Prepared remarks
Good day, everyone, and welcome to the First Internet Bancorp Earnings Conference Call for the Third Quarter of 2025. Please note that today's event is being recorded. I would now like to turn the conference over to Ben Brodkowitz from Financial Profiles, Inc. Ben, please go ahead.
Thank you, operator. Hello, everyone, and thank you for joining us to discuss First Internet Bancorp's Third Quarter 2025 Financial Results. The company issued its earnings press release yesterday 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. Then we'll open up the call for your questions. Before we begin, I'd like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial condition of First Internet Bancorp that involve risks and uncertainties.
Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the company's SEC filings, which are available on the company's website. The company disclaims any obligation to update any forward-looking statements made during the call. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non-GAAP measures. At this time, I'd like to turn the call over to David.
Thank you, Ben. Good afternoon, and thank you for joining us on the call today. I want to start by highlighting the continued strength of our core business fundamentals and the key strategic execution. Our revenue engine remains robust. We delivered our eighth consecutive quarter of net interest income growth with net interest margin expansion continuing as planned. Additionally, our SBA and BaaS businesses contributed meaningful growth to noninterest income. In the third quarter, we maintained our top line growth momentum as adjusted total revenues reached $43.5 million, an increase of 30% over the second quarter. Revenue growth was driven by a significant increase in the gain on sale of SBA guaranteed loan balances. Net interest income was also up, marking the eighth consecutive quarter of growth. Net interest income increased over 8% compared to the linked quarter and was up 40% compared to the third quarter of 2024, driven by higher earning asset yields and lower deposit costs.
Accordingly, net interest margin on a fully tax equivalent basis increased 8 basis points from the second quarter to 2.12%. Further, our prudent operating expense management and strong top line growth drove significant operating leverage for the quarter. During the quarter, we executed certain strategic actions that had a near-term negative impact on earnings but strengthened our financial position and set the stage for our future growth. First, we successfully completed the sale of $837 million of STL loans. This had several key benefits that advance our strategic priorities. The transaction enhances our interest rate risk profile, strengthens our capital ratios and expedites the optimization of our interest-earning asset base. These improvements will significantly enhance net interest margin and accelerate our progress towards achieving our near-term goal of a 1% return on average assets.
During the quarter, we also took decisive and aggressive action to address credit issues in the small business lending and franchise finance portfolios. We recognized a $34.8 million provision for credit losses, which included $21 million of net charge-offs, additional specific reserves and a significant increase to the allowance for credit losses related to the small business lending. These actions reflect our intention to expedite the improvement of our portfolio's credit quality. As a result of these actions, total delinquencies were 35 basis points as of September 30th, down from 62 basis points in the second quarter and 77 basis points in the first quarter. From the standpoint that delinquencies are the best indicator of potential future credit losses, this puts the health of our portfolio right in line with our peers. Importantly, our credit issues are isolated to small business lending and franchise finance portfolios.
Credit quality across the remainder of our lending vertical is sterling, reflecting the strength and stability of our broader portfolio. Turning to lending activity for a minute. Our commercial lending teams continued to deliver a strong level of originations throughout the quarter. Excluding the impact of the loan sale, commercial loan balances were up $115 million or 3.2% and total loan balances were up $105 million or 2.4%. Heading into the fourth quarter, our loan pipelines remain strong, as our teams continue to see excellent opportunities, especially in our commercial real estate, single-tenant lease financing and commercial and industrial lines of business. Looking ahead, the fundamentals that drive our business, a differentiated model, experienced and dedicated teams, diversified revenue streams, solid capital position and disciplined risk management position us well to continue delivering sustainable growth and enhanced long-term shareholder value. Now I'll turn it over to Nicole to talk about small business lending and BaaS.
Thank you, David. Gain on sale of SBA loans rebounded strongly in the third quarter following our process improvements, generating $10.6 million in gain on sale revenue. We delivered another solid quarter for new loan originations and ended the quarter with $104 million in held-for-sale loans that we look to sell into the secondary market when the federal government reopens and loan sales resume. Anticipating the government shutdown, we proactively secured SBA authorizations for loans in our pipeline prior to September 30th, enabling us to continue to meet our borrowers' desired transaction timelines without disruption. Our pipeline remains robust at $260 million, positioning us well for gain on sale in future periods and for interest income on retained balances. We continue our drive for process improvement throughout the SBA initiative. This quarter, we made strategic investments in technology platforms, including AI technology to our document collection and verification steps to create a streamlined experience for our borrowers, eliminate manual tasks for our employees and provide our credit teams better insights into new loan opportunities.
We also introduced loan level predictive analytics to bolster our portfolio management processes and problem loan identification practices. Additionally, the learnings from our analytics engine enabled us to further refine our credit standards for better credit outcomes in future periods. Our commitment to innovation and excellence extends to the continued success of our fintech partnerships, which is commonly referred to as Banking as a Service or BaaS. Through strong relationships forged with quality programs, sustained growth in deposit balances has provided us robust balance sheet liquidity as well as tremendous balance sheet flexibility. In the third quarter, we strategically moved over $700 million of fintech deposits off-balance sheet to optimize our balance sheet size following the loan sale. We have continued to move additional deposits off the balance sheet here in the fourth quarter, but retain the flexibility to bring them back to fund growth opportunities or to meet liquidity needs as market conditions warrant.
Total revenue from our fintech initiatives, consisting primarily of interest income and program and transaction fees was up 14% compared to the second quarter and up 130% from the third quarter of 2024. These results highlight the strong performance across our diverse business lines. I will now turn it over to Ken for additional insight into our third quarter performance and our fourth quarter outlook.
Thank you, Nicole. As a result of the strategic actions taken during the quarter, we reported a net loss of $41.6 million or $0.0476 per diluted share. Excluding the pretax loss on the loan sale of $37.8 million, the adjusted net loss for the quarter was $12.5 million or $1.43 per diluted share. Despite this, we experienced strong revenue growth and positive operating leverage, leading to an adjusted pretax pre-provision income of $18.1 million, which represents an increase of over 50% from the second quarter and nearly 65% from the third quarter of 2024. Now, regarding the primary drivers of net interest income and net interest expense during the quarter, net interest income for the third quarter was $30.4 million, or $31.5 million on a fully taxable equivalent basis, both of which were up about 8% from the second quarter. The net interest margin improved to 2.04%, or 2.12% on a fully taxable equivalent basis, both up by 8 basis points.
The yield on average interest-earning assets rose to 5.68% from 5.65%, primarily due to an 11 basis point increase in loan yields, as rates on new originations were 7.5% during the quarter. Looking ahead, although the Federal Reserve lowered the Fed funds rate in September, we expect continued expansion in the portfolio yield, as new origination yields should remain above the current portfolio yield of 6.18%. Additionally, the sale of lower coupon single-tenant lease financing loans is anticipated to significantly impact the portfolio yield in future periods. In terms of funding costs, the cost of interest-bearing liabilities decreased to 3.90% from 3.96%, mainly driven by a 5 basis point decrease in interest-bearing deposit costs and a 7 basis point decline in the cost of other borrowings due to the repayment of higher-cost short-term Federal Home Loan Bank advances near the end of the second quarter.
Deposit costs declined as we continued to benefit from CD repricing and reduced broker deposit balances. We also began moving some of our higher-cost fintech deposits off balance sheet, which positively impacted deposit costs, and this activity increased near quarter end after the loan sale. We have observed favorable trends in CD pricing across the curve. As higher cost CDs mature, we expect them to be replaced by lower-cost fintech deposits or new CDs at more attractive rates or simply paid down using excess liquidity to further shrink the balance sheet. This downward pricing trend, combined with our ability to move deposits off balance sheet, positions us well to benefit from further declines in deposit costs in the fourth quarter and into 2026. When paired with higher loan origination yields, these dynamics will support ongoing growth in both net interest income and net interest margin, even without further rate cuts from the Federal Reserve.
At quarter end, 27% of our deposits were indexed to the Fed funds rate, meaning that any additional cuts will further enhance net interest income and net interest margin. Now, I'll discuss asset quality, which saw a number of changes during the quarter, summarized on Slide 13 of the presentation. We recognized a provision for credit losses of $34.8 million in the third quarter, primarily consisting of $21 million in net charge-offs, plus additional specific reserves, and a significant increase to the CECL reserve related to small business lending. Of the net charge-offs, $15.2 million were from the small business lending portfolio as we took decisive actions to address problem loans. After these charge-offs, delinquencies in the small business lending portfolio decreased by over 50% compared to the prior quarter. Additionally, $5.3 million of net charge-offs came from the franchise finance portfolio, which had $3.5 million in existing reserves removed.
Nonperforming loans ended the third quarter at $53.3 million, up $9.7 million from the previous quarter, mainly due to moving 9 franchise finance loans totaling $14.2 million to nonaccrual, with related specific reserves of $5.8 million. Delinquencies in the franchise finance portfolio decreased almost 80% from the second quarter and new delinquencies have significantly slowed, indicating improved borrower performance. The allowance for credit losses rose to $59.9 million, up $13.4 million or nearly 30% from the second quarter, driven by updated inputs to the CECL model reflecting industry trends in SBA loans. Consequently, we more than doubled the small business lending allowance for credit losses (ACL), which now represents 1.65% of total loans, up from 1.07% in the second quarter. Excluding the public finance portfolio, this ACL to total loans ratio increases to 1.89%. Following the credit actions taken last quarter, total delinquencies were at their lowest point in a year, down to 35 basis points at quarter end.
Before discussing our outlook for the fourth quarter, I’ll provide a capital position update. We closed on the sale of $837 million of single-tenant lease financing loans with a net loss of $37.8 million at quarter-end. This loss affected shareholders' equity and regulatory capital, but the reduction in risk-weighted assets was even more significant, leading to growth in regulatory capital ratios from the previous quarter. We anticipate a substantial increase in the Tier 1 leverage ratio in the fourth quarter of 2025, as the average assets calculation adjusts to reflect the smaller balance sheet. Additionally, we managed to soften the loan sale's impact on the tangible equity to tangible assets ratio by moving a significant portion of fintech deposits off balance sheet during the quarter. Now, regarding our outlook for the fourth quarter of 2025, these estimates assume a stable rate environment.
We remain confident in our strategies to enhance net interest income and margin as loan yields rise and deposit costs decline. We expect a loan balance increase of 4% to 6% on an unannualized basis in the fourth quarter. While this may seem high, we believe origination levels will remain steady, despite the lower starting point following the sale of the single-tenant lease financing loans. We also forecast a net interest margin on a fully taxable equivalent basis to increase to between 2.4% and 2.5%, with fully taxable equivalent net interest income projected to be between $32.75 million and $33.5 million. Regarding noninterest income, we have about $104 million in loans held for sale, plus additional closed loans this quarter. However, we anticipate noninterest income will decrease compared to the third quarter, estimated between $10.5 million and $11.5 million. This depends on the duration of the U.S. government shutdown, which has halted SBA loan sales.
Assuming the shutdown ends soon, we expect to complete the loan sales. If it persists, our ability to execute these sales may be jeopardized. On the expense front, we are managing costs effectively, expecting them to be between $26 million and $27 million for the quarter. For 2026, we feel comfortable with current analyst estimates for fully taxable equivalent net interest income and the provision for credit losses. On the noninterest income side, given the rising credit standards in SBA lending, we anticipate a decrease in origination volumes from 2025, projecting noninterest income to be between $41.5 million and $44.5 million. The lower SBA origination volume will also influence our forecast for noninterest expense, estimated to be between $106 million and $109 million. With that, I’ll turn the call back to the operator for questions.
Questions and answers
Your first question comes from the line of Tim Switzer from KBW.
My first question is about the credit outlook. I understand it’s challenging to assign specific numbers or timelines, but could you provide some clarity on when we might expect to see peak delinquencies and peak nonperformers decline? Additionally, what is included in the reserve regarding credit losses, and how do you assess the credit quality of the portfolio at this time?
I'll manage the delinquency aspect. As we mentioned, those numbers continue to decline. Currently, in franchise lending, we have only 4 delinquent accounts, which is at 35 basis points, down from 77 basis points two quarters ago. The leading indicators suggest we are moving in a positive direction and becoming more stable. There is a lot of economic activity happening in D.C. and globally that could affect companies, making the situation challenging. Right now, it is mainly impacting just two of our portfolios, SBA and franchise, but overall, things are progressing positively from our current position. I’ll allow Ken to explain how we've categorized things. There are specific reserves and general reserves, along with some items in nonperforming that we are awaiting resolution on for asset sales, which could lead to some recovery. He can provide more details on this.
Yes, let's start with nonperforming assets. This quarter's increase in nonperforming loans was mainly due to certain franchise finance loans that we addressed during the quarter. These loans were either delinquent or had identified issues, prompting us to move them to nonaccrual status and allocate specific reserves. Regarding delinquencies in the franchise finance sector, those numbers have dropped significantly, with only four delinquent loans reported at the end of the quarter. We believe we have already faced the most serious issues in the franchise portfolio. While there are still some existing nonperforming loans that may require adjustments to reserves or could emerge as new issues, we feel we have witnessed what I would consider the last major wave of problematic loans in this area. The credit outlook looks promising moving forward. Notably, franchise loans represent the largest portion of our nonperforming loan category.
As for future nonperforming asset increases, there may be some additions related to SBA and residual balances that we have not charged off, but we anticipate that significant increases have been minimized. We remain positive that we are nearing the peak level of nonperforming assets. In addressing your question about reserves, we made substantial adjustments to the allowance for credit losses related to SBA, effectively doubling it to around $27.5 million. We adjusted our assumptions in the CECL model to the high end. The CECL model forecasts a lifetime loan loss expectation, and we are comfortable with the current number as we assess our position today.
So does your reserve kind of embed the outlook you just talked about in terms of delinquencies remaining low, not too many new ones and NPAs moving down from here?
To some extent, yes. The CECL model accounts for delinquencies that influence the reserve calculation. Most of our delinquencies are 60 days or less, and we face penalties when delinquencies exceed that. The CECL model incorporates the effects of delinquencies in its calculations. Nonperforming loans are excluded from the general model and are assessed individually with specific reserves. When a loan becomes nonperforming, we conduct a thorough analysis and assign a specific reserve for it. The main component of the ACL reserve is the CECL reserve, followed by the specific reserves evaluated at the loan level. As for the broader perspective on both SBA and franchise loans, we have gained better control over the issues at hand. We've expedited certain processes that we could legitimately advance. In the SBA sector, we adhere to strict guidelines regarding when loans are classified as nonperforming, and we must navigate multiple procedures to address this.
We have thoroughly cleaned up our portfolio and, moving forward, have been progressively tightening our credit standards. Data from a group called Lumos indicates that the statistical trends for SBA loans from 2021 and 2022 have peaked, which correlates with the years of loan origination that contain most of our problematic credits. We've significantly tightened credit over the past two years, with another adjustment made in the last 60 days. Currently, we're in the best position we can be in. However, we recognize that external factors could pose challenges. If there is stability in areas like tariffs, we believe the most challenging times are behind us on both fronts.
That's very helpful. I appreciate all the color there. And if I could get one more on the government shutdown. There's kind of 2 impacts here, right? If the government shutdown, you can't sell your loans, but also at some point, I mean, the SBA isn't approving new SBA numbers either. So is there a timeline or like a deadline in terms of when this kind of slows down your ability to originate new loans? And let's just say we're shut down for another week or 2, how quickly historically is the SBA able to kind of catch up on that backlog of new applications for approval?
That's a great question, Tim. We anticipated the shutdown. Before September 30th, we secured authorization for the loans in our pipeline that had gone through credit approval. As a result, we entered the shutdown with approximately $94 million in pipeline loans that we have authorization for. To date this month, we have funded $18 million in new originations. We can continue to close and fund loans where we have that authorization, and currently, we have another $73 million to $75 million in loan closings underway. As we process these loans in the pipeline, we will be able to complete them. If the government shutdown continues, we can realistically meet our borrowers' timelines for several weeks.
One of the big questions regarding their throughput is that there is a lot of personnel changes happening in D.C. right now due to the closure. The SBA is already short-staffed. We're hoping that the people didn't get let go or that they return after the reopening. The staffing situation when the SBA reopens will play a significant role. However, as Nicole mentioned, we have everything in place and ready to go, and we hope to catch up before the end of the quarter. We did revise our expectations; we initially projected just over $10 million in the fourth quarter, but we have adjusted that down to $8 million due to concerns about processing everything. Nevertheless, as Nicole stated, we are ready to proceed as soon as they reopen and, hopefully, have sufficient staff to handle the workload.
Your next question comes from the line of Brett Rabatin from Hovde Group.
Wanted just to go back to the franchise finance portfolio for a second. And obviously, that portfolio was originated by a third-party ApplePie. And so as we look at that portfolio, you're saying that delinquencies are down. But can you help us maybe get some confidence on just the remaining balances of $450 million of that portfolio?
The ultimate on that one is Crowe is in doing an audit of that portfolio currently. And as of yesterday afternoon at 5:00, they've gone through over 90% of those loans as an external audit. They had no downgrades on the loans and had 2 upgrades. So we not only internally feel better about it. And you hit the nail on the head, Brett. The issue wasn't the remote origination, but it was the remote collection effort. And about 5 or 6 months ago, we jumped in and took control with the assistance of the folks at ApplePie to do the collection efforts. And now the minute somebody goes past due or has an issue or if they got a problem or a question or concern, we talk to them. We're not relying on the third-party servicer. So we have been through literally every loan file. Crowe has now been through 90%. We'll finish it up this week, hopefully, early next week. But we're very proud of the fact that right now, they've had 0 downgrades and 2 upgrades on what they've looked at. So our confidence level is high on franchise.
I’m not sure if you have the information available, but the criticized amount increased from 108 to 128 last quarter. I’m curious if you have that figure or if we need to wait for the filings.
Well, you'll have to wait till the filings because we don't have the formal number calculated.
Okay. I wanted to start by reflecting on Jamie's comments about the challenges we've been facing in this earnings season, specifically regarding some unique issues. How would you characterize what you've encountered? Would you say everything has been unique or that some of the challenges are connected to a weakening consumer or other specific factors?
We have referred to our small business loans as snowflakes in the past because each one is individual and unique, with its own story. However, if you take a broader view of franchise finance and small business loans, there are likely some common factors. The Lumos portfolio analysis has been particularly useful for us in identifying trends, including specific geographies down to ZIP codes, as well as recognizing that some industries have faced more challenges. Our consumer loan portfolio has remained largely insulated from consumer stress because we serve high credit quality borrowers. If the economy continues to face stress, we might see a slowdown in the acquisition of new recreational vehicles or horse trailers, which are often considered nice-to-have rather than must-have items. This could lead to a decrease in the origination of new loans. Nevertheless, consumer borrowers have remained strong for us and our portfolio. With small business loans, we are working to identify any commonalities and rectify those for future credit standards.
I agree with Nicole completely. Currently, consumers seem to be managing the situation fairly well, at least until unemployment starts to become a concern. However, small businesses are beginning to feel some effects. Economists from major universities in Indiana are indicating that things are likely to get tougher before they improve. We are just starting to see the impacts of tariffs on raw materials. Indiana remains a manufacturing state, and these tariffs are significantly affecting small manufacturers and independent businesses in the area that can't absorb the increased costs. For example, my son operates a bicycle shop in Bloomington, Indiana, and if the proposed tariffs on China are enacted, a bicycle chain that used to cost $25 will rise to $100. We can’t predict how this will unfold, but independent retailers and small businesses might experience some challenges in the next couple of months if the current trends continue.
It's still uncertain. I also concur with Jamie that there are always additional challenges in the SBA realm. We're doing our best to manage the situation. One of the valuable aspects of the Lumos technology and AI product is that it alerts us to potential problem areas. For instance, if we identify hotspots in specific ZIP codes in Southern Florida where quick service restaurants are located, we can proactively reach out to those business owners before they encounter significant issues. The AI technology we've implemented over the past few months has provided us with valuable insights into both our franchise and SBA portfolios.
And if I could just sneak in one last one. David, you said you'd buy back stock when you got down to these kind of levels and we're down here again. Are you guys going to buy back stock at these levels? And how do you think about that versus maybe growing the capital further?
It's a mixed bag. It's a tough decision to make. But if we stay in the teens for any period of time here, we do have authorization ability over the next 2 years to buy back $25 million. Obviously, where our capital is today, we can't go spend $25 million tomorrow. But if it stays down here in the teens, we come out of blackout and all that good stuff for part of next week, we will definitely get into the market and buy some shares if it stays in the teens. And I think we have some directors, myself, in particular, that will also get into the market next week. So...
Your next question comes from the line of Nathan Race from Piper Sandler.
I'm a little confused. I was going back to my notes from last quarter and I wrote down that you guys ceased originating franchise finance loans back in January, and you didn't have any deferments within franchise finance coming out of last quarter. So I guess, I'm just trying to understand what transpired with these handful of loans that moved to nonperforming and that you also charged off in the quarter. Was it just the collection efforts that you undertook that you just described earlier, David? Or would just appreciate any other color in terms of what transpired within the franchise portfolio over the last 90 days?
These loans were ones we were monitoring because we knew the borrowers were having difficulties or because they became delinquent. Last quarter, delinquencies decreased by $11 million, so most of the $14 million we charged off this quarter originated as delinquencies. They were likely 30 or 40 days delinquent. When loans are delinquent, as David mentioned, we communicate closely with borrowers to try to resolve their situations. It was wise to move these loans to nonperforming status and set aside specific reserves for them. On a positive note, we have had some success with our resolution strategies. For instance, about $1 million from two loans that were nonperforming last quarter has since been resolved, allowing us to recover $0.90 on the dollar, which was significantly better than what we had reserved. In summary, these were originally delinquent loans that we moved to nonperforming status and placed reserves on.
And Nicole, I know you mentioned that on the SBA side, these are snowflake situations in terms of where you're seeing charge-offs. But also just curious, are there any commonalities in terms of vintage or when these loans are originated, perhaps when rates were lower and now a lot of these small business borrowers are being rate shocked. Is there any line of thought into that scenario?
Yes, that's a great question. Thanks for asking, Nate. We conduct vintage analysis to model future credit outlook based on the vintages. David mentioned some hotspots in the portfolio that we've identified. I would say that while an increase in loan rates has affected borrowers' monthly payments, a 25 basis point reduction on a $1 million loan translates to about $300 less per month for them. It's not solely the fluctuations in interest rates that impact borrowers; inflation plays a significant role as well, driving up the costs of raw materials and inventory, along with rising labor costs. In certain areas, we see consumers beginning to reduce their spending. Therefore, the effect of inflation seems to be more pronounced than the direct impact of interest rates. This insight comes from our predictive analytics engine, which has been valuable in pinpointing industries that may be more sensitive to inflation, enabling us to refine our credit standards more effectively.
We have modeled a flat rate scenario without trying to guess where rates will go. Assuming a full rate NIM for next year, we are looking at a range of 2.70% to 2.80%. This projection is for a full year and will gradually increase throughout the year, not as sharply as before but still increasing quarterly. With a static balance sheet and the sale of single-tenant lease financing loans, we have moved closer to neutrality but remain slightly liability sensitive. Therefore, for every 25 basis point rate cut, we anticipate an annualized increase of about $1.4 million in net interest income.
Your next question comes from the line of George Sutton from Craig-Hallum.
Can you just walk us through the moving off of the excess deposits, the mechanics of that? I believe you have a relationship with IntraFi and you get a fee on actually moving those deposits? And then structurally, how do you think about future deposits coming in when you have the ability to pull some of these deposits back in a scenario, where loan growth is good?
Yes. The process for transferring deposits through the IntraFi network is quite straightforward. When we establish various fintech partnerships, the depositor agreements facilitate transferring deposits into the IntraFi network, whether for reciprocal deposits, deposit insurance, or to remove them from our balance sheet. We do earn fee income, as they compensate us with a spread, typically a margin below the Fed funds rate. We earn the difference between the interest rate we pay on the deposits and what we receive from the deposit network. This has been particularly advantageous for us because many of our higher-cost fintech deposits are already permissible for the IntraFi network. This arrangement allows us to remove the higher-cost deposits, generally those priced at Fed funds minus 20 basis points, from our balance sheet. Additionally, we experience significant volatility and increasing volumes in these deposits, which assists us in managing our balance sheet size.
For instance, if those deposits rise by $200 million in a quarter and we don't require that amount, we can easily transfer them off our balance sheet. Furthermore, we can reintegrate these deposits back onto our balance sheet with ease if we face a downturn in CD volumes or other deposit sources, allowing us to support loan growth or cover CD outflows. This setup provides us with greater flexibility in managing our balance sheet moving forward.
The other side of that equation is that we currently have plenty of excess cash. We are still growing and expect to increase our loan portfolio by 10% next year. Although we sold STL, Maris has returned to the marketplace, generating nearly $100 million in originations this quarter, which gives us better pricing. If the Fed decides to raise rates again, we will likely match that with a 100% drop across the board on our end. Historically, when we had a 25% drop, we reduced rates by 10 to 15 points. The excess cash provides us with much greater flexibility. Currently, in the commercial markets, our long-term CDs in the 4 to 5-year category rank in the top 25 in the country, although no one is buying those right now. This situation isn’t affecting us, but we haven't been on the charts in the CD space for the last two months. We have over $400 million in CDs rolling this quarter at a cost of about $434, $435.
If they were to renew, it would likely be in the $370 range. If they decide not to renew because we’re offering lower rates than others, we can accept that. This provides us with flexibility that we haven’t experienced in years. Therefore, having that excess cash is advantageous, and it doesn't incur any costs. As Ken mentioned, we can move it off the balance sheet and gain a few points without affecting our net interest margins or ratios. Overall, our position now is much better compared to where we were post Silicon Valley two and a half years ago.
So further on the flexibility perspective, that was a pretty meaningful strategic move to sell the single-tenant loans. And I'm just curious, if we think forward, say, 18 months from now, how different do you see the business being? Are there contemplations of moving in different directions? Or it obviously gives you flexibility. I'm curious what you're going to do with that flexibility.
We are exploring several fintech opportunities that have the potential for significant growth in lending. Currently, our leasing opportunities are generating returns of 7.5% to 8%, compared to the 5% from our previous single-tenant investments. Additionally, the new single-tenant project that Maris is reintroducing is set for a 5-year term, shifting from a traditional 10-year term at rates above 6% to 6.5%. We also see a forward flow opportunity with Blackstone, which enhances our flexibility. On the fintech front, we had previously avoided larger lending opportunities due to cash constraints, but we are now re-entering that market and engaging with potential partners. Thus, we anticipate a different portfolio mix in 18 months compared to our current position, as we have promising opportunities that could prove advantageous for us.
Your next question comes from the line of John Rodis from Janney.
Ken, just a follow-up question on the 2026 NII guidance of $149 million to $150 million. Is that on an FTE basis?
No. Well, that's GAAP. So add about $4.4 million to get to FTE.
There are no further questions at this time. I will now turn the call over to Mr. David Becker. Please continue.
Thanks, John. Thanks, everybody, for joining us today. We obviously covered a lot of ground here. We have really, as we've discussed many times already, consistently delivered strong net interest income improvements over the last 12 to 18 months. The macro environment remains uncertain out here as to what's going on in the world, but our customer activity is stabilizing. Lending teams continue to do very well. Pipelines are solid. We are also excited about growth potential from the fintech partnerships, as I just discussed a minute ago, which will further diversify and strengthen our revenue base. So with improvements in the loan mix, anticipated reduction in deposit costs, if the Fed is to do something else, we're confident in our ability to deliver stronger earnings in the coming quarters. As fellow shareholders, we remain committed to enhancing the profitability and long-term value, and we thank you for your continued support and have a great afternoon.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.