First Internet Bancorp Margin Expands; Q4 EPS Seen at $1.02-$1.07

First Internet Bancorp reported stronger third-quarter earnings as net interest income increased and credit costs declined, while the digital bank projected fourth-quarter diluted earnings per share of $1.02 to $1.07. The outlook assumes further margin expansion from loan portfolio optimization and stable deposit costs.

The Nasdaq-listed company earned $4.8 million, or $0.54 per diluted share, in the quarter ended Sept. 30, 2026, compared with net income of $2.4 million, or $0.27 per share, in the second quarter. A year earlier, it recorded a $41.6 million loss that included a substantial loss on the sale of loans.

Adjusted net income was $5.1 million, or $0.57 per diluted share, up from $2.4 million, or $0.27 per share, in the prior quarter. Third-quarter results included $371,000 of pre-tax severance costs.

Margin expansion supports revenue

Net interest income rose 7% sequentially and 14% year over year to $34.7 million. On a fully taxable-equivalent basis, net interest income reached $35.9 million, while the FTE net interest margin increased to 2.55% from 2.47% in the second quarter and 2.12% a year earlier.

The expansion reflected a combination of asset and funding trends. Loan yields increased to 6.42% in the third quarter from 6.34% in the preceding period, while the cost of interest-bearing deposits declined to 3.32% from 3.38%.

Adjusted total revenue was $43.9 million, 7% higher than in the second quarter and 1% above the prior-year period. Adjusted pre-provision net revenue rose 14% sequentially to $17.1 million but was 6% lower year over year. The adjusted efficiency ratio improved to 61.2% from 63.5% in the second quarter.

Noninterest income increased to $9.2 million from $8.7 million in the prior quarter. First Internet generated $4.8 million of Small Business Administration gain-on-sale revenue after selling $62.3 million of guaranteed SBA 7(a) loan balances. Sale volume increased 11% sequentially. Fintech fee revenue also continued to grow, with trailing-12-month revenue up 191% from the comparable period cited in the presentation.

Noninterest expense rose to $27.3 million from $26.1 million, primarily because of higher compensation and employee benefits costs. Excluding severance expense, adjusted noninterest expense was $26.9 million.

Loans and fintech deposits grow

Total loans were $3.9 billion, up 1% from the second quarter and 6% year over year. New loans funded during the quarter carried a weighted-average yield of 7.51%.

Construction and investor commercial real estate remained the largest core lending category at $1.15 billion. Other core portfolios included $439 million of small-business loans, $446 million of consumer loans, $430 million of public-finance loans and $309 million of single-tenant lease financing. The company is also developing lending verticals in wealth advisory, equipment finance and embedded finance.

Deposits totaled $5.15 billion, up 5% year over year. The company reported $4.7 billion of fintech deposits, including $2.9 billion held off balance sheet. Fintech deposits increased 199% from the third quarter of 2025, while trailing-12-month fintech payment volume rose 198% to $303 billion.

Management said it plans to continue investing in technology and artificial intelligence to improve customer service, automate workflows and strengthen risk management.

Credit costs decline, but nonaccrual loans increase

The provision for credit losses fell 13% from the second quarter to $11.6 million. Net charge-offs declined to $8.0 million from $16.9 million, reducing the annualized ratio of net charge-offs to average loans to 0.82% from 1.77%.

Small-business lending net charge-offs decreased to $3.7 million from $4.8 million, and total loans at least 30 days past due fell 38% sequentially. The company attributed the delinquency improvement largely to its franchise-finance portfolio.

However, nonperforming loans increased to $63.1 million, or 1.63% of total loans, from $60.1 million, or 1.58%, in the second quarter. Excluding fully guaranteed balances, the ratio was 1.14%, up from 1.07%. First Internet said the increase in nonaccrual loans resulted from actions involving certain franchise-finance credits, including a large relationship late in the quarter.

The allowance for credit losses rose to $57.1 million, equivalent to 1.48% of total loans. The allowance covered 130.76% of nonperforming loans after excluding fully guaranteed balances.

Tangible common equity represented 5.94% of tangible assets, down from 6.46% in the second quarter, and tangible book value declined to $40.04 per share from $41.09. The preliminary common equity Tier 1 ratio was 8.86%, and the total capital ratio was 12.32%. Excluding accumulated other comprehensive loss and adjusting for normalized cash balances, the company reported an adjusted tangible common equity ratio of 6.96%.

Fourth-quarter outlook

For the fourth quarter, management expects FTE net interest income of approximately $38.5 million and an FTE net interest margin of 2.75% to 2.80%. That forecast assumes an additional 25-basis-point increase in the federal funds rate in December.

Noninterest income is expected to be about $7.5 million, reflecting lower small-business originations and gain-on-sale activity, partly offset by continued fintech revenue growth. The company projects noninterest expense of approximately $26.5 million and a credit-loss provision of $7.5 million to $8.0 million.

The outlook remains subject to credit quality, lending demand, interest-rate and inflation conditions, competition, regulation, technology disruptions and the value and marketability of real estate collateral, among other risks identified by the company.