First Internet Bancorp (INBK)

On our desk, the 12% single-day pop in INBK to $29.46 caught everyone off guard, but the fundamentals in the Q2 print justify the relief. Management finally delivered an inflection quarter with nonaccrual loans dropping 14% and provisions stepping down to $13.4 million. We are advising clients to look closely at whether this is purely a relief rally or a durable re-rating toward book value as earnings power targets $4+ next year.

Watching the macro tape on INBK, the 43 basis point expansion in Net Interest Margin (FTE) to 2.47% is a standout metric. Improved deposit pricing and an optimized funding mix are clearly starting to bear fruit. However, we remain cautious given that prior quarters suffered heavily from elevated net charge-offs. Risk managers should keep a strict eye on small business lending delinquencies before committing fresh long-term capital.

From a quant perspective, the Zacks EPS beat of $0.27 versus the consensus estimate of $0.03 represents an astronomical 800% surprise, following an impressive Q1 beat as well. When underwriting regional online banks coming out of credit cycles, tracking the rate of change in 30+ day past-due loans—which fell from 1.06% to 0.78%—is the primary quantitative signal that asset quality stabilization is taking hold.

As a hedge fund PM, I am balancing the common stock recovery against the fixed-income opportunity. The ~8.1% yielding baby bonds maturing in 2029 offer an incredible risk-adjusted carry while we wait for management's second-half guidance to materialize. If H2 provisions continue to decline as projected, the equity could easily multi-bag from its multi-week lows, but the baby bonds provide a safe floor.

Reviewing the sell-side chatter, Piper Sandler's earlier cautious stance regarding elevated credit costs through Q2 proved valid, but the actual Q2 print showed the exact inflection they were waiting for. Pre-provision net revenue rose 28% to $15 million, proving that the core digital banking engine generates strong earnings power when credit drag subsides. We are upgrading our internal monitoring priority on INBK.