Last quarter First Internet Bancorp finally showed that its credit cycle was turning. Provisions, delinquencies and nonperforming loans all moved lower together, and management said the worst was behind it. The third-quarter report is where that claim has to start paying off. Wall Street expects earnings of $0.80 per share, roughly triple the $0.27 the bank earned in the second quarter and a sharp swing from the $1.43 loss a year ago. That 156% expected improvement is mostly a credit story, not a growth story.
The revenue picture needs some interpretation. Consensus of $44.9 million implies a 48% year-over-year decline, which looks alarming beside the $85.3 million reported last quarter. However, the two figures appear to be measured differently. Management's full-year guidance calls for $141 million to $142 million of tax-equivalent net interest income and $40.5 million to $41.0 million of fee income. That works out to roughly $45 million to $46 million a quarter, which lines up closely with the Street's number. In other words, analysts are modeling a steady quarter on the top line, not a collapse.
The real test is below the revenue line. Management reaffirmed full-year EPS guidance of $2.35 to $2.45 while cutting its provision outlook to $47 million to $48 million. First-half provisions totaled about $29.7 million, so the guide implies only $17 million to $18 million for the entire back half, or around $9 million a quarter versus $13.4 million in the second quarter. A provision near that level, along with continued declines in delinquencies from the 78 basis points reported last quarter, would strongly support the inflection story. A provision that stays in the low teens, or franchise finance charge-offs that remain near the $11.6 million recorded last quarter, would make both the $0.80 estimate and the annual guide look ambitious.
Funding costs give the bank a second lever, and this quarter is when it should show up. About $445 million of CDs costing roughly 4.04% were due to mature in the third quarter, and management planned to replace them with FinTech deposits costing about 3.15% to 3.20%. The margin has climbed from 2.12% a year ago to 2.47%, and another step higher would confirm that deposit repricing is outpacing the drag from a smaller balance sheet. The expanded JARIS embedded-finance arrangement also matters here. The bank now keeps all of those originations, with $45 million to $50 million expected in the second half at net yields of 12% to 15%. Early evidence that those balances are building would help offset the main weakness from last quarter.
That weakness was balance-sheet shrinkage. Management cut full-year loan growth guidance to about 4% to 6% from 15% to 17% after early payoffs in franchise finance and investment commercial real estate accelerated. Average loans slipped about 1% sequentially. With single-tenant, construction and commercial real estate pipelines pricing at 640 to 660 basis points, the bank needs those deals to close and payoffs to cool. Otherwise, margin gains will keep working against a shrinking base.
The market has not given the bank much credit for the turn. Shares are down 4.5% since the last report, trailing the S&P 500 by nearly eight percentage points. Bullish sentiment has also faded to 3.7% from 11.7% heading into the prior quarter. At $25.99, the stock sits above its 200-day moving average but much closer to its post-earnings low of $24.46 than its $31.09 high. That suggests a skeptical market rather than an overheated one. The central question is whether provisions fall sharply enough, and the margin rises fast enough, to outrun a balance sheet that is still contracting. If they do, the credit inflection becomes an earnings inflection. If not, the reaffirmed annual guide will come under real pressure.