- What to know: First Internet Bancorp's planned sale of $869 million in single tenant lease commercial real estate loans to Blackstone would be the biggest individual loan sale in the company's 25-year history.
- Key insight: Despite the sale, First Internet still likes the single tenant market and plans to continue lending in it.
- Forward look: The loan sale deal would result in a reduced CRE concentration and higher capital levels for the $6.1 billion-asset First Internet.
First Internet Bancorp, which has been grappling with credit quality issues in recent months, is planning to sell nearly $900 million in single tenant commercial real estate loans to Blackstone.
Lenders
Indeed, First Internet President and Chief Operating Officer Nichole Lorch told American Banker that the Fishers, Indiana-based bank remains firmly committed to the asset class, adding that the Blackstone deal will help it lend more going forward.
"Our lending opportunities have been subdued in the last couple years because that portfolio has been so fixed-rate," Lorch said on Thursday. "I consider this to be something of a reload, and a good opportunity to get back into the market."
First Internet is selling the portfolio to Blackstone at a slight discount, about 95% of par value. The bank expects to deploy the proceeds into higher-yielding assets, so that the loan sale, which is expected to close Sept. 18, should boost its profitability, according to Chairman and CEO David Becker.
"Reducing our exposure to fixed-rate, lower-coupon loans is a meaningful component towards further optimizing our earning asset base, providing balance sheet flexibility and a resilient earnings profile regardless of the interest rate environment," Becker said Wednesday in a press release.
From a bottom-line perspective, the transaction's impact is a mixed bag for First Internet. Selling assets at a discount — albeit a modest one — puts a dent in tangible book value. But on the plus side, the loan sale generates cash First Internet plans to use to shift higher-cost deposits off its balance sheet and to fund near-term growth opportunities.
Becker founded First Internet in 1999, making it one of the country's first digital-only banks. The company has grown steadily, though over the past year it has experienced an uptick in problem loans in its Small Business Administration and franchise finance portfolios. As a result, First Internet has increased its loan loss reserves. For the quarter ending June 30, the bank reported $14.3 million in net chargeoffs, as well as $43.5 million in nonperforming loans, or 1% of total loans.
First Internet has remained profitable, reporting net income totaling $6 million during the first six months of 2025.
The loans that First Internet identified for sale carry an average yield of 5.04% and an average maturity of about 4.4 years.
Analysts who cover the $6.1 billion-asset company were generally positive about the $869 million loan sale.
"We applaud management for executing this transaction that will likely be modestly earnings-per-share accretive, result in a more profitable and flexible balance sheet and increase capital levels … among other benefits," Piper Sandler Managing Director Nathan Race wrote Thursday in a research note.
"We indicated after second-quarter results we sure wished capital ratios were higher," Brett Rabatin, who covers First Internet for Hovde, wrote Thursday in a separate research note. "This transaction does deliver improvement."
Overall, the loan sale would reduce First Internet's concentration in commercial real estate loans generally and single tenant loans in particular. By subtracting such a significant quantity of assets, the deal would result in a 110-basis-point improvement in the common equity tier 1 capital ratio, to 10%.
"We look at this as the equivalent of going into the market and issuing $50 million of equity," Lorch said.
First Internet ranks among the nation's largest Small Business Administration 7(a) lenders and sells 7(a) credits on an ongoing basis. But Wednesday's deal represents the company's largest single loan sale.
"I think that it really speaks to the quality of the product we've put together," Lorch said. "Of the $2 billion of [single tenant] loans we've originated in the 15 years we've been doing this, we've had exactly $2 million go bad."
Blackstone has acquired about $22 billion of commercial real estate loans over the past two years, including
