What First Internet Bancorp (INBK) Said on Its Q3 Earnings Call

Key Points

• Q3 earnings improved: First Internet Bancorp reported record revenue of $43.9 million and adjusted net income of $5.1 million, or $0.57 per diluted share, supported by higher net interest income and an expanded 2.55% fully taxable equivalent net interest margin.
• A franchise finance credit issue weighed on results: A $6.6 million borrower relationship moved to non-accrual, prompting a $2.6 million specific reserve and reducing pre-tax earnings by about $3.2 million. Broader credit trends nevertheless improved, with lower provisions, charge-offs and delinquencies.
• Fintech growth supports the outlook: Fintech deposits rose to $4.7 billion and fee revenue increased sharply, while management raised its fourth-quarter outlook to approximately $1.02–$1.07 in diluted EPS and expects net interest margin of 2.75%–2.80%.

First Internet Bancorp NASDAQ: INBK reported third-quarter 2026 net income of $4.8 million, or $0.54 per diluted share, as record revenue and continued net interest margin expansion helped offset a credit-related charge tied to a franchise finance borrower.

Excluding $400,000 in non-recurring severance expense, adjusted net income was $5.1 million, or $0.57 per diluted share. Chairman and CEO David Becker said the company’s “fundamental earnings power” continued to improve, citing record revenue, higher net interest income, improving funding costs and lower delinquencies.

Record Revenue and Margin Expansion

Total revenue reached a record $43.9 million in the third quarter, rising 7% sequentially, according to Executive Vice President and CFO Ken Lovik. Net interest income increased 7% from the prior quarter and 14% from a year earlier to a record $34.7 million, or $35.9 million on a fully taxable equivalent basis.

Fully taxable equivalent net interest margin expanded 8 basis points sequentially to 2.55%, while reported net interest margin rose to 2.47%. Lovik said the result included $1.2 million in interest reversals from franchise finance loans placed on non-accrual status, reducing net interest margin by about 9 basis points.

Loan yields increased 8 basis points to 6.42%, while the cost of interest-bearing deposits declined 6 basis points to 3.32%. Management attributed the changes to a strategy of shifting capital from lower-yielding or exited loan portfolios into higher-return lending categories and replacing higher-cost certificates of deposit and brokered deposits with fintech-related funding.

President and COO Nicole Lorch said new funded originations during the quarter carried a weighted average yield of 7.51%. Construction and investor commercial real estate, single-tenant lease financing, wealth advisory lending and embedded finance expanded, while healthcare finance, franchise finance and residential mortgage portfolios continued to run off.

Franchise Finance Credit Issue Weighs on Results

Management highlighted one large franchise finance borrower whose financial condition deteriorated late in the quarter. The company had been working on a forbearance arrangement intended to allow the borrower time to refinance with another lender, but the refinancing did not materialize before quarter-end.

First Internet moved the relationship to non-accrual, established a $2.6 million specific reserve and reversed $600,000 of interest income. Lovik said actions related to the relationship reduced pre-tax earnings by approximately $3.2 million, or $0.29 per diluted share. The relationship included $6.6 million of loans that moved to non-accrual status.

Becker said the company believes there remains a path to repayment and that management considers the reserve adequate based on its assessment at quarter-end. He added that the borrower is working with the bank and outside counsel to stabilize its operations.

Despite the individual credit issue, management said broader credit trends improved. Provision expense declined to $11.6 million from $13.4 million in the second quarter. Net charge-offs fell by more than half sequentially, while delinquencies declined to 48 basis points from 78 basis points in the prior quarter. Non-performing loans increased because of additional franchise finance balances moved to non-accrual.

Becker also said two of four commercial real estate credits that had drawn scrutiny in the second quarter had improved and were again performing according to plan. Some construction projects have experienced timing delays, including weather-related disruptions, but he said management was not currently concerned about credit losses on those loans.

Fintech Deposits and Fees Continue to Grow

Fintech deposits increased by 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 rose 40% from the second quarter, giving the company additional capacity to replace higher-cost funding sources.

Fintech fee revenue increased 13% sequentially and more than 190% over the trailing 12 months. The company added two fintech partners in the quarter and said additional partners were in the onboarding pipeline across payments, deposits and lending.

Lorch said the fintech business provides both lower-cost funding and fee revenue while also supporting embedded lending opportunities. She described the business as a key contributor to the company’s effort to diversify revenue beyond traditional balance-sheet growth.

The company also completed a multi-phase automation project for SBA originations. Lorch said the project created an estimated 620 hours of annual lender and processor capacity at current usage levels, reduced manual data entry by more than 80% and improved median SBA approval time by roughly 10 days in the measured comparison.

SBA Production Remains Soft, Fourth-Quarter Outlook Raised

SBA originations increased 14% sequentially, but Lorch said overall activity remained below the company’s expectations due to softer industry volumes and tighter underwriting standards. Management expects SBA originations and gain-on-sale revenue to remain lower in the fourth quarter, though it expects 2027 production to improve from 2026 levels.

Lorch said the company had tightened underwriting standards about a year ago and had already adopted several practices reflected in SBA rule changes that took effect Oct. 1. Average SBA loan size has also declined to approximately $1.8 million year to date from more than $2 million previously, reflecting greater scrutiny of larger loans following disproportionate credit issues in that segment.

For the fourth quarter, First Internet expects:

• Fully taxable equivalent net interest margin of 2.75% to 2.80%.
• Fully taxable equivalent net interest income of about $38.5 million.
• Non-interest income of approximately $7.5 million.
• Non-interest expense of about $26.5 million.
• Provision expense of $7.5 million to $8 million.
• Diluted earnings per share of approximately $1.02 to $1.07.

The outlook assumes a 25-basis-point increase in the federal funds rate in December. Lovik said the company remains modestly liability-sensitive, though less so than two years ago, as its portfolio has shifted toward more adjustable-rate loans and shorter-duration securities.

Management said two additional 25-basis-point rate increases, assumed in December 2026 and March 2027 under its modeled scenarios, could reduce 2027 net interest income by approximately 2.5% to 3% under the most punitive static-balance-sheet cases. However, Lovik said ongoing loan repricing, portfolio runoff and funding optimization should reduce the impact over time.

Becker said the company’s priority is to deploy available capital into loan growth rather than repurchase shares. “If we can put it to work,” he said, “earnings go up, everything works to our favor.”

About First Internet Bancorp (NASDAQ:INBK)

First Internet Bancorp is a bank holding company headquartered in Fishers, Indiana. Its principal subsidiary, First Internet Bank, provides a range of banking products and financial services to businesses, organizations and individual consumers.

First Internet Bank's offerings include commercial and industrial lending, commercial real estate financing, small business and SBA loans, public finance, residential mortgage lending, consumer loans, deposit accounts and treasury management services.

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