First Internet (NASDAQ:INBK) held its first-quarter earnings conference call on Thursday. Below is the complete transcript from the call.
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Access the full call at https://events.q4inc.com/attendee/313088060
Summary
First Internet reported a 21% year-over-year increase in total revenue for Q1 2026, reaching $43.1 million, driven by a 26% rise in net interest income.
The net interest margin expanded to 2.45%, reflecting proactive balance sheet management and strong deposit franchise performance.
The company demonstrated solid progress in credit quality, with improvements in delinquency and non-performing loans, particularly in the SBA portfolio.
First Internet’s commercial lending pipelines remain robust, and total loans increased to $3.8 billion, with strong production in specific lending areas.
Total deposits grew to $5 billion, bolstered by growth in lower-cost fintech deposits, enhancing balance sheet management flexibility.
Strategic investments in technology and AI are emphasized to enhance customer experience, operational efficiency, and long-term growth.
The company maintained its 2026 guidance but acknowledged potential macroeconomic uncertainties affecting loan growth and other financial targets.
Operational highlights include strong commercial real estate activity and ongoing progress in franchise finance problem loans.
Management expressed confidence in achieving a 1% return on assets by 2027, supported by continued improvements in financial metrics.
Full Transcript
Rebecca (Conference Operator)
Thank you for standing by. My name is Rebecca and I’ll be your conference operator today. At this time, I would like to welcome everyone to the First Internet Bancorp earnings conference call for the first quarter 2026. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press STAR followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. Please note this event is being recorded. It is now my pleasure to turn the call over to Julia Farra from ICR. You may begin your conference.
Julia Farra
Thank you, Operator. Hello everyone and thank you for joining us to discuss First Internet Bancorp’s first quarter 2026 financial results. The company issued its earnings press release earlier this afternoon and it is available on the company’s website at www.firstinternetbancorp.com. in addition, the company has included a slide presentation that you can refer to during the call. You can also access these slides on the website. Joining us from the management team today are Chairman and CEO David Becker, President and COO Nicole Lorch and Executive Vice President and CFO Ken Labick. David and Nicole will provide an overview and Ken will discuss the financial results and then we’ll open up the call for your questions. Before we begin, I’d like to remind you that this conference call contains forward looking statements with respect to the future performance and financial conditions of First Internet Bancorp that involves risk and uncertainty. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward looking statements. These factors are discussed in the Company’s SEC filings which are available on the company’s website. The company disclaims any obligation to update any forward looking statements made during the call. Additionally, management may refer to non GAAP measures which are intended to supplement but not substitute for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today, as well as the reconciliation of the GAAP to non GAAP measures. At this time, I’d like to turn the call over to David.
David Becker (Chairman and CEO)
Thank you. Julia, Good afternoon and thank you for joining us on the call. Today we delivered strong first quarter results that demonstrated the resilience and strength of our diversified business model. We generated solid revenue growth, expanded our net interest margin and continued making meaningful progress on credit quality, all the while navigating an uncertain macroeconomic environment. Let me start with some of the highlights for the quarter. Total revenue reached $43.1 million in the first quarter, up 21% year over year, driven by a 26% increase in net interest income. Our fully taxable equivalent net interest margin expanded to 2.45%, a 54 basis point improvement from a year ago and 15 basis points sequentially. This margin expansion reflects the benefits of our proactive balance sheet management strategy and the power of our deposit franchise combined with our scalable nationwide lending platforms. Pre provision net revenue grew 51% year over year to $18.1 million, underscoring our ability to generate strong operating leverage while maintaining disciplined expense management. This performance gives us confidence in our ability to drive sustainable profitability as we continue to work through our credit normalization process. On credit, our overall loan book remains solid and continues to perform in line with industry trends. In addition, we’re seeing tangible evidence that the decisive actions we’ve taken over the past several quarters are yielding favorable results on the two problem portfolios, SBA and Franchise. Our provision for credit losses for the quarter came in better than expected and we’re observing improving trends in our portfolio with delinquency and non performing loans headed in the right direction. The credit trends we’re seeing, particularly in our SBA portfolio, reflect the impact of enhanced underwriting standards, more vigorous portfolio monitoring and responsive problem loan resolution. On the growth front, our commercial lending pipelines remain robust across multiple verticals. Total loans increased to $3.8 billion with particularly strong production in single tenant lease financing and construction lending as well as in one of our emerging verticals, wealth advisory lending. While we maintain appropriately conservative underwriting standards, we’re seeing great opportunities to deploy capital into high quality commercial relationships at attractive yields. Turning to the other side of our balance sheet, total deposits reached $5 billion, up from $4.8 billion in the prior quarter. We continue to benefit from the strength and flexibility of our banking as a service initiatives. Importantly, we’re seeing continued growth in lower cost fintech deposits, which has also allowed us to let higher cost CDs and broker deposits mature without replacement. Our fintech deposit platform also provides us with significant balance sheet management flexibility. During the quarter, average Fintech deposits totaled $2.4 billion, an increase of over 186% from the first quarter of 2025. At quarter end, we had moved approximately $1.5 billion of these deposits off balance sheet, optimizing our asset size while maintaining these valuable customer relationships and the associated fee income streams. This capability is a unique competitive advantage that enhances both our profitability and our capital efficiency in our SBA business. While seasonality and tightened underwriting resulted in softer loan production for the quarter, we’re pleased with the strong foundation we’re building and how the business is positioned for long term profitable growth. To further align our strategy in SBA, we’ve strengthened the business by promoting Gary Carter to the position of National Sales Manager. Gary rejoined us a year ago as our Senior SBA Credit Officer, bringing deep industry expertise, including his role at Live Oak bank, that will help us continue building this business. From the sound foundation, our capital and liquidity position remains solid as we were able to closely manage the size of the average balance sheet while continuing to grow revenue. Regulatory capital ratios remain well above minimum requirements with a total capital ratio of 12.5% and a common equity tier 1 ratio of 8.97%, as well as substantial liquidity coverage. Moving to our strategic investments in technology and artificial intelligence, we continue to invest thoughtfully in digital capabilities that enhance the customer experience, improve operational efficiency and position us for long term growth. These technology investments aren’t just about maintaining our competitive position. They’re also about creating sustainable advantages in how we serve customers, manage risk and drive operational excellence. Looking ahead, we’re navigating an uncertain macro environment from a position of increasing strength. Our diversified business model is generating strong revenue growth. Our deposit franchise provides funding advantages and strategic flexibility. We’ve proven our ability to make difficult decisions and execute effectively. The credit challenges we’ve experienced are manageable in the context of our overall business. We’ve taken decisive action strengthening underwriting standards, enhancing risk management and addressing problem loans proactively. We see the benefits in improving trends and expect continued progress throughout 2026. We are not standing still. We’re investing in AI and technology to enhance efficiency and customer experience, strengthening our commercial banking capabilities, expanding fintech partnerships and repositioning our SBA business on a stronger foundation. We’re confident in our strategy, our team and our ability to deliver value for shareholders. I’ll now turn it over to Nicole for operational highlights including commercial lending, SBA banking as a service and credit.
Nicole Lorch (President and COO)
Thank you David. Starting with commercial real estate, we saw solid first quarter activity with particularly strong production in construction and single tenant lease financing. These businesses continue to perform well with strong credit quality and attractive risk adjusted returns on new originations. We were also pleased to see higher balances in a couple of our emerging verticals, wealth advisory, lending and equipment finance. The pipeline remains healthy with disciplined underwriting and good yields on new commitments. Turning to SBA. As David mentioned in his comments, the deliberate shift we communicated in our last call that prioritizes credit quality over volume combined with a seasonally lighter first quarter resulted in lower originations for the quarter. This translated into lower loan sale volume and lower gain on sale revenue compared to the linked quarter. Regarding gain on sale revenue, while premiums have been strong so far this year, we still expect to retain more production on our balance sheet in future periods as the pricing on certain higher quality deals will not fetch quite the same premiums. In the secondary market, we generally look at a 12 month earn back period when making decisions on whether to sell or hold loans. While this will impact gain on sale revenue for the year, it will be highly additive to net interest income and net interest margin in future periods. Nonetheless, barring any macroeconomic deterioration, we remain optimistic about the previously shared production and gain on sale targets for the full year. Importantly, while we’re being selective about growth in this portfolio, we remain committed to small business lending as a core business. This is an attractive lending vertical with good long term economics and we have the platform, expertise and relationships to compete effectively once we’ve fully worked through this current credit cycle. As to credit performance, we’ve made substantial progress over the past several quarters through proactive and prudent actions. We’ve significantly enhanced our underwriting standards, added experienced talent to our credit and portfolio management teams and implemented more robust monitoring and early warning systems. We’ve also been proactive in working with our borrowers to prevent the formation of non performing loans and we’re seeing Results. As of March 31, delinquencies in the SBA portfolio have improved 118 basis points quarter over quarter and 126 basis points year over year. As we look ahead, our focus in SBA is on durability and consistency rather than near term volume. Loans originated under our revised standards are showing more stable early behavior. While these newer vintages are still early in their life cycle, we’re encouraged by what we’re seeing in terms of borrower performance, responsiveness and overall portfolio dynamics. The operational changes we’ve made across underwriting execution and portfolio oversight are now fully embedded in the business. This enables us to remain selective today while preserving the ability to scale responsibly as conditions normalize. Our objective is an SBA portfolio with attractive long term economics and reduced volatility across cycles and we are building with that goal in mind. In franchise finance, we continue to make progress working through problem loans. Our special assets team was busy during the quarter coming to resolution on several credits. While net charge off activity remained elevated during the quarter, it more than offset non performing loan formation as non accrual franchise finance loans dropped to their lowest level in four quarters. Looking at our banking as a service operations, we continue to see strong momentum with our fintech partners. These relationships provide valuable deposit funding, generate attractive fee income and position us at the forefront of innovation in digital banking. We processed over $82 billion in payments volume during the quarter, an increase of over 260% year over year through a carefully curated partner network, a reflection of our efforts to strengthen and deepen existing relationships while cultivating new partnerships. We are constantly evaluating new partnership opportunities while ensuring we maintain the highest standards of compliance and risk management across the bank. We continue to invest strategically in AI and automation to drive efficiency and enhance customer service. Our strong data foundation, built through previous investments in our data warehouse and integrated data sources, now supports our infrastructure upgrades for AI agent processing while scoping our own proprietary agents. We’ve already deployed third party AI capabilities with measurable impact such as fraud detection agents that screen outbound transfers before processing. Additionally, our virtual customer service agent resolves approximately 45% of inquiries, significantly reducing the burden on human agents and improving response times. The effects of this are validated by the favorable results from the Net Promoter Score Framework and Customer Listening program we implemented in the first quarter. With our consumer and small business banking team out of the gate, our scores are well above industry average. We have built relationships through transparency, delivering on our promises and that loyalty delivers strong returns. The diversity of our business model is another key strength. We have multiple engines driving growth and profitability, our commercial lending is performing well, our consumer lending remains stable, …
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