First Internet Bancorp (NASDAQ:INBK) reported second-quarter 2026 net income of $2.4 million, or $0.27 per diluted share, as revenue growth and a lower provision for credit losses helped offset continued elevated charge-offs in parts of its lending portfolio.
Total revenue rose 23% year over year to $41.1 million, while pre-provision net revenue increased 28% to $15 million, Chairman and CEO David Becker said on the company’s earnings call. Net interest income increased 16% from a year earlier to $32.4 million, and fully taxable equivalent net interest income rose 15% to $33.6 million.
Credit metrics show improvement
Provision for credit losses declined to $13.4 million in the second quarter from $16.3 million in the first quarter. Net charge-offs totaled $16.9 million, up modestly sequentially, though the composition shifted.
- Small-business lending net charge-offs fell to $4.8 million from $9.1 million in the first quarter.
- Franchise finance net charge-offs were $11.6 million, including $6.7 million covered by specific reserves previously established against the loans.
- Non-performing loans declined to $60.1 million, or 1.58% of total loans, from $61.6 million, or 1.63%, in the prior quarter.
- Total delinquencies fell 26% sequentially to $29.1 million, or 78 basis points of performing loans, from 106 basis points at the end of the first quarter.
Becker said non-performing loans excluding government-guaranteed balances declined to 1.07% of total loans from 1.22% in the prior quarter. He also noted that small-business lending delinquencies declined to $1.5 million from $13.3 million in the first quarter.
President and COO Nicole Lorch said the company believes it has worked through the worst of the 2021 through 2023 small-business lending vintages. She said the 2025 and year-to-date 2026 vintages have performed better, though she acknowledged that unexpected borrower issues can still arise.
In franchise finance, Lorch said the company has focused on resolving legacy problem credits. The pace of loans moving to non-accrual status slowed, while early-stage franchise delinquencies were down more than 75% from the beginning of the year, according to CFO Ken J. Lovik.
Funding costs support margin expansion
Net interest margin rose to 2.39%, or 2.47% on a fully taxable equivalent basis, improving by more than 40 basis points from a year earlier. Lovik attributed the improvement primarily to lower funding costs, as the cost of interest-bearing deposits fell to 3.38% from 3.92% a year earlier.
CD and brokered deposit balances declined by more than $200 million from the first quarter as the company replaced higher-cost funding with lower-cost fintech deposits. The weighted average cost of CDs maturing during the second quarter was approximately 4.11%, compared with 3.19% for on-balance-sheet fintech deposits and 3.63% for new and renewing CDs.
More than $445 million of CDs are scheduled to mature in the third quarter at a weighted average cost of 4.04%, with approximately $700 million maturing in the second half at a weighted average cost of 3.94%. Lovik said the company expects the repricing dynamic to continue supporting net interest income and margin, particularly in the third quarter.
Average loan balances declined about 1% from the prior quarter, despite higher period-end balances, due to early paydowns and lighter small-business lending production earlier in the quarter. Growth in construction, investor commercial real estate, single-tenant lease financing, trailers, wealth advisory lending and embedded finance was offset by runoff in healthcare finance and residential mortgage portfolios.
Fintech partnerships and loan mix remain strategic priorities
The company expanded its relationship with Jaris, an embedded-finance technology partner. First Internet historically retained a small portion of loans originated through Jaris while the majority was sold to a Jaris-managed fund. Beginning in June, First Internet began retaining all new originations and acquired approximately $15 million of loans as the Jaris funds were wound down, Lovik said.
Management expects Jaris-related balances, including retained production, to reach roughly $45 million to $50 million. Becker said the short-duration loans can generate net yields of roughly 12% to 15% after reserves, processing, servicing and fees, though gross yields can be higher depending on repayment timing.
First Internet also added three fintech partners year to date, bringing its total to 15 partners and 21 programs. Lorch said the company expects to launch two additional programs before the end of 2026. Payments volume and fintech fee revenue rose 256% and 222%, respectively, on a trailing-12-month basis, according to Lovik.
The company said it is also pursuing lending to registered investment advisers to finance ownership transitions and succession planning. Becker said the average owner of a registered investment adviser is now 66 years old, creating an opportunity for financing transactions involving senior partners selling ownership stakes to junior partners.
Company maintains EPS outlook, updates other targets
First Internet maintained its full-year 2026 earnings-per-share forecast of $2.35 to $2.45. However, management revised several components of its outlook to reflect a smaller balance sheet, elevated loan payoffs and stronger fee-income expectations.
- Full-year loan growth is now expected to be approximately 4% to 6%.
- Fully taxable equivalent net interest margin is expected to reach 2.75% to 2.80% by the fourth quarter, excluding any interest-rate changes.
- Fully taxable equivalent net interest income is projected at $141 million to $142 million.
- Non-interest income guidance was raised to $40.5 million to $41 million.
- Non-interest expense guidance was lowered to $106 million to $107 million.
- Provision for credit losses is expected to total $47 million to $48 million for the full year.
Lovik said the company expects provision expense to improve sequentially in both the third and fourth quarters as non-accrual loan and delinquency trends improve. Management also expects small-business lending origination volumes to increase in the second half, supported by stronger secondary-market premiums and improved production activity later in the second quarter.
About First Internet Bancorp (NASDAQ:INBK)
First Internet Bancorp is the bank holding company for First Internet Bank of Indiana, a pioneer in digital banking in the United States. Established with a focus on online-only operations, the company offers fully integrated, web-based financial solutions without the overhead of physical branches. Headquartered in Indianapolis, Indiana, First Internet Bancorp leverages technology to deliver streamlined banking services to customers across the country.
The company’s core offerings include a range of deposit products such as checking accounts, savings accounts, money market accounts, certificates of deposit (CDs) and individual retirement accounts (IRAs).
