tài trợ nhượng quyền thương mại đã suy giảm chất lượng tín dụng vào cuối quý sau khi kế hoạch tái tài trợ dự kiến trở nên không khả thi trong ngắn hạn. First Internet Bancorp đã chuyển khoản vay này sang trạng thái ngưng dồn tích, trích lập dự phòng cụ thể 2,6 triệu USD và hoàn nhập 600.000 USD thu nhập lãi. Ban lãnh đạo cho biết họ tiếp tục nhận thấy khả năng trả nợ nhưng đã ghi nhận sự suy giảm dựa trên các điều kiện vào cuối quý.

Tổng số tiền hoàn nhập lãi liên quan đến các khoản vay tài trợ nhượng quyền thương mại chuyển sang trạng thái ngưng dồn tích là 1,2 triệu USD. Việc hoàn nhập này đã làm giảm biên lãi thuần quý 3 khoảng 9 điểm cơ bản và lợi suất cho vay giảm 12 điểm cơ bản.

Ngân hàng vẫn nhạy cảm nhẹ với nợ phải trả, mặc dù ban lãnh đạo cho biết độ nhạy cảm này đã giảm đáng kể trong hai năm qua. Theo các kịch bản bảng cân đối kế toán tĩnh có tính đến đợt tăng lãi suất vào tháng 12/2026 và tháng 3/2027, dự báo thu nhập lãi thuần năm 2027 có thể giảm khoảng 2,5% đến 3%. Việc tiếp tục thay đổi cơ cấu cho vay và tiền gửi có thể làm giảm tác động được mô hình hóa đó.

Phát hành cho vay SBA và doanh thu từ lãi bán nợ dự kiến sẽ tiếp tục ở mức thấp hơn trong quý 4 do quy trình thẩm định thắt chặt hơn và hoạt động trầm lắng. Thời điểm dòng tiền gửi fintech chảy vào và các khoản thanh toán khoản vay xây dựng theo kế hoạch cũng có thể tạo ra sự biến động trong tăng trưởng bảng cân đối kế toán hàng quý.

Điểm nhấn phần Hỏi & Đáp với chuyên gia phân tích

• Độ nhạy cảm với lãi suất: Ban lãnh đạo cho biết mỗi đợt tăng lãi suất bổ sung sẽ ngày càng ít tác động hơn theo thời gian khi các khoản vay có lợi suất thấp hơn đáo hạn và được chuyển sang các tài sản có lợi suất cao hơn hoặc lãi suất thả nổi.
• Quỹ đạo biên lãi thuần năm 2027: Theo các đợt tăng lãi suất trong mô hình, ban lãnh đạo vẫn kỳ vọng NIM quý 4/2027 sẽ vượt quý 4/2026 khoảng 10 điểm cơ bản. Nếu không có các đợt tăng lãi suất đó, mức mở rộng ước tính sẽ vào khoảng 20 điểm cơ bản.
• Tái định giá tài sản: Danh mục cho vay có 57% lãi suất cố định và 43% lãi suất thả nổi, so với 75% cố định và 25% thả nổi vào tháng 9/2024. Ban lãnh đạo ước tính rằng 2,1 tỷ USD dư nợ cho vay và chứng khoán sẽ tái định giá ngay lập tức hoặc trong vòng ba tháng.
• Chi phí tín dụng: Ban lãnh đạo đề xuất quy năm triển vọng dự phòng quý 4/2026 như một điểm khởi đầu thận trọng để mô hình hóa cho năm 2027, đồng thời cho biết kết quả thực tế có thể tốt hơn.
• Phân bổ vốn: Giám đốc điều hành David Becker cho biết công ty hiện ưu tiên sử dụng vốn cho các khoản vay bổ sung và tăng trưởng bảng cân đối kế toán hơn là mua lại cổ phiếu.

Toàn văn Biên bản Cuộc họp Báo cáo Kết quả Kinh doanh

Toàn văn cuộc gọi công bố kết quả kinh doanh

Phần trình bày của ban lãnh đạo

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 the Third Quarter 2026. [Operator Instructions] Please note that this event is being recorded.

It is now my pleasure to turn the call over to Julia Ferrara from ICR. You may begin your conference.

Julia Ferrara

Thank you, operator. Good afternoon, everyone, and thank you for joining us to discuss First Internet Bancorp's Third 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. 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 up the call for your questions.

Before we begin, I'd like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial conditions of First Internet Bancorp that involves risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the company's SEC filings, which are available on the company's website. The company disclaims any obligation to update any forward-looking statements made during the call.

Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP and non-GAAP measures.

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

David Becker

Thank you, Julia. Good afternoon, everyone, and thank you for joining us.

Let me start with the headline. The fundamental earnings power of First Internet Bancorp continues to improve. We generated record revenue in the third quarter. We expanded net interest margin for the fourth consecutive quarter. We grew adjusted pre-provision net revenue 14% from the second quarter. We continue to improve the mix of loans and deposits while deploying capital efficiently. At the same time, the overall credit normalization we discussed last quarter is on track with net charge-offs and delinquencies declining meaningfully.

For the third quarter, we are reporting earnings of $0.54 per diluted share. Excluding nonrecurring expenses, adjusted earnings per share rose to $0.57, more than double what we reported last quarter. We also had one significant credit relationship move against us late in the quarter. I want to address that one directly. Earlier in the quarter, we were working with a franchise finance borrower on a forbearance arrangement. It was intended to give the borrower time to refinance with another lender. Late in the quarter, the borrower's financial condition deteriorated and it became clear that refinancing was no longer viable in the near term. We moved the relationship to nonaccrual. We established a $2.6 million specific reserve and reversed $600,000 of interest income. For this relationship, we believe there remains a path to repayment. However, based on what we knew at quarter end, including the delinquent status of the related loans, the prudent course of action was to recognize the deterioration, and we did. That's the bad news in the quarter, but it is important not to lose sight of what happened everywhere else in the business.

Provision expense declined sequentially. Net charge-offs fell by more than half. Delinquencies fell to 48 basis points from 78 in the second quarter. That includes a significant drop in franchise finance delinquencies. Those are meaningful improvements, and they show the broader credit trends are moving in the direction we expected. More importantly, our operating performance gave us the capacity to absorb the impact of this relationship. We produced record revenue, record net interest income and continued margin expansion, and we still grew adjusted pre-provision earnings by double digits. That's what I mean when I say the fundamental earnings power of this company is improving.

We are confident in the direction of the business as we execute on our strategy with foresight and discipline. Nicole will talk about how that strategy is changing the economics of our business for the better, and then Ken will walk through the financial results and what we expect in the fourth quarter. Nicole?

Nicole Lorch

Thanks, David.

The way I would characterize this quarter is simple. The business model is working. We're seeing the benefit of decisions we've made over multiple quarters about where we deploy capital, how we fund the balance sheet and which businesses can generate attractive returns without requiring traditional balance sheet growth.

Start with lending. We continue to move capital out of lower-yielding or exited portfolios and into businesses where we see stronger risk-adjusted returns. New funded originations came on to the balance sheet this quarter at a weighted average yield of 7.51%. That is the strategy in action. As lower-yielding loans pay down, we redeploy that capital into opportunities with better returns. Quarter by quarter, that is changing the economics of the portfolio. This quarter, the overall portfolio yield increased another 8 basis points to 6.42%. The point isn't simply that loans grew, it is what is growing and what is shrinking. Construction and investor commercial real estate, single-tenant lease financing, wealth advisory lending and embedded finance grew during the quarter.

At the same time, health care finance, franchise finance and residential mortgage continued to run off. That remixing let us grow interest income faster than the balance sheet. We don't need outsized balance sheet growth to grow earnings. That's exactly what we've been working toward. Our fintech partnership business adds another dimension that model. Fintech deposits increased just over $1 billion during the quarter to $4.7 billion, including $2.9 billion held off balance sheet at quarter end. Average on-balance sheet fintech deposits increased 40%, giving us additional capacity to replace higher cost CDs and brokered deposits with lower-cost fintech funding. But the value of the fintech franchise goes well beyond funding.

Fintech fee revenue increased 13% from the second quarter and is up more than 190% on a trailing 12-month basis. We added 2 partners during the quarter and have additional partners in the onboarding pipeline across payments, deposits and lending. So fintech is doing multiple jobs for us. It is improving our funding mix. It is generating fee income. And through embedded lending, it is creating another avenue to deploy capital and grow interest income. Those pieces reinforce one another, making the business more valuable as we scale it.

Now SBA. Production here has been softer than we expected. Originations increased 14% sequentially, but overall activity did not reach the level we anticipated. Industry volume has been weaker, and we've also deliberately tightened our own underwriting standards over the past several quarters. Let me be clear about the trade-off we're making. We are not going to manufacture loan growth by compromising credit discipline. The SBA changes that became effective October 1 reinforced several of the underwriting principles we've been applying for the last year.

With industry activity subdued and our underwriting standards tighter, we expect SBA originations and gain-on-sale revenue to remain lower in the fourth quarter. We can live with that on a short-term basis. Yes, we want the volume, but we want the right volume. And the credit trends David discussed tell us the changes we have made in underwriting, servicing and portfolio management are having the intended effect. And this quarter illustrates something important about the company we have built. SBA production was below our expectations and yet we generated record revenue. That does not mean SBA matters less to us. It demonstrates that our sources of revenue are steadily diversifying.

Finally, I want to spend a moment on operating leverage because this is just as central to where we're taking the company. Our technology strategy is not about implementing AI for the sake of AI. The objective is straightforward: use technology to support more customer activity, more revenue and more growth without requiring expenses to increase at the same rate. We're beginning to see tangible evidence of that. During the third quarter, we completed a multiphase project to automate significant portions of SBA origination. At current usage levels, we estimate that work creates approximately 620 hours of annual lender and processor capacity. Manual data entry has been reduced by more than 80% and median SBA approval time in the measured comparison improved by roughly 10 days. We're now looking at how to apply similar capabilities elsewhere in the company.

Step back and the picture is clear, we're generating higher returns from the loan portfolio. We're lowering our funding costs through fintech deposits. We're growing fee-generating businesses that don't depend entirely on balance sheet growth, and we're creating operating capacity to support growth without a commensurate increase in expense. We have more ways to generate revenue, more ways to fund growth and more places to put capital to work at attractive returns than we did just a few years ago. That diversification matters. We are building a company with multiple sources of revenue and growth that build on one another. The result is a broader, more durable revenue engine and a business model with more levers for creating value. That is what we mean when we say the business model is working.

Ken will now tie these strategies into our financial results and what they mean for the fourth quarter. Ken?

Kenneth Lovik

Thanks, Nicole.

We reported third quarter net income of $4.8 million or $0.54 per diluted share. Excluding $400,000 of nonrecurring severance expense, adjusted net income was $5.1 million or $0.57 per diluted share. Total revenue reached a record $43.9 million, up 7% sequentially. Combined with well-managed expenses, adjusted pre-provision net revenue increased 14% from the second quarter to $17.1 million. Net interest income was also a record at $34.7 million or $35.9 million on a fully taxable equivalent basis, up 7% sequentially and 14% year-over-year.

Net interest margin expanded 8 basis points to 2.47% or 2.55% on a fully taxable equivalent basis. Strong growth in net interest income was achieved despite $1.2 million of interest reversals associated with franchise finance loans moved to nonaccrual status, which reduced net interest margin by approximately 9 basis points. Half of those reversals are related to the relationship David discussed. The underlying margin drivers remain favorable on both sides of the balance sheet. Loan yields increased 8 basis points sequentially to 6.42% as we continue to redeploy capital from lower-yielding portfolios into our core and emerging lending businesses. At the same time, the cost of interest-bearing deposits declined 6 basis points to 3.32% as fintech deposits replaced higher cost CDs and brokered deposits. That's the balance sheet strategy David and Nicole described, and you're now seeing it flow through the income statement.

As we look at the interest rate environment going forward, we remain modestly liability sensitive, but materially less so than we were 2 years ago. Our loan portfolio is now 57% fixed rate, 43% adjustable rate compared with 75% fixed and 25% adjustable in September 2024. We have also emphasized shorter duration securities as we reinvest cash flows. We analyzed several rate scenarios on a static balance sheet, assuming 2 more Fed rate increases over the next several months, ranging from parallel and ramped rate shocks to a bear flattener scenario with rate increases in December 2026 and March 2027. The most punitive scenarios indicate about a negative impact of 2.5% to 3% on forecasted net interest income over the course of 2027, which we do expect to be up substantially over 2026. Importantly, though, these are static assumptions. Continued execution of our lending and deposit strategies significantly reduces the modeled effect.

Turning to credit. Provision expense declined to $11.6 million from $13.4 million in the second quarter, reflecting lower net charge-offs, partially offset by higher specific reserves on franchise finance loans. That large relationship accounted for $2.6 million of specific reserves, including the associated interest reversal, actions taken on this relationship reduced pretax earnings by approximately $3.2 million or $0.29 per diluted share. Outside of that relationship, the broader trend improved. Net charge-offs and delinquencies both declined materially during the quarter, while nonperforming loans increased as additional franchise finance balances moved to nonaccrual, including $6.6 million related to the large relationship.

Now let me turn to our outlook for the fourth quarter. We continue to expect fully taxable equivalent net interest margin of 2.75% to 2.80% and fully taxable equivalent net interest income of around $38.5 million, driven by continued portfolio optimization and stable deposit costs, assuming a 25 basis point increase in the Fed funds rate in December. We expect noninterest income of around $7.5 million, incorporating our revised expectation for lower SBA originations, but offset by continued growth in fintech fee revenue. Additionally, noninterest expense should come in around $26.5 million.

And based on the improving delinquency trends and the franchise finance actions taken this quarter, we expect provision expense of $7.5 million to $8 million. Those assumptions lead us to expect fourth quarter diluted earnings per share of approximately $1.02 to $1.07. In the second quarter, we reported diluted earnings per share of $0.27. This quarter, operating earnings per share more than doubled. We believe it will nearly double again in the fourth quarter. We believe that outlook demonstrates the underlying earnings trajectory we have been discussing today, continued growth in net interest income, continued margin expansion, growing fintech fee revenue, disciplined expenses and moderating credit costs.

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

Operator

[Operator Instructions] Our first question comes from the line of Brett Rabatin with StoneX.

Phần hỏi đáp

Brett Rabatin

I wanted to start with, Ken, maybe just some color around the guidance. When I think about the margin guidance for the fourth quarter, you kind of do it a couple of different ways. But essentially, you're kind of implying a 15 basis point increase in earning asset yields and a 15 basis point increase in -- or decrease in funding...

Operator

My apologies, Brett, sorry to interrupt. This is Trevor, the Q4 moderator. We're just having a technical issue on our end. We're going to pause the podcast briefly for technical issues. Please stand by while we resolve the issue. Thank you. [Technical Difficulty] We have resolved the issue. Brett, if you wouldn't mind starting your question over again, please? We will move on to the next question. If Brett would like to redial-in and join the queue, that would be great.

Our next question comes from the line of Tim Switzer with KBW.

Timothy Switzer

I appreciate all the color on the potential impact of rate hikes on NII. I just want to make sure I heard it right. Did you say 125 basis point rate hike would have about a 2% to 3% impact on annualized NII in '27? Is that the right number?

Kenneth Lovik

No, it was 2 rate hikes, Tim. We modeled in -- we assumed that we would get a rate hike in December, and we would get a rate hike in March.

Timothy Switzer

Those are a 2% to 3% impact to '27 NII.

Kenneth Lovik

Yes. And I would also add to that, that also captures kind of the fully baked-in impact of the rate hike that we had back in September as well.

Timothy Switzer

Okay. That's very helpful. And if we think about the -- I guess, the path of this rate hike cycle, it's obviously a little uncertain right now. If we continue to get several rate hikes at a gradual pace, does that impact change over time? Or is it pretty consistent?

Kenneth Lovik

No. The further we get out, I guess, as more time elapses, each rate hike becomes less impactful. So one thing we did analyze, we looked at another rate hike in September, and that was significantly less, call it, 50 basis points. So it kind of ratchets down because if you think about it, we continue to have lower-yielding loans continue to pay down. Those get redeployed into variable rate channels such as construction, investor commercial real estate, SBA or get originated in a higher rate environment. And we continue to kind of have some of the CDs pay down as well. So it just -- over time, the impact of rate hikes get muted.

Timothy Switzer

Okay. That makes sense. In the scenario with a hike in December, hike in March, do you think we can have a higher NIM in Q4 '27 compared to Q4 '26?

Kenneth Lovik

Absolutely. I think the way to think about it is we do -- and Nicole talked about this in her comments, we get an incredibly powerful bump from just redeploying cash flows from, say, the health care portfolio, the residential mortgage portfolio, public finance. And if you think about -- maybe one way to look at it is like over the next 12 months, we'll have about, call it, $200 million of principal cash flows from those portfolios as well as franchise finance in there as well at kind of, call it, a blended 4% to 4.5% rate. Those are being redeployed 300 to 350 basis points higher. So we're still -- I guess the way to think about a rate hike for us is if we didn't have a rate hike, if we had no rate hikes in the model, understanding that we're going to get less deposit leverage as more CDs roll off, let's just say NIM would be up 20 basis points fourth quarter of '27 versus fourth quarter of '26. That increase gets cut in half. That would go to perhaps 10 basis points of NIM increase. So we continue -- our expectation is to continue growing NII. And we do expect NIM expansion. It will just be a little bit muted because of the impact of rate hikes.

Timothy Switzer

Okay. That's very clear. Appreciate it. And then the other follow-up I have is, as we look into 2027, I know it's a little uncertain, but how can we think about the trajectory of some of the key credit metrics and provision costs as we move throughout the year?

Kenneth Lovik

Yes. I think the way that we're looking at it, we gave some outlook on what we think fourth quarter is going to look like. I think a conservative approach would be to say, take our fourth quarter and run rate that for the year. I think we hope that we can come in better than that. But I think that might be a conservative way to model it as you look at '27.

Operator

Our next question comes from the line of Brett Rabatin with StoneX.

Brett Rabatin

Can you hear me okay?

Kenneth Lovik

Yes, pretty loud.

Brett Rabatin

Yes, I don't know what happened. So anyway, I wanted to just go back to the guidance and just thinking about the various numbers. The margin guidance for the fourth quarter, Ken, essentially, we're kind of looking at 15 basis points up on average earning asset yields and 15 basis points down on funding costs. Is that a fair way to think about the fourth quarter dynamic with the margin and then the NII guide related to that would kind of suggest flattish earning assets in 4Q relative to 3Q. Are those 2 things kind of in your ballpark of thinking or any thoughts on those 2 line items?

Kenneth Lovik

No, you probably see on average some growth in interest-earning assets. Again, it kind of comes back to the thing you need to think about and as I explained to Tim and Nicole talked about, was just the redeployment of cash flows coming from lower-yielding portfolios. One thing, too, in the fourth quarter in terms of the impact of the September rate hike, certain of our fintech deposits all kind of reprice in different cadence. So while we'll get the benefit, we will get a benefit of a full -- pretty much across the board on all of our assets. Some of that rate hike, the impact on fintech deposits kind of has to get layered in over the course of a few months. So we don't really feel the full impact of a rate hike immediately on all of our fintech deposits.

But I do think deposit costs will probably be flattish, but the earning asset yields should be up -- should continue to grow as they did last quarter. And I think one thing you probably need to think about when you do the math on that is the large relationship that David talked about and some other interest reversals, those did impact margin in the past -- in third quarter by 9 basis points. They impacted loan yields by 12 basis points. So it is from kind of period-over-period, the growth might seem like a lot. But when you take into effect what we had to reverse out, I think the growth is more -- it's strong because of the assets we're putting on the books today, but it might not be as eye-popping as if you're just doing the math right now.

Brett Rabatin

Okay. That's helpful. And then on credit, I wanted to ask, you obviously had the franchise finance issue this quarter that would seem to be a bit unexpected. But just wanted to see if there were underlying trends with franchise finance or the SBA portfolio relative to maybe a quarter ago? And then just wanted to get an update. I know that the 2Q substandard or special mention loans were higher due to those commercial real estate loans, those 4 properties in the nonowner-occupied bucket that were going to go through stabilization. Just wanted to see how that was trending for those credits as well.

David Becker

Two of the 4 credits have been, I guess, raising the ratings on them. They're back to performing and everything is according to plan. We did have a couple of others. The regulators made it pretty clear if they're slow on construction, slow on lease-up. Obviously, there's some crazy weather going on across the United States right now. So we have very few construction projects 100% on target and on time that they want us to change the ratings on them because they're not performing to the original plan. So we've had loans move in and loans move out, but we're not worried about credit on any of those loans at the current time. There's no big change other than things are getting better in the SBA and the franchise pools.

The one loan that we had to, by policy, take the hit on at the tail end was literally the Friday afternoon at 4:00 when we got worried that the loan refinance was not going to come through before quarter end, and we made that adjustment. It's a great customer. He's talking with us, working with us. He's got a business person. He's a multi-franchise owner of different franchises and stuff, and he's got an outside counsel working with them to kind of stabilize this organization, and we think we're going to recover. We have credit committee this morning. Nobody is sweating that we feel at the current time, we've more than reserved for that loan and issues. But overall, as the delinquency fell third quarter versus second quarter, going into fourth quarter, we're starting off with a pretty clean slate, and we're looking good for year-end.

As Ken said, if you take the charge-offs we did have first and second quarter, take where we're going to be anticipated in the fourth quarter, we definitely moved the needle by millions over the course of the year. And we think that's a conservative estimate, if you just take that number running forward into '27 that we can even do better than that. So no fear on this side. Let me say we had an incident with the one loan, but everything else is right on target, doing exactly what we thought it would be doing.

Brett Rabatin

Okay. And if I could sneak in one last one just around SBA, thinking about that business into '27. You've obviously taken a more measured approach to it. This year, you've ratcheted down on the underwriting standards, and so that's kind of led to reduced originations and gain-on-sale trends. Is there more ratcheting still to happen that could reduce that further in '27? Do we grow in '27 in SBA? Just any thoughts on where you see that business trending relative to the fourth quarter?

Nicole Lorch

Sure. Thanks for the question, Brett. We are looking forward to 2027 being stronger in terms of origination volume than it has been in 2026. The SBA across the country production has been off. SBA recently issued new SOPs that were effective October 1. That changed some of the parameters for business acquisition lending, which is a key component of our SBA program. But much of what SBA is now requiring were things that we had like quality of earnings reports, for instance, on certain size deals. We were already doing that -- have been doing that for a year. So I think the largest and most tightening that we did in underwriting guidelines was about a year ago this time. So we are getting back to normalizing our volume as our lenders have pivoted, have reached out to new referral sources and in some ways, have even been trying to diversify the types of deals.

We're also seeing that the loan size on average is coming down a bit. So even if loan numbers might -- they're a little softer, but you're going to see a bigger impact on production volume because the average loan size has gone from a little over $2 million to year-to-date, it's been more like $1.8 million. Some of that is because we were seeing disproportionate credit struggles with the larger sized loans. And so we've put more scrutiny on those new loans as they're coming through origination for approval. So the loan size has been coming in over the last 2 years, which has also been going to impact volume.

Operator

Our next question comes from the line of Nathan Race with Piper Sandler.

Nathan Race

Just going back to the margin discussion a bit. Just curious kind of what the deposit growth expectations are for the fourth quarter and thinking about just the size of the balance sheet and earning assets. And to what extent kind of that margin guide contemplates cash coming down. It looked like it was a bit elevated in the quarter relative to 2Q. So Ken, I'm not sure if you could share some thoughts on those topics.

Kenneth Lovik

Yes. I think at quarter end, our cash balance was elevated. It happens probably more frequently than not because of month end, quarter end payment activity from one of our fintech partners, their clients. So the period-end balance was up. But even if you look at the quarter balance in cash, it was elevated relative to where it has been. We do expect that cash balance to start coming down. Maybe the average balance hopefully will be down about $100 million or so if we look into the fourth quarter and into next year. A little hard to predict that, but that's what we're forecasting right now. So as you're putting that cash to use, right, it's kind of the same thing as redeploying the cash flows from the lower-yielding portfolios.

So we don't -- we got a little bit of earning asset growth. We do -- we will have some scheduled larger paydowns in construction happening in this fourth quarter. So the period-end balance may be certainly lower than what the average is going to be. But there will be -- it will be deposit growth to support that a little bit unpredictable just because of the timing of when fintech deposits come on, but we do try to push as much of that off as we can to kind of try to start to increase that loans-to-deposit ratio. But kind of all in all, loan growth should be higher than deposit growth because we are putting that cash -- excess cash to work.

Nathan Race

Okay. Got it. And then can you just remind me, I apologize, I hopped on late, just kind of what the loan growth expectations are for the fourth quarter and then as you get into 2027 as well?

Kenneth Lovik

For the fourth quarter, like I said, period end will be -- not be down, but period end might be flattish because we -- as I said, we do have some large payoffs occurring later this quarter in the construction bucket. But the average balance should be up kind of maybe low- to mid-single digits. And I think as we look into next year, we're obviously still working on our forecast for next year. But again, kind of coming back to a comment Nicole made, we don't have to grow the loan portfolio at a high rate to drive what we would call continued significant growth in NII. So if we're thinking about loan growth for next year, I'd call it -- let's just call it to 10%, but we fully expect NII to be up much higher than 10% next year.

Nathan Race

Got it. Okay. And just kind of unpacking the margin drivers around Fed rate hikes or just kind of the key factors that I think you alluded to earlier. Just can you just update us in terms of kind of your index deposit levels, maybe on a dollar percentage basis of total deposits. And then I think you mentioned the floating rate loans as well and how that proportion has increased. But can you just give us maybe the breakdown more specifically between prime and SOFR just given that SOFR moved ahead of the Fed rate hike in September?

Kenneth Lovik

Well, every -- I guess the way to look at it is probably everything in the investor commercial real estate and the construction bucket is SOFR based. Everything in the SBA bucket, the small business lending, that's prime based. I think where we feel good on the front end of the curve heading into, again, a potentially rate hiking cycle is that, as I said, normalized -- the period-end deposits were elevated, cash was elevated. But if we kind of normalize some of the payments programs we do for our fintech borrowers, you could probably say in the third quarter, normalized deposits from fintech and others that were tied to Fed funds were, call it, $1.9 billion.

If I look on the other side of the balance sheet, though, we have -- as we said on the call, we're 57% fixed, 43% variable or adjustable rate today. That 43% translates into, call it, somewhere between $1.6 billion, $1.7 billion, but if you extend that to our securities portfolio, where we have been buying variable rate bonds as well that are generally -- again, those are tied to SOFR or prime. That's another $400 million to $500 million. So we got $2.1 billion of assets that reprice immediately as well -- or immediately or within the next 3 months. So it's -- again, I think we've done a lot of things on the balance sheet side to make the asset side far more variable rate and obviously gives us a lot of protection going into a potentially tightening rate cycle.

Nathan Race

Got you. And I'm sure it's kind of middle innings of your budget and planning process for next year, but you're tracking for -- with the 4Q guide, 10% expense growth this year. Any kind of early thoughts on kind of what the expense growth outlook looks like for next year, particularly if you're growing loans, kind of 10%-ish as you alluded to?

Kenneth Lovik

No, I think we'll come in lower than that. I think it will speak to some of the comments that Nicole made about operating leverage and our increasing use of AI to streamline. I mean, I'll tell you, we don't have a lot of new -- I don't think we have any brand-new positions to hire for, for next year. We might replace some people, but certainly, any headcount, any increases in the compensation line item is really going to just have to do with merit and truing up bonuses.

And again, as Nicole talked about, SBA production is expected to be up next year. So we'll have higher commissions there. We'll continue -- our construction business as well. So there's incentive comp there. But I think across the board, other than perhaps some of the -- as our fintech programs begin to grow, especially on the lending side and pay program management fees, there'll probably be some increase in that loan expense line item there. But most other line items are expected to be either flat to just modestly up. So when you boil all that together, it's much less than a 10% expense growth.

Nathan Race

Okay. Great. And then maybe one last one for David. Is there a specific TCE or capital ratio target you're looking for to maybe reenter the market and start buying back shares?

David Becker

From my perspective, rather than buying back shares, I'd rather throw out some more loans and make some more money. So yes, I think from the capital standpoint, we're good and we're operating within the right parameters. But if we can grow capital, I think we'll grow balance sheet and add more loans and activity. We got an awful lot of cash sitting on the sideline if we can put it to work, then goes up, earnings go up, everything works to our favor. So rather than buyback, I think we'll use it to expand the balance sheet.

Operator

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

David Becker

Thanks, Trevor, and thanks, everybody, for joining us today and all your thoughtful questions. We're sorry for the little SNAFU we had, but apparently it worked out great on your end. It was a little choppy on our side. But as just discussed here, particularly during the Q&A, we're really pleased with the progress that we made this past quarter. We're even more optimistic about fourth quarter and where we're going into '27. So we appreciate your continued support and look forward to updating you again at the end of next quarter. Have a good evening.

Operator

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