First Internet Bancorp (INBK) Q3 2026 earnings review
First Internet Bancorp write-offs fall, but its profit outlook shrinks
First Internet Bancorp's lending margins and loan write-offs improved, but weak small business loan sales forced another cut to its full-year profit plan. The branchless online lender grew revenue 7% from last quarter to $43.9 million as low-cost deposits from technology partners replaced expensive certificates of deposit. Chief executive David Becker said earnings momentum is building, yet a troubled franchise borrower required a $2.6 million reserve and pushed nonperforming loans higher.
| Revenue, excluding one-offs | $43.9M +1% from a year ago (+7% from last quarter) |
|---|---|
| Tax-equivalent net interest margin | 2.55% +0.08 percentage points from last quarter |
| Loan write-offs (net charge-offs) | 0.82% down from 1.77% of average loans last quarter |
| Full-year profit per share outlook | Cut ~11% $2.12–$2.17 implied by our math vs $2.35–$2.45 prior |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because real progress on loan write-offs and deposit costs was offset by another downward revision to the full-year outlook. Early-stage late payments dropped 38% from last quarter, showing the worst of the small business credit wave is passing. One caution: by our math, the fourth-quarter forecast leaves full-year profit per share about 11% below the target management reaffirmed three months ago, driven by lower small business loan sale fees.
The question now is whether the bank can reach its year-end lending margin target of 2.75% to 2.80% and turn lower loan write-offs into steady profit. Bulls point to falling deposit costs and the absence of this quarter's interest reversals, while sceptics note the margin plan now assumes a December interest rate hike and capital ratios remain thin. Fourth-quarter results will show if the margin jump arrives.
🐂 Bull Case
Fintech Deposits Lowered Funding Costs and Lifted Margins
First Internet Bancorp, an online lender that operates without physical branches, relies on financial technology partners for low-cost funding and fee income. Critics worry that relying on a few partners creates funding risk if a partner leaves. This quarter, total fintech deposits rose by $1.1 billion to $4.7 billion, including $2.9 billion kept off the balance sheet.
- Tax-equivalent net interest margin (lending profit as a share of earning assets, adjusted for tax-free bonds): 2.55%, up 0.08 percentage points from last quarter
- Cost of interest-bearing deposits: 3.32%, down 0.06 percentage points from last quarter
- Certificates of deposit: $1.48 billion, down $203.5 million from last quarter
- Fintech fee revenue: $2.1 million, up 13% from last quarter
This inflow matters because the bank used it to pay off $203.5 million of expensive certificates of deposit. Meanwhile, new loans yielded 7.51%, lifting the total loan yield to 6.42%. Together, cheaper deposits and higher-paying loans expanded the lending margin by 0.08 percentage points even after bad franchise loans erased 0.09 percentage points of interest.
What to watch: fourth-quarter tax-equivalent net interest margin against the 2.75% to 2.80% target. Hitting that range would prove that maturing certificates of deposit and higher loan yields can lift profitability without needing extra balance-sheet growth.
Loan Write-Offs and Late Payments Fell Sharply
After four quarters of heavy loan losses in small business and franchise lending, the online lender needed to show that fewer borrowers are falling behind. Chief executive David Becker said credit trends improved this quarter, with declines in both loan write-offs and late payments.
- Net charge-offs (loans written off as uncollectible): $8.0 million, or 0.82% of average loans, down from 1.77% last quarter
- Small business lending net charge-offs: $3.7 million, down 23% from $4.8 million last quarter
- Loans 30 or more days past due: $18.2 million, or 0.48% of performing loans, down 38% from last quarter
- Loans 90 or more days past due and still accruing interest: $0.7 million, down from $14.5 million last quarter
Because early-stage late payments fell for a second straight quarter, the bank cut its quarterly credit loss provision by 13% to $11.6 million. Management expects the fourth-quarter provision to drop again to between $7.5 million and $8.0 million.
What to watch: fourth-quarter net charge-offs and 30-day delinquencies. A third consecutive drop in early delinquencies would confirm that the small business credit cleanup is behind the bank.
🐻 Bear Case
New Outlook Quietly Cuts Full-Year Profit Target
"Our third quarter results reflect continued execution of the strategy we have laid out for the last several quarters, with earnings momentum continuing to build," chief executive David Becker said. Yet the release replaced full-year targets with a fourth-quarter outlook that falls short of the prior full-year plan.
- Full-year diluted profit per share: $2.12 to $2.17 implied by our math, below the prior $2.35 to $2.45 plan
- Full-year noninterest income (fee revenue): $36.9 million implied by our math, below the prior $40.5 million to $41.0 million plan
- Full-year credit loss provision: $48.8 million to $49.3 million implied by our math, worse than the prior $47.0 million to $48.0 million plan
This cut matters because management had already lowered its 2026 interest income and loan growth targets last quarter while promising that higher SBA loan sale fees would protect full-year earnings. Now the fourth-quarter outlook calls for fee income to fall 18% from the third quarter,
What to watch: fourth-quarter noninterest income against the $7.5 million plan and the initial 2027 outlook. Another miss on fee revenue would show that small business loan sales cannot offset slower balance-sheet growth.
Franchise Loan Trouble Drove Nonperforming Loans Higher
First Internet Bancorp stopped making new franchise finance loans in early 2025, and that portfolio is down to $330.6 million. Last quarter, $14.5 million of loans sat 90 days past due while still recording interest, and the bank expected to collect on its troubled franchise borrowers.
Instead of paying off without losses, problem loans migrated into default. The lender booked $2.6 million of specific reserves "related to franchise finance loans placed on nonaccrual, including one large relationship the Company took action on late in the quarter". It also reversed $1.2 million of previously recorded interest income on those loans.
Because of those defaults, total nonperforming loans (loans no longer paying interest) rose from $60.1 million to $63.1 million, or 1.63% of total loans. Excluding government-guaranteed portions, nonperforming loans climbed from 1.07% to 1.14% of the loan book.
What to watch: nonperforming loans excluding government guarantees in the fourth quarter. A drop below 1.07% would show the third-quarter franchise defaults were a final cleanup rather than a spreading problem.
Capital Ratios and Book Value Shrank Again
A bank's capital ratios measure its cushion to absorb unexpected loan losses and fund new lending. First Internet Bancorp's capital buffer remains thin and shrank further this quarter as total assets grew 6% to $5.89 billion from higher cash and bond balances.
- Tangible common equity to tangible assets (net worth after goodwill as a share of assets): 5.94%, down 0.52 percentage points from last quarter
- Common equity tier 1 ratio (core regulatory capital to risk-weighted assets): 8.86%, down from 8.90% last quarter
- Tangible book value per share: $40.04, down 2.6% from $41.09 last quarter
Equity fell because unrealized losses on the bond portfolio widened by $13.9 million to $35.1 million. Because regulatory capital sits near the minimum threshold, the lender issued $17.9 million of new subordinated debt and bought back zero shares.
What to watch: the common equity tier 1 ratio and unrealized bond losses next quarter. Until core regulatory capital rebuilds above 9%, the bank has little room to resume share buybacks.
👓 Other Themes
Fourth-Quarter Margin Plan Assumes a Rate Hike
For the past three quarters, the bank stated that its fourth-quarter tax-equivalent net interest margin target of 2.75% to 2.80% did not rely on any Federal Reserve interest rate moves. In this quarter's outlook table, the company kept the 2.75% to 2.80% target but noted that the forecast now "assumes additional 25 bp increase in Fed Funds rate in December", adding an outside rate condition to the year-end plan.
💲 Other KPIs
Total loans rose 1.4% ($52.9 million) from last quarter and 6.4% from a year ago. Growth in commercial real estate (+12.5% from last quarter to $753.7 million) and single-tenant lease financing (+6.9% to $308.6 million) outpaced the steady runoff in exited franchise and healthcare lending. Year-to-date loan growth stands at 3.1%, by our math.
Operating costs excluding $0.4 million of severance consumed 61.2% of revenue, down 2.3 percentage points from 63.5% last quarter. Salaries and employee benefits rose 8.8% from last quarter to $14.8 million (33.6% of revenue, up 0.6 percentage points), but 6.9% revenue growth outpaced total expense growth.
Total liquidity climbed 19.3% from $4.33 billion last quarter. On-balance-sheet cash and bank deposits jumped 58.7% to $652.3 million, and recallable off-balance-sheet fintech deposits rose from $2.37 billion to $2.87 billion. The company also added $17.9 million of subordinated debt, bringing total debt to $363.0 million.
🔮 Guidance
Cut. The fourth-quarter plan calls for profit per share to nearly double from $0.54 in the third quarter. However, combining this forecast with the $1.10 earned in the first nine months leaves full-year earnings at $2.12 to $2.17 by our math, down from the prior $2.35 to $2.45 full-year target.
Unchanged. Management kept its fourth-quarter target at 2.75% to 2.80%, which requires a 0.20 to 0.25 percentage point jump from the third quarter's 2.55%. Roughly 0.09 percentage points of that gain comes simply from not repeating the third quarter's franchise loan interest reversals, while the rest relies on loan repricing and an assumed December rate hike.
Cut. Fourth-quarter tax-equivalent net interest income is planned at $38.5 million, up 7.4% from the third quarter and 22.3% from a year ago. Added to the $102.2 million earned through September, that implies $140.7 million for the full year by our math, just below the prior $141 million to $142 million plan.
Cut. The bank forecasts $7.5 million of fourth-quarter fee income, down 18.5% from $9.2 million in the third quarter due to fewer small business loan sales. By our math, that puts full-year fee income at $36.9 million, about $3.9 million below the middle of the prior full-year plan.
Improved. Operating expenses are planned at $26.5 million in the fourth quarter, down 2.8% from $27.3 million in the third quarter. By our math, that puts full-year expenses at $104.9 million, saving more than $1 million against the prior $106 million to $107 million full-year budget.
Worse for the full year. The fourth-quarter credit provision is planned to drop 33.4% at the middle of the range from the third quarter's $11.6 million. However, because third-quarter franchise reserves were high, the implied full-year provision reaches $48.8 million to $49.3 million by our math, above the prior $47 million to $48 million plan.
❓ Key Questions
Why did SBA loan originations drop in the fourth-quarter plan?
Last quarter, management raised its full-year fee outlook on expected second-half small business loan sales. This quarter's outlook cuts fourth-quarter fee income to $7.5 million, implying a $3.9 million full-year shortfall. Did borrower demand weaken, or did the bank tighten credit standards again?
Did the $6 million three-unit franchise borrower default?
Last quarter, the bank expected a $6 million franchise loan with a 30% reserve to pay off in full during the third quarter. Instead, the bank took action on a large franchise borrower and added $2.6 million in specific reserves. Was this the same borrower?
How much would a flat Fed rate hurt the margin?
The fourth-quarter tax-equivalent net interest margin outlook of 2.75% to 2.80% explicitly assumes a 0.25 percentage point Federal Reserve rate hike in December. What is the fourth-quarter margin forecast if the central bank leaves interest rates unchanged or cuts them?
What are the credit losses on the Jaris loan book?
The presentation shows $21 million of embedded finance loans on the balance sheet following the expanded Jaris partnership, alongside $2.1 million of quarterly fintech fee revenue. What is the net interest yield and early delinquency rate on these retained small business loans?