First Internet Bancorp faced a difficult third quarter, marked by significant loan loss provisions and losses stemming from loan sales. Despite these setbacks, many of these issues are considered one-off events rather than systemic problems. The bank's stock is currently valued at a substantial discount compared to its tangible book value, presenting a potentially attractive entry point for investors. Looking ahead, management has expressed optimism for the fourth quarter, forecasting improvements in net interest income and pre-provision profits. While some uncertainties remain regarding potential loan loss provisions in Q4, the long-term earnings per share estimates for 2026 and 2027 are strong, suggesting a positive trajectory for the company.
First Internet Bancorp's (INBK) recent third-quarter results, released earlier this week, fell below market expectations, primarily due to large loan loss provisions and losses incurred from the sale of a portion of its portfolio to Blackstone. These financial adjustments, though impacting short-term performance, are largely non-recurring. The bank's management has indicated that these actions were part of a strategic cleanup process, aiming to strengthen its financial position for future growth. The sale of the loan portfolio, while generating immediate losses, was intended to streamline operations and reduce exposure to certain risk categories.
Currently, INBK shares are trading at approximately a 50% discount to their tangible book value. This significant valuation gap, coupled with management's forward-looking guidance, suggests that the market may be overly penalizing the stock for its past quarter's performance. Management has explicitly guided for an increase in net interest income and pre-provision profits in the upcoming fourth quarter, signaling a potential rebound in core operational performance. This anticipated improvement is a crucial factor for investors assessing the bank's future profitability and stability.
Despite the positive outlook for core earnings, the fourth quarter still carries some uncertainty, particularly regarding the potential for further loan loss provisions. However, the consensus estimates from analysts for First Internet Bancorp's earnings per share in 2026 and 2027 are notably strong. This long-term perspective provides a counterbalance to any lingering short-term concerns, highlighting the underlying value and growth potential that analysts see in the company post-restructuring. The bank's strategic initiatives, while causing temporary pain, are expected to pave the way for sustained financial health and increased shareholder value in the coming years.
Considering these factors, I have established a long position in INBK common shares and augmented my holdings in its baby bonds. The current valuation, which heavily discounts the company's assets and future earning potential, presents an appealing risk-reward scenario. The recent financial adjustments, aimed at cleaning up the balance sheet, appear to have created a favorable entry point for investors willing to look beyond the immediate challenges and focus on the bank's long-term recovery and growth prospects.
The financial institution recently announced its third-quarter outcomes, which, despite anticipations of a downturn following a loan portfolio divestiture, proved to be more challenging than projected. The market's reaction has led to a considerable undervaluation of the bank's stock, now trading at a substantial discount to its intrinsic asset value. However, the management team has provided forward-looking statements that suggest a more favorable financial landscape for the fourth quarter, with expected improvements in key profitability metrics. While the short-term outlook still grapples with potential contingencies related to loan provisions, the robust earnings forecasts for the years 2026 and 2027 underpin a confident long-term investment perspective, positioning the company for a favorable recovery and growth trajectory.