First Internet Bancorp (INBK) Q1 2026 earnings review
Core Operating Engine Accelerates, But Credit Cleanup Keeps Earnings Grounded
First Internet Bancorp presents a classic tale of two balance sheets. The core operating engine is performing exceptionally well: adjusted pre-provision net revenue (PPNR) surged 51% YoY to $18.1 million, driven by massive Banking-as-a-Service (BaaS) deposit inflows and a 54 basis point expansion in Net Interest Margin (FTE). However, this top-line strength is being almost entirely consumed by legacy credit issues. Management recognized a $16.3 million provision for credit losses to 'front-load' the cleanup of SBA and franchise finance portfolios, restricting Net Income to just $2.5 million. While the company's tech-forward deposit strategy is working flawlessly, the relentless creep in nonperforming loans prevents these gains from reaching the bottom line.
🐂 Bull Case
FTE Net Interest Margin expanded 54 bps YoY to 2.45%. By swapping high-cost CDs for low-cost fintech deposits, the bank is structurally lowering its funding costs while originating new loans at higher yields.
The BaaS platform is a massive success, driving a 201% YoY increase in fintech deposits to $2.6 billion and pushing payment volumes up 242% to $225 billion. This provides a cheap, highly flexible liquidity moat.
🐻 Bear Case
Despite management's previous framing of credit issues as contained, Nonperforming Loans (NPLs) climbed sequentially from 1.56% to 1.63%, and provisions jumped 36% QoQ to $16.3 million.
Management explicitly warned that their 15-17% commercial loan growth target for 2026 'may prove ambitious' due to elevated payoffs and macro uncertainty, signaling a potential deceleration in asset generation.
⚖️ Verdict: ⚪
Neutral. The structural improvements to the deposit base and the BaaS platform's explosive growth are incredibly bullish for long-term margin generation. However, persistent credit deterioration in the SBA and franchise finance portfolios continues to erode earnings visibility and test investor patience.
Key Themes
Net Interest Margin Expansion Accelerating
FTE Net Interest Margin continues its impressive climb, reaching 2.45% in 26Q1, up 54 bps YoY and 15 bps sequentially. This expansion is driven by a powerful dual-engine: the cost of interest-bearing deposits declined 56 bps YoY to 3.45%, while the yield on the loan portfolio increased 37 bps to 6.36%. This dynamic proves management's balance sheet repositioning strategy is successfully executing.
Banking-as-a-Service (BaaS) Driving Liquidity
Fintech deposits surged 201% YoY to $2.6 billion. The bank's BaaS platform processed $225 billion in payments over the trailing twelve months, up 242%. Crucially, INBK moved approximately $1.5 billion of these deposits off-balance sheet into a deposit network. This gives the bank exceptional flexibility to manage its balance sheet size and quickly summon low-cost liquidity to fund future loan growth.
AI & Digital Capability Investments Yielding Results
Investments in digital capabilities are generating tangible operational efficiencies. Management noted that new AI-driven virtual customer service agents are now resolving 45% of customer inquiries without human intervention, which will help keep noninterest expenses highly controlled despite rapid platform scaling.
Persistent Deterioration in Asset Quality
Credit quality remains the primary anchor on the stock. Despite management's proactive 'cleanup' narrative in late 2025, Nonperforming Loans (NPLs) sequentially increased again, reaching 1.63% of total loans (up from 1.56% in 25Q4 and 0.80% in 25Q1). The increase was driven primarily by fully-guaranteed SBA 7(a) balances and loans past due 90 days. This contradicts the narrative that the credit cycle is stabilizing.
Macro Pressures Threaten Loan Growth Targets
Management issued a formal warning regarding the macroeconomic environment. Citing volatile energy prices, geopolitical developments, and tightening underwriting standards, they warned that their full-year 2026 commercial loan growth target of 15-17% 'may prove ambitious.' This introduces significant deceleration risk to asset growth in the coming quarters.
Other KPIs
Accelerating. Up 51% year-over-year. This is the cleanest metric of the bank's core operational health, stripping away the volatility of the credit cleanup. It proves the structural profitability of the bank is vastly improving due to deposit repricing.
Stable but highly elevated. This improved slightly from 1.68% in 25Q4, but remains massively higher than the 0.92% recorded in 25Q1. It underscores the ongoing pain of working through the 2024/2025 SBA and franchise finance vintages.
Stable. Flat sequentially compared to $40.87 in 25Q4. With shares trading at a significant discount to TBV, the lack of erosion here despite heavy provisioning is a modest positive for value-oriented investors.
Guidance
Decelerating. Management previously guided to 15-17% growth, but explicitly walked back confidence in this target due to elevated payoffs and macro uncertainties leading to tighter underwriting standards.
Decelerating relative to expectations. Management had warned of a massive $17-19M provision for Q1 2026 during the Q4 call. The actual result of $16.3M is a slight beat against that internal target, though it remains a severe drag on earnings.
Accelerating. The bank remains firmly on track to hit its aggressive NIM expansion goals, having successfully pushed the metric to 2.45% in Q1 through rigorous liability management.
Key Questions
NPL Trajectory and Peak
Nonperforming loans climbed sequentially again to 1.63% despite your proactive credit cleanup strategy. At what quarter do you definitively expect NPLs to peak and begin compressing?
Loan Growth Re-evaluation
You noted the 15-17% commercial loan growth target may be 'ambitious' due to macro uncertainty. If loan growth decelerates into the single digits, how will you redeploy your excess BaaS liquidity to protect your ROA goals?
Fintech Deposit Off-Balance Sheet Strategy
You moved $1.5 billion of fintech deposits off-balance sheet. What are the specific internal triggers or lending thresholds that would cause you to sweep those low-cost deposits back onto the balance sheet?