First Internet Bancorp Q3 FY2026 earnings call

• Financial Performance: The company reported record revenue of $43.9 million and expanded net interest margin for the fourth consecutive quarter. Adjusted pre-provision net revenue grew 14% sequentially, and adjusted EPS rose to 57 cents, more than doubling from the previous quarter.
• Credit Trends: Overall credit normalization is on track, with net charge-offs falling by more than half and delinquencies dropping to 48 basis points from 78 basis points in Q2. However, one significant franchise finance borrower moved to non-accrual, resulting in a $2.6 million specific reserve and $600,000 interest reversal.
• Lending Strategy: Capital is being redeployed from lower-yielding or exited portfolios (such as healthcare and residential mortgage) into higher-return areas like construction, investor CRE, single-tenant lease financing, and embedded finance. New funded originations came onto the balance sheet at a weighted average yield of 7.51%, driving the overall portfolio yield up eight basis points to 6.42%.
• FinTech Partnerships: FinTech deposits increased by over $1 billion to $4.7 billion, helping replace higher-cost CDs and broker deposits. This partnership model generates fee income and provides new avenues for capital deployment through embedded lending.
• SBA Business: SBA production was softer than expected due to weaker industry volume and tighter underwriting standards. Management emphasized that they will not compromise credit discipline to manufacture loan growth, expecting lower SBA originations and gain-on-sale revenue in Q4.
• Operational Efficiency: Technology investments are yielding tangible results, including the automation of SBA origination processes. This has reduced manual data entry by over 80%, improved median approval times by roughly 10 days, and created approximately 620 hours of annual lender and processor capacity.

The transcript does not provide a breakdown of financial performance by specific product segment in absolute terms or revenue contribution percentages. It reports consolidated Total Revenue of $43.9 million (up 7% sequentially) and Net Interest Income of $34.7 million (a record high). Non-interest income is highlighted as growing, with FinTech fee revenue up 13% from Q2 and up 190% on a trailing twelve-month basis, though specific absolute values for non-NII segments are not detailed in the prepared remarks.

• Net Interest Margin: Expected fully taxable equivalent NIM of 2.75% to 2.80% in Q4, assuming a 25 basis point increase in the Fed funds rate in December.
• Net Interest Income: Projected at around $38.5 million for Q4, driven by portfolio optimization and stable deposit costs.
• Non-Interest Income: Expected to be around $7.5 million, reflecting lower SBA gains but offset by continued growth in FinTech fee revenue.
• Non-Interest Expense: Forecasted at approximately $26.5 million.
• Provision Expense: Expected between $7.5 million and $8 million, based on improving delinquency trends and actions taken on franchise finance relationships.
• Earnings Per Share: Diluted EPS guidance for Q4 is approximately $1.02 to $1.07, representing a near-doubling of operating earnings from the current quarter.

• Specific Credit Deterioration: A significant franchise finance borrower’s financial condition deteriorated late in the quarter, leading to its classification as non-accrual and requiring a $2.6 million specific reserve. This action reduced pre-tax earnings by approximately $3.2 million.
• Interest Rate Sensitivity: While the bank is less liability-sensitive than two years ago, static balance sheet models suggest that punitive rate scenarios (including further Fed increases in late 2026/early 2027) could negatively impact forecasted net interest income by 2.5% to 3% in 2027. However, management notes that active execution of lending and deposit strategies significantly reduces this modeled effect.
• SBA Volume Volatility: SBA originations have been softer than anticipated due to subdued industry activity and deliberate tightening of underwriting standards, which may result in lower gain-on-sale revenue in the short term.

Q: Brett Rabatin from StoneX asked for clarification on the Q4 margin guidance, noting that it implies a simultaneous 15 basis point increase in earning asset yields and a decrease in funding costs. / A: The conference line experienced technical issues during this exchange, causing the operator to pause the podcast briefly to resolve the problem. No substantive answer from management regarding the specific drivers of the yield and cost assumptions was captured in the provided transcript snippet.