First Internet Bancorp (INBK) Q4 2025: FinTech Deposits Triple, Driving 21% Revenue Growth Amid Credit Cleanup
First Internet Bancorp’s digital-first model powered a 21% revenue surge, as FinTech partnership deposit growth and disciplined expense control offset targeted credit remediation in SBA and franchise portfolios. Management’s forward guidance signals a near-term credit headwind but positions the bank for margin expansion and sustainable profitability as new underwriting standards take hold and balance sheet optimization continues.
Summary
- FinTech Deposit Engine Accelerates: Digital banking partnerships drove over $1.3 billion in new deposits, tripling last year’s pace.
- Credit Cleanup Front-Loaded: Elevated provisions target isolated SBA and franchise loan issues, with normalization expected in the second half.
- Margin Expansion Trajectory: Repricing of funding and higher-yielding loan originations set up a stronger net interest margin exit rate for 2026.
Performance Analysis
INBK delivered a robust fourth quarter, with adjusted total revenue up 21% year over year, reflecting the success of its digital banking model and the strategic repositioning of its balance sheet. Net interest income rose nearly 30% as management capitalized on higher loan yields and declining deposit costs, with net interest margin expanding to 2.22%. The bank’s FinTech-driven banking-as-a-service (BAS) platform was a standout, generating over $1.3 billion in new deposits and processing $165 billion in payments for the year, a 225% increase from 2024.
Credit costs were a clear pressure point, with a $12 million provision for credit losses and net charge-offs concentrated in SBA and franchise finance portfolios. However, management emphasized that these issues are isolated, with the remainder of the loan book performing in line with peers. Non-interest income was supported by ongoing SBA loan sales and expanding FinTech fee revenue, though gain-on-sale income is expected to moderate as more SBA production is retained on balance sheet.
- FinTech Partnership Growth: BAS initiatives now represent a material recurring revenue stream, with fee and program management income rising steadily.
- Expense Discipline Maintained: Operating costs grew modestly, with investments focused on technology and AI to enhance risk management and customer experience.
- Loan Growth Pipeline Intact: Commercial and construction lending verticals remain strong, offsetting planned reductions in franchise finance exposure.
Overall, INBK’s quarter was defined by operational momentum and a proactive approach to credit risk, setting the stage for improved profitability as legacy credit issues are worked through and digital initiatives scale.
Executive Commentary
"Our core business fundamentals remain robust with quarterly revenue up 21% over the prior year period. Our digital first approach and disciplined expense management enabled us to navigate challenging credit issues related to two of our loan portfolios while capitalizing on opportunities across our diverse business lines."
David Becker, Chairman and CEO
"Net interest margin improved to 2.22% or 2.30% on a fully taxable equivalent basis, both up 18 basis points from the prior quarter and 55 basis points year over year. The rising yields on interest-earning assets, in conjunction with declining costs of interest-bearing deposits, demonstrate delivery on our years-long effort to reposition the balance sheet and optimize our mix of earning assets."
Ken Lovick, Executive Vice President and CFO
Strategic Positioning
1. Digital-First Banking Model Scaling
INBK’s core differentiator is its digital-first, branchless model, enabling national reach and operational efficiency. The bank’s BAS platform acts as a sponsor bank, supporting deposit, payment, and lending programs for FinTech partners such as RAMP and Increase. These relationships are now strategic revenue drivers through recurring transaction and program fees, not just deposit sources.
2. Targeted Credit Remediation and Underwriting Tightening
Management is front-loading credit provisions to resolve legacy SBA and franchise finance exposures, while enhanced risk analytics and stricter underwriting standards are designed to prevent recurrence. The shift towards higher-quality borrowers and more selective SBA production is expected to stabilize credit metrics in the second half of 2026.
3. Margin Expansion and Funding Optimization
Balance sheet repositioning is yielding results, as higher-yielding loan originations and repricing of maturing CDs (certificates of deposit, time deposits with fixed terms) are driving net interest margin improvement. The ability to move FinTech deposits off balance sheet provides flexibility to manage funding costs and support loan growth without overextending leverage.
4. Technology and AI Investment
Ongoing investment in AI-powered origination, underwriting, and portfolio analytics is enhancing efficiency and early risk detection. Initiatives such as predictive analytics and automated document collection are expected to shorten origination cycles and improve credit outcomes.
5. Strategic Capital Allocation
INBK is balancing growth with shareholder returns, returning $2.7 million via dividends and buybacks while maintaining strong capital ratios (total capital 12.44%, CET1 8.93%). The recent sale of $850 million in single-tenant lease loans to Blackstone further enhanced capital and reduced rate risk.
Key Considerations
This quarter’s results underscore INBK’s transition from legacy credit risk toward scalable, technology-driven banking—yet the near-term path is shaped by both opportunity and caution.
Key Considerations:
- FinTech Deposit Volatility: While BAS deposits are a growth engine, their off-balance sheet flexibility introduces new liquidity management dynamics.
- SBA Gain-on-Sale Shift: Retaining more SBA loans on balance sheet will reduce fee income but boost recurring net interest income and margin.
- Provisioning Front-Loaded: Credit costs are expected to peak in the first half, with normalization dependent on successful resolution of legacy SBA and franchise loans.
- Expense Investment Focus: Technology and risk management investments are prioritized over compensation, supporting long-term efficiency but pressuring near-term expense ratios.
- M&A Optionality: Management acknowledged increased inbound M&A interest, reflecting the attractiveness of INBK’s digital platform and discounted valuation, though no deals are imminent.
Risks
INBK faces concentrated credit risk in legacy SBA and franchise portfolios, with elevated charge-offs and criticized loans likely through mid-2026. The shift toward retaining more loans on balance sheet increases interest rate and credit exposure. FinTech deposit flows, while a growth driver, add funding volatility and require ongoing operational vigilance. Regulatory scrutiny of BAS models and sponsor banks is an emerging risk that could impact partnership economics or compliance costs.
Forward Outlook
For Q1 2026, INBK guided to:
- Provision for credit losses of $17 million to $19 million
- Continued net interest margin expansion, with the largest quarterly improvement expected in Q1
For full-year 2026, management provided guidance:
- Loan growth of 15% to 17%
- Net interest margin reaching 2.75% to 2.80% by Q4
- Fully taxable equivalent net interest income of $155 million to $160 million
- Non-interest income of $33 million to $35 million
- Operating expenses of $111 million to $112 million
- Provision for credit losses of $50 million to $53 million
- EPS of $2.35 to $2.45, with the bulk of earnings improvement in the second half
Management highlighted that credit costs will remain elevated in H1, with improvement expected as legacy problem loans are resolved and new underwriting standards take effect.
- Deposit growth expected to fund loan expansion, with flexibility from off-balance sheet FinTech deposits
- Technology investments to drive operational leverage and risk management improvements
Takeaways
INBK’s Q4 results mark an inflection point, with the digital-first model and FinTech partnerships now central to revenue growth and funding strategy, while legacy credit risk is being aggressively addressed.
- FinTech Scale Drives Core Growth: The BAS platform’s explosive deposit and payment volume growth is transforming INBK’s revenue mix and competitive positioning.
- Credit Risk Contained but Not Yet Resolved: Management’s transparency and front-loaded provisioning are prudent, but investors should monitor execution on credit normalization closely.
- Margin Expansion Opportunity: Repricing of deposits and higher-yielding loan originations are set to materially improve profitability in the second half of 2026.
Conclusion
First Internet Bancorp is executing a pivot from legacy credit risk to scalable digital banking, leveraging technology and FinTech partnerships to drive growth and efficiency. While near-term credit costs remain a drag, the long-term outlook is strengthened by margin expansion and diversified revenue streams.
Industry Read-Through
INBK’s results highlight the accelerating convergence of digital banking and sponsor bank models, with BAS partnerships now a material driver of both funding and fee income. The ability to flex deposits on and off balance sheet is a strategic advantage for capital and liquidity management, but introduces new risk dynamics that other banks must address as they scale FinTech relationships. The shift away from reliance on card interchange toward recurring program and transaction fees signals a maturation of the BAS model. For regional banks, INBK’s experience underscores the need for robust risk analytics and proactive credit management, especially as new lending channels and credit vintages are layered onto legacy portfolios. The industry should expect continued regulatory focus on sponsor bank compliance and partnership economics in the coming quarters.