8-K: First Internet Bancorp Reports Q3 Loss, Boosts Capital

First Internet Bancorp reported a net loss of $41.6 million for Q3 2025, primarily due to a major loan sale, while also announcing a $25 million stock repurchase program and improved credit metrics.

Summary

• First Internet Bancorp reported a net loss of $41.6 million and a diluted loss per share of ($4.76) for the third quarter ended September 30, 2025.
• The quarterly results included a pre-tax loss of $37.8 million on the sale of $836.9 million in single tenant lease financing loans.
• Excluding the impact of the loan sale, the adjusted net loss was $12.5 million and adjusted diluted loss per share was ($1.43).
• Adjusted total revenue grew 30% sequentially to $43.5 million, and adjusted pre-tax, pre-provision income increased 54% to $18.1 million.
• Net interest income increased 8% from the prior quarter to $30.4 million, marking the eighth consecutive quarter of growth.
• The fully-taxable equivalent net interest margin (FTE NIM) expanded by 8 basis points sequentially to 2.12%, benefiting from declining interest-bearing liability costs and higher loan yields.
• The company recognized a provision for credit losses of $34.8 million, primarily related to small business lending and franchise finance portfolios.
• Proactive credit actions led to a significant decline in delinquencies, with small business lending delinquencies dropping over 50% and franchise finance delinquencies reduced by 79%.
• Nonperforming loans to total loans increased to 1.47% from 1.00% in the prior quarter, and net charge-offs to average loans rose to 1.89% from 1.31%.
• The allowance for credit losses to total loans increased to 1.65% from 1.07% in the prior quarter.
• Regulatory capital ratios improved following the loan sale, with a Common Equity Tier 1 (CET1) ratio of 9.24% and a Total Risk-Based Capital ratio of 13.11%.
• Tangible book value per share decreased 9.9% to $39.88 following the loan sale.
• The Board of Directors authorized the repurchase of up to $25.0 million of the company's common stock, with the authorization expiring on September 30, 2027.
• Fintech deposit production remained strong, and over $700 million of deposits were moved off-balance sheet to manage cash balances and balance sheet size, contributing to a favorable loans-to-deposits ratio of 73.9%.

Sentiment

Score: 3

Explanation: The substantial net loss and diluted loss per share, primarily driven by a large strategic loan sale and increased credit provisions, indicate a challenging quarter. While management highlights strategic actions and operational improvements, the immediate financial impact is negative, outweighing the positive trends in net interest income and margin expansion.

Positives

• Adjusted total revenue grew 30% sequentially to $43.5 million, and 30% year-over-year.
• Net interest income increased for the eighth consecutive quarter, up 8% from the prior quarter to $30.4 million.
• Fully-taxable equivalent net interest margin (FTE NIM) expanded by 8 basis points sequentially to 2.12%, and by 42 basis points year-over-year.
• Adjusted pre-tax, pre-provision income (PTPP) increased 54% from the prior quarter to $18.1 million.
• Delinquencies in small business lending dropped over 50%, and franchise finance delinquencies reduced by 79%, reaching their lowest level in a year.
• Completed a major loan sale of $836.9 million in single tenant lease financing loans, enhancing regulatory capital ratios and balance sheet flexibility.
• Regulatory capital ratios improved, with CET1 ratio at 9.24% and Total Risk-Based Capital ratio at 13.11%.
• Fintech deposit production remains strong, contributing to robust balance sheet liquidity and a favorable loans-to-deposits ratio of 73.9%.
• The Board authorized a stock repurchase program of up to $25.0 million of common stock.
• Loan pipelines remain robust, with strong growth opportunities identified in construction/investor commercial real estate, single tenant lease financing, and commercial & industrial.

Negatives

• Reported a net loss of $41.6 million for the quarter, compared to a net income of $193 thousand in the prior quarter.
• Diluted loss per share was ($4.76), significantly worse than the $0.02 diluted earnings per share in the prior quarter.
• Incurred a pre-tax loss of $37.8 million on the sale of single tenant lease financing loans.
• Provision for credit losses increased significantly to $34.8 million from $13.6 million in the prior quarter.
• Nonperforming loans to total loans increased to 1.47% from 1.00% in the prior quarter.
• Net charge-offs to average loans increased to 1.89% from 1.31% in the prior quarter.
• Tangible book value per share decreased 9.9% to $39.88 from $44.25 in the prior quarter.
• Total loan balances decreased $732.2 million, or 17%, from the prior quarter, primarily due to the loan sale.
• Total deposits decreased $383.4 million, or 7%, from the prior quarter.

Risks

• General economic conditions, whether national or regional, and conditions in the lending markets may adversely affect demand for loans and other products.
• Credit quality and related levels of nonperforming assets and loan losses, as well as the value and salability of real estate collateral for loans, pose significant risks.
• Failures or breaches of, or interruptions in, the communications and information systems relied upon to conduct business.
• Failure of plans to grow commercial and industrial, construction, and SBA loan portfolios.
• Competition with national, regional, and community financial institutions.
• Loss of key members of senior management.
• Anticipated impacts of inflation and rising interest rates on the general economy.
• Risks relating to the regulation of financial institutions.

Future Outlook

Management anticipates improved performance in future quarters, with encouraging signs in small business lending and franchise finance portfolios. The company is well-positioned to grow earnings and accelerate its ability to achieve a Return on Average Assets (ROAA) of 1%. The Tier 1 leverage ratio is expected to increase significantly in the fourth quarter of 2025 as average assets reset following the loan sale. Loan pipelines remain robust, indicating continued opportunities for growth.

Management Comments

• "Our third quarter results demonstrated strong operational momentum with solid growth in net interest income and continued improvement in our net interest margin."
• "We have now achieved eight consecutive quarters of increasing net interest income, attributable to higher yields on our earning assets and reduced funding costs, both of which have materially enhanced our operating efficiency."
• "Additionally, we attained significant growth in fintech deposits, which has enabled us to maintain strong balance sheet liquidity, as evidenced by our favorable loans-to-deposits ratio."
• "We also completed a major loan sale and moved deposits off balance sheet which will enhance our regulatory capital ratios and provide balance sheet flexibility."
• "In the third quarter, we took decisive action to address credit issues in our small business lending and franchise finance portfolios, which provides us with a cleaner credit profile and sets the stage for improved performance in future quarters."
• "Entering the fourth quarter, we see encouraging signs in both portfolios with asset quality improving and delinquencies at their lowest level in a year. Our loan pipelines remain robust, and we are now well-positioned to grow earnings and accelerate our ability to achieve a ROAA of 1%."

Industry Context

First Internet Bancorp's emphasis on branchless banking and significant growth in fintech deposits aligns with broader industry trends towards digital transformation and Banking-as-a-Service (BaaS) models. The proactive credit risk management and strategic loan sale reflect a banking sector navigating evolving credit cycles and optimizing balance sheets in a dynamic interest rate environment. The focus on specific lending segments like small business, franchise finance, and commercial real estate indicates targeted growth strategies within competitive markets.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or global benchmarks to assess the results against industry standards.

Stakeholder Impact

• Shareholders experienced a significant diluted loss per share and a decrease in tangible book value, though the stock repurchase program may offer some future support.
• Employees may benefit from increased incentive compensation, reflecting efforts to position the company for future success.
• Customers in small business lending and franchise finance are subject to the company's proactive credit management actions, which aim to improve the overall credit profile.
• The strategic loan sale and balance sheet optimization efforts are intended to enhance the company's financial stability and capital ratios, benefiting creditors and long-term investors.

Next Steps

• Host a conference call and webcast on October 23, 2025, to discuss quarterly financial results.
• Execute the authorized stock repurchase program of up to $25.0 million of common stock, which expires on September 30, 2027.
• Continue to focus on growing earnings and accelerating the achievement of a ROAA of 1%.
• Monitor and manage asset quality, particularly in small business lending and franchise finance portfolios, to sustain improving delinquency trends.
• Leverage strong loan pipelines in construction/investor commercial real estate, single tenant lease financing, and commercial & industrial for future growth.

Key Dates

Recommendation

The company reported a substantial net loss of $41.6 million and diluted loss per share of ($4.76) for the quarter, primarily due to a strategic loan sale and increased credit loss provisions. While these actions are intended to improve the balance sheet and credit profile for the long term, the immediate financial impact is negative. Positively, net interest income has grown for eight consecutive quarters, net interest margin expanded, and delinquencies are improving. The announced $25 million stock repurchase program could offer some support to the share price. Given the significant short-term financial hit for strategic repositioning, a 'hold' recommendation is warranted to allow investors to monitor the execution of these initiatives and the realization of future earnings growth.

Keywords

First Internet Bancorp, INBK, Q3 2025, Financial Results, Net Loss, Loan Sale, Stock Repurchase, Net Interest Margin, Credit Quality, Fintech Deposits, Banking, Financial Services, SEC Filing