First Internet Bancorp 2026 Q2 Earnings Call

Thank you, Julia. Good afternoon, thank you for joining us. We're excited to report solid second quarter results with total revenue growing 23% year-over-year, pre-provision net revenue up 28%, and earnings per share of $0.27, up significantly from the prior year period. More importantly, this quarter marks a meaningful inflection point in our credit trajectory. For the past several quarters, credit has been the primary overhang on our results and on our stock. This quarter, that story began to turn. Over the past 18 months, we took a hard look at the credit outcomes we experienced and made meaningful changes to our underwriting, servicing, portfolio management, and resolution processes. Our disciplined actions are now translating into clear, measurable improvement, and we believe the credit trends we are seeing today mark a clear turning point in this cycle.

Let me walk through why we feel confident in that conclusion. First, provision for credit losses, while still elevated on a historical basis, declined significantly from the prior quarter. Net charge-offs in our SBA portfolio were down almost 50% from the first quarter, reflecting the enhanced underwriting, servicing, and early warning capabilities we built over the past year. Second, non-performing loans declined from the first quarter, and total non-accrual loans declined for the second consecutive quarter, down 19% from year-end. Furthermore, non-performing loans, excluding government-guaranteed balances, declined to 1.07% of total loans, down from 1.22% in the prior quarter. Third, perhaps most encouraging of all, delinquencies fell significantly during the quarter. We experienced a sharp drop in early-stage delinquencies, and total small business lending delinquencies declined to $1.5 million from $13.3 million in the prior quarter. The reduction in provision expense demonstrates that our credit performance is improving today.

The decline in non-performing loan formation and delinquency gives us conviction that credit costs will continue to moderate as we move through the second half of the year. At the same time, we continue to optimize the loan portfolio. Continued runoff in existing portfolios such as healthcare finance and residential mortgage, combined with elevated payoffs in franchise finance, is creating capacity that we are redeploying into construction, investor commercial real estate, single-tenant lease financing, small business lending, and emerging verticals such as wealth advisory lending and embedded finance, where we see better risk-adjusted returns and more efficient use of our balance sheet. A good example is the evolution of our relationship with Jaris, an embedded finance technology partner that helps payment processors and ISOs modernize their platforms through capabilities such as digital onboarding, instant payouts, and business financing solutions.

Historically, we funded loans originated on Jaris's platform and retained a small portion of that production, selling the majority to a fund managed by Jaris. Beginning in June, we took that relationship a meaningful step further and are now retaining all originations going forward. These short-duration, high-yielding assets should be accretive to net interest income, and the expanded arrangement reflects the trust and depth of collaboration we have built with Jaris over time. Looking ahead, we are navigating the current macro and geopolitical environment with prudent strategy and appropriate discipline. Our credit trends and earnings are moving in the right direction while we continue to deepen high-value fintech partnerships and invest in the technology and talent that differentiate our platform.

We believe this combination of improving credit, disciplined capital deployment, and expanding non-interest income positions us well to maximize growth and profitability in future periods. While the financial results speak for themselves, what gives us confidence in the future is the operational progress occurring throughout the company. I will now turn the call over to Nicole for additional perspective on the changes we've made and why we believe they position First Internet for continued improvement in the quarters ahead.

Thank you, David. One of the most encouraging takeaways from this quarter is that the improvement we're seeing across the business is the result of a sustained organizational effort over the last several quarters. We challenged long-standing processes, invested in new capabilities, and asked teams across the company to work differently. The numerical improvement in credit is evident in our results, and the strength of the underlying processes producing those results lays the groundwork for improved performance in the future. Over the past 18 months, we've strengthened underwriting standards, enhanced portfolio monitoring, expanded special assets capabilities, and invested in predictive analytics and early warning tools that allow us to identify borrower stress sooner and engage customers earlier. We also created greater separation and specialization between portfolio management and problem loan resolution, allowing both teams to operate more effectively. In small business lending, net charge-offs declined significantly from the first quarter.

Delinquency trends improved meaningfully, new delinquency formations slowed during the quarter. That reinforces our view that the portfolios we're originating today are performing in line with expectations and that our actions are producing durable improvements in credit quality. In franchise finance, our focus remains on disciplined execution and timely resolution of legacy problem credits. During the quarter, our special assets team took action on several relationships that drove elevated charge-off activity. However, the pace of loans moving to non-accrual status slowed dramatically, and early-stage delinquencies have declined over 85% since year-end. I want to thank our credit administration and portfolio management teams for their tireless execution. While work remains, the evidence suggests the remaining issues are manageable and increasingly concentrated. We've also become more deliberate about how and where we deploy capital.

Over the last year, we evaluated major business lines through the lens of risk-adjusted returns, capital efficiency, and long-term growth potential. That process led us to lean more heavily into businesses where we believe we possess durable competitive advantages, including Banking-as-a-Service, embedded finance partnerships, and select commercial lending verticals. The expanded Jaris relationship is a good example of that approach in practice. We continue to see opportunities to deepen relationships with partners that value our compliance expertise, technical capabilities, and ability to operate at scale. In many cases, those opportunities allow us to generate attractive returns while using capital more efficiently than traditional balance sheet growth alone. Another area where we continue to invest is technology and automation. As pioneers in branchless banking, technology has been central to our business model from the beginning.

Our technology strategy is grounded in business outcomes, not in chasing what is novel or interesting. Every investment is evaluated based on its ability to improve the customer experience, strengthen risk management, enhance efficiency, and generate an appropriate return on capital. Looking ahead, what excites me most is not any single business line or individual metric. It is that we are seeing progress across multiple dimensions of the company simultaneously. Credit trends are improving. Our funding profile continues to strengthen. Fintech and fee-based revenue streams are growing, and our teams are executing with discipline. There is no finish line when it comes to building a better bank, but the operational foundation we have built over the last several years positions us well for continued improvement in profitability and long-term shareholder value creation.

Now I'll turn it over to Ken for additional insight into our second quarter performance and 2026 outlook.

Thanks, Nicole. As David mentioned, we delivered solid second quarter results with net income of $2.4 million, or $0.27 per diluted share, both up significantly from the prior year period. Before discussing operating trends, I want to provide additional color on credit. Provision for credit losses was $13.4 million in the second quarter, down from $16.3 million in the first quarter. Net charge-offs totaled $16.9 million, up modestly from the prior quarter but with important positive trends beneath the headline number. Net charge-offs in small business lending totaled $4.8 million, down significantly from $9.1 million in the first quarter. Franchise finance net charge-offs totaled $11.6 million, $6.7 million of which were covered under specific reserves previously applied to these loans, as Nicole noted, the pace of franchise finance loans moving to non-accrual status slowed dramatically.