First Internet Bancorp Navigates Growth Amid Credit Strains

First Internet Bancorp ((INBK)) has held its Q4 earnings call. Read on for the main highlights of the call.

First Internet Bancorp’s Latest Earnings Call Balances Strong Growth With Credit Headwinds

First Internet Bancorp’s latest earnings call painted a picture of a bank in transition: core growth engines are performing strongly, margins are expanding and fintech partnerships are scaling rapidly, yet concentrated credit problems in specific loan books are casting a shadow over near-term earnings. Management stressed that the issues are isolated to its SBA and franchise finance portfolios and laid out detailed remediation steps, but investors will need to weigh the healthy balance-sheet and revenue trends against elevated provisions and lower gain-on-sale income in 2026.

Robust Revenue Growth and Improved Core Earnings

Adjusted total revenue for the fourth quarter reached $42.1 million, a 21% increase year over year, underscoring solid top-line momentum. Adjusted pre-provision net revenue surged 66% to $17.9 million, highlighting better underlying profitability before credit costs. For the full year, net interest income rose nearly 30%, signaling that the bank’s core lending and balance-sheet strategy is meaningfully scaling despite a challenging rate environment.

Net Interest Margin and Asset Yields Move Higher

Net interest margin improved to 2.22% in Q4 (2.30% on a fully tax-equivalent basis), up 18 basis points sequentially and 55 basis points from a year earlier. The yield on earning assets climbed to 5.71%, supported by a 46 basis point increase in loan yields. This margin and yield expansion indicates that asset repricing and mix shifts are working in the bank’s favor, a key ingredient for future earnings growth as funding costs begin to ease.

BaaS and Payments Franchises Scale Rapidly

Banking-as-a-Service continues to be a major growth engine, with more than $1.3 billion in new deposits generated in 2025—more than triple the prior year. Payments activity is ramping sharply as well: the bank processed over $165 billion in payments volume in 2025, up more than 225% versus 2024, with Q4 alone reaching about $65 billion, over 40% higher than in Q3. This scale-up in BaaS and payments positions First Internet Bancorp as a meaningful player in fast-growing fintech-driven financial services.

Fintech-Related Revenues Support Diversified Income

Fintech-linked revenues showed notable traction, including approximately $6.7 million of fintech-related gross revenue and about $9.9 million of fintech fee income cited in the materials. These streams, which include lending in partnership with JARIS and other fee-based activities, are bolstering noninterest income and helping diversify earnings beyond traditional spread income. Management highlighted this as an important pillar in its long-term growth and profitability story.

Strategic Loan Sale Enhances Balance Sheet Flexibility

The company executed a major balance-sheet reshaping move by selling roughly $850 million of single-tenant lease financing loans to Blackstone, along with an additional $14.3 million sold in Q4. This transaction meaningfully reduced exposure to lower-yielding, fixed-rate assets and freed up capacity for higher-return lending. While it contributed to a year-over-year contraction in the loan book, management framed the move as a strategic trade-off to improve earnings power and flexibility going forward.

Capital Strength and Ongoing Shareholder Returns

Regulatory capital ratios remain comfortably above minimum requirements, with a total capital ratio of 12.44% and CET1 of 8.93%. Despite the credit issues, the bank continued to return capital to shareholders, distributing $7 million through dividends and share repurchases, including buying back 27,998 shares at an average price of $18.64. This capital posture provides a buffer against near-term credit pressures while still supporting measured capital returns.

Profitability Today and Ambitious 2026 Targets

For the fourth quarter, net income reached $5.3 million, or $0.60 per diluted share, with adjusted net income of $5.6 million, or $0.64 per share. Looking ahead, management set out aggressive 2026 financial targets, including loan growth of 15%–17%, a net interest margin of 2.75%–2.80% by year-end, fully tax-equivalent net interest income of $155–$160 million, and earnings per share between $2.35 and $2.45. These goals imply substantial improvement from current run-rate earnings once the credit overhang is addressed.

Technology and Analytics Investments Aim to Tighten Risk Controls

The bank is leaning heavily into technology to refine its risk and origination engines, continuing investments in AI and predictive analytics across origination, underwriting, and portfolio surveillance. New tools include AI-driven document collection and predictive analytics designed to identify emerging credit issues earlier. Management is betting that these capabilities will not only support growth, particularly in fintech and SBA lending, but also help prevent the kind of concentrated credit problems now being addressed.

Credit Stress Concentrated in SBA and Franchise Finance

The clearest blemish in the quarter was credit deterioration in the SBA and franchise finance portfolios. Q4 net charge-offs were about $16 million, and the provision for credit losses was $12 million, while nonperforming loans rose to $58.5 million, or 1.56% of total loans. Management emphasized that the problems are concentrated and not broad-based, but acknowledged that resolving these credits will require time, elevated provisioning, and tighter underwriting and monitoring in the affected segments.

Elevated 2026 Provision Outlook Weighs on Near-Term Earnings

Reflecting the credit issues, the company guided to a substantially higher provision for credit losses in 2026, in a range of $50 million to $53 million. The front half of the year will bear the brunt, with an expected $17–$19 million provision in Q1 and $14–$16 million in Q2, as the bank both absorbs net charge-offs and builds reserves against problem loans. While this front-loaded approach aims to clear the decks and stabilize credit, it will be a significant drag on earnings in the near term.

Reduced Gain-on-Sale and SBA Fee Income

Investors should also prepare for a step-down in gain-on-sale revenue. Management expects gain-on-sale income to decline to $19–$20 million in 2026 from $29.4 million in 2025, roughly a 35% drop, largely because the bank plans to retain a larger share of its guaranteed SBA originations on the balance sheet. This strategic shift may enhance long-term interest income but will dampen near-term fee income and make quarterly results more sensitive to credit and funding dynamics.

Loan Portfolio Shrinks Year-on-Year, But Quarterly Growth Returns

Total loans fell about 10% year over year to $3.7 billion as of December 31, 2025, a decline of $424 million, mainly driven by the large single-tenant lease financing sale. However, the loan book showed signs of re-acceleration in the most recent quarter, growing 4% sequentially, or $143 million. This pattern suggests the bank is now redeploying freed-up capital into higher-yielding areas, consistent with its 2026 growth targets.

Deposit Dynamics and Off-Balance-Sheet Nuances

Total deposits ended the year at $4.8 billion, down about 2% both sequentially and year over year. A notable share of fintech-related deposits sits off-balance-sheet, giving the bank funding flexibility but also introducing another dimension of potential volatility. Management noted that they are carrying higher cash balances, which modestly pressures margins in the short term but provides additional liquidity as they navigate credit and funding shifts.

Rising Criticized Loans and Vintage Concentration Risk

Criticized loans increased by roughly $16 million quarter over quarter, a rise of about 10%–11%. Management highlighted that elevated risk is concentrated in specific vintages—particularly late-2024 and early-2025 SBA originations—and that problem loans tend to surface within 12–18 months of origination. This pattern has informed tighter underwriting and enhanced monitoring, but it also means that investors should expect continued attention on these affected cohorts as they season.

Near-Term Earnings to Be Pressured Despite Underlying Strength

Adjusted noninterest income slipped sequentially to $11.8 million in Q4, reflecting lower SBA-related gain-on-sale versus the prior quarter. Combined with front-loaded provisions and reduced gain-on-sale expectations in early 2026, these factors are likely to depress reported earnings even as core margin and loan growth improve. Management remains confident that by the end of 2026, the earnings profile will look stronger, but the path there involves a period of earnings volatility.

Management’s 2026 Roadmap: Growth, Margin Expansion, and Credit Normalization

Guidance for 2026 points to a year of heavy lifting but also meaningful progress. The bank expects loan growth of 15%–17% and net interest margin expansion to 2.75%–2.80% by year-end, implying about 10–15 basis points of improvement per quarter. Fully tax-equivalent net interest income is projected at $155–$160 million, with noninterest income of $33–$35 million and operating expenses of $111–$112 million. Provision for credit losses is guided at $50–$53 million, front-loaded in the first half before moderating as credit stabilizes, and full-year EPS is targeted at $2.35–$2.45. Management plans roughly $500 million of SBA originations, while retaining more on balance sheet, and expects funding tailwinds from declining deposit costs, aided by about $850 million of higher-cost CDs maturing in the next six months that can be repriced at lower rates. Together, these elements form a roadmap toward stronger, more balanced profitability beyond the near-term credit clean-up.

In sum, First Internet Bancorp’s earnings call showcased a company with strong underlying growth engines—particularly in BaaS, payments, and margin expansion—tempered by concentrated credit issues that will weigh on results in 2026. Management’s strategy is to absorb the pain upfront, strengthen reserves, and reposition the balance sheet toward higher-yielding assets while leveraging technology to tighten risk control. For investors, the story is one of near-term earnings pressure but potentially improving returns if the credit remediation plays out as planned and the growth and margin targets are met.