First Internet Bank ending consumer-direct mortgage operations

Another lender is ending its consumer mortgage business following the massive decline in application activity.

First Internet Bank, a digital depository, is shutting its direct-to-consumer operations in the first quarter this year, its parent company said in a fourth quarter earnings report last week. The firm spent the last 60 days cutting expenses including sales, marketing and payroll but couldn't reach a breakeven point, CEO David Becker said in an earnings conference call.

"It fell off so dramatically that we couldn't make sense out of it to have that kind of a loss for that long a period of time," he said last week.

The lender reported $$408.7 million in residential mortgage balances in the fourth quarter, an 11% gain over the prior period and a 6.5% increase from the same time in 2021. Of that $408.7 million, $24 million was in home equity loans, the bank reported. The depository is shifting its origination efforts to floating rate loan products, commercial construction and small business lending.

It's the latest pullback by a mortgage player in the new year as lenders reckon with volume down approximately 54% year-over-year, although activity has been slightly elevated in recent weeks. Other companies pulling back mortgage business or cutting payroll include Louisiana-based Renasant Bank, Rocket Mortgage and USAA.

First Internet Bancorp didn't say whether it laid off mortgage professionals, but Becker suggested employees are departing.

"And as you know, the market nationally is just blowing up," he said. "So there's not a lot of great opportunities, staring them in the face in the industry they've been a part of for years."

The mortgage exit is expected to reduce First Internet Bancorp's total annual non interest expenses by approximately $6.8 million. At the same time, the move will increase annualized pre-tax income by approximately $2.7 million, with 80% of the benefit realized this year. 

The exit is also expected to incur pre-tax expenses of approximately $3.3 million in the first and second quarters of this year. In the fourth quarter, First Internet Bancorp reported net income of $6.4 million; for the year, the bank reported net income of $35.5 million. That was a decline from $48.1 million in net income in 2021.

First Internet Bancorp was founded in 1999 by Becker and claims to be the first state-chartered, FDIC-insured business to operate entirely online. It is headquartered in Fishers, Indiana, 25 minutes north of Indianapolis, and counts 279 employees on LinkedIn.