- What I Know: First Internet Bancorp’s upcoming sale of an $869 million single-tenant commercial real estate loan marks the largest personal loan transaction in its 25-year history.
- Important insights: Despite this sale, First Internet continues to favor the single-tenant market and intends to keep lending in that area.
- Move forward: This loan sale will decrease the company’s initial commercial real estate exposure of $6.1 billion while boosting its capital levels.
First Internet Bancorp, which has faced some credit quality challenges lately, is set to sell nearly $900 million worth of a single-tenant commercial real estate loan to Blackstone.
The bank typically focuses on single-tenant loans, which usually feature a well-known retailer occupying the entire property.
Nichole Lorch, the president and COO of First Internet, mentioned in an interview that even though they encounter issues, the Indiana-based bank remains committed to its asset classes. She expressed optimism that the partnership with Blackstone would enable them to increase lending moving forward.
“Our lending has been quite limited in recent years due to this fixed portfolio,” Lorch remarked. “This feels like a chance to refresh and reconnect with the market.”
The sale to Blackstone is being conducted at a slight discount, approximately 95% of its par value. Banks plan to use the proceeds to invest in more revenue-generating assets, and the loan sales, expected to wrap up by September 18, should yield profits, according to Chairman and CEO David Becker.
Becker also mentioned, “Lowering our exposure to low fixed-rate loans is a key factor in optimizing our asset revenue base, giving our balance sheet a flexible and resilient profile, no matter the interest rate environment,” during a press release on Wednesday.
Looking at the broader picture, the outcome of this transaction is somewhat mixed for First Internet. While selling at a discount does impact the book value, the loan sales will alleviate high-cost deposits on the balance sheet and free up cash for short-term growth plans.
Founded in 1999 by Becker, First Internet has steadily grown but faced an uptick in problem loans over the past year, particularly in its SME management and franchise finance divisions. Consequently, the bank has increased its loan portfolio. For the quarter ending June 30, it reported a net charge-off of $14.3 million, along with $43.5 million in bad debt, which is about 1% of its total loans.
Despite these challenges, First Internet posted a net income of $6 million for the first half of 2025.
The loans slated for sale carry an average interest rate of 5.04%, with an average maturity of roughly 4.4 years.
Analysts following the $6.1 billion asset company generally view the $869 million loan sale favorably.
“We commend the management on this transaction, which makes for a modest stock addition and enhances profitability and flexibility in the balance sheet while increasing capital levels,” noted Brett Rabatin from Hovde, in a recent research update. “Our second-quarter results already indicated confidence in an improved capital ratio.”
Overall, the loan sales lower the concentration of commercial real estate loans and especially single-tenant loans for First Internet. This significant asset reduction improves the common equity Tier 1 capital ratio by 110 basis points to 10%.
Lorch pointed out, “This situation feels akin to stepping into the market to issue $50 million in shares.”
First Internet is recognized as the largest 7(a) lender for SMEs in the nation, consistently offering 7(a) loans. However, Wednesday’s transaction marks the largest individual loan sale in the company’s history.
“This really reflects the quality of the offerings we’ve developed,” Roach emphasized. “In the past 15 years, we’ve put together $2 billion in single-tenant loans, and they’ve improved just marginally.”
Blackstone has previously secured about $22 billion in commercial real estate loans over the past two years, including a $2 billion portfolio from Atlantic Union Bank based in Richmond, Virginia.
